1.

ICARD vs COUNCIL OF BAGUIO

Facts:

The City of Baguio has enacted the following ordinances:

1. No. 6-v, providing among other things for an amusement tax of

P0.20 for every person entering a night club licensed to do business in
the city;

2. No. 11-V, providing for a property tax on motor vehicles kept and
operated in the city; and

3. No. 12-V, imposing a graduated license fee on every admission

ticket sold by enterprises enumerated in said ordinance among them,
cinematographs.

Petitioner, a resident of the City of Baguio is holder of a

municipal license for the operation of a night club called "El Club
Monaco. As such, he has to pay to the National Government an
amusement tax on its total gross receipts under section 260 of the
Internal Revenue Code, and to the City of Baguio the annual license fee
provided for in said Ordinance No. 6-V. But in addition to said
amusement tax and license fee, he has also been required to pay the
amusement tax imposed in that same ordinance which he paid under
protest.

As owner of a six-passenger automobile for private use a

Chevrolet Ford or Sedan kept and operated in the City of Baguio, he
already paid registration fee under the Revised Motor Vehicle Law, but
pursuant to Ordinance No. 11-V of said city he would also have to pay
in addition an annual property tax on the same automobile. He
contends that the ordinances above mentioned are unjust and ultra
vires.
The lower court ruled in favor of petitioner.

Issue:

Is the City of Baguio empowered to levy a property tax on motor and

an amusement tax on night clubs?

Held: No

It is settled that a municipal corporation unlike a sovereign state

is clothed with no inherent power of taxation. The charter or statute
must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed
in strictissimi juris. Any doubt or ambiguity, that power must be
resolved against the municipality.

In this case, there is no legal provision authorizing its levy by the

City of Baguio. Thus, it is our conclusion that Ordinance No. 6-V, in so
far as it provides for an amusement tax of P0.20 for each person
entering a night club, and Ordinance No. 11-V, which provides for a
property tax on motor vehicles, should be declared illegal and void as
beyond the authority of the City of Baguio to enact.

3. COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND

CEMENT COMPANY and COURT OF TAX APPEALS

G.R. No. L-29059 December 15, 1987

Facts:

Commissioner of Internal Revenue was ordered to refund to the

Cebu Portland Cement Company the amount of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced
and sold by it after October 1957. CIR claims that the refund should be
charged against the tax deficiency of the private respondent on the
sales of cement under Section 186 of the Tax Code.

Private respondent disclaims liability for the sales taxes, on the

ground that cement is not a manufactured product but a mineral
product. As such, it was exempted from sales taxes under Section 188
of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16,
1955. Justice Eugenio Angeles declared that "before the effectivity of
Rep. Act No. 1299, amending Section 246 of the National Internal
Revenue Code, cement was taxable as a manufactured product under
Section 186, in connection with Section 194(4) of the said Code,"

Issue:

Whether or not the sales tax was properly imposed.

Held:

YES.

Our ruling is that the sales tax was properly imposed upon the private
respondent for the reason that cement has always been considered a
manufactured product and not a mineral product. The nature of
cement as a "manufactured product" (rather than a "mineral product")
is well-settled. It was enough for the Court to say in effect that even
assuming Republic Act No. 1299 had reclassified cement was a mineral
product, the reclassification could not be given retrospective
application (so as to justify the refund of sales taxes paid before
Republic Act 1299 was adopted) because laws operate prospectively
only, unless the legislative intent to the contrary is manifest, which
was not so in the case of Republic Act 1266.

To require the petitioner to actually refund to the private respondent

the amount of the judgment debt, which he will later have the right to
distrain for payment of its sales tax liability is in our view an Idle ritual.
We hold that the respondent Court of Tax Appeals erred in ordering
such a charade.
 9. FRANCIS CHURCHILL et al vs. VENANCIO CONCEPCION

Section 100 of Act No. 2339, imposed an annual tax of P4 per

square meter upon "electric signs, billboards, and spaces used for
posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings." This section was subsequently
amended by Act No. 2432, by reducing the tax on such signs,
billboards, etc., to P2 per square meter or fraction thereof. The taxes
imposed by Act No. 2432, as amended, were ratified by the Congress
of the United States.

Francis A. Churchill and Stewart Tait, copartners doing business

under the firm name and style of the Mercantile Advertising Agency,
owners of a sign or billboard containing an area of 52 square meters
constructed on private property in the city of Manila were taxes
thereon was P104. The tax was paid under protest and the plaintiffs
having exhausted all their administrative remedies instituted the
present action under section 140 of Act No. 2339 against the Collector
of Internal Revenue to recover back the amount thus paid. From a
judgment dismissing the complaint upon the merits, with costs, the
plaintiffs appealed.

Issue: WON the statute and the tax imposed is void for lack of
uniformity; constitutes double taxation.

Ruling:

No. Sec. 5 of the Philippine Bill declared that the rule of taxation
in said Islands shall be uniform.

Uniformity in taxation means that all taxable articles or kinds of

property, of the same class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries, shall all be assessed at the same
rate. Different articles may be taxed at different amounts, provided the
rate is uniform on the same class everywhere, with all people, and at
all times.

The statute under consideration imposes a tax of P2 per square

meter or fraction thereof upon every electric sign, bill-board, etc.,
wherever found in the Philippine Islands. Or in other words, "the rule
of taxation" upon such signs is uniform throughout the Islands.

The rule, which we have just quoted from the Philippine Bill, does not
require taxes to be graded according to the value of the subject or
subjects upon which they are imposed, especially those levied as
privilege or occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land upon which
the billboards are located is taxed at so much per unit and the
billboards at so much per square meter does not constitute "double
taxation."

13. PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air
transportation business under a legislative franchise, Act No. 42739.
Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner
Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8,
Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's
motor vehicles unless the amounts imposed under Republic Act 4136
were paid. PAL thus paid, under protest, registration fees of its motor
vehicles. After paying under protest, PAL through counsel, wrote a
letter dated May 19,1971, to Land Transportation Commissioner Romeo
Edu (Edu) demanding a refund of the amounts paid. Edu denied the
request for refund. Hence, PAL filed a complaint against Edu and
National Treasurer UbaldoCarbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the

Court of Appeals which in turn certified the case to the Supreme Court.

ISSUE:
Whether or not motor vehicle registration fees are considered
as taxes.

RULING:
They are taxes. Taxes are for revenue, whereas fees are
exactions for purposes of regulation and inspection, and are for that
reason limited in amount to what is necessary to cover the cost of the
services rendered in that connection. It is the object of the charge, and
not the name, that determines whether a charge is a tax or a fee. The
money collected under the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicles Office but accrues to the funds for
the construction and maintenance of public roads, streets and
bridges. As the fees are not collected for regulatory purposes as an
incident to the enforcement of regulations governing the operation of
motor vehicles on public highways, but to provide revenue with which
the Government is to construct and maintain public highways for
everyones use, they are veritable taxes, not merely fees. PAL is, thus,
exempt from paying such fees, except for the period between June 27,
1968 to April 9, 1979, where its tax exception in the franchise was
repealed.

19. Wenceslao Pascual vs. Secretary of Public Works and

Communications, et.al

GR No. L-10405 December 29,1960

Facts:

In 1954, petitioner Wenceslao instituted this action challenging

the passage of Republic Act No. 920. This law appropriated P85,000.00
for the construction, reconstruction, repair, extension and
improvement Pasig feeder road terminals. He claimed that the
appropriation was actually going to be used for private use for the
terminals sought to be improved were part of the Antonio Subdivision.
The said Subdivision is owned by Senator Jose Zulueta who was a
member of the same Senate that passed and approved the same law.
Pascual claimed that Zulueta misrepresented in Congress the fact that
he owns those terminals and that his property would be unlawfully
enriched at the expense of the taxpayers if the said law would be
upheld. Pascual then prayed that the Secretary of Public Works and
Communications be restrained from releasing funds for such purpose.
Zulueta, on the other hand, perhaps as an afterthought, donated the
said property to the City of Pasig.

RTC Ruling: The appropriation is question was upheld and the case
dismissed.

ISSUE: Whether or not the appropriation is valid.

