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1. G.R. No.

L-23645 October 29, 1968 for delivery in this country or abroad, shall be
BENJAMIN P. GOMEZ, petitioner-appellee, accepted for mailing unless it bears at least one such
vs. semi-postal stamp showing the additional value of
ENRICO PALOMAR, in his capacity as Postmaster five centavos intended for the Philippine
General, HON. BRIGIDO R. VALENCIA, in his capacity Tuberculosis Society.
as Secretary of Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as Acting Postmaster In the case of second-class mails and mails prepaid
of San Fernando, Pampanga, respondent-appellants. by means of mail permits or impressions of postage
meters, each piece of such mail shall bear at least one
Lorenzo P. Navarro and Narvaro Belar S. Navarro for such semi-postal stamp if posted during the period
petitioner-appellee. above stated starting with the year 1958, in addition
Office of the Solicitor General Arturo A. Alafriz, Assistant to being charged the usual postage prescribed by
Solicitor General Frine C. Zaballero and Solicitor Dominador existing regulations. In the case of business reply
L. Quiroz for respondents-appellants. envelopes and cards mailed during said period, such
CASTRO, J.: stamp should be collected from the addressees at the
time of delivery. Mails entitled to franking privilege
This appeal puts in issue the constitutionality of Republic Act like those from the office of the President, members
1635,1 as amended by Republic Act 2631,2 which provides as of Congress, and other offices to which such
follows: privilege has been granted, shall each also bear one
such semi-postal stamp if posted during the said
To help raise funds for the Philippine Tuberculosis period.
Society, the Director of Posts shall order for the
period from August nineteen to September thirty Mails posted during the said period starting in 1958,
every year the printing and issue of semi-postal which are found in street or post-office mail boxes
stamps of different denominations with face value without the required semi-postal stamp, shall be
showing the regular postage charge plus the returned to the sender, if known, with a notation
additional amount of five centavos for the said calling for the affixing of such stamp. If the sender is
purpose, and during the said period, no mail matter unknown, the mail matter shall be treated as
shall be accepted in the mails unless it bears such nonmailable and forwarded to the Dead Letter Office
semi-postal stamps: Provided, That no such for proper disposition.
additional charge of five centavos shall be imposed
on newspapers. The additional proceeds realized Adm. Order 7, amending the fifth paragraph of Adm. Order 3,
from the sale of the semi-postal stamps shall reads as follows:
constitute a special fund and be deposited with the
National Treasury to be expended by the Philippine In the case of the following categories of mail matter
Tuberculosis Society in carrying out its noble work to and mails entitled to franking privilege which are not
prevent and eradicate tuberculosis. exempted from the payment of the five centavos
intended for the Philippine Tuberculosis Society,
The respondent Postmaster General, in implementation of the such extra charge may be collected in cash, for which
law, thereafter issued four (4) administrative orders numbered official receipt (General Form No. 13, A) shall be
3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), issued, instead of affixing the semi-postal stamp in
and 10 (July 15, 1960). All these administrative orders were the manner hereinafter indicated:
issued with the approval of the respondent Secretary of Public
Works and Communications. 1. Second-class mail. Aside from the postage at
the second-class rate, the extra charge of five
The pertinent portions of Adm. Order 3 read as follows: centavos for the Philippine Tuberculosis Society shall
be collected on each separately-addressed piece of
Such semi-postal stamps could not be made available second-class mail matter, and the total sum thus
during the period from August 19 to September 30, collected shall be entered in the same official receipt
1957, for lack of time. However, two denominations to be issued for the postage at the second-class rate.
of such stamps, one at "5 + 5" centavos and another In making such entry, the total number of pieces of
at "10 + 5" centavos, will soon be released for use by second-class mail posted shall be stated, thus: "Total
the public on their mails to be posted during the same charge for TB Fund on 100 pieces . .. P5.00." The
period starting with the year 1958. extra charge shall be entered separate from the
postage in both of the official receipt and the Record
xxx xxx xxx of Collections.
During the period from August 19 to September 30
each year starting in 1958, no mail matter of 2. First-class and third-class mail permits. Mails
whatever class, and whether domestic or foreign, to be posted without postage affixed under permits
posted at any Philippine Post Office and addressed issued by this Bureau shall each be charged the usual
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postage, in addition to the five-centavo extra charge implementing administrative orders issued, contending that it
intended for said society. The total extra charge thus violates the equal protection clause of the Constitution as well
received shall be entered in the same official receipt as the rule of uniformity and equality of taxation. The lower
to be issued for the postage collected, as in court declared the statute and the orders unconstitutional;
subparagraph 1. hence this appeal by the respondent postal authorities.

3. Metered mail. For each piece of mail matter For the reasons set out in this opinion, the judgment appealed
impressed by postage meter under metered mail from must be reversed.
permit issued by this Bureau, the extra charge of five
centavos for said society shall be collected in cash I.
and an official receipt issued for the total sum thus Before reaching the merits, we deem it necessary to dispose of
received, in the manner indicated in subparagraph 1. the respondents' contention that declaratory relief is unavailing
because this suit was filed after the petitioner had committed a
4. Business reply cards and envelopes. Upon breach of the statute. While conceding that the mailing by the
delivery of business reply cards and envelopes to petitioner of a letter without the additional anti-TB stamp was
holders of business reply permits, the five-centavo a violation of Republic Act 1635, as amended, the trial court
charge intended for said society shall be collected in nevertheless refused to dismiss the action on the ground that
cash on each reply card or envelope delivered, in under section 6 of Rule 64 of the Rules of Court, "If before the
addition to the required postage which may also be final termination of the case a breach or violation of ... a
paid in cash. An official receipt shall be issued for the statute ... should take place, the action may thereupon be
total postage and total extra charge received, in the converted into an ordinary action."
manner shown in subparagraph 1.
The prime specification of an action for declaratory relief is
5. Mails entitled to franking privilege. that it must be brought "before breach or violation" of the
Government agencies, officials, and other persons statute has been committed. Rule 64, section 1 so provides.
entitled to the franking privilege under existing laws Section 6 of the same rule, which allows the court to treat an
may pay in cash such extra charge intended for said action for declaratory relief as an ordinary action, applies only
society, instead of affixing the semi-postal stamps to if the breach or violation occurs after the filing of the action
their mails, provided that such mails are presented at but before the termination thereof.3
the post-office window, where the five-centavo extra
charge for said society shall be collected on each Hence, if, as the trial court itself admitted, there had been a
piece of such mail matter. In such case, an official breach of the statute before the firing of this action, then
receipt shall be issued for the total sum thus indeed the remedy of declaratory relief cannot be availed of,
collected, in the manner stated in subparagraph 1. much less can the suit be converted into an ordinary action.

Mail under permits, metered mails and franked mails Nor is there merit in the petitioner's argument that the mailing
not presented at the post-office window shall be of the letter in question did not constitute a breach of the
affixed with the necessary semi-postal stamps. If statute because the statute appears to be addressed only to
found in mail boxes without such stamps, they shall postal authorities. The statute, it is true, in terms provides that
be treated in the same way as herein provided for "no mail matter shall be accepted in the mails unless it bears
other mails. such semi-postal stamps." It does not follow, however, that
only postal authorities can be guilty of violating it by
Adm. Order 9, amending Adm. Order 3, as amended, exempts accepting mails without the payment of the anti-TB stamp. It
"Government and its Agencies and Instrumentalities is obvious that they can be guilty of violating the statute only
Performing Governmental Functions." Adm. Order 10, if there are people who use the mails without paying for the
amending Adm. Order 3, as amended, exempts "copies of additional anti-TB stamp. Just as in bribery the mere offer
periodical publications received for mailing under any class of constitutes a breach of the law, so in the matter of the anti-TB
mail matter, including newspapers and magazines admitted as stamp the mere attempt to use the mails without the stamp
second-class mail." constitutes a violation of the statute. It is not required that the
mail be accepted by postal authorities. That requirement is
The FACTS. On September l5, 1963 the petitioner Benjamin relevant only for the purpose of fixing the liability of postal
P. Gomez mailed a letter at the post office in San Fernando, officials.
Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not Nevertheless, we are of the view that the petitioner's choice of
bear the special anti-TB stamp required by the statute, it was remedy is correct because this suit was filed not only with
returned to the petitioner. respect to the letter which he mailed on September 15, 1963,
but also with regard to any other mail that he might send in the
In view of this development, the petitioner brough suit for future. Thus, in his complaint, the petitioner prayed that due
declaratory relief in the Court of First Instance of Pampanga, course be given to "other mails without the semi-postal stamps
to test the constitutionality of the statute, as well as the which he may deliver for mailing ... if any, during the period
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covered by Republic Act 1635, as amended, as well as other We are not wont to invalidate legislation on equal protection
mails hereafter to be sent by or to other mailers which bear the grounds except by the clearest demonstration that it sanctions
required postage, without collection of additional charge of invidious discrimination, which is all that the Constitution
five centavos prescribed by the same Republic Act." As one forbids. The remedy for unwise legislation must be sought in
whose mail was returned, the petitioner is certainly interested the legislature. Now, the classification of mail users is not
in a ruling on the validity of the statute requiring the use of without any reason. It is based on ability to pay, let alone the
additional stamps. enjoyment of a privilege, and on administrative convinience.
In the allocation of the tax burden, Congress must have
II. concluded that the contribution to the anti-TB fund can be
We now consider the constitutional objections raised against assured by those whose who can afford the use of the mails.
the statute and the implementing orders.
The classification is likewise based on considerations of
1. It is said that the statute is violative of the equal protection administrative convenience. For it is now a settled principle of
clause of the Constitution. More specifically the claim is made law that "consideration of practical administrative
that it constitutes mail users into a class for the purpose of the convenience and cost in the administration of tax laws afford
tax while leaving untaxed the rest of the population and that adequate ground for imposing a tax on a well recognized and
even among postal patrons the statute discriminatorily grants defined class."9 In the case of the anti-TB stamps,
exemption to newspapers while Administrative Order 9 of the undoubtedly, the single most important and influential
respondent Postmaster General grants a similar exemption to consideration that led the legislature to select mail users as
offices performing governmental functions. . subjects of the tax is the relative ease and convenienceof
collecting the tax through the post offices. The small amount
The five centavo charge levied by Republic Act 1635, as of five centavos does not justify the great expense and
amended, is in the nature of an excise tax, laid upon the inconvenience of collecting through the regular means of
exercise of a privilege, namely, the privilege of using the collection. On the other hand, by placing the duty of collection
mails. As such the objections levelled against it must be on postal authorities the tax was made almost self-enforcing,
viewed in the light of applicable principles of taxation. with as little cost and as little inconvenience as possible.

To begin with, it is settled that the legislature has the inherent And then of course it is not accurate to say that the statute
power to select the subjects of taxation and to grant constituted mail users into a class. Mail users were already a
exemptions.4 This power has aptly been described as "of wide class by themselves even before the enactment of the statue
range and flexibility."5 Indeed, it is said that in the field of and all that the legislature did was merely to select their class.
taxation, more than in other areas, the legislature possesses the Legislation is essentially empiric and Republic Act 1635, as
greatest freedom in classification.6 The reason for this is that amended, no more than reflects a distinction that exists in fact.
traditionally, classification has been a device for fitting tax As Mr. Justice Frankfurter said, "to recognize differences that
programs to local needs and usages in order to achieve an exist in fact is living law; to disregard [them] and concentrate
equitable distribution of the tax burden.7 on some abstract identities is lifeless logic."10

That legislative classifications must be reasonable is of course Granted the power to select the subject of taxation, the State's
undenied. But what the petitioner asserts is that statutory power to grant exemption must likewise be conceded as a
classification of mail users must bear some reasonable necessary corollary. Tax exemptions are too common in the
relationship to the end sought to be attained, and that absent law; they have never been thought of as raising issues under
such relationship the selection of mail users is constitutionally the equal protection clause.
impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8 It is thus erroneous for the trial court to hold that because
certain mail users are exempted from the levy the law and
While the principle that there must be a reasonable administrative officials have sanctioned an invidious
relationship between classification made by the discrimination offensive to the Constitution. The application
legislation and its purpose is undoubtedly true in of the lower courts theory would require all mail users to be
some contexts, it has no application to a measure taxed, a conclusion that is hardly tenable in the light of
whose sole purpose is to raise revenue ... So long as differences in status of mail users. The Constitution does not
the classification imposed is based upon some require this kind of equality.
standard capable of reasonable comprehension, be
that standard based upon ability to produce revenue As the United States Supreme Court has said, the legislature
or some other legitimate distinction, equal protection may withhold the burden of the tax in order to foster what it
of the law has been afforded. See Allied Stores of conceives to be a beneficent enterprise.11 This is the case of
Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. newspapers which, under the amendment introduced by
Ct. at 441; Brown Forman Co. v. Commonwealth of Republic Act 2631, are exempt from the payment of the
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910). additional stamp.

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As for the Government and its instrumentalities, their extent. Valuation is not the only thing to be
exemption rests on the State's sovereign immunity from considered. As was pointed out by the court of
taxation. The State cannot be taxed without its consent and appeals, the familiar stamp tax of 2 cents on checks,
such consent, being in derogation of its sovereignty, is to be irrespective of income or earning capacity, and many
strictly construed.12 Administrative Order 9 of the respondent others, illustrate the necessity and practice of
Postmaster General, which lists the various offices and sometimes substituting count for weight ...17
instrumentalities of the Government exempt from the payment
of the anti-TB stamp, is but a restatement of this well-known According to the trial court, the money raised from the sales of
principle of constitutional law. the anti-TB stamps is spent for the benefit of the Philippine
Tuberculosis Society, a private organization, without
The trial court likewise held the law invalid on the ground that appropriation by law. But as the Solicitor General points out,
it singles out tuberculosis to the exclusion of other diseases the Society is not really the beneficiary but only the agency
which, it is said, are equally a menace to public health. But it through which the State acts in carrying out what is essentially
is never a requirement of equal protection that all evils of the a public function. The money is treated as a special fund and
same genus be eradicated or none at all.13 As this Court has as such need not be appropriated by law.18
had occasion to say, "if the law presumably hits the evil where
it is most felt, it is not to be overthrown because there are 3. Finally, the claim is made that the statute is so broadly
other instances to which it might have been applied."14 drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is
2. The petitioner further argues that the tax in question is one of the grounds on which the lower court invalidated
invalid, first, because it is not levied for a public purpose as no Republic Act 1631, as amended, namely, that it constitutes an
special benefits accrue to mail users as taxpayers, and second, undue delegation of legislative power.
because it violates the rule of uniformity in taxation.
Administrative Order 3, as amended by Administrative Orders
The eradication of a dreaded disease is a public purpose, but if 7 and 10, provides that for certain classes of mail matters
by public purpose the petitioner means benefit to a taxpayer as (such as mail permits, metered mails, business reply cards,
a return for what he pays, then it is sufficient answer to say etc.), the five-centavo charge may be paid in cash instead of
that the only benefit to which the taxpayer is constitutionally the purchase of the anti-TB stamp. It further states that mails
entitled is that derived from his enjoyment of the privileges of deposited during the period August 19 to September 30 of
living in an organized society, established and safeguarded by each year in mail boxes without the stamp should be returned
the devotion of taxes to public purposes. Any other view to the sender, if known, otherwise they should be treated as
would preclude the levying of taxes except as they are used to nonmailable.
compensate for the burden on those who pay them and would
involve the abandonment of the most fundamental principle of It is true that the law does not expressly authorize the
government that it exists primarily to provide for the collection of five centavos except through the sale of anti-TB
common good.15 stamps, but such authority may be implied in so far as it may
be necessary to prevent a failure of the undertaking. The
Nor is the rule of uniformity and equality of taxation infringed authority given to the Postmaster General to raise funds
by the imposition of a flat rate rather than a graduated tax. A through the mails must be liberally construed, consistent with
tax need not be measured by the weight of the mail or the the principle that where the end is required the appropriate
extent of the service rendered. We have said that means are given.19
considerations of administrative convenience and cost afford
an adequate ground for classification. The same considerations The anti-TB stamp is a distinctive stamp which shows on its
may induce the legislature to impose a flat tax which in effect face not only the amount of the additional charge but also that
is a charge for the transaction, operating equally on all persons of the regular postage. In the case of business reply cards, for
within the class regardless of the amount involved. 16 As Mr. instance, it is obvious that to require mailers to affix the anti-
Justice Holmes said in sustaining the validity of a stamp act TB stamp on their cards would be to make them pay much
which imposed a flat rate of two cents on every $100 face more because the cards likewise bear the amount of the
value of stock transferred: regular postage.

One of the stocks was worth $30.75 a share of the It is likewise true that the statute does not provide for the
face value of $100, the other $172. The inequality of disposition of mails which do not bear the anti-TB stamp, but
the tax, so far as actual values are concerned, is a declaration therein that "no mail matter shall be accepted in
manifest. But, here again equality in this sense has to the mails unless it bears such semi-postal stamp" is a
yield to practical considerations and usage. There declaration that such mail matter is nonmailable within the
must be a fixed and indisputable mode of meaning of section 1952 of the Administrative Code.
ascertaining a stamp tax. In another sense, moreover, Administrative Order 7 of the Postmaster General is but a
there is equality. When the taxes on two sales are restatement of the law for the guidance of postal officials and
equal, the same number of shares is sold in each case; employees. As for Administrative Order 9, we have already
that is to say, the same privilege is used to the same said that in listing the offices and entities of the Government
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exempt from the payment of the stamp, the respondent company's books as debit to CASH, and credit to
Postmaster General merely observed an established principle, Expense Account No. 2516-20 (p. 18, t.s.n.).
namely, that the Government is exempt from taxation.
The credit for storage charges decreased the
ACCORDINGLY, the judgment a quo is reversed, and the deductible expense resulting in the corresponding
complaint is dismissed, without pronouncement as to costs. increase of the taxable income of the petitioner. This
is reflected by the entries enclosed in parenthesis in
2. G.R. No. L-16315 May 30, 1964 Exhibit "G", under the heading "Storage Charges".
COMMISSIONER OF INTERNAL (P. 18, t.s.n.) The alleged reason for this accounting
REVENUE, petitioner, operation is that, inasmuch as the "Sugar Bodega
vs. Operations" is considered as an expense account,
HAWAIIAN-PHILIPPINE COMPANY, respondent. entries under it are "debits". Similarly, since "Storage
Office of the Solicitor General for petitioner. Charges" constitute "credit", the corresponding
Hilado and Hilado for respondent. figures (see Exhibit "C") are enclosed in parenthesis
as they decrease the expenses of maintaining the
sugar warehouses.
DIZON, J.:
This is a petition filed by the Commissioner of Internal Upon investigation conducted by the Bureau, it was
Revenue for the review of the decision of the Court of Tax found that during the years 1949 to 1957, the
Appeals in C.T.A. Case No. 598 ordering him to refund to petitioner realized from collected storage fees a total
respondent Hawaiian-Philippine Company the amount of gross receipts of P212,853.00, on the basis of which
P8,411.99 representing fixed and percentage taxes assessed the respondent determined the petitioner's liability for
against it and which the latter had deposited with the City fixed and percentage taxes, 25% surcharge, and
Treasurer of Silay, Occidental Negros. administrative penalty in the aggregate amount of
P8,411.99 (Exhibit "5", p. 11, BIR rec.)
The undisputed facts of this ease, as found by the Court of Tax
Appeals, are as follows: On October 20, 1958, the petitioner deposited the
amount of P8,411.99 with the Office of the City
The petitioner, a corporation duly organized in Treasurer of Silay. (Exhibits "I" and "I-1", pp. 59-60,
accordance with law, is operating a sugar central in CTA rec.) Later, it filed its petition for review before
the City of Silay, Occidental Negros. It produces this Court (Exhibit "K", p. 25, CTA rec.)
centrifugal sugar from sugarcane supplied by
planters. The processed sugar is divided between the After due hearing the Court of Tax Appeals rendered the
planters and the petitioner in the proportion stipulated appealed decision.
in the milling contracts, and thereafter is deposited in
the warehouses of the latter. (Pp. 4-5, t.s.n.) For the The only issue to be resolved in the case at bar is whether or
sugar deposited by the planters, the petitioner issues not, upon the facts stated above, petitioner is a warehouseman
the corresponding warehouse receipts of "quedans". liable for the payment of the fixed and percentage taxes
It does not collect storage charges on the sugar prescribed in Sections 182 and 191 of the National Internal
deposited in its warehouse during the first 90 days Revenue Code which read as follows:
period counted from the time it is extracted from the
sugarcane. Upon the lapse of the first ninety days and SEC. 182. FIXED TAXES (a) ON BUSINESS (1)
up to the beginning of the next milling season, it PERSONS SUBJECT TO PERCENTAGE TAX.
collects a fee of P0.30 per picul a month. Henceforth, Unless otherwise provided every person engaging in
if the sugar is not yet withdrawn, a penalty of P0.25 a business on which the percentage tax is imposed
per picul or fraction thereof a month is imposed. shall pay a fixed annual tax of twenty pesos. ... .
(Exhibits "B-1", "C-1", "D-1", "B-2", "C-2", p. 10, SEC. 191. PERCENTAGE TAX ON ROAD,
t.s.n.) BUILDING, IRRIGATION, ARTESIAN WELL,
WATERWORKS, AND OTHER CONSTRUCTION
The storage of sugar is carried in the books of the WORK CONTRACTORS, PROPRIETORS OR
company under Account No. 5000, denominated OPERATORS OF DOCKYARD, AND OTHERS. ...
"Manufacturing Cost Ledger Control"; the storage warehousemen; plumbers, smiths; house or sign
fees under Account No. 521620; the expense painters; lithographers, publishers, except those
accounts of the factory under Account No. 5200; and engaged in the publication or printing and publication
the so-called "Sugar Bodega Operations" under of any newspaper, magazine, review or bulletin
Account No. 5216, under which is a Sub-Account which appear at regular intervals with fixed prices for
No. 20, captioned, "Credits". (Pp. 16-17, t.s.n., subscription and sale, and which is not devoted
Exhibit "F".) The collections from storage after the principally to the publication of advertisements;
lapse of the first 90 days period are entered in the printers and bookbinders, business agents and other

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independent contractors, shall pay a tax equivalent to We have ruled that there is no prohibition against double or
THREE PERCENTUM of their gross receipts. ... . multiple taxation in this jurisdiction.

Respondent disclaims liability under the provisions quoted WHEREFORE, the decision appealed from is reversed and set
above, alleging that it is not engaged the business of storing its aside, with costs.
planters' sugar for profit; that the maintenance of its
warehouses is merely incidental to its business of
manufacturing sugar and in compliance with its obligation to 3. [G.R. No. 131359. May 5, 1999]
its planters. We find this to be without merit. MANILA ELECTRIC COMPANY, petitioner
vs. PROVINCE OF LAGUNA and BENITO R.
It is clear from the facts of the case that, after manufacturing BALAZO, in his capacity as Provincial Treasurer
the sugar of its planters, respondent stores it in its warehouses of Laguna, respondents.
and issues the corresponding "quedans" to the planters who DECISION
own the sugar; that while the sugar is stored free during the VITUG, J.:
first ninety days from the date the it "quedans" are issued, the
undisputed fact is that, upon the expiration of said period, On various dates, certain municipalities of the Province
respondent charger, and collects storage fees; that for the of Laguna including, Bian, Sta Rosa, San Pedro, Luisiana,
period beginning 1949 to 1957, respondent's total gross Calauan and Cabuyao, by virtue of existing laws then in
receipts from this particular enterprise amounted to effect, issued resolutions through their respective municipal
P212,853.00. councils granting franchise in favor of petitioner Manila
Electric Company (MERALCO) for the supply of electric
A warehouseman has been defined as one who receives and light, heat and power within their concerned areas. On 19
stores goods of another for compensation (44 Words and January 1983, MERALCO was likewise granted a franchise
Phrases, p. 635). For one to be considered engaged in the by the National Electrification Administration to operate an
warehousing business, therefore, it is sufficient that he electric light and power service in the Municipality of
receives goods owned by another for storage, and collects fees Calamba, Laguna.
in connection with the same. In fact, Section 2 of the General
Bonded Warehouse Act, as amended, defines a warehouseman On 12 September 1991, Republic Act No. 7160,
as "a person engaged in the business of receiving commodity otherwise known as the Local Government Code of 1991, was
for storage." enacted to take effect on 01 January 1992 enjoining local
government units to create their own sources of revenue and to
That respondent stores its planters' sugar free of charge for the levy taxes, fees and charges, subject to the limitations
first ninety days does not exempt it from liability under the expressed therein, consistent with the basic policy of local
legal provisions under consideration. Were such fact sufficient autonomy. Pursuant to the provisions of the Code, respondent
for that purpose, the law imposing the tax would be rendered province enacted Laguna Provincial Ordinance No. 01-92,
ineffectual. 1wph1.t effective 01 January 1993, providing, in part, as follows:

Neither is the fact that respondent's warehousing business is Sec. 2.09. Franchise Tax. There is hereby imposed a tax on
carried in addition to, or in relation with, the operation of its businesses enjoying a franchise, at a rate of fifty percent
sugar central sufficient to exempt it from payment of the tax (50%) of one percent (1%) of the gross annual receipts, which
prescribed in the legal provisions quoted heretofore Under shall include both cash sales and sales on account realized
Section 178 of the National Internal Revenue Code, the tax on during the preceding calendar year within this province,
business is payable for every separate or distinct establishment including the territorial limits on any city located in the
or place where business subject to the tax is conducted, and province[1]
one line of business or occupation does not become exempt by
being conducted with some other business or occupation for On the basis of the above ordinance, respondent
which such tax has been paid. Provincial Treasurer sent a demand letter to MERALCO for
the corresponding tax payment. Petitioner MERALCO paid
Lastly, respondent's contention that the imposition of the tax the tax, which then amounted to P19,520,628.42, under
under consideration would amount to double taxation is protest. A formal claim for refund was thereafter sent by
likewise without merit. As is clear from the facts, respondent's MERALCO to the Provincial Treasurer of Laguna claiming
warehousing business, although carried on in relation to the that the franchise tax it had paid and continued to pay to the
operation of its sugar central, is a distinct and separate National Government pursuant to P.D. 551 already included
business taxable under a different provision of the Tax Code. the franchise tax imposed by the Provincial Tax
There can be no double taxation where the State merely Ordinance. MERALCO contended that the imposition of a
imposes a tax on every separate and distinct business in which franchise tax under Section 2.09 of Laguna Provincial
a party is engaged. Moreover, in Manufacturers Life insurance Ordinance No. 01-92, insofar as it concerned MERALCO,
Co. vs. Meer, G.R. No. L-2910, June 29, 1951; City of Manila contravened the provisions of Section 1 of P.D. 551 which
vs. Inter-Island Gas service, G.R. L-8799, August 31, 1956, read:

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Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of 3. Whether the doctrine of exhaustion of administrative
franchises to generate, distribute and sell electric current for remedies is applicable in this case.[3]
light, heat and power shall be two per cent (2%) of their gross The petition lacks merit.
receipts received from the sale of electric current and from
transactions incident to the generation, distribution and sale of Prefatorily, it might be well to recall that local
electric current. governments do not have the inherent power to tax[4] except
to the extent that such power might be delegated to them
Such franchise tax shall be payable to the Commissioner of either by the basic law or by statute.Presently, under Article X
Internal Revenue or his duly authorized representative on or of the 1987 Constitution, a general delegation of that power
before the twentieth day of the month following the end of has been given in favor of local government units. Thus:
each calendar quarter or month, as may be provided in the
respective franchise or pertinent municipal regulation and Sec. 3. The Congress shall enact a local government code
shall, any provision of the Local Tax Code or any other law to which shall provide for a more responsive and accountable
the contrary notwithstanding, be in lieu of all taxes and local government structure instituted through a system of
assessments of whatever nature imposed by any national or decentralization with effective mechanisms of recall,
local authority on earnings, receipts, income and privilege of initiative, and referendum, allocate among the different local
generation, distribution and sale of electric current. government units their powers, responsibilities, and resources,
and provide for the qualifications, election, appointment and
On 28 August 1995, the claim for refund of petitioner removal, term, salaries, powers and functions, and duties of
was denied in a letter signed by Governor Jose D. Lina. In local officials, and all other matters relating to the
denying the claim, respondents relied on a more recent organization and operation of the local units.
law, i.e., Republic Act No. 7160 or the Local Government xxxxxxxxx
Code of 1991, than the old decree invoked by petitioner.
Sec. 5. Each local government shall have the power to create
On 14 February 1996, petitioner MERALCO filed with its own sources of revenues and to levy taxes, fees, and
the Regional Trial Court of Sta Cruz, Laguna, a complaint for charges subject to such guidelines and limitations as the
refund, with a prayer for the issuance of a writ of preliminary Congress may provide, consistent with the basic policy of
injunction and/or temporary restraining order, against the local autonomy. Such taxes, fees and charges shall accrue
Province of Laguna and also Benito R. Balazo in his capacity exclusively to the local governments.
as the Provincial Treasurer of Laguna. Aside from the amount
of P19,520,628.42 for which petitioner MERALCO had The 1987 Constitution has a counterpart provision in the 1973
priority made a formal request for refund, petitioner thereafter Constitution which did come out with a similar delegation of
likewise made additional payments under protest on various revenue making powers to local governments.[5]
dates totaling P27,669,566.91.
Under the regime of the 1935 Constitution no similar
The trial court, in its assailed decision of 30 September delegation of tax powers was provided, and local government
1997, dismissed the complaint and concluded: units instead derived their tax powers under a limited statutory
authority. Whereas, then, the delegation of tax powers granted
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING at that time by statute to local governments was confined and
CONSIDERATIONS, JUDGMENT is hereby rendered in defined (outside of which the power was deemed withheld),
favor of the defendants and against the plaintiff, by: the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers
subject only to specific exceptions that the law might
1. Ordering the dismissal of the Complaint; and prescribe.
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as
valid, binding, reasonable and enforceable.[2] Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax power
In the instant petition, MERALCO assails the above must be deemed to exist although Congress may provide
ruling and brings up the following issues; viz: statutory limitations and guidelines. The basic rationale for
the current rule is to safeguard the viability and self-
1. Whether the imposition of a franchise tax under Section sufficiency of local government units by directly granting
2.09 of Laguna Provincial Ordinance No. 01-92, insofar as them general and broad tax powers. Nevertheless, the
petitioner is concerned, is violative of the non-impairment fundamental law did not intend the delegation to be absolute
clause of the Constitution and Section 1 of Presidential Decree and unconditional; the constitutional objective obviously is to
No. 551. ensure that, while the local government units are being
strengthened and made more autonomous,[6] the legislature
2. Whether Republic Act. No. 7160, otherwise known as the must still see to it that (a) the taxpayer will not be over-
Local Government Code of 1991, has repealed, amended or burdened or saddled with multiple and unreasonable
modified Presidential Decree No. 551. impositions; (b) each local government unit will have its fair
7
share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local x x x These policy considerations are consistent with the State
taxation will be fair, uniform, and just. policy to ensure autonomy to local governments and the
objective of the LGC that they enjoy genuine and meaningful
The Local Government Code of 1991 has incorporated local autonomy to enable them to attain their fullest
and adopted, by and large the provisions of the now repealed development as self-reliant communities and make them
Local Tax Code, which had been in effect since 01 July 1973, effective partners in the attainment of national goals. The
promulgated into law by Presidential Decree No. power to tax is the most effective instrument to raise needed
231[7] pursuant to the then provisions of Section 2, Article XI, revenues to finance and support myriad activities of local
of the 1973 Constitution. The 1991 Code explicitly authorizes government units for the delivery of basic service essential to
provincial governments, notwithstanding any exemption the promotion of the general welfare and the enhancement of
granted by any law or other special law, x x x (to) impose a peace, progress, and prosperity of the people. It may also be
tax on businesses enjoying a franchise. Section 137 thereof relevant to recall that the original reasons for the withdrawal
provides: of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government were
Sec. 137. Franchise Tax Notwithstanding any exemption that such privilege resulted in serious tax base erosion and
granted by any law or other special law, the province may distortions in the tax treatment of similarly situated
impose a tax on businesses enjoying a franchise, at a rate not enterprises, and there was a need for these entities to share in
exceeding fifty percent (50%) of one percent (1%) of the gross the requirements of development, fiscal or otherwise, by
annual receipts for the preceding calendar year based on the paying the taxes and other charges due from them.[10]
incoming receipt, or realized, within its territorial
jurisdiction. In the case of a newly started business, the tax Petitioner in its complaint before the Regional Trial
shall not exceed one-twentieth (1/20) of one percent (1%) of Court cited the ruling of this Court in Province of Misamis
the capital investment. In the succeeding calendar year, Oriental vs. Cagayan Electric Power and Light Company,
regardless of when the business started to operate, the tax shall Inc.;[11] thus:
be based on the gross receipts for the preceding calendar year,
or any fraction thereof, as provided herein. (Underscoring In an earlier case, the phrase shall be in lieu of all taxes and at
supplied for emphasis) any time levied, established by, or collected by any authority
found in the franchise of the Visayan Electric Company was
Indicative of the legislative intent to carry out the held to exempt the company from payment of the 5% tax on
Constitutional mandate of vesting broad tax powers to local corporate franchise provided in Section 259 of the Internal
government units, the Local Government Code has effectively Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No.
withdrawn under Section 193 thereof, tax exemptions or 4] 1385)
incentives theretofore enjoyed by certain entities. This law
states: Similarly, we ruled that the provision: shall be in lieu of all
taxes of every name and nature in the franchise of the Manila
Section 193 Withdrawal of Tax Exemption Privileges Unless Railroad (Subsection 12, Section 1, Act No. 1510) exempts
otherwise provided in this Code, tax exemptions or incentives the Manila Railroad from payment of internal revenue tax for
granted to, or presently enjoyed by all persons, whether its importations of coal and oil under Act No. 2432 and the
natural or juridical, including government-owned or controlled Amendatory Acts of the Philippine Legislature (Manila
corporations, except local water districts, cooperatives duly Railroad vs. Rafferty, 40 Phil. 224).
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn The same phrase found in the franchise of the Philippine
upon the effectivity of this Code. (Underscoring supplied for Railway Co. (Sec. 13, Act No. 1497) justified the exemption
emphasis) of the Philippine Railway Company from payment of the tax
on its corporate franchise under Section 259 of the Internal
The Code, in addition, contains a general repealing Revenue Code, as amended by R.A. No. 39 (Philippine
clause in its Section 534; thus: Railway Co vs. Collector of Internal Revenue, 91 Phil. 35).

Section 534. Repealing Clause. x x x. Those magic words, shall be in lieu of all taxes also excused
(f) All general and special laws, acts, city charters, decrees, the Cotabato Light and Ice Plant Company from the payment
executive orders, proclamations and administrative of the tax imposed by Ordinance No. 7 of the City of Cotabato
regulations, or part or parts thereof which are inconsistent with (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA
any of the provisions of this Code are hereby repealed or 231).
modified accordingly. (Underscoring supplied for emphasis)[8]
So was the exemption upheld in favor of the Carcar Electric
To exemplify, in Mactan Cebu International Airport and Ice Plant Company when it was required to pay the
Authority vs. Marcos,[9] the Court upheld the withdrawal of the corporate franchise tax under Section 259 of the Internal
real estate tax exemption previously enjoyed by Mactan Cebu Revenue Code as amended by R.A. No. 39 (Carcar Electric &
International Airport Authority. The Court ratiocinated: Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]
8
1068). This Court pointed out that such exemption is part of 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which
the inducement for the acceptance of the franchise and the affirmed the decision of the Central Board of Assessment
rendition of public service by the grantee.[12] Appeals holding that the lot owned by the petitioner and its
hospital building constructed thereon are subject to assessment
In the recent case of the City Government of San Pablo, for purposes of real property tax.
etc., et al. vs. Hon. Bienvenido V. Reyes, et al.,[13] the Court
has held that the phrase in lieu of all taxes have to give way to
the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, The Antecedents
privileges, and that upon the effectivity of the Local
Government Code all exemptions except only as provided The petitioner Lung Center of the Philippines is a non-stock
therein can no longer be invoked by MERALCO to disclaim and non-profit entity established on January 16, 1981 by virtue
liability for the local tax. In fine, the Court has viewed its of Presidential Decree No. 1823.2 It is the registered owner of
previous rulings as laying stress more on the legislative a parcel of land, particularly described as Lot No. RP-3-B-3A-
intent of the amendatory law whether the tax exemption 1-B-1, SWO-04-000495, located at Quezon Avenue corner
privilege is to be withdrawn or not rather than on whether Elliptical Road, Central District, Quezon City. The lot has an
the law can withdraw, without violating the Constitution, area of 121,463 square meters and is covered by Transfer
the tax exemption or not. Certificate of Title (TCT) No. 261320 of the Registry of
Deeds of Quezon City. Erected in the middle of the aforesaid
While the Court has, not too infrequently, referred to tax lot is a hospital known as the Lung Center of the Philippines.
exemptions contained in special franchises as being in the A big space at the ground floor is being leased to private
nature of contracts and a part of the inducement for carrying parties, for canteen and small store spaces, and to medical or
on the franchise, these exemptions, nevertheless, are far from professional practitioners who use the same as their private
being strictly contractual in nature. Contractual tax clinics for their patients whom they charge for their
exemptions, in the real sense of the term and where the professional services. Almost one-half of the entire area on the
non-impairment clause of the Constitution can rightly be left side of the building along Quezon Avenue is vacant and
invoked, are those agreed to by the taxing authority in idle, while a big portion on the right side, at the corner of
contracts, such as those contained in government bonds or Quezon Avenue and Elliptical Road, is being leased for
debentures, lawfully entered into by them under enabling commercial purposes to a private enterprise known as the
laws in which the government, acting in its private Elliptical Orchids and Garden Center.
capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind The petitioner accepts paying and non-paying patients. It also
may not be revoked without impairing the obligations of renders medical services to out-patients, both paying and non-
contracts.[14] These contractual tax exemptions, however, are paying. Aside from its income from paying patients, the
not to be confused with tax exemptions granted under petitioner receives annual subsidies from the government.
franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the On June 7, 1993, both the land and the hospital building of the
Constitution.[15] Indeed, Article XII, Section 11, of the 1987 petitioner were assessed for real property taxes in the amount
Constitution, like its precursor provisions in the 1935 and the of P4,554,860 by the City Assessor of Quezon
1973 Constitutions, is explicit that no franchise for the City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-
operation of a public utility shall be granted except under the 2518) and C-021-01231 (15-2518-A) were issued for the land
condition that such privilege shall be subject to amendment, and the hospital building, respectively.4 On August 25, 1993,
alteration or repeal by Congress as and when the common the petitioner filed a Claim for Exemption5 from real property
good so requires. taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioners request was denied, and
WHEREFORE, the instant petition is hereby a petition was, thereafter, filed before the Local Board of
DISMISSED. No costs. Assessment Appeals of Quezon City (QC-LBAA, for brevity)
for the reversal of the resolution of the City Assessor. The
SO ORDERED. petitioner alleged that under Section 28, paragraph 3 of the
1987 Constitution, the property is exempt from real property
4. G.R. No. 144104 June 29, 2004 taxes. It averred that a minimum of 60% of its hospital beds
LUNG CENTER OF THE PHILIPPINES, petitioner, are exclusively used for charity patients and that the major
vs. thrust of its hospital operation is to serve charity patients. The
QUEZON CITY and CONSTANTINO P. ROSAS, in his petitioner contends that it is a charitable institution and, as
capacity as City Assessor of Quezon City, respondents. such, is exempt from real property taxes. The QC-LBAA
DECISION rendered judgment dismissing the petition and holding the
CALLEJO, SR., J.: petitioner liable for real property taxes.6

This is a petition for review on certiorari under Rule 45 of the The QC-LBAAs decision was, likewise, affirmed on appeal
Rules of Court, as amended, of the Decision1 dated July 17, by the Central Board of Assessment Appeals of Quezon City
9
(CBAA, for brevity)7 which ruled that the petitioner was not a should be P357,000 a month as determined by the
charitable institution and that its real properties were not Commission on Audit; and that instead of complying with the
actually, directly and exclusively used for charitable purposes; directive of the COA for the cancellation of the contract for
hence, it was not entitled to real property tax exemption under being grossly prejudicial to the government, the petitioner
the constitution and the law. The petitioner sought relief from renewed the same on March 13, 1995 for a monthly rental of
the Court of Appeals, which rendered judgment affirming the only P24,000. They assert that the petitioner uses the subsidies
decision of the CBAA.8 granted by the government for charity patients and uses the
Undaunted, the petitioner filed its petition in this Court rest of its income from the property for the benefit of paying
contending that: patients, among other purposes. They aver that the petitioner
failed to adduce substantial evidence that 100% of its out-
A. THE COURT A QUO ERRED IN DECLARING patients and 170 beds in the hospital are reserved for indigent
PETITIONER AS NOT ENTITLED TO REALTY patients. The respondents further assert, thus:
TAX EXEMPTIONS ON THE GROUND THAT
ITS LAND, BUILDING AND IMPROVEMENTS, 13. That the claims/allegations of the Petitioner LCP
SUBJECT OF ASSESSMENT, ARE NOT do not speak well of its record of service. That before
ACTUALLY, DIRECTLY AND EXCLUSIVELY a patient is admitted for treatment in the Center, first
DEVOTED FOR CHARITABLE PURPOSES. impression is that it is pay-patient and required to pay
B. WHILE PETITIONER IS NOT DECLARED AS a certain amount as deposit. That even if a patient is
REAL PROPERTY TAX EXEMPT UNDER ITS living below the poverty line, he is charged with high
CHARTER, PD 1823, SAID EXEMPTION MAY hospital bills. And, without these bills being first
NEVERTHELESS BE EXTENDED UPON settled, the poor patient cannot be allowed to leave
PROPER APPLICATION. the hospital or be discharged without first paying the
hospital bills or issue a promissory note guaranteed
The petitioner avers that it is a charitable institution within the and indorsed by an influential agency or person
context of Section 28(3), Article VI of the 1987 Constitution. known only to the Center; that even the remains of
It asserts that its character as a charitable institution is not deceased poor patients suffered the same fate.
altered by the fact that it admits paying patients and renders Moreover, before a patient is admitted for treatment
medical services to them, leases portions of the land to private as free or charity patient, one must undergo a series
parties, and rents out portions of the hospital to private of interviews and must submit all the requirements
medical practitioners from which it derives income to be used needed by the Center, usually accompanied by
for operational expenses. The petitioner points out that for the endorsement by an influential agency or person
years 1995 to 1999, 100% of its out-patients were charity known only to the Center. These facts were heard and
patients and of the hospitals 282-bed capacity, 60% thereof, admitted by the Petitioner LCP during the hearings
or 170 beds, is allotted to charity patients. It asserts that the before the Honorable QC-BAA and Honorable
fact that it receives subsidies from the government attests to its CBAA. These are the reasons of indigent patients,
character as a charitable institution. It contends that the instead of seeking treatment with the Center, they
"exclusivity" required in the Constitution does not necessarily prefer to be treated at the Quezon Institute. Can such
mean "solely." Hence, even if a portion of its real estate is practice by the Center be called charitable? 10
leased out to private individuals from whom it derives income,
it does not lose its character as a charitable institution, and its The Issues
exemption from the payment of real estate taxes on its real The issues for resolution are the following: (a) whether the
property. The petitioner cited our ruling in Herrera v. QC- petitioner is a charitable institution within the context of
BAA9 to bolster its pose. The petitioner further contends that Presidential Decree No. 1823 and the 1973 and 1987
even if P.D. No. 1823 does not exempt it from the payment of Constitutions and Section 234(b) of Republic Act No. 7160;
real estate taxes, it is not precluded from seeking tax and (b) whether the real properties of the petitioner are exempt
exemption under the 1987 Constitution. from real property taxes.

In their comment on the petition, the respondents aver that the The Courts Ruling
petitioner is not a charitable entity. The petitioners real The petition is partially granted.
property is not exempt from the payment of real estate taxes
under P.D. No. 1823 and even under the 1987 Constitution On the first issue, we hold that the petitioner is a charitable
because it failed to prove that it is a charitable institution and institution within the context of the 1973 and 1987
that the said property is actually, directly and exclusively used Constitutions. To determine whether an enterprise is a
for charitable purposes. The respondents noted that in a charitable institution/entity or not, the elements which should
newspaper report, it appears that graft charges were filed with be considered include the statute creating the enterprise, its
the Sandiganbayan against the director of the petitioner, its corporate purposes, its constitution and by-laws, the methods
administrative officer, and Zenaida Rivera, the proprietress of of administration, the nature of the actual work performed, the
the Elliptical Orchids and Garden Center, for entering into a character of the services rendered, the indefiniteness of the
lease contract over 7,663.13 square meters of the property in beneficiaries, and the use and occupation of the properties. 11
1990 for only P20,000 a month, when the monthly rental
10
In the legal sense, a charity may be fully defined as a gift, to SECOND: That the purposes for which such
be applied consistently with existing laws, for the benefit of an corporation is formed are as follows:
indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by 1. To construct, establish, equip, maintain,
assisting them to establish themselves in life or otherwise administer and conduct an integrated
lessening the burden of government.12 It may be applied to medical institution which shall specialize in
almost anything that tend to promote the well-doing and well- the treatment, care, rehabilitation and/or
being of social man. It embraces the improvement and relief of lung and allied diseases in line with
promotion of the happiness of man.13 The word "charitable" is the concern of the government to assist and
not restricted to relief of the poor or sick.14 The test of a provide material and financial support in the
charity and a charitable organization are in law the same. The establishment and maintenance of a lung
test whether an enterprise is charitable or not is whether it center primarily to benefit the people of the
exists to carry out a purpose reorganized in law as charitable Philippines and in pursuance of the policy of
or whether it is maintained for gain, profit, or private the State to secure the well-being of the
advantage. people by providing them specialized health
and medical services and by minimizing the
Under P.D. No. 1823, the petitioner is a non-profit and non- incidence of lung diseases in the country and
stock corporation which, subject to the provisions of the elsewhere.
decree, is to be administered by the Office of the President of
the Philippines with the Ministry of Health and the Ministry of 2. To promote the noble undertaking of
Human Settlements. It was organized for the welfare and scientific research related to the prevention
benefit of the Filipino people principally to help combat the of lung or pulmonary ailments and the care
high incidence of lung and pulmonary diseases in the of lung patients, including the holding of a
Philippines. The raison detre for the creation of the petitioner series of relevant congresses, conventions,
is stated in the decree, viz: seminars and conferences;

Whereas, for decades, respiratory diseases have been 3. To stimulate and, whenever possible,
a priority concern, having been the leading cause of underwrite scientific researches on the
illness and death in the Philippines, comprising more biological, demographic, social, economic,
than 45% of the total annual deaths from all causes, eugenic and physiological aspects of lung or
thus, exacting a tremendous toll on human resources, pulmonary diseases and their control; and to
which ailments are likely to increase and degenerate collect and publish the findings of such
into serious lung diseases on account of unabated research for public consumption;
pollution, industrialization and unchecked cigarette
smoking in the country;lavvph!l.net 4. To facilitate the dissemination of ideas
and public acceptance of information on
Whereas, the more common lung diseases are, to a lung consciousness or awareness, and the
great extent, preventable, and curable with early and development of fact-finding, information
adequate medical care, immunization and through and reporting facilities for and in aid of the
prompt and intensive prevention and health education general purposes or objects aforesaid,
programs; especially in human lung requirements,
general health and physical fitness, and
Whereas, there is an urgent need to consolidate and other relevant or related fields;
reinforce existing programs, strategies and efforts at
preventing, treating and rehabilitating people affected 5. To encourage the training of physicians,
by lung diseases, and to undertake research and nurses, health officers, social workers and
training on the cure and prevention of lung diseases, medical and technical personnel in the
through a Lung Center which will house and nurture practical and scientific implementation of
the above and related activities and provide tertiary- services to lung patients;
level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government 6. To assist universities and research
intends to provide material and financial support institutions in their studies about lung
towards the establishment and maintenance of a Lung diseases, to encourage advanced training in
Center for the welfare and benefit of the Filipino matters of the lung and related fields and to
people.15 support educational programs of value to
general health;
The purposes for which the petitioner was created are spelled
out in its Articles of Incorporation, thus: 7. To encourage the formation of other
organizations on the national, provincial
and/or city and local levels; and to
11
coordinate their various efforts and activities
for the purpose of achieving a more As a general principle, a charitable institution does not lose its
effective programmatic approach on the character as such and its exemption from taxes simply because
common problems relative to the objectives it derives income from paying patients, whether out-patient, or
enumerated herein; confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used
8. To seek and obtain assistance in any form altogether to the charitable object which it is intended to
from both international and local achieve; and no money inures to the private benefit of the
foundations and organizations; and to persons managing or operating the
administer grants and funds that may be institution.18 In Congregational Sunday School, etc. v. Board
given to the organization; of Review,19 the State Supreme Court of Illinois held, thus:
9. To extend, whenever possible and [A]n institution does not lose its charitable
expedient, medical services to the public character, and consequent exemption from taxation,
and, in general, to promote and protect the by reason of the fact that those recipients of its
health of the masses of our people, which benefits who are able to pay are required to do so,
has long been recognized as an economic where no profit is made by the institution and the
asset and a social blessing; amounts so received are applied in furthering its
charitable purposes, and those benefits are refused to
10. To help prevent, relieve and alleviate the none on account of inability to pay therefor. The
lung or pulmonary afflictions and maladies fundamental ground upon which all exemptions in
of the people in any and all walks of life, favor of charitable institutions are based is the benefit
including those who are poor and needy, all conferred upon the public by them, and a consequent
without regard to or discrimination, because relief, to some extent, of the burden upon the state to
of race, creed, color or political belief of the care for and advance the interests of its citizens.20
persons helped; and to enable them to obtain
treatment when such disorders occur; As aptly stated by the State Supreme Court of South Dakota
in Lutheran Hospital Association of South Dakota v. Baker:21
11. To participate, as circumstances may
warrant, in any activity designed and carried [T]he fact that paying patients are taken, the
on to promote the general health of the profits derived from attendance upon these patients
community; being exclusively devoted to the maintenance of the
charity, seems rather to enhance the usefulness of the
12. To acquire and/or borrow funds and to institution to the poor; for it is a matter of common
own all funds or equipment, educational observation amongst those who have gone about at
materials and supplies by purchase, all amongst the suffering classes, that the deserving
donation, or otherwise and to dispose of and poor can with difficulty be persuaded to enter an
distribute the same in such manner, and, on asylum of any kind confined to the reception of
such basis as the Center shall, from time to objects of charity; and that their honest pride is much
time, deem proper and best, under the less wounded by being placed in an institution in
particular circumstances, to serve its general which paying patients are also received. The fact of
and non-profit purposes and receiving money from some of the patients does not,
objectives;lavvphil.net we think, at all impair the character of the charity, so
long as the money thus received is devoted altogether
13. To buy, purchase, acquire, own, lease, to the charitable object which the institution is
hold, sell, exchange, transfer and dispose of intended to further.22
properties, whether real or personal, for
purposes herein mentioned; and The money received by the petitioner becomes a part of the
trust fund and must be devoted to public trust purposes and
14. To do everything necessary, proper, cannot be diverted to private profit or benefit.23
advisable or convenient for the
accomplishment of any of the powers herein Under P.D. No. 1823, the petitioner is entitled to receive
set forth and to do every other act and thing donations. The petitioner does not lose its character as a
incidental thereto or connected therewith.16 charitable institution simply because the gift or donation is in
the form of subsidies granted by the government. As held by
Hence, the medical services of the petitioner are to be the State Supreme Court of Utah in Yorgason v. County Board
rendered to the public in general in any and all walks of life of Equalization of Salt Lake County:24
including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the Second, the government subsidy payments are
poor, may fall sick or be injured or wounded and become a provided to the project. Thus, those payments are like
subject of charity.17 a gift or donation of any other kind except they come
12
from the government. In both Intermountain Health and pulmonary diseases in the Philippines, all
Careand the present case, the crux is the presence or donations, contributions, endowments and equipment
absence of material reciprocity. It is entirely and supplies to be imported by authorized entities or
irrelevant to this analysis that the government, rather persons and by the Board of Trustees of the Lung
than a private benefactor, chose to make up the Center of the Philippines, Inc., for the actual use and
deficit resulting from the exchange between St. benefit of the Lung Center, shall be exempt from
Marks Tower and the tenants by making a income and gift taxes, the same further deductible in
contribution to the landlord, just as it would have full for the purpose of determining the maximum
been irrelevant in Intermountain Health Care if the deductible amount under Section 30, paragraph (h),
patients income supplements had come from private of the National Internal Revenue Code, as amended.
individuals rather than the government. The Lung Center of the Philippines shall be exempt
Therefore, the fact that subsidization of part of the from the payment of taxes, charges and fees imposed
cost of furnishing such housing is by the government by the Government or any political subdivision or
rather than private charitable contributions does not instrumentality thereof with respect to equipment
dictate the denial of a charitable exemption if the purchases made by, or for the Lung Center.29
facts otherwise support such an exemption, as they do
here.25 It is plain as day that under the decree, the petitioner does not
enjoy any property tax exemption privileges for its real
In this case, the petitioner adduced substantial evidence that it properties as well as the building constructed thereon. If the
spent its income, including the subsidies from the government intentions were otherwise, the same should have been among
for 1991 and 1992 for its patients and for the operation of the the enumeration of tax exempt privileges under Section 2:
hospital. It even incurred a net loss in 1991 and 1992 from its
operations. It is a settled rule of statutory construction that the
express mention of one person, thing, or consequence
Even as we find that the petitioner is a charitable institution, implies the exclusion of all others. The rule is
we hold, anent the second issue, that those portions of its real expressed in the familiar maxim, expressio unius est
property that are leased to private entities are not exempt from exclusio alterius.
real property taxes as these are not actually, directly and
exclusively used for charitable purposes. The rule of expressio unius est exclusio alterius is
formulated in a number of ways. One variation of the
The settled rule in this jurisdiction is that laws granting rule is the principle that what is expressed puts an
exemption from tax are construed strictissimi juris against the end to that which is implied. Expressium facit cessare
taxpayer and liberally in favor of the taxing power. Taxation is tacitum. Thus, where a statute, by its terms, is
the rule and exemption is the exception. The effect of an expressly limited to certain matters, it may not, by
exemption is equivalent to an appropriation. Hence, a claim interpretation or construction, be extended to other
for exemption from tax payments must be clearly shown and matters.
based on language in the law too plain to be mistaken. 26 As ...
held in Salvation Army v. Hoehn:27 The rule of expressio unius est exclusio alterius and
its variations are canons of restrictive interpretation.
An intention on the part of the legislature to grant an They are based on the rules of logic and the natural
exemption from the taxing power of the state will workings of the human mind. They are predicated
never be implied from language which will admit of upon ones own voluntary act and not upon that of
any other reasonable construction. Such an intention others. They proceed from the premise that the
must be expressed in clear and unmistakable terms, legislature would not have made specified
or must appear by necessary implication from the enumeration in a statute had the intention been not to
language used, for it is a well settled principle that, restrict its meaning and confine its terms to those
when a special privilege or exemption is claimed expressly mentioned.30
under a statute, charter or act of incorporation, it is to
be construed strictly against the property owner and The exemption must not be so enlarged by construction since
in favor of the public. This principle applies with the reasonable presumption is that the State has granted in
peculiar force to a claim of exemption from taxation . express terms all it intended to grant at all, and that unless the
28 privilege is limited to the very terms of the statute the favor
would be intended beyond what was meant.31
Section 2 of Presidential Decree No. 1823, relied upon by the
petitioner, specifically provides that the petitioner shall enjoy Section 28(3), Article VI of the 1987 Philippine Constitution
the tax exemptions and privileges: provides, thus:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. (3) Charitable institutions, churches and parsonages
Being a non-profit, non-stock corporation organized or convents appurtenant thereto, mosques, non-profit
primarily to help combat the high incidence of lung cemeteries, and all lands, buildings, and
13
improvements, actually, directly and exclusively used Under the 1973 and 1987 Constitutions and Rep. Act No.
for religious, charitable or educational purposes shall 7160 in order to be entitled to the exemption, the petitioner is
be exempt from taxation.32 burdened to prove, by clear and unequivocal proof, that (a) it
is a charitable institution; and (b) its real properties
The tax exemption under this constitutional provision are ACTUALLY, DIRECTLY and EXCLUSIVELY used
covers property taxes only.33 As Chief Justice Hilario G. for charitable purposes. "Exclusive" is defined as possessed
Davide, Jr., then a member of the 1986 Constitutional and enjoyed to the exclusion of others; debarred from
Commission, explained: ". . . what is exempted is not the participation or enjoyment; and "exclusively" is defined, "in a
institution itself . . .; those exempted from real estate taxes are manner to exclude; as enjoying a privilege exclusively." 40 If
lands, buildings and improvements actually, directly and real property is used for one or more commercial purposes, it
exclusively used for religious, charitable or educational is not exclusively used for the exempted purposes but is
purposes."34 subject to taxation.41 The words "dominant use" or "principal
Consequently, the constitutional provision is implemented by use" cannot be substituted for the words "used exclusively"
Section 234(b) of Republic Act No. 7160 (otherwise known as without doing violence to the Constitutions and the
the Local Government Code of 1991) as follows: law.42 Solely is synonymous with exclusively.43
SECTION 234. Exemptions from Real Property Tax.
The following are exempted from payment of the What is meant by actual, direct and exclusive use of the
real property tax: property for charitable purposes is the direct and immediate
... and actual application of the property itself to the purposes for
(b) Charitable institutions, churches, which the charitable institution is organized. It is not the use
parsonages or convents appurtenant thereto, of the income from the real property that is determinative of
mosques, non-profit or religious cemeteries whether the property is used for tax-exempt purposes.44
and all lands, buildings, and
improvements actually, directly, The petitioner failed to discharge its burden to prove that the
and exclusivelyused for religious, charitable entirety of its real property is actually, directly and exclusively
or educational purposes.35 used for charitable purposes. While portions of the hospital are
We note that under the 1935 Constitution, "... all lands, used for the treatment of patients and the dispensation of
buildings, and improvements used exclusively for medical services to them, whether paying or non-paying, other
charitable purposes shall be exempt from portions thereof are being leased to private individuals for
taxation."36 However, under the 1973 and the present their clinics and a canteen. Further, a portion of the land is
Constitutions, for "lands, buildings, and improvements" of the being leased to a private individual for her business enterprise
charitable institution to be considered exempt, the same should under the business name "Elliptical Orchids and Garden
not only be "exclusively" used for charitable purposes; it is Center." Indeed, the petitioners evidence shows that it
required that such property be used "actually" and "directly" collected P1,136,483.45 as rentals in 1991 and P1,679,999.28
for such purposes.37 for 1992 from the said lessees.
In light of the foregoing substantial changes in the
Constitution, the petitioner cannot rely on our ruling Accordingly, we hold that the portions of the land leased to
in Herrera v. Quezon City Board of Assessment private entities as well as those parts of the hospital leased to
Appeals which was promulgated on September 30, 1961 private individuals are not exempt from such taxes.45 On the
before the 1973 and 1987 Constitutions took effect. 38 As this other hand, the portions of the land occupied by the hospital
Court held in Province of Abra v. Hernando:39 and portions of the hospital used for its patients, whether
Under the 1935 Constitution: "Cemeteries, paying or non-paying, are exempt from real property taxes.
churches, and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements IN LIGHT OF ALL THE FOREGOING, the petition
used exclusively for religious, charitable, or is PARTIALLY GRANTED. The respondent Quezon City
educational purposes shall be exempt from taxation." Assessor is hereby DIRECTED to determine, after due
The present Constitution added "charitable hearing, the precise portions of the land and the area thereof
institutions, mosques, and non-profit cemeteries" and which are leased to private persons, and to compute the real
required that for the exemption of "lands, buildings, property taxes due thereon as provided for by law.
and improvements," they should not only be
"exclusively" but also "actually" and "directly" used SO ORDERED.
for religious or charitable purposes. The Constitution
is worded differently. The change should not be 5. G.R. No. L-39086 June 15, 1988
ignored. It must be duly taken into consideration. ABRA VALLEY COLLEGE, INC., represented by
Reliance on past decisions would have sufficed were PEDRO V. BORGONIA, petitioner,
the words "actually" as well as "directly" not added. vs.
There must be proof therefore of HON. JUAN P. AQUINO, Judge, Court of First Instance,
the actual and direct use of the lands, buildings, and Abra; ARMIN M. CARIAGA, Provincial Treasurer,
improvements for religious or charitable purposes to Abra; GASPAR V. BOSQUE, Municipal Treasurer,
be exempt from taxation.
14
Bangued, Abra; HEIRS OF PATERNO defendants below, was issued for the satisfaction of the said
MILLARE, respondents. taxes thereon. The "Notice of Sale" was caused to be served
upon the petitioner by the respondent treasurers on July 8,
PARAS, J.: 1972 for the sale at public auction of said college lot and
This is a petition for review on certiorari of the decision * of building, which sale was held on the same date. Dr. Paterno
the defunct Court of First Instance of Abra, Branch I, dated Millare, then Municipal Mayor of Bangued, Abra, offered the
June 14, 1974, rendered in Civil Case No. 656, entitled "Abra highest bid of P6,000.00 which was duly accepted. The
Valley Junior College, Inc., represented by Pedro V. Borgonia, certificate of sale was correspondingly issued to him.
plaintiff vs. Armin M. Cariaga as Provincial Treasurer of On August 10, 1972, the respondent Paterno Millare (now
Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, deceased) filed through counstel a motion to dismiss the
Abra and Paterno Millare, defendants," the decretal portion of complaint.
which reads:
On August 23, 1972, the respondent Provincial Treasurer and
IN VIEW OF ALL THE FOREGOING, the Municipal Treasurer, through then Provincial Fiscal Loreto C.
Court hereby declares: Roldan, filed their answer (Annex "2" of Answer by the
respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the
That the distraint seizure and sale by the complaint. This was followed by an amended answer (Annex
Municipal Treasurer of Bangued, Abra, the "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
Provincial Treasurer of said province against
the lot and building of the Abra Valley On September 1, 1972 the respondent Paterno Millare filed his
Junior College, Inc., represented by Director answer (Annex "5," ibid; Rollo, pp. 106-108).
Pedro Borgonia located at Bangued, Abra, is
valid; On October 12, 1972, with the aforesaid sale of the school
premises at public auction, the respondent Judge, Hon. Juan P.
That since the school is not exempt from Aquino of the Court of First Instance of Abra, Branch I,
paying taxes, it should therefore pay all back ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents
taxes in the amount of P5,140.31 and back provincial and municipal treasurers to deliver to the Clerk of
taxes and penalties from the promulgation of Court the proceeds of the auction sale. Hence, on December
this decision; 14, 1972, petitioner, through Director Borgonia, deposited
with the trial court the sum of P6,000.00 evidenced by PNB
That the amount deposited by the plaintaff Check No. 904369.
him the sum of P60,000.00 before the trial,
be confiscated to apply for the payment of On April 12, 1973, the parties entered into a stipulation of
the back taxes and for the redemption of the facts adopted and embodied by the trial court in its questioned
property in question, if the amount is less decision. Said Stipulations reads:
than P6,000.00, the remainder must be
returned to the Director of Pedro Borgonia, STIPULATION OF FACTS
who represents the plaintiff herein; COME NOW the parties, assisted by
counsels, and to this Honorable Court
That the deposit of the Municipal Treasurer respectfully enter into the following agreed
in the amount of P6,000.00 also before the stipulation of facts:
trial must be returned to said Municipal
Treasurer of Bangued, Abra; 1. That the personal circumstances of the
parties as stated in paragraph 1 of the
And finally the case is hereby ordered complaint is admitted; but the particular
dismissed with costs against the plaintiff. person of Mr. Armin M. Cariaga is to be
SO ORDERED. (Rollo, pp. 22-23) substituted, however, by anyone who is
actually holding the position of Provincial
Petitioner, an educational corporation and institution of higher Treasurer of the Province of Abra;
learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer 2. That the plaintiff Abra Valley Junior
by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) College, Inc. is the owner of the lot and
on July 10, 1972 in the court a quo to annul and declare void buildings thereon located in Bangued, Abra
the "Notice of Seizure' and the "Notice of Sale" of its lot and under Original Certificate of Title No. 0-83;
building located at Bangued, Abra, for non-payment of real 3. That the defendant Gaspar V. Bosque, as
estate taxes and penalties amounting to P5,140.31. Said Municipal treasurer of Bangued, Abra
"Notice of Seizure" of the college lot and building covered by caused to be served upon the Abra Valley
Original Certificate of Title No. Q-83 duly registered in the Junior College, Inc. a Notice of Seizure on
name of petitioner, plaintiff below, on July 6, 1972, by the property of said school under Original
respondents Municipal Treasurer and Provincial Treasurer, Certificate of Title No. 0-83 for the
15
satisfaction of real property taxes thereon,
amounting to P5,140.31; the Notice of After having been granted by the trial court ten (10) days from
Seizure being the one attached to the August 6, 1974 within which to perfect its appeal (Per Order
complaint as Exhibit A; dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57)
petitioner instead availed of the instant petition for review
4. That on June 8, 1972 the above properties on certiorari with prayer for preliminary injunction before this
of the Abra Valley Junior College, Inc. was Court, which petition was filed on August 17, 1974 (Rollo,
sold at public auction for the satisfaction of p.2).
the unpaid real property taxes thereon and In the resolution dated August 16, 1974, this Court resolved to
the same was sold to defendant Paterno give DUE COURSE to the petition (Rollo, p. 58).
Millare who offered the highest bid of Respondents were required to answer said petition (Rollo, p.
P6,000.00 and a Certificate of Sale in his 74).
favor was issued by the defendant Municipal
Treasurer. Petitioner raised the following assignments of error:
I
5. That all other matters not particularly and THE COURT A QUO ERRED IN SUSTAINING AS VALID
specially covered by this stipulation of facts THE SEIZURE AND SALE OF THE COLLEGE LOT AND
will be the subject of evidence by the BUILDING USED FOR EDUCATIONAL PURPOSES OF
parties. THE PETITIONER.

