1. CIR vs. Algue, Inc., 158 SCRA 9 (1988) G.R. No.

L-28896 February
17, 1988

DOCTRINE: Taxation; Nature of taxes; Purpose of taxation; Collection of

taxes should be made in accordance with law.—Taxes are the lifeblood of
the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be
achieved.

FACTS: The petitioner contends that the claimed deduction of P75,000.00

was properly disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered.
The payment was 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. The
petitioner had Originally claimed these promotional fees to be personal
holding company income but later conformed to the decision of the
respondent court rejecting this assertion. In fact, as the said court found,
the amount was earned through the joint efforts of the persons among
whom it was distributed It has been established that the Philippine Sugar
Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O’Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest
in it.14 Ultimately, after its incorporation largely through the promotion of
the said persons, this new corporation purchased the PSEDC properties.15
For this sale, Algue received as agent a commission of P126,000.00, and it
was from this commission that the P75,000.00 promotional fees were paid
to the aforenamed individuals. The petitioner claims that these payments
are fictitious because most of the payees are members of the same family
in control of Algue. It is argued that no indication was made as to how
such payments were made, whether by check or in cash, and there is not
enough substantiation of such payments. In short, the petitioner suggests a
tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.

ISSUE: Whether the Promotional Expense Disallowed by the CIR Valid?

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HELD: No, the court agreed that the respondent promotional fee was a
valid deductable. The total commission paid by the Philippine Sugar Estate
Development Co. according to the Tax Code, Expenses In general are 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. 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.
That the private respondent 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 pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.

2. CIR vs Pineda, 21 SCRA 125 – lifeblood doctrine

DOCTRINE: Taxation; Income tax; Liability of an heir for tax.—An heir is liable
for the assessment as an heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an heir, he is individually answerable
for the part of the tax proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the amount of his share
(Art. 1311, Civil Code). As a holder of the property belonging to the estate,
he is liable for the tax up to the amount of the property in his possession.
The reason is that the Government has a lien on such property. But after
payment of such amount, he will have a right to contribution from his co-
heirs.

Same; Ways available to government to collect the tax.—The Government

has two ways of collecting the taxes in question. One, by going after all the
heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received, Another remedy, pursuant to
the lien created by Section 315 of the Tax Code upon all property and
rights to property belong to the taxpayer for unpaid income tax, is by
subjecting said
property of the estate which is in the hands of an heir or transferee to the
payment of the tax due the estate.

Same; Taxes are the lifeblood of the government.—Taxes are the lifeblood
of government and their prompt and certain availability is an imperious
need.

FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and
15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings
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were had in Court so that the estate was divided among and awarded to
the heirs. Atty Pineda's share amounted to about P2,500.00. After the
estate proceedings were closed, the BIR investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found
that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the
estate issued an assessment and charged the full amount to the
inheritance due to Atty. Pineda who argued that he is liable only to extent
of his proportional share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's
inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full
amount of the taxes assessed. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as his share in the
inheritance, for unpaid income taxes for which said estate is liable. By
virtue of such lien, the Government has the right to subject the property in
Pineda's possession to satisfy the income tax assessment. After such
payment, Pineda will have a right of contribution from his co-heirs, to
achieve an adjustment of the proper share of each heir in the distributable
estate. All told, the Government has two ways of collecting the tax in
question. One, by going after all the heirs and collecting from each one of
them the amount of the tax proportionate to the inheritance received;
and second, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due. This second
remedy is the very avenue the Government took in this case to collect the
tax. The Bureau of Internal Revenue should be given, in instances like the
case at bar, the necessary discretion to avail itself of the most expeditious
way to collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an imperious need.

3. Gaston vs Republic Planters Bank, 158 SCRA 626, 1988

DOCTRINE: Taxation; Levy; The stabilization fees collected are in the nature
of a tax which is within the power of the state to impose for the promotion
of the sugar industry; The levy is primarily in the exercise of the police power
of the state.—The stabilization fees collected are in the nature of a tax,
which is within the power of the State to impose for the promotion of the
sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens
(Sec. 7[b], P.D, No. 388). The collections made accrue to a "Special Fund,"
a "Development and Stabilization Fund," almost identical to the "Sugar
Adjustment and Stabilization Fund" created under Section 6 of
Commonwealth Act 567, The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to provide means for
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the stabilization of the sugar industry. The levy is primarily in the exercise of
the police power of the State (Lutz vs. Araneta, supra).

Same; Same; Same; The stabilization fees are levied by the state for the
special purpose of financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market
including the foreign market; Revenues collected treated as special fund
to be administered in trust for the purpose intended.—The stabilization fees
in question are levied by the State upon sugar millers, planters and
producers for a special purpose—that of "financing the growth and
development of the sugar industry and all its components, stabilization of
the domestic market including the foreign market." The fact that the State
has taken possession of moneys pursuant to law is sufficient to constitute
them state funds, even though they are held for a special purpose
(Lawrence vs. American Surety Co,, 263 Mich 586, 249 ALR 535, cited in 42
Am. Jur. Sec. 2, p. 718), Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the
language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the
essence of the trust intended.