HELD: No, the appropriation is void for being an appropriation for a

private purpose. The subsequent donation of the property to the
government to make the property public does not cure the
constitutional defect. The fact that the law was passed when the said
property was still a private property cannot be ignored. In
accordance with the rule that the taxing power must be
exercised for public purposes only, money raised by taxation
can be expanded only for public purposes and not for the
advantage of private individuals. Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to
Zulueta, the result is that said appropriation sought a private purpose,
and, hence, was null and void.

21. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V.

FERDINAND J. MARCOS (Presiding Judge of RTC Cebu)
Davide, 1996

FACTS
Mactan Cebu International Airport Authority was created by virtue of
RA 6958 to manage the Mactan International Airport and the Lahug
Airport. Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes. In Section 14 of
its Charter provides that the Authority shall be exempt from realty
taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities.

In 1994, however, the Office of the Treasurer of the City of Cebu

demanded payment for realty taxes on several parcels of land
belonging to petitioner. Petitioner objected to such demand, citing Sec.
14. It asserted that it is an instrumentality of the government which
performs governmental functions, citing Sec. 133 of the Local
Government Code which puts limitations on the taxing powers of local
government units. Sec. 133, LGC provides that the exercise of the
taxing powers of provinces, cities, municipalities and barangays shall
not extend to the levy of... taxes, fees or charges of any kind on the
National government, its agencies and instrumentalities and local
government units.

The Respondent City refused to cancel and set aside the realty tax
account, insisting that the MCIAA is a GOCC whose tax exemption
privilege has been withdrawn by virtue of Sections 193 and 234 of the
LGC. Sec. 193 provides that tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including
GOCCs except local water districts, cooperatives duly registered under
RA 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon the effectivity of this Code.
Section 234 meanwhile provides that exemption from payment of real
property tax previously granted to or presently enjoyed by all persons,
whether natural or juridical, including GOCCs are hereby withdrawn
upon the effectivity of the LGC.

Because the City of Cebu was about to issue a warrant of levy against
the properties of MCIAA, the latter was compelled to pay its tax
account under protest. MCIAA likewise filed a petition for declaratory
relief with the RTC of Cebu, contending that the taxing powers of local
government units do not extend to the levy of taxes or fees of any kind
on an instrumentality of the national government. MCIAA insisted that
while it is indeed a GOCC, it nontheless stands on the same footing as
an agency or instrumentality of the national government by the very
nature of its powers and functions. The City however maintained that
MCIAA is not an instrumentality of the government but merely a GOCC
performing proprietary functions, and hence, the exemptions granted
to it were deemed withdrawn by virtue of Secs. 193 and 234 of the
LGC.

The trial court dismissed the petition. MR denied. Hence this petition.
Petitioner asserts that although it is a GOCC, it is mandated to perform
functions in the same category as an instrumentality of the
government. An instrumentality of the Government is one created to
perform governmental functions primarily to promote certain aspects
of the economic life of the people. Petitioner further contends that
being an instrumentality of the National Government, respondent City
of Cebu has no power nor authority to impose realty taxes upon it in
accordance with Sec. 133 of the LGC. In Basco v. PAGCOR, the SC said
the local governments have no power to tax instrumentalities of the
National Gov't like PAGCOR, which has a dual role (its role to regulate
gambling casinos is governmental, placing it in the category of an
agency or instrumentality of the Government which should be exempt
from local taxes. Petitioner thus concludes that there is a distinction in
the LGC between a GOCC performing gov't functions as against one
performing merely proprietary ones, and it is clear from Secs. 133 and
234, LGC that the legislature meant to exclude instrumentalities of the
national government from the taxing powers of LGUs.

ISSUE
Whether petitioner is exempted from payment of taxes or not

RULING
No. Taxation is the rule and exemption is the exception. Thus, the
exemption may be withdrawn at the pleasure of the taxing authority.
The only exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution.

The general rule, as laid down in Section 133 of the LGC is that the
taxing powers of LGUs cannot extend to the levy of, inter alia, taxes,
fees and charges of any kind on the National Government, its agencies,
and instrumentalities, and LGUs. However, pursuant to Section 232,
provinces, cities and municipalities in the Metro Manila Area MAY
impose real property taxes except on inter alia, real property owned by
the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted for consideration or
otherwise, to a taxable person (Sec. 234a).

As to tax exemptions/incentives granted to or presently enjoyed by

natural or juridical persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn
upon the effectivity of the LGC
EXCEPTION: Those granted to local water districts, cooperatives
duly registered under RA 6938, non-stock and non-profit
hospitals and educ institutions, and unless otherwise provided in
the LGC. This latter proviso could refer to Section 234
enumerating the properties exempt from real property tax. The
last paragraph of Section 234 further qualifies the retention of
the exemption insofar as real property taxes are concerned by
limiting the retention only to those enumerated therein; all
others not included in the enumeration therefore lost the
privilege upon the effectivity of the LGC. Even as to real
property owned by the Rep. Of the Philippines or any of its
political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of
such property has been granted to a taxable person for
consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon

the effectivity of the LGC, exemptions from payment of real property
taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said
section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it by its charter has been withdrawn.
24. COMMISIONER OF INTERNAL RREVENUE vs MARUBENI CORP
GR No 137377

Facts:

CIR assails the CA decision which affirmed CTA, ordering CIR to

desist from collecting the 1985 deficiency income, branch profit
remittance and contractors taxes from Marubeni Corp after finding the
latter to have properly availed of the tax amnesty under EO 41 & 64,
as amended.

Marubeni, a Japanese corporation, engaged in general import

and export trading, financing and construction, is duly registered in the
Philippines with Manila branch office. CIR examined the Manila
branchs books of accounts for fiscal year ending March 1985, and
found that respondent had undeclared income from contracts with NDC
and Philphos for construction of a wharf/port complex and ammonia
storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR

assessing it for several deficiency taxes. CIR claims that the income
respondent derived were income from Philippine sources, hence
subject to internal revenue taxes. On Sept 1986, respondent filed 2
petitions for review with CTA: the first, questioned the deficiency
income, branch profit remittance and contractors tax assessments and
second questioned the deficiency commercial brokers assessment.
 On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid
income taxes for 1981-85, and that taxpayers who wished to avail this
should on or before Oct 31, 1986. Marubeni filed its tax amnesty return
on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and
donors taxes under Title 3 and business tax under Chap 2, Title 5 of
NIRC, extended the period of availment to Dec 15, 1986 and stated
those who already availed amnesty under EO 41 should file an
amended return to avail of the new benefits. Marubeni filed a
supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and
deemed cancelled the deficiency taxes. CA affirmed on appeal.

Issue:

W/N Marubeni is exempted from paying tax

Held:Yes.

1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it
falls under the exception in Sec 4b of EO 41:

Sec. 4. Exceptions.The following taxpayers may not avail

themselves of the amnesty herein granted: xxx b) Those with income
tax cases already filed in Court as of the effectivity hereof;
Petitioner argues that at the time respondent filed for income tax
amnesty on Oct 30, 1986, a case had already been filed and was
pending before the CTA and Marubeni therefore fell under the
exception. However, the point of reference is the date of effectivity of
EO 41 and that the filing of income tax cases must have been made
before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985
deficiency was filed with CTA on Sept 26, 1986. When EO 41 became
effective, the case had not yet been filed. Marubeni does not fall in the
exception and is thus, not disqualified from availing of the amnesty
under EO 41 for taxes on income and branch profit remittance.