WHEREFORE, it is respectfully prayed of II


the Honorable Court to consider and admit THE COURT A QUO ERRED IN DECLARING THAT THE
this stipulation of facts on the point agreed COLLEGE LOT AND BUILDING OF THE PETITIONER
upon by the parties. ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL
PURPOSES MERELY BECAUSE THE COLLEGE
Bangued, Abra, April 12, 1973.18) PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE
BUILDING.
Aside from the Stipulation of Facts, the trial court among
others, found the following: (a) that the school is recognized III
by the government and is offering Primary, High School and THE COURT A QUO ERRED IN DECLARING THAT THE
College Courses, and has a school population of more than COLLEGE LOT AND BUILDING OF THE PETITIONER
one thousand students all in all; (b) that it is located right in ARE NOT EXEMPT FROM PROPERTY TAXES AND IN
the heart of the town of Bangued, a few meters from the plaza ORDERING PETITIONER TO PAY P5,140.31 AS REALTY
and about 120 meters from the Court of First Instance TAXES.
building; (c) that the elementary pupils are housed in a two-
storey building across the street; (d) that the high school and IV
college students are housed in the main building; (e) that the THE COURT A QUO ERRED IN ORDERING THE
Director with his family is in the second floor of the main CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN
building; and (f) that the annual gross income of the school THE COURT BY PETITIONER AS PAYMENT OF THE
reaches more than one hundred thousand pesos. P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp.
1-2)
From all the foregoing, the only issue left for the Court to
determine and as agreed by the parties, is whether or not the The main issue in this case is the proper interpretation of the
lot and building in question are used exclusively for phrase "used exclusively for educational purposes."
educational purposes. (Rollo, p. 20)
Petitioner contends that the primary use of the lot and building
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and for educational purposes, and not the incidental use thereof,
his Assistant, Hon. Eustaquio Z. Montero, filed a determines and exemption from property taxes under Section
Memorandum for the Government on March 25, 1974, and a 22 (3), Article VI of the 1935 Constitution. Hence, the seizure
Supplemental Memorandum on May 7, 1974, wherein they and sale of subject college lot and building, which are contrary
opined "that based on the evidence, the laws applicable, court thereto as well as to the provision of Commonwealth Act No.
decisions and jurisprudence, the school building and school lot 470, otherwise known as the Assessment Law, are without
used for educational purposes of the Abra Valley College, legal basis and therefore void.
Inc., are exempted from the payment of taxes." (Annexes "B,"
"B-1" of Petition; Rollo, pp. 24-49; 44 and 49). On the other hand, private respondents maintain that the
college lot and building in question which were subjected to
Nonetheless, the trial court disagreed because of the use of the seizure and sale to answer for the unpaid tax are used: (1) for
second floor by the Director of petitioner school for residential the educational purposes of the college; (2) as the permanent
purposes. He thus ruled for the government and rendered the residence of the President and Director thereof, Mr. Pedro V.
assailed decision. Borgonia, and his family including the in-laws and
16
grandchildren; and (3) for commercial purposes because the [1961] and Commissioner of Internal Revenue vs. Bishop of
ground floor of the college building is being used and rented the Missionary District, 14 SCRA 991 [1965], thus
by a commercial establishment, the Northern Marketing
Corporation (See photograph attached as Annex "8" Moreover, the exemption in favor of
(Comment; Rollo, p. 90]). property used exclusively for charitable or
educational purposes is 'not limited to
Due to its time frame, the constitutional provision which finds property actually indispensable' therefor
application in the case at bar is Section 22, paragraph 3, (Cooley on Taxation, Vol. 2, p. 1430), but
Article VI, of the then 1935 Philippine Constitution, which extends to facilities which are incidental to
expressly grants exemption from realty taxes for "Cemeteries, and reasonably necessary for the
churches and parsonages or convents appurtenant thereto, and accomplishment of said purposes, such as in
all lands, buildings, and improvements used exclusively for the case of hospitals, "a school for training
religious, charitable or educational purposes ... nurses, a nurses' home, property use to
provide housing facilities for interns,
Relative thereto, Section 54, paragraph c, Commonwealth Act resident doctors, superintendents, and other
No. 470 as amended by Republic Act No. 409, otherwise members of the hospital staff, and
known as the Assessment Law, provides: recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such
The following are exempted from real as "Athletic fields" including "a firm used
property tax under the Assessment Law: for the inmates of the institution. (Cooley on
xxx xxx xxx Taxation, Vol. 2, p. 1430).

(c) churches and parsonages or convents The test of exemption from taxation is the use of the property
appurtenant thereto, and all lands, buildings, for purposes mentioned in the Constitution (Apostolic Prefect
and improvements used exclusively for v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
religious, charitable, scientific or
educational purposes. It must be stressed however, that while this Court allows a
xxx xxx xxx more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in
In this regard petitioner argues that the primary use of the Article VI, Section 22, paragraph 3 of the 1935 Philippine
school lot and building is the basic and controlling guide, Constitution, reasonable emphasis has always been made that
norm and standard to determine tax exemption, and not the exemption extends to facilities which are incidental to and
mere incidental use thereof. reasonably necessary for the accomplishment of the main
purposes. Otherwise stated, the use of the school building or
As early as 1916 in YMCA of Manila vs. Collector of lnternal lot for commercial purposes is neither contemplated by law,
Revenue, 33 Phil. 217 [1916], this Court ruled that while it nor by jurisprudence. Thus, while the use of the second floor
may be true that the YMCA keeps a lodging and a boarding of the main building in the case at bar for residential purposes
house and maintains a restaurant for its members, still these do of the Director and his family, may find justification under the
not constitute business in the ordinary acceptance of the word, concept of incidental use, which is complimentary to the main
but an institution used exclusively for religious, charitable and or primary purposeeducational, the lease of the first floor
educational purposes, and as such, it is entitled to be exempted thereof to the Northern Marketing Corporation cannot by any
from taxation. stretch of the imagination be considered incidental to the
purpose of education.
In the case of Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte, 51 Phil. 352 [1972], this Court included in the It will be noted however that the aforementioned lease appears
exemption a vegetable garden in an adjacent lot and another to have been raised for the first time in this Court. That the
lot formerly used as a cemetery. It was clarified that the term matter was not taken up in the to court is really apparent in the
"used exclusively" considers incidental use also. Thus, the decision of respondent Judge. No mention thereof was made
exemption from payment of land tax in favor of the convent in the stipulation of facts, not even in the description of the
includes, not only the land actually occupied by the building school building by the trial judge, both embodied in the
but also the adjacent garden devoted to the incidental use of decision nor as one of the issues to resolve in order to
the parish priest. The lot which is not used for commercial determine whether or not said properly may be exempted from
purposes but serves solely as a sort of lodging place, also payment of real estate taxes (Rollo, pp. 17-23). On the other
qualifies for exemption because this constitutes incidental use hand, it is noteworthy that such fact was not disputed even
in religious functions. after it was raised in this Court.

The phrase "exclusively used for educational purposes" was Indeed, it is axiomatic that facts not raised in the lower court
further clarified by this Court in the cases of Herrera vs. cannot be taken up for the first time on appeal. Nonetheless, as
Quezon City Board of assessment Appeals, 3 SCRA 186 an exception to the rule, this Court has held that although a
factual issue is not squarely raised below, still in the interest of
17
substantial justice, this Court is not prevented from Subsequently, however, in a letter dated August 10,
considering a pivotal factual matter. "The Supreme Court is 1955 (Exhibit "E", p. 65, CTA rec.) the Quezon City
clothed with ample authority to review palpable errors not Assessor notified the petitioners that the aforesaid
assigned as such if it finds that their consideration is necessary properties were re-classified from exempt to
in arriving at a just decision." (Perez vs. Court of Appeals, 127 "taxable" and thus assessed for real property taxes
SCRA 645 [1984]). effective 1956, enclosing therewith copies of Tax
Declarations Nos. 19321 to 19322 covering the said
Under the 1935 Constitution, the trial court correctly arrived at properties. The petitioners appealed the assessment to
the conclusion that the school building as well as the lot where the Quezon City Board of Assessment Appeals,
it is built, should be taxed, not because the second floor of the which, in a decision dated March 31, 1956 and
same is being used by the Director and his family for received by the former on May 17, 1956, affirmed the
residential purposes, but because the first floor thereof is being decision of the City Assessor. A motion for
used for commercial purposes. However, since only a portion reconsideration thereof was denied on March 8, 1957.
is used for purposes of commerce, it is only fair that half of From this decision, the petitioners instituted the
the assessed tax be returned to the school involved. instant appeal.1awphl.nt

PREMISES CONSIDERED, the decision of the Court of First The building involved in this case is principally used
Instance of Abra, Branch I, is hereby AFFIRMED subject to as a hospital. It is mainly a surgical and orthopedic
the modification that half of the assessed tax be returned to the hospital with emphasis on obstetrical cases, the latter
petitioner. constituting 90% of the total number of cases
SO ORDERED. registered therein. The hospital has thirty-two (32)
beds, of which twenty (20) are for charity-patients
and twelve (12) for pay-patients. From the evidence
presented by petitioners, it is made to appear that
6. G.R. No. L-15270 September 30, 1961 there are two kinds of charity patients (a) those
JOSE V. HERRERA and ESTER OCHANGCO who come for consultation only ("out-charity
HERRERA, petitioners, patients"); and (b) those who remain in the hospital
vs. for treatment ("lying-in-patients"). The out-charity
THE QUEZON CITY BOARD OF ASSESSMENT patients are given free consultation and prescription,
APPEALS, respondent. although sometimes they are furnished with free
Angel A. Sison for petitioners. medicines which are not costly like aspirin,
Jaime Agloro for respondent. sulfatiazole, etc. The charity lying-in-patients are
given free medical service and medicine although the
food served to the pay-patients is very much better
CONCEPCION, J.: than that given to the former. Although no condition
Appeal, by petitioners Jose V. Herrera and Ester Ochangco is imposed by the hospital on the admission of charity
Herrera, from a decision of the Court of Tax Appeals lying-in-patients, they however, usually give
affirming that of the Board of Assessment Appeals of Quezon donations to the hospital. On the other hand, the pay-
City, which held that certain properties of said petitioners are patients are required to pay for hospital services
subject to assessment for purposes of real estate tax. ranging from the minimum charge of P5.00 to the
maximum of P40.00 for each day of stay in the
The facts and the issue are set forth in the aforementioned hospital. The income realized from pay-patients is
decision of the Court of Tax Appeals, from which we quote: spent for the improvement of the charity wards. The
hospital personnel is composed of three nurses, two
On July 24, 1952, the Director of the Bureau of graduate midwives, a resident physician receiving a
Hospitals authorized the petitioners to establish and salary of P170.00 a month and the petitioner, Dr.
operate the "St. Catherine's Hospital", located at 58 Ester Ochangco Herrera, as directress. As such
D. Tuazon, Sta. Mesa Heights, Quezon City (Exhibit directress, the latter does not receive any salary.
"F-1", p. 7, BIR rec.). On or about January 3, 1953,
the petitioners sent a letter to the Quezon City Petitioners also operate within the premises of the
Assessor requesting exemption from payment of real hospital the "St. Catherine's School of Midwifery"
estate tax on the lot, building and other improvements which was granted government recognition by the
comprising the hospital stating that the same was Secretary of Education on February 1, 1955 (Exhibit
established for charitable and humanitarian purposes "F-3", p. 10, BIR rec.) This school has an enrollment
and not for commercial gain (Exhibit "F-2", pp. 8-9, of about two hundred students. The students are
BIR rec.). After an inspection of the premises in charged a matriculation fee of P300.00 for 1- years,
question and after a careful study of the case, the plus P50.00 a month for board and lodging, which
exemption from real property taxes was granted includes transportation to the St. Mary's Hospital.
effective the years 1953, 1954 and 1955. The students practice in the St. Catherine's Hospital,
as well as in the St. Mary's Hospital, which is also
18
owned by the petitioners. A separate set of the said properties are used exclusively for charitable or
accounting books is maintained by the school for educational purposes. (Petitioners' brief, pp. 24-29).
midwifery distinct from that kept by the hospital. The
petitioners alleged that the accounts of the school are The Court of Tax Appeals decided the issue in the negative,
not included in Exhibits "A", "A-1", "A-2", "B", "B- upon the ground that the St. Catherine's Hospital "has a pay
1", "B-2", "C", "C-1" and "C-2" which relate to the ward for ... pay-patients, who are charged for the use of the
hospital only. However, the petitioners have refused private rooms, operating room, laboratory room, delivery
to submit a separate statement of accounts of the room, etc., like other hospitals operated for profit" and that
school. A brief tabulation indicating the amount of "petitioners and their family occupy a portion of the building
income of the hospital for the years 1954, 1955 and for their residence." With respect to petitioners' claim for
1956, and its operational expenses, is as follows: exemption based upon the operation of the school of
midwifery, the Court conceded that "the proposition might be
1954 proper if the property used for the school of midwifery were
separate and distinct from the hospital." It added, however,
Income Expenses Deficit
that, "in the instant case, the portions of the building used for
classrooms of the school of midwifery have not been shown to
P 5,280.04 P1,303.80
be exclusively for school purposes"; that said portions "rather
Charity Ward P10,803.26 ... have a dual use, i.e., for classroom and for hospital use, the
P14,779.50
Pay Ward latter not being a purpose that renders the property tax
P16,083.30 exempt;" that part of the building and lot in question "is used
(Exhibits "A", "A-1" and "A-2") as a hospital, part as residence of the petitioners, part as
garage, part as dormitory and part as school"; and that "the
portion dedicated to educational and charitable purposes can
1955 not be identified from those destined to other uses; and the
building is itself an indivisible unit of property."
Income Expenses Deficit
P 6,859.32 It should be noted, however, that, according to the very
Charity Ward 14,038.92 statement of facts made in the decision appealed from, of the
P17,433.30 P3,464.94
thirty-two (32) beds in the hospital, twenty (20) are for
Pay Ward
P20,898.24 charity-patients; that "the income realized from pay-patients is
spent for improvement of the charity wards;" and that
(Exhibits "B", "B-1" and "B-2") "petitioners, Dr. Ester Ochangco Herrera, as directress" of said
hospital, "does not receive any salary," although its resident
physician gets a monthly salary of P170.00. It is well settled,
1956
in this connection, that the admission of pay-patients does not
Income Expenses detract from the charitable character of a hospital, if all its
Deficit
funds are devoted "exclusively to the maintenance of the
P 5,559.89 P 341.53
institution" as a "public charity" (84 C.J.S., 617; see, also, 51
Charity Ward 16,249.04 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144
P21,467.40
Pay Ward A.L.R., 1489-1492). "In other words, where rendering charity
P21,809.93 is its primary object, and the funds derived from payments
made by patients able to pay are devoted to the benevolent
(Exhibits "C", "C-1" and "C-2")
purposes of the institution, the mere fact that a profit has been
Aside from the St. Catherine and St. Mary hospitals, the made will not deprive the hospital of its benevolent character"
petitioners declared that they also own lands and coconut (Prairie Du Chien Sanitarium Co. vs. City of Prairie Du Chien,
plantations in Quezon Province, and other real estate in the 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).
City of Manila consisting of apartments for rent. The
petitioner, Jose V. Herrera, is an architect, actively engaged in Thus, we have held that the U.S.T. Hospital was not
the practice of his profession, with office at Tuason Building, established for profit-making purposes, although it had 140
Escolta, Manila. He was formerly Chairman, Board of paying beds maintained only to partly finance the expenses of
Examiners for Architects and Chairman, Board of Architects the free wards, containing 203 beds for charity patients
connected with the United Nations. He was also connected (U.S.T. Hospital Employees Association vs. Sto. Tomas
with the Allied Technologists which constructed the Veterans University Hospital, L-6988, May 24, 1954), that St. Paul's
Hospital in Quezon City. Hospital of Iloilo, a corporation organized for "charitable
educational and religious purposes" can not be considered as
The only issue raised, is whether or not the lot, building and engaged in business merely because its pharmacy department
other improvements occupied by the St. Catherine Hospital are charges paying patients the cost of their medicine, plus 10%
exempt from the real property tax. The resolution of this thereof, to partly offset the cost of medicines supplied free of
question boils down to the corollary issue as to whether or not charge to charity patients (Collector of Internal Revenue vs.
St. Paul's Hospital of Iloilo, L-12127, May 25, 1959), and that
19
the amendment of the original articles of incorporation of the
University of Visayas to convert it from a non-stock to a stock Similarly, the garage in the building above referred to
corporation and the increase of its assets from P9,000 to which was obviously essential to the operation of the school of
P50,000, distributed among the members of the original non- midwifery, for the students therein enrolled practiced, not only
stock corporation in terms of shares of stock, as well as the in St. Catherine's Hospital, but, also, in St. Mary's Hospital,
subsequent move of its board of trustees to double the stock and were entitled to transportation thereto for Mrs. Herrera
dividends of the corporation, in view of a gain of P200,000.00 received no compensation as directress of St. Catherine's
in property, besides good-will, which was not carried out, does Hospital were incidental to the operation of the latter and of
not justify the inference that the corporation has become one said school, and, accordingly, did not affect the charitable
for business and profit, none of its profits having inured to the character of said hospital and the educational nature of said
benefit of any stockholder or individual (Collector of Internal school.
Revenue vs. University of Visayas, L-13554, February 28,
1961). WHEREFORE, the decision of the Court of Tax Appeals, as
well as that of the Assessment Board of Appeals of Quezon
Moreover, the exemption in favor of property used exclusively City, are hereby reversed and set aside, and another one
for charitable or educational purposes is "not limited to entered declaring that the lot, building and improvements
property actually indispensable" therefor (Cooley on Taxation, constituting the St. Catherine's Hospital are exempt from
Vol. 2, p. 1430), but extends to facilities which are "incidental taxation under the provisions of the Constitution, without
to and reasonably necessary for" the accomplishment of said special pronouncement as to costs. It is so ordered.
purposes, such as, in the case of hospitals, "a school for
training nurses, a nurses' home, property use to provide
housing facilities for interns, resident doctors, superintendents, G.R. No. L-19707 August 17, 1967
and other members of the hospital staff, and recreational
facilities for student nurses, interns and residents" (84 C.J.S., 7. PHILIPPINE ACETYLENE CO., INC., petitioner,
621), such as "athletic fields," including "a farm used for the vs.
inmates of the institution" (Cooley on Taxation, Vol. 2, p. COMMISSIONER OF INTERNAL REVENUE and
1430). COURT OF TAX APPEALS, respondents.
Ponce Enrile, Siguion Reyna, Montecillo and Belo, for
Within the purview of the Constitutional exemption from petitioner.
taxation, the St. Catherine's Hospital is, therefore, a charitable
institution, and the fact that it admits pay-patients does not bar Office of the Solicitor General for respondents.
it from claiming that it is devoted exclusively to benevolent
purposes, it being admitted that the income derived from pay- CASTRO, J.:
patients is devoted to the improvement of the charity wards, The petitioner is a corporation engaged in the manufacture and
which represent almost two-thirds (2/3) of the bed capacity of sale of oxygen and acetylene gases. During the period from
the hospital, aside from "out-charity patients" who come only June 2, 1953 to June 30, 1958, it made various sales of its
for consultation. products to the National Power Corporation, an agency of the
Philippine Government, and to the Voice of America an
Again, the existence of "St. Catherine's School of Midwifery", agency of the United States Government. The sales to the NPC
with an enrollment of about 200 students, who practice partly amounted to P145,866.70, while those to the VOA amounted
in St. Catherine's Hospital and partly in St. Mary's Hospital, to P1,683, on account of which the respondent Commission of
which, likewise, belongs to petitioners herein, does not, and Internal Revenue assessed against, and demanded from, the
cannot, affect the exemption to which St. Catherine's Hospital petitioner the payment of P12,910.60 as deficiency sales tax
is entitled under our fundamental law. On the contrary, it and surcharge, pursuant to the following-provisions of the
furnishes another ground for exemption. Seemingly, the Court National Internal Revenue Code:
of Tax Appeals was impressed by the fact that the size of said
enrollment and the matriculation fee charged from the students Sec. 186. Percentage tax on sales of other articles.
of midwifery, aside from the amount they paid for board and There shall be levied, assessed and collected once
lodging, including transportation to St. Mary's Hospital, only on every original sale, barter, exchange, and
warrants the belief that petitioners derive a substantial profit similar transaction either for nominal or valuable
from the operation of the school aforementioned. Such factor considerations, intended to transfer ownership of, or
is, however, immaterial to the issue in the case at bar, for "all title to, the articles not enumerated in sections one
lands, building and improvements used exclusively for hundred and eighty-four and one hundred and eighty-
religious, charitable or educational purposes shall be exempt five a tax equivalent to seven per centum of the gross
from taxation," pursuant to the Constitution, regardless of selling price or gross value in money of the articles
whether or not material profits are derived from the operation so sold, bartered exchanged, or transferred, such tax
of the institutions in question. In other words, Congress may, to be paid by the manufacturer or producer: . . . .
if it deems fit to do so, impose taxes upon such "profits", but
said "lands, buildings and improvements" are beyond its Sec. 183. Payment of percentage taxes.(a) In
taxing power. general.It shall be the duty of every person
20
conducting business on which a percentage tax is It is contended that the immunity thus given to the NPC would
imposed under this Title, to make a true and complete be impaired by the imposition of a tax on sales made to it
return of the amount of his, her, or its gross monthly because while the tax is paid by the manufacturer or producer,
sales, receipts or earnings, or gross value of output the tax is ultimately shifted by the latter to the former. The
actually removed from the factory or mill warehouse petitioner invokes in support of its position a 1954 opinion of
and within twenty days after the end of each month, the Secretary of Justice which ruled that the NPC is exempt
pay the tax due thereon: Provided, That any person from the payment of all taxes "whether direct or indirect."
retiring from a business subject to the percentage tax
shall notify the nearest internal revenue officer We begin with an analysis of the nature of the percentage
thereof, file his return or declaration and pay the tax (sales) tax imposed by section 186 of the Code. Is it a tax on
due thereon within twenty days after closing his the producer or on the purchaser? Statutes of the type under
business. consideration, which impose a tax on sales, have been
described as "act[s] with schizophrenic symptoms,"3 as they
If the percentage tax on any business is not paid apparently have two faces one that of a vendor tax, the
within the time specified above, the amount of the tax other, a vendee tax. Fortunately for us the provisions of the
shall be increased by twenty-five per centum, the Code throw some light on the problem. The Code states that
increment to be a part of the tax. the sales tax "shall be paid by the manufacturer or
producer,"4 who must "make a true and complete return of the
The petitioner denied liability for the payment of the tax on amount of his, her or its gross monthly sales, receipts or
the ground that both the NPC and the VOA are exempt from earnings or gross value of output actually removed from the
taxation. It asked for a reconsideration of the assessment and, factory or mill warehouse and within twenty days after the end
failing to secure one, appealed to the Court of Tax Appeals. of each month, pay the tax due thereon."5

The court ruled that the tax on the sale of articles or goods in But it is argued that a sales tax is ultimately passed on to the
section 186 of the Code is a tax on the manufacturer and not purchaser, and that, so far as the purchaser is an entity like the
on the buyer with the result that the "petitioner Philippine NPC which is exempt from the payment of "all taxes, except
Acetylene Company, the manufacturer or producer of oxygen real property tax," the tax cannot be collected from sales.
and acetylene gases sold to the National Power Corporation,
cannot claim exemption from the payment of sales tax simply Many years ago, Mr. Justice Oliver Wendell Holmes
because its buyer the National Power Corporation is expressed dissatisfaction with the use of the phrase "pass the
exempt from the payment of all taxes." With respect to the tax on." Writing the opinion of the U.S. Supreme Court
sales made to the VOA, the court held that goods purchased in Lash's Products v. United States,6 he said: "The phrase
by the American Government or its agencies from 'passed the tax on' is inaccurate, as obviously the tax is laid
manufacturers or producers are exempt from the payment of and remains on the manufacturer and on him alone. The
the sales tax under the agreement between the Government of purchaser does not really pay the tax. He pays or may pay the
the Philippines and that of the United States, provided the seller more for the goods because of the seller's obligation, but
purchases are supported by certificates of exemption, and that is all. . . . The price is the sum total paid for the goods.
since purchases amounting to only P558, out of a total of The amount added because of the tax is paid to get the goods
P1,683, were not covered by certificates of exemption, only and for nothing else. Therefore it is part of the price . . .".
the sales in the sum of P558 were subject to the payment of
tax. Accordingly, the assessment was revised and the It may indeed be that the incidence of the tax ultimately settles
petitioner's liability was reduced from P12,910.60, as assessed on the purchaser, but it is not for that reason alone that one
by the respondent commission, to P12,812.16. 1 may validly argue that it is a tax on the purchaser. The
exemption granted to the NPC may be likened to the immunity
The petitioner appealed to this Court. Its position is that it is of the Federal Government from state taxation and vice
not liable for the payment of tax on the sales it made to the versa in the federal system of government of the United
NPC and the VOA because both entities are exempt from States. In the early case of Panhandle Oil Co. v.
taxation. Mississippi7 the doctrine of intergovernment mental tax
immunity was held as prohibiting the imposition of a tax on
I sales of gasoline made to the Federal Government. Said the
The NPC enjoys tax exemption by virtue of an act2 of Supreme court of the United States:
Congress which provides as follows:
A charge at the prescribed. rate is made on account of
Sec. 2. To facilitate the payment of its indebtedness, every gallon acquired by the United States. It is
the National Power Corporation shall be exempt from immaterial that the seller and not the purchaser is
all taxes, except real property tax, and from all duties, required to report and make payment to the state.
fees, imposts, charges, and restrictions of the Sale and purchase constitute a transaction by which
Republic of the Philippines, its provinces, cities and the tax is measured and on which the burden rests. . .
municipalities.

21
. The necessary operation of these enactments when
so construed is directly to retard, impede and burden The asserted right of the one to be free of taxation by
the exertion by the United States, of its constitutional the other does not spell immunity from paying the
powers to operate the fleet and hospital. . . . To use added costs, attributable to the taxation of those who
the number of gallons sold the United States as a furnish supplies to the Government and who have
measure of the privilege tax is in substance and legal been granted no tax immunity. So far as a different
effect to tax the sale. . . . And that is to tax the United view has prevailed, see Panhandle Oil Co. v.
States to exact tribute on its transactions and apply Mississippi and Graves v. Texas Co., supra, we think
the same to the support of the state.1wph1.t it no longer tenable.

Justice Holmes did not agree. In a powerful dissent joined by Further inroads into the doctrine of Panhandle were made in
Justices Brandeis and Stone, he said: 1943 when the U.S. Supreme Court held that immunity from
state regulation in the performance of governmental functions
If the plaintiff in error had paid the tax and added it by Federal officers and agencies did not extend to those who
to the price the government would have nothing to merely contracted to furnish supplies or render services to the
say. It could take the gasoline or leave it but it could government even though as a result of an increase in the price
not require the seller to abate his charge even if it had of such supplies or services attributable to the state regulation,
been arbitrarily increased in the hope of getting more its ultimate effect may be to impose an additional economic
from the government than could be got from the burden on the Government.10
public at large. . . . It does not appear that the
government would have refused to pay a price that But if a complete turnabout from the rule announced
included the tax if demanded, but if the government in Panhandle was yet to be made, it was so made in 1952
had refused it would not have exonerated the seller. . in Esso Standard Oil v. Evans11 which held that a contractor
.. is not exempt from the payment of a state privilege tax on the
. . . I am not aware that the President, the Members of business of storing gasoline simply because the Federal
the Congress, the Judiciary or to come nearer to the Government with which it has a contract for the storage of
case at hand, the Coast Guard or the officials of the gasoline is immune from state taxation.
Veterans' Hospital [to which the sales were made],
because they are instrumentalities of government and This tax was imposed because Esso stored gasoline.
cannot function naked and unfed, hitherto have been It is not . . . based on the worth of the government
held entitled to have their bills for food and clothing property. Instead, the amount collected is graduated
cut down so far as their butchers and tailors have in accordance with the exercise of Esso's privilege to
been taxed on their sales; and I had not supposed that engage in such operations; so it is not "on" the federal
the butchers and tailors could omit from their tax property. . . . Federal ownership of the fuel will not
returns all receipts from the large class of customers immunize such a private contractor from the tax on
to which I have referred. The question of interference storage. It may generally, as it did here, burden the
with Government, I repeat, is one of reasonableness United States financially. But since James vs. Dravo
and degree and it seems to me that the interference in Contracting Co., 302 U.S. 134, 151, 82 L. ed. 155,
this case is too remote. 167, 58 S. Ct. 208, 114 ALR 318, this has been no
fatal flaw. . . . 12
But time was not long in coming to confirm the soundness of
Holmes' position. Soon it became obvious that to test the We have determined the current status of the doctrine of
constitutionality of a statute by determining the party on which intergovernmental tax immunity in the United States, by
the legal incidence of the tax fell was an unsatisfactory way of showing the drift of the decisions following announcement of
doing things. The fall of the bastion was signalled by Chief the original rule, to point up the that fact that even in those
Justice Hughes' statement in James v. Dravo Constructing cases where exemption from tax was sought on the ground of
Co.8 that "These cases [referring to Panhandle and Indian state immunity, the attempt has not met with success.
Motorcycle Co. v. United States, 283 U.S. 570 (1931)] have
been distinguished and must be deemed to be limited to their As Thomas Reed Powell noted in 1945 in reviewing the
particular facts." development of the doctrine:

In 1941, Alabama v. King & Boozer9 held that the Since the Dravo case settled that it does not matter
constitutional immunity of the United States from state that the economic burden of the gross receipts tax
taxation was not infringed by the imposition of a state sales may be shifted to the Government, it could hardly
tax with which the seller was chargeable but which he was matter that the shift comes about by explicit
required to collect from the buyer, in respect of materials agreement covering taxes rather than by being
purchased by a contractor with the United States on a cost- absorbed in a higher contract price by bidders for a
plus basis for use in carrying out its contract, despite the fact contract. The situation differed from that in
that the economic burden of the tax was borne by the United the Panhandle and similar cases in that they involved
States. but two parties whereas here the transaction was
22
tripartite. These cases are condemned in so far as States, (See Commonwealth Act No. 733) provided
they rested on the economic ground of the ultimate such purchases are supported by serially numbered
incidence of the burden being on the Government, Certificates of Tax Exemption issued by the vendee-
but this condemnation still leaves open the question agency, as required by General Circular No. V-41,
whether either the state or the United States when dated October 16, 1947. . . .
acting in governmental matters may be made legally
liable to the other for a tax imposed on it as vendee. The circular referred to reads:
The carefully chosen language of the Chief Justice
keeps these cases from foreclosing the issue. . . . Yet Goods purchased locally by U.S. civilian agencies
at the time it would have been a rash man who would directly from manufacturers, producers or importers
find in this a dictum that a sales tax clearly on the shall be exempt from the sales tax.
Government as purchaser is invalid or a dictum that
Congress may immunize its contractors.13 It was issued purportedly to implement the Agreement
between the Republic of the Philippines and the United States
If a claim of exemption from sales tax based on state of America Concerning Military Bases,16 but we find nothing
immunity cannot command assent, much less can a claim in the language of the Agreement to warrant the general
resting on statutory grant. exemption granted by that circular.

It may indeed be that the economic burden of the tax finally


falls on the purchaser; when it does the tax becomes a part of The pertinent provisions of the Agreement read:
the price which the purchaser must pay. It does not matter that ARTICLE V. Exemption from Customs and Other
an additional amount is billed as tax to the purchaser. The Duties
method of listing the price and the tax separately and defining
taxable gross receipts as the amount received less the amount No import, excise, consumption or other tax, duty or
of the tax added, merely avoids payment by the seller of a tax impost shall be charged on material, equipment,
on the amount of the tax. The effect is still the same, namely, supplies or goods, including food stores and clothing,
that the purchaser does not pay the tax. He pays or may pay for exclusive use in the construction, maintenance,
the seller more for the goods because of the seller's obligation, operation or defense of the bases, consigned to, or
but that is all and the amount added because of the tax is paid destined for, the United States authorities and
to get the goods and for nothing else.14 certified by them to be for such purposes.
ARTICLE XVIII.Sales and Services Within the
But the tax burden may not even be shifted to the purchaser at Bases
all. A decision to absorb the burden of the tax is largely a
matter of economics.15 Then it can no longer be contended that 1. It is mutually agreed that the United States Shall
a sales tax is a tax on the purchaser. have the right to establish on bases, free of all
licenses; fees; sales, excise or other taxes, or imposts;
We therefore hold that the tax imposed by section 186 of the Government agencies, including concessions, such as
National Internal Revenue Code is a tax on the manufacturer sales commissaries and post exchanges, messes and
or producer and not a tax on the purchaser except probably in social clubs, for the exclusive use of the United
a very remote and inconsequential sense. Accordingly its levy States military forces and authorized civilian
on the sales made to tax-exempt entities like the NPC is personnel and their families. The merchandise or
permissible. services sold or dispensed by such agencies shall be
free of all taxes, duties and inspection by the
II Philippine authorities. . . .
This conclusion should dispose of the same issue with respect
to sales made to the VOA, except that a claim is here made Thus only sales made "for exclusive use in the construction,
that the exemption of such sales from taxation rests on maintenance, operation or defense of the bases," in a word,
stronger grounds. Even the Court of Tax Appeals appears to only sales to the quartermaster, are exempt under article V
share this view as is evident from the following portion of its from taxation. Sales of goods to any other party even if it be
decision: an agency of the United States, such as the VOA, or even to
the quartermaster but for a different purpose, are not free from
With regard to petitioner's sales to the Voice of the payment of the tax.
America, it appears that the petitioner and the
respondent are in agreement that the Voice of On the other hand, article XVIII exempts from the payment of
America is an agency of the United States the tax sales made within the base by (not sales to)
Government and as such, all goods purchased locally commissaries and the like in recognition of the principle that a
by it directly from manufacturers or producers are sales tax is a tax on the seller and not on the purchaser.
exempt from the payment of the sales tax under the
provisions of the agreement between the Government It is a familiar learning in the American law of taxation that
of the Philippines and the Government of the United tax exemption must be strictly construed and that the
23
exemption will not be held to be conferred unless the terms valorem tax was based on the market value of the minerals set
under which it is granted clearly and distinctly show that such forth in the returns, subject to adjustment upon the receipt of
was the intention of the parties.17 Hence, in so far as the the smelter showing the actual market value of the minerals to
circular of the Bureau of Internal Revenue would give the tax the United States.
exemptions in the Agreement an expansive construction it is
void. Due to the interruption, of the communications outbreak of the
war, the principal office of Surigao Consolidated lost contact
We hold, therefore, that sales to the VOA are subject to the with its mines and never received the production reports for
payment of percentage taxes under section 186 of the Code. the fourth quarter of 1941. In order to avoid incurring any tax
The petitioner is thus liable for P12,910.60, computed as penalty, said company, on January 19, 1942, deposited a check
follows: amount of P27,000.00 payable to and "indorsed in favor of the
City Treasurer (of Iloilo) in payment of the ad valorem taxes
Sales to NPC P145,866.70
(approximate adjustment to be made when circumstances
Sales to VOA P 1,683.00 allow it) for the fourth quarter of 1941."

After the termination of the war, Commonwealth Act No. 722


Total sales subject to tax P147,549.70 was enacted, which provided for the filing of returns for
minerals removed during the last quarter of 1941 up to
December 31, 1945 and the payment of ad valorem tax on said
7% sales tax due thereon P 10,328.48 minerals to February 28, 1946.
Add: 25% surcharge P 2,582.12 Availing of the provisions of the aforementioned Act, the
Surigao Consolidated, on December 28, 1945, ad valoremtax
Total amount due and collectible P 12,910.60 returns for the fourth quarter declaring as its tax liability the
amount of P43,486.54. Applying the amount of P27,000.00
previously deposited with the City Treasurer of Iloilo, the
Accordingly, the decision a quo is modified by ordering the returns indicated an unpaid balance of P16,486.54 as the " tax
petitioner to pay to the respondent Commission the amount of subject to revision."
P12,910.60 as sales tax and surcharge, with costs against the
petitioner. However, on February 26, 1946, the Surigao Consolidated
filed an amended ad valorem tax returns under which
amendment it declared a reduced ad valorem tax in the
G.R. No. L-14878 December 26, 1963 amount of P37,189.00. And crediting itself with the amount of
SURIGAO CONSOLIDATED MINING CO., P27,000.00 previously deposited with the City Treasurer of
INC., petitioner, Iloilo, it paid the remaining balance of P10,189.00.
vs.
COLLECTOR OF INTERNAL REVENUE and COURT On September 24, 1946, the Surigao Consolidated again filed
OF APPEALS, respondents. a statement of adjustment allegedly containing figures and
Leido, Angeles and Valladolid for petitioner. data of the complete smelter returns for minerals shipped to
Office of the Solicitor General for respondents. the United States. In the accompanying letter, a request was
REGALA, J.: made, this time not only for the reduction of tax, but for the
refund of the amount of P18,107.87. On October 19, 1946,
This is a petition to review the decision of the Court of Tax another statement of adjustment was filed reducing the claim
Appeals in Manila Civil Case No. 4770 dismissing for lack of for refund to P17,158.01. Finally, on March 15, 1947, a third
merit the action of the Surigao Consolidated Mining Company statement of adjustment was submitted further reducing the
for the refund of the total amount of P17,051.14 allegedly claim for refund to the amount of P 17,051.14.
representing overpayment of ad valorem tax for the fourth
quarter of 1941. As the Collector of Internal Revenue denied the request for the
refund of the said P17,051.14 on the ground that the money
The record shows that before the outbreak of World War II, already paid as ad valorem tax was legally due to the
the Surigao Consolidated Mining Company (called SURIGAO Government, the Surigao Consolidated instituted with the
CONSOLIDATED, for short), a domestic corporation which Court of First Instance of Manila civil action for its recovery.
then had its principal office in the City of Iloilo, was operating However, upon the enactment of Republic Act No. 1125
its mining concessions in Mainit, Surigao. Pursuant to section creating the Court of Tax Appeals, the case was remanded to
246 of the Internal Revenue Code, which prescribes the time the latter court for proper disposition.
and manner of payment of royalties or ad valorem taxes, it
filed a bond and had been regularly filing its returns for After hearing, the Court of Tax Appeals, on July 16, 1958,
minerals removed from its mines during each calendar quarter finding that the amount sought to be refunded been lawfully
and paying ad valorem tax thereon within 20 days after the collected, rendered its decision denying the claim for refund.
close of every quarter. In each case, computation of the ad The Surigao Consolidated in due time filed a motion for new
24
trial on the ground that the decision was "not justified by the The application of a statute creating an exemption for
overwhelming weight of evidence" and that it was contrary to taxation to taxes already assessed depends upon
law. The tax court, however, denied the motion. Hence, this whether it is retrospective in its operation. Such a
petition for review.lawphil.net statute has no retrospective operation, unless by the
terms thereof it clearly appears to be the intention of
The question to be resolved is whether or not Surigao the legislature that the exemption shall relate back to
Consolidated, petitioner herein, is entitled to the refund of ad taxes which have already become fixed, as a statute
valorem tax in the total amount of P17,051.14, itemized as which releases a person or corporation from a burden
follows: common to the whole community should be strictly
(Louisville Water Co. v. Hamilton, 81 Ky. 517, ...
cited 6 American and English Ann. Cases, p. 4
1. Ad valorem tax on minerals removed from the mines P1,191.46
38).
but allegedly lost in transit on account of war
Petitioner having failed to point to Us any portion of the law
that explicitly provides for a refund of those taxpayers who
2. Ad valorem tax on minerals extracted from the mines 15,609.73
but allegedly looted during the Japanese occupation had paid their taxes on the items and under circumstances
mentioned in the abovequoted provision, We are constrained
3. Alleged overpayment of ad valorem tax on minerals 249.95to hold that the benefits of said provision does not extend to it.
shipped to the United States Even assuming arguendo that the provisions of Republic Act
No. 81 authorizes the refund of taxes already paid by
petitioner, the latter would not still be entitled to the refund
P17,051.14
sought for under the first item. It is to be noted that petitioner's
The first, item in petitioner's claim for refund in the amount of evidence of the alleged loss in transit as observed by the Court
P1,191.46 represents the amount of ad valorem tax paid on of Tax Appeals, merely of testimony of witnesses who did not
minerals removed from the mines but alleged to have been lost have personal knowledge of the circumstances which gave rise
in transit on account of the war. The refund is sought under to the loss. Such evidence cannot, of course be considered
section 1 (d) of Republic Act No. 81, which provides as sufficient to establish that the minerals were in fact lost. Judge
follows: Luciano of the Court of Tax Appeals during the trial, would be
SECTION 1. Any provision of existing law to the to create a dangerous precendent.
contrary notwithstanding:
Under the second item, petitioner seeks to recover the amount
xxx xxx xxx of P15,609.73 representing the ad valorem tax paid on
(d) All unpaid royalties, ad valorem or specific taxes minerals extracted from its mines but alleged to have been
on all minerals mined from mining claims or looted during the enemy occupation. In connection with the
concessions existing and in force on January first, alleged looting of the minerals, the Tax Court has this to say:
nineteen hundred and forty-two, and which minerals
were lost by reason of the war or circumstances We are again confronted with the case where plaintiff
arising therefrom, are hereby condoned: Provided, has, to our mind, failed to present adequate evidence
That if said minerals had been or shall be recovered to prove such loss. The evidence, if at all, is merely
by the miner or producer, such royalties, ad limited to the general and uncorroborated statements
valorem or specific taxes on the same shall be of plaintiff's officers that the same were lost in the
immediately due and demandable. mines. These testimonies cannot be taken on their full
face value, especially because they had no direct
Petitioner argues that since the law condones the taxes due supervision over the handling of such minerals at the
from taxpayers who failed to pay their taxes, it would be time of the alleged loss. Much less had these officers
unfair to deny this benefit to those taxpayers who had been have personal knowledge of the loss. Under the
prompt in paying theirs. The argument merits careful circumstances, we can not make the finding that the
consideration. At first it would seem to be sound and logical. minerals were in fact lost.
But the aforequoted section clearly refers to the condonation
of unpaid taxes only. The condonation of a tax liability is Going over the record, We find no reason to disturb the above
equivalent and is in the nature of a tax exemption. Being so, it findings of the Court of Tax Appeals, there being no showing
should be sustained only when expressed in explicit terms, and that they are not substantiated by the evidence. With this
it can not be extended beyond the plain meaning of those observation, it would be useless ceremony to delve into the
terms. It is the universal rule that he who claims an exemption issue of whether ad valorem tax should be or should not be
from his share of the common burden of taxation must justify paid on minerals extracted from the mines but not removed
his claim by showing that the Legislature intended to exempt therefrom.
him by words too plain to be mistaken. (Statutory
Construction by Francisco, citing Government of P. I. v. One more item in petitioner's claim is the alleged overpayment
Monte de Piedad, 25 Phil. 42.) of ad valorem tax in the amount of P249.95 on the minerals
shipped to the United States. It is that an ad valorem tax in the
amount of P20,387.81 was originally paid on the minerals
25
shipped to the United States with a gross value of VELASCO, JR.,
P410,299.49; that the smelter returns from the United States NACHURA,
show that the actual market value of the minerals shipped to CITY GOVERNMENT OF REYES,
the States was P416,895.28; and that after deducting all BATANGAS represented by LEONARDO-DE CASTRO, and
allowable deductions amounting in all to P1,828,34, the true HON. ANGELITO DONDON BRION, JJ.
and correct amount of ad valoremtax on said minerals was A. DIMACUHA, Batangas City Mayor,
P20,137.86. Petitioner, therefore, claims difference between MR. BENJAMIN S. PARGAS,
the amount of P20,387.81 and P20,137.86 is an overpayment. Batangas City Treasurer, and
It is not disputed that, as indicated above, the amount of ad ATTY. TEODULFO A. DEQUITO, Promulgated:
valorem tax on the minerals shipped to the United States is Batangas City Legal Officer,
subject to adjustment upon the receipt of the smelter returns Respondents. December 11, 2008
showing their actual market value Petitioner contends that the x------------------------------------------------
statements of adjustment alleged to contain the figures and -----x
data set forth in the smelter returns are adequate evidence of
the actual market value of the minerals shipped to the United DECISION
States.

The best evidence of the actual market value minerals shipped CARPIO, J.:
to the United States are the smelter returns themselves. These
returns are admittedly petitioner's possession, but for unknown The Case
reasons, petitioner failed to produce them during the trial. As This is a petition for review on certiorari[1] assailing the
there is no credible and satisfactory explanation for the non- Regional Trial Courts Order[2] dated 2 May 2002 in Civil Case
production of said returns, there arises the presumption that if No. 5343 as well as the 19 November 2002 Order denying the
produced they would be adverse to petitioner. Under the Motion for Reconsideration. In the assailed orders, Branch 8
circumstances, the Court of Tax Appeals cannot be said to of the Regional Trial Court (RTC) of Batangas City (RTC-
have committed error, much less abused its discretion, in Branch 8) reversed the 28 March 2001 Order [3] issued by
refusing to give any probative value statements of adjustment. Branch 3 of RTC-Batangas City (RTC-Branch 3). RTC-
It is a settled doctrine that in a suit for the recovery of the Branch 8 declared that under its legislative franchise, Digital
payment of taxes or any portion thereof as having been Telecommunications Philippines, Inc. (petitioner) is not
illegally or erroneously collected, the burden is upon the exempt from paying real property tax assessed by
taxpayer to establish the facts which show the illegality of the the Batangas City Government (respondent).
tax or that the determination thereof is erroneous. In this case, The Facts
petitioner failed to show that the amount of taxes sought to be
refunded have been erroneously collected. On 17 February 1994, Republic Act No. 7678 (RA
7678)[4] granted petitioner a 25-year franchise to install,
Conformably to the above, We are of the opinion that the operate and maintain telecommunications systems throughout
Court of Tax Appeals did not commit any error in denying the Philippines. Section 5 of RA 7678 reads:
petitioner's claim.
Sec. 5. Tax Provisions. - The grantee shall
WHEREFORE, the decision appealed from is hereby be liable to pay the same taxes on its real
affirmed. Costs against petitioner. estate, buildings, and personal
property exclusive of this franchise as
DIGITAL TELECOMMUNICATIONS G.R. No. 156040 other persons or corporations are now or
PHILIPPINES, INC., hereafter may be required by law to pay.
Petitioner, Present: In addition thereto, the grantee shall pay to
the Bureau of Internal Revenue each year,
P within thirty (30) days after the audit and
UNO, C. approval of the accounts, a franchise tax as
J., may be prescribed by law of all gross
QUISUMBING, receipts of the telephone or other
YNARES-SANTIAGO, telecommunications businesses transacted
CARPIO, under this franchise by the
AUSTRI grantee; Provided, That the grantee shall
A-MARTINEZ, continue to be liable for income taxes
- versus - CORONA, payable under Title II of the National
CARPIO MORALES, Internal Revenue Code pursuant to Section 2
AZCUNA, of Executive Order No. 72 unless the latter
TINGA, enactment is amended or repealed, in which
CHICO- case the amendment or repeal shall be
NAZARIO, applicable thereto.
26
property taxes, but those not so used should
The grantee shall file the return with and pay be held liable thereto.[10]
the tax due thereon to the Commissioner of
Internal Revenue or his duly authorized RTC-Branch 3 reasoned that the phrase exclusive of this
representative in accordance with the franchise in the first sentence of Section 5 of RA 7678 limits
National Internal Revenue Code and the the real properties that are subject to realty tax only to those
return shall be subject to audit by the Bureau which are not used in petitioners telecommunications
of Internal Revenue. (Boldfacing and business. In short, petitioners real properties used in its
underscoring supplied) telecommunications business are not subject to realty tax.[11]

On 1 May 2001, respondent moved for reconsideration.