Same; Same; Same; Revenues derived from tax cannot be used for purely
private purposes or for the exclusive benefit of private persons.—To rule in
petitioners' favor would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private persons. The Stabilization Fund is to be utilized
for the benefit of the entire sugar industry, "and all its components,
stabilization of the domestic market including the foreign market," the
industry being of vital importance to the country's economy and to
national interest.

Facts: Petitioners are sugar producers and planters and millers filed a
MANDAMUS to implement the privatization of Republic Planters Bank, and
for the transfer of the shares in the government bank to sugar producers
and planters. (because they are allegedly the true beneficial owners of the
bank since they pay P1.00 per picul of sugar from the proceeds of sugar
producers as STABILIZATION FEES)
The shares are currently held by Philsucom / Sugar Regulatory Admin. The
Solgen countered that the stabilization fees are considered government
funds and that the transfer of shares to from Philsucom to the sugar
producers would be irregular.

Issues: What is the nature of the P1.00 stabilization fees collected from
sugar producers?
Are they funds held in trust for them, or are they public funds?
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Are the shares in the bank (paid using these fees) owned by the
government Philsucom or privately by the different sugar planters from
whom such fees were collected?

Ruling: PUBLIC FUNDS. While it is true that the collected fees were used to
buy shares in RPB, it did not collect said fees for the account of sugar
producers. The stabilization fees were charged on sugar produced and
milled which ACCRUED TO PHILSUCOM, under PD 338.
The fees collected ARE IN THE NATURE OF A TAX., which is within the
power of the state to impose FOR THE PROMOTION OF THE SUGAR
INDUSTRY. They constitute sugar liens. The collections accrue to a SPECIAL
FUNDS. It is levied not purely for taxation, but for regulation, to provide
means TO STABILIZE THE SUGAR INDUSTRY. The levy is primarily an exercise of
police powers. The fact that the State has taken money pursuant to law is
sufficient to constitute them as STATE FUNDS, even though held for a
special purpose. Having been levied for a special purpose, the revenues
are treated as a special fund, administered in trust for the purpose
intended. Once the purpose has been fulfilled or abandoned, the balance
will be transferred to the general funds of gov’t. It is a special fund since
the funds are deposited in PNB, not in the National Treasury.
The sugar planters are NOT BENEFICIAL OWNERS. The money is collected
from them only because they it is also they who are to be benefited from
the expenditure of funds derived from it. The investing of the funds in RPB is
not alien to the purpose since the Bank is a commodity bank for sugar,
conceived for the sugar industry’ growth and development. Revenues
derived from taxes cannot be used purely for private purposes or for the
exclusive benefit of private persons. The Stabilization Fund is to be utilized
for the benefit of the ENTIRE SUGAR INDUSTRY, and all its components,
stabilization of domestic and foreign markets, since the sugar industry is of
vital importance to the country’s economy and national interest.

4. Guaranty Co., Inc., vs Commissioner, 13 SCRA 775, 1965

DOCTRINE: Taxation; Income Tax; Reinsurance premiums ceded to foreign

reinsurers subject to withholding tax.—Reinsurance premiums on local risks
ceded by domestic insurers to foreign reinsurers not doing business in the
Philippines are subject to withholding tax.

Same; Same; Reinsurance premiums ceded to foreign reinsurers

considered income from Philippine sources.—Where the reinsurance
contracts show that the activities that constituted the undertaking to
reinsure a domestic insurer against losses arising from the original insurances
in the Philippines were performed in the Philippines, the reinsurance
premiums are considered as coming from sources within the Philippines
and are subject to Philippine Income Tax.

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Same; Same; Same; Place of activity creating income controlling.—
Section 24 of the Tax Code does not require a foreign corporation to
engage in business in the Philippines in subjecting its income to tax. It
suffices that the activity creating the income is performed or done in the
Philippines. What is controlling, therefore, is not the place of business but
the place of activity that created an income.

Same; Same; Section 37 of Tax Code not all inclusive enumeration.—

Section 37 of the Tax Code is not an all-inclusive enumeration, for it merely
directs that the kinds of income mentioned therein should be treated as
income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise.

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance

company, entered into reinsurance contracts with foreign insurance
companies not doing business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines. The premiums paid by such companies
were excluded by the petitioner from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or
pay tax on them. Consequently, the CIR assessed against the petitioner
withholding taxes on the ceded reinsurance premiums to which the latter
protested the assessment on the ground that the premiums are not subject
to tax for the premiums did not constitute income from sources within the
Philippines because the foreign reinsurers did not engage in business in the
Philippines, and CIR's previous rulings did not require insurance companies
to withhold income tax due from foreign companies.

ISSUE: Are insurance companies not required to withhold tax on

reinsurance premiums ceded to foreign insurance companies, which
deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power

emanating from necessity. It is a necessary burden to preserve the State's
sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the
citizenry and those which come within the State's territory, and facilities
and protection which a government is supposed to provide. Considering
that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and
privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state. The petitioner's
defense of reliance of good faith on rulings of the CIR requiring no
withholding of tax due on reinsurance premiums may free the taxpayer
from the payment of surcharges or penalties imposed for failure to pay the
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corresponding withholding tax, but it certainly would not exculpate it from
liability to pay such withholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.

