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Sison vs. Ancheta, [G.R. No.

L-59431, July 25, 1984]


The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of
Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section
21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield
or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by
virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He
characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For petitioner,
therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the
rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer,
after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were
admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner,
the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa
Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do
not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired
Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was
called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers
of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal
protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes."
16 This is merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess
pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that
runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision — as petitioner
here alleges — fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on
the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice.
There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a
provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity
must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority
not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax
measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate
whether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrated that the
governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility,
or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For
the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as well
to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the
laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the
very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality
at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions
of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same."
21 Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a
leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be
uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco,25 decided
in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " 26 He likewise
added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The
problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it
"is not discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed
in similar situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax
rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at
the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that
the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no
overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is
no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities
by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.
There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show
the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal protection, and
uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

Pascual vs. Secretary of Public Works [G.R. No. L-10405, December 29, 1960]


Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case
and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief,
with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on
June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair,
extension and improvement" of Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin —
Gen. Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the time of the passage and approval of said Act, the
aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the
Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near
Shaw Boulevard, not far away from the intersection between the latter and Highway 54), which projected feeder roads "do not
connect any government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision
(as well as the lands on which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta,
who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953,
respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to
the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the
donor would submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor
of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said
council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the
construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent
Zulueta to the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the
projected feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920, the
appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said
projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress
because its members were made to believe that the projected feeder roads in question were "public roads and not private streets
of a private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned
appropriation", respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of the Philippines,
an alleged deed of donation — copy of which is annexed to the petition — of the four (4) parcels of land constituting said projected
feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same
date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the nature
of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of Congress from
being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as
null and void ab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or
increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of
constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to
execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment
and prejudice not only to the petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of
donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued
enjoining the Secretary of Public Works and Communications, the Director of the Bureau of Public Works and Highways and Jose
C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and securing
any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department
of Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent
from making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any
further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition
did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its
provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that
said respondent is " not aware of any law which makes illegal the appropriation of public funds for the improvements of . . .
private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the
same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily
involved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement
has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding
that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents
him therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that
"the legislature is without power appropriate public revenues for anything but a public purpose", that the instructions and
improvement of the feeder roads in question, if such roads where private property, would not be a public purpose; that, being
subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the
parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being expressly understood
that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it, the title to the land
hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence and void from
the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of
said donation may not be contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which
as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant herein. According
to said petition, respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the
Antonio Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned, which,
admittedly, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction,
reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by
the President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the
aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing
his subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of
said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a private,
not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta contended, in his
motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws . . . Aside
from the fact that movant is not aware of any law which makes illegal the appropriation of public funds for the improvement of
what we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established
under the Constitution of the Republic of the Philippines and the system of checks and balances underlying our political structure.
Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed violative of the Constitution or
organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is
It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is
the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the
magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion
of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra sec. 14, money
raised by taxation can be expended only for public purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-
646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The
right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose,
no appropriation of state funds can be made for other than for a public purpose.

xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the
public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might
incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary
corollary to our democratic system of government, which, as such, exists primarily for the promotion of the general welfare.
Besides, reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner
may not contest the legality of the donation above referred to because the same does not affect him directly. This conclusion is,
presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration of unconstitutionality of
the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We do
not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring,
or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with
retrospective operation, the constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when
the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and
the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation
sought a private purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after the
approval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or
legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of
said donation need not precede the declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors
of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of
the latter, except only those which are inherent in his person, including therefore, his right to the annulment of said contract,
even though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence
of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of
public funds, 5upon 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.
6Although there are some decisions to the contrary, 7the prevailing view in the United States is stated in the American
Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute,
the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal
expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of
public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as federal
laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from
that of a taxpayer of a municipal corporation to its government. Indeed, under the composite system of government existing in
the U.S., the states of the Union are integral part of the Federation from an international viewpoint, but, each state enjoys
internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same
was made by representatives of each state of the Union, not of the people of the U.S., except insofar as the former represented
the people of the respective States, and the people of each State has, independently of that of the others, ratified said
Constitution. In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S.
in consequence of an act of, and, in this sense, through the respective states of the Union of which they are citizens. The peculiar
nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its President,
who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution)

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on
the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer,
from a domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except
that the authority of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states
of the Union, insofar as the simple and unitary type of our national government is not subject to limitations analogous to those
imposed by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the
interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation
appropriating local or state public funds — which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101
U.S. 601) — has greater application in the Philippines than that adopted with respect to acts of Congress of the United States
appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two
(2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly
exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government
was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we
entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same.
Moreover, the reason that impelled this Court to take such position in said two (2) cases — the importance of the issues therein
raised — is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not
merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting
the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ
of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further
proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered.