Sometime in 1997, respondent issued a building permit for the Before acting on the motion, the Presiding Judge of RTC-
installation of petitioners telecommunications facilities Branch 3 voluntarily inhibited himself because the newly-
in Batangas City. After the installation of the facilities, elected mayor of Batangas City was his kumpadre.[12] The case
petitioner applied with the Mayors office of Batangas City for was re-raffled to RTC-Branch 8.
a permit to operate. Because of a discrepancy in the actual
investment costs used in computing the prescribed fees for the The Ruling of RTC-Branch 8
clearances and permits, petitioner was not able to secure a
Mayors Permit for the year 1998. Petitioner was also advised On 2 May 2002, RTC-Branch 8 issued an Order which reads:
to settle its unpaid realty taxes. However, petitioner claimed
exemption from the payment of realty tax, citing the first WHEREFORE, the defendants Motion for
sentence of Section 5 of RA 7678, the Letter-Opinion of the Reconsideration is hereby granted. The
Bureau of Local Government Finance (BLGF) dated 8 April Order of this Court dated March 21, 2001 is
1997,[5] and the letter of the Office of the President dated 12 hereby set aside and, in lieu thereof,
March 1996.[6] judgment is hereby rendered in favor of the
defendants and against the plaintiff:
In 1999, respondent refused to issue a Mayors Permit to
petitioner without payment of its realty taxes. - DISMISSING
the Amended Complaint;
On 22 June 1999, petitioner paid P68,890.39 under protest as - DECLARING that the plaintiff
fees for the permit to operate, but respondent refused to accept Digital Telecommunications
the payment unless petitioner also paid the realty taxes.[7] Philippines, Inc., under its legislative
franchise RA No. 7678, is not exempted
On 2 July 1999, respondent threatened to close down from the payment of real property tax
petitioners operations. Hence, on 3 July 1999, petitioner being collected by the defendant City
instituted a complaint for prohibition and mandamus with of Batangas and, accordingly,
prayer for a temporary restraining order or writ of preliminary - ORDERING said plaintiff to pay the
injunction. This case was raffled to RTC-Branch 3. On the City of Batangas real estate taxes in the
same date, respondent served a Cease and Desist Order on amount of Ph4,620,683.33 which was
petitioner.[8] due as of January, 2000, as well as those
due thereafter, plus corresponding
On 20 January 2000, during the pendency of the complaint, interest and penalties.[13]
petitioner paid its realty taxes of P2,043,265 under
protest.[9] Petitioner resumed its business, rendering the other On 29 May 2002, petitioner moved for reconsideration. On 19
issues raised in petitioners complaint moot. Consequently, the November 2002, RTC-Branch 8 denied petitioners motion for
only issue left for resolution is whether petitioner is exempt reconsideration.
from the realty tax under Section 5 of RA 7678.
Hence, this petition.
The Ruling of RTC-Branch 3
The Issue
On 28 March 2001, RTC-Branch 3 issued the following
Order: The sole issue for resolution is whether, under the first
sentence of Section 5 of RA 7678, petitioners real properties
WHEREFORE, premises considered, the used in its telecommunications business are exempt from the
Court hereby declares that the real estate, realty tax.
buildings and personal property of plaintiff
Digital Telecommunications Philippines, Petitioners Contentions
Inc. which are used in the operation of its
franchise are exempt from payment of real Petitioner contends that its exemption from realty tax is based
on the first sentence of Section 5 of RA 7678. Petitioner
27
claims that the evident purpose of the phrase exclusive of this realty tax on its real properties used in its telecommunications
franchise is to limit the real properties that are subject to business. The first sentence of Section 5 of RA 7678 makes
realty tax only to properties that are not used in petitioners petitioner liable to pay the same taxes for its real estate,
telecommunications business.[14] Petitioner asserts that the buildings, and personal property exclusive of this franchise as
phrase exclusive of this franchise must not be construed as a other persons or corporations are or hereafter may be required
useless surplusage. Petitioner points out that its exemption by law to pay. This shows the clear intent of Congress to tax
from realty tax was affirmed in two separate opinions, one petitioners real and personal properties.[18]Respondent asserts
rendered by the Office of the President on 12 March 1996 and that the phrase exclusive of this franchise is a qualification of
the other by the BLGF on 8 April 1997 and reaffirmed on 4 the broad declaration on the franchisees liability for taxes
January 1999.[15] The BLGF declared that the real properties which is the main thrust of the first sentence of Section
of Digitel, which are used in the operation of its franchise are 5. Respondent points out that petitioner is paying taxes and
x x x found to be exempt from the payment of real property fees on all its motor vehicles, which are personal properties,
taxes beginning 1 January 1993. However, all other properties without distinction.[19] Respondent also points out that
of that company not used in connection with the operation of petitioner admits that the first sentence of Section 5 of RA
its franchise shall remain taxable.[16] 7678 is ambiguous with respect to the phrase exclusive of this
franchise,[20] thus petitioner resorted to the rules on statutory
construction.[21]

Petitioner further argues that under the Local Government Respondent adds that the legislative franchises granted to
Code, the realty tax is imposed on all lands, buildings, other telecommunications companies contain the same phrase
machineries and other improvements attached to real property. exclusive of this franchise. This shows the intent of Congress
A franchise is an incorporeal being, a special privilege granted to make franchisees liable for the realty tax rather than exempt
by the legislature. Hence, to read the first sentence of Section them even if the real properties are used in their
5 of RA 7678 to mean that the franchisee shall pay taxes on its telecommunications business.[22]
real properties used in its telecommunications business would
render the phrase exclusive of this franchise meaningless. The Office of the Solicitor General (OSG), appearing for
respondent, contends that the first sentence of Section 5
Petitioner admits that the franchise granted under RA 7678 is provides for petitioners general liability to pay taxes and does
a personal property, but the franchise is not the personal not provide for petitioners exemption from realty
property referred to in the first sentence of Section 5. tax. The OSG invokes the doctrine of last antecedent which is
Petitioner asserts that the phrase real estate, buildings, and an aid in statutory construction. The OSG argues that under
personal property in the first sentence of Section 5 refers this doctrine, the qualifying word or phrase only restricts the
solely to real properties and does not include personal word or phrase to which the qualifying word or phrase is
properties. Petitioner explains thus: immediately associated and not the word or phrase which is
distantly or remotely located. In the first sentence of Section 5,
For PTEs (public telecommunication the phrase exclusive of this franchise restricts only the words
entities), these personal properties include personal property which immediately precede the phrase
the switches which were installed in the exclusive of this franchise. This means that the franchise, an
exchange buildings as well as the outside intangible personal property, should be excluded from the
and inside plant equipment.Initially, these personal properties that are subject to taxes under the first
telecommunications materials and equipment sentence of Section 5. The OSG adds that the use of the
were personal property in character. But, comma to separate real estate, buildings from personal
having been installed and made operational property exerts a dominant influence in the application of the
by being attached to the exchange building, doctrine of last antecedent. Further, the OSG reiterates that
they are now converted into immovables or laws granting exemption from tax are to be
real property. That being the case, the construed strictissimi juris against the taxpayer and liberally in
phrase real estate, buildings and personal favor of the taxing power.
property actually refer[s] to properties
that are liable for real estate tax. And,
Congress having made the qualification with
the phrase exclusive of this franchise, only The Ruling of the Court
such real properties that are not used in The petition has no merit.
furtherance of the franchise are subject to
real property tax.[17] (Emphasis supplied) Section 5 of RA 7678 imposes taxes
and does not exempt from realty tax

The issue in this case involves the interpretation of the


Respondents Contentions phrase exclusive of this franchise in the first sentence of
Respondent contends that the phrase exclusive of this Section 5 of RA 7678.
franchise does not mean that petitioner is exempt from the Section 5 of RA 7678 states:
28
same phrase to mean that the term personal property shall not
Sec. 5. Tax Provisions. - The grantee shall include petitioners franchise, which is an intangible personal
be liable to pay the same taxes on its real property.
estate, buildings, and personal
property exclusive of this franchise as We rule that the phrase exclusive of this franchise simply
other persons or corporations are now or means that petitioners franchise shall not be subject to the
hereafter may be required by law to pay. taxes imposed in the first sentence of Section 5. The first
In addition thereto, the grantee shall pay to sentence lists the properties that are subject to taxes, and the
the Bureau of Internal Revenue each year, list excludes the franchise. Thus, the first sentence provides:
within thirty (30) days after the audit and
approval of the accounts, a franchise tax as The grantee shall be liable to pay the same
may be prescribed by law of all gross taxes on its real estate, buildings, and
receipts of the telephone or other personal property exclusive of this
telecommunications businesses transacted franchise as other persons or corporations
under this franchise by the are now or hereafter may be required by law
grantee; Provided, That the grantee shall to pay. (Emphasis supplied)
continue to be liable for income taxes
payable under Title II of the National
Internal Revenue Code pursuant to Section 2 A plain reading shows that the phrase exclusive of this
of Executive Order No. 72 unless the latter franchise is meant to exclude the legislative franchise from the
enactment is amended or repealed, in which properties subject to taxes under the first sentence. In effect,
case the amendment or repeal shall be petitioners franchise, which is a personal property, is not
applicable thereto. subject to the taxes imposed on properties under the first
sentence of Section 5.
The grantee shall file the return with and pay
the tax due thereon to the Commissioner of However, petitioners gross receipts from its franchise
Internal Revenue or his duly authorized are subject to the franchise tax under the second sentence of
representative in accordance with the Section 5. Thus, the second sentence provides:
National Internal Revenue Code and the
return shall be subject to audit by the Bureau In addition thereto, the grantee shall pay to
of Internal Revenue. (Boldfacing and the Bureau of Internal Revenue each year,
underscoring supplied) within thirty (30) days after the audit and
approval of the accounts, a franchise tax as
The first sentence of Section 5 of RA 7678 is the same may be prescribed by law of all gross
provision found in almost all legislative franchises in the receipts of the telephone or other
telecommunications industry dating back to 1905.[23] It is also telecommunications businesses transacted
the same provision that appears in the legislative franchises of under this franchise by the grantee;
other telecommunications companies like Philippine Long x x x (Emphasis supplied)
Distance Telephone Company,[24] Smart Information
Technologies, Inc., and Globe Telecom.[26] Since 1905, no
[25]

telecommunications company has claimed exemption from


realty tax based on the phrase exclusive of this franchise, until In short, petitioners franchise is excluded from the properties
petitioner filed the present case on 3 July 1999.[27] taxable under the first sentence of Section 5 but the gross
receipts from its franchise are expressly taxable under the
The first sentence of Section 5 clearly states that the second sentence of the same Section.
legislative franchisee shall be liable to pay the following taxes:
(1) the same taxes on its real estate, buildings, and personal The first sentence of Section 5 imposes on the franchisee
property exclusive of this franchise as other persons or the same taxes that non-franchisees are subject to with respect
corporations are now or hereafter may be required by law to to real and personal properties. The clear intent is to put the
pay; (2) franchise tax as may be prescribed by law of all gross franchisees and non-franchisees in parity in the taxation of
receipts of the telephone or other telecommunications their real and personal properties. Since non-franchisees have
businesses transacted under this franchise;[28] and (3) income obviously no franchises, the franchise must be excluded from
taxes payable under Title II of the National Internal Revenue the list of properties subject to tax to maintain the parity
Code. between the franchisees and non-franchisees. However, the
franchisee is taxable separately from its franchise. Thus, the
The crux of the controversy lies in the interpretation of the second sentence of Section 5 imposes the franchise tax on
phrase exclusive of this franchise in the first sentence of gross receipts, which under Republic Act No. 7716 has been
Section 5. Petitioner interprets the phrase to mean that its real replaced by the 10% Valued Added Tax effective 1 January
properties that are used in its telecommunications business 1996.[29]
shall not be subject to realty tax. Respondent interprets the
29
Section 5 can be divided into three parts. First is the first
sentence which imposes taxes on real and personal properties, A tax exemption cannot arise from vague inference. The first
excluding one property, that is, the franchise. This puts in sentence of Section 5 does not grant any express or even
parity the franchisees and non-franchisees in the taxation of implied exemption from realty tax. On the contrary, the first
real and personal properties. Second is the second sentence sentence categorically states that the franchisee is subject to
which imposes the franchise tax, which is applicable solely to the same taxes currently imposed, and those taxes that may be
the franchisee. And third is the proviso in the second sentence subsequently imposed, on other persons or corporations,
that imposes the income tax on the franchisee, the same taxpayers that admittedly are all subject to realty tax. The first
income tax payable by non-franchisees. sentence does not limit the imposition of the same taxes to
realty tax only but even to those taxes that may in the future be
Petitioner claims that the first sentence refers only to real imposed on other taxpayers, which future taxes shall also be
properties, and that the phrase exclusive of this franchise imposed on petitioner. Thus, the first sentence of Section 5
exempts petitioner from realty tax on its real properties used in imposes on petitioner not only realty tax but also other taxes.
its telecommunications business. This claim has no basis in
the language of the law as written in the first sentence of The phrase personal property exclusive of this franchise
Section 5. First, the first sentence expressly refers to taxes on merely means that personal property does not include the
real estate and on personal property. Clearly, the first sentence franchise even if the franchise is an intangible personal
does not refer only to taxes on real properties, but also to taxes property. Stated differently, the first sentence of Section 5
on personal properties. The trial court correctly observed that provides that petitioner shall pay tax on its real properties as
petitioner pays taxes on its motor vehicles,[30] which are well as on its personal properties but the franchise, which is an
personal properties, that are used in its telecommunications intangible personal property, shall not be deemed personal
business.[31] There is also the documentary stamp tax on property.
transactions involving real and personal properties, which The historical usage of the phrase exclusive of this franchise
petitioner and other taxpayers are liable for.[32] in franchise laws enacted by Congress indubitably shows that
the phrase is not a grant of tax exemption, but an exclusion of
A franchise granted by Congress to operate a private radio one type of personal property subject to taxes, and the
station for the franchisees communications in deep-sea fishing excluded personal property is the franchise. Thus, the
shows that the first sentence of Section 5 of RA 7678 does not franchises of telecommunications companies in Republic Act
refer to real properties alone. Section 6 of Republic Act No. Nos.
3218 (RA 3218), entitled An Act Granting 4137,[33] 5692,[34] 5739,[35] 5785,[36] 5790,[37] 5791,[38] 5795,[39]
Batas Riego De Dios A Franchise To Construct, Maintain And 5810,[40] 5847,[41] 5848,[42] 5856,[43] 5857,[44] 5913,[45] 5914,[46]
Operate Private Radio Stations For Radio Communications In 5929,[47]5937,[48] 5958,[49] 5959,[50] 5974,[51] 5993,[52] 5994,[53]
Its Deep-Sea Fishing Industry, provides: 6002,[54] 6006,[55] 6007,[56] 6013,[57] 6024,[58] 6097,[59] 6510,[60]
6536,[61] and 6530[62] contain the following common tax
SECTION 6. The grantee shall be liable (1) provision:
to pay the same taxes on its real
estate, building, fishing boats and
personal property, exclusive of this
franchise as other persons or corporations The grantee shall be liable to pay the same
are now, or hereafter may be required by taxes, unless exempted therefrom, on its
law to pay, and shall further be liable (2) to business, real estate, buildings, and personal
pay all other taxes that may be imposed by property, exclusive of this franchise, as
the National Internal Revenue Code by other persons or corporations are now or
reason of this franchise.(Emphasis supplied) hereafter may be required by law to
pay. (Emphasis supplied)
The inclusion of fishing boats, personal properties that can
never be attached to a land or building so as to make them real
properties, demonstrates that Section 6 of RA 3218, like the The phrase unless exempted therefrom in the common
first sentence of Section 5 of RA 7678, not only applies to real provision clearly clarifies that the phrase exclusive of this
properties but also to personal properties. franchise does not grant any tax exemption. To claim tax
exemption, there must be an express exemption from tax in
Second, there is no language in the first sentence of Section 5 another provision of law. On the other hand, the deletion of
expressly or even impliedly exempting petitioner from the phrase unless exempted therefrom from the common
the realty tax. The phrases exemption from real estate tax, provision does not give rise to any tax exemption.
free from real estate tax or not subject to real estate tax do not
appear in the first sentence. No matter how one reads the first Bayantel and Digitel Cases
sentence, there is no grant of exemption, express or implied, In City Government of Quezon City
from realty tax. In fact, the first sentence expressly imposes v. Bayan Telecommunications, Inc.,[63] this Courts Second
taxes on both real and personal properties, excluding only the Division held that all realties which are actually, directly and
intangible personal property that is the franchise. exclusively used in the operation of its franchise are exempted
30
from any property tax. The Second Division added jurisdiction of Pangasinan that are actually, directly and
that Bayantels franchise being national in character, the exclusively used in its franchise are exempt from realty tax
exemption granted applies to all its real and personal under the first sentence of Section 5 of RA 7678. The Third
properties found anywhere within the Philippines. The Second Division explained thus:
Division reasoned in this wise:
The more pertinent issue to consider is
The legislative intent expressed in the whether or not, by passing Republic Act No.
phrase exclusive of this franchise cannot be 7678, Congress intended to exempt
construed other than distinguishing between petitioner DIGITELs real properties
two (2) sets of properties, be they real or actually, directly and exclusively used by the
personal, owned by the franchisee, namely, grantee in its franchise.
(a) those actually, directly and exclusively
used in its radio or telecommunications The fact that Republic Act No. 7678 was a
business, and (b) those properties which are later piece of legislation can be taken to
not so used. It is worthy to note that the mean that Congress, knowing fully well that
properties subject of the present controversy the Local Government Code had already
are only those which are admittedly falling withdrawn exemptions from real property
under the first category. taxes, chose to restore such immunity even
To the mind of the Court, Section 14 of Rep. to a limited degree. Accordingly:
Act No. 3259 effectively works to grant or
delegate to local governments of Congress The Court views this
inherent power to tax the franchisees subsequent piece of
properties belonging to the second group of legislation as an express
properties indicated above, that is, all and real intention on the
properties which, exclusive of this franchise, part of Congress to once
are not actually and directly used in the again remove from
pursuit of its franchise. As may be recalled, the LGCs delegated taxing
the taxing power of local governments under power, all of the
both the 1935 and the 1973 Constitutions franchisees
solely depended upon an enabling law. x x x properties that are
Absent such enabling law, local government actually, directly and
units were without authority to impose and exclusively used in the
collect taxes on real properties within their pursuit of its franchise.
respective territorial jurisdictions. While
Section 14 of Rep. Act No. 3259 may be In view of the unequivocal intent of
validly viewed as an implied delegation of Congress to exempt from real property tax
power to tax, the delegation under that those real properties actually, directly and
provision, as couched, is limited to exclusively used by petitioner DIGITEL in
impositions over properties of the franchisee the pursuit of its franchise, respondent
which are not actually, directly and Province of Pangasinan can only levy real
exclusively used in the pursuit of its property tax on the remaining real properties
franchise. Necessarily, other properties of the grantee located within its territorial
of Bayantel directly used in the pursuit of its jurisdiction not part of the above-stated
business are beyond the pale of the classification. Said exemption, however,
delegated taxing power of local merely applies from the time of
governments. In a very real sense, therefore, the effectivity of
real properties of Bayantel, save those petitioner DIGITELs legislative franchise
exclusive of its franchise, are subject to and not a moment sooner.
realty taxes. Ultimately, therefore, the
inevitable result was that all realties
which are actually, directly and Nowhere in the language of the first sentence of Section 5 of
exclusively used in the operation of its RA 7678 does it expressly or even impliedly provide that
franchise are exempted from any petitioners real properties that are actually, directly and
property tax. (Emphasis supplied) exclusively used in its telecommunications business are
exempt from payment of realty tax. On the contrary, the first
sentence of Section 5 specifically states that the petitioner, as
the franchisee, shall pay the same taxes on its real estate,
In Digital Telecommunications Philippines, Inc. (Digitel) buildings, and personal property exclusive of this franchise as
v. Province of Pangasinan,[64] this Courts Third Division ruled other persons or corporations are now or hereafter may be
that Digitels real properties located within the territorial required by law to pay.
31
The heading of Section 5 is Tax Provisions, not Tax
Exemptions. To reiterate, the phrase exemption from real In RCPI, the Court emphasized that
estate tax or other words conveying exemption from realty tax telecommunications companies which were granted
do not appear in the first sentence of Section 5. The phrase legislative franchise are liable to realty tax. The intent to grant
exclusive of this franchise in the first sentence of Section realty tax exemption cannot be discerned from Republic Act
5 merely qualifies the phrase personal property to exclude No. 4054[69] and neither from the legislative franchises of
petitioners legislative franchise, which is an intangible other telecommunications companies. Tax exemptions
personal property. Petitioners franchise is subject to tax in the granted to one or more, but not to all, telecommunications
second sentence of Section 5 which imposes the franchise companies similarly situated will violate the constitutional
tax. Thus, there is no grant of tax exemption in the first rule on uniformity of taxation.[70]
sentence of Section 5.
The intent of Congress is to make
The interpretation of the phrase exclusive of this franchise in legislative franchisees liable to tax
the Bayantel and Digitel cases goes against the basic principle In PLDT v. City of Davao,[71] it was observed that after the
in construing tax exemptions. In PLDT v. City imposition of VAT on telecommunications companies,
of Davao,[65] the Court held that tax exemptions should be Congress refused to grant any tax exemption to
granted only by clear and unequivocal provision of law on the telecommunications companies that sought new franchises
basis of language too plain to be mistaken. They cannot be from Congress, except the exemption from specific
extended by mere implication or inference. tax.[72] More importantly, the uniform tax provision in these
new franchises expressly states that the franchisee shall pay
Tax exemptions must be clear and unequivocal. A taxpayer not only all taxes, except specific tax, under the National
claiming a tax exemption must point to a specific provision of Internal Revenue Code, but also all taxes under other
law conferring on the taxpayer, in clear and plain terms, applicable laws,[73] one of which is the Local Government
exemption from a common burden. Any doubt whether a tax Code which imposes the realty tax.[74]
exemption exists is resolved against the taxpayer.[66]
RCPI case In fact, Section 12 of Republic Act No. 9180 (RA
9180),[75] the legislative franchise of Digitel Mobile, a 100%-
In Radio Communications of the Philippines, Inc. (RCPI) v. owned subsidiary of petitioner, states that the franchisee, its
Provincial Assessor of South Cotabato,[67] the Courts First successors or assigns shall be subject to the payment of all
Division held that RCPIs radio relay station tower, radio taxes, duties, fees or charges and other impositions under the
station building, and machinery shed are real properties and National Internal Revenue Code of 1997, as amended, and
are subject to real property tax. The Court added that: other applicable laws.[76] Section 12 of RA 9180 provides:
RCPI cannot also invoke the equality of
treatment clause under Section 23 of SECTION 12. Tax Provisions. The grantee,
Republic Act No. 7925. The franchises of its successors or assigns, shall be subject
Smart, Islacom, TeleTech, Bell, Major to the payment of all taxes, duties, fees or
Telecoms, Island Country, charges and other impositions under the
and IslaTel,[68] all expressly declare that National Internal Revenue Code of 1997,
the franchisee shall pay the real estate tax, as amended, and other applicable laws:
using words similar to Section 14 of RA Provided, That nothing herein shall be
2036, as amended. The provisions of these construed as repealing any specific tax
subsequent telecommunication franchises exemptions, incentives, or privileges granted
imposing the real estate tax on franchisees under any relevant law: Provided, further,
only confirm that RCPI is subject to the real That all rights, privileges, benefits and
estate tax. Otherwise, RCPI will stick out exemptions accorded to existing and future
like a sore thumb, being the only telecommunications franchises shall
telecommunications company exempt from likewise be extended to the grantee.
the real estate tax, in mockery of the spirit of
equality of treatment that RCPI is invoking, The grantee shall file the return with the city
not to mention the violation of the or province where its facility is located and
constitutional rule on uniformity of taxation. pay the income tax due thereon to the
Commissioner of Internal Revenue or his
It is an elementary rule in taxation that duly authorized representatives in
exemptions are strictly construed against the accordance with the National Internal
taxpayer and liberally in favor of the taxing Revenue Code and the return shall be
authority. It is the taxpayers duty to justify subject to audit by the Bureau of Internal
the exemption by words too plain to be Revenue. (Emphasis supplied)
mistaken and too categorical to be
misinterpreted. (Emphasis supplied)
32
Thus, Digitel Mobile is subject to tax on its real estate and The antecedents as found by the Court of Appeals are
personal properties, whether or not used in its reproduced hereinbelow, the same being largely undisputed by
telecommunications business. the parties.
Private respondent is a non-stock, non-profit
In Compagnie Financiere Sucres et Denrees v. Commissioner educational institution with auxiliary units
of Internal Revenue,[77] the Court ruled that the governing and branches all over the Philippines. One
principle is that tax exemptions are to be construed such auxiliary unit is the Institute of
in strictissimi juris against the taxpayer and liberally in favor Philippine Culture (IPC), which has no legal
of the taxing authority he who claims an exemption must be personality separate and distinct from that of
able to justify his claim by the clearest grant of statute. A private respondent. The IPC is a Philippine
person claiming an exemption has the burden of justifying the unit engaged in social science studies of
exemption by words too plain to be mistaken and too Philippine society and culture. Occasionally,
categorical to be misinterpreted. Tax exemptions are never it accepts sponsorships for its research
presumed and the burden lies with the taxpayer to clearly activities from international organizations,
establish his right to exemption.[78] private foundations and government
agencies.
BLGF Opinions
On 25 October 2004, the BLGF issued Memorandum Circular On July 8, 1983, private respondent received
No. 15-2004.[79] This circular reversed the BLGFs Letter- from petitioner Commissioner of Internal
Opinion dated 8 April 1997 recognizing realty tax exemption Revenue a demand letter dated June 3, 1983,
under the phrase exclusive of this franchise. This later circular assessing private respondent the sum of
states that the real properties owned by Globe and Smart P174,043.97 for alleged deficiency
Telecommunications and all other telecommunications contractor's tax, and an assessment dated
companies similarly situated are subject to the realty tax. The June 27, 1983 in the sum of P1,141,837 for
BLGF has reversed its opinion on the realty tax exemption of alleged deficiency income tax, both for the
telecommunications companies. Hence, petitioners claim of fiscal year ended March 31, 1978. Denying
tax exemption based on BLGFs opinion does not hold said tax liabilities, private respondent sent
water. Besides, the BLGF has no authority to rule on claims petitioner a letter-protest and subsequently
for exemption from the realty tax.[80] filed with the latter a memorandum
contesting the validity of the assessments
WHEREFORE, we DENY the petition. We AFFIRM the 2 .
May 2002 and 19 November 2002 Orders of the Regional On March 17, 1988, petitioner rendered a
Trial Court, Branch 8, Batangas City, in Civil Case No. 5343. letter-decision canceling the assessment for
SO ORDERED. deficiency income tax but modifying the
assessment for deficiency contractor's tax by
increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for
G.R. No. 115349 April 18, 1997 a reconsideration or reinvestigation of the
COMMISSIONER OF INTERNAL modified assessment. At the same time, it
REVENUE, petitioner, filed in the respondent court a petition for
vs. review of the said letter-decision of the
THE COURT OF APPEALS, THE COURT OF TAX petitioner. While the petition was pending
APPEALS and ATENEO DE MANILA before the respondent court, petitioner
UNIVERSITY, respondents. issued a final decision dated August 3, 1988
reducing the assessment for deficiency
PANGANIBAN, J.: contractor's tax from P193,475.55 to
In conducting researches and studies of social organizations P46,516.41, exclusive of surcharge and
and cultural values thru its Institute of Philippine Culture, is interest.
the Ateneo de Manila University performing the work of an
independent contractor and thus taxable within the purview of On July 12, 1993, the respondent court
then Section 205 of the National Internal Revenue Code rendered the questioned decision which
levying a three percent contractor's tax? This question is dispositively reads:
answer by the Court in the negative as it resolves this petition
assailing the Decision 1 of the Respondent Court of WHEREFORE, in view of
Appeals 2 in CA-G.R. SP No. 31790 promulgated on April 27, the foregoing,
1994 affirming that of the Court of Tax Appeals. 3 respondent's decision is
SET ASIDE. The
The Antecedent Facts deficiency contractor's tax
assessment in the amount
of P46,516.41 exclusive of
33
surcharge and interest for occupation tax under
the fiscal year ended Section 12 of the Local
March 31, 1978 is hereby Tax Code) whose activity
CANCELED. No consists essentially of the
pronouncement as to cost. sale of all kinds of
SO ORDERED. services for a fee
Not in accord with said decision, petitioner has come regardless of whether or
to this Court via the present petition for review not the performance of the
raising the following issues: service calls for the
exercise or use of the
1) WHETHER OR NOT physical or mental
PRIVATE faculties of such
RESPONDENT FALLS contractors or their
UNDER THE PURVIEW employees.
OF INDEPENDENT
CONTRACTOR xxx xxx xxx
PURSUANT TO Petitioner contends that the respondent court
SECTION 205 OF THE erred in holding that private respondent is
TAX CODE; and not an "independent contractor" within the
purview of Section 205 of the Tax Code. To
2) WHETHER OR NOT petitioner, the term "independent
PRIVATE contractor", as defined by the Code,
RESPONDENT IS encompasses all kinds of services rendered
SUBJECT TO 3% for a fee and that the only exceptions are the
CONTRACTOR'S TAX following:
UNDER SECTION 205
OF THE TAX CODE. a. Persons, association and corporations
under contract for embroidery and apparel
The pertinent portions of Section 205 of the National Internal for export and gross receipts of or from
Revenue Code, as amended, provide: pioneer industry registered with the Board of
Investment under R.A. No. 5186;
Sec. 205. Contractor, proprietors or
operators of dockyards, and others. A b. Individuals occupation tax under Section
contractor's tax of three per centum of the 12 of the Local Tax Code (under the old
gross receipts is hereby imposed on the Section 182 [b] of the Tax Code); and
following:
xxx xxx xxx c. Regional or area headquarters established
in the Philippines by multinational
(16) Business agents and corporations, including their alien
other independent executives, and which headquarters do not
contractors except earn or derive income from the Philippines
persons, associations and and which act as supervisory,
corporations under communication and coordinating centers for
contract for embroidery their affiliates, subsidiaries or branches in
and apparel for export, as the Asia Pacific Region (Section 205 of the
well as their agents and Tax Code).
contractors and except
gross receipts of or from a Petitioner thus submits that since private
pioneer industry registered respondent falls under the definition of an
with the Board of "independent contractor" and is not among
Investments under the aforementioned exceptions, private
Republic Act No. 5186: respondent is therefore subject to the 3%
xxx xxx xxx contractor's tax imposed under the same
Code. 4
The term "independent
contractors" include The Court of Appeals disagreed with the Petitioner
persons (juridical or Commissioner of Internal Revenue and affirmed the assailed
natural) not enumerated decision of the Court of Tax Appeals. Unfazed, petitioner now
above (but not including asks us to reverse the CA through this petition for review.
individuals subject to the
34
The Issues not earn or derive income from the
Petitioner submits before us the following issues: Philippines and which act as supervisory,
communications and coordinating centers
1) Whether or not private respondent falls for their affiliates, subsidiaries or branches
under the purview of independent contractor in the Asia-Pacific Region.
pursuant to Section 205 of the Tax Code. The term "gross receipts" means all amounts
2) Whether or not private respondent is received by the prime or principal contractor
subject to 3% contractor's tax under Section as the total contract price, undiminished by
205 of the Tax Code. 5 amount paid to the subcontractor, shall be
excluded from the taxable gross receipts of
In fine, these may be reduced to a single issue: Is Ateneo de the subcontractor.
Manila University, through its auxiliary unit or branch the
Institute of Philippine Culture performing the work of an Petitioner Commissioner of Internal Revenue contends that
independent contractor and, thus, subject to the three percent Private Respondent Ateneo de Manila University "falls within
contractor's tax levied by then Section 205 of the National the definition" of an independent contractor and "is not one of
Internal Revenue Code? those mentioned as excepted"; hence, it is properly a subject
of the three percent contractor's tax levied by the foregoing
The Court's Ruling provision of law. 6 Petitioner states that the "term 'independent
contractor' is not specifically defined so as to delimit the scope
The petition is unmeritorious. thereof, so much so that any person who . . . renders physical
and mental service for a fee, is now indubitably considered an
Interpretation of Tax Laws independent contractor liable to 3% contractor's
The parts of then Section 205 of the National Internal Revenue tax." 7 According to petitioner, Ateneo has the burden of proof
Code germane to the case before us read: to show its exemption from the coverage of the law.

Sec. 205. Contractors, proprietors or We disagree. Petitioner Commissioner of Internal Revenue


operators of dockyards, and others. A erred in applying the principles of tax exemption without first
contractor's tax of threeper centum of the applying the well-settled doctrine of strict interpretation in the
gross receipts is hereby imposed on the imposition of taxes. It is obviously both illogical and
following: impractical to determine who are exempted without first
xxx xxx xxx determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private
(16) Business agents and other independent respondent was covered by Section 205, applying the rule of
contractors, except persons, associations and strict interpretation of laws imposing taxes and other burdens
corporations under contract for embroidery on the populace, before asking Ateneo to prove its exemption
and apparel for export, as well as their therefrom. The Court takes this occasion to reiterate the
agents and contractors, and except gross hornbook doctrine in the interpretation of tax laws that "(a)
receipts of or from a pioneer industry statute will not be construed as imposing a tax unless it does
registered with the Board of Investments so clearly, expressly, and unambiguously . . . (A) tax cannot be
under the provisions of Republic Act No. imposed without clear and express words for that purpose.
5186; Accordingly, the general rule of requiring adherence to the
xxx xxx xxx letter in construing statutes applies with peculiar strictness to
tax lawsand the provisions of a taxing act are not to
The term "independent contractors" include be extended by implication." 8 Parenthetically, in answering
persons (juridical or natural) not enumerated the question of who is subject to tax statutes, it is basic that "in
above (but not including individuals subject case of doubt, such statutes are to be construed most strongly
to the occupation tax under Section 12 of the against the government and in favor of the subjects or citizens
Local Tax Code) whose activity consists because burdens are not to be imposed nor presumed to be
essentially of the sale of all kinds of services imposed beyond what statutes expressly and clearly import." 9
for a fee regardless of whether or not the To fall under its coverage, Section 205 of the National Internal
performance of the service calls for the Revenue Code requires that the independent contractor be
exercise or use of the physical or mental engaged in the business of selling its services. Hence, to
faculties of such contractors or their impose the three percent contractor's tax on Ateneo's Institute
employees. of Philippine Culture, it should be sufficiently proven that the
private respondent is indeed selling its services for a fee in
The term "independent contractor" shall not pursuit of an independent business. And it is only after private
include regional or area headquarters respondent has been found clearly to be subject to the
established in the Philippines by provisions of Sec. 205 that the question of exemption
multinational corporations, including their therefrom would arise. Only after such coverage is shown
alien executives, and which headquarters do does the rule of construction that tax exemptions are to be
35
strictly construed against the taxpayer come into play, sioner
contrary to petitioner's position. This is the main line of Bienven
reasoning of the Court of Tax Appeals in its decision, 10 which ido A.
was affirmed by the CA. Tan Jr.
The Ateneo de Manila University Did Not Contract None of the foregoing evidence even comes
for the Sale of the Service of its Institute of Philippine close to purport to be contracts between
Culture private respondent and third parties. 12

After reviewing the records of this case, we find no evidence Moreover, the Court of Tax Appeals accurately and correctly
that Ateneo's Institute of Philippine Culture ever sold its declared that the " funds received by the Ateneo de Manila
services for a fee to anyone or was ever engaged in a business University are technically not a fee. They may however fall as
apart from and independently of the academic purposes of the gifts or donations which are tax-exempt" as shown by private
university. respondent's compliance with the requirement of Section 123
of the National Internal Revenue Code providing for the
Stressing that "it is not the Ateneo de Manila University per exemption of such gifts to an educational institution. 13
se which is being taxed," Petitioner Commissioner of Internal
Revenue contends that "the tax is due on its activity of Respondent Court of Appeals elucidated on the ruling of the
conducting researches for a fee. The tax is due on the gross Court of Tax Appeals:
receipts made in favor of IPC pursuant to the contracts the
latter entered to conduct researches for the benefit primarily To our mind, private respondent hardly fits
of its clients. The tax is imposed on the exercise of a taxable into the definition of an "independent
activity. . . . [T]he sale of services of private respondent is contractor".
made under a contract and the various contracts entered into
between private respondent and its clients are almost of the For one, the established facts show that IPC,
same terms, showing, among others, the compensation and as a unit of the private respondent, is not
terms of payment." 11(Emphasis supplied.) engaged in business. Undisputedly, private
respondent is mandated by law to undertake
In theory, the Commissioner of Internal Revenue may be research activities to maintain its university
correct. However, the records do not show that Ateneo's IPC status. In fact, the research activities being
in fact contracted to sell its research services for a fee. Clearly carried out by the IPC is focused not on
then, as found by the Court of Appeals and the Court of Tax business or profit but on social sciences
Appeals, petitioner's theory is inapplicable to the established studies of Philippine society and
factual milieu obtaining in the instant case. culture. Since it can only finance a limited
number of IPC's research projects, private
In the first place, the petitioner has presented no evidence to respondent occasionally accepts
prove its bare contention that, indeed, contracts for sale of sponsorship for unfunded IPC research
services were ever entered into by the private respondent. As projects from international organizations,
appropriately pointed out by the latter: private foundations and governmental
agencies. However, such sponsorships are
An examination of the Commissioner's subject to private respondent's terms and
Written Formal Offer of Evidence in the conditions, among which are, that the
Court of Tax Appeals shows that only the research is confined to topics consistent with
following documentary evidence was the private respondent's academic
presented: agenda; that no proprietary or commercial
purpose research is done; and that private
Exhibit 1 BIR letter of authority no. 331844 respondent retains not only the absolute
2Exami right to publish but also the ownership of
ner's the results of the research conducted by the
Field IPC. Quite clearly, the aforementioned
Audit terms and conditions belie the allegation
Report that private respondent is a contractor or is
3 engaged in business.
Adjustm
ents to For another, it bears stressing that private
Sales/Re respondent is a non-stock, non-profit
ceipts educational corporation. The fact that it
4 Letter- accepted sponsorship for IPC's unfunded
decision projects is merely incidental. For, the main
of BIR function of the IPC is to undertake research
Commis projects under the academic agenda of the
36
private respondent. Moreover the records do of sale." 17 In the case of a contract for a piece of work, "the
not show that in accepting sponsorship of contractor binds himself to execute a piece of work for the
research work, IPC realized profits from employer, in consideration of a certain price or compensation.
such work. On the contrary, the evidence . . . If the contractor agrees to produce the work from materials
shows that for about 30 years, IPC had furnished by him, he shall deliver the thing produced to the
continuously operated at a loss, which employer and transfer dominion over the thing, . .
means that sponsored funds are less than ." 18 Ineludably, whether the contract be one of sale or one for
actual expenses for its research projects. a piece of work, a transfer of ownership is involved and a
That IPC has been operating at a loss loudly party necessarily walks away with an object. 19 In the case at
bespeaks of the fact that education and not bench, it is clear from the evidence on record that there was no
profit is the motive for undertaking the sale either of objects or services because, as adverted to
research projects. earlier, there was no transfer of ownership over the research
data obtained or the results of research projects undertaken by
Then, too, granting arguendo that IPC made the Institute of Philippine Culture
profits from the sponsored research projects, .
the fact still remains that there is no proof Furthermore, it is clear that the research activity of the
that part of such earnings or profits was ever Institute of Philippine Culture is done in pursuance of
distributed as dividends to any stockholder, maintaining Ateneo's university status and not in the course of
as in fact none was so distributed because an independent business of selling such research with profit in
they accrued to the benefit of the private mind. This is clear from a reading of the regulations governing
respondent which is a non-profit educational universities:
institution. 14
31. In addition to the legal requisites an
Therefore, it is clear that the funds received by Ateneo's institution must meet, among others, the
Institute of Philippine Culture are not given in the concept of a following requirements before an
fee or price in exchange for the performance of a service or application for university status shall be
delivery of an object. Rather, the amounts are in the nature of considered:
an endowment or donation given by IPC's benefactors solely xxx xxx xxx
for the purpose of sponsoring or funding the research with no
strings attached. As found by the two courts below, such (e) The institution must undertake research
sponsorships are subject to IPC's terms and conditions. No and operate with a competent qualified staff
proprietary or commercial research is done, and IPC retains at least three graduate departments in
the ownership of the results of the research, including the accordance with the rules and standards for
absolute right to publish the same. The copyrights over the graduate education. One of the departments
results of the research are owned by shall be science and technology. The
Ateneo and, consequently, no portion thereof may be competence of the staff shall be judged by
reproduced without its permission. 15 The amounts given to their effective teaching, scholarly
IPC, therefore, may not be deemed, it bears stressing as fees or publications and research activities
gross receipts that can be subjected to the three percent published in its school journal as well as
contractor's tax. their leadership activities in the profession.
(f) The institution must show evidence of
It is also well to stress that the questioned transactions of adequate and stable financial resources and
Ateneo's Institute of Philippine Culture cannot be deemed support, a reasonable portion of which
either as a contract of sale or a contract of a piece of work. should be devoted to institutional
"By the contract of sale, one of the contracting parties development and research. (emphasis
obligates himself to transfer the ownership of and to deliver a supplied)
determinate thing, and the other to pay therefor a price certain xxx xxx xxx
in money or its equivalent." 16 By its very nature, a contract of
sale requires a transfer of ownership. Thus, Article 1458 of the 32. University status may be withdrawn,
Civil Code "expressly makes the obligation to transfer after due notice and hearing, for failure to
ownership as an essential element of the contract of sale, maintain satisfactorily the standards and
following modern codes, such as the German and the Swiss. requirements therefor. 20
Even in the absence of this express requirement, however,
most writers, including Sanchez Roman, Gayoso, Valverde, Petitioner's contention that it is the Institute of Philippine
Ruggiero, Colin and Capitant, have considered such transfer Culture that is being taxed and not the Ateneo is patently
of ownership as the primary purpose of sale. Perez and Alguer erroneous because the former is not an independent juridical
follow the same view, stating that the delivery of the thing entity that is separate and distinct form the latter.
does not mean a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an agreement to
transfer it for a price paid or promised to be paid is the essence
37
Factual Findings and Conclusions of the Court of long despite its accumulation of significant losses, we can
Tax Appeals Affirmed by the Court of Appeals only agree with both the Court of Tax Appeals and the Court
Generally Conclusive of Appeals that "education and not profit is [IPC's] motive for
undertaking the research
In addition, we reiterate that the "Court of Tax Appeals is a projects." 25
highly specialized body specifically created for the purpose of WHEREFORE, premises considered, the petition is DENIED
reviewing tax cases. Through its expertise, it is undeniably and the assailed Decision of the Court of Appeals is hereby
competent to determine the issue of whether" 21 Ateneo de AFFIRMED in full.
Manila University may be deemed a subject of the three SO ORDERED.
percent contractor's tax "through the evidence presented
before it." Consequently, "as a matter of principle, this Court G.R. No. 115455 August 25, 1994
will not set aside the conclusion reached by . . . the Court of ARTURO M. TOLENTINO, petitioner,
Tax Appeals which is, by the very nature of its function, vs.
dedicated exclusively to the study and consideration of tax THE SECRETARY OF FINANCE and THE
problems and has necessarily developed an expertise on the COMMISSIONER OF INTERNAL
subject unless there has been an abuse or improvident exercise REVENUE, respondents.
of authority . . ." 22 This point becomes more evident in the G.R. No. 115525 August 25, 1994
case before us where the findings and conclusions of both the JUAN T. DAVID, petitioner,
Court of Tax Appeals and the Court of Appeals appear vs.
untainted by any abuse of authority, much less grave abuse of TEOFISTO T. GUINGONA, JR., as Executive Secretary;
discretion. Thus, we find the decision of the latter affirming ROBERTO DE OCAMPO, as Secretary of Finance;
that of the former free from any palpable error. LIWAYWAY VINZONS-CHATO, as Commissioner of
Internal Revenue; and their AUTHORIZED AGENTS OR
Public Service, Not Profit, is the Motive REPRESENTATIVES, respondents.
The records show that the Institute of Philippine Culture G.R. No. 115543 August 25, 1994
conducted its research activities at a huge deficit of RAUL S. ROCO and the INTEGRATED BAR OF THE
P1,624,014.00 as shown in its statements of fund and PHILIPPINES, petitioners,
disbursements for the period 1972 to 1985. 23 In fact, it was vs.
Ateneo de Manila University itself that had funded the THE SECRETARY OF THE DEPARTMENT OF
research projects of the institute, and it was only when Ateneo FINANCE; THE COMMISSIONERS OF THE BUREAU
could no longer produce the needed funds that the institute OF INTERNAL REVENUE AND BUREAU OF
sought funding from outside. The testimony of Ateneo's CUSTOMS, respondents.
Director for Accounting Services, Ms. Leonor Wijangco, G.R. No. 115544 August 25, 1994
provides significant insight on the academic and nonprofit PHILIPPINE PRESS INSTITUTE, INC.; EGP
nature of the institute's research activities done in furtherance PUBLISHING CO., INC.; PUBLISHING
of the university's purposes, as follows: CORPORATION; PHILIPPINE JOURNALISTS, INC.;
JOSE L. PAVIA; and OFELIA L.
Q Now it was testified to earlier by Miss DIMALANTA, petitioners,
Thelma Padero (Office Manager of the vs.
Institute of Philippine Culture) that as far as HON. LIWAYWAY V. CHATO, in her capacity as
grants from sponsored research it is possible Commissioner of Internal Revenue; HON. TEOFISTO T.
that the grant sometimes is less than the GUINGONA, JR., in his capacity as Executive Secretary;
actual cost. Will you please tell us in this and HON. ROBERTO B. DE OCAMPO, in his capacity as
case when the actual cost is a lot less than Secretary of Finance, respondents.
the grant who shoulders the additional cost? G.R. No. 115754 August 25, 1994
A The University. CHAMBER OF REAL ESTATE AND BUILDERS
Q Now, why is this done by the University? ASSOCIATIONS, INC., (CREBA), petitioner,
A Because of our faculty development vs.
program as a university, because a THE COMMISSIONER OF INTERNAL
university has to have its own research REVENUE, respondent.
institute. 24 G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO
So, why is it that Ateneo continues to operate and conduct A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG,
researches through its Institute of Philippine Culture when it JR., JOSE T. APOLO, EPHRAIM TENDERO,
undisputedly loses not an insignificant amount in the process? FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE
The plain and simple answer is that private respondent is not a TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
contractor selling its services for a fee but an academic RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN
institution conducting these researches pursuant to its S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
commitments to education and, ultimately, to public service. BROTHERHOOD, INTEGRITY AND NATIONALISM,
For the institute to have tenaciously continued operating for so INC. ("MABINI"), FREEDOM FROM DEBT
38
COALITION, INC., PHILIPPINE BIBLE SOCIETY, These are various suits for certiorari and prohibition,
INC., and WIGBERTO TAADA, petitioners, challenging the constitutionality of Republic Act No. 7716 on
vs. various grounds summarized in the resolution of July 6, 1994
THE EXECUTIVE SECRETARY, THE SECRETARY of this Court, as follows:
OF FINANCE, THE COMMISSIONER OF INTERNAL I. Procedural Issues:
REVENUE and THE COMMISSIONER OF A. Does Republic Act No. 7716 violate Art.
CUSTOMS, respondents. VI, 24 of the Constitution?
G.R. No. 115852 August 25, 1994 B. Does it violate Art. VI, 26(2) of the
PHILIPPINE AIRLINES, INC., petitioner, Constitution?
vs. C. What is the extent of the power of the
THE SECRETARY OF FINANCE, and Bicameral Conference Committee?
COMMISSIONER OF INTERNAL II. Substantive Issues:
REVENUE, respondents.
G.R. No. 115873 August 25, 1994 A. Does the law violate the following
COOPERATIVE UNION OF THE provisions in the Bill of Rights (Art. III)?
PHILIPPINES, petitioners, 1. 1
vs. 2. 4
HON. LIWAYWAY V. CHATO, in her capacity as the 3. 5
Commissioner of Internal Revenue, HON. TEOFISTO T. 4. 10
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as B. Does the law violate the following other
Secretary of Finance, respondents. provisions of the Constitution?
G.R. No. 115931 August 25, 1994 1. Art. VI, 28(1)
PHILIPPINE EDUCATIONAL PUBLISHERS 2. Art. VI, 28(3)
ASSOCIATION, INC., and ASSOCIATION OF
PHILIPPINE BOOK-SELLERS, petitioners, These questions will be dealt in the order they are stated
vs. above. As will presently be explained not all of these
HON. ROBERTO B. DE OCAMPO, as the Secretary of questions are judicially cognizable, because not all provisions
Finance; HON. LIWAYWAY V. CHATO, as the of the Constitution are self executing and, therefore, judicially
Commissioner of Internal Revenue and HON. enforceable. The other departments of the government are
GUILLERMO PARAYNO, JR., in his capacity as the equally charged with the enforcement of the Constitution,
Commissioner of Customs, respondents. especially the provisions relating to them.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners I. PROCEDURAL ISSUES
in G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner The contention of petitioners is that in enacting Republic Act
R.S. Roco. No. 7716, or the Expanded Value-Added Tax Law, Congress
Villaranza and Cruz for petitioners in G.R. No. 115544. violated the Constitution because, although H. No. 11197 had
Carlos A. Raneses and Manuel M. Serrano for petitioner in originated in the House of Representatives, it was not passed
G.R. No. 115754. by the Senate but was simply consolidated with the Senate
Salonga, Hernandez & Allado for Freedon From Debts version (S. No. 1630) in the Conference Committee to produce
Coalition, Inc. & Phil. Bible Society. the bill which the President signed into law. The following
Estelito P. Mendoza for petitioner in G.R. No. 115852. provisions of the Constitution are cited in support of the
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices proposition that because Republic Act No. 7716 was passed in
for petitioners in G.R. No. 115873. this manner, it did not originate in the House of
R.B. Rodriguez & Associates for petitioners in G.R. No. Representatives and it has not thereby become a law:
115931.
Reve A.V. Saguisag for MABINI. Art. VI, 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the
MENDOZA, J.: public debt, bills of local application, and
The value-added tax (VAT) is levied on the sale, barter or private bills shall originate exclusively in the
exchange of goods and properties as well as on the sale or House of Representatives, but the Senate
exchange of services. It is equivalent to 10% of the gross may propose or concur with amendments.
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the Id., 26(2): No bill passed by either House
sale or exchange of services. Republic Act No. 7716 seeks to shall become a law unless it has passed three
widen the tax base of the existing VAT system and enhance its readings on separate days, and printed
administration by amending the National Internal Revenue copies thereof in its final form have been
Code. distributed to its Members three days before
its passage, except when the President
39
certifies to the necessity of its immediate On February 8, 1994, the Senate began consideration of the
enactment to meet a public calamity or bill (S. No. 1630). It finished debates on the bill and approved
emergency. Upon the last reading of a bill, it on second reading on March 24, 1994. On the same day, it
no amendment thereto shall be allowed, and approved the bill on third reading by the affirmative votes of
the vote thereon shall be taken immediately 13 of its members, with one abstention.
thereafter, and the yeas and nays entered in H. No. 11197 and its Senate version (S. No. 1630) were then
the Journal. referred to a conference committee which, after meeting four
times (April 13, 19, 21 and 25, 1994), recommended that
It appears that on various dates between July 22, 1992 and "House Bill No. 11197, in consolidation with Senate Bill No.
August 31, 1993, several bills 1 were introduced in the House 1630, be approved in accordance with the attached copy of the
of Representatives seeking to amend certain provisions of the bill as reconciled and approved by the conferees."
National Internal Revenue Code relative to the value-added
tax or VAT. These bills were referred to the House Ways and The Conference Committee bill, entitled "AN ACT
Means Committee which recommended for approval a RESTRUCTURING THE VALUE-ADDED TAX (VAT)
substitute measure, H. No. 11197, entitled SYSTEM, WIDENING ITS TAX BASE AND ENHANCING
ITS ADMINISTRATION AND FOR THESE PURPOSES
AN ACT RESTRUCTURING THE AMENDING AND REPEALING THE RELEVANT
VALUE-ADDED TAX (VAT) SYSTEM PROVISIONS OF THE NATIONAL INTERNAL REVENUE
TO WIDEN ITS TAX BASE AND CODE, AS AMENDED, AND FOR OTHER PURPOSES,"
ENHANCE ITS ADMINISTRATION, was thereafter approved by the House of Representatives on
AMENDING FOR THESE PURPOSES April 27, 1994 and by the Senate on May 2, 1994. The
SECTIONS 99, 100, 102, 103, 104, 105, enrolled bill was then presented to the President of the
106, 107, 108 AND 110 OF TITLE IV, 112, Philippines who, on May 5, 1994, signed it. It became
115 AND 116 OF TITLE V, AND 236, 237 Republic Act No. 7716. On May 12, 1994, Republic Act No.
AND 238 OF TITLE IX, AND 7716 was published in two newspapers of general circulation
REPEALING SECTIONS 113 AND 114 and, on May 28, 1994, it took effect, although its
OF TITLE V, ALL OF THE NATIONAL implementation was suspended until June 30, 1994 to allow
INTERNAL REVENUE CODE, AS time for the registration of business entities. It would have
AMENDED been enforced on July 1, 1994 but its enforcement was stopped
because the Court, by the vote of 11 to 4 of its members,
The bill (H. No. 11197) was considered on second reading granted a temporary restraining order on June 30, 1994.
starting November 6, 1993 and, on November 17, 1993, it was
approved by the House of Representatives after third and final First. Petitioners' contention is that Republic Act No. 7716 did
reading. not "originate exclusively" in the House of Representatives as
required by Art. VI, 24 of the Constitution, because it is in
It was sent to the Senate on November 23, 1993 and later fact the result of the consolidation of two distinct bills, H. No.
referred by that body to its Committee on Ways and Means. 11197 and S. No. 1630. In this connection, petitioners point
out that although Art. VI, SS 24 was adopted from the
On February 7, 1994, the Senate Committee submitted its American Federal Constitution, 2 it is notable in two respects:
report recommending approval of S. No. 1630, entitled the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on
AN ACT RESTRUCTURING THE other bills" in the American version is omitted. This means,
VALUE-ADDED TAX (VAT) SYSTEM according to them, that to be considered as having originated
TO WIDEN ITS TAX BASE AND in the House, Republic Act No. 7716 must retain the essence
ENHANCE ITS ADMINISTRATION, of H. No. 11197.
AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, This argument will not bear analysis. To begin with, it is not
107, 108, AND 110 OF TITLE IV, 112 OF the law but the revenue bill which is required by the
TITLE V, AND 236, 237, AND 238 OF Constitution to "originate exclusively" in the House of
TITLE IX, AND REPEALING SECTIONS Representatives. It is important to emphasize this, because a
113, 114 and 116 OF TITLE V, ALL OF bill originating in the House may undergo such extensive
THE NATIONAL INTERNAL REVENUE changes in the Senate that the result may be a rewriting of the
CODE, AS AMENDED, AND FOR whole. The possibility of a third version by the conference
OTHER PURPOSES committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a
It was stated that the bill was being submitted "in substitution distinct bill may be produced. To insist that a revenue statute
of Senate Bill No. 1129, taking into consideration P.S. Res. and not only the bill which initiated the legislative process
No. 734 and H.B. No. 11197." culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to
40
"propose amendments." It would be to violate the coequality members of the House can be expected to be more sensitive to
of legislative power of the two houses of Congress and in fact the local needs and problems. On the other hand, the senators,
make the House superior to the Senate. who are elected at large, are expected to approach the same
problems from the national perspective. Both views are
The contention that the constitutional design is to limit the thereby made to bear on the enactment of such laws.
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying Nor does the Constitution prohibit the filing in the Senate of a
power 3 and thereby equalize its powers and those of the substitute bill in anticipation of its receipt of the bill from the
House overlooks the fact that the powers being compared are House, so long as action by the Senate as a body is withheld
different. We are dealing here with the legislative power pending receipt of the House bill. The Court cannot, therefore,
which under the Constitution is vested not in any particular understand the alarm expressed over the fact that on March 1,
chamber but in the Congress of the Philippines, consisting of 1993, eight months before the House passed H. No. 11197, S.
"a Senate and a House of Representatives." 4 The exercise of No. 1129 had been filed in the Senate. After all it does not
the treaty-ratifying power is not the exercise of legislative appear that the Senate ever considered it. It was only after the
power. It is the exercise of a check on the executive power. Senate had received H. No. 11197 on November 23, 1993 that
There is, therefore, no justification for comparing the the process of legislation in respect of it began with the
legislative powers of the House and of the Senate on the basis referral to the Senate Committee on Ways and Means of H.
of the possession of such nonlegislative power by the Senate. No. 11197 and the submission by the Committee on February
The possession of a similar power by the U.S. Senate 5 has 7, 1994 of S. No. 1630. For that matter, if the question were
never been thought of as giving it more legislative powers simply the priority in the time of filing of bills, the fact is that
than the House of Representatives. it was in the House that a bill (H. No. 253) to amend the VAT
law was first filed on July 22, 1992. Several other bills had
In the United States, the validity of a provision ( 37) been filed in the House before S. No. 1129 was filed in the
imposing an ad valorem tax based on the weight of vessels, Senate, and H. No. 11197 was only a substitute of those earlier
which the U.S. Senate had inserted in the Tariff Act of 1909, bills.
was upheld against the claim that the provision was a revenue
bill which originated in the Senate in contravention of Art. I, Second. Enough has been said to show that it was within the
7 of the U.S. Constitution. 6 Nor is the power to amend limited power of the Senate to propose S. No. 1630. We now pass to
to adding a provision or two in a revenue bill emanating from the next argument of petitioners that S. No. 1630 did not pass
the House. The U.S. Senate has gone so far as changing the three readings on separate days as required by the
whole of bills following the enacting clause and substituting Constitution 8 because the second and third readings were
its own versions. In 1883, for example, it struck out everything done on the same day, March 24, 1994. But this was because
after the enacting clause of a tariff bill and wrote in its place on February 24, 1994 9 and again on March 22, 1994, 10 the
its own measure, and the House subsequently accepted the President had certified S. No. 1630 as urgent. The presidential
amendment. The U.S. Senate likewise added 847 amendments certification dispensed with the requirement not only of
to what later became the Payne-Aldrich Tariff Act of 1909; it printing but also that of reading the bill on separate days. The
dictated the schedules of the Tariff Act of 1921; it rewrote an phrase "except when the President certifies to the necessity of
extensive tax revision bill in the same year and recast most of its immediate enactment, etc." in Art. VI, 26(2) qualifies the
the tariff bill of 1922. 7 Given, then, the power of the Senate to two stated conditions before a bill can become a law: (i) the
propose amendments, the Senate can propose its own version bill has passed three readings on separate days and (ii) it has
even with respect to bills which are required by the been printed in its final form and distributed three days before
Constitution to originate in the House. it is finally approved.

It is insisted, however, that S. No. 1630 was passed not in In other words, the "unless" clause must be read in relation to
substitution of H. No. 11197 but of another Senate bill (S. No. the "except" clause, because the two are really coordinate
1129) earlier filed and that what the Senate did was merely to clauses of the same sentence. To construe the "except" clause
"take [H. No. 11197] into consideration" in enacting S. No. as simply dispensing with the second requirement in the
1630. There is really no difference between the Senate "unless" clause (i.e., printing and distribution three days
preserving H. No. 11197 up to the enacting clause and then before final approval) would not only violate the rules of
writing its own version following the enacting clause (which, grammar. It would also negate the very premise of the
it would seem, petitioners admit is an amendment by "except" clause: the necessity of securing the immediate
substitution), and, on the other hand, separately presenting a enactment of a bill which is certified in order to meet a public
bill of its own on the same subject matter. In either case the calamity or emergency. For if it is only the printing that is
result are two bills on the same subject. dispensed with by presidential certification, the time saved
would be so negligible as to be of any use in insuring
Indeed, what the Constitution simply means is that the immediate enactment. It may well be doubted whether doing
initiative for filing revenue, tariff, or tax bills, bills authorizing away with the necessity of printing and distributing copies of
an increase of the public debt, private bills and bills of local the bill three days before the third reading would insure
application must come from the House of Representatives on speedy enactment of a law in the face of an emergency
the theory that, elected as they are from the districts, the requiring the calling of a special election for President and
41
Vice-President. Under the Constitution such a law is required 1994 the Committee met behind closed doors. We are not told,
to be made within seven days of the convening of Congress in however, whether the provisions were not the result of the
emergency session. 11 give and take that often mark the proceedings of conference
That upon the certification of a bill by the President the committees.
requirement of three readings on separate days and of printing
and distribution can be dispensed with is supported by the Nor is there anything unusual or extraordinary about the fact
weight of legislative practice. For example, the bill defining that the Conference Committee met in executive sessions.
the certiorari jurisdiction of this Court which, in consolidation Often the only way to reach agreement on conflicting
with the Senate version, became Republic Act No. 5440, was provisions is to meet behind closed doors, with only the
passed on second and third readings in the House of conferees present. Otherwise, no compromise is likely to be
Representatives on the same day (May 14, 1968) after the bill made. The Court is not about to take the suggestion of a cabal
had been certified by the President as urgent. 12 or sinister motive attributed to the conferees on the basis
solely of their "secret meetings" on April 21 and 25, 1994, nor
There is, therefore, no merit in the contention that presidential read anything into the incomplete remarks of the members,
certification dispenses only with the requirement for the marked in the transcript of stenographic notes by ellipses. The
printing of the bill and its distribution three days before its incomplete sentences are probably due to the stenographer's
passage but not with the requirement of three readings on own limitations or to the incoherence that sometimes
separate days, also. characterize conversations. William Safire noted some such
lapses in recorded talks even by recent past Presidents of the
It is nonetheless urged that the certification of the bill in this United States.
case was invalid because there was no emergency, the
condition stated in the certification of a "growing budget In any event, in the United States conference committees had
deficit" not being an unusual condition in this country. been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in November
It is noteworthy that no member of the Senate saw fit to 1975 was a new rule adopted requiring open sessions. Even
controvert the reality of the factual basis of the certification. then a majority of either chamber's conferees may vote in
To the contrary, by passing S. No. 1630 on second and third public to close the meetings. 14
readings on March 24, 1994, the Senate accepted the
President's certification. Should such certification be now As to the possibility of an entirely new bill emerging out of a
reviewed by this Court, especially when no evidence has been Conference Committee, it has been explained:
shown that, because S. No. 1630 was taken up on second and
third readings on the same day, the members of the Senate Under congressional rules of procedure,
were deprived of the time needed for the study of a vital piece conference committees are not expected to
of legislation? make any material change in the measure at
issue, either by deleting provisions to which
The sufficiency of the factual basis of the suspension of the both houses have already agreed or by
writ of habeas corpus or declaration of martial law under Art. inserting new provisions. But this is a
VII, 18, or the existence of a national emergency justifying difficult provision to enforce. Note the
the delegation of extraordinary powers to the President under problem when one house amends a proposal
Art. VI, 23(2), is subject to judicial review because basic originating in either house by striking out
rights of individuals may be at hazard. But the factual basis of everything following the enacting clause and
presidential certification of bills, which involves doing away substituting provisions which make it an
with procedural requirements designed to insure that bills are entirely new bill. The versions are now
duly considered by members of Congress, certainly should altogether different, permitting a conference
elicit a different standard of review. committee to draft essentially a new bill. . .
. 15
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S. The result is a third version, which is considered an
No. 1630 was what the Senate was considering. When the "amendment in the nature of a substitute," the only
matter was before the House, the President likewise certified requirement for which being that the third version be germane
H. No. 9210 the pending in the House. to the subject of the House and Senate bills. 16

Third. Finally it is contended that the bill which became Indeed, this Court recently held that it is within the power of a
Republic Act No. 7716 is the bill which the Conference conference committee to include in its report an entirely new
Committee prepared by consolidating H. No. 11197 and S. provision that is not found either in the House bill or in the
No. 1630. It is claimed that the Conference Committee report Senate bill. 17 If the committee can propose an amendment
included provisions not found in either the House bill or the consisting of one or two provisions, there is no reason why it
Senate bill and that these provisions were "surreptitiously" cannot propose several provisions, collectively considered as
inserted by the Conference Committee. Much is made of the an "amendment in the nature of a substitute," so long as such
fact that in the last two days of its session on April 21 and 25, amendment is germane to the subject of the bills before the
42
committee. After all, its report was not final but needed the The consideration of such report shall not be
approval of both houses of Congress to become valid as an act in order unless copies thereof are distributed
of the legislative department. The charge that in this case the to the Members: Provided, That in the last
Conference Committee acted as a third legislative chamber is fifteen days of each session period it shall be
thus without any basis. 18 deemed sufficient that three copies of the
report, signed as above provided, are
Nonetheless, it is argued that under the respective Rules of the deposited in the office of the Secretary
Senate and the House of Representatives a conference General.
committee can only act on the differing provisions of a Senate (Emphasis added)
bill and a House bill, and that contrary to these Rules the
Conference Committee inserted provisions not found in the To be sure, nothing in the Rules limits a conference committee
bills submitted to it. The following provisions are cited in to a consideration of conflicting provisions. But Rule XLIV,
support of this contention: 112 of the Rules of the Senate is cited to the effect that "If
there is no Rule applicable to a specific case the precedents of
Rules of the Senate the Legislative Department of the Philippines shall be resorted
Rule XII: to, and as a supplement of these, the Rules contained in
26. In the event that the Senate does not Jefferson's Manual." The following is then quoted from the
agree with the House of Representatives on Jefferson's Manual:
the provision of any bill or joint
resolution, the differences shall be settled by The managers of a conference must confine
a conference committee of both themselves to the differences committed to
Houses which shall meet within ten days them. . . and may not include subjects not
after their composition. within disagreements, even though germane
to a question in issue.
The President shall designate the members
of the conference committee in accordance Note that, according to Rule XLIX, 112, in case there is no
with subparagraph (c), Section 3 of Rule III. specific rule applicable, resort must be to the legislative
Each Conference Committee Report shall practice. The Jefferson's Manual is resorted to only as
contain a detailed and sufficiently explicit supplement. It is common place in Congress that conference
statement of the changes in or amendments committee reports include new matters which, though
to the subject measure, and shall be signed germane, have not been committed to the committee. This
by the conferees. practice was admitted by Senator Raul S. Roco, petitioner in
G.R. No. 115543, during the oral argument in these cases.
The consideration of such report shall not be Whatever, then, may be provided in the Jefferson's Manual
in order unless the report has been filed with must be considered to have been modified by the legislative
the Secretary of the Senate and copies practice. If a change is desired in the practice it must be sought
thereof have been distributed to the in Congress since this question is not covered by any
Members. constitutional provision but is only an internal rule of each
(Emphasis added) house. Thus, Art. VI, 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
Rules of the House of Representatives
Rule XIV: This observation applies to the other contention that the Rules
85. Conference Committee Reports. In of the two chambers were likewise disregarded in the
the event that the House does not agree with preparation of the Conference Committee Report because the
the Senate on the amendments to any bill or Report did not contain a "detailed and sufficiently explicit
joint resolution, the differences may be statement of changes in, or amendments to, the subject
settled by conference committees of both measure." The Report used brackets and capital letters to
Chambers. indicate the changes. This is a standard practice in bill-
drafting. We cannot say that in using these marks and symbols
The consideration of conference committee the Committee violated the Rules of the Senate and the House.
reports shall always be in order, except Moreover, this Court is not the proper forum for the
when the journal is being read, while the roll enforcement of these internal Rules. To the contrary, as we
is being called or the House is dividing on have already ruled, "parliamentary rules are merely procedural
any question. Each of the pages of such and with their observance the courts have no concern." 19 Our
reports shall be signed by the concern is with the procedural requirements of the
conferees. Each report shall contain a Constitution for the enactment of laws. As far as these
detailed, sufficiently explicit statement of the requirements are concerned, we are satisfied that they have
changes in or amendments to the subject been faithfully observed in these cases.
measure.