5. Gomez vs Palomar, 25 SCRA 829, 1968

DOCTRINE: Constitutional law; Statutory construction; Anti-TB Stamp Law;

Not violative of equal protection clause of the Constitution.—It is claimed
that Republic Act 1635, as amended, otherwise known as the Anti-TB
Stamp Law, is violative of the equal protection clause of the Constitution
because it constitutes mail users into a class f or the purpose of the tax
while leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemptions. Held: It is
settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. The classification of mail users is based
on the ability to pay, the enjoyment of a privilege and on administrative
convenience. Tax exemptions have never been thought of as raising issues
under the equal protection clause.

Same; Same; Same; Passed for a public purpose.—The eradication of a

dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is
sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges
of living in an organized society, established and safeguarded by the
devotion of taxes to public purposes.

Same; Same; Same; Imposition of flat rate does not violate rule of
uniformity and equality of taxation.—The imposition of a flat rate rather
than a graduated tax does not infringe the rule of uniformity and equality
of taxation. A tax need not be measured by the weight of the mail or the
extent of the service rendered. Considerations of administrative
convenience and cost afford an adequate ground for classification. The
same considerations may induce the legislature to impose a flat tax which
in effect is a charge for the transaction, operating equally on all persons
with the class regardless of the amount involved.

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San
Fernando, Pampanga. It did not bear 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 of 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

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an additional 5 centavo stamp for every mail being posted, and no mail
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly

violative of the equal protection clause?

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 administrative convenience. Tax exemptions have never
been thought of as raising revenues under the equal protection clause.

6. Lutz vs Araneta, 98 Phil 148

DOCTRINE: CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX

IN AID AND SUPPORT OF SUGAR INDUSTRY.— As the protection and
promotion of the sugar industry is a matter of Public concern, the
Legislature may determine within reasonable bounds what is necessary for
its protection and expedient for its promotion. Here, the legislative
discretion must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided in
section 6 of Commonwealth Act No. 567 bear no relation to the objective
pursued or are oppressive in character. If objective and methods area like
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 (Great Atl. & Pac. Tea Co. vs.
Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477;
M’Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

ID. ; ID. ; ID.; ; POWER OF STATE TO SELECT SUBJECT OF TAXATION.—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
110 constitutional limitation (Carmichael vs. Southern Coal & Coke Co., 301
U.S. 495, 81 L. Ed. 1245, citing numerous authorities, at 1251).

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the

intestate estate of Antionio Ledesma, 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,
8
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 unconstitutional. 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 the 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.

7. Roxas vs, CTA, 23 SCRA 276, 1968

DOCTRINE: Tax; Real estate dealer’s tax; Sale of property by landowner to

tenants under government policy to allocate lands to the landless not
subject to real estate dealer’s tax.—The act of subdividing a farm land and
selling them to the farmers-occupants on installment in response to the
Government’s policy to allocate lands to the landless is not subject to real
estate dealer’s tax. The business activity of the landowner in selling the
land involves an isolated transaction with its peculiar circumstances and
not to be considered as an act of a dealer even though there were
hundreds of vendees.

Taxation; Power of taxation to be exercised with caution.—The power of

taxation is sometimes called also the power to destroy. Therefore it should
be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the “hen that lays the golden egg”.

Income tax; Deductions; Representation expenses; Deductible only if

incurred in carrying a trade or business.—Representation expenses are
deductible from gross income as expenditures incurred in carrying on a
business or trade provided that they are reasonable in amount, ordinary
and necessa-ry, and incurred in connection with the taxpayer’s business.

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Same; Same; Contribution to a private entity that gives dividends to
stockholders is not deductible.—Contribution to the chapel at a private
university ground owned by an educational institution that gives dividends
to its stockholders is not deductible from the gross income of the taxpayer
for the reason that the net income of said university inures to the benefit of
its stockholders.

Tax; Real estate dealer’s tax; Real estate dealer defined.—A real estate
dealer under Section 194 of the Tax Code includes owners of real estate
receiving rentals of at least P3,000–00 a year without any qualification as to
the persons paying the rental.

FACTS: Antonio, Eduardo and Jose Roxas, brothers and at the same time
partners of the Roxas y Compania, inherited from their grandparents
several properties which included farmlands. The tenants expressed their
desire to purchase the farmland. The tenants, however, did not have
enough funds, so the Roxases agreed to a purchase by installment.
Subsequently, the CIR demanded from the brothers the payment of
deficiency income taxes resulting from the sale, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment but the same
was denied. On appeal, the Court of Tax Appeals sustained the
assessment. Hence, this petition.

ISSUE: Is Roxas liable?

RULING: No. It should be borne in mind that the sale of the farmlands to the
very farmers who tilled them for generations was not only in consonance
with, but more in obedience to the request and pursuant to the policy of
our Government to allocate lands to the landless. In order to maintain the
general public’s trust and confidence in the Government this power must
be used justly and not treacherously. It does not conform with the sense of
justice for the Government to persuade the taxpayer to lend it a helping
hand and later on penalize him for duly answering the urgent call. In fine,
Roxas cannot be considered a real estate dealer and is not liable for 100%
of the sale. Pursuant to Section 34 of the Tax Code, the lands sold to the
farmers are capital assets and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.