The difficulty herein is with respect to the contractors tax assessment

(business tax) and respondents availment of the amnesty under EO
64, which expanded EO 41s coverage. When EO 64 took effect on Nov
17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donors taxes. Instead, Section 8
said EO provided that:

Section 8. The provisions of Executive Orders Nos. 41 and 54 which

are not contrary to or inconsistent with this amendatory Executive
Order shall remain in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to
EO 41 and its date of effectivity. The general rule is that an
amendatory act operates prospectively. It may not be given a
retroactive effect unless it is so provided expressly or by necessary
implication and no vested right or obligations of contract are thereby
impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the
amnesty, it is still not liable for the deficiency tax because the income
from the projects came from the Offshore Portion as opposed to
Onshore Portion. It claims all materials and equipment in the
contract under the Offshore Portion were manufactured and
completed in Japan, not in the Philippines, and are therefore
not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were
broken down into a Japanese Yen Portion (I and II) and Philippine Pesos
Portion and financed either by OECF or by suppliers credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion,
while Japanese Yen Portion II and the Philippine Pesos Portion
correspond to the Philippine Onshore Portion. Marubeni has already
paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for
the supply of both materials and services to the client, they are
contracts for a piece of work and are indivisible. The situs of the two
projects is in the Philippines, and the materials provided and services
rendered were all done and completed within the territorial jurisdiction
of the Philippines. Accordingly, respondents entire receipts from the
contracts, including its receipts from the Offshore Portion, constitute
income from Philippine sources. The total gross receipts covering both
labor and materials should be subjected to contractors tax (a tax on
the exercise of a privilege of selling services or labor rather than a sale
on products).
Marubeni, however, was able to sufficiently prove in trial that not all its
work was performed in the Philippines because some of them were
completed in Japan (and in fact subcontracted) in accordance with the
provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These
services were rendered outside Philippines taxing jurisdiction
and are therefore not subject to contractors tax. Petition
denied.
 28. COCONUT OIL REFINERS ASSOCIATION, INC. vs. TORRES
G.R. No. 132527. July 29, 2005

Facts:
On April 3, 1993, President Fidel V. Ramos issued Executive Order
No. 80, which declared, among others, that Clark shall have all the
applicable incentives granted to the Subic Special Economic and Free
Port Zone under Republic Act No. 7227. On June 10, 1993, the
President issued Executive Order No. 97, Clarifying the Tax and Duty
Free Incentive within the Subic Special Economic Zone Pursuant to R.A.
No. 7227. Nine days after, on June 19, 1993, Executive Order No. 97-A
was issued, further clarifying the Tax and Duty-Free Privilege within the
Subic Special Economic and Free Port Zone.

Petitioners claim that the assailed issuances constitute executive

legislation, in violation of the rule on separation of powers. Petitioners
argue that the Executive Department, by allowing through the
questioned issuances the setting up of tax and duty-free shops and the
removal of consumer goods and items from the zones without payment
of corresponding duties and taxes, arbitrarily provided additional
exemptions to the limitations imposed by Republic Act No. 7227.

Issue
Whether or not the assailed issuances are null and void for being
an executive legislation.

Held: NO.

Republic Act No. 7227, and consequently Executive Order No. 97-
A, cannot be said to be distinctively arbitrary against the welfare of
businesses outside the zones. The mere fact that incentives and
privileges are granted to certain enterprises to the exclusion of others
does not render the issuance unconstitutional for espousing unfair
competition. Said constitutional prohibition cannot hinder the
Legislature from using tax incentives as a tool to pursue its policies.

Suffice it to say that Congress had justifiable reasons in granting

incentives to the private respondents, in accordance with Republic Act
No. 7227s policy of developing the SSEZ into a self-sustaining entity
that will generate employment and attract foreign and local
investment. If petitioners had wanted to avoid any alleged unfavorable
consequences on their profits, they should upgrade their standards of
quality so as to effectively compete in the market. In the alternative, if
petitioners really wanted the preferential treatment accorded to the
private respondents, they could have opted to register with SSEZ in
order to operate within the special economic zone.

Francis Churchill et al vs. Venancio Concepcion

Section 100 of Act No. 2339, imposed an annual tax of P4 per

square meter upon "electric signs, billboards, and spaces used for
posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings." This section was subsequently
amended by Act No. 2432, by reducing the tax on such signs,
billboards, etc., to P2 per square meter or fraction thereof. The taxes
imposed by Act No. 2432, as amended, were ratified by the Congress
of the United States.

Francis A. Churchill and Stewart Tait, copartners doing business

under the firm name and style of the Mercantile Advertising Agency,
owners of a sign or billboard containing an area of 52 square meters
constructed on private property in the city of Manila were taxes
thereon was P104. The tax was paid under protest and the plaintiffs
having exhausted all their administrative remedies instituted the
present action under section 140 of Act No. 2339 against the Collector
of Internal Revenue to recover back the amount thus paid. From a
judgment dismissing the complaint upon the merits, with costs, the
plaintiffs appealed.
Issue: WON the statute and the tax imposed is void for lack of
uniformity; constitutes double taxation.

Ruling:

No. Sec. 5 of the Philippine Bill declared that the rule of taxation
in said Islands shall be uniform.

Uniformity in taxation means that all taxable articles or kinds of

property, of the same class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries, shall all be assessed at the same
rate. Different articles may be taxed at different amounts, provided the
rate is uniform on the same class everywhere, with all people, and at
all times.

The statute under consideration imposes a tax of P2 per square

meter or fraction thereof upon every electric sign, bill-board, etc.,
wherever found in the Philippine Islands. Or in other words, "the rule
of taxation" upon such signs is uniform throughout the Islands.

The rule, which we have just quoted from the Philippine Bill, does
not require taxes to be graded according to the value of the subject or
subjects upon which they are imposed, especially those levied as
privilege or occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land upon which
the billboards are located is taxed at so much per unit and the
billboards at so much per square meter does not constitute "double
taxation."

26.Lung Center of the Philippines vs. Quezon City and

Constantino Rosas

G.R. No. 144104 June 29, 2004

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of

land in Quezon City. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines. The ground floor
is being leased to a canteen, medical professionals whom use the
same as their private clinics, as well as to other private parties. The
right portion of the lot is being leased for commercial purposes to the
Elliptical Orchids and Garden Center. The petitioner accepts paying
and non-paying patients. It also renders medical services to out-
patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the
government.

Petitioner filed a Claim for Exemption from realty taxes amounting to

about Php4.5 million, predicating its claim as a charitable institution.
The city assessor denied the Claim. When appealed to the QC-Local
Board of Assessment, the same was dismissed. The decision of the
QC-LBAA was affirmed by the Central Board of Assessment Appeals,
despite the Petitioners claim that 60% of its hospital beds are used
exclusively for charity.

ISSUE:Whether or not the Petitioner is entitled to exemption from

realty taxes notwithstanding the fact that it admits paying clients and
leases out a portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution

based on its charter and articles of incorporation. As a general
principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from
paying patients, whether out-patient or confined in the hospital, or
receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private benefit of
the persons managing or operating the institution.

Despite this, the Court held that the portions of real property that are
leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable
purposes. (strictissimijuris) Moreover, P.D. No. 1823 only speaks of tax
exemptions as regards to:

income and gift taxes for all donations, contributions,

endowments and equipment and supplies to be imported by
authorized entities or persons and by the Board of Trustees of the
Lung Center of the Philippines for the actual use and benefit of
the Lung Center; and

taxes, charges and fees imposed by the Government or any

political subdivision or instrumentality thereof with respect to
equipment purchases (expression uniusest exclusion
alterius/expressiumfacitcessaretacitum).
 ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE

G.R. No. L-25043 April 26, 1968

FACTS:
 Antonio, Eduardo and Jose Roxas, brothers and at the same time
partners of the Roxas y Compania, inherited from their grandparents
several properties namely:

(1) Agricultural lands with a total area of 19,000 hectares,

situated in the municipality of Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate,

Manila; and

(3) Shares of stocks in different corporations.

The tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase the farmland. The
tenants, however, did not have enough funds, so the Roxases agreed
to a purchase by installment.

During their bachelor days the Roxas brothers lived in the

residential house at Wright St., Malate, Manila, which they inherited
from their grandparents. After Antonio and Eduardo got married, they
resided somewhere else leaving only Jose in the old house. In fairness
to his brothers, Jose paid to Roxas y Cia. rentals for the house in the
sum of P8,000.00 a year.

The CIR demanded from Roxas y Cia the payment of real estate
dealers tax and tax for dealers of securities @P150.00 each plus
P10.00 compromise penalty for late payment. The assessment was
based on the fact that Roxas y Cia. received house rentals from Jose
Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax
Code, an owner of a real estate who derives a yearly rental income
therefrom in the amount of P3,000.00 or more is considered a real
estate dealer and is liable to pay the corresponding fixed tax.

Subsequently, the CIR demanded from the brothers the payment

of deficiency income taxes resulting from the sale of the farmlands to
its tenants, 100% of the profits derived therefrom was taxed. The
brothers protested the assessment but the same was denied. On
appeal, the Court of Tax Appeals sustained the assessment. Hence, this
petition.