43
Nor is there any reason for requiring that the Committee's Fifth. An additional attack on the formal validity of Republic
Report in these cases must have undergone three readings in Act No. 7716 is made by the Philippine Airlines, Inc.,
each of the two houses. If that be the case, there would be no petitioner in G.R. No. 11582, namely, that it violates Art. VI,
end to negotiation since each house may seek modifications of 26(1) which provides that "Every bill passed by Congress
the compromise bill. The nature of the bill, therefore, requires shall embrace only one subject which shall be expressed in the
that it be acted upon by each house on a "take it or leave it" title thereof." It is contended that neither H. No. 11197 nor S.
basis, with the only alternative that if it is not approved by No. 1630 provided for removal of exemption of PAL
both houses, another conference committee must be appointed. transactions from the payment of the VAT and that this was
But then again the result would still be a compromise measure made only in the Conference Committee bill which became
that may not be wholly satisfying to both houses. Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
Art. VI, 26(2) must, therefore, be construed as referring only AN ACT RESTRUCTURING THE
to bills introduced for the first time in either house of VALUE- ADDED TAX (VAT) SYSTEM,
Congress, not to the conference committee report. For if the WIDENING ITS TAX BASE AND
purpose of requiring three readings is to give members of ENHANCING ITS ADMINISTRATION,
Congress time to study bills, it cannot be gainsaid that H. No. AND FOR THESE PURPOSES
11197 was passed in the House after three readings; that in the AMENDING AND REPEALING THE
Senate it was considered on first reading and then referred to a RELEVANT PROVISIONS OF THE
committee of that body; that although the Senate committee NATIONAL INTERNAL REVENUE
did not report out the House bill, it submitted a version (S. No. CODE, AS AMENDED, AND FOR
1630) which it had prepared by "taking into consideration" the OTHER PURPOSES.
House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise version; Among the provisions of the NIRC amended is 103, which
that the Conference Committee Report was thereafter originally read:
approved by the House and the Senate, presumably after 103. Exempt transactions. The
appropriate study by their members. We cannot say that, as a following shall be exempt from the value-
matter of fact, the members of Congress were not fully added tax:
informed of the provisions of the bill. The allegation that the ....
Conference Committee usurped the legislative power of (q) Transactions which are exempt under
Congress is, in our view, without warrant in fact and in law. special laws or international agreements to
Fourth. Whatever doubts there may be as to the formal which the Philippines is a signatory. Among
validity of Republic Act No. 7716 must be resolved in its the transactions exempted from the VAT
favor. Our cases 20 manifest firm adherence to the rule that an were those of PAL because it was exempted
enrolled copy of a bill is conclusive not only of its provisions under its franchise (P.D. No. 1590) from the
but also of its due enactment. Not even claims that a proposed payment of all "other taxes . . . now or in the
constitutional amendment was invalid because the requisite near future," in consideration of the payment
votes for its approval had not been obtained 21 or that certain by it either of the corporate income tax or a
provisions of a statute had been "smuggled" in the printing of franchise tax of 2%.
the bill 22 have moved or persuaded us to look behind the
proceedings of a coequal branch of the government. There is
no reason now to depart from this rule. As a result of its amendment by Republic Act No. 7716, 103
of the NIRC now provides:
No claim is here made that the "enrolled bill" rule is absolute.
In fact in one case 23 we "went behind" an enrolled bill and 103. Exempt transactions. The
consulted the Journal to determine whether certain provisions following shall be exempt from the value-
of a statute had been approved by the Senate in view of the added tax:
fact that the President of the Senate himself, who had signed ....
the enrolled bill, admitted a mistake and withdrew his (q) Transactions which are exempt under
signature, so that in effect there was no longer an enrolled bill special laws, except those granted under
to consider. Presidential Decree Nos. 66, 529, 972, 1491,
1590. . . .
But where allegations that the constitutional procedures for the
passage of bills have not been observed have no more basis The effect of the amendment is to remove the exemption
than another allegation that the Conference Committee granted to PAL, as far as the VAT is concerned.
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the The question is whether this amendment of 103 of the NIRC
enrolled copy of the bill. To disregard the "enrolled bill" rule is fairly embraced in the title of Republic Act No. 7716,
in such cases would be to disregard the respect due the other although no mention is made therein of P.D. No. 1590 as
two departments of our government. among those which the statute amends. We think it is, since
the title states that the purpose of the statute is to expand the
44
VAT system, and one way of doing this is to widen its base by In contrast, in the case at bar, Republic Act No. 7716
withdrawing some of the exemptions granted before. To insist expressly amends PAL's franchise (P.D. No. 1590) by
that P.D. No. 1590 be mentioned in the title of the law, in specifically excepting from the grant of exemptions from the
addition to 103 of the NIRC, in which it is specifically VAT PAL's exemption under P.D. No. 1590. This is within
referred to, would be to insist that the title of a bill should be a the power of Congress to do under Art. XII, 11 of the
complete index of its content. Constitution, which provides that the grant of a franchise for
the operation of a public utility is subject to amendment,
The constitutional requirement that every bill passed by alteration or repeal by Congress when the common good so
Congress shall embrace only one subject which shall be requires.
expressed in its title is intended to prevent surprise upon the II. SUBSTANTIVE ISSUES
members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding A.
it. If, in the case at bar, petitioner did not know before that its Claims
exemption had been withdrawn, it is not because of any defect of Press
in the title but perhaps for the same reason other statutes, Freedo
although published, pass unnoticed until some event somehow m,
calls attention to their existence. Indeed, the title of Republic Freedo
Act No. 7716 is not any more general than the title of PAL's m of
own franchise under P.D. No. 1590, and yet no mention is Thought
made of its tax exemption. The title of P.D. No. 1590 is: and
Religiou
AN ACT GRANTING A NEW s
FRANCHISE TO PHILIPPINE AIRLINES, Freedo
INC. TO ESTABLISH, OPERATE, AND m
MAINTAIN AIR-TRANSPORT
SERVICES IN THE PHILIPPINES AND The Philippine Press Institute (PPI), petitioner in G.R. No.
BETWEEN THE PHILIPPINES AND 115544, is a nonprofit organization of newspaper publishers
OTHER COUNTRIES. established for the improvement of journalism in the
Philippines. On the other hand, petitioner in G.R. No. 115781,
The trend in our cases is to construe the constitutional the Philippine Bible Society (PBS), is a nonprofit organization
requirement in such a manner that courts do not unduly engaged in the printing and distribution of bibles and other
interfere with the enactment of necessary legislation and to religious articles. Both petitioners claim violations of their
consider it sufficient if the title expresses the general subject rights under 4 and 5 of the Bill of Rights as a result of the
of the statute and all its provisions are germane to the general enactment of the VAT Law.
subject thus expressed. 24
The PPI questions the law insofar as it has withdrawn the
It is further contended that amendment of petitioner's franchise exemption previously granted to the press under 103 (f) of
may only be made by special law, in view of 24 of P.D. No. the NIRC. Although the exemption was subsequently restored
1590 which provides: by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the
This franchise, as amended, or any section possibility that the exemption may still be removed by mere
or provision hereof may only be modified, revocation of the regulation of the Secretary of Finance. On
amended, or repealed expressly by a special the other hand, the PBS goes so far as to question the
law or decree that shall specifically modify, Secretary's power to grant exemption for two reasons: (1) The
amend, or repeal this franchise or any Secretary of Finance has no power to grant tax exemption
section or provision thereof. because this is vested in Congress and requires for its exercise
the vote of a majority of all its members 26 and (2) the
This provision is evidently intended to prevent the amendment Secretary's duty is to execute the law.
of the franchise by mere implication resulting from the
enactment of a later inconsistent statute, in consideration of 103 of the NIRC contains a list of transactions exempted
the fact that a franchise is a contract which can be altered only from VAT. Among the transactions previously granted
by consent of the parties. Thus in Manila Railroad Co. v. exemption were:
Rafferty, 25 it was held that an Act of the U.S. Congress, which
provided for the payment of tax on certain goods and articles (f) Printing, publication, importation or sale
imported into the Philippines, did not amend the franchise of of books and any newspaper, magazine,
plaintiff, which exempted it from all taxes except those review, or bulletin which appears at regular
mentioned in its franchise. It was held that a special law intervals with fixed prices for subscription
cannot be amended by a general law. and sale and which is devoted principally to
the publication of advertisements.

45
Republic Act No. 7716 amended 103 by deleting (f) with discriminatory treatment if the only privilege withdrawn had
the result that print media became subject to the VAT with been that granted to the press. But that is not the case.
respect to all aspects of their operations. Later, however, based
on a memorandum of the Secretary of Justice, respondent The situation in the case at bar is indeed a far cry from those
Secretary of Finance issued Revenue Regulations No. 11-94, cited by the PPI in support of its claim that Republic Act No.
dated June 27, 1994, exempting the "circulation income of 7716 subjects the press to discriminatory taxation. In the cases
print media pursuant to 4 Article III of the 1987 Philippine cited, the discriminatory purpose was clear either from the
Constitution guaranteeing against abridgment of freedom of background of the law or from its operation. For example,
the press, among others." The exemption of "circulation in Grosjean v. American Press Co., 28 the law imposed a
income" has left income from advertisements still subject to license tax equivalent to 2% of the gross receipts derived from
the VAT. advertisements only on newspapers which had a circulation of
more than 20,000 copies per week. Because the tax was not
It is unnecessary to pass upon the contention that the based on the volume of advertisement alone but was measured
exemption granted is beyond the authority of the Secretary of by the extent of its circulation as well, the law applied only to
Finance to give, in view of PPI's contention that even with the the thirteen large newspapers in Louisiana, leaving untaxed
exemption of the circulation revenue of print media there is four papers with circulation of only slightly less than 20,000
still an unconstitutional abridgment of press freedom because copies a week and 120 weekly newspapers which were in
of the imposition of the VAT on the gross receipts of serious competition with the thirteen newspapers in question.
newspapers from advertisements and on their acquisition of It was well known that the thirteen newspapers had been
paper, ink and services for publication. Even on the critical of Senator Huey Long, and the Long-dominated
assumption that no exemption has effectively been granted to legislature of Louisiana respondent by taxing what Long
print media transactions, we find no violation of press freedom described as the "lying newspapers" by imposing on them "a
in these cases. tax on lying." The effect of the tax was to curtail both their
revenue and their circulation. As the U.S. Supreme Court
To be sure, we are not dealing here with a statute that on its noted, the tax was "a deliberate and calculated device in the
face operates in the area of press freedom. The PPI's claim is guise of a tax to limit the circulation of information to which
simply that, as applied to newspapers, the law abridges press the public is entitled in virtue of the constitutional
freedom. Even with due recognition of its high estate and its guaranties." 29 The case is a classic illustration of the warning
importance in a democratic society, however, the press is not that the power to tax is the power to destroy.
immune from general regulation by the State. It has been held:
The publisher of a newspaper has no In the other case 30 invoked by the PPI, the press was also
immunity from the application of general found to have been singled out because everything was
laws. He has no special privilege to invade exempt from the "use tax" on ink and paper, except the press.
the rights and liberties of others. He must Minnesota imposed a tax on the sales of goods in that state. To
answer for libel. He may be punished for protect the sales tax, it enacted a complementary tax on the
contempt of court. . . . Like others, he must privilege of "using, storing or consuming in that state tangible
pay equitable and nondiscriminatory taxes personal property" by eliminating the residents' incentive to
on his business. . . . 27 get goods from outside states where the sales tax might be
lower. The Minnesota Star Tribune was exempted from both
The PPI does not dispute this point, either. taxes from 1967 to 1971. In 1971, however, the state
legislature amended the tax scheme by imposing the "use tax"
What it contends is that by withdrawing the exemption on the cost of paper and ink used for publication. The law was
previously granted to print media transactions involving held to have singled out the press because (1) there was no
printing, publication, importation or sale of newspapers, reason for imposing the "use tax" since the press was exempt
Republic Act No. 7716 has singled out the press for from the sales tax and (2) the "use tax" was laid on an
discriminatory treatment and that within the class of mass "intermediate transaction rather than the ultimate retail sale."
media the law discriminates against print media by giving Minnesota had a heavy burden of justifying the differential
broadcast media favored treatment. We have carefully treatment and it failed to do so. In addition, the U.S. Supreme
examined this argument, but we are unable to find a Court found the law to be discriminatory because the
differential treatment of the press by the law, much less any legislature, by again amending the law so as to exempt the
censorial motivation for its enactment. If the press is now first $100,000 of paper and ink used, further narrowed the
required to pay a value-added tax on its transactions, it is not coverage of the tax so that "only a handful of publishers pay
because it is being singled out, much less targeted, for special any tax at all and even fewer pay any significant amount of
treatment but only because of the removal of the exemption tax." 31 The discriminatory purpose was thus very clear.
previously granted to it by law. The withdrawal of exemption
is all that is involved in these cases. Other transactions, More recently, in Arkansas Writers' Project, Inc. v.
likewise previously granted exemption, have been delisted as Ragland, 32 it was held that a law which taxed general interest
part of the scheme to expand the base and the scope of the magazines but not newspapers and religious, professional,
VAT system. The law would perhaps be open to the charge of trade and sports journals was discriminatory because while the
tax did not single out the press as a whole, it targeted a small
46
group within the press. What is more, by differentiating on the reason, it was held, the license fee "restrains in advance those
basis of contents (i.e., between general interest and special constitutional liberties of press and religion and inevitably
interests such as religion or sports) the law became "entirely tends to suppress their exercise." 40
incompatible with the First Amendment's guarantee of
freedom of the press." But, in this case, the fee in 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
These cases come down to this: that unless justified, the only for the purpose of defraying part of the cost of
differential treatment of the press creates risks of suppression registration. The registration requirement is a central feature of
of expression. In contrast, in the cases at bar, the statute the VAT system. It is designed to provide a record of tax
applies to a wide range of goods and services. The argument credits because any person who is subject to the payment of
that, by imposing the VAT only on print media whose gross the VAT pays an input tax, even as he collects an output tax
sales exceeds P480,000 but not more than P750,000, the law on sales made or services rendered. The registration fee is thus
discriminates 33 is without merit since it has not been shown a mere administrative fee, one not imposed on the exercise of
that as a result the class subject to tax has been unreasonably a privilege, much less a constitutional right.
narrowed. The fact is that this limitation does not apply to the
press along but to all sales. Nor is impermissible motive For the foregoing reasons, we find the attack on Republic Act
shown by the fact that print media and broadcast media are No. 7716 on the ground that it offends the free speech, press
treated differently. The press is taxed on its transactions and freedom of religion guarantees of the Constitution to be
involving printing and publication, which are different from without merit. For the same reasons, we find the claim of the
the transactions of broadcast media. There is thus a reasonable Philippine Educational Publishers Association (PEPA) in G.R.
basis for the classification. No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the
The cases canvassed, it must be stressed, eschew any constitutional mandate to the government to give priority to
suggestion that "owners of newspapers are immune from any education, science and technology (Art. II, 17) to be
forms of ordinary taxation." The license tax in untenable.
the Grosjean case was declared invalid because it was "one
single in kind, with a long history of hostile misuse against the
freedom of the B.
press." 34 On the other hand, Minneapolis Star acknowledged Claims
that "The First Amendment does not prohibit all regulation of of
the press [and that] the States and the Federal Government can Regressi
subject newspapers to generally applicable economic vity,
regulations without creating constitutional problems." 35 Denial
of Due
What has been said above also disposes of the allegations of Process,
the PBS that the removal of the exemption of printing, Equal
publication or importation of books and religious articles, as Protecti
well as their printing and publication, likewise violates on, and
freedom of thought and of conscience. For as the U.S. Impairm
Supreme Court unanimously held in Jimmy Swaggart ent
Ministries v. Board of Equalization, 36 the Free Exercise of of
Religion Clause does not prohibit imposing a generally Contract
applicable sales and use tax on the sale of religious materials s
by a religious organization. There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech, press and
This brings us to the question whether the registration religion. The possible "chilling effect" which it may have on
provision of the law, 37 although of general applicability, the essential freedom of the mind and conscience and the need
nonetheless is invalid when applied to the press because it lays to assure that the channels of communication are open and
a prior restraint on its essential freedom. The case of American operating importunately demand the exercise of this Court's
Bible Society v. City of Manila 38 is cited by both the PBS and power of review.
the PPI in support of their contention that the law imposes
censorship. There, this Court held that an ordinance of the There is, however, no justification for passing upon the claims
City of Manila, which imposed a license fee on those engaged that the law also violates the rule that taxation must be
in the business of general merchandise, could not be applied to progressive and that it denies petitioners' right to due process
the appellant's sale of bibles and other religious literature. This and that equal protection of the laws. The reason for this
Court relied on Murdock v. Pennsylvania, 39 in which it was different treatment has been cogently stated by an eminent
held that, as a license fee is fixed in amount and unrelated to authority on constitutional law thus: "[W]hen freedom of the
the receipts of the taxpayer, the license fee, when applied to a mind is imperiled by law, it is freedom that commands a
religious sect, was actually being imposed as a condition for momentum of respect; when property is imperiled it is the
the exercise of the sect's right under the Constitution. For that lawmakers' judgment that commands respect. This dual
47
standard may not precisely reverse the presumption of hand, the CUP's contention that Congress' withdrawal of
constitutionality in civil liberties cases, but obviously it does exemption of producers cooperatives, marketing cooperatives,
set up a hierarchy of values within the due process clause." 41 and service cooperatives, while maintaining that granted to
Indeed, the absence of threat of immediate harm makes the electric cooperatives, not only goes against the constitutional
need for judicial intervention less evident and underscores the policy to promote cooperatives as instruments of social justice
essential nature of petitioners' attack on the law on the grounds (Art. XII, 15) but also denies such cooperatives the equal
of regressivity, denial of due process and equal protection and protection of the law is actually a policy argument. The
impairment of contracts as a mere academic discussion of the legislature is not required to adhere to a policy of "all or none"
merits of the law. For the fact is that there have even been no in choosing the subject of taxation. 44
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims so as Nor is the contention of the Chamber of Real Estate and
to illuminate the actual operation of the law and enable us to Builders Association (CREBA), petitioner in G.R. 115754,
reach sound judgment regarding so fundamental questions as that the VAT will reduce the mark up of its members by as
those raised in these suits. much as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the Philippine Press
Thus, the broad argument against the VAT is that it is Institute, petitioner in G.R. No. 115544, that the VAT will
regressive and that it violates the requirement that "The rule of drive some of its members out of circulation because their
taxation shall be uniform and equitable [and] Congress shall profits from advertisements will not be enough to pay for their
evolve a progressive system of taxation." 42 Petitioners in G.R. tax liability, while purporting to be based on the financial
No. 115781 quote from a paper, entitled "VAT Policy Issues: statements of the newspapers in question, still falls short of the
Structure, Regressivity, Inflation and Exports" by Alan A. Tait establishment of facts by evidence so necessary for
of the International Monetary Fund, that "VAT payment by adjudicating the question whether the tax is oppressive and
low-income households will be a higher proportion of their confiscatory.
incomes (and expenditures) than payments by higher-income
households. That is, the VAT will be regressive." Petitioners Indeed, regressivity is not a negative standard for courts to
contend that as a result of the uniform 10% VAT, the tax on enforce. What Congress is required by the Constitution to do
consumption goods of those who are in the higher-income is to "evolve a progressive system of taxation." This is a
bracket, which before were taxed at a rate higher than 10%, directive to Congress, just like the directive to it to give
has been reduced, while basic commodities, which before priority to the enactment of laws for the enhancement of
were taxed at rates ranging from 3% to 5%, are now taxed at a human dignity and the reduction of social, economic and
higher rate. political inequalities (Art. XIII, 1), or for the promotion of
the right to "quality education" (Art. XIV, 1). These
Just as vigorously as it is asserted that the law is regressive, provisions are put in the Constitution as moral incentives to
the opposite claim is pressed by respondents that in fact it legislation, not as judicially enforceable rights.
distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of At all events, our 1988 decision in Kapatiran 45 should have
higher-income groups, even as the law exempts basic goods laid to rest the questions now raised against the VAT. There
and services. It is thus equitable. The goods and properties similar arguments made against the original VAT Law
subject to the VAT are those used or consumed by higher- (Executive Order No. 273) were held to be hypothetical, with
income groups. These include real properties held primarily no more basis than newspaper articles which this Court found
for sale to customers or held for lease in the ordinary course of to be "hearsay and [without] evidentiary value." As Republic
business, the right or privilege to use industrial, commercial or Act No. 7716 merely expands the base of the VAT system and
scientific equipment, hotels, restaurants and similar places, its coverage as provided in the original VAT Law, further
tourist buses, and the like. On the other hand, small business debate on the desirability and wisdom of the law should have
establishments, with annual gross sales of less than P500,000, shifted to Congress.
are exempted. This, according to respondents, removes from
the coverage of the law some 30,000 business establishments. Only slightly less abstract but nonetheless hypothetical is the
On the other hand, an occasional paper 43 of the Center for contention of CREBA that the imposition of the VAT on the
Research and Communication cities a NEDA study that the sales and leases of real estate by virtue of contracts entered
VAT has minimal impact on inflation and income distribution into prior to the effectivity of the law would violate the
and that while additional expenditure for the lowest income constitutional provision that "No law impairing the obligation
class is only P301 or 1.49% a year, that for a family earning of contracts shall be passed." It is enough to say that the
P500,000 a year or more is P8,340 or 2.2%. parties to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the
Lacking empirical data on which to base any conclusion State. For not only are existing laws read into contracts in
regarding these arguments, any discussion whether the VAT is order to fix obligations as between parties, but the reservation
regressive in the sense that it will hit the "poor" and middle- of essential attributes of sovereign power is also read into
income group in society harder than it will the "rich," as the contracts as a basic postulate of the legal order. The policy of
Cooperative Union of the Philippines (CUP) claims in G.R. protecting contracts against impairment presupposes the
No. 115873, is largely an academic exercise. On the other
48
maintenance of a government which retains adequate authority Justice Laurel echoed this justification in 1936 in Angara v.
to secure the peace and good order of society. 46 Electoral Commission:
And when the judiciary mediates to allocate
In truth, the Contract Clause has never been thought as a constitutional boundaries, it does not assert
limitation on the exercise of the State's power of taxation save any superiority over the other departments;
only where a tax exemption has been granted for a valid it does not in reality nullify or invalidate an
consideration. 47 Such is not the case of PAL in G.R. No. act of the legislature, but only asserts the
115852, and we do not understand it to make this claim. solemn and sacred obligation assigned to it
Rather, its position, as discussed above, is that the removal of by the Constitution to determine conflicting
its tax exemption cannot be made by a general, but only by a claims of authority under the Constitution
specific, law. and to establish for the parties in an actual
controversy the rights which that instrument
The substantive issues raised in some of the cases are secures and guarantees to them. 51
presented in abstract, hypothetical form because of the lack of
a concrete record. We accept that this Court does not only This conception of the judicial power has been affirmed in
adjudicate private cases; that public actions by "non- several
Hohfeldian" 48 or ideological plaintiffs are now cognizable cases 52 of this Court following Angara.
provided they meet the standing requirement of the
Constitution; that under Art. VIII, 1, 2 the Court has a It does not add anything, therefore, to invoke this "duty" to
"special function" of vindicating constitutional rights. justify this Court's intervention in what is essentially a case
Nonetheless the feeling cannot be escaped that we do not have that at best is not ripe for adjudication. That duty must still be
before us in these cases a fully developed factual record that performed in the context of a concrete case or controversy, as
alone can impart to our adjudication the impact of Art. VIII, 5(2) clearly defines our jurisdiction in terms of
actuality 49 to insure that decision-making is informed and "cases," and nothing but "cases." That the other departments
well grounded. Needless to say, we do not have power to of the government may have committed a grave abuse of
render advisory opinions or even jurisdiction over petitions for discretion is not an independent ground for exercising our
declaratory judgment. In effect we are being asked to do what power. Disregard of the essential limits imposed by the case
the Conference Committee is precisely accused of having and controversy requirement can in the long run only result in
done in these cases to sit as a third legislative chamber to undermining our authority as a court of law. For, as judges,
review legislation. what we are called upon to render is judgment according to
law, not according to what may appear to be the opinion of the
We are told, however, that the power of judicial review is not day.
so much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance _______________________________
of that duty if we decline to look behind the barriers set by the In the preceeding pages we have endeavored to discuss, within
principle of separation of powers. Art. VIII, 1, 2 is cited in limits, the validity of Republic Act No. 7716 in its formal and
support of this view: substantive aspects as this has been raised in the various cases
before us. To sum up, we hold:
Judicial power includes the duty of the (1) That the procedural requirements of the Constitution have
courts of justice to settle actual controversies been complied with by Congress in the enactment of the
involving rights which are legally statute;
demandable and enforceable, and to
determine whether or not there has been a (2) That judicial inquiry whether the formal requirements for
grave abuse of discretion amounting to lack the enactment of statutes beyond those prescribed by the
or excess of jurisdiction on the part of any Constitution have been observed is precluded by the
branch or instrumentality of the principle of separation of powers;
Government.
(3) That the law does not abridge freedom of speech,
To view the judicial power of review as a duty is nothing new. expression or the press, nor interfere with the free exercise of
Chief Justice Marshall said so in 1803, to justify the assertion religion, nor deny to any of the parties the right to an
of this power in Marbury v. Madison: education; and

It is emphatically the province and duty of (4) That, in view of the absence of a factual foundation of
the judicial department to say what the law record, claims that the law is regressive, oppressive and
is. Those who apply the rule to particular confiscatory and that it violates vested rights protected under
cases must of necessity expound and the Contract Clause are prematurely raised and do not justify
interpret that rule. If two laws conflict with the grant of prospective relief by writ of prohibition.
each other, the courts must decide on the WHEREFORE, the petitions in these cases are DISMISSED.
operation of each. 50 Bidin, Quiason, and Kapunan, JJ., concur.

49
Section No. 1 Any person, corporation or other
forms of Companies, operating Sugar Central or
engage[d] in the manufacture of centrifugal sugar
No. 1129. shall be required to pay the following annual
G.R. No. L-21183 September 27, 1968 municipal license tax, payable quarterly, to wit:
VICTORIAS MILLING CO., INC., plaintiff-appellant, xxx xxx xxx
vs.
THE MUNICIPALITY OF VICTORIAS, PROVINCE OF (m) Sugar Central with mill having a capacity of
NEGROS OCCIDENTAL, defendant-appellant. producing an annual output of from 1,500,001 piculs
Hilado & Hilado for plaintiff-appellant. or more shall be required to pay an annual municipal
The Provincial Fiscal of Negros Occidental for defendant- license tax of P40,000.00.
appellant.
Section No. 2 Any person, corporation or other
SANCHEZ, J.: forms of Companies shall be required to pay an
This case calls into question the validity of Ordinance No. 1, annual municipal license tax for the operation of
series of 1956, of the Municipality of Victorias, Negros Sugar Refinery Mill at the following rates:
Occidental.
xxx xxx xxx
The disputed ordinance was approved by the municipal (m) Sugar Refinery with mill having a capacity of
Council of Victorias on September 22, 1956 by way of an producing an annual output of from 1,750,001 bags
amendment to two municipal ordinances separately imposing of 100 lbs. or more shall be required to pay an annual
license taxes on operators of sugar centrals 1 and sugar municipal license tax of P40,000.00.
refineries. 2 The changes were: with respect to sugar centrals,
by increasing the rates of license taxes; and as to sugar For, the production of plaintiff Victorias Milling Co., Inc. in
refineries, by increasing the rates of license taxes as well as both its sugar central and its sugar refinery located in the
the range of graduated schedule of annual output capacity. Municipality of Victorias comes within these items in the
schedule.
Ordinance No. 1 3 is labeled "An Ordinance Amending
Ordinance No. 25, Series of 1953 and Ordinance No. 18, Plaintiff filed suit below 4 to ask for judgment declaring
Series of 1947 on Sugar Central by Increasing the Rates on Ordinance No. 1, series of 1956, null and void; ordering the
Sugar Refinery Mill by Increasing the Range of Graduated refund of all license taxes paid and to be paid under protest;
Schedule on Capacity Annual Output Respectively". It was, as directing the officials of Victorias and the Province of Negros
the ordinance itself states, enacted pursuant to the taxing Occidental to observe, during the pendency of the action, the
power conferred by Commonwealth Act 472. By Section 1 of provisions of section 357 of the Revised Manual of
the Ordinance: "Any person, corporation or other forms of Instructions to Treasurers of Provinces, Cities and
companies, operating sugar central or engage[d] in the Municipalities, 1954 edition, 5 regarding the treatment of
manufacture of centrifugal sugar shall be required to pay the license taxes paid under protest by virtue of a disputed
following annual municipal license tax, payable quarterly, to ordinance; and other reliefs. 6
wit: . . ." Section 1 referred to prescribes a wide range of
schedule. It starts with a sugar central with mill having an The reasons put forth by plaintiff are that: (a) the ordinance
annual output capacity of not less than 50,000 piculs of exceeds the amounts fixed in Provincial Circular 12-A issued
centrifugal sugar, in which case an annual municipal license by the Finance Department on February 27, 1940; (b) it is
tax of P1,000.00 is provided. Depending upon the annual discriminatory since it singles out plaintiff which is the only
output capacity the schedule of taxes continues with P2,000.00 operator of a sugar central and a sugar refinery within the
progressively upward in twelve other grades until an output jurisdiction of defendant municipality; (c) it constitutes double
capacity of 1,500,001 piculs or more shall have been reached. taxation; and (d) the national government has preempted the
For this, the annual tax is P40,000.00. The tax on sugar field of taxation with respect to sugar centrals or refineries.
refineries is likewise calibrated with similar rates. It also starts
with P1,000.00 for a refinery with mill having an annual Upon the complaint as supplemented and amended, and the
output capacity of not less than 25,000 bags of 100 lbs. of answer thereto, and following hearing on the merits, the trial
refined sugar. Then, it continues with the second bracket of court rendered its judgment. After declaring that "[t]here is no
from 25,001 bags to 75,000 bags of 100 lbs. Here, the doubt that" the ordinance in question refers to license taxes or
municipal license tax is P1,500.00. Then follow the other rates fees," and that "[i]t is settled that a license tax should be
in the graduated scale with the ceiling placed at a capacity of limited to the cost of licensing, regulating and
1,750,001 bags or more. The annual municipal license tax for surveillance," 7 the trial court ruled that said license taxes in
the last mentioned output capacity is P40,000.00. dispute are unreasonable, 8 and held that: "If the defendant has
the power to tax the plaintiff for purposes of revenue, it may
elating to sugar centrals and Section 2(m) covering sugar do so by proper municipal legislation, but not in the guise of a
refineries with specific reference to the maximum annual license tax." 9 The court added: "The Court is not, however,
license tax, viz: prepared to order the refund of all the license taxes paid by the
50
plaintiff under protest and amounting, up to the second quarter or business, or exercising privileges in the
of 1960, to P280,000.00, considering that the plaintiff appears municipality or municipal district, by requiring them
to have agreed to the payment of the license taxes at the rates to secure licenses at rates fixed by the municipal
fixed prior to Ordinance No. 1, series of 1956; that the council, or municipal district council, and to collect
defendant had evidently not complied with the provisions of fees and charges for services rendered by the
Section 357 of the Revised Manual of Instructions to municipality or municipal district and shall otherwise
Treasurers of Provinces, Cities and Municipalities, 1954 have power to levy for public local purposes, and for
Edition, as the plaintiff herein seeks an order enjoining the school purposes, including teachers' salaries, just and
defendant and its appropriate officials to carry out said uniform taxes other than percentage taxes and taxes
provisions; that the financial position of the defendant would on specified articles.
surely be disrupted if ordered to refund, while the plaintiff
may perhaps easily forego or forget what it had already parted Under the statute just quoted and pertinent jurisprudence, a
with". 10 It disposes of the suit in the following manner: municipality is authorized to impose three kinds of licenses:
(1) license for regulation of useful occupations or enterprises;
WHEREFORE, judgment is rendered (a) declaring (2) license for restriction or regulation of non-useful
that Ordinance No. 1, series of 1956, of the occupations or enterprises; and (3) license for revenue. 12 The
municipality of Victorias, Negros Occidental, is first two easily fall within the broad police power granted
invalid; (b) ordering all officials of the defendant to under the general welfare clause. 13 The third class, however,
observe the provisions of Section 357 of the Revised is for revenue purposes. It is not a license fee, properly
Manual of Instructions to Treasurers of Provinces, speaking, and yet it is generally so termed. It rests on the
Cities and Municipalities, 1954 Edition, with taxing power. That taxing power must be expressly conferred
particular reference to any license taxes paid by the by statute upon the municipality. 14 It is so granted under
plaintiff under said Ordinance No. 1, series of 1956, Commonwealth Act 472.
after notice of this decision; and (c) ordering the
defendant to refund to the plaintiff any and all such To be recalled at this point is that Ordinance No. 1, series of
license taxes paid under protest after notice of this 1956, is but an amendment of Ordinance No. 18, series of
decision. 11 1947, in reference to refineries, and Ordinance No. 25, series
of 1953, covering sugar centrals. Ordinance No. 18 imposes
Both plaintiff and defendant appealed direct to this Court. "municipal taxes on persons, firms or
Plaintiff questions that portion of the decision denying the corporations operating refinery mills in this
refund of the license taxes paid under protest in the amount of municipality." 15Ordinance No. 25 speaks of municipal taxes
P280,000 covering the period from the first quarter of 1957 to "relative to the output of the sugar centrals." 16
the second quarter of 1960; and balked at the court's order
limiting refund to "any and all such license taxes paid under What are these taxes for? Resolution No. 60 of the municipal
protest after notice of this decision." Defendant, upon the council of Victorias, 17 adopted also on September 22, 1956 in
other hand, challenges the correctness of the court's decision conjunction with Ordinance No. 1, series of 1956, furnishes a
invalidating Ordinance No. 1, series of 1956. ready answer. It reads in part:

The questions raised in the appeals will be discussed in their WHEREAS, the Municipal Treasurer informed the
proper sequence. Municipal Council of the revenue of the Municipality
and the heavy obligations which confront it because
1. We first grapple with the threshold question: Was of the implementation of Minimum Wage Law on the
Ordinance No. 1, series of 1956, passed by defendant's salaries and wages it pays to its municipal employees
municipal council as a regulatory enactment or as a revenue and laborers thus greatly draining the Municipal
measure? Treasury;

The trial court says, and plaintiff seconds, that the amounts set WHEREAS, this local administration is committed to
forth in the ordinance in question did exceed the cost of the plan of ameliorating the deplorable situation
licensing, regulating and surveillance, and that defendant existing in the barrios, sitios and rural areas by giving
cannot impose a tax for revenue in the guise of a police them essential and necessary facilities calculated to
or a regulatory measure. Our finding, however, is the other improve conditions thereat thru improvements of
way. roads and feeder roads;

The ordinance itself recites that its source of taxing power WHEREAS, one of the causes of the municipality's
emanates from Commonwealth Act 472, Section 1 of which financial difficulty is low rates of municipal taxes
reads: imposed by some of the ordinances enacted by the
local legislative body;
Section 1. A municipal council or municipal district
council shall have authority to impose municipal WHEREAS, [in] . . . the ordinances known as
license taxes upon persons engaged in any occupation Ordinance No. 25, Series of 1953, dealing on
51
the operation of Sugar Central, and Ordinance No. Precisely because of these considerations the present
18, Series of 1947, which exclusively deals with imposition must be treated as a levy for revenue purposes. A
the operation of Sugar Refinery Mill, the rates so quick glance at the big amount of maximum annual tax set
given are rates suggested and determined by the forth in the ordinance, P40,000.00 for sugar centrals, and
Provincial Circular No. 12-A, dated February 27, P40,000.00 for sugar refineries, will readily convince one that
1940 issued by the Department of Finance as regards the tax is really a revenue tax. And then, we read in the
to Sugar Centrals; ordinance nothing which would as much as indicate that the
tax imposed is merely for police inspection, supervision or
WHEREAS, the Municipal Council has come to the regulation.
conclusion that the rates provided for in such
ordinances are no longer adequate if made in keeping Our view that the tax imposed by the ordinance is for revenue
with the present high cost of living; purposes finds support in judicial pronouncements which have
gained foothold in this jurisdiction. In Standard Vacuum vs.
WHEREAS, the Municipal Council has also taken Antigua, 25 this Court had occasion to pass upon a similar
cognizance of the fact that the price of sugar per picul ordinance. In categorical terms, we there stated: "We are
today is more than twice its pre-war average price; . . satisfied that the graduated license tax imposed by the
. . 18 ordinance in question is an occupation tax, imposed not under
the police or regulatory power of the municipality but by
Given the purposes just mentioned, we find no warrant in virtue of its taxing power for purposes of revenue, and is in
logic to give our assent to the view that the ordinance in accordance with the last part of Section 1 of Commonwealth
question is solely for regulatory purpose. Plain is the meaning Act No. 472. It is, therefore, valid." 26
conveyed. The ordinance is for raising money. To say
otherwise is to misread the purpose of the The present case is not to be analogized with Panaligan vs.
ordinance.1awphl.nt City of Tacloban cited in the decision below. 27 For there, the
inspection fee sought to be collected upon every head of
We should not hang so heavy a meaning on the use of the term specified animals to be transported out of the City of Tacloban
"municipal license tax". This does not necessarily connote the (P2.00 per hog, P10.00 per cow and 20.00 per carabao) was
idea that the tax is imposed as the lower court would want in reality an export tax specifically withheld from municipal
it to mean a revenue measure in the guise of a license tax. taxing power under Section 2287 of the Revised
For really, this runs counter to the declared purpose to make Administrative Code.
money.
So also do we say that the cases of Pacific Commercial Co. vs.
Besides, the term "license tax" has not acquired a fixed Romualdez, 28 Lacson vs. City of Bacolod, 29 and Santos vs.
meaning. It is often "used indiscriminately to designate Municipal Government of Caloocan, 30 used by plaintiff as
impositions exacted for the exercise of various privileges." 19 It references, are entirely inopposite. In Pacific Commercial, the
does not refer solely to a license for regulation. In many tax involved on frozen meat was nullified because tax
instances, it refers to "revenue-raising exactions on privileges measures on cold stores were not then within the legislative
or activities." 20 On the other hand, license feesare commonly grant to the City of Manila. In Lacson, the City of Bacolod
called taxes. But, legally speaking, the latter are "for the taxed every admission ticket sold in the moviehouses. And
purpose of raising revenues," in contrast to the former which justification for this imposition was moored to the general
are imposed "in the exercise of police power for purposes of welfare clause of the city charter. This Court held the
regulation." 21 ordinance ultra vires for the reason that the authority to tax
cannot be derived from the general welfare clause. In Santos,
We accordingly say that the designation given by the the taxes in controversy were internal organs fees, meat
municipal authorities does not decide whether the imposition inspection fees and corral fees, separate from the slaughter or
is properly a license tax or a license fee. The determining slaughterhouse fees. In annulling the taxes there questioned,
factors are the purpose and effect of the imposition as may be this Court declared: "[W]hen the Council ordained the
apparent from the provisions of the ordinance. 22 Thus, payment of internal organs fees, meat inspection fees and
"[w]hen no police inspection, supervision, or regulation is corral fees, aside from the slaughter or slaughterhouse fees, it
provided, nor any standard set for the applicant 23 to establish, overstepped the limits of its statutory grant [Sec. 1, C.A. 655].
or that he agrees to attain or maintain, but any and all persons Only one fee was allowed by that law to be charged and that
engaged in the business designated, without qualification or was slaughter or slaughterhouse fees."
hindrance, may come, and a license on payment of the
stipulated sum will issue, to do business, subject to no In the cases cited then, the tax ordinances did not find plain
prescribed rule of conduct and under no guardian eye, but and clear statutory prop. Such infirmity is not present here.
according to the unrestrained judgment or fancy of the
applicant and licensee, the presumption is strong that the We, accordingly, rule that Ordinance No. 1, series of 1956, of
power of taxation, and not the police power, is being the Municipality of Victorias, was promulgated not in the
exercised." 24 exercise of the municipality's regulatory power but as a
revenue measure a tax on occupation or business. The
52
authority to impose such tax is backed by the express grant of exceptions specified in Section 3 of the same statute. Our case
power in Section 1 of Commonwealth Act 472. does not fall within the exceptions. It would therefore be futile
to argue that Congress exclusively reserved to the national
2. Not that the disputed ordinance lacks the imprimatur of the government the right to impose the disputed taxes.
Secretary of Finance required in paragraph 2, Section 4, of We rule that there is no preemption.
Commonwealth Act 472. This legal provision necessitates
such approval "[w]henever the rate of fixed municipal license 4. Petitioner advances the theory that the ordinance is
taxes on businesses not excepted in this Act or otherwise excessive.
covered by the preceding paragraph and subject to the fixed
annual tax imposed in section one hundred eighty-two of the An ordinance carries with it the presumption of validity. The
National Internal Revenue Law, is in excess of fifty pesos per question of reasonableness though is open to judicial inquiry.
annum; . . . ." Much should be left thus to the discretion of municipal
authorities. Courts will go slow in writing off an ordinance as
The ordinance here challenged was recommended by the unreasonable unless the amount is so excessive as to be
Provincial Board of Negros Occidental in its resolution (No. prohibitive, arbitrary, unreasonable, oppressive, or
1864) of October 26, 1956. 31 And, the Undersecretary of confiscatory. 36 A rule which has gained acceptance is that
Finance in his letter to the municipal council of Victorias on factors relevant to such an inquiry are the municipal
December 18, 1956 approved said ordinance. But considering conditions as a whole and the nature of the business made
that it is amendatory in nature, that approval was coupled with subject to imposition. 37
the mandate that the ordinance "should take effect at the
beginning of the ensuing calendar year [1957] pursuant to Plaintiff has however not sufficiently proven that, taking these
Section 2309 of the Revised Administrative Code." 32 factors together, the license taxes are unreasonable. The
presumption of validity subsists. For, plaintiff has limited
3. Plaintiff argues that the municipality is bereft of authority to itself to insisting that the amounts levied exceed the cost of
enact the ordinance in question because the national regulation and that the municipality has adequate funds for the
government "had preempted it from entering the field of alleged purposes as evidenced by the municipality's cash
taxation of sugar centrals and sugar refineries." 33 Plaintiff surplus for the fiscal year ending 1956.
seeks refuge in Section 189 of the National Internal Revenue
Code which subjects proprietors or operators of sugar centrals The cost of regulation cannot be taken as a gauge, if the
or sugar refineries to percentage tax. municipality really intended to enact a revenue ordinance. For,
"if the charge exceeds the expense of issuance of a license and
The implausibility of this position is at once apparent. We are costs of regulation, it is a tax." 38 And if it is, and it is validly
not dealing here with percentage tax. Rather, we are concerned imposed, as in this case, "the rule that license fees for
with a tax specifically for operators of sugar centrals and sugar regulation must bear a reasonable relation to the expense of
refineries. The rates imposed are based on the maximum the regulation has no application." 39
annual output capacity. Which is not a percentage. Because it
is not a share. Nor is it a tax based on the amount of the And then, a cash surplus alone cannot stop a municipality
proceeds realized out of the sale of sugar, centrifugal or from enacting a revenue ordinance increasing license taxes in
refined. 34 anticipation of municipal needs. Discretion to determine the
amount of revenue required for the needs of the municipality
What can be said at most is that the national government has is lodged with the municipal authorities. Again, judicial
preempted the field of percentage taxation. Section 1 of intervention steps in only when there is a flagrant, oppressive
Commonwealth Act 472, while granting municipalities power and excessive abuse of power by said municipal authorities. 40
to levy taxes, expressly removes from them the power to exact Not that defendant municipality was without reason. On
"percentage taxes". February 27, 1940, the Secretary of Finance, later President,
Manuel A. Roxas, issued Provincial Circular 12-A. In that
It is correct to say that preemption in the matter of taxation circular, the then Finance Secretary stated that his
simply refers to an instance where the national government "Department has reached the conclusion that a tax on the basis
elects to tax a particular area, impliedly withholding from the of one centavo for every picul of annual output capacity of
local government the delegated power to tax the same field. sugar centrals ... would be just and reasonable." At that time,
This doctrine primarily rests upon the intention of the price of sugar was around P6.00 per picul. Sixteen years
Congress. 35 Conversely, should Congress allow municipal later 1956 when Ordinance No. 1 was approved, the
corporations to cover fields of taxation it already occupies, market quotation for export sugar ranged from P12.00 to
then the doctrine of preemption will not apply. P15.00 per picul. 41 And yet, since then the rate per output
capacity of a sugar central in Ordinance No. 1 was merely
In the case at bar, Section 4(1) of Commonwealth Act 472 from one centavo to two centavos. There is a statement in the
clearly and specifically allows municipal councils to tax municipality's brief 42that thereafter the price of sugar had
persons engaged in "the same businesses or occupation" on never gone below P16.00 per picul; instead it had gone up.
which "fixed internal revenue privilege taxes" are "regularly The reasonableness of the ordinance may not be disputed. It is
imposed by the National Government." With certain not confiscatory.
53
plaintiff herein was ever mentioned in the ordinance now
There was misapprehension in the decision below in its disputed.
statement that the increase of rates for refineries was 2,000%.
We should not overlook the fact that the original maximum No discrimination exists.
rate covering refineries in Ordinance No. 18, series of 1947,
was P2,000.00; but that was only for a refinery with an output 6. As infirm is plaintiff's stand that its business is not confined
capacity of 90,000 or more sacks. Under Section 2(c) of to the Municipality of Victorias. It suffices that plantiff
Ordinance No. 1, series of 1956, where the refineries have an engages in a business or occupation subject to an exaction by
output capacity of from 75,001 bags to 100,000 bags, the tax the municipality within the territorial boundaries of that
remains at P2,000.00. From here on, the ordinance provides municipality. Plaintiff's sugar central and sugar refinery are
for ten more scales for the graduation of the tax depending located within the Municipality of Victorias. In this central
upon the output capacity (P3,000.00, P4,000.00, P5,000.00, and refinery, plaintiff manufactures centrifugal sugar and
P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, refined sugar, respectively.
P35,000.00 and P40,000.00). But it is only where a refinery
has an output capacity of 1,750,001 or more bags that the But plaintiff insists that plaintiff's sugar milling and refining
present ordinance imposes a tax of P40,000.00. The operations are not wholly performed within the territorial
happenstance that plaintiff's refinery is in the last bracket limits of Victorias. According to plaintiff, transportation of
calling upon it to pay P40,000.00 per annum does not make canes from plantation to the mill site, operation and
the ordinance in question unreasonable. maintenance of telephone system, inspection of crop progress
and other related activities, are conducted not only in
Neither may we tag the ordinance with excessiveness if we defendant's municipality but also in the municipalities of
consider the capital invested by plaintiff in both its sugar Cadiz, Manapla, Sagay and Saravia as well. 47 We fail to see
central and sugar refinery and its annual income from both. the relevance of these facts. Because, if we follow plaintiff's
Plaintiff's capital investment in the sugar central and sugar ratiocination, neither Victorias nor any of the municipalities
refinery is more or less P26,000,000.00. 43 And here are its just adverted to would be able to impose the tax. One thing
annual net income: for the year 1956 P3,852,910; for the certain, of course, is that the tax is imposed upon the business
year 1957 P3,854,520; for the year 1958 P7,230,493; for of operating a sugar central and a sugar refinery. And
the year 1959 P5,951,187; and for the year 1960 the situs of that business is precisely the Municipality of
P7,809,250. 44 If these figures mean anything at all, they show Victorias.
that the ordinance in question is neither confiscatory nor
unjust and unreasonable. 7. Plaintiff finally impleads double taxation. Its reason is that
in computing the amount of taxes to be paid by the sugar
5. Upon the averment that in the Municipality of Victorias refinery the cost of the raw sugar coming from the sugar
plaintiff is the only operator of a sugar central and sugar central is not deducted; ergo, plaintiff is taxed twice on the
refinery, plaintiff now presses its argument that Ordinance No. raw sugar.
1, series of 1956, is discriminatory. The ordinance does not
single out Victorias as the only object of the ordinance. Said Double taxation has been otherwise described as "direct
ordinance is made to apply to any sugar central or sugar duplicate taxation." 48 For double taxation to exist, "the same
refinery which may happen to operate in the municipality. So property must be taxed twice, when it should be taxed but
it is, that the fact that plaintiff is actually the sole operator of a once." 49 Double taxation has also been "defined as taxing the
sugar central and a sugar refinery does not make the ordinance same person twice by the same jurisdiction for the same
discriminatory. Argument along the same lines was rejected thing." 50 As stated in Manila Motor Company, Inc. vs. Ciudad
in Shell Co. of P.I., Ltd. vs. Vao, 45 this Court holding that the de Manila, 51 there is double taxation "cuando la misma
circumstance "that there is no other person in the locality who propiedad se sujeta a dos impuestos por la misma entidad o
exercises" the occupation designated as installation manager Gobierno, para el mismo fin y durante el mismo periodo de
"does not make the ordinance discriminatory and hostile, tiempo."
inasmuch as it is and will be applicable to any person or firm
who exercises such calling or occupation." And in Ormoc With the foregoing precepts in mind, we find no difficulty in
Sugar Company, Inc. vs. Municipal Board of Ormoc saying that plaintiff's argument on double taxation does not
City, 46 declaratory relief was sought to test the validity of a inspire assent. First. The two taxes cover two different
municipal ordinance which provides a city tax of twenty objects. Section 1 of the ordinance taxes a person operating
centavos per picul of centrifugal sugar and one per centum on sugar centrals or engaged in the manufacture of centrifugal
the gross sale of its derivatives and by-products "produced by sugar. While under Section 2, those taxed are the operators of
the Ormoc Sugar Company, Incorporated, or by any other sugar refinery mills. One occupation or business is different
sugar mill in Ormoc City." Mr. Justice Enrique Fernando, from the other. Second. The disputed taxes are imposed on
delivering the opinion of this Court, declared that the occupation or business. Both taxes are not on sugar. The
ordinance did not suffer "from a constitutional or statutory amount thereof depends on the annual output capacity of the
infirmity." And yet, in Ormoc, it is to be observed that Section mills concerned, regardless of the actual sugar milled.
1 of the ordinance spelled out Ormoc Sugar Company, Plaintiff's argument perhaps could make out a point if the
Incorporated specifically by name. Not even the name of
54
object of taxation here were the sugar it produces, not the every one thousand (1,000) board feet of lumber sold
business of producing it. at Ormoc City by any person, partnership, firm,
association, corporation or entity.
There is no double taxation.
SECTION 2. Time and manner of payment and
For the reasons given penalty for delinquency. The city tax herein
The judgment under review is hereby reversed; and prescribed shall be payable without penalty within
Judgment is hereby rendered: (a) declaring valid and twenty (20) days after the close of every quarter for
subsisting Ordinance No. 1, series of 1956, of the which the tax is due. Failure to pay the tax within the
Municipality of Victorias, Province of Negros Occidental; and prescribed time shall render the taxpayer subject to a
(b) dismissing plaintiff's complaint as supplemented and surcharge of fifty percentum (50%) for the first
amended. Costs against plaintiff. So ordered. offense and one hundred percentum (100%) for
subsequent failures to pay within the prescribed
period.
G.R. No. L-24813 April 28, 1969
DR. HERMENEGILDO SERAFICA, plaintiff-appellant, SECTION 3. Payment to be rendered by taxpayer.
vs. The taxpayer is hereby obliged to include the tax due
THE TREASURER OF ORMOC CITY, THE in every invoice issued for the sale of lumber which
MUNICIPAL BOARD OF ORMOC CITY, HON. tax shall be submitted for payment to the City
ESTEBAN C. CONEJOS, as Mayor of Ormoc City and Treasurer within twenty (20) days after the close of
ORMOC CITY, defendants-appellees. every quarter.

Cleto P. Evangelista for plaintiff-appellant. SECTION 4. Inspection of taxpayer's books and


The City Fiscal of Ormoc City for defendant-appellees. records. For the purpose of enforcing the
provisions of this Ordinance, the City Treasurer or
CONCEPCION, C.J.: any of his deputies specifically authorized in writing
Direct appeal from a decision of the Court of First Instance of for the purpose, shall have authority to examine the
Leyte dismissing plaintiff's complaint, without pronouncement books and records of any person, partnership, firm,
as to costs. association, corporation or entity subject to the tax
herein imposed, PROVIDED, HOWEVER, That
Plaintiff, Dr. Hermenegildo Serafica, seeks a declaration of such examination shall be made only during regular
nullity of Ordinance No. 13, Series of 1964, of Ormoc City, business hours, unless the person, partnership, firm,
imposing a "tax of five pesos (P5.00) for every one thousand association, corporation or entity concerned shall
(1,000) board feet of lumber sold at Ormoc City by any consent otherwise.
person, partnership, firm, association, corporation, or entities",
pursuant to which the Treasurer of said City levied on and SEC. 5. Penalty for violation. Any violation of the
collected from said plaintiff, as owner of the Serafica Sawmill, provisions of the Ordinance shall be punishable by a
the aggregate sum of P1,837.84, as tax on 367,568 board feet fine of not more than five hundred (P500.00) pesos
of lumber sold, in said City, during the third quarter of 1964. and an imprisonment of not more than three (3)
After appropriate proceedings, the lower court rendered months.
judgment upholding the validity of said ordinance and denying
the relief prayed for by Dr. Serafica. Hence, this appeal by the SEC. 6. Construction of this Ordinance. If any
latter. part or section of this Ordinance shall be declared
unconstitutional or ultra vires, such part or section
The contested ordinance reads: shall not invalidate any other provision hereof.
ORDINANCE NO. 13 SEC. 7. Effectivity. This Ordinance shall take
effect immediately upon approval. ENACTED, June
AN ORDINANCE IMPOSING A TAX OF FIVE 17, 1964.lawphi1.nt
PESOS (P5.00) FOR EVERY ONE THOUSAND
BOARD FEET OF LUMBER SOLD AT ORMOC RESOLVED, FURTHER, to authorize the City
CITY AND FOR OTHER PURPOSES. Treasurer to copies of this Ordinance for issuance to
all concerned;
BE IT ORDAINED, by authority of the Municipal
Board of Ormoc City, Philippines, pursuant to the RESOLVED, FINALLY, to furnish a copy of this
provisions of Republic Act 179, as amended by RA resolution-ordinance each to the City Treasurer, the
429, otherwise known as the Charter of Ormoc City, City Auditor, the City Fiscal, the City Judge, and all
concerned;
That:
SECTION 1. City tax. There shall be paid to the CARRIED. Six affirmative votes registered by
City Treasurer a city tax of five pesos (P5.00) for Councilors Tugonon, Alfaro, Kierulf, Abas,
55
Besabella, and Du; one abstention registered by
Councilor Aviles. Although lumber is a forest product, this imitation has no
xxx xxx xxx application to the case at bar, the tax in question being
imposed, not upon lumber, but upon its sale. Said tax is not
Plaintiff assails this ordinance as null and void upon the levied upon the lumber in plaintiff's sawmill and does not
grounds that: (1) the Charter of Ormoc City (Republic Acts become due until after the lumber has been sold. Hence, the
Nos. 179 and 429) authorizes the same to "regulate", but not to case at bar is distinguishable from Golden Ribbon Lumber
"tax" lumber yards; (2) the ordinance in question imposes, in Co., Inc. v. City of Butuan 7 in that the ordinance involved
effect, double taxation, because the business of lumberyard is therein provided that "every person, association or corporation
already regulated under said Charter and the sale of lumber is operating a lumber mill and/or lumber yard within the territory
"a mere incident to the business of lumber yard"; (3) the tax of the City of Butuan shall pay to the City a tax of two-fifths
imposed is "unfair, unjust, arbitrary, unreasonable, oppressive (P.004) centavo for every board foot of lumber sawn,
and contrary to the principles of taxation"; and (4) "the public manufactured and/or produced." In short, the tax in that case
was not heard and given a chance to air its views" thereon. was imposed upon the "lumber" a forest product, not
subject to local taxation whether sold or not.
With respect to the first ground, We have held in Ormoc Similarly, Santos Lumber Co. v. City of Cebu 8 and Jose S.
Sugar Co. v. Municipal Board of Ormoc City, 1 that the taxing Johnston & Sons v. Ramon Regondola 9 cited by the plaintiff,
power of the City of Ormoc, under section 2 of the Local refer to situations arising before the enactment of Republic
Autonomy Act 2 is "broad" and "sufficiently plenary to cover Act No. 2264, 10 and, hence, are inapplicable to the present
everything, excepting those mentioned therein". 3 It should be case.
noted that in said case of Ormoc Sugar Co., We upheld the
validity of a sales tax. Neither have We overlooked the proviso in Sec. 2 of said Act
prohibiting the imposition of "any percentage tax on sales or
As regards the second ground, suffice it to say that regulation other taxes in any form based thereon," for this injunction is
and taxation are two different things, the first being an directed exclusively to "municipalities and municipal
exercise of police power, whereas the latter is not, apart from districts," and does not apply to cities.
the fact that double taxation is not prohibited in the
Philippines. 4 WHEREFORE, the decision appealed from should be, as it is
hereby affirmed, with costs against plaintiff herein. It is so
The third objection is premised upon the fact that the tax in ordered.
question is imposed regardless of the class of lumber sold,
although there are several categories thereof, commanding G.R. No. L- 41383 August 15, 1988
different prices. Plaintiff has not proven, however, or even PHILIPPINE AIRLINES, INC., plaintiff-appellant,
alleged the prices corresponding to each category, so that, like vs.
the lower court, We have no means to ascertain the accuracy ROMEO F. EDU in his capacity as Land Transportation
of the conclusion drawn by him, and must, accordingly, rely Commissioner, and UBALDO CARBONELL, in his
upon the presumption that the City Council had merely capacity as National Treasurer, defendants-appellants.
complied with its duty and that the ordinance is valid, unless Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-
and until the contrary has been duly established. 5 appellant.

