TAXATION

LUTZ VS. ARANETA

GR L-7859 December 22, 1955

Reyes, J.:

FACTS:

Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to recover the sum of
Php14, 666.40 paid by the estate as taxes, alleging that such tax is unconstitutional as it levied for the aid and
support of the sugar industry exclusively which is 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 for in CA 567 is
primarily an exercise of police power since sugar is a great source of income for the country and employs
thousands of laborers. Hence, it was competent for the legislature to find that the general welfare demanded
that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body
could provide that the distribution of benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain.

COMMISSIONER OF IR VS CENTRAL LUZON DRUG CORP

GR 148512 June 26, 2006

Azcuna, J.:

FACTS:

This is a petition for review under Rule 45 of Rules of Court seeking the nullification of CA decision
granting respondent’s claim for tax equal to the amount of the 20% that it extended to senior citizens on the
latter’s purchases pursuant to Senior Citizens Act. Respondent deducted the total amount of Php219,778 from its
gross income for the taxable year 1995 whereby respondent did not pay tax for that year reporting a net loss of
Php20,963 in its corporate income tax. In 1996, claiming that the Php219,778 should be applied as a tax credit,
respondent claimed for refund in the amount of Php150, 193.

ISSUE:

Whether or not the 20% discount granted by the respondent to qualified senior citizens may be claimed
as tax credit or as deduction from gross sales?

RULING:

“Tax credit” is explicitly provided for in Sec4 of RA 7432. The discount given to Senior citizens is a tax
credit, not a deduction from the gross sales of the establishment concerned. The tax credit that is contemplated
under this Act is a form of just compensation, not a remedy for taxes that were erroneously or illegally assessed
and collected. In the same vein, prior payment of any tax liability is a pre-condition before a taxable entity can
benefit from tax credit. The credit may be availed of upon payment, if any. Where there is no tax liability or
where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over
to the next taxable year.
APOSTOLIC PREFECT VS CITY TREASURER OF BAGUIO CITY

GR 4752 April 18, 1941

Imperial, J.:

FACTS:

The Apostolic Prefect is a corporation , of religious character, organized under the Philippine laws, and
with residence in Baguio. The City imposed a special assessment against properties within its territorial
jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The
Apostolic Prefect contends that its properties should be free of tax being of religious in character.

ISSUE:

Whether or not Apostolic Prefect, as a religious entity is exempt from the payment of the special
assessment.

RULING:

A special assessment is not a tax; and neither the decree nor the Constitution exempt petitioner from
payment of said special assessment. Although it its broad meaning, tax includes both general taxes and special
assessment, yet there is a recognized distinction: Assessment is confined to local impositions upon property for
the payment of the cost of public improvements in its immediate vicinity and levied with special benefits to the
property assessed. Petitioner likewise, has proven that the property in question is used exclusively for religious
purposes; but that it appears the same is being used to other non-religious purposes. Thus, petitioner is required
to pay the special assessment.

PAL VS EDU

HR L-41383 August 15, 1988

Gutierrez, J.:

FACTS:

PAL is engaged in air transportation business under a legislative franchise wherein it is exempt from tax
payment. PAL has not been paying motor vehicle registration since 1956. The Land Registration Commissioner
required all tax exempt entities including PAL to pay motor vehicle registration fees.

ISSUE:

Whether or not registration fees as to motor vehicles are taxes to which PAL is exempted.

RULING:

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 Motor Vehicle Law is not intended for the expenditures of the MV Office but accrues to the
funds for the construction and maintenance of public roads, streets and bridges.

As 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 everyone’s 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 exemption in the franchise was repealed.

CALTEX PHILIPPINES VS CA

G.R. 925585 MAY 8, 1992

Davide, J.:

FACTS:

In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on
petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held
in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from the OPSF
covering claims with the Office of Energy Affairs. COA denied the same.

ISSUE:

Whether of not petitioner can avail of the right to offset any amount that it may be required under the
law to remit to the OPSF against any amount that it may receive by way of reimbursement.

RULING:

It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

The oil companies merely acted as agents for the government in the latter’s collection since taxes are
passed unto the end-users, the consuming public.