ISSUE:

1. Is the gain derived from the sale of the Nasugbu farm lands an
ordinary gain, hence 100% taxable?

2. Is Roxas y Cia. liable for the payment of the fixed tax on real estate
dealers?

RULING:

1. No. It should be borne in mind that the sale of the farmlands to

the very farmers who tilled them for generations was not only in
consonance with, but more in obedience to the request and pursuant
to the policy of our Government to allocate lands to the landless.

In order to maintain the general publics trust and confidence in

the Government this power must be used justly and not treacherously.
It does not conform with the sense of justice for the Government to
persuade the taxpayer to lend it a helping hand and later on penalize
him for duly answering the urgent call.

In fine, Roxas cannot be considered a real estate dealer and is

not liable for 100% of the sale. Pursuant to Section 34 of the Tax Code,
the lands sold to the farmers are capital assets and the gain derived
from the sale thereof is capital gain, taxable only to the extent of 50%.

2. Yes. Section 194 of the Tax Code, in considering as real estate

dealers owners of real estate receiving rentals of at least P3,000.00 a
year, does not provide any qualification as to the persons paying the
rentals. The law, which states:

"Real estate dealer" includes any person engaged in the business

of buying, selling, exchanging, leasing or renting property on his own
account as principal and holding himself out as a full or part-time
dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand
pesos or more a year xxx. is too clear and explicit to admit
construction. The findings of the Court of Tax Appeals or, this point is
sustained.

DELPHER TRADES vs. INTERNATIONAL COURT of APPEALS

G.R. No. L-69259. January 26, 1988

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of
27,169 square meters of real estate.

The said co-owners leased to Construction Components International

Inc. the same property and providing that during the existence or after
the term of this lease the lessor should he decide to sell the property
leased shall first offer the same to the lessee and the letter has the
priority to buy under similar conditions.

Lessee Construction Components International, Inc. assigned its rights

and obligations under the contract of lease in favor of Hydro Pipes
Philippines.

"On January 3, 1976, a deed of exchange was executed between

lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the former conveyed to the latter the leased
property.

Respondent contend that a contract of sale had been executed

between lessors Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the
leased property.

Petitioner on the other hand contend that ther is no contract of sale,

and that the purpose of the deed of exchange was to invest their
properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher Trades
Corporation to take control of their properties and at the same time
save on inheritance taxes.

On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent
Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of property in its favor.

Issue:

WON the action filed by the respondent is meritorious?

Ruling:

No.

The "Deed of Exchange" of property between the Pachecos and

Delpher Trades Corporation cannot be considered a contract of sale.
There was no transfer of actual ownership interests by the Pachecos to
a third party. The Pacheco family merely changed their ownership from
one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a right of
first refusal under the lease contract.

It is to be stressed that by their ownership of the 2,500 no par shares

of stock, the Pachecos have control of the corporation. Their equity
capital is 55% as against 45% of the other stockholders, who also
belong to the same family group. In effect, the Delpher Trades
Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades
Corporation to take control of their properties and at the same time
save on inheritance taxes.

After incorporation, one becomes a stockholder of a corporation by

subscription or by purchasing stock directly from the corporation or
from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil.
649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in
exchange for their properties, the Pachecos acquired 2,500 original
unissued no par value shares of stocks of the Delpher Trades
Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription. "The essence of the stock subscription is
an agreement to take and pay for original unissued shares of a
corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1980 Edition, p. 430).

The records do not point to anything wrong or objectionable about this

"estate planning" scheme resorted to by the Pachecos. "The legal right
of a taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them, by means which the law permits,
cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal
Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed.
596).
 Commissioner of Internal Revenue vs. Estate of Toda
G.R. NO. 147188 : September 14, 2004

On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and

owner of 99.991% of its issued and outstanding capital stock, to sell
the Cibeles Building and the two parcels of land on which the building
stands for an amount of not less than P90 million.4

On 30 August 1989, Toda purportedly sold the property for P100

million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200
million. These two transactions were evidenced by Deeds of Absolute
Sale notarized on the same day by the same notary public.5

For the sale of the property to RMI, Altonaga paid capital gains tax
in the amount of P10 million.6

On 16 April 1990, CIC filed its corporate annual income tax return 7 for
the year 1989, declaring, among other things, its gain from the sale of
real property in the amount of P75,728.021. After crediting withholding
taxes of P254,497.00, it paid P26,341,2078 for its net taxable income
of P75,987,725.

On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun
T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of
Stocks.9 Three and a half years later, or on 16 January 1994, Toda died.

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an

assessment notice10 and demand letter to the CIC for deficiency
income tax for the year 1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the

assessment should be directed against the old CIC, and not against the
new CIC, which is owned by an entirely different set of stockholders;
moreover, Toda had undertaken to hold the buyer of his stockholdings
and the CIC free from all tax liabilities for the fiscal years 1987-1989. 11

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by

special co-administrators Lorna Kapunan and Mario Luza Bautista,
received a Notice of Assessment12 dated 9 January 1995 from the
Commissioner of Internal Revenue for deficiency income tax for the
year 1989 in the amount of P79,099,999.22.

The Estate thereafter filed a letter of protest.13

In the letter dated 19 October 1995, 14 the Commissioner dismissed the

protest, stating that a fraudulent scheme was deliberately perpetuated
by the CIC wholly owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the change in the
income structure of the proceeds of the sale of the two parcels of land
and the building thereon to an individual capital gains, thus evading
the higher corporate income tax rate of 35%.
On 15 February 1996, the Estate filed a Petition for Review 15 with the
CTA alleging that the Commissioner erred in holding the Estate liable
for income tax deficiency; that the inference of fraud of the sale of the
properties is unreasonable and unsupported; and that the right of the
Commissioner to assess CIC had already prescribed.

Issue:

1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the
year 1989 prescribed? and

3. Can respondent Estate be held liable for the deficiency income

tax of CIC for the year 1989, if any?

Ruling:

No.

1. Is this a case of tax evasion or tax avoidance?

Tax avoidance and tax evasion are the two most common ways used
by taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means sanctioned by law. This method should be
used by the taxpayer in good faith and at arms length. Tax evasion, on
the other hand, is a scheme used outside of those lawful means and
when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.23

Tax evasion connotes the integration of three factors:

(1) the end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due;

(2) an accompanying state of mind which is described as being "evil,"

in "bad faith," "willfull," or "deliberate and not accidental"; and

(3) a course of action or failure of action which is unlawful.24

All these factors are present in the instant case. This would show that
the real buyer of the properties was RMI, and not the intermediary
Altonaga.

The investigation conducted by the BIR disclosed that Altonaga was a

close business associate and one of the many trusted corporate
executives of Toda.

Petitioner, however, claims there was a "change of structure" of the

proceeds of sale. Admitted one hundred percent. But isn't this precisely
the definition of tax planning? Change the structure of the funds and
pay a lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing
tax free transfers of property for stock, changing the structure of the
property and the tax to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower tax is not against the
law. It is absolutely allowed.

Tax planning is by definition to reduce, if not eliminate altogether, a

tax. Surely petitioner [sic] cannot be faulted for wanting to reduce
the tax from 35% to 5%.29 [Underscoring supplied].

The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then
from Altonaga to RMI cannot be considered a legitimate tax planning.
Such scheme is tainted with fraud.

Fraud in its general sense, "is deemed to comprise anything calculated

to deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another."30

Here, it is obvious that the objective of the sale to Altonaga was to

reduce the amount of tax to be paid especially that the transfer from
him to RMI would then subject the income to only 5% individual capital
gains tax, and not the 35% corporate income tax. Altonaga's sole
purpose of acquiring and transferring title of the subject properties on
the same day was to create a tax shelter. Altonaga never controlled
the property and did not enjoy the normal benefits and burdens of
ownership. The sale to him was merely a tax ploy, a sham, and without
business purpose and economic substance. Doubtless, the execution of
the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax
liability.chanroblesvirtua1awlibrary

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga,

which was prompted more on the mitigation of tax liabilities than for
legitimate business purposes constitutes one of tax evasion.31

Generally, a sale or exchange of assets will have an income tax

incidence only when it is consummated. 32 The incidence of taxation
depends upon the substance of a transaction. The tax consequences
arising from gains from a sale of property are not finally to be
determined solely by the means employed to transfer legal title.
Rather, the transaction must be viewed as a whole, and each step from
the commencement of negotiations to the consummation of the sale is
relevant. A sale by one person cannot be transformed for tax purposes
into a sale by another by using the latter as a conduit through which to
pass title. To permit the true nature of the transaction to be disguised
by mere formalisms, which exist solely to alter tax liabilities, would
seriously impair the effective administration of the tax policies of
Congress.33
To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the
latter was merely a conduit is to sanction a circumvention of our tax
laws. Hence, the sale to Altonaga should be disregarded for income tax
purposes.34 The two sale transactions should be treated as a single
direct sale by CIC to RMI.