The last objection is based upon Provincial Circular No. 24 of GUTIERREZ, JR., J.:
the Department of Finance, dated March 31, What is the nature of motor vehicle registration fees? Are they
1960, suggesting that, "in the enactment of tax ordinances .. taxes or regulatory fees?
under the Local Autonomy Act ... where practicable, public
hearings be held wherein the views of the public ... may be This question has been brought before this Court in the past.
heard." This is, however, a mere suggestion, compliance with The parties are, in effect, asking for a re-examination of the
which is not obligatory, so that failure to act in accordance latest decision on this issue.
therewith can not and does not affect the validity of the tax
ordinance. This appeal was certified to us as one involving a pure
question of law by the Court of Appeals in a case where the
Indeed, since local governments are subject, not to the control, then Court of First Instance of Rizal dismissed the portion-
but merely to the general supervision of the President, it is to about complaint for refund of registration fees paid under
say the least, doubtful that the latter could have made protest.
compliance with said circular obligatory. 6
The disputed registration fees were imposed by the appellee,
We have not overlooked the fact that, pursuant to Sec. 2 of Commissioner Romeo F. Elevate pursuant to Section 8,
Republic Act No. 2264 as amended "no city, municipality or Republic Act No. 4136, otherwise known as the Land
municipal district may levy or impose ... Transportation and Traffic Code.
xxx xxx xxx
(e) Taxes on forest products or forest concessions."
56
The Philippine Airlines (PAL) is a corporation organized and Treasurer, filed a motion to dismiss alleging that the complaint
existing under the laws of the Philippines and engaged in the states no cause of action. In support of the motion to dismiss,
air transportation business under a legislative franchise, Act defendants repatriation the ruling in Republic v. Philippine
No. 42739, as amended by Republic Act Nos. 25). and 269.1 Rabbit Bus Lines, Inc., (supra) that registration fees of motor
Under its franchise, PAL is exempt from the payment of taxes. vehicles are not taxes, but regulatory fees imposed as an
The pertinent provision of the franchise provides as follows: incident of the exercise of the police power of the state. They
contended that while Act 4271 exempts PAL from the
Section 13. In consideration of the franchise payment of any tax except two per cent on its gross revenue or
and rights hereby granted, the grantee shall earnings, it does not exempt the plaintiff from paying
pay to the National Government during the regulatory fees, such as motor vehicle registration fees. The
life of this franchise a tax of two per cent of resolution of the motion to dismiss was deferred by the Court
the gross revenue or gross earning derived until after trial on the merits.
by the grantee from its operations under this
franchise. Such tax shall be due and payable On April 24, 1973, the trial court rendered a decision
quarterly and shall be in lieu of all taxes of dismissing the appellant's complaint "moved by the later
any kind, nature or description, levied, ruling laid down by the Supreme Court in the case or Republic
established or collected by any municipal, v. Philippine Rabbit Bus Lines, Inc., (supra)." From this
provincial or national automobiles, judgment, PAL appealed to the Court of Appeals which
Provided, that if, after the audit of the certified the case to us.
accounts of the grantee by the
Commissioner of Internal Revenue, a Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit
deficiency tax is shown to be due, the Bus Lines, Inc. (supra) cited by PAL and Commissioner
deficiency tax shall be payable within the Romeo F. Edu respectively, discuss the main points of
ten days from the receipt of the assessment. contention in the case at bar.
The grantee shall pay the tax on its real Resolving the issue in the Philippine Rabbit case, this Court
property in conformity with existing law. held:

On the strength of an opinion of the Secretary of Justice (Op. "The registration fee which defendant-
No. 307, series of 1956) PAL has, since 1956, not been paying appellee had to pay was imposed by Section
motor vehicle registration fees. 8 of the Revised Motor Vehicle Law
(Republic Act No. 587 [1950]). Its heading
Sometime in 1971, however, appellee Commissioner Romeo speaks of "registration fees." The term is
F. Elevate issued a regulation requiring all tax exempt entities, repeated four times in the body thereof.
among them PAL to pay motor vehicle registration fees. Equally so, mention is made of the "fee for
registration." (Ibid., Subsection G) A
Despite PAL's protestations, the appellee refused to register subsection starts with a categorical
the appellant's motor vehicles unless the amounts imposed statement "No fees shall be charged."
under Republic Act 4136 were paid. The appellant thus paid, (lbid.,Subsection H) The conclusion is
under protest, the amount of P19,529.75 as registration fees of difficult to resist therefore that the Motor
its motor vehicles. Vehicle Act requires the payment not of a
tax but of a registration fee under the police
After paying under protest, PAL through counsel, wrote a power. Hence the incipient, of the section
letter dated May 19,1971, to Commissioner Edu demanding a relied upon by defendant-appellee under the
refund of the amounts paid, invoking the ruling in Calalang v. Back Pay Law, It is not held liable for a tax
Lorenzo (97 Phil. 212 [1951]) where it was held that motor but for a registration fee. It therefore cannot
vehicle registration fees are in reality taxes from the payment make use of a backpay certificate to meet
of which PAL is exempt by virtue of its legislative franchise. such an obligation.
Appellee Edu denied the request for refund basing his action
on the decision in Republic v. Philippine Rabbit Bus Lines, Any vestige of any doubt as to the
Inc., (32 SCRA 211, March 30, 1970) to the effect that motor correctness of the above conclusion should
vehicle registration fees are regulatory exceptional. and not be dissipated by Republic Act No. 5448.
revenue measures and, therefore, do not come within the ([1968]. Section 3 thereof as to the
exemption granted to PAL? under its franchise. Hence, PAL imposition of additional tax on privately-
filed the complaint against Land Transportation Commissioner owned passenger automobiles, motorcycles
Romeo F. Edu and National Treasurer Ubaldo Carbonell with and scooters was amended by Republic Act
the Court of First Instance of Rizal, Branch 18 where it was No. 5470 which is (sic) approved on May
docketed as Civil Case No. Q-15862. 30, 1969.) A special science fund was
thereby created and its title expressly sets
Appellee Romeo F. Elevate in his capacity as LTC forth that a tax on privately-owned
Commissioner, and LOI Carbonell in his capacity as National passenger automobiles, motorcycles and
57
scooters was imposed. The rates thereof which the Government is to discharge one of
were provided for in its Section 3 which its principal functionsthe construction and
clearly specifies the" Philippine maintenance of public highways for
tax."(Cooley to be paid as distinguished everybody's use. They are veritable taxes,
from the registration fee under the Motor not merely fees.
Vehicle Act. There cannot be any clearer
expression therefore of the legislative will, As a matter of fact, the Revised Motor
even on the assumption that the earlier Vehicle Law itself now regards those fees as
legislation could by subdivision the point be taxes, for it provides that "no other taxes or
susceptible of the interpretation that a tax fees than those prescribed in this Act shall
rather than a fee was levied. What is thus be imposed," thus implying that the charges
most apparent is that where the legislative therein imposedthough called feesare of
body relies on its authority to tax it the category of taxes. The provision is
expressly so states, and where it is enacting contained in section 70, of subsection (b), of
a regulatory measure, it is equally exploded the law, as amended by section 17 of
(at p. 22,1969 Republic Act 587, which reads:

In direct refutation is the ruling in Calalang v. Lorenzo Sec. 70(b) No other taxes
(supra), where the Court, on the other hand, held: or fees than those
prescribed in this Act shall
The charges prescribed by the Revised be imposed for the
Motor Vehicle Law for the registration of registration or operation or
motor vehicles are in section 8 of that law on the ownership of any
called "fees". But the appellation is no motor vehicle, or for the
impediment to their being considered taxes exercise of the profession
if taxes they really are. For not the name but of chauffeur, by any
the object of the charge determines whether municipal corporation, the
it is a tax or a fee. Geveia speaking, taxes provisions of any city
are for revenue, whereas fees are charter to the contrary
exceptional. for purposes of regulation and notwithstanding: Provided
inspection and are for that reason limited in , however, That any
amount to what is necessary to cover the provincial board, city or
cost of the services rendered in that municipal council or
connection. Hence, a charge fixed by statute board, or other competent
for the service to be person,-When by an authority may exact and
officer, where the charge has no relation to collect such reasonable
the value of the services performed and and equitable toll fees for
where the amount collected eventually finds the use of such bridges
its way into the treasury of the branch of the and ferries, within their
government whose officer or officers respective jurisdiction, as
collected the chauffeur, is not a fee but a may be authorized and
tax."(Cooley on Taxation, Vol. 1, 4th ed., p. approved by the Secretary
110.) of Public Works and
Communications, and also
From the data submitted in the court below, for the use of such public
it appears that the expenditures of the Motor roads, as may be
Vehicle Office are but a small portion authorized by the
about 5 per centumof the total collections President of the
from motor vehicle registration fees. And as Philippines upon the
proof that the money collected is not recommendation of the
intended for the expenditures of that office, Secretary of Public Works
the law itself provides that all such money and Communications, but
shall accrue to the funds for the construction in none of these cases,
and maintenance of public roads, streets and shall any toll fee." be
bridges. It is thus obvious that the fees are charged or collected until
not collected for regulatory purposes, that is and unless the approved
to say, as an incident to the enforcement of schedule of tolls shall
regulations governing the operation of motor have been posted levied,
vehicles on public highways, for their in a conspicuous place at
express object is to provide revenue with
58
such toll station. (at pp. the term "fees," which appears to have been favored by the
213-214) legislature to distinguish fees from other taxes such as those
mentioned in Section 13 of Rep. Act 4136 which reads:
Motor vehicle registration fees were matters originally
governed by the Revised Motor Vehicle Law (Act 3992 Sec. 13. Payment of taxes upon
[19511) as amended by Commonwealth Act 123 and Republic registration.No original registration of
Acts Nos. 587 and 1621. motor vehicles subject to payment of taxes,
customs s duties or other charges shall be
Today, the matter is governed by Rep. Act 4136 [1968]), accepted unless proof of payment of the
otherwise known as the Land Transportation Code, (as taxes due thereon has been presented to the
amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, Commission.
843, 896, 110.) and BP Blg. 43, 74 and 398).
referring to taxes other than those imposed on the registration,
Section 73 of Commonwealth Act 123 (which amended Sec. operation or ownership of a motor vehicle (Sec. 59, b, Rep.
73 of Act 3992 and remained unsegregated, by Rep. Act Nos. Act 4136, as amended).
587 and 1603) states:
Fees may be properly regarded as taxes even though they also
Section 73. Disposal of moneys collected. serve as an instrument of regulation, As stated by a former
Twenty per centum of the money collected presiding judge of the Court of Tax Appeals and writer on
under the provisions of this Act shall accrue various aspects of taxpayers
to the road and bridge funds of the different
provinces and chartered cities in proportion It is possible for an exaction to be both tax
to the centum shall during the next previous arose. regulation. License fees are changes.
year and the remaining eighty per centum looked to as a source of revenue as well as a
shall be deposited in the Philippine Treasury means of regulation (Sonzinky v. U.S., 300
to create a special fund for the construction U.S. 506) This is true, for example, of
and maintenance of national and provincial automobile license fees. Isabela such case,
roads and bridges. as well as the streets and the fees may properly be regarded as taxes
bridges in the chartered cities to be alloted even though they also serve as an instrument
by the Secretary of Public Works and of regulation. If the purpose is primarily
Communications for projects recommended revenue, or if revenue is at least one of the
by the Director of Public Works in the real and substantial purposes, then the
different provinces and chartered cities. .... exaction is properly called a tax. (1955 CCH
Fed. tax Course, Par. 3101, citing Cooley on
Presently, Sec. 61 of the Land Transportation and Traffic Taxation (2nd Ed.) 592, 593; Calalang v.
Code provides: Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are
Sec. 61. Disposal of Mortgage. Collected sometimes called regulatory taxes. (See
Monies collected under the provisions of Secs. 4701, 4711, 4741, 4801, 4811, 4851,
this Act shall be deposited in a special trust and 4881, U.S. Internal Revenue Code of
account in the National Treasury to 1954, which classify taxes on tobacco and
constitute the Highway Special Fund, which alcohol as regulatory taxes.) (Umali,
shall be apportioned and expended in Reviewer in Taxation, 1980, pp. 12-13,
accordance with the provisions of the" citing Cooley on Taxation, 2nd Edition, 591-
Philippine Highway Act of 1935. "Provided, 593).
however, That the amount necessary to
maintain and equip the Land Transportation Indeed, taxation may be made the implement of the state's
Commission but not to exceed twenty per police power (Lutz v. Araneta, 98 Phil. 148).
cent of the total collection during one year,
shall be set aside for the purpose. (As If the purpose is primarily revenue, or if revenue is, at least,
amended by RA 64-67, approved August 6, one of the real and substantial purposes, then the exaction is
1971). properly called a tax (Umali, Id.) Such is the case of motor
vehicle registration fees. The conclusions become inescapable
It appears clear from the above provisions that the legislative in view of Section 70(b) of Rep. Act 587 quoted in
intent and purpose behind the law requiring owners of vehicles the Calalang case. The same provision appears as Section
to pay for their registration is mainly to raise funds for the 591-593). in the Land Transportation code. It is patent
construction and maintenance of highways and to a much therefrom that the legislators had in mind a regulatory tax as
lesser degree, pay for the operating expenses of the the law refers to the imposition on the registration, operation
administering agency. On the other hand, the Philippine or ownership of a motor vehicle as a "tax or fee." Though
Rabbit case mentions a presumption arising from the use of nowhere in Rep. Act 4136 does the law specifically state that
59
the imposition is a tax, Section 591-593). speaks of "taxes." or 41-42). to the effect that its franchise tax of
fees ... for the registration or operation or on the ownership of one and one-half percentum (1-1/2%) of all
any motor vehicle, or for the exercise of the profession of gross receipts was provided as "in lieu of
chauffeur ..." making the intent to impose a tax more apparent. any and all taxes of any kind, nature, or
Thus, even Rep. Act 5448 cited by the respondents, speak of description levied, established, or collected
an "additional" tax," where the law could have referred to an by any authority whatsoever, municipal,
original tax and not one in addition to the tax already imposed provincial, or national from which taxes the
on the registration, operation, or ownership of a motor vehicle grantee is hereby expressly exempted." The
under Rep. Act 41383. Simply put, if the exaction under Rep. issue raised to this Court now is the validity
Act 4136 were merely a regulatory fee, the imposition in Rep. of the respondent court's decision which
Act 5448 need not be an "additional" tax. Rep. Act 4136 also ruled that the exemption under Republic Act
speaks of other "fees," such as the special permit fees for No. 41-42). was repealed by Section 24 of
certain types of motor vehicles (Sec. 10) and additional fees Republic Act No. 5448 dated June 27, 1968
for change of registration (Sec. 11). These are not to be which reads:
understood as taxes because such fees are very minimal to be
revenue-raising. Thus, they are not mentioned by Sec. 591- "(d) The provisions of
593). of the Code as taxes like the motor vehicle registration existing special or general
fee and chauffers' license fee. Such fees are to go into the laws to the contrary
expenditures of the Land Transportation Commission as notwithstanding, all
provided for in the last proviso of see. 61, aforequoted. corporate taxpayers not
specifically exempt under
It is quite apparent that vehicle registration fees were Sections 24 (c) (1) of this
originally simple exceptional. intended only for rigidly Code shall pay the rates
purposes in the exercise of the State's police powers. Over the provided in this section.
years, however, as vehicular traffic exploded in number and All corporations, agencies,
motor vehicles became absolute necessities without which or instrumentalities owned
modem life as we know it would stand still, Congress found or controlled by the
the registration of vehicles a very convenient way of raising government, including the
much needed revenues. Without changing the earlier deputy. Government Service
of registration payments as "fees," their nature has become Insurance System and the
that of "taxes." Social Security System
but excluding educational
In view of the foregoing, we rule that motor vehicle institutions, shall pay such
registration fees as at present exacted pursuant to the Land rate of tax upon their
Transportation and Traffic Code are actually taxes intended taxable net income as are
for additional revenues. of government even if one fifth or less imposed by this section
of the amount collected is set aside for the operating expenses upon associations or
of the agency administering the program. corporations engaged in a
similar business or
May the respondent administrative agency be required to industry. "
refund the amounts stated in the complaint of PAL?
An examination of Section 24 of the Tax
The answer is NO. Code as amended shows clearly that the law
intended all corporate taxpayers to
The claim for refund is made for payments given in 1971. It is pay income tax as provided by the statute.
not clear from the records as to what payments were made in There can be no doubt as to the power of
succeeding years. We have ruled that Section 24 of Rep. Act Congress to repeal the earlier exemption it
No. 5448 dated June 27, 1968, repealed all earlier tax granted. Article XIV, Section 8 of the 1935
exemptions Of corporate taxpayers found in legislative Constitution and Article XIV, Section 5 of
franchises similar to that invoked by PAL in this case. the Constitution as amended in 1973
In Radio Communications of the Philippines, Inc. v. Court of expressly provide that no franchise shall be
Tax Appeals, et al. (G.R. No. 615)." July 11, 1985), this Court granted to any individual, firm, or
ruled: corporation except under the condition that
it shall be subject to amendment, alteration,
Under its original franchise, Republic Act or repeal by the legislature when the public
No. 21); enacted in 1957, petitioner Radio interest so requires. There is no question as
Communications of the Philippines, Inc., to the public interest involved. The country
was subject to both the franchise tax and needs increased revenues. The repealing
income tax. In 1964, however, petitioner's clause is clear and unambiguous. There is a
franchise was amended by Republic Act No. listing of entities entitled to tax exemption.
60
The petitioner is not covered by the gravitates (Pres. Decree 1590, 75 OG No.
provision. Considering the foregoing, the 15, 3259, April 9, 1979).
Court Resolved to DENY the petition for
lack of merit. The decision of the respondent PAL's current franchise is clear and specific. It has removed
court is affirmed. the ambiguity found in the earlier law. PAL is now exempt
from the payment of any tax, fee, or other charge on the
Any registration fees collected between June 27, 1968 and registration and licensing of motor vehicles. Such payments
April 9, 1979, were correctly imposed because the tax are already included in the basic tax or franchise tax provided
exemption in the franchise of PAL was repealed during the in Subsections (a) and (b) of Section 13, P.D. 1590, and may
period. However, an amended franchise was given to PAL in no longer be exacted.
1979. Section 13 of Presidential Decree No. 1590, now WHEREFORE, the petition is hereby partially GRANTED.
provides: The prayed for refund of registration fees paid in 1971 is
DENIED. The Land Transportation Franchising and
In consideration of the franchise and rights Regulatory Board (LTFRB) is enjoined functions-the
hereby granted, the grantee shall pay to the collecting any tax, fee, or other charge on the registration and
Philippine Government during the lifetime licensing of the petitioner's motor vehicles from April 9, 1979
of this franchise whichever of subsections as provided in Presidential Decree No. 1590.
(a) and (b) hereunder will result in a lower
taxes.) SO ORDERED.

(a) The basic corporate G.R. No. L-19737 August 26, 1968
income tax based on the HENG TONG TEXTILES CO., INC. (before), PHILIP
grantee's annual net MANUFACTURING CORPORATION (now), petitioner,
taxable income computed vs.
in accordance with the COMMISSIONER OF INTERNAL REVENUE and THE
provisions of the Internal COURT OF TAX APPEALS, respondents.
Revenue Code; or Caparas and Ilagan and Anatolia F. Reyes for petitioner.
Office of the Solicitor General for respondents.
(b) A franchise tax of two MAKALINTAL, J.:
per cent (2%) of the gross
revenues. derived by the In 1952 the then Collector of Internal Revenue assessed
grantees from all specific. against the petitioner deficiency sales taxes and surcharges for
without distinction as to the year 1949 and the first four months of 1950 in the
transport or nontransport aggregate sum of P89,123.58. The assessment was appealed to
corporations; provided the Board of Tax Appeals, whence the case was transferred to
that with respect to the Court of Tax Appeals upon its organization in 1954, and
international airtransport there was affirmed in its decision dated February 28, 1952.
service, only the gross The matter was thereafter elevated to this Court for review.
passengers, mail, and
freight revenues. from its The deficiency taxes in question were assessed on
outgoing flights shall be importations of textiles from abroad. The goods were
subject to this law. withdrawn from Customs by Pan-Asiatic Commercial Co.,
Inc., which paid, in the name of the petitioner, the
The tax paid by the grantee under either of corresponding advance sales tax under section 183(b) of the
the above alternatives shall be in lieu of all Internal Revenue Code. The assessment for the deficiency,
other taxes, duties, royalties, registration, however, was made against the petitioner, Heng Tong Textiles
license and other fees and charges of any Co., Inc. (now Philip Manufacturing Corporation) on the
kind, nature or description imposed, levied, ground that it was the real importer of the goods and did not
established, assessed, or collected by any pay the taxes due on the basis of the gross selling prices
municipal, city, provincial, or national thereof. There is no dispute as to the amount as computed by
authority or government, agency, now or in the internal revenue examiners and confirmed by the
the future, including but not limited to the Collector. The only issues posed in the instant petition for
following: review are: (1) whether or not the petitioner was the importer
of the goods; and (2) whether or not it was guilty of fraud so
xxx xxx xxx as to warrant the imposition of a penalty of 50% on the
(5) All taxes, fees and other charges on the deficiency.
registration, license, acquisition, and transfer
of airtransport equipment, motor vehicles, The Court of Tax Appeals based its decision of affirmance,
and all other personal or real property of the finding the petitioner the importer of the goods, on a number
of evidentiary circumstances. First, Heng Tong Textiles Co.,
61
Inc. and Pan-Asiatic Commercial were sister corporations. goods by the Pan-Asiatic Commercial to the petitioner as the
This is not controverted by the petitioner. Second, the sales were made apparently at cost." This is so because
commercial documents covering the importations (shipping "during the period in question," the Court of Tax Appeals
documents, insurance papers, and records of payment of the added, "the sales tax on sales of imported articles was based
advance sales tax in the Bureau of Customs) were all in the on the gross selling price thereof, the advance sales tax paid
name of the petitioner. Third, in connection with advance sales upon removal of the goods from the customhouse being
tax aforesaid, Pan-Asiatic Asiatic Commercial wrote the credited against the tax on the actual gross selling price paid
petitioner the following letter: by the importer. (See Rep. Act No. 253; General Circular No.
V-106, February 19, 1951.)"
In compliance with your request regarding the 5% In our opinion, however, the arrangement resorted to does not
Sales Tax that we paid for you for the year 1949 and by itself alone justify the penalty imposed. Section 183 (a),
the first quarter of 1950 against the goods that you paragraph 3, of the Internal Revenue Code, as amended by
ordered from various United States suppliers, through Republic Act No. 253, speaks of willful neglect to file the
us, we attach hereto a list giving a breakdown of this return or willful making of a false or fraudulent return. An
5% Sales Tax, together with the corresponding attempt to minimize one's tax does not necessarily constitute
Official Receipt Numbers and other details relative to fraud. It is a settled principle that a taxpayer may diminish his
the orders covered by these payments. liability by any means which the law permits. "The intention
to minimize taxes, when used in the context of fraud, must be
Fourth, there is both documentary and testimonial evidence proved to exist by clear and convincing evidence amounting to
the latter being declarations of the petitioner's own witnesses more than mere preponderance, and cannot, be justified by
that Pan-Asiatic Commercial acted merely as indentor. mere speculation. This is because fraud is never lightly to be
Indeed the original petition for review below contains the presumed." (Yutivo Sons Hardware Co. vs. CTA, G.R. No. L-
allegation that "during the taxable year 1949, Heng Tong 13203, and cases cited). No such evidence is shown by the
Textiles Co., Inc. placed through Pan-Asiatic Commercial Co., record in the case of the herein petitioner. Its actuation is not
Inc., orders for importations of textiles from the United States incompatible with good faith on its part, that is, with a genuine
in the sum of P2,190,948.66." belief that by indorsing the goods to Pan-Asiatic Commercial
so that the latter could, as it did, take delivery thereof, Pan-
Petitioner excepts to the conclusion of the Court of Tax Asiatic Commercial would in law be considered the importer.
Appeals and avers that the importation papers were placed in It may even be true, as the petitioner insists, that it was Pan-
the name of the petitioner only for purposes of Asiatic Commercial that financed the importations but placed
accommodation, that is, to introduce the petitioner to textile them in the name of the petitioner as a matter of
suppliers abroad; and that the petitioner was not in a financial accommodation, in which case the element of fraud would be
position to make the importations in question, valued at over a ruled out, although from the legal viewpoint and as far as the
million pesos, since its paid-up capital was only P30,000.00. right of the Government to collect the taxes was concerned the
These circumstances show nothing but a private arrangement petitioner was the real importer and hence must shoulder the
between the petitioner and Pan-Asiatic Commercial, which in tax burden.
no way affected the role of the petitioner as the importer as far
as the Government and its right to collect the taxes were The decision of the Court of Tax Appeals is modified, by
concerned. Pan-Asiatic Commercial might have furnished the eliminating therefrom the penalty of 50% on the amount of
necessary financing for the importations in question, but that deficiency sales taxes imposed, and is affirmed in all other
did not militate against the petitioner's being the importer; nor respects. No pronouncement as to costs.
did the idea of building up its reputation among textile
suppliers abroad render it necessary for the withdrawal of the G.R. No. L-21609 September 29, 1966
goods from customs and the payment of the advance sales tax REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
to be made in the petitioner's name, these being purely local vs.
operations, or for Pan-Asiatic Commercial to affirm, in the KER & COMPANY, LTD., defendant-appellant.
private communication sent by it to the petitioner, that the Office of the Solicitor General for plaintiff-appellant.
latter was the one that ordered the goods from the United Leido, Andrada, Perez and Associates for defendant-
States. appellant.

If anything, we perceive in the entire set-up an arrangement BENGZON, J.P., J.:


through which the sales taxes due could be minimized, by Ker & Co., Ltd., a domestic corporation, filed its income tax
having Pan-Asiatic Commercial, as indorsee of the goods, returns for the years 1947, 1948, 1949 and 1950 on the
withdraw the same from Customs upon payment of the following dates:
advance sales tax and then execute a sale thereof to Heng Year Date Filed
Tong Textiles at cost, or at a negligible profit. As it turned out,
1947 April 12, 1948
according to the Court of Tax Appeals, "the goods were made
to appear as having (thus) been sold ... so that no sales tax was 1948 April 30, 1949
paid by petitioner upon the sales of such goods ... (and) 1949 May 15, 1950
neither, was any sales tax paid on the supposed sales of said
62
1950 May 9, 1951 On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido,
Andrada, Perez & Associates, moved for the dismissal of the
It amended its income tax returns for 1948 and 1949 on May complaint on the ground that the court did not acquire
11, 1949 and June 30, 1950, respectively. jurisdiction over the person of the defendant and that
In 1953 the Bureau of Internal Revenue examined and audited plaintiff's cause of action has prescribed. This motion was
Ker & Co., Ltd.'s returns and books of accounts and denied and defendant filed a motion for reconsideration.
subsequently issued the following assessments for deficiency Resolution on said motion, however, was deferred until trial of
income tax: the case on the merits.
On May 18, 1962, Ker & Co., Ltd. filed its answer to the
complaint interposing therein the defense set up in its motion
Year Amount Date Assessed
to dismiss of April 14, 1962.
1947 P42,342.30 July 25, 1953
1948 18,651.87 Feb. 16, 1953 On September 18, 1962 the Republic of the Philippines
1949 139.67 Feb. 16, 1953 amended its complaint, in answer to which Ker & Co., Ltd.
adopted the same answer which it had filed on May 18, 1962.
Feb. 16, 1953 On January 30, 1963 the Court of First Instance rendered
1950 12,813.00
judgment, the dispositive portion of which states:
due and payable on dates indicated in the accompanying
notices of assessment. The assessments for 1948 and 1950 WHEREFORE, this Court dismisses the claim for the
carried the surcharge of 50% authorized under Section 72 of collection of deficiency income taxes for 1947, but
the Tax Code for the filing of fraudulent returns. orders defendant taxpayer to pay the deficiency
income taxes for 1948, 1949 and 1950, in the
Upon request of Ker & Co., Ltd., through Atty. Jose Leido, its amounts of P18,651.87, P139.67 and P8,542.00,
counsel, the Bureau of Internal Revenue reduced the respectively, plus 5% surcharge thereon on each
assessments for the year 1947 from P42,342.30 to P27,026.28 amount and interest of 1% a month computed from
and for the year 1950 from P12,813.00 to P8,542.00, imposed March 27, 1962 and until full payment thereof is
the 50% surcharge for the year 1947 and eliminated the same made, plus the costs of suit.
surcharge from the assessment for the year 1950. The
assessments for years 1948 and 1949 remained the same. On February 20, 1963 the Republic of the Philippines filed a
motion for reconsideration contending that the right of the
On March 1, 1956 Ker & Co., Ltd. filed with the Court of Tax Commissioner of Internal Revenue to collect the deficiency
Appeals a petition for review with preliminary injunction. No assessment for 1947 has not prescribed by a lapse of merely
preliminary injunction was issued, for said court dismissed the five years and three months, because the taxpayer's income tax
appeal for having been instituted beyond the 30-day period return was fraudulent in which case prescription sets in ten
provided for in Section 11 of Republic Act 1125. We affirmed years from October 31, 1951, the date of discovery of the
the order of dismissal of L-12396. 1 fraud, pursuant to Section 332 (a) of the Tax Codes and that
the payment of delinquency interest of 1% per month should
On March 15, 1962, the Bureau of Internal Revenue commence from the date it fell due as indicated in the
demanded payment of the aforesaid assessments together with assessment notices instead of on the date the complaint was
a surcharge of 5% for late payment and interest at the rate of filed.
1% monthly. Ker & Co., Ltd. refused to pay, instead in its
letters dated March 28, 1962 and April 10, 1962 it set up the On March 6, 1963 Ker & Co., Ltd. also filed a motion for
defense of prescription of the Commissioner's right to collect reconsideration reiterating its assertion that the Court of First
the tax. Subsequently, the Republic of the Philippines filed on Instance did not acquire jurisdiction over its person, and
March 27, 1962 a complaint with the Court of First Instance of maintaining that since the complaint was filed nine years, one
Manila seeking collection of the aforesaid deficiency income month and eleven days after the deficiency assessments for
tax for the years 1947, 1948, 1949 and 1950. The complaint 1948, 1949 and 1950 were made and since the filing of its
did not allege fraud in the filing of any of the income tax petition for review in the Court of Tax Appeals did not stop
returns for the years involved, nor did it pray for the payment the running of the period of limitations, the right of the
of the corresponding 50% surcharge, but it prayed for the Commissioner of Internal Revenue to collect the tax in
payment of 5% surcharge for late payment and interest of 1% question has prescribed.
per month without however specifying from what date interest
started to accrue. The two motions for reconsideration having been denied, both
parties appealed directly to this Court.
Summons was served not on the defendant taxpayer but upon
Messrs. Leido and Associates, its counsel in the proceedings The issues in this case are:
before the Bureau of Internal Revenue and the Court of Tax
Appeals. 1. Did the Court of First Instance acquire jurisdiction
over the person of defendant Ker & Co., Ltd.?
.
63
2. Did the right of the Commissioner of Internal
Revenue to assess deficiency income tax for the year Voluntary appearance cures defects of summons, if any.4 Such
1947 prescribe? . defect, if any, was further cured when defendant filed its
answer to the complaint.5 A defendant can not be permitted to
3. Did the filing of a petition for review by the speculate upon the judgment of the court by objecting to the
taxpayer in the Court of Tax Appeals suspend the court's jurisdiction over its person if the judgment is adverse to
running of the statute of limitations to collect the it, and acceding to jurisdiction over its person if and when the
deficiency income for the years 1948, 1949 and judgment sustains its defenses.
1950? Second Issue

4. When did the delinquency interest on the Ker & Co., Ltd. contends that under Section 331 of the Tax
deficiency income tax for the years 1948, 1949 and Code the right of the Commissioner of Internal Revenue to
1950 accrue? assess against it a deficiency income tax for the year 1947 has
prescribed because the assessment was issued on July 25,
First Issue 1953 after a lapse of five years, three months and thirteen days
Ker & Co., Ltd. maintains that the court a quo did not acquire from the date (April 12, 1948) it filed its income tax return.
jurisdiction over its person inasmuch as summons was not On the other hand, the Republic of the Philippines insists that
served upon it but upon Messrs. Leido and Associates who do the taxpayer's income tax return was fraudulent, therefore the
not come under any of the class of persons upon whom Commissioner of Internal Revenue may assess the tax within
summons should be served as enumerated in Section 13, Rule ten years from discovery of the fraud on October 31, 1951
7 of the Rules of Court, 2 which reads: pursuant to Section 322(a) of the Tax Code.

SEC. 13. Service upon private domestic corporation The stand of the Republic of the Philippines hinges on
or partnership.If the defendant is a corporation whether or not taxpayer's income tax return for 1947 was
formed under the laws of the Philippines or a fraudulent.
partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent, or The court a quo, confining itself to determining whether or not
any of its directors. the assessment of the tax for 1947 was issued within the five-
year period provided for in Section 331 of the Tax Code, ruled
Messrs. Leido and Associates acted as counsel for Ker Co., that the right of the Commissioner of Internal Revenue to
Ltd. when this tax case was in its administrative stage. The assess the tax has prescribed. Said the lower court:
same counsel represented Ker & Co., Ltd., when it appealed
said case to the Court of Tax Appeals and later to this Court. The Court resolves the second issue in the negative,
Subsequently, when the Deputy Commissioner of Internal because Section 331 of the Revenue Code explicitly
Revenue, by letter dated March 15, 1962, demanded the provides, in mandatory terms, that "Internal
payment of the deficiency income tax in question, it was Revenue taxes shall be assessed within 5 years after
Messrs. Leido, Andrada, Perez & Associates who replied in the return was filed, and no proceedings in
behalf of Ker & Co., Ltd. in two letters, dated March 28, 1962 court without assessment, for the collection of such
and April 10, 1962, both after the complaint in this case was taxes, shall be begun after expiration of such period.
filed. At least therefore on April 2, 1962 when Messrs. Leido The attempt by the Commissioner of Internal
and Associates received the summons, they were still acting Revenue to make an assessment on July 25, 1953, on
for and in behalf of Ker & Co., Ltd. in connection with its tax the basis of a return filed on April 12, 1948, is an
liability involved in this case. Perforce, they were the exercise of authority against the aforequoted explicit
taxpayer's agent when summons was served. Under Section 13 and mandatory limitations of statutory law. Settled in
of Rule 7, aforequoted, service upon the agent of a corporation our system is the rule that acts committed against the
is sufficient. provisions of mandatory or prohibitory laws shall be
void (Art. 5, New Civil Code). . . .
We observe that the motion to dismiss filed on April 14, 1962,
aside from disputing the lower court's jurisdiction over Said court resolved the issue without touching upon
defendant's person, prayed for dismissal of the complaint on fraudulence of the return. The reason is that the complaint
the ground that plaintiff's cause of action has prescribed. By alleged no fraud, nor did the plaintiff present evidence to
interposing such second ground in its motion to dismiss, Ker prove fraud.
& Co., Ltd. availed of an affirmative defense on the basis of
which it prayed the court to resolve controversy in its favor. In reply to the lower court's conclusion, the Republic of the
For the court to validly decide the said plea of defendant Ker Philippines maintains in its brief that Ker & Co., Ltd. filed a
& Co., Ltd., it necessarily had to acquire jurisdiction upon the false return and since the fraud penalty of 50% surcharge was
latter's person, who, being the proponent of the affirmative imposed in the deficiency income tax assessment, which has
defense, should be deemed to have abandoned its special become final and executory, the finding of the Commissioner
appearance and voluntarily submitted itself to the jurisdiction of Internal Revenue as to the existence of the fraud has also
of the court.3 become final and need not be proved. This contention suffers
64
from a flaw in that it fails to consider the well-settled principle
that fraud is a question of fact6 which must be alleged and the running of the prescriptive period to collect the tax shall be
proved.7 Fraud is a serious charge and, to be sustained, it must suspended for the period during which the Commissioner of
be supported by clear and convincing proof.8 Accordingly, Internal Revenue is prohibited from beginning a distraint and
fraud should have been alleged and proved in the lower court. levy or instituting a proceeding in court, and for sixty days
On these premises We therefore sustain the ruling of the lower thereafter.
court upon the point of prescription.
Did the pendency of the taxpayer's appeal in the Court of Tax
It would be worth mentioning that since the assessment for Appeals and in the Supreme Court have the effect of legally
deficiency income tax for 1947 has become final and preventing the Commissioner of Internal Revenue from
executory, Ker & Co., Ltd. may not anymore raise defenses instituting an action in the Court of First Instance for the
which go into the merits of the assessment, i.e., prescription of collection of the tax? Our view is that it did.
the Commissioner's right to assess the tax. Such was our
ruling in previous cases.9 In this case however, Ker & Co., From March 1, 1956 when Ker & Co., Ltd. filed a petition for
Ltd. raised the defense of prescription in the proceedings review in the Court of Tax Appeals contesting the legality of
below and the Republic of the Philippines, instead of the assessments in question, until the termination of its appeal
questioning the right of the defendant to raise such defense, in the Supreme Court, the Commissioner of Internal Revenue
litigated on it and submitted the issue for resolution of the was prevented, as recognized in this Court's ruling
court. By its actuation, the Republic of the Philippines should in Ledesma, et al. v. Court of Tax Appeals, 10 from filing an
be considered to have waived its right to object to the setting ordinary action in the Court of First Instance to collect the tax.
up of such defense. Besides, to do so would be to violate the judicial policy of
avoiding multiplicity of suits and the rule on lis pendens. 11
Third Issue
Ker & Co., Ltd. impresses upon Us that since the Republic of It would be interesting to note that when the Commissioner of
the Philippines filed the complaint for the collection of the Internal Revenue issued the final deficiency assessments on
deficiency income tax for the years 1948, 1949 and 1950 only January 5, 1954, he had already lost, by prescription, the right
on March 27, 1962, or nine years, one month and eleven days to collect the tax (except that for 1950) by the summary
from February 16, 1953, the date the tax was assessed, the method of warrant of distraint and levy. Ker & Co., Ltd.
right to collect the same has prescribed pursuant to Section immediately thereafter requested suspension of the collection
332 (c) of the Tax Code. The Republic of the Philippines of the tax without penalty incident to late payment pending the
however contends that the running of the prescriptive period filing of a memorandum in support of its views. As requested,
was interrupted by the filing of the taxpayer's petition for no tax was collected. On May 22, 1954 the projected
review in the Court of Tax Appeals on March 1, 1956. memorandum was filed, but as of that date the Commissioner's
right to collect by warrant of distraint and levy the deficiency
If the period during which the case was pending in the Court tax for 1950 had already prescribed. So much so, that on
of Tax Appeals and in the Supreme Court were not counted in March 1, 1956 when Ker & Co., Ltd. filed a petition for
reckoning the prescriptive period, less than five years would review in the Court of Tax Appeals, the Commissioner of
have elapsed, hence, the right to collect the tax has not Internal Revenue had but one remedy left to collect the tax,
prescribed. that is, by judicial action. 12 However, as stated, an
independent ordinary action in the Court of First Instance was
The taxpayer counters that the filing of the petition for review not available to the Commissioner pursuant to Our ruling
in the Court of Tax Appeals could not have stopped the in Ledesma, et al. v. Court of Tax Appeals, supra, in view of
running of the prescriptive period to collect because said court the pendency of the taxpayer's petition for review in the Court
did not have jurisdiction over the case, the appeal having been of Tax Appeals. Precisely he urgently filed a motion to
interposed beyond the 30-day period set forth in Section 11 of dismiss the taxpayer's petition for review with a view to
Republic Act 1125. Precisely, it adds, the Tax Court dismissed terminating therein the proceedings in the shortest possible
the appeal for lack of jurisdiction and said dismissal was time in order that he could file a collection case in the Court of
affirmed by the Supreme Court in L-12396 aforementioned. First Instance before his right to do so is cut off by the passage
Under Section 333 of the Tax Code, quoted hereunder: of time. As moved, the Tax Court dismissed the case and Ker
& Co., Ltd. appealed to the Supreme Court. By the time the
SEC. 333. Suspension of running of statute.The Supreme Court affirmed the order of dismissal of the Court of
running of the statute of limitations provided in Tax Appeals in L-12396 on January 31, 1962 more than five
Section 331 or three hundred thirty-two on the years had elapsed since the final assessments were made on
making of assessments and the beginning, of distraint January 5, 1954. Thereafter, the Commissioner of Internal
or levy or a proceeding in court for collection, in Revenue demanded extra-judicially the payment of the
respect of any deficiency, shall be suspended for the deficiency tax in question and in reply the taxpayer, by its
period during which the Collector of Internal letter dated March 28, 1962, advised the Commissioner of
Revenue is prohibited from making the assessment or Internal Revenue that the right to collect the tax has prescribed
beginning distraint or levy or a proceeding in court, pursuant to Section 332 (c) of the Tax Code.1awphl.nt
and for sixty days thereafter.
65
Thus, did the taxpayer produce the effect of temporarily
staying the hands of the Commissioner of Internal Revenue
simply through a choice of remedy. And, if We were to sustain
the taxpayer's stand, We would be encouraging taxpayers to [G.R. Nos. L-9738 & L-9771. May 31, 1957.]
delay the payment of taxes in the hope of ultimately avoiding
the same. BLAS GUTIERREZ, and MARIA
MORALES, Petitioners, v. HONORABLE COURT OF
Under the circumstances, the Commissioner of Internal TAX APPEALS, and THE COLLECTOR OF INTERNAL
Revenue was in effect prohibited from collecting the tax in REVENUE, Respondents.
question. This being so, the provisions of Section 333 of the
Tax Code will apply. COLLECTOR OF INTERNAL REVENUE, Petitioner, v.
BLAS GUTIERREZ, MARIA MORALES, and COURT
Fourth Issue OF TAX APPEALS, Respondents.
The Republic of the Philippines maintains that the
delinquency interest on the deficiency income tax for 1948, Rafael Morales, for Petitioners.
1949 and 1950 accrued and should commence from the date of
the assessments as shown in the assessment notices, pursuant Assistant Solicitor General Ramon L. Avancea and
to Section 51(e) of the Tax Code, instead of from the date the Solicitor Jose P. Alejandro for Respondents.
complaint was filed as determined in the decision appealed
from.
SYLLABUS
Section 51 (e) of the Tax Code states:
SEC. 51(e). Surcharge and interest in case of
delinquency.To any sum or sums due and unpaid 1. EXPROPRIATION; INCOME FROM SOURCES WITHIN
after the dates prescribed in subsections (b), (c) and THE PHILIPPINES, WHERE TAXABLE. The
(d) for the payment of the same, there shall be added compensation or income derived from the expropriation of
the sum of five per centum on the amount of tax property located in the Philippines is an income from sources
unpaid and interest at the rate of one per centum a within the Philippines and subject to the taxing jurisdiction of
month upon said tax from the time the same became the place.
due, except from the estates of insane, deceased, or
insolvent persons. (emphasis supplied) 2. ID.; ID.; TRANSFER OF PROPERTY EQUIVALENT TO
SALE; PROCEEDS SUBJECT TO INCOME TAX AS
Exhibit "F" the letter of assessment shows that the CAPITAL GAIN. The acquisition by the Government of
deficiency income tax for 1948 and 1949 became due on private properties through the exercise of the power of
March 15, 1953 and that for 1950 accrued on February 15, eminent domain, said properties being justly compensated, is
1954 in accordance with Section 51(d) of the Tax Code. Since embraced within the meaning of the term "sale" or
the tax in question remained unpaid, delinquency interest "disposition of property," and the proceeds derived therefrom
accrued and became due starting from said due dates. The is subject to income tax as capital gain pursuant to the
decision appealed from should therefore be modified provisions of Section 37-(a)-(5) in relation to Section 29-(a) of
accordingly. the Tax Code.

WHEREFORE, the decision appealed from is affirmed with 3. ID.; ID.; ID.; ID.; INCOME NOT INCLUDED IN THE
the modification that the delinquency interest at the rate of 1% TAX EXEMPTIONS SPECIFIED IN THE MILITARY
per month shall be computed from March 15, 1953 for the BASES AGREEMENT. The taxpayers maintain that since,
deficiency income tax for 1948 and 1949 and from February at the request of the U. S. Government, the proceeding to
15, 1954 for the deficiency income tax for 1950. With costs expropriate the land in question necessary for the expansion of
against Ker & Co., Ltd. So ordered. the Clark Field Air Base was instituted by the Philippine
Government as part of its obligation under the Military Bases
Agreement, the compensation accruing therefrom must
necessarily fall under the exemption provided for by Section
29-(b)-6 of the Tax Code. This stand is untenable because
while the condemnation or expropriation of properties wad
provided for in the Agreement, the exemption from tax of the
compensation to be paid for the expropriation of privately
owned lands located in the Philippines was not given any
attention, and the internal revenue exemptions specifically
taken care of by said agreement applies only to members of
the U. S. Armed Forces serving in the Philippines and U. S.
nationals working in these Islands in connection with the
construction, maintenance, operation and defense of said
66
bases. project is necessary for the mutual protection and defense of
the Philippines and the United States. Blas Gutirrez was also
4. ID.; TRANSFER OF OWNERSHIP; WHEN TITLE made a party defendant in said Civil Case No. 148 for being
PASSES TO EXPROPRIATOR. In condemnation the husband of the landowner Maria Morales. At the
proceedings, title to the land does not pass to the plaintiff until commencement of the action, the Republic of the Philippines,
the indemnity is paid (Calvo v. Zandueta, 49 Phil. 605), and therein plaintiff, deposited with the Clerk of the Court of First
notwithstanding possession acquired by the expropriator, title Instance of Pampanga the sum of P156,960, which was
does not actually pass to him until payment of the amount provisionally fixed as the value of the lands sought to be
adjudged by the Court and the registration of the judgment expropriated, in order that it could take immediate possession
with the Register of Deeds (See Visayan Refining Company v. of the same.
Camus Et. Al., 40 Phil. 550; Metropolitan Water District v. De
los Angeles, 55 Phil. 783). On January 27, 1949, upon order of the Court, the sum of
P34,580 (PNB Check 721520-Exh. R) was paid by the
5. ID.; GAIN OR LOSS FROM SALE, HOW Provincial Treasurer of Pampanga to Maria Morales out of the
DETERMINED. The property in question was adjudicated original deposit of P156,960 made by therein plaintiff. After
to the owner by court order on March 23, 1929, and in due hearing, the Court of First Instance of Pampanga rendered
accordance with Section 35 (b) of the Tax Code, only the fair decision dated November 29, 1949, wherein it fixed as just
market price or value of the property as of the date of the compensation P2,500 per hectare for some of the lots and
acquisition thereof should be considered in determining the P3,000 per hectare for the others, which values were based on
gain or loss sustained by the property owner when the the reports of the Commission on Appraisal whose members
property was disposed, without taking into account the were chosen by both parties and by the Court, which took into
purchasing power of the currency used in the transaction. The consideration the different conditions affecting the value of
value of the property at the time of its acquisition by the the condemned properties in making their findings.
owner was P28,291.78 and the same was compensated with
P94,305.75 when it was expropriated. The resulting difference In virtue of said decision, defendant Maria Morales was to
is not merely nominal but a capital gain and should be receive the amount of P94,305.75 as compensation for Lot No.
correspondingly taxed. 724-C which was one of the expropriated lands. But the Court
disapproved defendants claims for consequential damages
6. TAXATION; ASSESSMENT MADE WITHIN THE considering them amply compensated by the price awarded to
PRESCRIPTIVE PERIOD, HOW ENFORCED. When the their said properties. In order to avoid further litigation
assessment for deficiency income tax was made by the expenses and delay inherent to an appeal, the parties entered
Collector of Internal Revenue within the 3-year prescriptive into a compromise agreement on January 7, 1950, modifying
period provided for by Section 51-d of the Tax Code, the same in part the decision rendered by the Court in the sense of
could be collected either by the administrative methods of fixing the compensation for all the lands, without distinction,
distraint and levy or by judicial action. at P2,500 per hectare, which compromise agreement was
approved by the Court on January 9, 1950. This reduction of
7. COURT OF TAX APPEALS; REVIEW OF DECISIONS the price to P2,500 per hectare did not affect Lot No. 724-C of
OF; ONLY QUESTIONS OF LAW MAY BE defendant Maria Morales. Sometime in 1950, the spouses Blas
CONSIDERED. The question of fraud is a question of fact Gutirrez and Maria Morales received the sum of P59,785.75
which is for the Court of Tax Appeals to determine. It is representing the balance remaining in their favor after
already settled in this jurisdiction that in passing upon deducting the amount of P34,580 already withdrawn from the
petitions to review decisions of the Court of Tax Appeals, only compensation due to them.
questions of law may be considered.
In a notice of assessment dated January 28, 1953, the
Collector of Internal Revenue demanded of the petitioners the
DECISION payment of P8,481 as alleged deficiency income tax for the
year 1950, inclusive of surcharges and penalties. On March 5,
1953, counsel for petitioners sent a letter to the Collector of
FELIX, J.: Internal Revenue requesting the latter to withdraw and
reconsider said assessment, contending among others, that the
compensation paid to the spouses by the Government for their
Maria Morales was the registered owner of an agricultural property was not "income derived from sale, dealing or
land designated as Lot No. 724-C of the cadastral survey of disposition of property" referred to by section 29 of the Tax
Mabalacat, Pampanga. The Republic of the Philippines, at the Code and therefore not taxable; that even granting that
request of the U.S. Government and pursuant to the terms of condemnation of private properties is embraced within the
the Military Bases Agreement of March 14, 1947, instituted meaning of the word "sale" or "dealing", the compensation
condemnation proceedings in the Court of First Instance of received by the taxpayers must be considered as income for
Pampanga, docketed as Civil Case No. 148, for the purpose of 1948 and not for 1950 since the amount deposited and paid in
expropriating the lands owned by Maria Morales and others 1948 represented more than 25 per cent of the total
needed for the expansion of the Clark Field Air Base, which compensation awarded by the court; that the assessment was
67
made after the lapse of the 3-year prescriptive period provided income tax in the Philippines in respects to profits derived
for in section 51-(d) of the Tax Code; that the compensation in under a contract with the U.S. Government in connection with
question should be exempted from taxation by reason of the the construction, maintenance and operation of the bases; that
provision of section 29 (b)-6 of the Tax Code; that the spouses in the determination of the gain or loss from the sale of
Blas Gutirrez and Maria Morales did not realize any profit in property acquired on or after March 1, 1913, the cost of
said transaction as there were improvements on the land acquisition and the selling price shall be taken into account
already made and that the purchasing value of the peso at the without qualification as to the purchasing power of the
time of the expropriation proceeding had depreciated if currency; that the imposition of the 50 per cent surcharge was
compared to the value of the pre-war peso; and that penalties in accordance with the Tax Code; that the Collector of Internal
should not be imposed on said spouses because granting that Revenue was empowered to collect petitioners deficiency
the assessment was correct, the omission of the compensation income tax; and prayed that the petition for review be
awarded therein was due to an honest mistake. dismissed; petitioners be ordered to pay the amount of P8,481
plus the delinquency penalty of 5 per cent for late payment
This request was denied by the Collector of Internal Revenue, and monthly interest at the rate of 1 per cent from April 1,
in a letter dated April 26, 1954, refuting point by point the 1953, up to the date of actual payment and for such other relief
arguments advanced by the taxpayers. The record further that may be deemed just and equitable in the premises.
shows that a warrant of distraint and levy was issued by the
Collector of Internal Revenue on the properties of Mr. & Mrs. After due hearing and after the parties had filed their
Blas Gutirrez found in Mabalacat, Pampanga, and a notice of respective memoranda, the Court of Tax Appeals rendered
tax lien was duly registered with the Register of Deeds of San decision on August 31, 1955, holding that it had jurisdiction to
Fernando, Pampanga, on the same date. Counsel for the hear and determine the case; that the gain derived by the
spouses then requested that the matter be referred to the petitioners from the expropriation of their property constituted
Conference Staff of the Bureau of Internal Revenue for proper taxable income and as such was capital gain; and that said gain
hearing, to which the Collector answered in a letter dated was taxable in 1950 when it was realized. It was also found by
December 24, 1954, stating that the request would be granted said Court that the evidence did not warrant the imposition of
upon compliance by the taxpayers with the requirements of the 50 per cent surcharge because the petitioners acted in good
Department of Finance Order No. 213, i.e., the filing of a faith and without intent to defraud the Government when they
verified petition to that effect and that one-half of the total failed to include in their gross income the proceeds they
assessment should be guaranteed by a bond, provided that the received from the expropriated property, and, therefore,
taxpayers would agree in writing to the suspension of the modified the assessment made by respondent, requiring
running of the period of prescription. petitioners to pay only the sum of P5,654. From this decision,
both parties appealed to this Court and in this instance,
The taxpayers then served notice that the case would be petitioners Blas Gutirrez and Maria Morales, as appellants in
brought on appeal to the Court of Tax Appeals, which they did G. R. No. L-9738, made the following assignments of
by filing a petition with said Court to review the assessment error:chanrob1es virtual 1aw library
made by the Collector of Internal Revenue, docketed as
C.T.A. Case No. 65. In that instance, it was prayed that the 1. That the Court of Tax Appeals erred in holding that, for
Court render judgment declaring that the taking of petitioners income tax purposes, income from expropriation should be
land by the Government was not a sale or dealing in property; deemed as income from sale, any profit derived therefrom is
that the amount paid to petitioners as just compensation for subject to income tax as capital gain pursuant to the provisions
their property should not be diminished by way of taxation; of Section 37-(a)-(5) in relation to Section 29-(a) of the Tax
that said compensation was by law exempt from taxation and Code;
that the period to collect the income taxes by summary
methods had prescribed; that respondent Collector of Internal 2. That the Court of Tax Appeals erred in not holding that,
Revenue be enjoined from carrying out further steps to collect under the particular circumstances in which the property of the
from petitioners by summary methods the said taxes which appellants was taken by the Philippine Government, the
they alleged to be erroneously assessed and for such other amount paid to them as just compensation is exempt from
remedies which would serve the ends of law and justice. income tax pursuant to Section 29- (b)-(6) of the Tax Code;

The Solicitor General, in representation of the respondent 3. That the Court of Tax Appeals erred in not holding that the
Collector of Internal Revenue, filed an answer on February 11, respondent Collector is definitely barred by the Statute of
1955, admitting some of the allegations of petitioners and Limitations from collecting the deficiency income tax in
denying some of them, and as special defenses, he advanced question, whether administratively thru summary methods, or
the contention that the Court had no jurisdiction to entertain judicially thru the ordinary court procedures;
the petition; that the profit realized by petitioners from the sale
of the land in question was subject to income tax; that the full 4. That the Court of Tax Appeals erred is not holding that the
compensation received by petitioners should be included in capital gain found by the respondent Collector as have been
the income received in 1950, same having been paid in 1950 derived by the petitioners-appellants from the expropriation of
by the Government; that under the Bases Agreement only their property is merely nominal not subject to income tax, and
residents of the United States are exempt from the payment of in not holding that the pronouncement of the court in the
68
expropriation case in this respect is binding upon the located in the Philippines, compensation or income derived
respondent Collector of Internal Revenue; and therefrom ordinarily has to be considered as income from
sources within the Philippines and subject to the taxing
5. That the Court of Tax Appeals erred in not pronouncing jurisdiction of the Philippines. However, it is to be
upon the pleadings of the parties that the petitioners-appellants remembered that said property was acquired by the
did not derive any capital gain from the expropriation of their Government through condemnation proceedings and
property. appellants stand is, therefore, that same cannot be considered
as sale as said acquisition was by force, there being practically
The appeal of the respondent Collector of Internal Revenue no meeting of the minds between the parties. Consequently,
was docketed in this Court as G. R. No. L-9771, and in this the taxpayers contend, this kind of transfer of ownership must
case the Solicitor General ascribed to the lower court the perforce be distinguished from sale, for the purpose of Section
commission of the following error:chanrob1es virtual 1aw 29-(a) of the Tax Code. But the authorities in the United States
library on the matter sustain the view expressed by the Collector of
Internal Revenue, for it is held that:jgc:chanrobles.com.ph
That the Court of Tax Appeals erred in holding that
respondents are not subject to the payment of the 50 per cent "The transfer of property through condemnation proceedings
surcharge in spite of the fact that the latters income tax return is a sale or exchange within the meaning of section 117 (a) of
for the year 1950 is false and/or fraudulent. the 1936 Revenue Act and profit from the transaction
constitutes capital gain" (1942. Com. Int. Revenue v.
The facts just narrated are not disputed and the controversy Kieselbach (CCA 3) 127 F. (24) 359). "The taking of property
only arose from the assertion by the Collector of Internal by condemnation and the payment of just compensation
Revenue that petitioners-appellants failed to include from their therefore is a sale or exchange within the meaning of
gross income, in filing their income tax return for 1950, the section 117 (a) of the Revenue Act of 1936, and profits from
amount of P94,305.75 which they had received as that transaction is capital gain" (David S. Brown v. Comm.,
compensation for their land taken by the Government by 1942, 42 BTA 139).
expropriation proceedings. It is the contention of respondent
Collector of Internal Revenue that such transfer of property, The proposition that income from expropriation proceedings is
for taxation purposes, is "sale" and that the income derived income from sales or exchange and therefore taxable has been
therefrom is taxable. The pertinent provisions of the National likewise upheld in the case of Lapham v. U.S. (1949, 40
Internal Revenue Code applicable to the instant cases are the AFTR 1370) and in Kneipp v. U.S. (1949, 85 F Suppl. 902). It
following:chanrob1es virtual 1aw library appears then that the acquisition by the Government of private
properties through the exercise of the power of eminent
SEC. 29. GROSS INCOME. (a) General definition. domain, said properties being JUSTLY compensated, is
"Gross income" includes gains, profits, and income derived embraced within the meaning of the term "sale" or
from salaries, wages, or compensation for personal service of "disposition of property", and the proceeds from said
whatever kind and in whatever form paid, or from professions, transaction clearly fall within the definition of gross income
vocations, trades, businesses, commerce, sales or dealings in laid down by Section 29 of the Tax Code of the Philippines.
property, whether real or personal, growing out of ownership
or use of or interest in such property; also from interests, rents, Petitioners-appellants also averred that granting that the
dividends, securities, or the transactions of any business compensation thus received is "income", same is exempted
carried on for gain or profit, or gains, profits, and income under Section 29-(b)-6 of the Tax Code, which reads as
derived from any source whatsoever. follows:chanrob1es virtual 1aw library

SEC. 37. INCOME FROM SOURCES WITHIN THE SEC. 29. GROSS INCOME.
PHILIPPINES. x x x

(a) Gross income from sources within the Philippines. The


following items of gross income shall be treated as gross (b) EXCLUSIONS FROM GROSS INCOME. The
income from sources within the Philippines:chanrob1es virtual following items shall not be included in gross income and
1aw library shall be exempt from taxation under this Title:chanrob1es
x x x virtual 1aw library
x x x

(5) SALE OF REAL PROPERTY. Gains profits, and


income from the sale of real property located in the (6) Income exempt under treaty. Income of any kind, to the
Philippines; extent required by any treaty obligation binding upon the
x x x Government of the Philippines.

The taxpayers maintain that since, at the request of the U.S.