8. Republic vs Go Bon Lee, 111 Phil. 805

DOCTRINE:

9. American Mail Lines vs. City of Basilan, 2 SCRA 309, 1961

DOCTRINE: Municipal Corporations; Taxation; City of Basilan without

blanket power of taxation; Cannot enact ordinance to collect anchorage
10
fees for revenue purposes.—Under its Charter (Republic Act No. 288), the
City of Basilan may only levy and collect taxes for general and special
purposes as provided by law; in other words, it was not granted a blanket
power of taxation. Consequently, it is not authorized to enact ordinances
providing for the collection of “anchorage fees” which in the instant case
is clearly for revenue purposes, the same being even in excess of the
harbor fee imposed by the National Government.

Same; Power to regulate as an exercise of police power excludes power to

impose fees for revenue purposes; When fee is said to be regulatory in
nature.—The power to regulate as an exercise of police power does not
include the power to impose fees for revenue purposes (Cu Unjieng vs.
Patstone, 42 Phil. 188; Pacific Commercial Co. vs. Romualdez etc., et al., 49
Phil. 917; Hercules Lumber Co. vs. Municipality of Zamboanga, 55 Phil. 653),
and for fees to be purely regulatory in nature, the same “must be no more
than sufficient to cover the actual cost of inspection or examination as
nearly as the same can be estimated.” (Manila Electric Co. vs. Auditor
General, 73 Phil. 129).

10. PHILIPPINE AIRLINES, INC. v. EDU G.R. No. L- 41383, August 15, 1988

DOCTRINE: Taxation; Registration fees of motor vehicles; Motor vehicle

registration fees as at present exacted pursuant to the Land Transportation
and Traffic Code are actually taxes intended for additional revenue of
government.—If the purpose is primarily revenue, or if revenue is, at least,
one of the real and substantial purposes, then the exaction is properly
called a tax (Umali, ed.) Such is the case of motor vehicle registration fees.
The conclusions become inescapable in view of Section 70(b) of Rep. Act
587 quoted in the Calalang case. The same provision appears as Section
59(b) in the Land Transportation Code. It is patent therefrom that the
legislators had in mind a regulatory tax as the law refers to the imposition
on the registration, operation or ownership of a motor vehicle as a “tax or
fee.” Though nowhere in Rep. Act 4136 does the law specifically state that
the imposition is a tax, Section 59(b) speaks of “taxes or fees x x x for the
registration or operation or on the ownership of any motor vehicle, or for
the exercise of the profession of chauffeur x x x” making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speaks of an “additional tax,” where the law could have
referred to an original tax and not one in addition to the tax already
imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 4136. Simply put, if the exaction under Rep. Act 4136 were
merely a regulatory fee, the imposition in Rep. Act 5448 need not be an
“additional” tax. x x x In view of the foregoing, we rule that motor vehicle
registration fees as at present exacted pursuant to the Land Transportation
and Traffic Code are actually taxes intended for additional revenues of

11
government even if one fifth or less of the amount collected is set aside for
the operating expenses of the agency administering the program.

Same; Same; Same; The purpose behind the law requiring owners of
vehicles to pay their registration is mainly to raise revenue for the
construction and maintenance of highways.—Presently, Sec. 61 of the
Land this Act shall be deposited in a special trust account in the National
Treasury to constitute the Highway Special Fund, which shall be
apportioned and expended in accordance with the provisions of the
‘Philippine Highway Act of 1935.’ Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but
not to exceed twenty per cent of the total collection during one year, shall
be set aside for the purpose. (As amended by RA 6374, approved August
6, 1971).” It appears clear from the above provisions that the legislative
intent and purpose behind the law requiring owners of vehicles to pay for
their registration is mainly to raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for the
operating expenses of the administering agency.

Same; Taxes; The nature of an exaction is to be determined by the purpose

for which it is being exacted e.g. if the purpose is primarily revenue, or if
revenue is at least one of the substantial purposes, then the exaction is
properly called a tax.—Fees may be properly regarded as taxes even
though they also serve as an instrument of regulation. As stated by a
former presiding judge of the Court of Tax Appeals and writer on various
aspects of taxes: “It is possible for an exaction to be both tax and
regulation. License fees are often looked to as a source of revenue as well
as a means of regulation. (Sonzinsky v. U.S., 300 U.S. 506) This is true, for
example, of automobile license fees. In such case, the fees may properly
be regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of
the real and substantial purposes, then the exaction is properly called a
tax. (1955 CCH Fed. Tax Course, Par. 3101, citing Cooley on Taxation (2nd
Ed.) 592, 593; Calalang v. Lorenzo, 97 Phil. 212; Lutz v. Araneta, 98 Phil. 198.)
These exactions are sometimes called regulatory taxes. (See Secs. 4701,
4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954,
which classify taxes on tobacco and alcohol as regulatory taxes.)” (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition,
591-593).