CIC is therefore liable to pay a 35% corporate tax for its taxable net
income in 1989. The 5% individual capital gains tax provided for in
Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1)
of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment
for the deficiency income tax issued by the BIR must be upheld.

2. Has the period of assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax
Reform Act of 1997) read:

Sec. 269. Exceptions as to period of limitation of assessment and

collection of taxes. - (a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court after the collection of such tax may
be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for
collection thereof'.

Put differently, in cases of

(1) fraudulent returns;

(2) false returns with intent to evade tax; and

(3) failure to file a return,

the period within which to assess tax is ten years from discovery of the
fraud, falsification or omission, as the case may be.

As stated above, the prescriptive period to assess the correct taxes in

case of false returns is ten years from the discovery of the falsity. The
false return was filed on 15 April 1990, and the falsity thereof was
claimed to have been discovered only on 8 March 1991. 37 The
assessment for the 1989 deficiency income tax of CIC was issued on 9
January 1995. Clearly, the issuance of the correct assessment for
deficiency income tax was well within the prescriptive period.

3. Is respondent Estate liable for the 1989 deficiency income tax of

Cibeles Insurance Corporation?

A corporation has a juridical personality distinct and separate from the

persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in
which personal liability may arise. It has been held in a number of
cases that personal liability of a corporate director, trustee, or officer
along, albeit not necessarily, with the corporation may validly attach
when:

1. He assents to the (a) patently unlawful act of the corporation, (b)

bad faith or gross negligence in directing its affairs, or (c) conflict of
interest, resulting in damages to the corporation, its stockholders, or
other persons;

2. He consents to the issuance of watered down stocks or, having

knowledge thereof, does not forthwith file with the corporate secretary
his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the

corporation; or

4. He is made, by specific provision of law, to personally answer for his

corporate action.38

It is worth noting that when the late Toda sold his shares of stock to Le
Hun T. Choa, he knowingly and voluntarily held himself personally
liable for all the tax liabilities of CIC and the buyer for the years 1987,
1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks
specifically provides:

When the late Toda undertook and agreed "to hold the BUYER and
Cibeles free from any all income tax liabilities of Cibeles for the fiscal
years 1987, 1988, and 1989," he thereby voluntarily held himself
personally liable therefor. Respondent estate cannot, therefore, deny
liability for CIC's deficiency income tax for the year 1989 by invoking
the separate corporate personality of CIC, since its obligation arose
from Toda's contractual undertaking, as contained in the Deed of Sale
of Shares of Stock.
 DAVAO GULF LUMBER vs. CIR
GR No. 117359, July 23, 1998
293 SCRA 77

FACTS:

Petitioner is a licensed forest concessionaire possessing a Timber

License Agreement granted by the Ministry of Natural Resources (now
Department of Environment and Natural Resources). petitioner
purchased, from various oil companies, refined and manufactured
mineral oils as well as motor and diesel fuels, which it used exclusively
for the exploitation and operation of its forest concession. Said oil
companies paid the specific taxes imposed, under Sections 153 and
156[7] of the 1977 National Internal Revenue Code (NIRC), on the sale of
said products.

Republic Act No. 1435 entitles miners and forest concessioners to

the refund of 25% of the specific taxes paid by the oil companies,
which were eventually passed on to the user, the petitioner in this
case, in the purchase price of the oil products. Petitioner filed before
respondent Commissioner of Internal Revenue (CIR) a claim for refund
in the amount representing 25% of the specific taxes actually paid on
the above-mentioned fuels and oils that were used by petitioner in its
operations. However petitioner asserts that equity and justice
demands that the refund should be based on the increased rates of
specific taxes which it actually paid, as prescribed in Sections 153 and
156 of the NIRC. Public respondent, on the other hand, contends that it
should be based on specific taxes deemed paid under Sections 1 and 2
of RA 1435.

ISSUE:

Whether or not petitioner is entitled under Republic Act No. 1435

to the refund of 25% of the amount of specific taxes it actually paid on
various refined and manufactured mineral oils and other oil products,
and not on the taxes deemed paid and passed on to them, as end-
users, by the oil companies.

HELD: No.
According to an eminent authority on taxation, "there is no tax
exemption solely on the ground of equity." Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax
exemption, it must be construed strictissimi juris against the
grantee. Petitioners claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a
language too clear to be mistaken.
 Thus, the tax refund should be based on the taxes deemed paid.
Because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in
favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom.

PHILEX MINING vs CIR & CA

G.R. No. 125704. August 28, 1998
Facts: On August 5, 1992, the BIR sent a letter to Philex asking it to
settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well
as the 1st and 2nd quarter of 1992 in the total amount
of P123,821,982.52.
Philex protested the demand for payment of the tax liabilities stating
that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be applied
against the tax liabilities, citing our ruling in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines, Inc. BIR rejected the claim for set off
and said since these pending claims have not yet been established or
determined with certainty, it follows that no legal compensation can
take place. Hence, BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.

Philex thus raised the issue to the Court of Tax Appeals. In the course
of the proceedings, the BIR issued a Tax Credit Certificate SN 001795 in
the amount of P13,144,313.88 which, applied to the total tax liabilities
of Philex of P123,821,982.52 effectively lowered the latters tax
obligation of P110,677,688.52. Despite the reduction of its tax
liabilities, the CTfrA still ordered Philex to pay the remaining balance
of P110,677,688.52 plus interest because for legal compensation to
take place, both obligations must be liquidated and demandable.CTA
said liquidated debts are those where the exact amount has already
been determined. Since the claims of the Petitioner for VAT refund is
still pending litigation, and still has to be determined, the liquidated
debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its
favour. Moreover, the Court of Tax Appeals ruled that taxes cannot be
subject to set-off on compensation since claim for taxes is not a debt
or contract.
Philex brought the case to the COURT OF APPEALS who affirmed the
CTA ruling. An MR filed by Philex was also denied. But prior to that,
Philex was able to obtain its VAT input credit/refund not only for the
taxable year 1989 to 1991 but also for 1992 and 1994.
In view of the grant of its VAT input credit/refund, Philex now
contends that the same should, ipso jure, off-set its excise tax
liabilities since both had already become due and demandable,
as well as fully liquidated; hence, legal compensation can
properly take place. Also, Philex asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes
within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise liabilities
within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR. Finally, Philex
asserts that the BIR violated Section 106(e) [30] of the National
Internal Revenue Code of 1977, which requires the refund of
input taxes within 60 days,[31] when it took five years for the
latter to grant its tax claim for VAT input credit/refund.
Issues: Can the VAT input credit/refund be set-off against the tax
liabilities of petitioner? Can the petitioner be charged for surcharge and
interest for the non-payment of the excise taxes while its claim for
refund is pending? Is the BIR liable for not granting the tax claim for
VAT input credit/refund within 60 days and if so, should the petitioners
liability be extinguished by reason thereof?

Held:

1. No. Taxes cannot be subject to compensation for the simple

reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity.

In Francia v. Intermediate Appellate Court, we categorically held that

taxes cannot be subject to set-off or compensation:

We have consistently ruled that there can be no off-setting of

taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a
lawsuit against the government.