Punsalan vs. Municipal Board of Manila [G.R. No. L-4817, May 26, 1954]


This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a public accountant, a
dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of other professionals practising in the City of
Manila who may desire to join it." Object of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with
the provision of the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July 25, 1950, imposes a municipal
occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax "by a fine of not more
than two hundred pesos or by imprisonment of not more than six months, or by both such fine and imprisonment in the discretion
of the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amended by Republic Act No. 409), which empowers
the Municipal Board of said city to impose a municipal occupation tax, not to exceed P50 per annum, on persons engaged in the
various professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code, plaintiffs, upon being required
to pay the additional tax prescribed in the ordinance, paid the same under protest and then brought the present suit for the
purpose already stated. The lower court upheld the validity of the provision of law authorizing the enactment of the ordinance
but declared the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment of the tax
was not legally authorized. From this decision both parties appealed to this Court, and the only question they have presented for
our determination is whether this ruling is correct or not, for though the decision is silent on the refund of taxes paid plaintiffs
make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty provided
for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes the enactment
of this tax ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for
the violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months" imprisonment, or both such fine
and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal and void
because it imposes a penalty not authorized by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it constitute class legislation,
are unjust and oppressive, and authorize what amounts to double taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions to which they
respectively belong have been singled out for the imposition of this municipal occupation tax; and in any event, the Legislature
may, in its discretion, select what occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select
for taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint
is that while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered
cities, not to mention municipalities. We do not think it is for the courts to judge what particular cities or municipalities should
be empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is peculiarly
within the domain of the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of
the National Government and with a population and volume of trade many times that of any other Philippine city or municipality,
Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that while
professionals with offices in Manila have to pay the tax, outsiders who have no offices in the city but practice their profession
therein are not subject to the tax. Plaintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax
upon every person "exercising" or "pursuing" — in the City of Manila naturally — any one of the occupations named, but does
not say that such person must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter
of judicial determination. The argument against double taxation may not be invoked where one tax is imposed by the state and
the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof. (51 Am. Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No. 3398 of the City of Manila
illegal and void and affirmed in so far as it holds the validity of the provision of the Manila charter authorizing it. With costs against

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Lladoc vs. Commissioner of Internal Revenue [G.R. No. L-19201, June 16, 1965]


Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of
Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality.
The total amount was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent
Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from
May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax
Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of
the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic
Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment
of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions
of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its Archbishops and Bishops with
respect to the properties of the church within their parish. They are the guardians, superintendents or administrators of these
properties, with the right of succession and may sue and be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the argument that he should not be held liable for gift taxes on
donation which he did not receive personally since he was not yet the parish priest of Victorias in the year 1957 when said
donation was given. It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin
Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's
line of thinking, we should be equally unfair to hold that the assessment now in question should have been addressed to, and
collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be. It does not
seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes which partake of the
nature of an excise upon the use made of the properties or upon the exercise of the privilege of receiving the properties. (Phipps
vs. Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and the party claiming
exemption must justify his claim by a clear, positive, or express grant of such privilege by law. (Collector vs. Manila Jockey Club,
G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)
The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution of the Philippines, should not be
interpreted to mean exemption from all kinds of taxes. Statutes exempting charitable and religious property from taxation should
be construed fairly though strictly and in such manner as to give effect to the main intent of the lawmakers. (Roman Catholic
Church vs. Hastrings 5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the respondent Commissioner of Internal Revenue appealed
from, is hereby affirmed except with regard to the imposition of the compromise penalty in the amount of P20.00 (Collector of
Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered
to pay to the respondent the amount of P900.00 as donee's gift tax, plus the surcharge of five per centum (5%) as ad valorem
penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual
payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be imposed as the failure to file a
return was not due to willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed by the Tax Court, all of
which converge on the singular issue of whether or not petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or
convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption
is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise
taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of
the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by
way of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) 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.

The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax liability exists, is, who should
be called upon to pay the gift tax? Petitioner postulates that he should not be liable, because at the time of the donation he was
not the priest of Victorias. We note the merit of the above claim, and in order to put things in their proper light, this Court, in its
Resolution of March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of such Diocese is the
real party in interest. The Solicitor General, in representation of the Commissioner of Internal Revenue, interposed no objection
to such a substitution. Counsel for the petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues and/or defenses he might
wish to raise, to which resolution counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the Roman
Catholic Bishop of Bacolod, manifested that it was submitting itself to the jurisdiction and orders of this Court and that it was
presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.
In view here of and considering that as heretofore stated, the assessment at bar had been properly made and the imposition of
the tax is not a violation of the constitutional provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3],
Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable for the payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in the sense that
petitioner herein is not personally liable for the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should
pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement as to costs.

Abra Valley College vs. Aquino [G.R. No. L-39086, June 15, 1988]


This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated June 14,
1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs.
Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare,
defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against
the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is

That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31 and back
taxes and penalties from the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment
of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must
be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said Municipal
Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on
July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building
located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure"
of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff
below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the
satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent
treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr.
Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The
certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan,
filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This
was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.

On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino
of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and
municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner,
through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned
decision. Said Stipulations reads:


COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation
of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person
of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of
the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under
Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior
College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of
real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction
of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of
P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed
upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes


Attorney for Plaintiff

Sgd. Loreto Roldan


Provincial Fiscal

Counsel for Defendants

Provincial Treasurer of

Abra and the Municipal

Treasurer of Bangued, Abra

Sgd. Demetrio V. Pre


Attorney for Defendant

Paterno Millare (Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the
government and is offering Primary, High School and College Courses, and has a school population of more than one thousand
students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120
meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the
street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the
second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand
From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and
building in question are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for
the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the
evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes
of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44
and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential
purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated
August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with
prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were
required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:






PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof,
determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and
sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470,
otherwise known as the Assessment Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure
and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence
of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for
commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment,
the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI,
of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable
or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as
the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and
standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be
true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational
purposes, and as such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption
a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively"
considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land
actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is
not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes
incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City
Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14
SCRA 991 [1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property
actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including
"a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v.
City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for
commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main
building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the
Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the
matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in
the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as
one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate
taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an
exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of
substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with
ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it
is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential
purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the
modification that half of the assessed tax be returned to the petitioner.