Same; Same; Tax Exemptions; Sec. 24 of RA 5431 dated June 27,

1968repealed all earlier tax exemptions of corporate taxpayers found in
legislative franchises.—The claim for refund is made for payments given in
1971. It is not clear from the records as to what payments were made in
succeeding years. We have ruled that Section 24 of Rep. Act No. 5431,
dated June 27, 1968, repealed all earlier tax exemptions of corporate
12
taxpayers found in legislative franchises similar to that invoked by PAL in this
case. In Radio Communications of the Philippines, Inc. v. Court of Tax
Appeals, et al. (G.R. No. 60547, July 11, 1985), this Court ruled: x x x “An
examination of Section 24 of the Tax Code as amended shows clearly that
the law intended all corporate taxpayers to pay income tax as provided
by the statute. There can be no doubt as to the power of Congress to
repeal the earlier exemption it granted. Article XIV, Section 8 of the 1935
Constitution and Article XIV, Section 5 of the Constitution as amended in
1973 expressly provide that no franchise shall be granted to any individual,
firm, or corporation except under the condition that it shall be subject to
amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved.
The country needs increased revenues. The repealing clause is clear and
unambiguous. There is a listing of entities entitled to tax exemption. The
petitioner is not covered by the provision. Considering the foregoing, the
Court Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.”

FACTS: The Philippine Airlines (PAL) is a corporation engaged in the air

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

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

taxes.

RULING: Yes. If the purpose is primarily revenue, or if revenue is, at least, one
of the real and substantial purposes, then the exaction is properly called a
tax. Such is the case of motor vehicle registration fees. The motor vehicle
registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for
the operating expenses of the agency administering the program.

13
 11. Progressive Development Corp. vs Quezon City, 172 SCRA 629, 1989

DOCTRINE:

FACTS: Progressive Development Corporation, owner and operator of a

public market known as the "Farmers Market & Shopping Center" filed a
Petition for Prohibition with Preliminary Injunction against respondent... on
the ground that the supervision fee or license tax imposed by the above-
mentioned ordinances is in reality a tax on income which respondent may
not impose, the same being expressly prohibited by Republic Act No. 2264,
as amended
Petitioner, however, insists that the "supervision fee" collected from rentals,
being a return from capital invested in the construction of the Farmers
Market, practically operates as a tax on income, one of those expressly
excepted from respondent's taxing authority, and thus beyond the latter's
competence.

ISSUES: The only issue to be resolved here is whether the tax imposed by
respondent on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax or, alternatively, of a license fee.

RULING: The "Farmers' Market and Shopping Center" being a public market
in the sense of a market open to and inviting the, patronage of the
general public, even though privately owned, petitioner's operation
thereof required a license issued by the respondent City, the issuance... of
which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power. The operation of a privately
owned market is, as correctly noted by the Solicitor General, equivalent to
or quite the same as the operation of a government-owned market. We
believe and so hold that the five percent (5%) tax imposed in Ordinance
No. 9236constitutes, not a tax on income, not a city income tax... but
rather a license tax or fee for the regulation of the business in which the
petitioner is engaged.

12. Caltex vs. CIR

DOCTRINE: Taxation; Special import tax falls under jurisdiction of Bureau of

Customs.—Since the Bureau of Customs has jurisdiction over the special
import tax under Republic Act No. 1394, any issue involving liability for, or
exemption from, said tax as well as the procedure on protests and appeals
should be governed by the pertinent provisions of the Tariff and Customs
Code.

Same; Appeals; Adverse ruling of Collector of Customs necessary for

appeal to Commissioner of Customs.—Where the Collector of Customs has
not yet acted upon the protest of an importer for refund of the special
14
import tax imposed under Republic Act No. 1394, there is no adverse ruling
from which an appeal may be taken to the Commissioner of Customs in
accordance with Section 2313 of the Tariff and Customs Code. Likewise,
there is no decision or ruling of the Commissioner of Customs which may be
appealed to the Court of Tax Appeals, pursuant to Section 7(2) of Republic
Act No. 1125 in relation to Section 2402 of Republic Act No.1937.

13. Philex Mining Corp. vs CIR, 294 SCRA 687, 1998

DOCTRINE: Taxation; Obligations; Compensation; Words and Phrases;

Taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other;
Debts are due to the Government in its corporate capacity, while taxes
are due to the Government in its sovereign capacity.—In several instances
prior to the instant case, we have already made the pronouncement that
taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to
the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. We find no cogent reason to
deviate from the aforementioned distinction. Prescinding from this premise,
in Francia v. Intermediate Appellate Court, we categorically held that
taxes cannot be subject to set-off or compensation, thus: “We have
consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government.”