Philexs reliance on our holding in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may
be set off against an existing tax liability even though the refund has
not yet been approved by the Commissioner,is no longer without any
support in statutory law. When the National Internal Revenue Code of
1977 was enacted, the same provision upon which the Itogon-
Suyoc pronouncement was based was omitted.
2. No. It is a basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without
unnecessary hindrance. Evidently, to countenance Philexs whimsical
reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence. To be sure, we
cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the
government which has not yet been granted.
A distinguishing feature of a tax is that it is compulsory rather
than a matter of bargain. Hence, a tax does not depend upon
the consent of the taxpayer. If any payer can defer the
payment of taxes by raising the defense that it still has a
pending claim for refund or credit, this would adversely affect
the government revenue system. A taxpayer cannot refuse to
pay his taxes when they fall due simply because he has a claim
against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the
government.
Philex's theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to confusion
and abuse, depriving the government of authority over the manner by
which taxpayers credit and offset their tax liabilities.Corollarily, the fact
that Philex has pending claims for VAT input claim/refund with the
government is immaterial for the imposition of charges and penalties
prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with
any authority to waive the collection thereof. [28] The same cannot be
condoned for flimsy reasons,[29] similar to the one advanced by Philex
in justifying its non-payment of its tax liabilities.
3. No. Once a claimant has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful
dispatch. After all, since taxpayers owe honesty to government it is but
just that government render fair service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to
1991 but the refund of these erroneously paid taxes was only granted
in 1996. Obviously, had the BIR been more diligent and judicious with
their duty, it could have granted the refund earlier.
Simple justice requires the speedy refund of wrongly-held
taxes. Fair dealing and nothing less, is expected by the
taxpayer from the BIR in the latter's discharge of its function.
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax collector
kill the 'hen that lays the golden egg.' And, in the order to
maintain the general public's trust and confidence in the
Government this power must be used justly and not
treacherously.

But it is a settled rule that in the performance of governmental

function, the State is not bound by the neglect of its agents
and officers. Nowhere is this more true than in the field of
taxation. Again, while we understand Philex's predicament, it
must be stressed that the same is not valid reason for the non-
payment of its tax liabilities.
This, however, does not mean that the taxpayer is devoid of remedy
against public servants or employees especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly. First, if
the BIR takes time in acting upon the taxpayer's claims for refund, the
latter can seek judicial remedy before the Court of Tax Appeals in the
manner prescribed by law. Second, if the inaction can be characterized
as wilful neglect of duty, then recourse under the Civil Code and the
Tax Code can also be availed of.
 Article 27 of the Civil Code provides:"Art. 27. Any person suffering
material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an
action for damages and other relief against the latter, without p
rejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act
of 1997 states:"xxx xxx (c) wilfully neglecting to give receipts, as by
law required for any sum collected in the performance of duty

REPUBLIC vs. MAMBULAO LUMBER

G.R. No. L-17725. February 28, 1962

In a case filed by the Republic against the Mambulao Lumber Company

before the CFI Manila (Civil Case 34100), the company admitted that
they have a liability of P587.37 in favor of the government for forest
charges covering the period from 10 September 1952 to 24 May 1953,
which liability is covered by a bond executed by General Insurance &
Surety Corporation for Mambulao Lumber Company, jointly and
severally in character, on 29 July 1953, in favor of the Republic. It also
admitted liability in the sum of P286.70 in favor of the Republic,
covered by a bond dated 27 November 1953; and another amount of
P3,928.30, covered by a bond dated 20 July 1954.

These three liabilities aggregate to P4,802.37. As a defense, the

company claimed to have paid to the Republic of the Philippines
P8,200.52 for reforestation charges for the period commencing from
21 July 1948 to 29 December 1956; and another P927.08 as
reforestation charges for the period commencing from 30 April 1947
to 24 June 1948. These reforestation charges were paid to the Republic
in pursuance of Section 1 of RA 115 which provides that there shall be
collected, in addition to the regular forest charges provided under
Section 264 of Commonwealth Act 466 known as the National Internal
Revenue Code, the amount of P0.50 on each cubic meter of timber cut
out and removed from any public forest for commercial purposes.

The amount collected shall be expended by the director of forestry,

with the approval of the secretary of agriculture and commerce, for
reforestation and afforestation of water sheds, denuded areas and
other public forest lands, which upon investigation, are found needing
reforestation or afforestation. The total amount of the reforestation
charges paid by Mambulao Lumber Company is P9,127.50, and it is its
contention since the Republic has not made use of those reforestation
charges collected from it for reforesting the denuded area of the land
covered by its license, the Republic should refund said amount, or, if it
cannot be refunded, at least it should be compensated with what the
company owed the Republic for reforestation charges.

In line with this thought, the company wrote the Director of Forestry,
on 21 February 1957, a letter where it requested that its account with
the bureau be credited with all the reforestation charges that it have
imposed on them from 1 July 1947 to 14 June 1956, amounting to
around P2,988.62.

This letter was answered by the Director of Forestry on 12 March 1957,

in which the Director quoted an opinion of the Secretary of Justice, to
the effect that he has no discretion to extend the time for paying the
reforestation charges and also explained why not all denuded areas are
being reforested. The trial court ordered the company to pay the
Republic the sum of P4,802.37 with 6% interest thereon from the date
of the filing of the complaint until fully paid, plus costs. The lumber
company interposed the appeal.

Issue:

WON the respondent should be refunded of those reforestation

charges collected from it?

Ruling:

No.

Section 1 provides that there shall be collected, in addition to the

regular forest charges provided for under section 264 of
Commonwealth Act 466, known as the National Internal Revenue Code.

It seems quite clear that the amount collected as reforestation charges

from a timber licensee or concessionaire shall constitute a fund to be
known as the Reforestation Fund, and that the same shall be
expended by the Director of Forestry, with the approval of the
Secretary of Agriculture and Natural Resources for the reforestation or
afforestation, among others, of denuded areas which, upon
investigation, are found to be needing reforestation or afforestation.
Note that there is nothing in the law which requires that the amount
collected as reforestation charges should be used exclusively for the
reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same should be refunded
to him. The licensees area may or may not be reforested at all,
depending on whether the investigation thereof by the Director of
Forestry shows that said area needs reforestation.

The amount paid by a licensee as reforestation charges is in the

nature of a tax which forms a part of the Reforestation Fund,
payable by him irrespective of whether the area covered by his
license is reforested or not. Said fund, as the law expressly
provides, shall be expended in carrying out the purposes provided for
thereunder, namely, the reforestation or afforestation, among others,
of denuded areas needing reforestation or afforestation.

Under Article 1278, NCC, compensation should take place when two
persons in their own right are creditors and debtors of each other.
With respect to the forest charges which the company has paid
to the government, they are in the coffers of the government
as taxes collected, and the government does not owe anything
to the company. The Republic and the company are not creditors and
debtors of each other, because compensation refers to mutual debts.
In short, the law on compensation is inapplicable and the sum of
P9,127.50 paid by the company as reforestation charges may not be
compensated for its indebtedness to the Government in the sum of
P4,802.37 as forest charges.

Internal revenue taxes, such as forest charges, cannot be the

subject of set-off or compensation. A claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in
an action or any indebtedness of the state or municipality to
one who is liable to the state or municipality for taxes. Neither
are they a proper subject of recoupment since they do not arise out of
the contract or transaction sued on (80 C.J.S. 73-74.).

Rationale for the rule that tax cannot be subject of set-off: Tax
not in the nature of contracts

Based on grounds of public policy, no set-off is admissible against

demands for taxes levied for general or local governmental purposes.
The reason on which the general rule is based, is that taxes are not in
the nature of contracts between the party and party but grow out of a
duty to, and are the positive acts of the government, to the making
and enforcing of which, the personal consent of individual taxpayers is
not required. If the taxpayer can properly refuse to pay his tax when
called upon by the Collector, because he has a claim against the
governmental body which is not included in the tax levy, it is plain that
some legitimate and necessary expenditure must be curtailed. If the
taxpayers claim is disputed, the collection of the tax must await and
abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. (47 Am. Jur. 766-767.)

GR. NO 96541 (August 24, 1993)

DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA SIGUION

REYNA, PROF. RICARTE M. PURUGANAN, IRMA POTENCIANO,
ADRIAN CRISTOBAL, INGRID SANTAMARIA, CORAZON FIEL,
AMBASSADOR E. AGUILAR CRUZ, FLORENCIO R. JACELA, JR.,
MAURO MALANG, FEDERICO AGUILAR ALCUAZ, LUCRECIA R.
URTULA, SUSANO GONZALES, STEVE SANTOS, EPHRAIM
SAMSON, SOLER SANTOS, ANG KIU KOK, KERIMA POLOTAN,
LUCRECIA KASILAG, LIGAYA DAVID PEREZ, VIRGILIO ALMARIO,
LIWAYWAY A. ARCEO, CHARITO PLANAS, HELENA BENITEZ,
ANNA MARIA L. HARPER, ROSALINDA OROSA, SUSAN CALO
MEDINA, PATRICIA RUIZ, BONNIE RUIZ, NELSON NAVARRO,
MANDY NAVASERO, ROMEO SALVADOR, JOSEPHINE DARANG,
and PAZ VETO PLANAS, petitioners,

vs.