DOMINGO VS GARLITOS

G.R. NO. 18993 June 29, 1963

Labrador, J.:

FACTS:

In Domingo vs. Moscoso, the Supreme Court declared as final and executor the order of the lower court
for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by the estate
of the of the late Walter Price. The petitioner for execution filed by the fiscal was denied by the lower court. The
court held that the execution is unjustified as the Government is indebted to the estate for Php262,200 and
ordered the amount of inheritance taxes can be deducted from the Government’s indebtedness to the estate.

ISSUE:

Whether of not a tax and a debt may be compensated.

RULING:

The court having jurisdiction of the Estate had found that the claim of the Estate against the government
has been recognized and the amount has already been appropriated by a corresponding law. Both the claim of
the Government for inheritance taxes and the claim of the intestate for services rendered have already become
overdue and demandable is well as fully liquidated. Compensation takes place by operation of law and both
debts are extinguished to the concurrent amount. Therefore the petitioner has no clear right to execute the
judgment for taxes against the estate of the deceased Walter Price.

GARCIA VS. EXECUTIVE SECRETARY

211 SCRA 219 July 3, 1992

Feliciano, J.:

FACTS:

The President issued an EO which imposed, across the board, including crude oil and other oil products,
additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a report to the
President for consideration and appropriate action. The President, on the other hand issued an EO which levied a
special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products.

ISSUE:

Whether of not the President may issue an EO which is tantamount to enacting a bill in the nature of
revenue-generating measures.

RULING:

The Court said that although the enactment of appropriation, revenue and tariff bills is within the
province of the Legislative, it does not follow that EO in question, assuming they may be characterized as
revenue measure are prohibited to the President, that they must be enacted instead by Congress. Section 28 of
Article VI of the 1987 Constitution provides:

“The Congress may, by law authorize the President to fix… tariff rates and other duties or imposts…”

The relevant Congressional statute is the Tariff and Customs Code of the Philippines and Sections 104
and 401, the pertinent provisions thereof.

BENGZON VS. DRILON

G.R. 103524 April 15, 1992 208 SCRA 133

Gutierrez, J.:

FACTS:

Petitioners are retired justices of the Supreme Court and Court of Appeals who are currently receiving
pensions under RA 910 as amended by RA 1797. President Marcos issued a decree repealing section 3-A of RA
1797 which authorized the adjustment of the pension of retired justices and officers and enlisted members of
the AFP. PD 1638 was eventually issued by Marcos which provided for the automatic readjustment of the
pension of officers and enlisted men was restored, while that of the retired justices was not. RA 1797 was
restored through HB 16297 in 1990. When her advisers gave the wrong information that the questioned
provisions in 1992 GAA were an attempt to overcome her earlier veto in 1990, President Aquino issued the veto
now challenged in this petition.

It turns out that PD 644 which repealed RA 1797 never became a valid law absent its publication, thus
there was no law. It follows that RA 1797 was still in effect and HB 16297 was superfluous because it tried to
restore benefits which were never taken away validly. The veto of HB 16297 did not also produce any effect.

ISSUE:

Whether or not the veto of the President of certain provisions in the GAA of FY 1992 relating to the
payment of the adjusted pensions of retired Justices is constitutional or valid.

RULING:

The veto of these specific provisions in the GAA is tantamount to dictating to the Judiciary ot its funds
should be utilized, which is clearly repugnant to fiscal autonomy. Pursuant to constitutional mandate, the
Judiciary must enjoy freedom in the disposition of the funds allocated to it in the appropriations law.

Any argument which seeks to remove special privileges given by law to former Justices on the ground
that there should be no grant of distinct privileges or “preferential treatment” to retired Justices ignores these
provisions of the Constitution and in effect asks that these Constitutional provisions on special protections for
the Judiciary be repealed.

The petition is granted and the questioned veto is illegal and the provisions of 1992 GAA are declared
valid and subsisting.