Same; Same; Same; The holding in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc., 28 SCRA 867 (1969), that a pending refund may
be set off against an existing tax liability even though the refund has not
yet been approved by the Commissioner, has no longer any support in
statutory law.—Further, Philex’s reliance on our holding in Commissioner of
Internal Revenue v. ItogonSuyoc Mines, Inc., wherein we ruled that a
pending refund may be set off against an existing tax liability even though
the refund has not yet been approved by the Commissioner, is no longer
without any support in statutory law. It is important to note that the premise
of our ruling in the aforementioned case was anchored on Section 51(d) of
the National Revenue Code of 1939. However, when the National Internal
Revenue Code of 1977 was enacted, the same provision upon which the
Itogon-Suyoc pronouncement was based was omitted. Accordingly, the
doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

Same; Taxes are the lifeblood of the government and so should be

collected without unnecessary hindrance.—Despite the foregoing rulings
15
clearly adverse to Philex’s position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise tax liabilities within the prescribed period since,
after all, it still has pending claims for VAT input credit/refund with BIR. We
fail to see the logic of Philex’s claim for this is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of the government
and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex’s whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in
jurisprudence.

Same; A distinguishing feature of a tax is that it is compulsory rather than a

matter of bargain.—To be sure, we cannot allow Philex to refuse the
payment of its tax liabilities on the ground that it has a pending tax claim
for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. Hence, a tax does not
depend upon the consent of the taxpayer. If any taxpayer can defer the
payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue
system. A taxpayer cannot refuse to pay his taxes when they fall due simply
because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the
government. Moreover, Philex’s theory that would automatically apply its
VAT input credit/refund against its tax liabilities can easily give rise to
confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities.

Same; Surcharges; The payment of the surcharge is mandatory and the

Bureau of Internal Revenue is not vested with any authority to waive the
collection thereof.—Corollarily, the fact that Philex has pending claims for
VAT input claim/refund with the government is immaterial for the imposition
of charges and penalties prescribed under Sections 248 and 249 of the Tax
Code of 1977. The payment of the surcharge is mandatory and the BIR is
not vested with any authority to waive the collection thereof. The same
cannot be condoned for flimsy reasons, similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.

Same; Tax Refunds and Credit; Speedy Disposition of Cases; Once the
claimant has submitted all the required documents, it is the function of the
Bureau of Internal Revenue to assess these documents with purposeful
dispatch—since taxpayers owe honesty to government, it is but just that
government render fair service to the taxpayers; Fair dealing and nothing
less, is expected by the taxpayer from the Bureau of Internal Revenue in
the latter’s discharge of its function.— Philex asserts that the BIR violated
16
Section 106(e) of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, when it took five years for
the latter to grant its tax claim for VAT input credit/refund. In this regard, we
agree with Philex. While there is no dispute that a claimant has the burden
of proof to establish the factual basis of his or her claim for tax credit or
refund, however, once the claimant has submitted all the required
documents, it is the function of the BIR to assess these documents with
purposeful dispatch. After all, since taxpayers owe honesty to government
it is but just that government render fair service to the taxpayers. In the
instant case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996. Obviously,
had the BIR been more diligent and judicious with their duty, it could have
granted the refund earlier. We need not remind the BIR that simple justice
requires the speedy refund of wrongly-held taxes. Fair dealing and nothing
less, is expected by the taxpayer from the BIR in the latter’s discharge of its
function.

Same; Same; Same; Estoppel; It is a settled rule that in the performance of

governmental function, the State is not bound by the neglect of its agents
and officers, and nowhere is this more true than in the field of taxation.—
Despite our concern with the lethargic manner by which the BIR handled
Philex’s tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its agents
and officers. Nowhere is this more true than in the field of taxation. Again,
while we understand Philex’s predicament, it must be stressed that the
same is not a valid reason for the non-payment of its tax liabilities.

Same; Same; Same; Public Officers; The taxpayer is not devoid of remedy
against public servants or employees, especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly.—To be sure,
this is not to state that the taxpayer is devoid of remedy against public
servants or employees, especially BIR examiners who, in investigating tax
claims are seen to drag their feet needlessly. First, if the BIR takes time in
acting upon the taxpayer’s claim for refund, the latter can seek judicial
remedy before the Court of Tax Appeals in the manner prescribed by law.
Second, if the inaction can be characterized as willful neglect of duty,
then recourse under the Civil Code and the Tax Code can also be availed
of.

Same; Same; Same; Same; Judicial Notice; Insolence and delay have no
place in government service; The Court takes judicial notice of the
taxpayer’s generally negative perception towards the Bureau of Internal
Revenue.—Simply put, both provisions abhor official inaction, willful neglect
and unreasonable delay in the performance of official duties. In no
uncertain terms must we stress that every public employee or servant must
strive to render service to the people with utmost diligence and efficiency.
17
Insolence and delay have no place in government service. The BIR, being
the government collecting arm, must and should do no less. It simply
cannot be apathetic and laggard in rendering service to the taxpayer if it
wishes to remain true to its mission of hastening the country’s development.
We take judicial notice of the taxpayer’s generally negative perception
towards the BIR; hence, it is up to the latter to prove its detractors wrong.

FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities amounting
to P124 million. Philex protested the demand for payment stating that it has
pending claims for VAT input credit/refund amounting to P120 million.
Therefore, these claims for tax credit/refund should be applied against the
tax liabilities. In reply the BIR found no merit in Philex’s position. On appeal,
the CTA reduced the tax liability of Philex.

