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G.R. No. 119761; August 29, 1996

Facts: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different
brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as
foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortun changed the names of 'Hope' to 'Hope Luxury'and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category.

A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted
55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2
days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was
issued by the BIR saying since there is no showing who the real owner/s are of Champion, Hope and
More, it follows that the same shall be considered locally manufactured foreign brand for purposes of
determining the ad valorem tax - 55%. BIR sentvia telefax a copy of RMC 37-93 to Fortune Tobacco
addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox
copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to

Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of Fortune. CA

Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC

Held. YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which
publication, filing, and prior hearing.

When an administrative rule is merely interpretative in nature, its applicability needs nothing further
than its bare issuance for it gives no real consequence more than what the law itself has already
prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for
the means that can facilitate or render least cumbersome the implementation of the law but
substantially increases the burden of those governed, the agency must accord, at least to those directly
affected, a chance to be heard, before that new issuance is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in
fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and
"Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply
interpreted the law; verily, it legislated under its quasi-legislativeauthority. The due observance of the
requirements of notice, of hearing, and of publication should not have been then ignored.

ommissioner vs. AlgueGRL-28890, 17 February 1988First Division, Cruz (J); 4 concurFacts: The Philippine
Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,authorizing it to sell its
land, factories, and oil manufacturing process. The Vegetable Oil InvestmentCorporation (VOICP)
purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this
commission that it paid Guevara, et. al. organizers of the VOICP, P75,000in promotional fees. In 1965,
Algue received an assessment from the Commissioner of Internal Revenuein the amount of P83,183.85
as delinquency income tax for years 1958 amd 1959. Algue filed a protestor request for reconsideration
which was not acted upon by the Bureau of Internal Revenue (BIR). Thecounsel for Algue had to accept
the warrant of distrant and levy. Algue, however, filed a petition forreview with the Coourt of Tax
Appeals.Issue: Whether the assessment was reasonable.Held: Taxes are the lifeblood of the government
and so should be collected without unnecessaryhindrance. Every person who is able to pay must
contribute his share in the running of the government.The Government, for his part, is expected to
respond in the form of tangible and intangible benefitsintended to improve the lives of the people and
enhance their moral and material values. This symbioticrelationship is the rationale of taxation and
should dispel the erroneous notion that is an arbitrarymethod of exaction by those in the seat of power.
Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. For all the awesome power of the tax collector, he may still be stopped in
his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed
deduction (pursuant to Section 30[a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as
to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the
payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing
investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions
of pesos. The assessment was not reasonable.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988


Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities

On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes
from 1958-1959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18

On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty.
Guevara, who refused to receive it on the ground of the pending protest

Since the protest was not found on the records, a file copy from the corp was produced and given
to BIR Agent Reyes, who deferred service of the warrant

On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be served

On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax

CIR contentions:

- the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense

- payments are fictitious because most of the payees are members of the same family in control of
Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
Algue as legitimate business expenses in its income tax returns


Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance, made in accordance with law.

RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling

During the intervening period, the warrant was premature and could therefore not be served.

Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but
later on conformed to the decision of CTA
There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the
evidence, that no distribution of dividends was involved

CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary

Algue Inc. was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received by him or her, to make up the total of
P75,000.00. This arrangement was understandable in view of the close relationship among the persons
in the family corporation

The amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue
still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60%
of the total commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.

Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for personal services actually
rendered xxx

the burden is on the taxpayer to prove the validity of the claimed deduction

In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in
the light of the efforts exerted by the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a new business requiring millions of

Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values

Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the courts will then come to his succor
Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep.
Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the
Internal Revenue Code and should therefore not have been disallowed by the CIR


LUTZ VS. ARANETAGR L-7859December 22, 1955Reyes, J.:

FACTS:Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought torecover the sum
of Php14, 666.40 paid by the estate as taxes, alleging that such tax isunconstitutional as it levied for the
aid and support of the sugar industry exclusively whichis in his opinion not a public purpose.

ISSUE:Whether or not tax is valid in supporting the sugar industry?