REYES VS. ALMANZOR

GR 43839-46 April 26, 1991 196 SCRA 322

Paras, J.:

FACTS:

Petitioner are owners of parcels of land leased to tenants. RA 6359 was enacted prohibiting for one year
an increase in monthly rentals of dwelling units and said Act also disallowed ejectment of lessees upon the
expiration of the usual period of lease. City assessor of Manila assessed the value of petitioner’s property based
on the schedule of market values duly reviewed by the Secretary of Finance. The revision entailed an increase to
the tax rates and petitioners averred that the reassessment imposed upon them greatly exceeded the annual
income derived from their properties.

ISSUE:

Whether or not income approach is the method to be used in the tax assessment and not the
comparable sales approach.

RULING:

By no stretch of the imagination can the market value of properties covered by PD 20 be equated with
the market value of properties not so covered. In the case at bar, not even factors determinant of the assessed
value of subject properties under the comparable sales approach were presented by respondent namely:

1. That the sale must represent a bonafide arm’s length transaction between a willing seller and a willing
buyer

2. The property must be comparable property.

 As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that
these properties are comparable.

Taxes are lifeblood of government, however, such collection should be made in accordance with the law
and therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation,
promotion of the welfare of common good can be achieved.

LLADOC V CIR & CTA

GR 19201 June 16, 1965 14 SCRA 293

Paredes, J.:

FACTS:

MB Estate of Bacolod City donated Php 10,000 in cash to Fr. Ruiz, then the Parish Priest of Victorias, who
was the predecessor of petitioner. MB Estate filed their donor’s gift tax but petitioner is on protest regarding
donee’s tax claiming that assessment of gift tax against the Catholic Church is against the law; that when the
donation was made. He was not yet the parish priest.

ISSUE:

Whether or not petitioner should be liable for assessed donee’s gift tax dontated.

RULING:

A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of Constitution… “exempt from taxation” as employed in the Constitution should not be interpreted
to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege
by law, in favor of petitioner, the exemption herein must be denied.

Lung Center vs. Quezon City

GR 144104 June29, 2004

En Banc, Callejo J:

Facts:

The lung center is a charitable institution within the context of 1973 and 1987 constitutions. The
elements considered in determining a charitable institution are: the statue creating the enterprise; its corporate
purposes; constitution and by-laws, methods of administration, nature of actual work performed, character of
the services rendered, indefiniteness of the beneficiaries, and the use occupation of properties. As a gen.
principle, a charitable institution doe not lose its character as such and its exemption form taxes simply because
it derives income from paying patients, or receives subsidies from government; and no money insures to the
private benefit of the persons managing or operating the institution.
Issue:

Whether or not the real properties of the lung center are exempt from real property taxes.

Ruling.

Partly No. Those portions of its real property that are leased to private entities are not exempt from
actually, direct and exclusively used for charitable purpose. Under PD 1823, the lung center does not enjoy any
property tax exemption privileges for its real properties as well as the building constructed thereon.

The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung
center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and
exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients
are exempt from real property taxes while those leased to private entities are not exempt from such taxes.

Taxation

City Assessore of Cebu vs.

Association of Benevola De Cebu

G.R 152904 June 28, 2007

Velasco, Jr. J.:

FACTS:

Benevola de Cebu is a non-stock non-profit organization which in 1990, a medical arts building was
constructed and in 1998 was issued with a certification classifying the building as commercial. City assessor of
Cebu assessed the building with a market value of Php 28,060,520 and on assessed value of Php 9,821,180 at the
assessment level of 35% and not 10% which is currently imposed on private respondent herein. Petitioner
claimed that the building is used as commercial clinic/spaces for renting out to physicians and thus classified as
commercial. Benevola de Cebu contended that the building is used actually, directly and exclusively part of
hospital and should have an assessment level of 10%

ISSUE:

Whether or not the new building is liable to pay the 35% assessment level?

RULING:

We hold that the new building is an intergical part of the hospital and should not be assessed as
commercial. Being a tertiary hospital, it is mandated to fully departmentalized and the be equipped with the
service capabilities needed to support certified medical specialist and other licensed physicians. The fact that
they are holding office is a separate building does not take away the essence and nature of their services vis-avis
the overall operation of the hospital and to its patients.
 Under the Local Government Code, Sec. 26: All lands, buildings and other improvements thereon
actually, directly and exclusively used for hospitals, cultural or scientific purposes and those owned and used by
local water districts… shall be classified as special.