ISSUES: Whether legal compensation can properly take place between

the VAT input credit/refund and the excise tax liabilities of Philex Mining
Corp;
Whether the BIR has violated the NIRC which requires the refund of input
taxes within 60 days
Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING: No, legal compensation cannot take place. The government and
the taxpayer are not creditors and debtors of each other.
Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its
claim for VAT input credit. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund
No, despite the lethargic manner by which the BIR handled Philex’s tax
claim, it is a settled rule that in the performance of government function,
the State is not bound by the neglect of its agents and officers. It must be
stressed that the same is not a valid reason for the non-payment of its tax
liabilities.

14. Domingo vs. Garlitos, 8 SCRA 443, 1963

DOCTRINE: Taxation; Inheritance tax; Procedure in enforcement against

estate of deceased person; Claim must be filed before probate court.—
The ordinary procedure by which to settle claims or indebtedness against
the estate of a deceased person, as an inheritance tax, is for the claimant
to present a claim before the probate court sa that said court may order
the administrator to pay the amount hereof (Aldamiz vs. Judge of the
Court of First Instance of Mindoro, L-2360, Dec. 29, 1949).

Same; Same; Same; Same; Legal basis.—The legal basis for such a
procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate
are under the jurisdiction of the court and such jurisdiction continues until
18
said properties havebeen distributed among the heirs entitled thereto.
During the pendency of the proceedings all the estate is in custodia Iegis
and the proper procedure is not to allow the sheriff. in case of a court
judgment, to seize the properties but to ask the court for an order to
require the administrator to pay the amount due from the estate and
required to be paid.

Same; Same; Compensation between taxes and claims of intestate

recognized and appropriated for by law.—The fact that the court having
jurisdiction of the estate had found that the claim of the estate against the
Government has been appropriated for the purpose by a corresponding
law (Rep. Act No. 2700) shows that both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance
with the provisions of Articles 1279 and 1290 of the Civil Code, and both
debts are extinguished to the concurrent amount.

FACTS: In the 1960 case of Domingo v Moscoso, the Supreme Court

declared as final and executory the order for the payment by the estate of
the late Walter Scott Price of estate and inheritance taxes, charges and
penalties, amounting to P40,058.55 issued by the Court of First Instance –
Leyte. The fiscal then presented a petition for the execution of the
judgment before the Court of First Instance – Leyte. The petition was
denied as the execution is not justifiable as the government is indebted to
the estate under administration in the amount of P 262,200. Hence, the
present petition for certiorari and mandamus.

ISSUE: Is execution proper?

RULING: No. The tax and the debt are compensated. The court having
jurisdiction of the estate had found that the claim of the estate against the
government has been recognized and an amount of P262,200 has already
been appropriated by a corresponding law (RA 2700). Under the
circumstances, both the claim of the Government for the inheritance taxes
and the claim of the intestate for services rendered have already become
overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance
with Article 1279 and 1290 of the Civil Code, and both debts are
extinguished to their concurrent amounts. If the obligation to pay taxes
and the taxpayer’s claim against the government are both overdue,
demandable, as well as fully liquidated, compensation takes place by
operation of law and both obligations are extinguished to their concurrent
amounts.

15. Valencia vs. Jimenez, 11 Phil. 492, 1908

19
DOCTRINE: TAXATION; TAX SALE; BURDEN OF PROOF OF REGULARITY OF
PROCEED-INGS.—There is no presumption of the regularity of any
administrative proceeding which results in depriving a citizen or taxpayer
of his property. Due process of law must be shown, and the burden of
proving the regularity of all proceedings leading up to a tax sale is upon
the purchaser at the sale.

ID.; ID.; DEFECTIVE DESCRIPTIONS IN TAX ROLLS.—When one tax sale

embraces two different taxes, a vital defect in either tax invalidates the
sale, and a proximately clear description of the property in a later tax roll
will not cure an erroneous description in an earlier one.

FACTS: This action was brought in the CFI to set aside a sale of real estate
for unpaid taxes amounting to 2,934 to defendant
Jimenez and also the transfer of a 1⁄2 interest therein by him to the
defendant on the ground that defendants had secured title under tax sale
by conspiracy, when they had ample funds for the taxes.

ISSUE: Was the sale void?

RULING: The sale is invalid. Applying either Spanish or the American

criterions as to good faith, the plaintiff may not recover the rents and profits
down to the time when it is plain that the defendants were advised of their
title. The action is remanded to CFI in order to carry out the judgment.

16. Aragon vs Jorge, 85 Phil 246, 1949

17. Banco Espanol-Filipino vs. Palanca, 37 Phil. 921, 1918

FACTS: Engracio Palanca Tanquinyeng y Limquingco mortgaged various

parcels of real property in Manila to El Banco Espanol-Filipino. Afterwards,
Engracio returned to China and there he died on January 29, 1810 without
returning again to the Philippines. The mortgagor then instituted foreclosure
proceeding but since defendant is a non-resident, it was necessary to give
notice by publication. The Clerk of Court was also directed to send copy of
the summons to the defendant’s last known address, which is in Amoy,
China. It is not shown whether the Clerk complied with this requirement.
Nevertheless, after publication in a newspaper of the City of Manila, the
cause proceeded and judgment by default was rendered. The decision
was likewise published and afterwards sale by public auction was held with
the bank as the highest bidder. On August 7, 1908, this sale was confirmed
by the court. However, about seven years after the confirmation of this
sale, a motion was made by Vicente Palanca, as administrator of the
estate of the original defendant, wherein the applicant requested the
court to set aside the order of default and the judgment, and to vacate all
20
the proceedings subsequent thereto. The basis of this application was that
the order of default and the judgment rendered thereon were void
because the court had never acquired jurisdiction over the defendant or
over the subject of the action.