RULING: The court ruled that the tax is valid as it served public purpose. The tax provided forin CA 567 is
primarily an exercise of police power since sugar is a great source of incomefor the country and employs
thousands of laborers. Hence, it was competent for thelegislature to find that the general welfare
demanded that the sugar industry should bestabilized in turn; and in the wide field of its police power,
the lawmaking body couldprovide that the distribution of benefits therefrom be readjusted among its
components toenable it to resist the added strain of the increase in taxes that it had to sustain.

GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not
the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the
constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative
the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the
field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The
reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
convenience. Tax exemptions have never been thought of as raising revenues under the equal protection

GR No. L-7859, December 22, 1955
98 PHIL 148

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio
sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA
567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the
existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose
but solely and exclusively for the aid and support of the sugar industry thus making it void and
The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be
stabilized by imposition of emergency measures.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the
purpose of
which is not for the benefit of the general public but for the rehabilitation only of the sugar industry?

HELD: Yes. The protection and promotion of the sugar industry is a matter of public concern, it follows that
Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed to fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in the law bear no relation to the objective
pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is
seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power.

Kent Joseph B. Limpot Atty. Erikson V. Eustaquio(4ALM) July 14, 2012Income Taxation (LMG15)Facts:
On September 1, 1986, Valentino Tio (Tio for brevity), on his own behalf andpurportedly on behalf of other
videogram operators adversely affected, filed a petition assailingthe constitutionality of
Presidential Decree (P.D.) No. 1987 entitled An Act Creating theVideogram Regulatory Board with
broad powers to regulate and supervise the vide
ogramindustry. The rationale behind the enactment of the aforesaid Decree may be summarized in itseighth (8
) whereas clause stating that grave emergencies corroding the moral values of thepeople and betraying the national
economic recovery program necessitate the adoption of boldmeasures with dispatch. On October 23, 1986, the
Greater Manila Theaters Association,Integrated Movie Producers, Importers and Distributors Association of the
Philippines, andPhilippine Motion Pictures Producers Association were permitted by the Supreme Court (SC) to
intervene in the case over Tios opposition
upon the allegations that intervention was necessaryfor the complete protection
of their rights and that their survival and very existence is
threatened by the unregu
lated proliferation of film piracy.
Whether or not Section 10 of P.D. No. 1987, which imposes a tax of thirty percent (30%)on the gross receipts
payable to the local government is a rider and the same is notgermane to the subject thereof;(2)

Whether or not the tax imposed is harsh, confiscatory, oppressive and/or in unlawfulrestraint of trade in violation of
the due process of the Constitution; and(3)

Whether or not there is undue delegation of power and authority;

As to the first issue
, the SC held that Tios contention that the tax provision of the
Decreeis a rider is bereft and devoid of merit because the title of the Decree, which is the creation of theVideogram
Regulatory Board (VRB) aimed at regulating and controlling the video industry, iscomprehensive enough to include
the purposes expressed in its Preamble and reasonably coversall its provisions. Moreover, it is unnecessary to
express all those objectives in the title or that thelatter be an index to the body of the decree. As to the second issue,
the SC held that it isaxiomatic that a tax does not cease to be valid merely because it regulates, discourages, or
evendefinitely deters the activities taxed. The legislature acts upon its constituents in imposing a tax;thus, in general,
a sufficient security against erroneous and oppressive taxation is afforded thetaxpayer. More importantly, the tax
imposed by the Decree is also a revenue measure. The tax of 30% is exacted for a public purpose, i.e. to answer the
need for regulating the video industry,particularly because of the rampant film piracy, the flagrant violation of
intellectual propertyrights, and the proliferation of pornographic video tapes. As to the third issue, the SC held
thatthe grant in Section 11 of the Decree of authority to the VRB to solicit the direct assistance of other agencies
and units of the government and deputize, for a fixed and limited period, theheads or personnel of such agencies and
units to perform enforcement functions for the Boardisnot a delegation of the power to legislate but merely a
conferment of authority or discretion as toits execution, enforcement, and implementation.