There is no question that the property expropriated being Government, the proceeding to expropriate the land in
69
question necessary for the expansion of the Clark Field Air income tax in the Philippines in respect of any profits derived
Base was instituted by the Philippine Government as part of under a contract made in the United States with the
its obligation under the Military Bases Agreement, the government of the United States in connection with the
compensation accruing therefrom must necessarily fall under construction, maintenance, operation and defense of the bases,
the exemption provided for by Section 29-(b)-6 of the Tax or any tax in the nature of a license in respect of any service of
Code. We find this stand untenable, for the same Military works for the United States in connection with the
Bases Agreement cited by appellants contains the construction, maintenance, operation and defense of the
following:jgc:chanrobles.com.ph bases.
x x x
"ARTICLE XXII

"CONDEMNATION OR EXPROPRIATION The facts brought about by the aforementioned terms of the
said treaty need no further elucidation. It is unmistakable that
"1. Whenever it is necessary to acquire by condemnation or although the condemnation or expropriation of properties was
expropriation proceedings real property belonging to private provided for, the exemption from tax of the compensation to
persons, association, or corporations located in bases named in be paid for the expropriation of privately owned lands located
Annex A and Annex B in order to carry out the purposes of in the Philippines was not given any attention, and the internal
this agreement, the Philippines will institute and prosecute revenue exemptions specifically taken care of by said
such condemnation proceedings in accordance with the laws Agreement applies only to members of the U.S. Armed Forces
of the Philippines. The United States agrees to reimburse the serving in the Philippines and U.S. nationals working in these
Philippines for all the reasonable expanses, damages, and Islands in connection with the construction, maintenance,
costs thereby incurred, including the value of the property as operation and defense of said bases.
determined by the Court. In addition, subject to mutual
agreements of the two governments, the United States shall Anent appellant taxpayers allegation that the respondent
reimburse the Philippines for the reasonable costs of Collector of Internal Revenue was barred from collecting the
transportation and removal of any occupants displaced or deficiency income tax assessment, it having been made
ejected by reason of the condemnation or expropriation" beyond the 3-year period prescribed by section 51-(d) of the
Tax Code, We have this much to say. Although it is true that
"ARTICLE XII by order of the Court of First Instance of Pampanga, the
amount of P34,580 out of the original deposit made by the
"INTERNAL REVENUE EXEMPTION Government was withdrawn in favor of appellants on January
27, 1949, the same cannot be considered as income for said
"(1) No member of the United States Armed Forces except year but for 1950 when the balance of P59,785.75 was
Filipino citizens, serving in the Philippines in connection with actually received. Before that date (1950), appellant taxpayers
the bases and residing in the Philippines by reason only of were still the owners of their whole property that was subject
such service, or his dependents, shall be liable to pay income of condemnation proceedings and said amount of P34,580 was
tax in the Philippines except in respect of income derived from not paid to, but merely deposited in court and withdrawn by
Philippine sources. them. Therefore, the payment of the value of Maria Morales
Lot 724-C was actually made by the Republic of the
"(2) No national of the United States serving in the Philippines Philippines in 1950 and it has to be credited as income for
in connection with the construction, maintenance, operation or 1950 for it was then when title over said property passed to the
defense of the bases and residing in the Philippines by reason Republic of the Philippines. Appellant tax payers cannot say
only of such employment, or his spouse and minor children that the title over the property expropriated already passed to
and dependent parents of either spouse, shall be liable to pay the Government when the latter was placed in possession
income tax in the Philippines except in respect of income thereof, for in condemnation proceedings, title to the land does
derived from Philippine sources or sources other than the not pass to the plaintiff until the indemnity is paid (Calvo v.
United States. Zandueta, 49 Phil. 605), and notwithstanding possession
acquired by the expropriator, title does not actually pass to
"(3) No person referred to in paragraphs 1 and 2 of this said him until payment of the amount adjudged by the Court and
Article shall be liable to pay the government or local the registration of the judgment with the Register of Deeds
authorities of the Philippines any poll or residence tax, or any (See Visayan Refining Company v. Camus Et. Al., 40 Phil.
imports or experts duties, or any other tax on personal 550; Metropolitan Water District v. De los Angeles, 55 Phil.
property imported for his own use provided, that private 783). Now, if said amount should have been reported as
owned vehicles shall be subject to payment of the following income for 1950 in the return that must have been filed on or
only: when certified as being used for military purposes by before March 1, 1951, the assessment made by the Collector
appropriate United States Authorities, the normal license plate on January 28, 1953, is still within the 3-year prescriptive
fee; otherwise, the normal license and registration fees. period provided for by Section 51-d and could, therefore, be
collected either by the administrative methods of distraint and
"(4) No national of the United States, or corporation organized levy or by judicial action (See Collector of Internal Revenue v.
under the laws of the United States, shall be liable to pay A.P. Reyes Et. Al., 100 Phil., 822; Collector of Internal
70
Revenue v. Zulueta Et. Al., 100 Phil., 872; and Sambrano v. does not warrant the imposition of the 50 per cent surcharge",
Court of Tax Appeals Et. Al., supra, p. 1). We are constrained to refrain from giving any consideration to
the question raised by the Solicitor General, for it is already
As to appellant taxpayers proposition that the profit derived settled in this jurisdiction that in passing upon petitions to
by them from the expropriation of their property is merely review decisions of the Court of Tax Appeals, We have to
nominal and not subject to income tax, We find Section 35 of confine ourselves to questions of law.
the Tax Code illuminating. Said section reads as
follows:jgc:chanrobles.com.ph Wherefore, the decision appealed from by both parties is
hereby affirmed, without pronouncement as to costs. It is so
"SEC. 35. DETERMINATION OF GAIN OR LOSS FROM ordered.
THE SALE OR OTHER DISPOSITION OF PROPERTY. G.R. No. 88291 June 8, 1993
The gain derived or loss sustained from the sale or other ERNESTO M. MACEDA, petitioner,
disposition of property, real or personal, or mixed, shall be vs.
determined in accordance with the following HON. CATALINO MACARAIG, JR., in his capacity as
schedule:chanrob1es virtual 1aw library Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.
(a)x x x" Angara, Abello, Concepcion & Cruz for respondent Pilipinas
Shell Petroleum Corporation.
(b) In the case of property acquired on or after March first, Siguion Reyna, Montecillo & Ongsiako for Caltex.
nineteen hundred and thirteen, the cost thereof if such property
was acquired by purchase or the fair market price or value as NOCON, J.:
of the date of the acquisition if the same was acquired by Just like lightning which does strike the same place twice in
gratuitous title. some instances, this matter of indirect tax exemption of the
x x x private respondent National Power Corporation (NPC) is
brought to this Court a second time. Unfazed by the Decision
We promulgated on May 31, 1991 1 petitioner Ernesto Maceda
The records show that the property in question was asks this Court to reconsider said Decision. Lest We be
adjudicated to Maria Morales by order of the Court of First criticized for denying due process to the petitioner. We have
Instance of Pampanga on March 23, 1929, and in accordance decided to take a second look at the issues. In the process, a
with the aforequoted section of the National Internal Revenue hearing was held on July 9, 1992 where all parties presented
Code, only the fair market price or value of the property as of their respective arguments. Etched in this Court's mind are the
the date of the acquisition thereof should be considered in paradoxical claims by both petitioner and private respondents
determining the gain or loss sustained by the property owner that their respective positions are for the benefit of the Filipino
when the property was disposed, without taking into account people.
the purchasing power of the currency used in the transaction. I
The records placed the value of the said property at the time of A Chronological review of the relevant NPC laws, specially
its acquisition by appellant Maria Morales was P28,291.73 with respect to its tax exemption provisions, at the risk of
and it is a fact that same was compensated with P94,305.75 being repetitious is, therefore, in order.
when it was expropriated. The resulting difference is surely a On November 3, 1936, Commonwealth Act No. 120 was
capital gain and should be correspondingly taxed. enacted creating the National Power Corporation, a public
corporation, mainly to develop hydraulic power from all water
As to the only question raised by appellant Collector of sources in the Philippines. 2 The sum of P250,000.00 was
Internal Revenue in case L-9771, assailing the lower Courts appropriated out of the funds in the Philippine Treasury for the
order exonerating petitioners from the 50 per cent surcharge purpose of organizing the NPC and conducting its preliminary
imposed on the latter, on the ground that the taxpayers work. 3 The main source of funds for the NPC was the
income tax return for 1950 is false and/or fraudulent, it should flotation of bonds in the capital markets 4 and these bonds
be noted that the Court of Tax Appeals found that the evidence
did not warrant the imposition of said surcharge because the . . . issued under the authority of this Act
petitioners therein acted in good faith and without intent to shall be exempt from the payment of all
defraud the Government. taxes by the Commonwealth of the
Philippines, or by any authority, branch,
"The question of fraud is a question of fact which frequently division or political subdivision thereof and
requires a nicely balanced judgment to answer. All the facts subject to the provisions of the Act of
and circumstances surrounding the conduct of the taxpayers Congress, approved March 24, 1934,
business and all the facts incident to the preparation of the otherwise known as the Tydings McDuffle
alleged fraudulent return should be considered." (Mertens, Law, which facts shall be stated upon the
Federal Income Taxation, Chapter 55). face of said bonds. . . . . 5

The question of fraud being a question of fact and the lower On June 24, 1938, C.A. No. 344 was enacted increasing to
court having made the finding that "the evidence of this case P550,000.00 the funds needed for the initial operations of the
71
NPC and reiterating the provision of the flotation of bonds as Philippines, its provinces, cities, and
soon as the first construction of any hydraulic power project municipalities. 15
was to be decided by the NPC Board. 6 The provision on tax
exemption in relation to the issuance of the NPC bonds was On September 8, 1955, R.A. No. 1397 was enacted directing
neither amended nor deleted. that the NPC projects to be funded by the increased
indebtedness 16 should bear the National Economic Council's
On September 30, 1939, C.A. No. 495 was enacted removing stamp of approval. The tax exemption provision related to the
the provision on the payment of the bond's principal and payment of this total indebtedness was not amended nor
interest in "gold coins" but adding that payment could be made deleted.
in United States dollars. 7 The provision on tax exemption in
relation to the issuance of the NPC bonds was neither On June 13, 1958, R.A. No. 2055 was enacted increasing the
amended nor deleted. total amount of foreign loans NPC was authorized to incur to
US$100,000,000.00 from the US$50,000,000.00 ceiling in
On June 4, 1949, Republic Act No. 357 was enacted R.A. No. 357. 17 The tax provision related to the repayment of
authorizing the President of the Philippines to guarantee, these loans was not amended nor deleted.
absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans. 8 He was also authorized to On June 13, 1958, R.A. No. 2058 was enacting fixing the
contract on behalf of the NPC with the International Bank for corporate life of NPC to December 31, 2000. 18 All laws or
Reconstruction and Development (IBRD) for NPC loans for provisions of laws and executive orders contrary to said R.A.
the accomplishment of NPC's corporate objectives 9 and for No. 2058 were expressly repealed. 19
the reconstruction and development of the economy of the
country. 10 It was expressly stated that: On June 18, 1960, R.A. No 2641 was enacted converting the
NPC from a public corporation into a stock corporation with
Any such loan or loans shall be exempt from an authorized capital stock of P100,000,000.00 divided into
taxes, duties, fees, imposts, charges, 1,000.000 shares having a par value of P100.00 each, with
contributions and restrictions of the said capital stock wholly subscribed to by the
Republic of the Philippines, its provinces, Government. 20 No tax exemption was incorporated in said
cities and municipalities. 11 Act.

On the same date, R.A. No. 358 was enacted expressly On June 17, 1961, R.A. No. 3043 was enacted increasing the
authorizing the NPC, for the first time, to incur other types of above-mentioned authorized capital stock to P250,000,000.00
indebtedness, aside from indebtedness incurred by flotation of with the increase to be wholly subscribed by the
bonds. 12 As to the pertinent tax exemption provision, the law Government. 21 No tax provision was incorporated in said Act.
stated as follows: On June 17, 1967, R.A. No 4897 was enacted. NPC's capital
stock was increased again to P300,000,000.00, the increase to
To facilitate payment of its indebtedness, the be wholly subscribed by the Government. No tax provision
National Power Corporation shall be exempt was incorporated in said Act. 22
from all taxes, duties, fees, imposts, charges,
and restrictions of the Republic of the On September 10, 1971, R.A. No. 6395 was enacted revising
Philippines, its provinces, cities and the charter of the NPC, C.A. No. 120, as amended. Declared
municipalities. 13 as primary objectives of the nation were:

On July 10, 1952, R.A. No. 813 was enacted amending R.A. Declaration of Policy. Congress hereby
No. 357 in that, aside from the IBRD, the President of the declares that (1) the comprehensive
Philippines was authorized to negotiate, contract and development, utilization and conservation of
guarantee loans with the Export-Import Bank of of Washigton, Philippine water resources for all beneficial
D.C., U.S.A., or any other international financial uses, including power generation, and (2)
institution. 14 The tax provision for repayment of these loans, the total electrification of the Philippines
as stated in R.A. No. 357, was not amended. through the development of power from all
sources to meet the needs of industrial
On June 2, 1954, R.A. No. 987 was enacted specifically to development and dispersal and the needs of
withdraw NPC's tax exemption for real estate taxes. As rural electrification are primary objectives of
enacted, the law states as follows: the nation which shall be pursued
coordinately and supported by all
To facilitate payment of its indebtedness, the instrumentalities and agencies of the
National Power Corporation shall be exempt government, including the financial
from all taxes, except real property tax, and institutions. 23
from all duties, fees, imposts, charges, and
restrictions of the Republic of the Section 4 of C.A. No. 120, was renumbered as Section 8, and
divided into sections 8 (a) (Authority to incur Domestic
72
Indebtedness) and Section 8 (b) (Authority to Incur Foreign (c) From all import duties, compensating
Loans). taxes and advanced sales tax, and wharfage
As to the issuance of bonds by the NPC, Paragraph No. 3 of fees on import of foreign goods required for
Section 8(a), states as follows: its operations and projects; and

The bonds issued under the authority of this (d) From all taxes, duties, fees, imposts and
subsection shall be exempt from the all other charges its provinces, cities,
payment of all taxes by the Republic of the municipalities and other government
Philippines, or by any authority, branch, agencies and instrumentalities, on all
division or political subdivision thereof petroleum products used by the Corporation
which facts shall be stated upon the face of in the generation, transmission, utilization,
said bonds. . . . 24 and sale of electric power. 26

As to the foreign loans the NPC was authorized to contract, On November 7, 1972, Presidential Decree
Paragraph No. 5, Section 8(b), states as follows: No. 40 was issued declaring that the
electrification of the entire country was one
The loans, credits and indebtedness of the primary concerns of the country. And
contracted under this subsection and the in connection with this, it was specifically
payment of the principal, interest and other stated that:
charges thereon, as well as the importation
of machinery, equipment, materials and The setting up of transmission line grids and
supplies by the Corporation, paid from the the construction of associated generation
proceeds of any loan, credit or facilities in Luzon, Mindanao and major
indebtedeness incurred under this Act, shall islands of the country, including the
also be exempt from all taxes, fees, imposts, Visayas, shall be the responsibility of the
other charges and restrictions, including National Power Corporation (NPC) as the
import restrictions, by the Republic of the authorized implementing agency of the
Philippines, or any of its agencies and State. 27
political subdivisions. 25 xxx xxx xxx

A new section was added to the charter, now known as It is the ultimate objective of the State for
Section 13, R.A. No. 6395, which declares the non-profit the NPC to own and operate as a single
character and tax exemptions of NPC as follows: integrated system all generating facilities
supplying electric power to the entire area
The Corporation shall be non-profit and embraced by any grid set up by the NPC. 28
shall devote all its returns from its capital
investment, as well as excess revenues from On January 22, 1974, P.D. No. 380 was issued giving extra
its operation, for expansion. To enable the powers to the NPC to enable it to fulfill its role under
Corporation to pay its indebtedness and aforesaid P.D. No. 40. Its authorized capital stock was raised
obligations and in furtherance and effective to P2,000,000,000.00, 29 its total domestic indebtedness was
implementation of the policy enunciated in pegged at a maximum of P3,000,000,000.00 at any one
Section one of this Act, the Corporation is time, 30 and the NPC was authorized to borrow a total of
hereby declared exempt: US$1,000,000,000.00 31 in foreign loans.

(a) From the payment of all taxes, duties, The relevant tax exemption provision for these foreign loans
fees, imposts, charges costs and service fees states as follows:
in any court or administrative proceedings in
which it may be a party, restrictions and The loans, credits and indebtedness
duties to the Republic of the Philippines, its contracted under this subsection and the
provinces, cities, and municipalities and payment of the principal, interest and other
other government agencies and charges thereon, as well as the importation
instrumentalities; of machinery, equipment, materials, supplies
and services, by the Corporation, paid from
(b) From all income taxes, franchise taxes the proceeds of any loan, credit or
and realty taxes to be paid to the National indebtedness incurred under this Act, shall
Government, its provinces, cities, also be exempt from all direct and indirect
municipalities and other government taxes, fees, imposts, other charges and
agencies and instrumentalities; restrictions, including import restrictions
previously and presently imposed, and to be
imposed by the Republic of the Philippines,
73
or any of its agencies and political utilized because of restrictive interpretation
subdivisions. 32(Emphasis supplied) of the taxing agencies of the government on
Section 13(a) and 13(d) of R.A. No 6395 were amended to said provisions; 37
read as follows: xxx xxx xxx

(a) From the payment of all taxes, duties, (I)n order to effect the accelerated expansion
fees, imposts, charges and restrictions to the program and attain the declared objective of
Republic of the Philippines, its provinces, total electrification of the country, further
cities, municipalities and other government amendments of certain sections of Republic
agencies and instrumentalities including the Act No. 6395, as amended by Presidential
taxes, duties, fees, imposts and other charges Decrees Nos. 380, 395 and 758, have
provided for under the Tariff and Customs become imperative; 38
Code of the Philippines, Republic Act
Numbered Nineteen Hundred Thirty-Seven, Thus NPC's capital stock was raised to
as amended, and as further amended by P8,000,000,000.00, 39 the total domestic indebtedness ceiling
Presidential Decree No. 34 dated October was increased to P12,000,000,000.00, 40 the total foreign loan
27, 1972, and Presidential Decree No. 69, ceiling was raised to US$4,000,000,000.00 41 and Section 13
dated November 24, 1972, and costs and of R.A. No. 6395, was amended to read as follows:
service fees in any court or administrative
proceedings in which it may be a party; The Corporation shall be non-profit and
xxx xxx xxx shall devote all its returns from its capital
investment as well as excess revenues from
(d) From all taxes, duties, fees, imposts, and its operation, for expansion. To enable the
all other charges imposed directly or Corporation to pay to its indebtedness and
indirectly by the Republic of the Philippines, obligations and in furtherance and effective
its provinces, cities, municipalities and other implementation of the policy enunciated in
government agencies and instrumentalities, Section one of this Act, the Corporation,
on all petroleum products used by the including its subsidiaries, is hereby declared
Corporation in the generation, transmission, exempt from the payment of all forms of
utilization and sale of electric taxes, duties, fees, imposts as well as costs
power. 33 (Emphasis supplied) and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or
On February 26, 1970, P.D. No. 395 was issued removing administrative proceedings. 42
certain restrictions in the NPC's sale of electricity to its II
different customers. 34 No tax exemption provision was On the other hand, the pertinent tax laws involved in this
amended, deleted or added. controversy are P.D. Nos. 882, 1177, 1931 and Executive
Order No. 93 (S'86).
On July 31, 1975, P.D. No. 758 was issued directing that
P200,000,000.00 would be appropriated annually to cover the On January 30, 1976, P.D. No. 882 was issued withdrawing
unpaid subscription of the Government in the NPC authorized the tax exemption of NPC with regard to imports as follows:
capital stock, which amount would be taken from taxes
accruing to the General Funds of the Government, proceeds WHEREAS, importations by certain
from loans, issuance of bonds, treasury bills or notes to be government agencies, including
issued by the Secretary of Finance for this particular government-owned or controlled
purpose. 35 corporation, are exempt from the payment of
customs duties and compensating tax; and
On May 27, 1976 P.D. No. 938 was issued WHEREAS, in order to reduce foreign
exchange spending and to protect domestic
(I)n view of the accelerated expansion industries, it is necessary to restrict and
programs for generation and transmission regulate such tax-free importations.
facilities which includes nuclear power
generation, the present capitalization of NOW THEREFORE, I, FERDINAND E.
National Power Corporation (NPC) and the MARCOS, President of the Philippines, by
ceilings for domestic and foreign virtue of the powers vested in me by the
borrowings are deemed insufficient; 36 Constitution, and do hereby decree and
xxx xxx xxx order the following:

(I)n the application of the tax exemption Sec. 1. All importations of any government
provisions of the Revised Charter, the non- agency, including government-owned or
profit character of NPC has not been fully controlled corporations which are exempt
74
from the payment of customs duties and totality of revenues and other receipts,
internal revenue taxes, shall be subject to the expenditures and borrowings of all levels of
prior approval of an Inter-Agency government-owned or controlled
Committee which shall insure compliance corporations. The budget shall likewise be
with the following conditions: prepared within the context of the national
long-term plan and of a long-term budget
(a) That no such article of local manufacture program. 43
are available in sufficient quantity and
comparable quality at reasonable prices; In line with such policy, the law decreed that

(b) That the articles to be imported are All units of government, including government-owned or
directly and actually needed and will be controlled corporations, shall pay income taxes, customs
used exclusively by the grantee of the duties and other taxes and fees are imposed under revenues
exemption for its operations and projects or laws: provided, that organizations otherwise exempted by law
in the conduct of its functions; and from the payment of such taxes/duties may ask for a subsidy
from the General Fund in the exact amount of taxes/duties
(c) The shipping documents covering the due: provided, further, that a procedure shall be established by
importation are in the name of the grantee to the Secretary of Finance and the Commissioner of the Budget,
whom the goods shall be delivered directly whereby such subsidies shall automatically be considered as
by customs authorities. both revenue and expenditure of the General Fund. 44
xxx xxx xxx The law also declared that

Sec. 3. The Committee shall have the power [A]ll laws, decrees, executive orders, rules
to regulate and control the tax-free and regulations or parts thereof which are
importation of government agencies in inconsistent with the provisions of the
accordance with the conditions set forth in Decree are hereby repealed and/or modified
Section 1 hereof and the regulations to be accordingly. 45
promulgated to implement the provisions of
this Decree. Provided, however, That any On July 11, 1984, most likely due to the economic morass the
government agency or government-owned Government found itself in after the Aquino assassination,
or controlled corporation, or any local P.D. No. 1931 was issued to reiterate that:
manufacturer or business firm adversely
affected by any decision or ruling of the WHEREAS, Presidential Decree No. 1177
Inter-Agency Committee may file an appeal has already expressly repealed the grant of
with the Office of the President within ten tax privileges to any government-owned or
days from the date of notice thereof. . . . . controlled corporation and all other units of
xxx xxx xxx government; 46
and since there was a
Sec. 6. . . . . Section 13 of Republic Act No.
6395; . . .. and all similar provisions of all . . . need for government-owned or
general and special laws and decrees are controlled corporations and all other units of
hereby amended accordingly. government enjoying tax privileges to share
in the requirements of development, fiscal or
xxx xxx xxx otherwise, by paying the duties, taxes and
On July 30, 1977, P.D. 1177 was issued as it was other charges due from them. 47
it was decreed that:
. . . declared the policy of the State to
formulate and implement a National Budget Sec. 1. The provisions of special on general
that is an instrument of national law to the contrary notwithstanding, all
development, reflective of national exemptions from the payment of duties,
objectives, strategies and plans. The budget taxes, fees, imposts and other charges
shall be supportive of and consistent with heretofore granted in favor of government-
the socio-economic development plan and owned or controlled corporations including
shall be oriented towards the achievement of their subsidiaries, are hereby withdrawn.
explicit objectives and expected results, to
ensure that funds are utilized and operations Sec. 2. The President of the Philippines
are conducted effectively, economically and and/or the Minister of Finance, upon the
efficiently. The national budget shall be recommendation of the Fiscal Incentives
formulated within a context of a Review Board created under Presidential
regionalized government structure and of the Decree No. 776, is hereby empowered to
75
restore, partially or totally, the exemptions
withdrawn by Section 1 above, any It was thus ordered that:
applicable tax and duty, taking into account, Sec. 1. The Provisions of any general or
among others, any or all of the following: special law to the contrary notwithstanding,
all tax and duty incentives granted to
1) The effect on the relative price levels; government and private entities are hereby
withdrawn, except:
2) The relative contribution of the
corporation to the revenue generation effort; a) those covered by the non-impairment
3) The nature of the activity in which the clause of the Constitution;
corporation is engaged in; or
4) In general the greater national interest to b) those conferred by effective internation
be served. agreement to which the Government of the
Republic of the Philippines is a signatory;
xxx xxx xxx c) those enjoyed by enterprises registered
Sec. 5. The provisions of Presidential with:
Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative (i) the Board of
orders, rules, regulations or parts thereof Investment pursuant to
which are inconsistent with this Decree are Presidential Decree No.
hereby repealed, amended or modified 1789, as amended;
accordingly.
(ii) the Export Processing
On December 17, 1986, E.O. No. 93 (S'86) was issued with a Zone Authority, pursuant
view to correct presidential restoration or grant of tax to Presidential Decree No.
exemption to other government and private entities without 66 as amended;
benefit of review by the Fiscal Incentives Review Board, to
wit: (iii) the Philippine
WHEREAS, Presidential Decree Nos. 1931 Veterans Investment
and 1955 issued on June 11, 1984 and Development Corporation
October 14, 1984, respectively, withdrew Industrial Authority
the tax and duty exemption privileges, pursuant to Presidential
including the preferential tax treatment, of Decree No
government and private entities with certain
exceptions, in order that the requirements of d) those enjoyed by the copper mining
national economic development, in terms of industry pursuant to the provisions of Letter
fiscals and other resources, may be met of Instructions No. 1416;
more adequately; e) those conferred under the four basic codes
xxx xxx xxx namely:

WHEREAS, in addition to those tax and (i) the Tariff and Customs
duty exemption privileges were restored by Code, as amended;
the Fiscal Incentives Review Board (FIRB), (ii) the National Internal
a number of affected entities, government Revenue Code, as
and private, had their tax and duty amended;
exemption privileges restored or granted by (iii) the Local Tax Code,
Presidential action without benefit or review as amended;
by the Fiscal Incentives Review Board (iv) the Real Property Tax
(FIRB); Code, as amended;
f) those approved by the
xxx xxx xxx President upon the
Since it was decided that: recommendation of the
Fiscal Incentives Review
[A]ssistance to government and private Board.
entities may be better provided where
necessary by explicit subsidy and budgetary Sec. 2. The Fiscal Incentives Review Board
support rather than tax and duty exemption created under Presidential Decree No. 776,
privileges if only to improve the fiscal as amended, is hereby authorized to:
monitoring aspects of government
operations.
76
a) restore tax and/or duty exemptions a. Direct Tax the where the person
withdrawn hereunder in whole or in part; supposed to pay the tax really pays
b) revise the scope and coverage of tax it. WITHOUT transferring the burden to
and/or duty exemption that may be restored; someone else.
c) impose conditions for the restoration of
tax and/or duty exemption; Examples: Individual income tax, corporate
income tax, transfer taxes (estate tax,
d) prescribe the date of period of effectivity donor's tax), residence tax, immigration tax
of the restoration of tax and/or duty b. Indirect Tax that where the tax is
exemption; imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as
e) formulate and submit to the President for a tax, but as a part of the purchase price.
approval, a complete system for the grant of Examples: the internal revenue indirect
subsidies to deserving beneficiaries, in lieu taxes (specific tax, percentage taxes, (VAT)
of or in combination with the restoration of and the tariff and customs indirect taxes
tax and duty exemptions or preferential (import duties, special import tax and other
treatment in taxation, indicating the source dues) 52
of funding therefor, eligible beneficiaries IV
and the terms and conditions for the grant To simply matter, the issues raised by petitioner in his motion
thereof taking into consideration the for reconsideration can be reduced to the following:
international commitment of the Philippines (1) What kind of tax exemption privileges did NPC have?
and the necessary precautions such that the (2) For what periods in time were these privileges being
grant of subsidies does not become the basis enjoyed?
for countervailing action. (3) If there are taxes to be paid, who shall pay for these taxes?
V
Sec. 3. In the discharge of its authority Petitioner contends that P.D. No. 938 repealed the indirect tax
hereunder, the Fiscal Incentives Review exemption of NPC as the phrase "all forms of taxes etc.," in its
Board shall take into account any or all of section 10, amending Section 13, R.A. No. 6395, as amended
the following considerations: by P.D. No. 380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has
a) the effect on relative price levels; been the lawmaker's intention that the NPC was to be
b) relative contribution of the beneficiary to completely tax exempt from all forms of taxes direct and
the revenue generation effort; indirect.
c) nature of the activity the beneficiary is
engaged; and NPC's tax exemptions at first applied to the bonds it was
d) in general, the greater national interest to authorized to float to finance its operations upon its creation
be served. by virtue of C.A. No. 120.
xxx xxx xxx
When the NPC was authorized to contract with the IBRD for
Sec. 5. All laws, orders, issuances, rules and foreign financing, any loans obtained were to be completely
regulations or parts thereof inconsistent with tax exempt.
this Executive Order are hereby repealed or
modified accordingly. After the NPC was authorized to borrow from other sources of
funds aside issuance of bonds it was again specifically
E.O. No. 93 (S'86) was decreed to be effective 48 upon the exempted from all types of taxes "to facilitate payment of its
promulgation of the rules and regulations, to be issued by the indebtedness." Even when the ceilings for domestic and
Ministry of Finance. 49 Said rules and regulations were foreign borrowings were periodically increased, the tax
promulgated and published in the Official Gazette exemption privileges of the NPC were maintained.
on February 23, 1987. These became effective on the 15th day
after promulgation 50 in the Official Gasetter, 51 which 15th NPC's tax exemption from real estate taxes was, however,
day was March 10, 1987. specifically withdrawn by Rep. Act No. 987, as above stated.
III The exemption was, however, restored by R.A. No. 6395.
Now to some definitions. We refer to the very simplistic
approach that all would-be lawyers, learn in their TAXATION Section 13, R.A. No. 6395, was very comprehensive in its
I course, which fro convenient reference, is as follows: enumeration of the tax exemptions allowed NPC. Its section
Classifications or kinds of Taxes: 13(d) is the starting point of this bone of contention among the
parties. For easy reference, it is reproduced as follows:
According to Persons who pay or who bear
the burden:
77
[T]he Corporation is hereby declared Actually, P.D. No. 938 attests to the ingenuousness of then
exempt: President Marcos no matter what his fault were. It should be
xxx xxx xxx noted that section 13, R.A. No. 6395, provided for tax
(d) From all taxes, duties, fees, imposts and exemptions for the following items:
all other charges imposed by the Republic of 13(a) : court or administrative proceedings;
the Philippines, its provinces, cities, 13(b) : income, franchise, realty taxes;
municipalities and other government 13(c) : import of foreign goods required for
agencies and instrumentalities, on all its operations and projects;
petroleum products used by the Corporation 13(d) : petroleum products used in
in the generation, transmission, utilization, generation of electric power.
and sale of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the
P.D. No. 380 added phrase "directly or indirectly" to said phrase "ALL FORMS OF TAXES, ETC.,", included 13(a)
Section 13(d), which now reads as follows: under the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and This is the only conclusion one can arrive at if he has read all
all other charges imposed directly or the NPC laws in the order of enactment or issuance as narrated
indirectly by the Republic of the Philippines, above in part I hereof. President Marcos must have considered
its provinces, cities, municipalities and other all the NPC statutes from C.A. No. 120 up to its latest
government agencies and instrumentalities, amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759,
on all petroleum products used by the AND came up 55 with a very simple Section 13, R.A. No.
Corporation in the generation, transmission, 6395, as amended by P.D. No. 938.
utilization and sale of electric power.
(Emphasis supplied) One common theme in all these laws is that the NPC must be
enable to pay its indebtedness 56 which, as of P.D. No. 938,
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) was P12 Billion in total domestic indebtedness, at any one
and (d) into one very simple paragraph as follows: time, and U$4 Billion in total foreign loans at any one time.
The NPC must be and has to be exempt from all forms of
The Corporation shall be non-profit and taxes if this goal is to be achieved.
shall devote all its returns from its capital
investment as well as excess revenues from By virtue of P.D. No. 938 NPC's capital stock was raised to P8
its operation, for expansion. To enable the Billion. It must be remembered that to pay the government
Corporation to pay its indebtedness and share in its capital stock P.D. No. 758 was issued mandating
obligations and in furtherance and effective that P200 Million would be appropriated annually to cover the
implementation of the policy enunciated in said unpaid subscription of the Government in NPC's
Section one of this Act, the Corporation, authorized capital stock. And significantly one of the sources
including its subsidiaries, is hereby declared of this annual appropriation of P200 million is TAX MONEY
exempt from the payment of ALL FORMS accruing to the General Fund of the Government. It does not
OF taxes, duties, fees, imposts as well as stand to reason then that former President Marcos would order
costs and service fees including filing fees, P200 Million to be taken partially or totally from tax money to
appeal bonds, supersedeas bonds, in any be used to pay the Government subscription in the NPC, on
court or administrative proceedings. one hand, and then order the NPC to pay all its indirect taxes,
(Emphasis supplied) on the other.

Petitioner reminds Us that: The above conclusion that then President Marcos lumped up
[I]t must be borne in mind that Presidential Sections 13 (b), 13 (c) and (d) into the phrase "All FORMS
Decree Nos. 380 OF" is supported by the fact that he did not do the same for the
and 938 were issued by one man, acting as tax exemption provision for the foreign loans to be incurred.
such the Executive and Legislative. 53 The tax exemption on foreign loans found in Section 8(b),
xxx xxx xxx R.A. No. 6395, reads as follows:

[S]ince both presidential decrees were made The loans, credits and indebtedness
by the same person, it would have been very contracted under this subsection and the
easy for him to retain the same or similar payment of the principal, interest and other
language used in P.D. No. 380 P.D. No. 938 charges thereon, as well as the importation
if his intention were to preserve the indirect of machinery, equipment, materials and
tax exemption of NPC. 54 supplies by the Corporation, paid from the
proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt
78
from all taxes, fees, imposts, other charges
and restrictions, including import This Court notes that petitioner brought to the attention of this
restrictions, by the Republic of the Court, the matter of the abolition of NPC's tax exemption
Philippines, or any of its agencies and privileges by P.D. No. 1177 61 only in his Common
political subdivisions. 57 Reply/Comment to private Respondents' "Opposition" and
"Comment" to Motion for Reconsideration, four (4) months
The same was amended by P.D. No. 380 as follows: AFTER the motion for Reconsideration had been filed. During
oral arguments heard on July 9, 1992, he proceeded to discuss
The loans, credits and indebtedness this tax exemption withdrawal as explained by then Secretary
contracted this subsection and the payment of Justice Vicente Abad Santos in opinion No. 133 (S
of the principal, interest and other charges '77). 62 A careful perusal of petitioner's senate Blue Ribbon
thereon, as well as the importation of Committee Report No. 474, the basis of the petition at bar,
machinery, equipment, materials, supplies fails to yield any mention of said P.D. No. 1177's effect on
and services, by the Corporation, paid from NPC's tax exemption privileges. 63 Applying by
64
the proceeds of any loan, credit or analogy Pulido vs. Pablo, the court declares that the matter
indebtedness incurred under this Act, shall of P.D. No. 1177 abolishing NPC's tax exemption privileges
also be exempt from all direct and was not seasonably invoked 65 by the petitioner.
indirect taxes, fees, imposts, other charges
and restrictions, including import Be that as it may, the Court still has to discuss the effect of
restrictions previously and presently P.D. No. 1177 on the NPC tax exemption privileges as this
imposed, and to be imposed by the Republic statute has been reiterated twice in P.D. No. 1931. The express
of the Philippines, or any of its agencies and repeal of tax privileges of any government-owned or
political subdivisions. 58(Emphasis supplied) controlled corporation (GOCC). NPC included, was reiterated
in the fourth whereas clause of P.D. No. 1931's preamble. The
P.D. No. 938 did not amend the same 59 and so the tax subsidy provided for in Section 23, P.D. No. 1177, being
exemption provision in Section 8 (b), R.A. No. 6395, as inconsistent with Section 2, P.D. No. 1931, was deemed
amended by P.D. No. 380, still stands. Since the subject matter repealed as the Fiscal Incentives Revenue Board was tasked
of this particular Section 8 (b) had to do only with loans and with recommending the partial or total restoration of tax
machinery imported, paid for from the proceeds of these exemptions withdrawn by Section 1, P.D. No. 1931.
foreign loans, THERE WAS NO OTHER SUBJECT MATTER
TO LUMP IT UP WITH, and so, the tax exemption stood as is The records before Us do not indicate whether or not NPC
with the express mention of "direct asked for the subsidy contemplated in Section 23, P.D. No.
and indirect" tax exemptions. And this "direct and indirect" 1177. Considering, however, that under Section 16 of P.D. No.
tax exemption privilege extended to "taxes, fees, imposts, 1177, NPC had to submit to the Office of the President its
other charges . . . to be imposed" in the future surely, an request for the P200 million mandated by P.D. No. 758 to be
indication that the lawmakers wanted the NPC to be exempt appropriated annually by the Government to cover its unpaid
from ALL FORMS of taxes direct and indirect. subscription to the NPC authorized capital stock and that
under Section 22, of the same P.D. No. NPC had to likewise
It is crystal clear, therefore, that NPC had been granted tax submit to the Office of the President its internal operating
exemption privileges for both direct and indirect taxes under budget for review due to capital inputs of the government
P.D. No. 938. (P.D. No. 758) and to the national government's guarantee of
VI the domestic and foreign indebtedness of the NPC, it is clear
that NPC was covered by P.D. No. 1177.
Five (5) years on into the now discredited New Society, the
Government decided to rationalize government receipts and There is reason to believe that NPC availed of subsidy granted
expenditures by formulating and implementing a National to exempt GOCC's that suddenly found themselves having to
Budget. 60 The NPC, being a government owned and pay taxes. It will be noted that Section 23, P.D. No. 1177,
controlled corporation had to be shed off its tax exemption mandated that the Secretary of Finance and the Commissioner
status privileges under P.D. No. 1177. It was, however, of the Budget had to establish the necessary procedure to
allowed to ask for a subsidy from the General Fund in the accomplish the tax payment/tax subsidy scheme of the
exact amount of taxes/duties due. Government. In effect, NPC, did not put any cash to pay any
tax as it got from the General Fund the amounts necessary to
Actually, much earlier, P.D. No. 882 had already repealed pay different revenue collectors for the taxes it had to pay.
NPC's tax-free importation privileges. It allowed, however, In his memorandum filed July 16, 1992, petitioner submits:
NPC to appeal said repeal with the Office of the President and
to avail of tax-free importation privileges under its Section 1, [T]hat with the enactment of P.D. No. 1177
subject to the prior approval of an Inter-Agency Committed on July 30, 1977, the NPC lost all its duty
created by virtue of said P.D. No. 882. It is presumed that the and tax exemptions, whether direct or
NPC, being the special creation of the State, was allowed to indirect. And so there was nothing to be
continue its tax-free importations. withdrawn or to be restored under P.D. No.
79
1931, issued on June 11, 1984. This is expressly repealed by the revised and
evident from sections 1 and 2 of said P.D. consolidated act; and all rights
No. 1931, which reads: and liabilities under the former act or acts
"Section 1. The provisions are preserved and may be enforced. 66
of special or general law the Court rules that when P.D. No. 1931 basically reenacted in
to the contrary its Section 1 the first half of Section 23, P.D. No. 1177, on
notwithstanding, all withdrawal of tax exemption privileges of all GOCC's said
exemptions from the Section 1, P.D. No. 1931 was deemed to be a continuation of
payment of duties, taxes, the first half of Section 23, P.D. No. 1177, although the
fees, imports and other second half of Section 23, P.D. No. 177, on the subsidy
charges heretofore granted scheme for former tax exempt GOCCs had been expressly
in favor of government- repealed by Section 2 with its institution of the FIRB
owned or controlled recommendation of partial/total restoration of tax exemption
corporations including privileges.
their subsidiaries are
hereby withdrawn." The NPC tax privileges withdrawn by Section 1. P.D. No.
Sec. 2. The President of 1931, were, therefore, the same NPC tax exemption privileges
the Philippines and/or the withdrawn by Section 23, P.D. No. 1177. NPC could no
Minister of Finance, upon longer obtain a subsidy for the taxes it had to pay. It could,
the recommendation of the however, under P.D. No. 1931, ask for a total restoration of its
Fiscal Incentives Review tax exemption privileges, which, it did, and the same were
Board created under P.D. granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as
No. 776, is hereby approved by the Minister of Finance.
empowered to restore
partially or totally, the Consequently, contrary to petitioner's submission, FIRB
exemptions withdrawn by Resolutions Nos. 10-85 and 1-86 were both legally and validly
section 1 above. . . . issued by the FIRB pursuant to P.D. No. 1931. FIRB did not
created NPC's tax exemption status but merely restored it. 69
Hence, P.D. No. 1931 did not have any Some quarters have expressed the view that P.D. No. 1931
effect or did it change NPC's status. Since it was illegally issued under the now rather infamous
had already lost all its tax exemptions Amendment No. 6 70 as there was no showing that President
privilege with the issuance of P.D. No. 1177 Marcos' encroachment on legislative prerogatives was justified
seven (7) years earlier or on July 30, 1977, under the then prevailing condition that he could legislate
there were no tax exemptions to be "only if the Batasang Pambansa 'failed or was unable to act
withdrawn by section 1 which could later be inadequately on any matter that in his judgment required
restored by the Minister of Finance upon the immediate action' to meet the 'exigency'. 71
recommendation of the FIRB under Section
2 of P.D. No. 1931. Consequently, FIRB Actually under said Amendment No. 6, then President Marcos
resolutions No. 10-85, and 1-86, were all could issue decrees not only when the Interim Batasang
illegally and validly issued since FIRB acted Pambansa failed or was unable to act adequately on any matter
beyond their statutory authority by creating for any reason that in his (Marcos') judgment required
and not merely restoring the tax exempt immediate action, but also when there existed a grave
status of NPC. The same is true for FIRB emergency or a threat or thereof. It must be remembered that
Res. No. 17-87 which restored NPC's tax said Presidential Decree was issued only around nine (9)
exemption under E.O. No. 93 which months after the Philippines unilaterally declared a
likewise abolished all duties and tax moratorium on its foreign debt payments 72 as a result of the
exemptions but allowed the President upon economic crisis triggered by loss of confidence in the
recommendation of the FIRB to restore government brought about by the Aquino assassination. The
those abolished. Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which
The Court disagrees. had a US$ 2.1 billion white elephant of a Bataan Nuclear
Applying by analogy the weight of authority that: Power Plant on its back. 75 From all indications, it must have
been this grave emergency of a debt rescheduling which
When a revised and consolidated act re- compelled Marcos to issue P.D. No. 1931, under his
enacts in the same or substantially the same Amendment 6 power. 76
terms the provisions of the act or acts so
revised and consolidated, the revision and The rule, therefore, that under the 1973 Constitution "no law
consolidation shall be taken to be a granting a tax exemption shall be passed without the
continuation of the former act or acts, concurrence of a majority of all the members of the Batasang
although the former act or acts may be Pambansa" 77 does not apply as said P.D. No. 1931 was not
80
passed by the Interim Batasang Pambansa but by then Nos. 10-85 and 1-86, done by the same person acting in his
President Marcos under His Amendment No. 6 power. dual capacities as Chairman of the Fiscal Incentives Review
P.D. No. 1931 was, therefore, validly issued by then President Board and Minister of Finance, respectively, do not violate
Marcos under his Amendment No. 6 authority. procedural due process.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were While as above-mentioned, FIRB Resolution No. 17-87 was
again clipped by, this time, President Aquino. Its section 2 approved by President Aquino on October 5, 1987, the view
allowed the NPC to apply for the restoration of its tax has been expressed that President Aquino, at least with regard
exemption privileges. The same was granted under FIRB to E.O. 93 (S'86), had no authority to sub-delegate to the
Resolution No. 17-87 78 dated June 24, 1987 which restored FIRB, which was allegedly not a delegate of the legislature,
NPC's tax exemption privileges effective, starting March 10, the power delegated to her thereunder.
1987, the date of effectivity of E.O. No. 93 (S'86).
A misconception must be cleared up.
FIRB Resolution No. 17-87 was approved by the President on
October 5, 1987. 79 There is no indication, however, from the When E.O No. 93 (S'86) was issued, President Aquino was
records of the case whether or not similar approvals were exercising both Executive and Legislative powers. Thus, there
given by then President Marcos for FIRB Resolutions Nos. was no power delegated to her, rather it was she who was
10-85 and 1- 86. This has led some quarters to believe that a delegating her power. She delegated it to the FIRB, which, for
"travesty of justice" might have occurred when the Minister of purposes of E.O No. 93 (S'86), is a delegate of the legislature.
Finance approved his own recommendation as Chairman of Clearly, she was not sub-delegating her power.
the Fiscal Incentives Review Board as what happened
in Zambales Chromate vs. Court of Appeals 80 when the And E.O. No. 93 (S'86), as a delegating law, was complete in
Secretary of Agriculture and Natural Resources approved a itself it set forth the policy to be carried out 85 and it fixed
decision earlier rendered by him when he was the Director of the standard to which the delegate had to conform in the
Mines, 81 and in Anzaldo vs. Clave 82 where Presidential performance of his functions, 86 both qualities having been
Executive Assistant Clave affirmed, on appeal to Malacaang, enunciated by this Court in Pelaez vs. Auditor General. 87
his own decision as Chairman of the Civil Service
Commission. 83 Thus, after all has been said, it is clear that the NPC had its tax
exemption privileges restored from June 11, 1984 up to the
Upon deeper analysis, the question arises as to whether one present.
can talk about "due process" being violated when FIRB VII
Resolutions Nos. 10-85 and 1-86 were approved by the
Minister of Finance when the same were recommended by The next question that projects itself is who pays the tax?
him in his capacity as Chairman of the Fiscal Incentives The answer to the question could be gleamed from the manner
Review Board. 84 by which the Commissaries of the Armed Forces of the
Philippines sell their goods.
In Zambales Chromite and Anzaldo, two (2) different parties
were involved: mining groups and scientist-doctors, By virtue of P.D. No. 83, 88 veterans, members of the Armed
respectively. Thus, there was a need for procedural due of the Philippines, and their defendants but groceries and other
process to be followed. goods free of all taxes and duties if bought from any AFP
Commissaries.
In the case of the tax exemption restoration of NPC, there is
no other comparable entity not even a single public or In practice, the AFP Commissary suppliers probably treat the
private corporation whose rights would be violated if unchargeable specific, ad valorem and other taxes on the
NPC's tax exemption privileges were to be restored. While goods earmarked for AFP Commissaries as an added cost of
there might have been a MERALCO before Martial Law, it is operation and distribute it over the total units of goods sold as
of public knowledge that the MERALCO generating plants it would any other cost. Thus, even the ordinary supermarket
were sold to the NPC in line with the State policy that NPC buyer probably pays for the specific, ad valorem and other
was to be the State implementing arm for the electrification of taxes which theses suppliers do not charge the AFP
the entire country. Besides, MERALCO was limited to Manila Commissaries. 89
and its environs. And as of 1984, there was no more
MERALCO as a producer of electricity which could IN MUCH THE SAME MANNER, it is clear that private
have objected to the restoration of NPC's tax exemption respondents-oil companies have to absorb the taxes they add
privileges. to the bunker fuel oil they sell to NPC.

It should be noted that NPC was not asking to be granted tax It should be stated at this juncture that, as early as May 14,
exemption privileges for the first time. It was just asking that 1954, the Secretary of Justice renders an opinion, 90wherein he
its tax exemption privileges be restored. It is for these reasons stated and We quote:
that, at least in NPC's case, the recommendation and approval
of NPC's tax exemption privileges under FIRB Resolution xxx xxx xxx
81
Republic Act No. 358 exempts the National It should be noted at this point in time that the whole issue of
Power Corporation from "all taxes, duties, who WILL pay these indirect taxes HAS BEEN
fees, imposts, charges, and restrictions of the RENDERED moot and academic by E.O. No. 195 issued on
Republic of the Philippines and its June 16, 1987 by virtue of which the ad valorem tax rate on
provinces, cities, and municipalities." This bunker fuel oil was reduced to ZERO (0%) PER CENTUM.
exemption is broad enough to include all Said E.O. no. 195 reads as follows:
taxes, whether direct or indirect, which the
National Power Corporation may be EXECUTIVE ORDER NO. 195
required to pay, such as the specific tax on AMENDING PARAGRAPH (b) OF
petroleum products. That it is indirect or is SECTION 128 OF THE NATIONAL
of no amount [should be of no moment], for INTERNAL REVENUE CODE, AS
it is the corporation that ultimately pays AMENDED BY REVISING THE EXCISE
it. The view which refuses to accord the TAX RATES OF CERTAIN PETROLEUM
exemption because the tax is first paid by the PRODUCTS.
seller disregards realities and gives more
importance to form than to substance. xxx xxx xxx
Equity and law always exalt substance over Sec. 1. Paragraph (b) of Section 128 of the
from. National Internal Revenue Code, as
xxx xxx xxx amended, is hereby amended to read as
follows:
Tax exemptions are undoubtedly to be Par. (b) For products subject to ad
construed strictly but not so grudgingly as valorem tax only:
knowledge that many impositions taxpayers PRODUCT AD VALOREM TAX RATE
have to pay are in the nature of indirect 1. . . .
taxes. To limit the exemption granted the 2. . . .
National Power Corporation to direct taxes 3. . . .
notwithstanding the general and broad 4. Fuel oil, commercially known as bunker
language of the statue will be to thwrat the oil and on similar fuel oils having more or
legislative intention in giving exemption less the same generating power 0%
from all forms of taxes and impositions xxx xxx xxx
without distinguishing between those that
are direct and those that are not. (Emphasis Sec. 3. This Executive Order shall take
supplied) effect immediately.
Done in the city of Manila, this 17th day of
In view of all the foregoing, the Court rules and declares that June, in the year of Our Lord, nineteen
the oil companies which supply bunker fuel oil to NPC have to hundred and eighty-seven. (Emphasis
pay the taxes imposed upon said bunker fuel oil sold to NPC. supplied)
By the very nature of indirect taxation, the economic burden
of such taxation is expected to be passed on through the The oil companies can now deliver bunker fuel oil to NPC
channels of commerce to the user or consumer of the goods without having to worry about who is going to bear the
sold. Because, however, the NPC has been exempted from economic burden of the ad valorem taxes. What this Court
both direct and indirect taxation, the NPC must beheld will now dispose of are petitioner's complaints that some
exempted from absorbing the economic burden of indirect indirect tax money has been illegally refunded by the Bureau
taxation. This means, on the one hand, that the oil companies of Internal Revenue to the NPC and that more claims for
which wish to sell to NPC absorb all or part of the economic refunds by the NPC are being processed for payment by the
burden of the taxes previously paid to BIR, which could they BIR.
shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may A case in point is the Tax Credit Memo issued by the Bureau
refuse to pay the part of the "normal" purchase price of bunker of Internal Revenue in favor of the NPC last July 7, 1986 for
fuel oil which represents all or part of the taxes previously P58.020.110.79 which were for "erroneously paid specific
paid by the oil companies to BIR. If NPC nonetheless and ad valorem taxes during the period from October 31, 1984
purchases such oil from the oil companies because to do so to April 27, 1985. 91 Petitioner asks Us to declare this Tax
may be more convenient and ultimately less costly for NPC Credit Memo illegal as the PNC did not have indirect tax
than NPC itself importing and hauling and storing the oil from exemptions with the enactment of P.D. No. 938. As We have
overseas NPC is entitled to be reimbursed by the BIR for already ruled otherwise, the only questions left are whether
that part of the buying price of NPC which verifiably NPC Is entitled to a tax refund for the tax component of the
represents the tax already paid by the oil company-vendor to price of the bunker fuel oil purchased from Caltex (Phils.) Inc.
the BIR. and whether the Bureau of Internal Revenue properly refunded
the amount to NPC.

82
After P.D. No. 1931 was issued on June 11, 1984 withdrawing
the A careful examination of petitioner's pleadings and annexes
attached thereto does not reveal when the alleged claim for a
tax exemptions of all GOCCs NPC included, it was only on P410,580,000.00 tax refund was filed. It is only stated In
May 8, 1985 when the BIR issues its letter authority to the paragraph No. 2 of the Deed of Assignment 97executed by and
NPC authorizing it to withdraw tax-free bunker fuel oil from between NPC and Caltex (Phils.) Inc., as follows:
the oil companies pursuant to FIRB Resolution No. 10-
85. 92 Since the tax exemption restoration was retroactive to That the ASSIGNOR(NPC) has a pending
June 11, 1984 there was a need. therefore, to recover said tax credit claim with the Bureau of Internal
amount as Caltex (PhiIs.) Inc. had already paid the BIR the Revenue amounting to P442,887,716.16.
specific and ad valorem taxes on the bunker oil it sold NPC P58.020,110.79 of which is due to
during the period above indicated and had billed NPC Assignor's oil purchases from the Assignee
correspondingly. 93 It should be noted that the NPC, in its (Caltex [Phils.] Inc.)
letter-claim dated September 11, 1985 to the Commissioner of Actually, as the Court sees it, this is a clear case
the Bureau of Internal Revenue DID NOT of a "Mexican standoff." We cannot restrain the BIR from
CATEGORICALLY AND UNEQUIVOCALLY STATE that refunding said amount because of Our ruling that NPC has
itself paid the P58.020,110.79 as part of the bunker fuel oil both direct and indirect tax exemption privileges. Neither can
price it purchased from Caltex (Phils) Inc. 94 We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its
The law governing recovery of erroneously or illegally, collection before Us. At any rate, at this point in time, NPC
collected taxes is section 230 of the National Internal Revenue can no longer file any suit to collect said amount EVEN IF lt
Code of 1977, as amended which reads as follows: has previously filed a claim with the BIR because it is time-
barred under Section 230 of the National Internal Revenue
Sec. 230. Recover of tax erroneously or Code of 1977. as amended, which states:
illegally collected. No suit or proceeding
shall be maintained in any court for the In any case, no such suit or proceeding shall
recovery of any national internal revenue tax be begun after the expiration of two years
hereafter alleged to have been erroneously from the date of payment of the tax or
or illegally assessed or collected, or of any penalty REGARDLESS of any supervening
penalty claimed to have been collected cause that may arise after payment. . . .
without authority, or of any sum alleged to (Emphasis supplied)
have been excessive or in any Manner
wrongfully collected. until a claim for The date of the Deed of Assignment is June 6. 1986. Even if
refund or credit has been duly filed with the We were to assume that payment by NPC for the amount of
Commissioner; but such suit or proceeding P410,580,000.00 had been made on said date. it is clear that
may be maintained, whether or not such tax, more than two (2) years had already elapsed from said date. At
penalty, or sum has been paid under protest the same time, We should note that there is no legal obstacle
or duress. to the BIR granting, even without a suit by NPC, the tax credit
or refund claimed by NPC, assuming that NPC's claim had
In any case, no such suit or proceeding shall been made seasonably, and assuming the amounts covered had
be begun after the expiration of two years actually been paid previously by the oil companies to the BIR.
from the date of payment of the tax or WHEREFORE, in view of all the foregoing, the Motion for
penalty regardless of any supervening cause Reconsideration of petitioner is hereby DENIED for lack of
that may arise after payment; Provided, merit and the decision of this Court promulgated on May 31,
however, That the Commissioner may, even 1991 is hereby AFFIRMED.
without a written claim therefor, refund or
credit any tax, where on the face of the SO ORDERED.
return upon which payment was made, such
payment appears clearly, to have been
erroneously paid.

xxx xxx xxx


Inasmuch as NPC filled its claim for P58.020,110.79 on
September 11, 1985, 95 the Commissioner correctly issued the
Tax Credit Memo in view of NPC's indirect tax exemption.
Petitioner, however, asks Us to restrain the Commissioner
from acting favorably on NPC's claim for P410.580,000.00
which represents specific and ad valorem taxes paid by the oil
companies to the BIR from June 11, 1984 to the early part of
1986. 96
83
the Rev. Fr. Crispin Ruiz, who received the donation
G.R. No. L-19201 June 16, 1965 in behalf of the Catholic parish of Victorias or the
REV. FR. CASIMIRO LLADOC, petitioner, Roman Catholic Church. Following petitioner's line
vs. of thinking, we should be equally unfair to hold that
The COMMISSIONER OF INTERNAL REVENUE and the assessment now in question should have been
The COURT of TAX APPEALS, respondents. addressed to, and collected from, the Rev. Fr. Crispin
Hilado and Hilado for petitioner. Ruiz to be paid from income derived from his present
Office of the Solicitor General for respondents. parish where ever it may be. It does not seem right to
PAREDES, J.: indirectly burden the present parishioners of Rev. Fr.
Ruiz for donee's gift tax on a donation to which they
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, were not benefited.
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then xxx xxx xxx
parish priest of Victorias, Negros Occidental, and predecessor
of herein petitioner, for the construction of a new Catholic We saw no legal basis then as we see none now, to
Church in the locality. The total amount was actually spent for include within the Constitutional exemption, taxes
the purpose intended. which partake of the nature of an excise upon the use
made of the properties or upon the exercise of the
On March 3, 1958, the donor M.B. Estate, Inc., filed the privilege of receiving the properties. (Phipps vs.
donor's gift tax return. Under date of April 29, 1960, the Commissioner of Internal Revenue, 91 F [2d] 627;
respondent Commissioner of Internal Revenue issued an 1938, 302 U.S. 742.)
assessment for donee's gift tax against the Catholic Parish of
Victorias, Negros Occidental, of which petitioner was the It is a cardinal rule in taxation that exemptions from
priest. The tax amounted to P1,370.00 including surcharges, payment thereof are highly disfavored by law, and
interests of 1% monthly from May 15, 1958 to June 15, 1960, the party claiming exemption must justify his claim
and the compromise for the late filing of the return. by a clear, positive, or express grant of such
privilege by law. (Collector vs. Manila Jockey Club,
Petitioner lodged a protest to the assessment and requested the G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)
withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner of Internal The phrase "exempt from taxation" as employed in
Revenue were denied. The petitioner appealed to the Court of Section 22(3), Article VI of the Constitution of the
Tax Appeals on November 2, 1960. In the petition for review, Philippines, should not be interpreted to mean
the Rev. Fr. Casimiro Lladoc claimed, among others, that at exemption from all kinds of taxes. Statutes
the time of the donation, he was not the parish priest in exempting charitable and religious property from
Victorias; that there is no legal entity or juridical person taxation should be construed fairly though strictly
known as the "Catholic Parish Priest of Victorias," and, and in such manner as to give effect to the main
therefore, he should not be liable for the donee's gift tax. It intent of the lawmakers. (Roman Catholic Church vs.
was also asserted that the assessment of the gift tax, even Hastrings 5 Phil. 701.)
against the Roman Catholic Church, would not be valid, for xxx xxx xxx
such would be a clear violation of the provisions of the
Constitution. WHEREFORE, in view of the foregoing
considerations, the decision of the respondent
After hearing, the CTA rendered judgment, the pertinent Commissioner of Internal Revenue appealed from, is
portions of which are quoted below: hereby affirmed except with regard to the imposition
of the compromise penalty in the amount of P20.00
... . Parish priests of the Roman Catholic Church (Collector of Internal Revenue v. U.S.T., G.R. No. L-
under canon laws are similarly situated as its 11274, Nov. 28, 1958); ..., and the petitioner, the
Archbishops and Bishops with respect to the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
properties of the church within their parish. They are the respondent the amount of P900.00 as donee's gift
the guardians, superintendents or administrators of tax, plus the surcharge of five per centum (5%) as ad
these properties, with the right of succession and may valorem penalty under Section 119 (c) of the Tax
sue and be sued. Code, and one per centum (1%) monthly interest
xxx xxx xxx from May 15, 1958 to the date of actual payment.
The surcharge of 25% provided in Section 120 for
The petitioner impugns the, fairness of the failure to file a return may not be imposed as the
assessment with the argument that he should not be failure to file a return was not due to willful neglect.(
held liable for gift taxes on donation which he did not ... ) No costs.
receive personally since he was not yet the parish
priest of Victorias in the year 1957 when said The above judgment is now before us on appeal, petitioner
donation was given. It is intimated that if someone assigning two (2) errors allegedly committed by the Tax
has to pay at all, it should be petitioner's predecessor, Court, all of which converge on the singular issue of whether
84
or not petitioner should be liable for the assessed donee's gift
tax on the P10,000.00 donated for the construction of the The decision appealed from should be, as it is hereby affirmed
Victorias Parish Church. insofar as tax liability is concerned; it is modified, in the sense
that petitioner herein is not personally liable for the said gift
Section 22 (3), Art. VI of the Constitution of the Philippines, tax, and that the Head of the Diocese, herein substitute
exempts from taxation cemeteries, churches and parsonages or petitioner, should pay, as he is presently ordered to pay, the
convents, appurtenant thereto, and all lands, buildings, and said gift tax, without special, pronouncement as to costs.
improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra
distinguished from excise taxes. In the present case, what the G.R. No. L-17303 August 31, 1962
Collector assessed was a donee's gift tax; the assessment was ANTONIO CO PO, petitioner,
not on the properties themselves. It did not rest upon general vs.
ownership; it was an excise upon the use made of the COLLECTOR OF INTERNAL REVENUE, respondent.
properties, upon the exercise of the privilege of receiving the Federico D. Nepomuceno for petitioner.
properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Office of the Solicitor General for respondent.
Manifestly, gift tax is not within the exempting provisions of
the section just mentioned. A gift tax is not a property tax, but
an excise tax imposed on the transfer of property by way of BARRERA, J.:
gift inter vivos, the imposition of which on property used This is a petition to review the decision of the Court of Tax
exclusively for religious purposes, does not constitute an Appeals in C.T.A. case No. 313, denying petitioner's claim for
impairment of the Constitution. As well observed by the refund of the sum of P1,782.72 alleged as illegally collected
learned respondent Court, the phrase "exempt from taxation," advance sales tax on goods purchased by him from the United
as employed in the Constitution (supra) should not be States Military Bases in the Philippines at Sangley Point,
interpreted to mean exemption from all kinds of taxes. And Clark Field, and Olongapo from 1954 to 1956.
there being no clear, positive or express grant of such privilege
by law, in favor of petitioner, the exemption herein must be Petitioner is a merchant doing business under the name and
denied. style of St. Luke's Trading. On several occasions during the
years 1954 to 1956, petitioner purchased through public
The next issue which readily presents itself, in view of auctions various articles from the United States military
petitioner's thesis, and Our finding that a tax liability exists, is, authorities in the military bases, removed the goods therefrom
who should be called upon to pay the gift tax? Petitioner and subsequently sold the same to other third parties. On these
postulates that he should not be liable, because at the time of transactions which were treated as importations, the
the donation he was not the priest of Victorias. We note the respondent Collector of Internal Revenue, imposed and
merit of the above claim, and in order to put things in their collected the advance sales tax in question, under the
proper light, this Court, in its Resolution of March 15, 1965, provisions of Section 183 (B) of the National Internal Revenue
ordered the parties to show cause why the Head of the Diocese Code, in relation to Sections 184, 185 and 186 of the same
to which the parish of Victorias pertains, should not be Code.
substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in It is the contention of the petitioner that he is not liable for the
interest. The Solicitor General, in representation of the payment of said advance sales tax because, it is argued, he is
Commissioner of Internal Revenue, interposed no objection to not an importer, not having engaged in the business of
such a substitution. Counsel for the petitioner did not also importation, and that there was no importation by him
offer objection thereto. inasmuch as the goods "did not come to the country from a
foreign country", Sangley Point, Clark Field, and Olongapo
On April 30, 1965, in a resolution, We ordered the Head of the not being considered as foreign territory. Moreover, the
Diocese to present whatever legal issues and/or defenses he petitioner claims that the sales to him by the U.S. authorities in
might wish to raise, to which resolution counsel for petitioner, these bases were the original sales mentioned in the law
who also appeared as counsel for the Head of the Diocese, the subject to the tax and, that therefore the subsequent sales by
Roman Catholic Bishop of Bacolod, manifested that it was him were not taxable. And finally the petitioner maintains that
submitting itself to the jurisdiction and orders of this Court before Republic Act No. 1612 came into effect on August 24,
and that it was presenting, by reference, the brief of petitioner 1956, purchasers of tax-free articles were not considered the
Rev. Fr. Casimiro Lladoc as its own and for all purposes. importers thereof, and invoked in support of his contention the
decision of the Supreme Court in the case of Collector of
In view here of and considering that as heretofore stated, the Internal Revenue, et al. v. Marcelino Viduya, et al., G.R. No.
assessment at bar had been properly made and the imposition L-10808, promulgated on February 28, 1958.1wph1.t
of the tax is not a violation of the constitutional provision
exempting churches, parsonages or convents, etc. (Art VI, sec. The issue herein raised is not new. It has already been settled
22 [3], Constitution), the Head of the Diocese, to which the contrary to the contention of petitioner, in a series of decisions
parish Victorias Pertains, is liable for the payment thereof. of this Court in cases involving similar factual situations,
85
wherein it was held in effect that goods and materials while in ... pero la importacion no termino con la entrega al
the army bases or installations in the Philippines are, in demandante por la "Foreign Liquidation
contemplation of law, on foreign soil (Saura Import & Export Commission" de dichos efectos sino hasta cuando se
Co. v. Meer, G.R. No. L-2927, February 26, 1951); that one hubiese pagado el impuesto correspondiente. ...
who acquires title to surplus equipment found in U.S. Bases or Mientras estaban bajo el control del ejercito y para
installations within the Philippines by purchase, and then uso military los efectos no debian pagar ningun
brings them out of those bases or depots, is an importer; that impuesto al Gobierno Filipino. Pero immediatamente
the bringing out of such goods and materials, after acquiring despues de transferidos al demandante para fines
titles to such goods, is importation in the legal sense (A. commerciales desde ese momento nacio el derecho
Soriano y Cia v. Collector of Internal Revenue, G.R. No. L- del gobierno de gravar sobre ellos impuesto
5896, August 31, 1955); and that the said materials removed correspondiente, y mientras no lo pague al
from these bases and depots were, for purposes of the internal demandante no termina la importacion. Por eso el
revenue taxes, purchased or received from "outside the demandante que negocio con ellos es el importador
Philippines." (Bisaya Land Transportation Co., Inc. v. bajo los terminos precisos de la ley. (p. 22)
Collector of Internal Revenue, G.R. Nos. L-12100 & L-11812,
May 29, 1959). Applying this ruling to the case at bar, the importation
therefore, continues and is not completed until the petitioner
It is true that the areas covered by the United State Military pays the taxes due on the articles. For that long, therefore, in
Bases are not foreign territories both in the political and contemplation of law the petitioner is the importer.
geographical sense. But because of the special arrangements
regarding their status and the resulting legal relations and However, it is argued by the petitioner that before the
situations obtaining therein by reason of the Military Bases amendment of Section 183(B) of the National Internal
Agreement with the United States, this Court has ruled, for the Revenue Act by Republic Act 1612, incorporating therein the
purposes of Section 183 (B) of the National Internal Revenue provision
Code, in the manner set forth in the cases heretofore adverted
to. The reason is, in synthesis, stated in the case of Go Cheng In the case of tax-free articles brought or imported
Tee v. Meer, 87 Phil. 18, in the following language: into the Philippines by persons, entities or agencies
exempt from tax which are subsequently sold,
Como ya hemos dicho, el eidreito americans no transferred, or exchanged in the Philippines to non-
estaba obligado a pagar ningun impuesto sobre tales exempt private persons or entities, the purchasers
efectos, porque no hablan sido traidos aqui para fines shall be considered the importers thereof. The tax due
de comercio sino como objetos de abastecimiento on such articles shall constitute lien on the article
military Solamente se convirtieron en mercanclas de itself superior to all other charges or liens,
comercio cuando el demandante los obtuvo en irrespective of the possessor thereof. (Sec. 5,
compra para dedicarlos al negocio, y solamente desde Republic Act No. 1612)
entonces quedaban sujetos a impuesto. La venta
original de que habla el articulo 5 de la Ley No. the purchasers of tax-free articles brought into the
5031 es la realizada por el demandante al publico de Philippines by persons or agencies exempt from tax
Filipinas, y no la venta hecha a 61 por la "Foreign were no considered the importers of said tax-free
Liquidation Commission". En esta transaccion, el articles. He then concludes that, having purchased the
demandante compro: no vendio. ... La venta hecha tax-free articles before Republic Act No. 1612 took
por el demandante a sus parroquianos es la venta effect on August 24, 1956, his purchases were not
original, y no la compra hecha por el de la "Foreign taxable as he was not then the importer thereof.
Liquidation Commission. (p. 24)
This contention is incorrect because the Saura and Soriano
Hence, under this ruling, the original sale is not the sale made cases (supra) were decided in 1951 and 1955 respectively long
by the U.S. authorities to the petitioner but the subsequent sale before the enactment of Republic Act 1612. In fact the
that the herein petitioner makes to his customers. To hold amendment merely adopted an existing ruling of the Bureau of
otherwise would be to bring about the very situation which the Internal Revenue, which is in line with the decisions of this
law intends to avoid, that is, the influx of articles free of tax Court, that purchasers of articles brought or imported tax-free
into the military bases, and the subsequent indiscriminate and into the Philippines, shall be subject to the payment of
unchecked distribution and sale thereof to the general public advance sales tax. This clearly appears in the explanatory note
also free of tax. It is in this spirit that the decisions herein cited to House Bill No. 5809 now Republic Act 1612, which
were conceived and formulated. Besides, for the purposes of enumerates the features of the proposed amendments, among
our customs and tax laws, the sale by the U.S. authorities to which is the
the petitioner is considered but a continuation of the
importation of the goods to the Philippines. As was held in the xxx xxx xxx
case of Go Cheng Tee v. Meer, supra: 4. Incorporation into the provision of Section 183
(B) the existing ruling of the Bureau of Internal
Revenue considering as the importers, purchasers of
86
articles brought or imported tax-free into the
Philippines, and establishing a lien for the tax on
such articles irrespective of the possessors thereof. RENATO V. DIAZ and G.R. No. 193007
This provision will merely place said purchasers in AURORA MA. F. TIMBOL,
the same footing as those purchasing similar articles Petitioners, Present:
from taxable persons, entities, or agencies. CORONA, C.J.,
(Congressional Record, House of Representatives, CARPIO,
page 2946, May 17, 1956) (Emphasis supplied). VELASCO, JR.,
LEONARDO-DE CASTRO,
The case of Collector of Internal Revenue v. Viduya, G.R. No. BRION,
L-10808, promulgated on February 28, 1958, invoked by - versus - PERALTA,
petitioner is not in point. That case concerns the purchase by .
Viduya, who was not a merchant, of an automobile apparently THE SECRETARY OF FINANCE
for his own use, from a member of the staff of the American and THE COMMISSIONER OF Promulgated:
Embassy in Manila who brought the car from the United INTERNAL REVENUE,
States also for his personal use here. The issue there involved Respondents. July 19, 2011
relates to the payment by amend users of compensating tax
under Section 190 of the Tax Code. The advance sales tax is x -------------------------------------------------------------------------
levied upon merchants, importers and manufacturers who --------------- x
resell, barter and exchange the articles purchased or imported
or who use them in the manufacture or preparation of articles
subject to specific tax or those for consignment abroad. The DECISION
end-users do not pay the advance sales tax; merchants,
importers and manufacturers do not pay the compensating tax. ABAD, J.:
The compensating tax is not an import tax.2 Obviously, a
ruling on the question of the payment of compensating tax, as
the one in the Viduya case, can not have application to a case May toll fees collected by tollway operators be subjected to
involving the payment of advance sales tax, as is the issue in value- added tax?
the present case.