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG),

CATALINO MACARAIG, JR., in his official capacity, and/or the
Executive Secretary, and CHAIRMAN MATEO A.T.

FACTS:

On August 15,1990, Chairman Caparas of the PCGG, signed the

Consignment Agreement with the authority given by the President
Aquino on August 14,1990, through former Executive Secretary
Catalino Macaraig, Jr., allowing Christie's of New York to auction off (82)
Old Masters Paintings seized from Malacaang and the Metropolitan
Museum of Manila and the (71) cartons of antique silverware in the
custody of the Central Bank of the Philippines, and such other property
as may subsequently be identified by PCGG and accepted by
CHRISTIE'S to be subject to the provisions of the agreement which
were alleged to be part of the ill-gotten wealth of the late President
Marcos, his relatives and cronies for and in behalf of the Republic of the
Philippines scheduled January 11,1991.

On October 26,1990, Chairman Eufemio C. Domingo of COA

submitted to President Aquino the audit result on the Consignment
Agreement that: (a) the authority of former PCGG Chairman Caparas to
enter into the Consignment Agreement was of doubtful legality; (b) the
contract was highly disadvantageous to the government; (c) PCGG had
a poor track record in asset disposal by auction in the U.S.; and, (d) the
assets subject of auction were historical relics and had cultural
significance, hence, their disposal was prohibited by law. Then the new
PCGG Chairman David M. Castro, defended the contract made and
refuting the allegations of Chairman Domingo on November 15,1990.
On that same date , Director of National Museum Gabriel S. Casal
issued a certification that the items subject of the Consignment
Agreement did not fall within the classification of protected cultural
properties and did not specifically qualify as part of the Filipino cultural
heritage. Hence the petition was filed on January 7,1991. Petitioners,
as taxpayers and citizens, seek to enjoin the PCGG from proceeding
with a previously held auction sale of the Old Masters Paintings and 18
th and 19 th century silverware seized from Malacanang and the
Metropolitan Museum of Manila and placed in custody of the Central
Bank.

ISSUE: Will the suit prosper?

RULING:

There are certain instances however when the Court has allowed
exceptions to the rule on legal standing, as when a citizen brings a
case for mandamus to procure the enforcement of a public duty for the
fulfillment of a public right recognized by the Constitution, and when a
taxpayer questions the validity of a governmental act authorizing the
disbursement of public funds.

Petitioners claim that as Filipino citizens, taxpayers and artists

deeply concerned with the preservation and protection of the country's
artistic wealth, they have the legal personality to restrain respondents
Executive Secretary and PCGG from acting contrary to their public duty
to conserve the artistic creations as mandated by the 1987
Constitution, particularly Art. XIV, Secs. 14 to 18, on Arts and Culture,
and R.A. 4846 known as "The Cultural Properties Preservation and
Protection Act," governing the preservation and disposition of national
and important cultural properties. Petitioners also anchor their case on
the premise that the paintings and silverware are public properties
collectively owned by them and by the people in general to view and
enjoy as great works of art. They allege that with the unauthorized act
of PCGG in selling the art pieces, petitioners have been deprived of
their right to public property without due process of law in violation of
the Constitution.

Petitioners' arguments are devoid of merit. They lack basis in fact

and in law. They themselves allege that the paintings were donated by
private persons from different parts of the world to the Metropolitan
Museum of Manila Foundation, which is a non-profit and non-stock
corporations established to promote non-Philippine arts. The
foundation's chairman was former First Lady Imelda R. Marcos, while its
president was Bienvenido R. Tantoco. On this basis, the ownership of
these paintings legally belongs to the foundation or corporation or the
members thereof, although the public has been given the opportunity
to view and appreciate these paintings when they were placed on
exhibit.

Having failed to show that they are the legal owners of the
artworks or that the valued pieces have become publicly owned,
petitioners do not possess any clear legal right whatsoever to question
their alleged unauthorized disposition.

Also, Neither can this petition be allowed as a taxpayer's suit.

Not every action filed by a taxpayer can qualify to challenge the
legality of official acts done by the government. A taxpayer's suit can
prosper only if the governmental acts being questioned involve
disbursement of public funds upon the theory that the expenditure of
public funds by an officer of the state for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds,
which may be enjoined at the request of a taxpayer. Obviously,
petitioners are not challenging any expenditure involving public funds
but the disposition of what they allege to be public properties. It is
worthy to note that petitioners admit that the paintings and antique
silverware were acquired from private sources and not with public
money.

PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air
transportation business under a legislative franchise, Act No. 42739.
Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner
Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8,
Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's
motor vehicles unless the amounts imposed under Republic Act 4136
were paid. PAL thus paid, under protest, registration fees of its motor
vehicles. After paying under protest, PAL through counsel, wrote a
letter dated May 19,1971, to Land Transportation Commissioner Romeo
Edu (Edu) demanding a refund of the amounts paid. Edu denied the
request for refund. Hence, PAL filed a complaint against Edu and
National Treasurer UbaldoCarbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the

Court of Appeals which in turn certified the case to the Supreme Court.

ISSUE:
Whether or not motor vehicle registration fees are considered
as taxes.

RULING:
They are taxes. Taxes are for revenue, whereas fees are
exactions for purposes of regulation and inspection, and are for that
reason limited in amount to what is necessary to cover the cost of the
services rendered in that connection. It is the object of the charge, and
not the name, that determines whether a charge is a tax or a fee. The
money collected under the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicles Office but accrues to the funds for
the construction and maintenance of public roads, streets and
bridges. As the fees are not collected for regulatory purposes as an
incident to the enforcement of regulations governing the operation of
motor vehicles on public highways, but to provide revenue with which
the Government is to construct and maintain public highways for
everyones use, they are veritable taxes, not merely fees. PAL is, thus,
exempt from paying such fees, except for the period between June 27,
1968 to April 9, 1979, where its tax exception in the franchise was
repealed.

SEA-LAND SERVICE, INC. v. COURT OF APPEALS, G.R. No.

122605. April 30, 2001

Sea-Land Service Incorporated (SEA-LAND), an American international

shipping company entered into a contract with the United States
Government to transport military household goods and effects of U. S.
military personnel assigned to the Subic Naval Base.

During the taxable year in question, SEA-LAND filed with the Bureau of
Internal Revenue (BIR) the corresponding corporate Income Tax Return
(ITR) and paid the income tax due thereon.

"Claiming that it paid the aforementioned income tax by mistake, a

written claim for refund was filed with the BIR. However, before the
said claim for refund could be acted upon by public respondent
Commissioner of Internal Revenue, petitioner-appellant filed a petition
for review with the CTA, to judicially pursue its claim for refund and to
stop the running of the two-year prescriptive period under the then
Section 243 of the NIRC.

Issue:

Whether or not the income that petitioner derived from services in

transporting the household goods and effects of U. S. military
personnel falls within the tax exemption provided in Article XII,
paragraph 4 of the RP-US Military Bases Agreement.

Ruling:

No.

The RP-US Military Bases Agreement provides:

"No national of the United States, or corporation organized under the

laws of the United States, resident in the United States, shall be liable
to pay income tax in the Philippines in respect of any profits derived
under a contract made in the United States with the government of the
United States in connection with the construction, maintenance,
operation and defense of the bases, or any tax in the nature of a
license in respect of any service or work for the United States in
connection with the construction, maintenance, operation and defense
of the bases."

Petitioner Sea-Land Service, Inc. a US shipping company licensed to do

business in the Philippines earned income during taxable year 1984
amounting to P58,006,207.54, and paid income tax thereon of 1.5%
amounting to P870,093.12.

The question is whether petitioner is exempted from the payment of

income tax on its revenue earned from the transport or shipment of
household goods and effects of US personnel assigned at Subic Naval
Base.

"Laws granting exemption from tax are construed strictissimi juris

against the taxpayer and liberally in favor of the taxing power. Taxation
is the rule and exemption is the exception." The law "does not look
with favor on tax exemptions and that he who would seek to be thus
privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted." Virt

It is obvious that the transport or shipment of household goods and

effects of U. S. military personnel is not included in the term
"construction, maintenance, operation and defense of the bases."
Neither could the performance of this service to the U. S. government
be interpreted as directly related to the defense and security of the
Philippine territories. "When the law speaks in clear and categorical
language, there is no reason for interpretation or construction, but only
for application." Any interpretation that would give it an expansive
construction to encompass petitioners exemption from taxation would
be unwarranted.

The avowed purpose of tax exemption "is some public benefit or

interest, which the lawmaking body considers sufficient to offset the
monetary loss entailed in the grant of the exemption." 10 The hauling
or transport of household goods and personal effects of U.S. military
personnel would not directly contribute to the defense and security of
the Philippines.
Remulla vs. Maliksi, GR No. 171633, Sep 18, 2013

On May 7, 1957, Marietta O'Hara de Villa (de Villa), in her personal

capacity and as administratrix of the estate of her late husband
Guillermo, ceded, through a deed of donation (1957 deed of donation),
134,957 square meters (sq. m.) (donated portion) of their 396,622 sq.
m. property (subject property) in favor of the Province of Cavite, on
which now stands various government offices and facilities.

On December 28, 1981 and February 1, 1982, [6] the Province of Cavite
respectively filed a Complaint and an Amended Complaint, before the
then Court of First Instance of Cavite seeking to expropriate, for the
amount of P215,050.00, the remaining 261,665 sq. m. of the subject
property which the former intends to develop as the Provincial Capitol
Site. Accordingly, the Province of Cavite made a preliminary deposit of
the amount of P21,505.00 and, on January 4, 1982, the RTC issued a
Confirmatory Writ of Immediate Possession in its favor, by virtue of
which the Province of Cavite took possession of the entire property.

For her part, de Villa, through her Answer, [9] opposed the expropriation
proceedings, claiming that there are still areas within the donated
portion which the Province of Cavite failed to develop. [10] She also
alleged that the fair market value of the subject property should be
pegged at the amount of P11,272,500.00, or at P45.00 per sq. m. [11] On
June 9, 1989, while the expropriation case was still pending, de Villa
sold, for the amount of P2,000,000.00, [12] the 261,665 sq. m. portion of
the subject property to Goldenrod, Inc. (Goldenrod), a joint venture
company owned by Sonya G. Mathay (Mathay) and Eleuterio M.
Pascual, Jr. (Pascual).[13] Subsequently, Mathay and Pascual intervened
in the expropriation case.[14]

On November 4, 2003, respondent then Cavite Governor Erineo S.

Maliksi (Maliksi) issued Executive Order No. 004 [15] authorizing the
creation of a committee which recommended the terms and conditions
for the proper settlement of the expropriation case. The said
committee thereafter submitted its Committee Report [16] dated
November 24, 2003 recommending that: (a) the just compensation be
pegged at the amount of P495.00 per sq. m. plus 6% annual interest
for 22 years,[17] for a total net consideration of P50,000,000.00, which
amount shall be equally shouldered by the Province of Cavite and Trece
Martires City; (b) the total area to be expropriated be limited to only
116,287 sq. m. and the donated portion be reduced to 48,429 sq. m.;
and (c) 193,662 sq. m. of the subject property be reverted to
Goldenrod which include a fenced stadium, one-half of the Trece
Martires Cemetery, the forest park; a residential area, and some stalls;
in turn, Goldenrod will construct a commercial/business center, an
art/historical museum, and an educational institution within five years
from the signing of the compromise agreement, among others.

The foregoing recommendations were then adopted/embodied in a

Compromise Agreement[18] dated December 8, 2003 (subject
compromise) entered into by and between Maliksi and then Trece
Martires City Mayor Melencio De Sagun, Jr., both assisted by
respondent Cavite Provincial Legal Officer Atty. Renato A. Ignacio
(Ignacio), and, on the other hand, Mathay and Pascual, in their capacity
as owners of Goldenrod. On February 28, 2004, Goldenrod sold its
landholdings to Mathay and Pascual for the amount of P400,000.00.[19]

Thereafter, the subject compromise was approved by the RTC in a

Decision[20] dated March 18, 2004 and an Amended Decision [21] dated
March 25, 2004 (compromise judgment), both of which were ratified by
the Sangguniang Panlalawigan of the Province of Cavite and the
Sangguniang Panlungsod of Trece Martires City per Resolution Nos.
195-S-2004[22] and 2004-049,[23] respectively.

The Proceedings Before The CA

On September 21, 2004, Remulla, in his personal capacity as

taxpayer and as then Vice-Governor and, hence, Presiding Officer
of the Sangguniang Panlalawigan of the Province of Cavite, [24] filed a
petition for annulment of judgment under Rule 47 of the Rules of
Court before the CA, arguing that the subject compromise is grossly
disadvantageous to the government because: (a) the agreed price for
the subject property was excessive as compared to its value at the
time of taking in 1981;[26] (b) the government stands to lose prime lots;
[27]
and (c) it nullifies/amends the 1957 deed of donation. [28] Moreover,
Maliksi entered into the subject compromise without authority from the
Sangguniang Panlalawigan of the Province of Cavite and sans any
certification on the availability of funds as required by law. [29] Remulla
claimed that extrinsic fraud tainted the expropriation proceedings
considering that there was collusion between the parties and that
respondent Ignacio deliberately withheld crucial information regarding
the property valuation and certain incidents prior to the expropriation
case when he presented the subject compromise for ratification before
the Sangguniang Panlalawigan of the Province of Cavite.[30]

On motion of respondents, however, the CA rendered a Resolution [31]

dated May 18, 2005, dismissing Remulla's petition for annulment of
judgment based on the following grounds: (a) there was yet no
disbursement of public funds at the time of its filing; thus, it cannot be
considered as a taxpayer's suit; and (b) Remulla was not a real party in
interest to question the propriety of the subject compromise as he was
not a signatory thereto.[32]
Aggrieved, Remulla filed a motion for reconsideration which was,
however, denied by the CA in a Resolution [33] dated February 16, 2006.
Hence, the instant petition.

Issue:

WON the CA is correct indenying Remulla's petition for annulment of

judgment due to his lack of legal standing.

Ruling:

No.

Records bear out that Remulla filed his petition for annulment of
judgment in two capacities: first, in his personal capacity as a
taxpayer; and, second, in his official capacity as then presiding officer
of the Sangguniang Panlalawigan of the Province of Cavite.

With respect to the first, jurisprudence dictates that a taxpayer may be

allowed to sue where there is a claim that public funds are illegally
disbursed or that public money is being deflected to any improper
purpose, or that public funds are wasted through the enforcement of
an invalid or unconstitutional law or ordinance. In this case, public
funds of the Province of Cavite stand to be expended to enforce the
compromise judgment. As such, Remulla being a resident-
taxpayer of the Province of Cavite has the legal standing to file
the petition for annulment of judgment and, therefore, the
same should not have been dismissed on said ground. Notably,
the fact that there lies no proof that public funds have already been
disbursed should not preclude Remulla from assailing the validity of
the compromise judgment. Lest it be misunderstood, the concept of
legal standing is ultimately a procedural technicality which may be
relaxed by the Court if the circumstances so warrant.

As observed in Mamba v. Lara, the Court did not hesitate to give

standing to taxpayers in cases where serious legal issues were raised
or where public expenditures of millions of pesos were involved.
Likewise, it has also been ruled that a taxpayer need not be a party to
the contract in order to challenge its validity, or to seek the annulment
of the same on the ground of extrinsic fraud. Indeed, for as long as
taxes are involved, the people have a right to question contracts
entered into by the government, as in this case.

Anent the second, Remulla equally lodged the petition for annulment of
judgment in his official capacity as then Vice-Governor and Presiding
Officer of the Sangguniang Panlalawigan of the Province of Cavite. As
such, he represents the interests of the province itself which is,
undoubtedly, a real party in interest since it stands to be either
benefited or injured[40] by the execution of the compromise judgment.

For these reasons, the CA should not have dismissed the petition for
annulment of judgment on account of Remulla's lack of legal standing.
Consequently, the case should be remanded to the said court for
further proceedings.