The appealed judgment of the Court of Tax Appeals being in The Facts and the Case
accordance with law, the same is hereby affirmed with costs
against the appellant. So ordered. Petitioners Renato V. Diaz and Aurora Ma. F. Timbol
(petitioners) filed this petition for declaratory relief[1] assailing
the validity of the impending imposition of value-added tax
(VAT) by the Bureau of Internal Revenue (BIR) on the
collections of tollway operators.

Petitioners claim that, since the VAT would result in


increased toll fees, they have an interest as regular users of
tollways in stopping the BIR action. Additionally, Diaz claims
that he sponsored the approval of Republic Act 7716 (the 1994
Expanded VAT Law or EVAT Law) and Republic Act 8424
(the 1997 National Internal Revenue Code or the NIRC) at the
House of Representatives. Timbol, on the other hand, claims
that she served as Assistant Secretary of the Department of
Trade and Industry and consultant of the Toll Regulatory
Board (TRB) in the past administration.

Petitioners allege that the BIR attempted during the


administration of President Gloria Macapagal-Arroyo to
impose VAT on toll fees. The imposition was deferred,
however, in view of the consistent opposition of Diaz and
other sectors to such move. But, upon President Benigno C.
Aquino IIIs assumption of office in 2010, the BIR revived the
idea and would impose the challenged tax on toll fees
beginning August 16, 2010 unless judicially enjoined.

Petitioners hold the view that Congress did not, when


it enacted the NIRC, intend to include toll fees within the
87
meaning of sale of services that are subject to VAT; that a toll 1. Whether or not the Court may treat the petition for
fee is a users tax, not a sale of services; that to impose VAT on declaratory relief as one for prohibition; and
toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing 2. Whether or not petitioners Diaz and Timbol have
toll fees, its imposition would violate the non-impairment legal standing to file the action.
clause of the constitution.
The case also presents two substantive issues:
On August 13, 2010 the Court issued a temporary
restraining order (TRO), enjoining the implementation of the 1. Whether or not the government is unlawfully
VAT. The Court required the government, represented by expanding VAT coverage by including tollway operators and
respondents Cesar V. Purisima, Secretary of the Department tollway operations in the terms franchise grantees and sale of
of Finance, and Kim S. Jacinto-Henares, Commissioner of services under Section 108 of the Code; and
Internal Revenue, to comment on the petition within 10 days
from notice.[2] Later, the Court issued another resolution 2. Whether or not the imposition of VAT on tollway
treating the petition as one for prohibition.[3] operators a) amounts to a tax on tax and not a tax on services;
b) will impair the tollway operators right to a reasonable
On August 23, 2010 the Office of the Solicitor General filed return of investment under their TOAs; and c) is not
the governments comment.[4] The government avers that the administratively feasible and cannot be implemented.
NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations, except where the law The Courts Rulings
provides otherwise; that the Court should seek the meaning
and intent of the law from the words used in the statute; and A. On the Procedural Issues:
that the imposition of VAT on tollway operations has been the
subject as early as 2003 of several BIR rulings and circulars. [5] On August 24, 2010 the Court issued a resolution,
treating the petition as one for prohibition rather than one for
The government also argues that petitioners have no declaratory relief, the characterization that petitioners Diaz
right to invoke the non-impairment of contracts clause since and Timbol gave their action. The government has sought
they clearly have no personal interest in existing toll operating reconsideration of the Courts resolution,[7] however, arguing
agreements (TOAs) between the government and tollway that petitioners allegations clearly made out a case for
operators. At any rate, the non-impairment clause cannot limit declaratory relief, an action over which the Court has no
the States sovereign taxing power which is generally read into original jurisdiction. The government adds, moreover, that the
contracts. petition does not meet the requirements of Rule 65 for actions
Finally, the government contends that the non-inclusion of for prohibition since the BIR did not exercise judicial, quasi-
VAT in the parametric formula for computing toll rates cannot judicial, or ministerial functions when it sought to impose
exempt tollway operators from VAT. In any event, it cannot VAT on toll fees. Besides, petitioners Diaz and Timbol has a
be claimed that the rights of tollway operators to a reasonable plain, speedy, and adequate remedy in the ordinary course of
rate of return will be impaired by the VAT since this is law against the BIR action in the form of an appeal to the
imposed on top of the toll rate. Further, the imposition of VAT Secretary of Finance.
on toll fees would have very minimal effect on motorists using
the tollways. But there are precedents for treating a petition for declaratory
relief as one for prohibition if the case has far-reaching
In their reply[6] to the governments comment, implications and raises questions that need to be resolved for
petitioners point out that tollway operators cannot be regarded the public good.[8] The Court has also held that a petition for
as franchise grantees under the NIRC since they do not hold prohibition is a proper remedy to prohibit or nullify acts of
legislative franchises. Further, the BIR intends to collect the executive officials that amount to usurpation of legislative
VAT by rounding off the toll rate and putting any excess authority.[9]
collection in an escrow account. But this would be illegal
since only the Congress can modify VAT rates and authorize Here, the imposition of VAT on toll fees has far-
its disbursement. Finally, BIR Revenue Memorandum reaching implications. Its imposition would impact, not only
Circular 63-2010 (BIR RMC 63-2010), which directs toll on the more than half a million motorists who use the tollways
companies to record an accumulated input VAT of zero everyday, but more so on the governments effort to raise
balance in their books as of August 16, 2010, contravenes revenue for funding various projects and for reducing
Section 111 of the NIRC which grants entities that first budgetary deficits.
become liable to VAT a transitional input tax credit of 2% on
beginning inventory. For this reason, the VAT on toll fees To dismiss the petition and resolve the issues later,
cannot be implemented. after the challenged VAT has been imposed, could cause more
The Issues Presented mischief both to the tax-paying public and the government. A
belated declaration of nullity of the BIR action would make
The case presents two procedural issues: any attempt to refund to the motorists what they paid an
administrative nightmare with no solution.Consequently, it is
88
not only the right, but the duty of the Court to take cognizance exercise or use of the physical or mental
of and resolve the issues that the petition raises. faculties. (Underscoring supplied)

Although the petition does not strictly comply with It is plain from the above that the law imposes VAT
the requirements of Rule 65, the Court has ample power to on all kinds of services rendered in the Philippines for a fee,
waive such technical requirements when the legal questions to including those specified in the list. The enumeration of
be resolved are of great importance to the public. The same affected services is not exclusive.[11] By qualifying services
may be said of the requirement of locus standi which is a mere with the words all kinds, Congress has given the term services
procedural requisite.[10] an all-encompassing meaning. The listing of specific services
are intended to illustrate how pervasive and broad is the VATs
B. On the Substantive Issues: reach rather than establish concrete limits to its
One. The relevant law in this case is Section 108 of application. Thus, every activity that can be imagined as a
the NIRC, as amended. VAT is levied, assessed, and collected, form of service rendered for a fee should be deemed included
according to Section 108, on the gross receipts derived from unless some provision of law especially excludes it.
the sale or exchange of services as well as from the use or
lease of properties. The third paragraph of Section 108 defines Now, do tollway operators render services for a
sale or exchange of services as follows: fee? Presidential Decree (P.D.) 1112 or the Toll Operation
Decree establishes the legal basis for the services that tollway
The phrase sale or exchange of operators render. Essentially, tollway operators construct,
services means the performance of all maintain, and operate expressways, also called tollways, at the
kinds of services in the Philippines for operators expense. Tollways serve as alternatives to regular
others for a fee, remuneration or public highways that meander through populated areas and
consideration, including those performed branch out to local roads. Traffic in the regular public
or rendered by construction and service highways is for this reason slow-moving. In consideration for
contractors; stock, real estate, constructing tollways at their expense, the operators are
commercial, customs and immigration allowed to collect government-approved fees from motorists
brokers; lessors of property, whether using the tollways until such operators could fully recover
personal or real; warehousing services; their expenses and earn reasonable returns from their
lessors or distributors of cinematographic investments.
films; persons engaged in milling,
processing, manufacturing or repacking When a tollway operator takes a toll fee from a motorist, the
goods for others; proprietors, operators fee is in effect for the latters use of the tollway facilities over
or keepers of hotels, motels, resthouses, which the operator enjoys private proprietary rights[12]that its
pension houses, inns, resorts; proprietors contract and the law recognize. In this sense, the tollway
or operators of restaurants, refreshment operator is no different from the following service providers
parlors, cafes and other eating places, under Section 108 who allow others to use their properties or
including clubs and caterers; dealers in facilities for a fee:
securities; lending investors;
transportation contractors on their 1. Lessors of property, whether
transport of goods or cargoes, including personal or real;
persons who transport goods or cargoes 2. Warehousing service operators;
for hire and other domestic common 3. Lessors or distributors of
carriers by land relative to their transport cinematographic films;
of goods or cargoes; common carriers by 4. Proprietors, operators or keepers
air and sea relative to their transport of of hotels, motels, resthouses, pension
passengers, goods or cargoes from one houses, inns, resorts;
place in the Philippines to another place 5. Lending investors (for use of
in the Philippines; sales of electricity by money);
generation companies, transmission, and 6. Transportation contractors on
distribution companies; services of their transport of goods or cargoes,
franchise grantees of electric utilities, including persons who transport goods or
telephone and telegraph, radio and cargoes for hire and other domestic common
television broadcasting and all other carriers by land relative to their transport of
franchise grantees except those under goods or cargoes; and
Section 119 of this Code and non-life 7. Common carriers by air and sea
insurance companies (except their crop relative to their transport of passengers,
insurances), including surety, fidelity, goods or cargoes from one place in
indemnity and bonding companies; and the Philippines to another place in
similar services regardless of whether or the Philippines.
not the performance thereof calls for the
89
It does not help petitioners cause that Section 108 broadcasting companies in its list of VAT-covered businesses,
subjects to VAT all kinds of services rendered for a fee Section 108 opens other companies rendering public service
regardless of whether or not the performance thereof calls for for a fee to the imposition of VAT. Businesses of a public
the exercise or use of the physical or mental faculties. This nature such as public utilities and the collection of tolls or
means that services to be subject to VAT need not fall under charges for its use or service is a franchise.[19]
the traditional concept of services, the personal or professional
kinds that require the use of human knowledge and skills. Nor can petitioners cite as binding on the Court
statements made by certain lawmakers in the course of
And not only do tollway operators come under the broad term congressional deliberations of the would-be law. As the Court
all kinds of services, they also come under the specific class said in South African Airways v. Commissioner of Internal
described in Section 108 as all other franchise grantees who Revenue,[20] statements made by individual members of
are subject to VAT, except those under Section 119 of this Congress in the consideration of a bill do not necessarily
Code. reflect the sense of that body and are, consequently, not
controlling in the interpretation of law. The congressional will
Tollway operators are franchise grantees and they do is ultimately determined by the language of the law that the
not belong to exceptions (the low-income radio and/or lawmakers voted on. Consequently, the meaning and intention
television broadcasting companies with gross annual incomes of the law must first be sought in the words of the statute
of less than P10 million and gas and water utilities) that itself, read and considered in their natural, ordinary,
Section 119[13] spares from the payment of VAT. The word commonly accepted and most obvious significations,
franchise broadly covers government grants of a special right according to good and approved usage and without resorting
to do an act or series of acts of public concern.[14] to forced or subtle construction.

Petitioners of course contend that tollway operators Two. Petitioners argue that a toll fee is a users tax
cannot be considered franchise grantees under Section 108 and to impose VAT on toll fees is tantamount to taxing a
since they do not hold legislative franchises. But nothing in tax.[21] Actually, petitioners base this argument on the
Section 108 indicates that the franchise grantees it speaks of following discussion in Manila International Airport
are those who hold legislative franchises. Petitioners give no Authority (MIAA) v. Court of Appeals:[22]
reason, and the Court cannot surmise any, for making a
distinction between franchises granted by Congress and No one can dispute that
franchises granted by some other government agency. The properties of public dominion mentioned
latter, properly constituted, may grant franchises. Indeed, in Article 420 of the Civil Code,
franchises conferred or granted by local authorities, as agents like roads, canals, rivers, torrents, ports
of the state, constitute as much a legislative franchise as and bridges constructed by the State,are
though the grant had been made by Congress itself.[15] The owned by the State. The term ports
term franchise has been broadly construed as referring, not includes seaports and airports.
only to authorizations that Congress directly issues in the form The MIAA Airport Lands and Buildings
of a special law, but also to those granted by administrative constitute a port constructed by the State.
agencies to which the power to grant franchises has been Under Article 420 of the Civil Code,
delegated by Congress.[16] the MIAA Airport Lands and Buildings
are properties of public dominion and
Tollway operators are, owing to the nature and object thus owned by the State or the Republic
of their business, franchise grantees. The construction, of the Philippines.
operation, and maintenance of toll facilities on public
improvements are activities of public consequence that x x x The operation by the
necessarily require a special grant of authority from the government of a tollway does not change
state. Indeed, Congress granted special franchise for the the character of the road as one for public
operation of tollways to the Philippine National Construction use. Someone must pay for the
Company, the former tollway concessionaire for the North and maintenance of the road, either the public
South Luzon Expressways. Apart from Congress, tollway indirectly through the taxes they pay the
franchises may also be granted by the TRB, pursuant to the government, or only those among the
exercise of its delegated powers under P.D. 1112. [17] The public who actually use the road through
franchise in this case is evidenced by a Toll Operation the toll fees they pay upon using the
Certificate.[18] road. The tollway system is even a more
efficient and equitable manner of taxing
Petitioners contend that the public nature of the the public for the maintenance of public
services rendered by tollway operators excludes such services roads.
from the term sale of services under Section 108 of the
Code.But, again, nothing in Section 108 supports this The charging of fees to the public
contention. The reverse is true. In specifically including by does not determine the character of the
way of example electric utilities, telephone, telegraph, and property whether it is for public
90
dominion or not. Article 420 of the Civil government has adopted for expressways.[26] Except for a
Code defines property of public dominion fraction given to the government, the toll fees essentially end
as one intended for public use. Even if the up as earnings of the tollway operators.
government collects toll fees, the road is
still intended for public use if anyone can In sum, fees paid by the public to tollway operators for use of
use the road under the same terms and the tollways, are not taxes in any sense. A tax is imposed
conditions as the rest of the public. The under the taxing power of the government principally for the
charging of fees, the limitation on the purpose of raising revenues to fund public
kind of vehicles that can use the road, the expenditures.[27] Toll fees, on the other hand, are collected by
speed restrictions and other conditions private tollway operators as reimbursement for the costs and
for the use of the road do not affect the expenses incurred in the construction, maintenance and
public character of the road. operation of the tollways, as well as to assure them a
reasonable margin of income. Although toll fees are charged
The terminal fees MIAA charges for the use of public facilities, therefore, they are not
to passengers, as well as the landing fees government exactions that can be properly treated as a
MIAA charges to airlines, constitute the tax. Taxes may be imposed only by the government under its
bulk of the income that maintains the sovereign authority, toll fees may be demanded by either the
operations of MIAA. The collection of government or private individuals or entities, as an attribute of
such fees does not change the character of ownership.[28]
MIAA as an airport for public use. Such
fees are often termed users tax. This Parenthetically, VAT on tollway operations cannot be deemed
means taxing those among the public who a tax on tax due to the nature of VAT as an indirect tax. In
actually use a public facility instead of indirect taxation, a distinction is made between the liability for
taxing all the public including those who the tax and burden of the tax. The seller who is liable for the
never use the particular public facility. A VAT may shift or pass on the amount of VAT it paid on
users tax is more equitable a principle of goods, properties or services to the buyer. In such a case, what
taxation mandated in the 1987 is transferred is not the sellers liability but merely the burden
Constitution.[23] (Underscoring supplied) of the VAT.[29]

Petitioners assume that what the Court said above, Thus, the seller remains directly and legally liable for
equating terminal fees to a users tax must also pertain to payment of the VAT, but the buyer bears its burden since the
tollway fees. But the main issue in the MIAA case was whether amount of VAT paid by the former is added to the selling
or not Paraaque City could sell airport lands and buildings price. Once shifted, the VAT ceases to be a tax[30] and simply
under MIAA administration at public auction to satisfy unpaid becomes part of the cost that the buyer must pay in order to
real estate taxes. Since local governments have no power to purchase the good, property or service.
tax the national government, the Court held that the City could
not proceed with the auction sale. MIAA forms part of the Consequently, VAT on tollway operations is not
national government although not integrated in the department really a tax on the tollway user, but on the tollway operator.
framework.[24] Thus, its airport lands and buildings are Under Section 105 of the Code, [31] VAT is imposed on any
properties of public dominion beyond the commerce of man person who, in the course of trade or business, sells or renders
under Article 420(1)[25] of the Civil Code and could not be services for a fee. In other words, the seller of services, who in
sold at public auction. this case is the tollway operator, is the person liable for VAT.
The latter merely shifts the burden of VAT to the tollway user
As can be seen, the discussion in the MIAA case on as part of the toll fees.
toll roads and toll fees was made, not to establish a rule that For this reason, VAT on tollway operations cannot be
tollway fees are users tax, but to make the point that airport a tax on tax even if toll fees were deemed as a users tax. VAT
lands and buildings are properties of public dominion and that is assessed against the tollway operators gross receipts and not
the collection of terminal fees for their use does not make necessarily on the toll fees. Although the tollway operator may
them private properties. Tollway fees are not taxes.Indeed, shift the VAT burden to the tollway user, it will not make the
they are not assessed and collected by the BIR and do not go latter directly liable for the VAT. The shifted VAT burden
to the general coffers of the government. simply becomes part of the toll fees that one has to pay in
It would of course be another matter if Congress order to use the tollways.[32]
enacts a law imposing a users tax, collectible from motorists,
for the construction and maintenance of certain roadways.The Three. Petitioner Timbol has no personality to invoke the
tax in such a case goes directly to the government for the non-impairment of contract clause on behalf of private
replenishment of resources it spends for the roadways. This is investors in the tollway projects. She will neither be
not the case here. What the government seeks to tax here are prejudiced by nor be affected by the alleged diminution in
fees collected from tollways that are constructed, maintained, return of investments that may result from the VAT
and operated by private tollway operators at their own expense imposition. She has no interest at all in the profits to be earned
under the build, operate, and transfer scheme that the
91
under the TOAs. The interest in and right to recover
investments solely belongs to the private tollway investors. In this connection, the BIR explained that BIR RMC
63-2010 is actually the product of negotiations with tollway
Besides, her allegation that the private investors rate operators who have been assessed VAT as early as 2005, but
of recovery will be adversely affected by imposing VAT on failed to charge VAT-inclusive toll fees which by now can no
tollway operations is purely speculative. Equally longer be collected. The tollway operators agreed to waive the
presumptuous is her assertion that a stipulation in the TOAs 2% transitional input VAT, in exchange for cancellation of
known as the Material Adverse Grantor Action will be their past due VAT liabilities. Notably, the right to claim the
activated if VAT is thus imposed. The Court cannot rule on 2% transitional input VAT belongs to the tollway operators
matters that are manifestly conjectural. Neither can it prohibit who have not questioned the circulars validity. They are thus
the State from exercising its sovereign taxing power based on the ones who have a right to challenge the circular in a direct
uncertain, prophetic grounds. and proper action brought for the purpose.

Four. Finally, petitioners assert that the Conclusion


substantiation requirements for claiming input VAT make the
VAT on tollway operations impractical and incapable of In fine, the Commissioner of Internal Revenue did
implementation. They cite the fact that, in order to claim input not usurp legislative prerogative or expand the VAT laws
VAT, the name, address and tax identification number of the coverage when she sought to impose VAT on tollway
tollway user must be indicated in the VAT receipt or operations. Section 108(A) of the Code clearly states that
invoice. The manner by which the BIR intends to implement services of all other franchise grantees are subject to VAT,
the VAT by rounding off the toll rate and putting any excess except as may be provided under Section 119 of the
collection in an escrow account is also illegal, while the Code.Tollway operators are not among the franchise grantees
alternative of giving change to thousands of motorists in order subject to franchise tax under the latter provision. Neither are
to meet the exact toll rate would be a logistical nightmare. their services among the VAT-exempt transactions under
Thus, according to them, the VAT on tollway operations is not Section 109 of the Code.
administratively feasible.[33]
If the legislative intent was to exempt tollway
Administrative feasibility is one of the canons of a operations from VAT, as petitioners so strongly allege, then it
sound tax system. It simply means that the tax system should would have been well for the law to clearly say so. Tax
be capable of being effectively administered and enforced exemptions must be justified by clear statutory grant and
with the least inconvenience to the taxpayer. Non-observance based on language in the law too plain to be mistaken. [37] But
of the canon, however, will not render a tax imposition invalid as the law is written, no such exemption obtains for tollway
except to the extent that specific constitutional or statutory operators. The Court is thus duty-bound to simply apply the
limitations are impaired.[34] Thus, even if the imposition of law as it is found.
VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of Lastly, the grant of tax exemption is a matter of
it is shown to violate any law or the Constitution. legislative policy that is within the exclusive prerogative of
Congress. The Courts role is to merely uphold this legislative
Here, it remains to be seen how the taxing authority policy, as reflected first and foremost in the language of the
will actually implement the VAT on tollway operations. Any tax statute. Thus, any unwarranted burden that may be
declaration by the Court that the manner of its implementation perceived to result from enforcing such policy must be
is illegal or unconstitutional would be premature. Although the properly referred to Congress. The Court has no discretion on
transcript of the August 12, 2010 Senate hearing provides the matter but simply applies the law.
some clue as to how the BIR intends to go about it,[35] the facts
pertaining to the matter are not sufficiently established for the The VAT on franchise grantees has been in the
Court to pass judgment on. Besides, any concern about how statute books since 1994 when R.A. 7716 or the Expanded
the VAT on tollway operations will be enforced must first be Value-Added Tax law was passed. It is only now, however,
addressed to the BIR on whom the task of implementing tax that the executive has earnestly pursued the VAT imposition
laws primarily and exclusively rests. The Court cannot against tollway operators. The executive exercises exclusive
preempt the BIRs discretion on the matter, absent any clear discretion in matters pertaining to the implementation and
violation of law or the Constitution. execution of tax laws. Consequently, the executive is more
properly suited to deal with the immediate and practical
For the same reason, the Court cannot prematurely consequences of the VAT imposition.
declare as illegal, BIR RMC 63-2010 which directs toll
companies to record an accumulated input VAT of zero WHEREFORE, the Court DENIES respondents
balance in their books as of August 16, 2010, the date when Secretary of Finance and Commissioner of Internal Revenues
the VAT imposition was supposed to take effect. The issuance motion for reconsideration of its August 24, 2010
allegedly violates Section 111(A)[36] of the Code which grants resolution, DISMISSES the petitioners Renato V. Diaz and
first time VAT payers a transitional input VAT of 2% on Aurora Ma. F. Timbols petition for lack of merit, and SETS
beginning inventory.
92
ASIDE the Courts temporary restraining order dated August [private respondents]. It appears from the
13, 2010. testimonies of the witnesses for the [private
SO ORDERED. respondent] particularly Mr. James C.
G.R. No. 124043 October 14, 1998 Delote, former accountant of YMCA, that
COMMISSIONER OF INTERNAL these facilities were leased to members and
REVENUE, petitioner, that they have to service the needs of its
vs. members and their guests. The rentals were
COURT OF APPEALS, COURT OF TAX APPEALS and minimal as for example, the barbershop was
YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE only charged P300 per month. He also
PHILIPPINES, INC., respondents. testified that there was actually no lot
devoted for parking space but the parking
PANGANIBAN, J.: was done at the sides of the building. The
Is the income derived from rentals of real property owned by parking was primarily for members with
the Young Men's Christian Association of the Philippines, Inc. stickers on the windshields of their cars and
(YMCA) established as "a welfare, educational and they charged P.50 for non-members. The
charitable non-profit corporation" subject to income tax rentals and parking fees were just enough to
under the National Internal Revenue Code (NIRC) and the cover the costs of operation and
Constitution? maintenance only. The earning[s] from these
rentals and parking charges including those
The Case from lodging and other charges for the use
This is the main question raised before us in this petition for of the recreational facilities constitute [the]
review on certiorari challenging two Resolutions issued by bulk of its income which [is] channeled to
the Court of Appeals 1 on September 28, 1995 2 and February support its many activities and attainment of
29, 1996 3 in CA-GR SP No. 32007. Both Resolutions its objectives. As pointed out earlier, the
affirmed the Decision of the Court of Tax Appeals (CTA) membership dues are very insufficient to
allowing the YMCA to claim tax exemption on the latter's support its program. We find it reasonably
income from the lease of its real property. necessary therefore for [private respondent]
to make [the] most out [of] its existing
The Facts facilities to earn some income. It would have
The facts are undisputed. 4 Private Respondent YMCA is a been different if under the circumstances,
non-stock, non-profit institution, which conducts various [private respondent] will purchase a lot and
programs and activities that are beneficial to the public, convert it to a parking lot to cater to the
especially the young people, pursuant to its religious, needs of the general public for a fee, or
educational and charitable objectives. construct a building and lease it out to the
highest bidder or at the market rate for
In 1980, private respondent earned, among others, an income commercial purposes, or should it invest its
of P676,829.80 from leasing out a portion of its premises to funds in the buy and sell of properties, real
small shop owners, like restaurants and canteen operators, and or personal. Under these circumstances, we
P44,259.00 from parking fees collected from non-members. could conclude that the activities are already
On July 2, 1984, the commissioner of internal revenue (CIR) profit oriented, not incidental and reasonably
issued an assessment to private respondent, in the total amount necessary to the pursuit of the objectives of
of P415,615.01 including surcharge and interest, for the association and therefore, will fall under
deficiency income tax, deficiency expanded withholding taxes the last paragraph of Section 27 of the Tax
on rentals and professional fees and deficiency withholding Code and any income derived therefrom
tax on wages. Private respondent formally protested the shall be taxable.
assessment and, as a supplement to its basic protest, filed a
letter dated October 8, 1985. In reply, the CIR denied the Considering our findings that [private
claims of YMCA. respondent] was not engaged in the business
of operating or contracting [a] parking lot,
Contesting the denial of its protest, the YMCA filed a petition we find no legal basis also for the imposition
for review at the Court of Tax Appeals (CTA) on March 14, of [a] deficiency fixed tax and [a]
1989. In due course, the CTA issued this ruling in favor of the contractor's tax in the amount[s] of P353.15
YMCA: and P3,129.73, respectively.
xxx xxx xxx
. . . [T]he leasing of [private respondent's]
facilities to small shop owners, to restaurant WHEREFORE, in view of all the foregoing,
and canteen operators and the operation of the following assessments are hereby
the parking lot are reasonably incidental to dismissed for lack of merit:
and reasonably necessary for the 1980 Deficiency Fixed Tax P353,15;
accomplishment of the objectives of the
93
1980 Deficiency Contractor's Tax Finding merit in the Motion for Reconsideration filed by the
P3,129.23; YMCA, the CA reversed itself and promulgated on September
1980 Deficiency Income Tax 28, 1995 its first assailed Resolution which, in part, reads:
P372,578.20. The Court cannot depart from the CTA's
findings of fact, as they are supported by
While the following assessments are hereby sustained: evidence beyond what is considered as
1980 Deficiency Expanded Withholding Tax substantial.
P1,798.93; xxx xxx xxx
1980 Deficiency Withholding Tax on Wages The second ground raised is that the
P33,058.82 respondent CTA did not err in saying that
plus 10% surcharge and 20% interest per the rental from small shops and parking fees
annum from July 2, 1984 until fully paid but do not result in the loss of the exemption.
not to exceed three (3) years pursuant to Not even the petitioner would hazard the
Section 51(e)(2) & (3) of the National suggestion that YMCA is designed for
Internal Revenue Code effective as of profit. Consequently, the little income from
1984. 5 small shops and parking fees help[s] to keep
its head above the water, so to speak, and
Dissatisfied with the CTA ruling, the CIR elevated the case to allow it to continue with its laudable work.
the Court of Appeals (CA). In its Decision of February 16, The Court, therefore, finds the second
1994, the CA 6 initially decided in favor of the CIR and ground of the motion to be meritorious and
disposed of the appeal in the following manner: in accord with law and jurisprudence.
WHEREFORE, the motion for
Following the ruling in the afore-cited cases reconsideration is GRANTED; the
of Province of Abra vs. Hernando and Abra respondent CTA's decision is
Valley College Inc. vs. Aquino, the ruling of AFFIRMED in toto. 9
the respondent Court of Tax Appeals that
"the leasing of petitioner's (herein The internal revenue commissioner's own Motion for
respondent's) facilities to small shop owners, Reconsideration was denied by Respondent Court in its
to restaurant and canteen operators and the second assailed Resolution of February 29, 1996. Hence, this
operation of the parking lot are reasonably petition for review under Rule 45 of the Rules of Court. 10
incidental to and reasonably necessary for
the accomplishment of the objectives of the The Issues
petitioners, and the income derived Before us, petitioner imputes to the Court of Appeals the
therefrom are tax exempt, must be reversed. following errors:
WHEREFORE, the appealed decision is I
hereby REVERSED in so far as it dismissed In holding that it had departed from the
the assessment for: findings of fact of Respondent Court of Tax
1980 Deficiency Income Appeals when it rendered its Decision dated
Tax P 353.15 February 16, 1994; and
1980 Deficiency II
Contractor's Tax P In affirming the conclusion of Respondent
3,129.23, & Court of Tax Appeals that the income of
1980 Deficiency Income private respondent from rentals of small
Tax P 372,578.20 shops and parking fees [is] exempt from
taxation. 11
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based on the This Court's Ruling
following grounds: The petition is meritorious.

I First Issue:
The findings of facts of the Public Factual Findings of the CTA
Respondent Court of Tax Appeals being Private respondent contends that the February 16, 1994 CA
supported by substantial evidence [are] final Decision reversed the factual findings of the CTA. On the
and conclusive. other hand, petitioner argues that the CA merely reversed the
II "ruling of the CTA that the leasing of private respondent's
The conclusions of law of [p]ublic facilities to small shop owners, to restaurant and canteen
[r]espondent exempting [p]rivate operators and the operation of parking lots are reasonably
[r]espondent from the income on rentals of incidental to and reasonably necessary for the accomplishment
small shops and parking fees [are] in accord of the objectives of the private respondent and that the income
with the applicable law and jurisprudence. 8 derived therefrom are tax exempt." 12 Petitioner insists that
94
what the appellate court reversed was the legal conclusion, not the disposition made of such income, shall
the factual finding, of the CTA. 13 The commissioner has a be subject to the tax imposed under this
point. Code. (as amended by Pres. Decree No.
1457)
Indeed, it is a basic rule in taxation that the factual findings of Petitioner argues that while the income received by the
the CTA, when supported by substantial evidence, will be organizations enumerated in Section 27 (now Section 26) of
disturbed on appeal unless it is shown that the said court the NIRC is, as a rule, exempted from the payment of tax "in
committed gross error in the appreciation of facts. 14 In the respect to income received by them as such," the exemption
present case, this Court finds that the February 16, 1994 does not apply to income derived ". . . from any of their
Decision of the CA did not deviate from this rule. The latter properties, real or personal, or from any of their activities
merely applied the law to the facts as found by the CTA and conducted for profit, regardless of the disposition made of
ruled on the issue raised by the CIR: "Whether or not the such income . . . ."
collection or earnings of rental income from the lease of
certain premises and income earned from parking fees shall Petitioner adds that "rental income derived by a tax-exempt
fall under the last paragraph of Section 27 of the National organization from the lease of its properties, real or personal,
Internal Revenue Code of 1977, as amended." 15 [is] not, therefore, exempt from income taxation, even if such
Clearly, the CA did not alter any fact or evidence. It merely income [is] exclusively used for the accomplishment of its
resolved the aforementioned issue, as indeed it was expected objectives." 17 We agree with the commissioner.
to. That it did so in a manner different from that of the CTA
did not necessarily imply a reversal of factual findings. Because taxes are the lifeblood of the nation, the Court has
The distinction between a question of law and a question of always applied the doctrine of strict in interpretation in
fact is clear-cut. It has been held that "[t]here is a question of construing tax exemptions. 18 Furthermore, a claim of statutory
law in a given case when the doubt or difference arises as to exemption from taxation should be manifest. and
what the law is on a certain state of facts; there is a question of unmistakable from the language of the law on which it is
fact when the doubt or difference arises as to the truth or based. Thus, the claimed exemption "must expressly be
falsehood of alleged facts." 16 In the present case, the CA did granted in a statute stated in a language too clear to be
not doubt, much less change, the facts narrated by the CTA. It mistaken." 19
merely applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular or In the instant case, the exemption claimed by the YMCA is
abnormal. expressly disallowed by the very wording of the last paragraph
of then Section 27 of the NIRC which mandates that the
Second Issue: income of exempt organizations (such as the YMCA) from
Is the Rental Income of the YMCA Taxable? any of their properties, real or personal, be subject to the tax
We now come to the crucial issue: Is the rental income of the imposed by the same Code. Because the last paragraph of said
YMCA from its real estate subject to tax? At the outset, we set section unequivocally subjects to tax the rent income of the
forth the relevant provision of the NIRC: YMCA from its real property, 20the Court is duty-bound to
abide strictly by its literal meaning and to refrain from
Sec. 27. Exemptions from tax on resorting to any convoluted attempt at construction.
corporations. The following
organizations shall not be taxed under this It is axiomatic that where the language of the law is clear and
Title in respect to income received by them unambiguous, its express terms must be
as such applied. 21Parenthetically, a consideration of the question of
xxx xxx xxx construction must not even begin, particularly when such
question is on whether to apply a strict construction or a
(g) Civic league or organization not liberal one on statutes that grant tax exemptions to "religious,
organized for profit but operated exclusively charitable and educational propert[ies] or institutions." 22
for the promotion of social welfare;
(h) Club organized and operated exclusively The last paragraph of Section 27, the YMCA argues, should
for pleasure, recreation, and other non- be "subject to the qualification that the income from the
profitable purposes, no part of the net properties must arise from activities 'conducted for profit'
income of which inures to the benefit of any before it may be considered taxable." 23 This argument is
private stockholder or member; erroneous. As previously stated, a reading of said paragraph
xxx xxx xxx ineludibly shows that the income from any property of exempt
organizations, as well as that arising from any activity it
Notwithstanding the provisions in the conducts for profit, is taxable. The phrase "any of their
preceding paragraphs, the income of activities conducted for profit" does not qualify the word
whatever kind and character of the foregoing "properties." This makes from the property of the organization
organizations from any of their properties, taxable, regardless of how that income is used whether for
real or personal, or from any of their profit or for lofty non-profit purposes.
activities conducted for profit, regardless of
95
Verba legis non est recedendum. Hence, Respondent Court of only." 35 Indeed, the income tax exemption claimed by private
Appeals committed reversible error when it allowed, on respondent finds no basis in Article VI, Section 26, par. 3 of
reconsideration, the tax exemption claimed by YMCA on the Constitution.
income it derived from renting out its real property, on the
solitary but unconvincing ground that the said income is not Private respondent also invokes Article XIV, Section 4, par. 3
collected for profit but is merely incidental to its operation. of the Character, 36 claiming that the YMCA "is a non-stock,
The law does not make a distinction. The rental income is non-profit educational institution whose revenues and assets
taxable regardless of whence such income is derived and how are used actually, directly and exclusively for educational
it is used or disposed of. Where the law does not distinguish, purposes so it is exempt from taxes on its properties and
neither should we. income." 37 We reiterate that private respondent is exempt
from the payment of property tax, but not income tax on the
Constitutional Provisions rentals from its property. The bare allegation alone that it is a
On Taxation non-stock, non-profit educational institution is insufficient to
Invoking not only the NIRC but also the fundamental law, justify its exemption from the payment of income tax.
private respondent submits that Article VI, Section 28 of par.
3 of the 1987 Constitution, 24 exempts "charitable institutions" As previously discussed, laws allowing tax exemption are
from the payment not only of property taxes but also of construed strictissimi juris. Hence, for the YMCA to be
income tax from any source. 25 In support of its novel theory, granted the exemption it claims under the aforecited provision,
it compares the use of the words "charitable institutions," it must prove with substantial evidence that (1) it falls under
"actually" and "directly" in the 1973 and the 1987 the classification non-stock, non-profit educational institution;
Constitutions, on the one hand; and in Article VI, Section 22, and (2) the income it seeks to be exempted from taxation is
par. 3 of the 1935 Constitution, on the other hand. 26 used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of
Private respondent enunciates three points. First, the present evidence was submitted by private respondent to prove that it
provision is divisible into two categories: (1) "[c]haritable met the said requisites.
institutions, churches and parsonages or convents appurtenant
thereto, mosques and non-profit cemeteries," the incomes of Is the YMCA an educational institution within the purview of
which are, from whatever source, all tax-exempt; 27 and (2) Article XIV, Section 4, par. 3 of the Constitution? We rule
"[a]ll lands, buildings and improvements actually and directly that it is not. The term "educational institution" or "institution
used for religious, charitable or educational purposes," which of learning" has acquired a well-known technical meaning, of
are exempt only from property taxes. 28 Second, Lladoc v. which the members of the Constitutional Commission are
Commissioner of Internal Revenue, 29 which limited the deemed cognizant. 38 Under the Education Act of 1982, such
exemption only to the payment of property taxes, referred to term refers to schools. 39 The school system is synonymous
the provision of the 1935 Constitution and not to its with formal education, 40 which "refers to the hierarchically
counterparts in the 1973 and the 1987 Constitutions. 30 Third, structured and chronologically graded learnings organized and
the phrase "actually, directly and exclusively used for provided by the formal school system and for which
religious, charitable or educational purposes" refers not only certification is required in order for the learner to progress
to "all lands, buildings and improvements," but also to the through the grades or move to the higher levels." 41 The Court
above-quoted first category which includes charitable has examined the "Amended Articles of Incorporation" and
institutions like the private respondent. 31 "By-Laws" 43 of the YMCA, but found nothing in them that
even hints that it is a school or an educational institution. 44
The Court is not persuaded. The debates, interpellations and Furthermore, under the Education Act of 1982, even non-
expressions of opinion of the framers of the Constitution formal education is understood to be school-based and
reveal their intent which, in turn, may have guided the people "private auspices such as foundations and civic-spirited
in ratifying the Charter. 32 Such intent must be effectuated. organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax
Accordingly, Justice Hilario G. Davide, Jr., a former exemptions, refers to a ". . . school seminary, college or
constitutional commissioner, who is now a member of this educational establishment . . . ." 46 Therefore, the private
Court, stressed during the Concom debates that ". . . what is respondent cannot be deemed one of the educational
exempted is not the institution itself . . .; those exempted from institutions covered by the constitutional provision under
real estate taxes are lands, buildings and improvements consideration.
actually, directly and exclusively used for religious, charitable ..
or educational . Words used in the Constitution are to be
purposes." 33 Father Joaquin G. Bernas, an eminent authority taken in their ordinary acceptation. While in
on the Constitution and also a member of the Concom, its broadest and best sense education
adhered to the same view that the exemption created by said embraces all forms and phases of
provision pertained only to property taxes. 34 instruction, improvement and development
of mind and body, and as well of religious
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, and moral sentiments, yet in the common
stating that "[t]he tax exemption covers property taxes understanding and application it means a
96
place where systematic instruction in any or prerogative belongs to the political departments of
all of the useful branches of learning is government. Indeed, some of the members of the Court may
given by methods common to schools and even believe in the wisdom and prudence of granting more tax
institutions of learning. That we conceive to exemptions to private respondent. But such belief, however
be the true intent and scope of the term well-meaning and sincere, cannot bestow upon the Court the
[educational institutions,] as used in the power to change or amend the law.
Constitution. 47
WHEREFORE, the petition is GRANTED. The Resolutions of
Moreover, without conceding that Private Respondent YMCA the Court of Appeals dated September 28, 1995 and February
is an educational institution, the Court also notes that the 29, 1996 are hereby REVERSED and SET ASIDE. The
former did not submit proof of the proportionate amount of the Decision of the Court of Appeals dated February 16, 1995 is
subject income that was actually, directly and exclusively used REINSTATED, insofar as it ruled that the income derived by
for educational purposes. Article XIII, Section 5 of the YMCA petitioner from rentals of its real property is subject to income
by-laws, which formed part of the evidence submitted, is tax. No pronouncement as to costs.
patently insufficient, since the same merely signified that
"[t]he net income derived from the rentals of the commercial SO ORDERED.
buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum, we G.R. No. 195909 September 26, 2012
find no basis for granting the YMCA exemption from income COMMISSIONER OF INTERNAL
tax under the constitutional provision invoked. REVENUE, PETITIONER,
vs.
Cases Cited by Private ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
Respondent Inapplicable x-----------------------x
G.R. No. 195960
The cases 49 relied on by private respondent do not support its ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
cause. YMCA of Manila v. Collector of Internal vs.
Revenue 50and Abra Valley College, Inc. v. Aquino 51 are not COMMISSIONER OF INTERNAL
applicable, because the controversy in both cases involved REVENUE, RESPONDENT.
exemption from the payment of property tax, not income DECISION
tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not CARPIO, J.:
in point either, because it involves a claim for exemption from The Case
the payment of regulatory fees, specifically electrical
inspection fees, imposed by an ordinance of Pasay City an
issue not at all related to that involved in a claimed exemption These are consolidated 1 petitions for review on certiorari
from the payment of income taxes imposed on property leases. under Rule 45 of the Rules of Court assailing the Decision of
In Jesus Sacred Heart College v. Com. of Internal 19 November 2010 of the Court of Tax Appeals (CTA) En
Revenue, 53 the party therein, which claimed an exemption Banc and its Resolution 2 of 1 March 2011 in CTA Case No.
from the payment of income tax, was an educational 6746. This Court resolves this case on a pure question of law,
institution which submitted substantial evidence that the which involves the interpretation of Section 27(B) vis--vis
income subject of the controversy had been devoted or used Section 30(E) and (G) of the National Internal Revenue Code
solely for educational purposes. On the other hand, the private of the Philippines (NIRC), on the income tax treatment of
respondent in the present case has not given any proof that it is proprietary non-profit hospitals.
an educational institution, or that part of its rent income is The Facts
actually, directly and exclusively used for educational
purposes. St. Luke's Medical Center, Inc. (St. Luke's) is a hospital
organized as a non-stock and non-profit corporation. Under its
Epilogue articles of incorporation, among its corporate purposes are:
In deliberating on this petition, the Court expresses its (a) To establish, equip, operate and maintain a non-
sympathy with private respondent. It appreciates the nobility stock, non-profit Christian, benevolent, charitable
of its cause. However, the Court's power and function are and scientific hospital which shall give curative,
limited merely to applying the law fairly and objectively. It rehabilitative and spiritual care to the sick, diseased
cannot change the law or bend it to suit its sympathies and and disabled persons; provided that purely medical
appreciations. Otherwise, it would be overspilling its role and and surgical services shall be performed by duly
invading the realm of legislation. licensed physicians and surgeons who may be freely
and individually contracted by patients;
We concede that private respondent deserves the help and the (b) To provide a career of health science education
encouragement of the government. It needs laws that can and provide medical services to the community
facilitate, and not frustrate, its humanitarian tasks. But the through organized clinics in such specialties as the
Court regrets that, given its limited constitutional authority, it facilities and resources of the corporation make
cannot rule on the wisdom or propriety of legislation. That possible;
97
(c) To carry on educational activities related to the applies to St. Luke's. The petition raises the sole issue of
maintenance and promotion of health as well as whether the enactment of Section 27(B) takes proprietary non-
provide facilities for scientific and medical profit hospitals out of the income tax exemption under Section
researches which, in the opinion of the Board of 30 of the NIRC and instead, imposes a preferential rate of
Trustees, may be justified by the facilities, personnel, 10% on their taxable income. The BIR prays that St. Luke's be
funds, or other requirements that are available; ordered to pay P57,659,981.19 as deficiency income and
(d) To cooperate with organized medical societies, expanded withholding tax for 1998 with surcharges and
agencies of both government and private sector; interest for late payment.
establish rules and regulations consistent with the
highest professional ethics; The petition of St. Luke's in G.R. No. 195960 raises factual
xxxx3 matters on the treatment and withholding of a part of its
income, 9 as well as the payment of surcharge and delinquency
On 16 December 2002, the Bureau of Internal Revenue (BIR) interest. There is no ground for this Court to undertake such a
assessed St. Luke's deficiency taxes amounting factual review. Under the Constitution 10 and the Rules of
to P76,063,116.06 for 1998, comprised of deficiency income Court, 11 this Court's review power is generally limited to
tax, value-added tax, withholding tax on compensation and "cases in which only an error or question of law is
expanded withholding tax. The BIR reduced the amount involved." 12 This Court cannot depart from this limitation if a
to P63,935,351.57 during trial in the First Division of the party fails to invoke a recognized exception.
CTA. 4
The Ruling of the Court of Tax Appeals
On 14 January 2003, St. Luke's filed an administrative protest The CTA En Banc Decision on 19 November 2010 affirmed
with the BIR against the deficiency tax assessments. The BIR in toto the CTA First Division Decision dated 23 February
did not act on the protest within the 180-day period under 2009 which held:
Section 228 of the NIRC. Thus, St. Luke's appealed to the
CTA. WHEREFORE, the Amended Petition for Review [by St.
Luke's] is hereby PARTIALLY GRANTED. Accordingly, the
The BIR argued before the CTA that Section 27(B) of the 1998 deficiency VAT assessment issued by respondent against
NIRC, which imposes a 10% preferential tax rate on the petitioner in the amount of P110,000.00 is hereby
income of proprietary non-profit hospitals, should be CANCELLED and WITHDRAWN. However, petitioner is
applicable to St. Luke's. According to the BIR, Section 27(B), hereby ORDERED to PAY deficiency income tax and
introduced in 1997, "is a new provision intended to amend the deficiency expanded withholding tax for the taxable year 1998
exemption on non-profit hospitals that were previously in the respective amounts of P5,496,963.54 and P778,406.84
categorized as non-stock, non-profit corporations under or in the sum of P6,275,370.38, x x x.
Section 26 of the 1997 Tax Code x x x." 5 It is a specific
provision which prevails over the general exemption on xxxx
income tax granted under Section 30(E) and (G) for non-stock, In addition, petitioner is hereby ORDERED to PAY twenty
non-profit charitable institutions and civic organizations percent (20%) delinquency interest on the total amount
promoting social welfare. 6 of P6,275,370.38 counted from October 15, 2003 until full
payment thereof, pursuant to Section 249(C)(3) of the NIRC
The BIR claimed that St. Luke's was actually operating for of 1997.
profit in 1998 because only 13% of its revenues came from
charitable purposes. Moreover, the hospital's board of trustees,
officers and employees directly benefit from its profits and SO ORDERED. 13
assets. St. Luke's had total revenues of P1,730,367,965 or The deficiency income tax of P5,496,963.54, ordered by the
approximately P1.73 billion from patient services in 1998. 7 CTA En Banc to be paid, arose from the failure of St. Luke's
to prove that part of its income in 1998 (declared as "Other
St. Luke's contended that the BIR should not consider its total Income-Net") 14 came from charitable activities. The CTA
revenues, because its free services to patients cancelled the remainder of the P63,113,952.79 deficiency
was P218,187,498 or 65.20% of its 1998 operating income assessed by the BIR based on the 10% tax rate under Section
(i.e., total revenues less operating expenses) 27(B) of the NIRC, which the CTA En Banc held was not
of P334,642,615. 8 St. Luke's also claimed that its income does applicable to St. Luke's. 15
not inure to the benefit of any individual.
The CTA ruled that St. Luke's is a non-stock and non-profit
St. Luke's maintained that it is a non-stock and non-profit charitable institution covered by Section 30(E) and (G) of the
institution for charitable and social welfare purposes under NIRC. This ruling would exempt all income derived by St.
Section 30(E) and (G) of the NIRC. It argued that the making Luke's from services to its patients, whether paying or non-
of profit per se does not destroy its income tax exemption. paying. The CTA reiterated its earlier decision in St. Luke's
Medical Center, Inc. v. Commissioner of Internal
The petition of the BIR before this Court in G.R. No. 195909 Revenue, 16 which examined the primary purposes of St.
reiterates its arguments before the CTA that Section 27(B)
98
Luke's under its articles of incorporation and various This Court does not see how the CTA overlooked relevant
documents 17 identifying St. Luke's as a charitable institution. facts. St. Luke's itself stated that the CTA "disregarded the
The CTA adopted the test in Hospital de San Juan de Dios, testimony of [its] witness, Romeo B. Mary, being allegedly
Inc. v. Pasay City, 18 which states that "a charitable institution self-serving, to show the nature of the 'Other Income-Net' x x
does not lose its charitable character and its consequent x." 28 This is not a case of overlooking or failing to consider
exemption from taxation merely because recipients of its relevant evidence. The CTA obviously considered the
benefits who are able to pay are required to do so, where funds evidence and concluded that it is self-serving. The CTA
derived in this manner are devoted to the charitable purposes declared that it has "gone through the records of this case and
of the institution x x x." 19 The generation of income from found no other evidence aside from the self-serving affidavit
paying patients does not per se destroy the charitable nature of executed by [the] witnesses [of St. Luke's] x x x." 29
St. Luke's. The deficiency tax on "Other Income-Net" stands. Thus, St.
Luke's is liable to pay the 25% surcharge under Section
Hospital de San Juan cited Jesus Sacred Heart College v. 248(A)(3) of the NIRC. There is "[f]ailure to pay the
Collector of Internal Revenue, 20 which ruled that the old deficiency tax within the time prescribed for its payment in the
NIRC (Commonwealth Act No. 466, as notice of assessment[.]" 30 St. Luke's is also liable to pay 20%
amended) 21 "positively exempts from taxation those delinquency interest under Section 249(C)(3) of the
corporations or associations which, otherwise, would be NIRC. 31 As explained by the CTA En Banc, the amount
subject thereto, because of the existence of x x x net of P6,275,370.38 in the dispositive portion of the CTA First
income." 22 The NIRC of 1997 substantially reproduces the Division Decision includes only deficiency interest under
provision on charitable institutions of the old NIRC. Thus, in Section 249(A) and (B) of the NIRC and not delinquency
rejecting the argument that tax exemption is lost whenever interest. 32
there is net income, the Court in Jesus Sacred Heart College
declared: "[E]very responsible organization must be run to at The Main Issue
least insure its existence, by operating within the limits of its The issue raised by the BIR is a purely legal one. It involves
own resources, especially its regular income. In other words, it the effect of the introduction of Section 27(B) in the NIRC of
should always strive, whenever possible, to have a surplus." 23 1997 vis--vis Section 30(E) and (G) on the income tax
The CTA held that Section 27(B) of the present NIRC does exemption of charitable and social welfare institutions. The
not apply to St. Luke's. 24 The CTA explained that to apply the 10% income tax rate under Section 27(B) specifically pertains
10% preferential rate, Section 27(B) requires a hospital to be to proprietary educational institutions and proprietary non-
"non-profit." On the other hand, Congress specifically used the profit hospitals. The BIR argues that Congress intended to
word "non-stock" to qualify a charitable "corporation or remove the exemption that non-profit hospitals previously
association" in Section 30(E) of the NIRC. According to the enjoyed under Section 27(E) of the NIRC of 1977, which is
CTA, this is unique in the present tax code, indicating an now substantially reproduced in Section 30(E) of the NIRC of
intent to exempt this type of charitable organization from 1997. 33 Section 27(B) of the present NIRC provides:
income tax. Section 27(B) does not require that the hospital be
"non-stock." The CTA stated, "it is clear that non-stock, non- SEC. 27. Rates of Income Tax on Domestic Corporations. -
profit hospitals operated exclusively for charitable purpose are xxxx
exempt from income tax on income received by them as such, (B) Proprietary Educational Institutions and Hospitals. -
applying the provision of Section 30(E) of the NIRC of 1997, Proprietary educational institutions and hospitals which are
as amended." 25 non-profit shall pay a tax of ten percent (10%) on their taxable
income except those covered by Subsection (D) hereof:
The Issue Provided, That if the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the
The sole issue is whether St. Luke's is liable for deficiency total gross income derived by such educational institutions or
income tax in 1998 under Section 27(B) of the NIRC, which hospitals from all sources, the tax prescribed in Subsection (A)
imposes a preferential tax rate of 10% on the income of hereof shall be imposed on the entire taxable income. For
proprietary non-profit hospitals. purposes of this Subsection, the term 'unrelated trade, business
or other activity' means any trade, business or other activity,
The Ruling of the Court the conduct of which is not substantially related to the exercise
St. Luke's Petition in G.R. No. 195960 or performance by such educational institution or hospital of
As a preliminary matter, this Court denies the petition of St. its primary purpose or function. A 'proprietary educational
Luke's in G.R. No. 195960 because the petition raises factual institution' is any private school maintained and administered
issues. Under Section 1, Rule 45 of the Rules of Court, "[t]he by private individuals or groups with an issued permit to
petition shall raise only questions of law which must be operate from the Department of Education, Culture and Sports
distinctly set forth." St. Luke's cites Martinez v. Court of (DECS), or the Commission on Higher Education (CHED), or
Appeals 26 which permits factual review "when the Court of the Technical Education and Skills Development Authority
Appeals [in this case, the CTA] manifestly overlooked certain (TESDA), as the case may be, in accordance with existing
relevant facts not disputed by the parties and which, if laws and regulations. (Emphasis supplied)
properly considered, would justify a different conclusion." 27

99
St. Luke's claims tax exemption under Section 30(E) and (G) devoted to the institution's purposes and all its activities
of the NIRC. It contends that it is a charitable institution and conducted not for profit.
an organization promoting social welfare. The arguments of
St. Luke's focus on the wording of Section 30(E) exempting "Non-profit" does not necessarily mean "charitable." In
from income tax non-stock, non-profit charitable Collector of Internal Revenue v. Club Filipino Inc. de
institutions. 34 St. Luke's asserts that the legislative intent of Cebu, 37 this Court considered as non-profit a sports club
introducing Section 27(B) was only to remove the exemption organized for recreation and entertainment of its stockholders
for "proprietary non-profit" hospitals. 35 The relevant and members. The club was primarily funded by membership
provisions of Section 30 state: fees and dues. If it had profits, they were used for overhead
expenses and improving its golf course. 38 The club was non-
SEC. 30. Exemptions from Tax on Corporations. - The profit because of its purpose and there was no evidence that it
following organizations shall not be taxed under this Title in was engaged in a profit-making enterprise. 39
respect to income received by them as such:
xxxx The sports club in Club Filipino Inc. de Cebu may be non-
profit, but it was not charitable. The Court defined "charity" in
(E) Nonstock corporation or association organized and Lung Center of the Philippines v. Quezon City 40 as "a gift, to
operated exclusively for religious, charitable, scientific, be applied consistently with existing laws, for the benefit of an
athletic, or cultural purposes, or for the rehabilitation of indefinite number of persons, either by bringing their minds
veterans, no part of its net income or asset shall belong to or and hearts under the influence of education or religion, by
inure to the benefit of any member, organizer, officer or any assisting them to establish themselves in life or [by] otherwise
specific person; lessening the burden of government." 41 A non-profit club for
the benefit of its members fails this test. An organization may
xxxx be considered as non-profit if it does not distribute any part of
(G) Civic league or organization not organized for profit but its income to stockholders or members. However, despite its
operated exclusively for the promotion of social welfare; being a tax exempt institution, any income such institution
xxxx earns from activities conducted for profit is taxable, as
expressly provided in the last paragraph of Section 30.
Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing To be a charitable institution, however, an organization must
organizations from any of their properties, real or personal, or meet the substantive test of charity in Lung Center. The issue
from any of their activities conducted for profit regardless of in Lung Center concerns exemption from real property tax and
the disposition made of such income, shall be subject to tax not income tax. However, it provides for the test of charity in
imposed under this Code. (Emphasis supplied) our jurisdiction. Charity is essentially a gift to an indefinite
number of persons which lessens the burden of government. In
The Court partly grants the petition of the BIR but on a other words, charitable institutions provide for free goods and
different ground. We hold that Section 27(B) of the NIRC services to the public which would otherwise fall on the
does not remove the income tax exemption of proprietary non- shoulders of government. Thus, as a matter of efficiency, the
profit hospitals under Section 30(E) and (G). Section 27(B) on government forgoes taxes which should have been spent to
one hand, and Section 30(E) and (G) on the other hand, can be address public needs, because certain private entities already
construed together without the removal of such tax exemption. assume a part of the burden. This is the rationale for the tax
The effect of the introduction of Section 27(B) is to subject the exemption of charitable institutions. The loss of taxes by the
taxable income of two specific institutions, namely, government is compensated by its relief from doing public
proprietary non-profit educational institutions 36 and works which would have been funded by appropriations from
proprietary non-profit hospitals, among the institutions the Treasury. 42
covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate Charitable institutions, however, are not ipso facto entitled to a
under the last paragraph of Section 30 in relation to Section tax exemption. The requirements for a tax exemption are
27(A)(1). specified by the law granting it. The power of Congress to tax
implies the power to exempt from tax. Congress can create tax
Section 27(B) of the NIRC imposes a 10% preferential tax rate exemptions, subject to the constitutional provision that "[n]o
on the income of (1) proprietary non-profit educational law granting any tax exemption shall be passed without the
institutions and (2) proprietary non-profit hospitals. The only concurrence of a majority of all the Members of
qualifications for hospitals are that they must be proprietary Congress." 43 The requirements for a tax exemption are strictly
and non-profit. "Proprietary" means private, following the construed against the taxpayer 44 because an exemption
definition of a "proprietary educational institution" as "any restricts the collection of taxes necessary for the existence of
private school maintained and administered by private the government.
individuals or groups" with a government permit. "Non-profit"
means no net income or asset accrues to or benefits any The Court in Lung Center declared that the Lung Center of the
member or specific person, with all the net income or asset Philippines is a charitable institution for the purpose of
exemption from real property taxes. This ruling uses the same
100
premise as Hospital de San Juan 45 and Jesus Sacred Heart "obtain[ed] as an incident to its operations shall, whenever
College 46 which says that receiving income from paying necessary or proper, be used for the furtherance of the purpose
patients does not destroy the charitable nature of a hospital. or purposes for which the corporation was
As a general principle, a charitable institution does not lose its organized." 50 However, under Lung Center, any profit by a
character as such and its exemption from taxes simply because charitable institution must not only be plowed back "whenever
it derives income from paying patients, whether out-patient, or necessary or proper," but must be "devoted or used altogether
confined in the hospital, or receives subsidies from the to the charitable object which it is intended to achieve." 51
government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to The operations of the charitable institution generally refer to
achieve; and no money inures to the private benefit of the its regular activities. Section 30(E) of the NIRC requires that
persons managing or operating the institution. 47 these operations be exclusive to charity. There is also a
specific requirement that "no part of [the] net income or asset
For real property taxes, the incidental generation of income is shall belong to or inure to the benefit of any member,
permissible because the test of exemption is the use of the organizer, officer or any specific person." The use of lands,
property. The Constitution provides that "[c]haritable buildings and improvements of the institution is but a part of
institutions, churches and personages or convents appurtenant its operations.
thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and There is no dispute that St. Luke's is organized as a non-stock
exclusively used for religious, charitable, or educational and non-profit charitable institution. However, this does not
purposes shall be exempt from taxation." 48 The test of automatically exempt St. Luke's from paying taxes. This only
exemption is not strictly a requirement on the intrinsic nature refers to the organization of St. Luke's. Even if St. Luke's
or character of the institution. The test requires that the meets the test of charity, a charitable institution is not ipso
institution use the property in a certain way, i.e. for a facto tax exempt. To be exempt from real property taxes,
charitable purpose. Thus, the Court held that the Lung Center Section 28(3), Article VI of the Constitution requires that a
of the Philippines did not lose its charitable character when it charitable institution use the property "actually, directly and
used a portion of its lot for commercial purposes. The effect of exclusively" for charitable purposes. To be exempt from
failing to meet the use requirement is simply to remove from income taxes, Section 30(E) of the NIRC requires that a
the tax exemption that portion of the property not devoted to charitable institution must be "organized and operated
charity. exclusively" for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that
The Constitution exempts charitable institutions only from real the institution be "operated exclusively" for social welfare.
property taxes. In the NIRC, Congress decided to extend the However, the last paragraph of Section 30 of the NIRC
exemption to income taxes. However, the way Congress qualifies the words "organized and operated exclusively" by
crafted Section 30(E) of the NIRC is materially different from providing that:
Section 28(3), Article VI of the Constitution. Section 30(E) of
the NIRC defines the corporation or association that is exempt Notwithstanding the provisions in the preceding paragraphs,
from income tax. On the other hand, Section 28(3), Article VI the income of whatever kind and character of the foregoing
of the Constitution does not define a charitable institution, but organizations from any of their properties, real or personal, or
requires that the institution "actually, directly and exclusively" from any of their activities conducted for profit regardless of
use the property for a charitable purpose. the disposition made of such income, shall be subject to tax
imposed under this Code. (Emphasis supplied)
Section 30(E) of the NIRC provides that a charitable
institution must be: In short, the last paragraph of Section 30 provides that if a tax
exempt charitable institution conducts "any" activity for profit,
(1) A non-stock corporation or association; such activity is not tax exempt even as its not-for-profit
(2) Organized exclusively for charitable purposes; activities remain tax exempt. This paragraph qualifies the
(3) Operated exclusively for charitable purposes; and requirements in Section 30(E) that the "[n]on-stock
(4) No part of its net income or asset shall belong to corporation or association [must be] organized and operated
or inure to the benefit of any member, organizer, exclusively for x x x charitable x x x purposes x x x." It
officer or any specific person. likewise qualifies the requirement in Section 30(G) that the
civic organization must be "operated exclusively" for the
Thus, both the organization and operations of the charitable promotion of social welfare.
institution must be devoted "exclusively" for charitable
purposes. The organization of the institution refers to its Thus, even if the charitable institution must be "organized and
corporate form, as shown by its articles of incorporation, by- operated exclusively" for charitable purposes, it is
laws and other constitutive documents. Section 30(E) of the nevertheless allowed to engage in "activities conducted for
NIRC specifically requires that the corporation or association profit" without losing its tax exempt status for its not-for-
be non-stock, which is defined by the Corporation Code as profit activities. The only consequence is that the "income of
"one where no part of its income is distributable as dividends whatever kind and character" of a charitable institution "from
to its members, trustees, or officers" 49 and that any profit any of its activities conducted for profit, regardless of the
101
disposition made of such income, shall be subject to tax." The Court cannot expand the meaning of the words "operated
Prior to the introduction of Section 27(B), the tax rate on such exclusively" without violating the NIRC. Services to paying
income from for-profit activities was the ordinary corporate patients are activities conducted for profit. They cannot be
rate under Section 27(A). With the introduction of Section considered any other way. There is a "purpose to make profit
27(B), the tax rate is now 10%. over and above the cost" of services. 55 The P1.73 billion total
revenues from paying patients is not even incidental to St.
In 1998, St. Luke's had total revenues of P1,730,367,965 from Luke's charity expenditure of P218,187,498 for non-paying
services to paying patients. It cannot be disputed that a patients.
hospital which receives approximately P1.73 billion from
paying patients is not an institution "operated exclusively" for St. Luke's claims that its charity expenditure of P218,187,498
charitable purposes. Clearly, revenues from paying patients is 65.20% of its operating income in 1998. However, if a part
are income received from "activities conducted for of the remaining 34.80% of the operating income is reinvested
profit." 52 Indeed, St. Luke's admits that it derived profits from in property, equipment or facilities used for services to paying
its paying patients. St. Luke's declared P1,730,367,965 as and non-paying patients, then it cannot be said that the income
"Revenues from Services to Patients" in contrast to its "Free is "devoted or used altogether to the charitable object which it
Services" expenditure of P218,187,498. In its Comment in is intended to achieve." 56 The income is plowed back to the
G.R. No. 195909, St. Luke's showed the following corporation not entirely for charitable purposes, but for profit
"calculation" to support its claim that 65.20% of its "income as well. In any case, the last paragraph of Section 30 of the
after expenses was allocated to free or charitable services" in NIRC expressly qualifies that income from activities for profit
1998. 53 is taxable "regardless of the disposition made of such income."
Jesus Sacred Heart College declared that there is no official
legislative record explaining the phrase "any activity
REVENUES FROM P1,730,367,965.00
conducted for profit." However, it quoted a deposition of
SERVICES TO PATIENTS
Senator Mariano Jesus Cuenco, who was a member of the
Committee of Conference for the Senate, which introduced the
OPERATING EXPENSES phrase "or from any activity conducted for profit."

Professional care of patients P1,016,608,394.00 P. Cuando ha hablado de la Universidad de Santo Toms que
tiene un hospital, no cree Vd. que es una actividad esencial
Administrative 287,319,334.00 dicho hospital para el funcionamiento del colegio de medicina
Household and Property 91,797,622.00 de dicha universidad?

P1,395,725,350.00 xxxx
R. Si el hospital se limita a recibir enformos pobres, mi
contestacin seria afirmativa; pero considerando que el
INCOME FROM P334,642,615.00 100% hospital tiene cuartos de pago, y a los mismos generalmente
OPERATIONS van enfermos de buena posicin social econmica, lo que se
paga por estos enfermos debe estar sujeto a 'income tax', y es
Free Services -218,187,498.00 -
una de las razones que hemos tenido para insertar las palabras
65.20%
o frase 'or from any activity conducted for profit.' 57
INCOME FROM P116,455,117.00 34.80%
OPERATIONS, Net of FREE The question was whether having a hospital is essential to an
SERVICES educational institution like the College of Medicine of the
University of Santo Tomas. Senator Cuenco answered that if
the hospital has paid rooms generally occupied by people of
OTHER INCOME 17,482,304.00 good economic standing, then it should be subject to income
tax. He said that this was one of the reasons Congress inserted
EXCESS OF REVENUES P133,937,421.00 the phrase "or any activity conducted for profit."
OVER EXPENSES
The question in Jesus Sacred Heart College involves an
educational institution. 58 However, it is applicable to
In Lung Center, this Court declared: charitable institutions because Senator Cuenco's response
shows an intent to focus on the activities of charitable
"[e]xclusive" is defined as possessed and enjoyed to the institutions. Activities for profit should not escape the reach of
exclusion of others; debarred from participation or enjoyment; taxation. Being a non-stock and non-profit corporation does
and "exclusively" is defined, "in a manner to exclude; as not, by this reason alone, completely exempt an institution
enjoying a privilege exclusively." x x x The words "dominant from tax. An institution cannot use its corporate form to
use" or "principal use" cannot be substituted for the words prevent its profitable activities from being taxed.
"used exclusively" without doing violence to the Constitution
and the law. Solely is synonymous with exclusively. 54
102
The Court finds that St. Luke's is a corporation that is not The petition of St. Luke's Medical Center, Inc. in G.R. No.
"operated exclusively" for charitable or social welfare 195960 is DENIED for violating Section 1, Rule 45 of the
purposes insofar as its revenues from paying patients are Rules of Court.
concerned. This ruling is based not only on a strict SO ORDERED.
interpretation of a provision granting tax exemption, but also
on the clear and plain text of Section 30(E) and (G). Section G.R. No. 144104 June 29, 2004
30(E) and (G) of the NIRC requires that an institution be LUNG CENTER OF THE PHILIPPINES, petitioner,
"operated exclusively" for charitable or social welfare vs.
purposes to be completely exempt from income tax. An QUEZON CITY and CONSTANTINO P. ROSAS, in his
institution under Section 30(E) or (G) does not lose its tax capacity as City Assessor of Quezon City, respondents.
exemption if it earns income from its for-profit activities. Such DECISION
income from for-profit activities, under the last paragraph of CALLEJO, SR., J.:
Section 30, is merely subject to income tax, previously at the
ordinary corporate rate but now at the preferential 10% rate This is a petition for review on certiorari under Rule 45 of the
pursuant to Section 27(B). Rules of Court, as amended, of the Decision1 dated July 17,
2000 of the Court of Appeals in CA-G.R. SP No. 57014 which
A tax exemption is effectively a social subsidy granted by the affirmed the decision of the Central Board of Assessment
State because an exempt institution is spared from sharing in Appeals holding that the lot owned by the petitioner and its
the expenses of government and yet benefits from them. Tax hospital building constructed thereon are subject to assessment
exemptions for charitable institutions should therefore be for purposes of real property tax.
limited to institutions beneficial to the public and those which
improve social welfare. A profit-making entity should not be The Antecedents
allowed to exploit this subsidy to the detriment of the
government and other taxpayers.1wphi1 The petitioner Lung Center of the Philippines is a non-stock
and non-profit entity established on January 16, 1981 by virtue
St. Luke's fails to meet the requirements under Section 30(E) of Presidential Decree No. 1823.2 It is the registered owner of
and (G) of the NIRC to be completely tax exempt from all its a parcel of land, particularly described as Lot No. RP-3-B-3A-
income. However, it remains a proprietary non-profit hospital 1-B-1, SWO-04-000495, located at Quezon Avenue corner
under Section 27(B) of the NIRC as long as it does not Elliptical Road, Central District, Quezon City. The lot has an
distribute any of its profits to its members and such profits are area of 121,463 square meters and is covered by Transfer
reinvested pursuant to its corporate purposes. St. Luke's, as a Certificate of Title (TCT) No. 261320 of the Registry of
proprietary non-profit hospital, is entitled to the preferential Deeds of Quezon City. Erected in the middle of the aforesaid
tax rate of 10% on its net income from its for-profit activities. lot is a hospital known as the Lung Center of the Philippines.
St. Luke's is therefore liable for deficiency income tax in 1998 A big space at the ground floor is being leased to private
under Section 27(B) of the NIRC. However, St. Luke's has parties, for canteen and small store spaces, and to medical or
good reasons to rely on the letter dated 6 June 1990 by the professional practitioners who use the same as their private
BIR, which opined that St. Luke's is "a corporation for purely clinics for their patients whom they charge for their
charitable and social welfare purposes"59 and thus exempt professional services. Almost one-half of the entire area on the
from income tax. 60 In Michael J. Lhuillier, Inc. v. left side of the building along Quezon Avenue is vacant and
Commissioner of Internal Revenue, 61 the Court said that idle, while a big portion on the right side, at the corner of
"good faith and honest belief that one is not subject to tax on Quezon Avenue and Elliptical Road, is being leased for
the basis of previous interpretation of government agencies commercial purposes to a private enterprise known as the
tasked to implement the tax law, are sufficient justification to Elliptical Orchids and Garden Center.
delete the imposition of surcharges and interest." 62
The petitioner accepts paying and non-paying patients. It also
WHEREFORE, the petition of the Commissioner of Internal renders medical services to out-patients, both paying and non-
Revenue in G.R. No. 195909 is PARTLY GRANTED. The paying. Aside from its income from paying patients, the
Decision of the Court of Tax Appeals En Banc dated 19 petitioner receives annual subsidies from the government.
November 2010 and its Resolution dated 1 March 2011 in
CTA Case No. 6746 are MODIFIED. St. Luke's Medical On June 7, 1993, both the land and the hospital building of the
Center, Inc. is ORDERED TO PAY the deficiency income tax petitioner were assessed for real property taxes in the amount
in 1998 based on the 10% preferential income tax rate under of P4,554,860 by the City Assessor of Quezon
Section 27(B) of the National Internal Revenue Code. City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-
However, it is not liable for surcharges and interest on such 2518) and C-021-01231 (15-2518-A) were issued for the land
deficiency income tax under Sections 248 and 249 of the and the hospital building, respectively.4 On August 25, 1993,
National Internal Revenue Code. All other parts of the the petitioner filed a Claim for Exemption5 from real property
Decision and Resolution of the Court of Tax Appeals are taxes with the City Assessor, predicated on its claim that it is a
AFFIRMED. charitable institution. The petitioners request was denied, and
a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity)
103
for the reversal of the resolution of the City Assessor. The In their comment on the petition, the respondents aver that the
petitioner alleged that under Section 28, paragraph 3 of the petitioner is not a charitable entity. The petitioners real
1987 Constitution, the property is exempt from real property property is not exempt from the payment of real estate taxes
taxes. It averred that a minimum of 60% of its hospital beds under P.D. No. 1823 and even under the 1987 Constitution
are exclusively used for charity patients and that the major because it failed to prove that it is a charitable institution and
thrust of its hospital operation is to serve charity patients. The that the said property is actually, directly and exclusively used
petitioner contends that it is a charitable institution and, as for charitable purposes. The respondents noted that in a
such, is exempt from real property taxes. The QC-LBAA newspaper report, it appears that graft charges were filed with
rendered judgment dismissing the petition and holding the the Sandiganbayan against the director of the petitioner, its
petitioner liable for real property taxes.6 administrative officer, and Zenaida Rivera, the proprietress of
the Elliptical Orchids and Garden Center, for entering into a
The QC-LBAAs decision was, likewise, affirmed on appeal lease contract over 7,663.13 square meters of the property in
by the Central Board of Assessment Appeals of Quezon City 1990 for only P20,000 a month, when the monthly rental
(CBAA, for brevity)7 which ruled that the petitioner was not a should be P357,000 a month as determined by the
charitable institution and that its real properties were not Commission on Audit; and that instead of complying with the
actually, directly and exclusively used for charitable purposes; directive of the COA for the cancellation of the contract for
hence, it was not entitled to real property tax exemption under being grossly prejudicial to the government, the petitioner
the constitution and the law. The petitioner sought relief from renewed the same on March 13, 1995 for a monthly rental of
the Court of Appeals, which rendered judgment affirming the only P24,000. They assert that the petitioner uses the subsidies
decision of the CBAA.8 granted by the government for charity patients and uses the
rest of its income from the property for the benefit of paying
Undaunted, the petitioner filed its petition in this Court patients, among other purposes. They aver that the petitioner
contending that: failed to adduce substantial evidence that 100% of its out-
patients and 170 beds in the hospital are reserved for indigent
A. THE COURT A QUO ERRED IN DECLARING patients. The respondents further assert, thus:
PETITIONER AS NOT ENTITLED TO REALTY
TAX EXEMPTIONS ON THE GROUND THAT 13. That the claims/allegations of the Petitioner LCP
ITS LAND, BUILDING AND IMPROVEMENTS, do not speak well of its record of service. That before
SUBJECT OF ASSESSMENT, ARE NOT a patient is admitted for treatment in the Center, first
ACTUALLY, DIRECTLY AND EXCLUSIVELY impression is that it is pay-patient and required to pay
DEVOTED FOR CHARITABLE PURPOSES. a certain amount as deposit. That even if a patient is
B. WHILE PETITIONER IS NOT DECLARED AS living below the poverty line, he is charged with high
REAL PROPERTY TAX EXEMPT UNDER ITS hospital bills. And, without these bills being first
CHARTER, PD 1823, SAID EXEMPTION MAY settled, the poor patient cannot be allowed to leave
NEVERTHELESS BE EXTENDED UPON the hospital or be discharged without first paying the
PROPER APPLICATION. hospital bills or issue a promissory note guaranteed
and indorsed by an influential agency or person
The petitioner avers that it is a charitable institution within the known only to the Center; that even the remains of
context of Section 28(3), Article VI of the 1987 Constitution. deceased poor patients suffered the same fate.
It asserts that its character as a charitable institution is not Moreover, before a patient is admitted for treatment
altered by the fact that it admits paying patients and renders as free or charity patient, one must undergo a series
medical services to them, leases portions of the land to private of interviews and must submit all the requirements
parties, and rents out portions of the hospital to private needed by the Center, usually accompanied by
medical practitioners from which it derives income to be used endorsement by an influential agency or person
for operational expenses. The petitioner points out that for the known only to the Center. These facts were heard and
years 1995 to 1999, 100% of its out-patients were charity admitted by the Petitioner LCP during the hearings
patients and of the hospitals 282-bed capacity, 60% thereof, before the Honorable QC-BAA and Honorable
or 170 beds, is allotted to charity patients. It asserts that the CBAA. These are the reasons of indigent patients,
fact that it receives subsidies from the government attests to its instead of seeking treatment with the Center, they
character as a charitable institution. It contends that the prefer to be treated at the Quezon Institute. Can
"exclusivity" required in the Constitution does not necessarily such practice by the Center be called charitable? 10
mean "solely." Hence, even if a portion of its real estate is
leased out to private individuals from whom it derives income, The Issues
it does not lose its character as a charitable institution, and its The issues for resolution are the following: (a) whether the
exemption from the payment of real estate taxes on its real petitioner is a charitable institution within the context of
property. The petitioner cited our ruling in Herrera v. QC- Presidential Decree No. 1823 and the 1973 and 1987
BAA9 to bolster its pose. The petitioner further contends that Constitutions and Section 234(b) of Republic Act No. 7160;
even if P.D. No. 1823 does not exempt it from the payment of and (b) whether the real properties of the petitioner are exempt
real estate taxes, it is not precluded from seeking tax from real property taxes.
exemption under the 1987 Constitution.
104
The Courts Ruling the above and related activities and provide tertiary-
The petition is partially granted. level care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government
On the first issue, we hold that the petitioner is a charitable intends to provide material and financial support
institution within the context of the 1973 and 1987 towards the establishment and maintenance of a Lung
Constitutions. To determine whether an enterprise is a Center for the welfare and benefit of the Filipino
charitable institution/entity or not, the elements which should people.15
be considered include the statute creating the enterprise, its
corporate purposes, its constitution and by-laws, the methods The purposes for which the petitioner was created are spelled
of administration, the nature of the actual work performed, the out in its Articles of Incorporation, thus:
character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties.11 SECOND: That the purposes for which such
In the legal sense, a charity may be fully defined as a gift, to corporation is formed are as follows:
be applied consistently with existing laws, for the benefit of an 1. To construct, establish, equip, maintain,
indefinite number of persons, either by bringing their minds administer and conduct an integrated
and hearts under the influence of education or religion, by medical institution which shall specialize in
assisting them to establish themselves in life or otherwise the treatment, care, rehabilitation and/or
lessening the burden of government.12 It may be applied to relief of lung and allied diseases in line with
almost anything that tend to promote the well-doing and well- the concern of the government to assist and
being of social man. It embraces the improvement and provide material and financial support in the
promotion of the happiness of man.13 The word "charitable" is establishment and maintenance of a lung
not restricted to relief of the poor or sick.14 The test of a center primarily to benefit the people of the
charity and a charitable organization are in law the same. The Philippines and in pursuance of the policy of
test whether an enterprise is charitable or not is whether it the State to secure the well-being of the
exists to carry out a purpose reorganized in law as charitable people by providing them specialized health
or whether it is maintained for gain, profit, or private and medical services and by minimizing the
advantage. incidence of lung diseases in the country and
elsewhere.
Under P.D. No. 1823, the petitioner is a non-profit and non-
stock corporation which, subject to the provisions of the 2. To promote the noble undertaking of
decree, is to be administered by the Office of the President of scientific research related to the prevention
the Philippines with the Ministry of Health and the Ministry of of lung or pulmonary ailments and the care
Human Settlements. It was organized for the welfare and of lung patients, including the holding of a
benefit of the Filipino people principally to help combat the series of relevant congresses, conventions,
high incidence of lung and pulmonary diseases in the seminars and conferences;
Philippines. The raison detre for the creation of the petitioner
is stated in the decree, viz: 3. To stimulate and, whenever possible,
underwrite scientific researches on the
Whereas, for decades, respiratory diseases have been biological, demographic, social, economic,
a priority concern, having been the leading cause of eugenic and physiological aspects of lung or
illness and death in the Philippines, comprising more pulmonary diseases and their control; and to
than 45% of the total annual deaths from all causes, collect and publish the findings of such
thus, exacting a tremendous toll on human resources, research for public consumption;
which ailments are likely to increase and degenerate
into serious lung diseases on account of unabated 4. To facilitate the dissemination of ideas
pollution, industrialization and unchecked cigarette and public acceptance of information on
smoking in the country;lavvph!l.net lung consciousness or awareness, and the
development of fact-finding, information
Whereas, the more common lung diseases are, to a and reporting facilities for and in aid of the
great extent, preventable, and curable with early and general purposes or objects aforesaid,
adequate medical care, immunization and through especially in human lung requirements,
prompt and intensive prevention and health education general health and physical fitness, and
programs; other relevant or related fields;

Whereas, there is an urgent need to consolidate and 5. To encourage the training of physicians,
reinforce existing programs, strategies and efforts at nurses, health officers, social workers and
preventing, treating and rehabilitating people affected medical and technical personnel in the
by lung diseases, and to undertake research and practical and scientific implementation of
training on the cure and prevention of lung diseases, services to lung patients;
through a Lung Center which will house and nurture
105
6. To assist universities and research discrimination. After all, any person, the rich as well as the
institutions in their studies about lung poor, may fall sick or be injured or wounded and become a
diseases, to encourage advanced training in subject of charity.17
matters of the lung and related fields and to
support educational programs of value to As a general principle, a charitable institution does not lose its
general health; character as such and its exemption from taxes simply because
7. To encourage the formation of other it derives income from paying patients, whether out-patient, or
organizations on the national, provincial confined in the hospital, or receives subsidies from the
and/or city and local levels; and to government, so long as the money received is devoted or used
coordinate their various efforts and activities altogether to the charitable object which it is intended to
for the purpose of achieving a more achieve; and no money inures to the private benefit of the
effective programmatic approach on the persons managing or operating the
common problems relative to the objectives institution.18 In Congregational Sunday School, etc. v. Board
enumerated herein; of Review,19 the State Supreme Court of Illinois held, thus:
8. To seek and obtain assistance in any form
from both international and local [A]n institution does not lose its charitable
foundations and organizations; and to character, and consequent exemption from taxation,
administer grants and funds that may be by reason of the fact that those recipients of its
given to the organization; benefits who are able to pay are required to do so,
9. To extend, whenever possible and where no profit is made by the institution and the
expedient, medical services to the public amounts so received are applied in furthering its
and, in general, to promote and protect the charitable purposes, and those benefits are refused to
health of the masses of our people, which none on account of inability to pay therefor. The
has long been recognized as an economic fundamental ground upon which all exemptions in
asset and a social blessing; favor of charitable institutions are based is the benefit
10. To help prevent, relieve and alleviate the conferred upon the public by them, and a consequent
lung or pulmonary afflictions and maladies relief, to some extent, of the burden upon the state to
of the people in any and all walks of life, care for and advance the interests of its citizens.20
including those who are poor and needy, all
without regard to or discrimination, because As aptly stated by the State Supreme Court of South Dakota
of race, creed, color or political belief of the in Lutheran Hospital Association of South Dakota v. Baker:21
persons helped; and to enable them to obtain [T]he fact that paying patients are taken, the
treatment when such disorders occur; profits derived from attendance upon these patients
11. To participate, as circumstances may being exclusively devoted to the maintenance of the
warrant, in any activity designed and carried charity, seems rather to enhance the usefulness of the
on to promote the general health of the institution to the poor; for it is a matter of common
community; observation amongst those who have gone about at
12. To acquire and/or borrow funds and to all amongst the suffering classes, that the deserving
own all funds or equipment, educational poor can with difficulty be persuaded to enter an
materials and supplies by purchase, asylum of any kind confined to the reception of
donation, or otherwise and to dispose of and objects of charity; and that their honest pride is much
distribute the same in such manner, and, on less wounded by being placed in an institution in
such basis as the Center shall, from time to which paying patients are also received. The fact of
time, deem proper and best, under the receiving money from some of the patients does not,
particular circumstances, to serve its general we think, at all impair the character of the charity, so
and non-profit purposes and long as the money thus received is devoted altogether
objectives;lavvphil.net to the charitable object which the institution is
13. To buy, purchase, acquire, own, lease, intended to further.22
hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for The money received by the petitioner becomes a part of the
purposes herein mentioned; and trust fund and must be devoted to public trust purposes and
14. To do everything necessary, proper, cannot be diverted to private profit or benefit.23
advisable or convenient for the
accomplishment of any of the powers herein Under P.D. No. 1823, the petitioner is entitled to receive
set forth and to do every other act and thing donations. The petitioner does not lose its character as a
incidental thereto or connected therewith.16 charitable institution simply because the gift or donation is in
the form of subsidies granted by the government. As held by
Hence, the medical services of the petitioner are to be the State Supreme Court of Utah in Yorgason v. County Board
rendered to the public in general in any and all walks of life of Equalization of Salt Lake County:24
including those who are poor and the needy without
106
Second, the government subsidy payments are SEC. 2. TAX EXEMPTIONS AND PRIVILEGES.
provided to the project. Thus, those payments are like Being a non-profit, non-stock corporation organized
a gift or donation of any other kind except they come primarily to help combat the high incidence of lung
from the government. In both Intermountain Health and pulmonary diseases in the Philippines, all
Careand the present case, the crux is the presence or donations, contributions, endowments and equipment
absence of material reciprocity. It is entirely and supplies to be imported by authorized entities or
irrelevant to this analysis that the government, rather persons and by the Board of Trustees of the Lung
than a private benefactor, chose to make up the Center of the Philippines, Inc., for the actual use and
deficit resulting from the exchange between St. benefit of the Lung Center, shall be exempt from
Marks Tower and the tenants by making a income and gift taxes, the same further deductible in
contribution to the landlord, just as it would have full for the purpose of determining the maximum
been irrelevant in Intermountain Health Care if the deductible amount under Section 30, paragraph (h),
patients income supplements had come from private of the National Internal Revenue Code, as amended.
individuals rather than the government. The Lung Center of the Philippines shall be exempt
Therefore, the fact that subsidization of part of the from the payment of taxes, charges and fees imposed
cost of furnishing such housing is by the government by the Government or any political subdivision or
rather than private charitable contributions does not instrumentality thereof with respect to equipment
dictate the denial of a charitable exemption if the purchases made by, or for the Lung Center.29
facts otherwise support such an exemption, as they do
here.25 It is plain as day that under the decree, the petitioner does not
enjoy any property tax exemption privileges for its real
In this case, the petitioner adduced substantial evidence that it properties as well as the building constructed thereon. If the
spent its income, including the subsidies from the government intentions were otherwise, the same should have been among
for 1991 and 1992 for its patients and for the operation of the the enumeration of tax exempt privileges under Section 2:
hospital. It even incurred a net loss in 1991 and 1992 from its
operations. It is a settled rule of statutory construction that the
express mention of one person, thing, or consequence
Even as we find that the petitioner is a charitable institution, implies the exclusion of all others. The rule is
we hold, anent the second issue, that those portions of its real expressed in the familiar maxim, expressio unius est
property that are leased to private entities are not exempt from exclusio alterius.
real property taxes as these are not actually, directly and
exclusively used for charitable purposes. The rule of expressio unius est exclusio alterius is
formulated in a number of ways. One variation of the
The settled rule in this jurisdiction is that laws granting rule is the principle that what is expressed puts an
exemption from tax are construed strictissimi juris against the end to that which is implied. Expressium facit cessare
taxpayer and liberally in favor of the taxing power. Taxation is tacitum. Thus, where a statute, by its terms, is
the rule and exemption is the exception. The effect of an expressly limited to certain matters, it may not, by
exemption is equivalent to an appropriation. Hence, a claim interpretation or construction, be extended to other
for exemption from tax payments must be clearly shown and matters.
based on language in the law too plain to be mistaken. 26 As ...
held in Salvation Army v. Hoehn:27
The rule of expressio unius est exclusio alterius and
An intention on the part of the legislature to grant an its variations are canons of restrictive interpretation.
exemption from the taxing power of the state will They are based on the rules of logic and the natural
never be implied from language which will admit of workings of the human mind. They are predicated
any other reasonable construction. Such an intention upon ones own voluntary act and not upon that of
must be expressed in clear and unmistakable terms, others. They proceed from the premise that the
or must appear by necessary implication from the legislature would not have made specified
language used, for it is a well settled principle that, enumeration in a statute had the intention been not to
when a special privilege or exemption is claimed restrict its meaning and confine its terms to those
under a statute, charter or act of incorporation, it is to expressly mentioned.30
be construed strictly against the property owner and
in favor of the public. This principle applies with The exemption must not be so enlarged by construction since
peculiar force to a claim of exemption from taxation . the reasonable presumption is that the State has granted in
28 express terms all it intended to grant at all, and that unless the
privilege is limited to the very terms of the statute the favor
Section 2 of Presidential Decree No. 1823, relied upon by the would be intended beyond what was meant.31
petitioner, specifically provides that the petitioner shall enjoy
the tax exemptions and privileges: Section 28(3), Article VI of the 1987 Philippine Constitution
provides, thus:
107
(3) Charitable institutions, churches and parsonages ignored. It must be duly taken into consideration.
or convents appurtenant thereto, mosques, non-profit Reliance on past decisions would have sufficed were
cemeteries, and all lands, buildings, and the words "actually" as well as "directly" not added.
improvements, actually, directly and exclusively used There must be proof therefore of
for religious, charitable or educational purposes shall the actual and direct use of the lands, buildings, and
be exempt from taxation.32 improvements for religious or charitable purposes to
be exempt from taxation.
The tax exemption under this constitutional provision Under the 1973 and 1987 Constitutions and Rep. Act No.
covers property taxes only.33 As Chief Justice Hilario G. 7160 in order to be entitled to the exemption, the petitioner is
Davide, Jr., then a member of the 1986 Constitutional burdened to prove, by clear and unequivocal proof, that (a) it
Commission, explained: ". . . what is exempted is not the is a charitable institution; and (b) its real properties
institution itself . . .; those exempted from real estate taxes are are ACTUALLY, DIRECTLY and EXCLUSIVELY used
lands, buildings and improvements actually, directly and for charitable purposes. "Exclusive" is defined as possessed
exclusively used for religious, charitable or educational and enjoyed to the exclusion of others; debarred from
purposes."34 participation or enjoyment; and "exclusively" is defined, "in a
manner to exclude; as enjoying a privilege exclusively." 40 If
Consequently, the constitutional provision is implemented by real property is used for one or more commercial purposes, it
Section 234(b) of Republic Act No. 7160 (otherwise known as is not exclusively used for the exempted purposes but is
the Local Government Code of 1991) as follows: subject to taxation.41 The words "dominant use" or "principal
use" cannot be substituted for the words "used exclusively"
SECTION 234. Exemptions from Real Property Tax. without doing violence to the Constitutions and the
The following are exempted from payment of the law.42 Solely is synonymous with exclusively.43
real property tax: What is meant by actual, direct and exclusive use of the
... property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes for
(b) Charitable institutions, churches, which the charitable institution is organized. It is not the use
parsonages or convents appurtenant thereto, of the income from the real property that is determinative of
mosques, non-profit or religious cemeteries whether the property is used for tax-exempt purposes.44
and all lands, buildings, and The petitioner failed to discharge its burden to prove that the
improvements actually, directly, entirety of its real property is actually, directly and exclusively
and exclusivelyused for religious, charitable used for charitable purposes. While portions of the hospital are
or educational purposes.35 used for the treatment of patients and the dispensation of
medical services to them, whether paying or non-paying, other
We note that under the 1935 Constitution, "... all lands, portions thereof are being leased to private individuals for
buildings, and improvements used exclusively for their clinics and a canteen. Further, a portion of the land is
charitable purposes shall be exempt from being leased to a private individual for her business enterprise
taxation."36 However, under the 1973 and the present under the business name "Elliptical Orchids and Garden
Constitutions, for "lands, buildings, and improvements" of the Center." Indeed, the petitioners evidence shows that it
charitable institution to be considered exempt, the same should collected P1,136,483.45 as rentals in 1991 and P1,679,999.28
not only be "exclusively" used for charitable purposes; it is for 1992 from the said lessees.
required that such property be used "actually" and "directly" Accordingly, we hold that the portions of the land leased to
for such purposes.37 private entities as well as those parts of the hospital leased to
In light of the foregoing substantial changes in the private individuals are not exempt from such taxes.45 On the
Constitution, the petitioner cannot rely on our ruling other hand, the portions of the land occupied by the hospital
in Herrera v. Quezon City Board of Assessment and portions of the hospital used for its patients, whether
Appeals which was promulgated on September 30, 1961 paying or non-paying, are exempt from real property taxes.
before the 1973 and 1987 Constitutions took effect. 38 As this IN LIGHT OF ALL THE FOREGOING, the petition
Court held in Province of Abra v. Hernando:39 is PARTIALLY GRANTED. The respondent Quezon City
Under the 1935 Constitution: "Cemeteries, Assessor is hereby DIRECTED to determine, after due
churches, and parsonages or convents appurtenant hearing, the precise portions of the land and the area thereof
thereto, and all lands, buildings, and improvements which are leased to private persons, and to compute the real
used exclusively for religious, charitable, or property taxes due thereon as provided for by law.
educational purposes shall be exempt from taxation." SO ORDERED.
The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and
required that for the exemption of "lands, buildings,
and improvements," they should not only be
"exclusively" but also "actually" and "directly" used
for religious or charitable purposes. The Constitution
is worded differently. The change should not be
108
G.R. No. 112024 January 28, 1999 On August 7, 1987, petitioner requested the Commissioner of
PHILIPPINE BANK OF Internal Revenue, among others, for a tax credit of
COMMUNICATIONS, petitioner, P5,016,954.00 representing the overpayment of taxes in the
vs. first and second quarters of 1985.
COMMISSIONER OF INTERNAL REVENUE, COURT
OF TAX APPEALS and COURT OF Thereafter, on July 25, 1988, petitioner filed a claim for refund
APPEALS, respondent. of creditable taxes withheld by their lessees from property
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
QUISUMBING, J.: Pending the investigation of the respondent Commissioner of
This petition for review assails the Resolution 1 of the Court of Internal Revenue, petitioner instituted a Petition for Review on
Appeals dated September 22, 1993 affirming the November 18, 1988 before the Court of Tax Appeals (CTA).
Decision2 and a Resolution 3 of the Court Of Tax Appeals The petition was docketed as CTA Case No. 4309 entitled:
which denied the claims of the petitioner for tax refund and "Philippine Bank of Communications vs. Commissioner of
tax credits, and disposing as follows: Internal Revenue."
IN VIEW OF ALL, THE FOREGOING, the
instant petition for review, is DENIED due The losses petitioner incurred as per the summary of
course. The Decision of the Court of Tax petitioner's claims for refund and tax credit for 1985 and 1986,
Appeals dated May 20, 1993 and its filed before the Court of Tax Appeals, are as follows:
resolution dated July 20, 1993, are hereby
AFFIRMED in toto. 1985 1986
SO ORDERED. 4
Net Income (Loss) (P25,317,288.00)
The Court of Tax Appeals earlier ruled as follows: (P14,129,602.00)
Tax Due NIL NIL
WHEREFORE, Petitioner's claim for Quarterly tax.
refund/tax credits of overpaid income tax for Payments Made 5,016,954.00
1985 in the amount of P5,299,749.95 is Tax Withheld at Source 282,795.50
hereby denied for having been filed beyond 234,077.69
the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise Excess Tax Payments P5,299,749.50*
denied since petitioner has opted and in all P234,077.69
likelihood automatically credited the same =============== =============
to the succeeding year. The petition for
review is dismissed for lack of merit. * CTA's decision reflects
SO ORDERED. 5 PBCom's 1985 tax claim
as P5,299,749.95. A forty
The facts on record show the antecedent circumstances five centavo difference
pertinent to this case. was noted.

Petitioner, Philippine Bank of Communications (PBCom), a On May 20, 1993, the CTA rendered a decision which, as
commercial banking corporation duly organized under stated on the outset, denied the request of petitioner for a tax
Philippine laws, filed its quarterly income tax returns for the refund or credit in the sum amount of P5,299,749.95, on the
first and second quarters of 1985, reported profits, and paid ground that it was filed beyond the two-year reglementary
the total income tax of P5,016,954.00. The taxes due were period provided for by law. The petitioner's claim for refund
settled by applying PBCom's tax credit memos and in 1986 amounting to P234,077.69 was likewise denied on the
accordingly, the Bureau of Internal Revenue (BIR) issued Tax assumption that it was automatically credited by PBCom
Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 against its tax payment in the succeeding year.
and P1,615,253.00, respectively.
On June 22, 1993, petitioner filed a Motion for
Subsequently, however, PBCom suffered losses so that when Reconsideration of the CTA's decision but the same was
it filed its Annual Income Tax Returns for the year-ended denied due course for lack of merit. 6
December 31, 1986, the petitioner likewise reported a net loss
of P14,129,602.00, and thus declared no tax payable for the Thereafter, PBCom filed a petition for review of said decision
year. and resolution of the CTA with the Court of Appeals.
However on September 22, 1993, the Court of Appeals
But during these two years, PBCom earned rental income affirmed in toto the CTA's resolution dated July 20, 1993.
from leased properties. The lessees withheld and remitted to Hence this petition now before us.
the BIR withholding creditable taxes of P282,795.50 in 1985
and P234,077.69 in 1986.

109
The issues raised by the petitioner are: REFUN
I. Whether taxpayer D OR
PBCom which relied in TAX
good faith on the formal CREDI
assurances of BIR in RMC T OF
No. 7-85 and did not EXCES
immediately file with the S
CTA a petition for review CORPO
asking for the refund/tax RATE
credit of its 1985-86 INCOM
excess quarterly income E TAX
tax payments can be RESUL
prejudiced by the TING
subsequent BIR rejection, FROM
applied retroactivity, of its THE
assurances in RMC No. 7- FILING
85 that the prescriptive OF THE
period for the refund/tax FINAL
credit of excess quarterly ADJUS
income tax payments is TMENT
not two years but ten RETUR
(10). 7 N.
TO: All Internal Revenue Officers and
II. Whether the Court of Others Concerned.
Appeals seriously erred in
affirming the CTA Sec. 85 And 86 Of the National Internal
decision which denied Revenue Code provide:
PBCom's claim for the xxx xxx xxx
refund of P234,077.69 The foregoing provisions are implemented
income tax overpaid in by Section 7 of Revenue Regulations Nos.
1986 on the mere 10-77 which provide;
speculation, without proof, xxx xxx xxx
that there were taxes due It has been observed, however, that because
in 1987 and that PBCom of the excess tax payments, corporations file
availed of tax-crediting claims for recovery of overpaid income tax
that year. 8 with the Court of Tax Appeals within the
two-year period from the date of payment, in
Simply stated, the main question is: Whether or not the Court accordance with sections 292 and 295 of the
of Appeals erred in denying the plea for tax refund or tax National Internal Revenue Code. It is
credits on the ground of prescription, despite petitioner's obvious that the filing of the case in court is
reliance on RMC No. 7-85, changing the prescriptive period of to preserve the judicial right of the
two years to ten years? corporation to claim the refund or tax credit.
It should he noted, however, that this is not a
Petitioner argues that its claims for refund and tax credits are case of erroneously or illegally paid tax
not yet barred by prescription relying on the applicability of under the provisions of Sections 292 and
Revenue Memorandum Circular No. 7-85 issued on April 1, 295 of the Tax Code.
1985. The circular states that overpaid income taxes are not
covered by the two-year prescriptive period under the tax In the above provision of the Regulations
Code and that taxpayers may claim refund or tax credits for the corporation may request for the refund
the excess quarterly income tax with the BIR within ten (10) of the overpaid income tax or claim for
years under Article 1144 of the Civil Code. The pertinent automatic tax credit. To insure prompt
portions of the circular reads: action on corporate annual income tax
returns showing refundable amounts arising
REVENUE MEMORANDUM CIRCULAR from overpaid quarterly income taxes, this
NO. 7-85 Office has promulgated Revenue
SUBJE Memorandum Order No. 32-76 dated June
CT: 11, 1976, containing the procedure in
PROCE processing said returns. Under these
SSING procedures, the returns are merely pre-
OF audited which consist mainly of checking
110
mathematical accuracy of the figures of the docume
return. After which, the refund or tax credit nt
is granted, and, this procedure was adopted required
to facilitate immediate action on cases like of him
this. by the
Bureau
In this regard, therefore, there is no need to of
file petitions for review in the Court of Tax Internal
Appeals in order to preserve the right to Revenue
claim refund or tax credit the two year ;
period. As already stated, actions hereon by b).
the Bureau are immediate after only a where
cursory pre-audit of the income tax returns. the facts
Moreover, a taxpayer may recover from the subsequ
Bureau of Internal Revenue excess income ently
tax paid under the provisions of Section 86 gathered
of the Tax Code within 10 years from the by the
date of payment considering that it is an Bureau
obligation created by law (Article 1144 of of
the Civil Code). 9 (Emphasis supplied.) Internal
Revenue
Petitioner argues that the government is barred from asserting are
a position contrary to its declared circular if it would result to materiall
injustice to taxpayers. Citing ABS CBN Broadcasting y
Corporation vs. Court of Tax Appeals 10 petitioner claims that different
rulings or circulars promulgated by the Commissioner of from the
Internal Revenue have no retroactive effect if it would be facts on
prejudicial to taxpayers, In ABS-CBN case, the Court held which
that the government is precluded from adopting a position the
inconsistent with one previously taken where injustice would ruling is
result therefrom or where there has been a misrepresentation based;
to the taxpayer. c).
where
Petitioner contends that Sec. 246 of the National Internal the
Revenue Code explicitly provides for this rules as follows: taxpayer
acted in
Sec. 246 Non-retroactivity of rulings Any bad
revocation, modification or reversal of any faith.
of the rules and regulations promulgated in
accordance with the preceding section or Respondent Commissioner of Internal Revenue, through
any of the rulings or circulars promulgated Solicitor General, argues that the two-year prescriptive period
by the Commissioner shall not be given for filing tax cases in court concerning income tax payments
retroactive application if the revocation, of Corporations is reckoned from the date of filing the Final
modification or reversal will be prejudicial Adjusted Income Tax Return, which is generally done on
to the taxpayers except in the following April 15 following the close of the calendar year. As
cases: precedents, respondent Commissioner cited cases which
a). adhered to this principle, to wit ACCRA Investments Corp. vs.
where Court of Appeals, et al., 11 and Commissioner of Internal
the Revenue vs. TMX Sales, Inc., et al.. 12Respondent
taxpayer Commissioner also states that since the Final Adjusted Income
deliberat Tax Return of the petitioner for the taxable year 1985 was
ely supposed to be filed on April 15, 1986, the latter had only
misstate until April 15, 1988 to seek relief from the court. Further,
s or respondent Commissioner stresses that when the petitioner
omits filed the case before the CTA on November 18, 1988, the
material same was filed beyond the time fixed by law, and such failure
facts is fatal to petitioner's cause of action.
from his
return or After a careful study of the records and applicable
in any jurisprudence on the matter, we find that, contrary to the
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petitioner's contention, the relaxation of revenue regulations In Commissioner of Internal Revenue vs. Philippine American
by RMC 7-85 is not warranted as it disregards the two-year Life Insurance Co., 15 this Court explained the application of
prescriptive period set by law. Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years
Basic is the principle that "taxes are the lifeblood of the should commence to run only from the time
nation." The primary purpose is to generate funds for the State that the refund is ascertained, which can
to finance the needs of the citizenry and to advance the only be determined after a final adjustment
common weal. 13 Due process of law under the Constitution return is accomplished. In the present case,
does not require judicial proceedings in tax cases. This must this date is April 16, 1984, and two years
necessarily be so because it is upon taxation that the from this date would be April 16, 1986. . . .
government chiefly relies to obtain the means to carry on its As we have earlier said in the TMX Sales
operations and it is of utmost importance that the modes case, Sections 68. 16 69, 17 and 70 18 on
adopted to enforce the collection of taxes levied should be Quarterly Corporate Income Tax Payment
summary and interfered with as little as possible. 14 and Section 321 should be considered in
conjunction with it 19
From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because the When the Acting Commissioner of Internal Revenue issued
BIR being an administrative body enforced to collect taxes, its RMC 7-85, changing the prescriptive period of two years to
functions should not be unduly delayed or hampered by ten years on claims of excess quarterly income tax payments,
incidental matters. such circular created a clear inconsistency with the provision
of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
Sec. 230 of the National Internal Revenue Code (NIRC) of interpret the law; rather it legislated guidelines contrary to the
1977 (now Sec. 229, NIRC of 1997) provides for the statute passed by Congress.
prescriptive period for filing a court proceeding for the
recovery of tax erroneously or illegally collected, viz.: It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more
Sec. 230. Recovery of tax erroneously or specific and less general interpretations of tax laws) which are
illegally collected. No suit or proceeding issued from time to time by the Commissioner of Internal
shall be maintained in any court for the Revenue. It is widely accepted that the interpretation placed
recovery of any national internal revenue tax upon a statute by the executive officers, whose duty is to
hereafter alleged to have been erroneously enforce it, is entitled to great respect by the courts.
or illegally assessed or collected, or of any Nevertheless, such interpretation is not conclusive and will be
penalty claimed to have been collected ignored if judicially found to be erroneous. 20 Thus, courts will
without authority, or of any sum alleged to not countenance administrative issuances that override, instead
have been excessive or in any manner of remaining consistent and in harmony with the law they seek
wrongfully collected, until a claim for to apply and implement. 21
refund or credit has been duly filed with the
Commissioner; but such suit or proceeding In the case of People vs. Lim, 22 it was held that rules and
may be maintained, whether or not such tax, regulations issued by administrative officials to implement a
penalty, or sum has been paid under protest law cannot go beyond the terms and provisions of the latter.
or duress.
Appellant contends that Section 2 of FAO
In any case, no such suit or proceedings No. 37-1 is void because it is not only
shall begun after the expiration of two years inconsistent with but is contrary to the
from the date of payment of the tax or provisions and spirit of Act. No 4003 as
penalty regardless of any supervening cause amended, because whereas the prohibition
that may arise after payment; Provided prescribed in said Fisheries Act was for any
however, That the Commissioner may, even single period of time not exceeding five
without a written claim therefor, refund or years duration, FAO No 37-1 fixed no
credit any tax, where on the face of the period, that is to say, it establishes an
return upon which payment was made, such absolute ban for all time. This discrepancy
payment appears clearly to have been between Act No. 4003 and FAO No. 37-1
erroneously paid. (Emphasis supplied) was probably due to an oversight on the part
of Secretary of Agriculture and Natural
The rule states that the taxpayer may file a claim for refund or Resources. Of course, in case of
credit with the Commissioner of Internal Revenue, within two discrepancy, the basic Act prevails, for the
(2) years after payment of tax, before any suit in CTA is reason that the regulation or rule issued to
commenced. The two-year prescriptive period provided, implement a law cannot go beyond the terms
should be computed from the time of filing the Adjustment and provisions of the
Return and final payment of the tax for the year. latter. . . . In this connection, the attention of
112
the technical men in the offices of respecting a wrong construction of the law by the
Department Heads who draft rules and administrative officials and such wrong interpretation could
regulation is called to the importance and not place the Government in estoppel to correct or overrule the
necessity of closely following the terms and same. 27 Moreover, the non-retroactivity of rulings by the
provisions of the law which they intended to Commissioner of Internal Revenue is not applicable in this
implement, this to avoid any possible case because the nullity of RMC No. 7-85 was declared by
misunderstanding or confusion as in the respondent courts and not by the Commissioner of Internal
present case. 23 Revenue. Lastly, it must be noted that, as repeatedly held by
this Court, a claim for refund is in the nature of a claim for
Further, fundamental is the rule that the State cannot be put in exemption and should be construed in strictissimi juris against
estoppel by the mistakes or errors of its officials or the taxpayer. 28
agents. 24 As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting On the second issue, the petitioner alleges that the Court of
Commissioner of Internal Revenue is an administrative Appeals seriously erred in affirming CTA's decision denying
interpretation which is not in harmony with Sec. 230 of 1977 its claim for refund of P234,077.69 (tax overpaid in 1986),
NIRC. for being contrary to the express provision of a statute. based on mere speculation, without proof, that PBCom availed
Hence, his interpretation could not be given weight for to do of the automatic tax credit in 1987.
so would, in effect, amend the statute.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC)
It is likewise argued that the Commissioner provides that any excess of the total quarterly payments over
of Internal Revenue, after promulgating the actual income tax computed in the adjustment or final
RMC No. 7-85, is estopped by the principle corporate income tax return, shall either (a) be refunded to the
of non-retroactively of BIR rulings. Again corporation, or (b) may be credited against the estimated
We do not agree. The Memorandum quarterly income tax liabilities for the quarters of the
Circular, stating that a taxpayer may recover succeeding taxable year.
the excess income tax paid within 10 years
from date of payment because this is an The corporation must signify in its annual corporate
obligation created by law, was issued by the adjustment return (by marking the option box provided in the
Acting Commissioner of Internal Revenue. BIR form) its intention, whether to request for a refund or
On the other hand, the decision, stating that claim for an automatic tax credit for the succeeding taxable
the taxpayer should still file a claim for a year. To ease the administration of tax collection, these
refund or tax credit and corresponding remedies are in the alternative, and the choice of one precludes
petition fro review within the the other.
two-year prescription period, and that the As stated by respondent Court of Appeals:
lengthening of the period of limitation on
refund from two to ten years would be Finally, as to the claimed refund of income
adverse to public policy and run counter to tax over-paid in 1986 the Court of Tax
the positive mandate of Sec. 230, NIRC, - Appeals, after examining the adjusted final
was the ruling and judicial interpretation of corporate annual income tax return for
the Court of Tax Appeals. Estoppel has no taxable year 1986, found out that petitioner
application in the case at bar because it was opted to apply for automatic tax credit. This
not the Commissioner of Internal Revenue was the basis used (vis-avis the fact that the
who denied petitioner's claim of refund or 1987 annual corporate tax return was not
tax credit. Rather, it was the Court of Tax offered by the petitioner as evidence) by the
Appeals who denied (albeit correctly) the CTA in concluding that petitioner had
claim and in effect, ruled that the RMC No. indeed availed of and applied the automatic
7-85 issued by the Commissioner of Internal tax credit to the succeeding year, hence it
Revenue is an administrative interpretation can no longer ask for refund, as to [sic] the
which is out of harmony with or contrary to two remedies of refund and tax credit are
the express provision of a statute alternative. 30
(specifically Sec. 230, NIRC), hence, cannot
be given weight for to do so would in effect That the petitioner opted for an automatic tax credit in
amend the statute. 25 accordance with Sec. 69 of the 1977 NIRC, as specified in its
1986 Final Adjusted Income Tax Return, is a finding of fact
Art. 8 of the Civil Code 26 recognizes judicial decisions, which we must respect. Moreover, the 1987 annual corporate
applying or interpreting statutes as part of the legal system of tax return of the petitioner was not offered as evidence to
the country. But administrative decisions do not enjoy that contovert said fact. Thus, we are bound by the findings of fact
level of recognition. A memorandum-circular of a bureau head by respondent courts, there being no showing of gross error or
could not operate to vest a taxpayer with shield against abuse on their part to disturb our reliance thereon. 31
judicial action. For there are no vested rights to speak of
113
WHEREFORE, the, petition is hereby DENIED, The decision
of the Court of Appeals appealed from is AFFIRMED, with
COSTS against the petitioner.1wphi1.nt
SO ORDERED.

DIGITAL TELECOMMUNICATIONS, INC. vs. CITY


GOVERNMENT OF BATANGAS- Real Property Tax

FACTS:
Petitioner was granted a 25-year franchise to install
telecommunications systems under a law which states that
The grantee shall be liable to pay the same taxes on its real
estate, buildings, and personal property exclusive of this
franchise x x x. As they were not being issued a Mayors
permit, Petitioner paid the Real Property Tax under protest
arguing that the phrase exclusive of this franchise means
that only the real properties not used in furtherance of its
franchise are subject to Real Property Tax while those real
properties which are used in its telecommunications business
are exempt from Real Property Tax.

ISSUE:
Are Petitioners real properties used in its telecommunications
business exempt from Real Property Tax?

HELD:
NO. Petitioners real properties, whether or not used in its
telecommunications business, are subject to Real Property
Tax. The phrase exclusive of this franchise qualifies the
term personal property. This means that Petitioners
legislative franchise, which is an intangible personal property,
shall not be subject to taxes. This is to put franchise grantees
in parity with non-franchisees as the latter obviously do not
have franchises which may potentially be subject to realty tax.
There is nothing in the first sentence of Section 5 which
expressly or even impliedly exempts Petitioner from Real
Property Tax. Petitioners reliance on the BLGFs opinion
stating that real properties owned by telecommunications
companies are exempt from Real Property Tax is without basis
as the BLGF has no authority to rule on claims for exemption
from Real Property Tax.

114