ISSUE:

RULING:

18. Macabingkil vs. Yatco, 21 SCRA 150, 1967

19. Sison Jr, vs Ancheta

FACTS: Batas Pambansa 135, which amends Section 21 of the National

Internal Revenue Code of 1977, which provides for the
rates of tax on citizens or residents, was enacted. Petitioner 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-à-vis those which are imposed upon fixed
income or salaried individual taxpayers.

ISSUE: Whether BP 135 transgresses both the equal protection and due
process clauses of the Constitution as well as of the rule requiring uniformity
in taxation

RULING: No. The presumption of validity must prevail. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation. Recipients of compensation income are not entitled to make
deductions for income tax purposes as there is practically no overhead
expense, while professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is ample justification 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.

20. Juan Luna Subdivision vs Sarmiento, 91 Phil 371, 1952

FACTS: Plaintiff issued to the City Treasurer of Manila checks amounting for
P2,210.52 drawn upon the Philippine Trust Company. This check was to be
applied to plaintiff’s land tax, the exact amount of which was yet
undetermined. The City after liberation from Japanese to refund the
plaintiff’s deposit or apply it to such future taxes as might be found due.
Plaintiff, however, claims that the whole amount of the check contending
that taxes during period have been remitted by Commonwealth Act No.
703.
21
ISSUE: Does CA 703 cover taxes paid before its enactment as the plaintiff
maintains and the courts below held, or does it refer, as the City Treasurer
believes, only to taxes which were still unpaid?

RULING: The law is clear that it applies to “taxes and penalties due and
payable”, i.e. taxes owed and owing. The remission of
taxes due and payable to the exclusion of taxes already collected does
not constitute unfair discrimination. The taxpayers who paid their taxes
before liberation and those who had not were not on the same footing on
the need of material relief. Taxpayers who had been in arrears in their
obligation would have to satisfy their liability with genuine currency, while
the taxes paid during the occupation had been satisfied in Japanese War
Notes, many of them at a time when those notes were well-nigh worthless.
To refund those taxes with restored currency would unduly enrich many of
the payers at a greater expense to the people at large.

21. Manila Race Horse Owners vs De la Fuente, 88 Phil 62, 1951

FACTS: Manila Race Horses Trainers Association, Inc., a non-stock

corporation, alleged that they are owners of boarding stables for race
horses and that their rights as such are affected by Ordinance No. 3065 of
the City of Manila. They pleaded that said ordinance be declared invalid
as it is violative under the Constitution. On appeal, it is upheld that the
ordinance is a tax on race horses as distinct from boarding stables. Under
Ordinance No. 3065, the tax is assessed not on the owners of the horses but
on the owners of the stables, as counsel admitted in their brief. It is ordinary
that the number of horses is used in the assessment purely as a method of
fixing an equitable and practical distribution of the burden imposed by the
measure.

ISSUE: Weather or not the Ordinance is constitutional and valid as has been
enacted in accordance with the powers of the Municipal Board granted
by the Charter of the City of Manila.

RULING: The Court did not believe that the Ordinance made arbitrary
classification. There is equality and uniformity in taxation if all articles or
kinds of property of the same class are taxed at the same rate. Thus, it was
held that, the fact that some places of amusement are not taxed while
others are taxed, is not argument at all against the equality and uniformity
of tax imposition." In applying this to the case, there would be
discrimination if some boarding stables of the same class used for the same
number of horses
were not taxed or were made to pay less or more than others.

22. Villanueva vs City of Iloilo, 26 SCRA 578, 1968

22
FACTS: On September 30, 1946, the Municipal Board of Iloilo City enacted
Ordinance 86 imposing license tax fees upon
tenement houses. The validity of such ordinance was challenged by
Eusebio and Remedios Villanueva, owners of four tenement houses
containing 34 apartments. The Supreme Court held the ordinance to be
ultra views. On January 15, 1960, however, the municipal board, believing
that it acquired authority to enact an ordinance of the same nature
pursuant to the Local Autonomy Act, enacted Ordinance 11, Eusebio and
Remedios Villanueva assailed the ordinance anew.

ISSUE: Does Ordinance 11 violate the rule of uniformity of taxation?

RULING: No. The Court has ruled the tenement houses constitute a distinct
class of property and that taxes are uniform and equal when imposed
upon all property of the same class or character within the taxing authority.

The fact that the owners of the other classes of buildings in Iloilo are not
imposed upon by the ordinance, or that tenement taxes are imposed in
other cities do not violate the rule of equality and uniformity. The rule does
not require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time. So long as the burden of tax falls
equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly and
equally was not overthrown therein.

23. Assn. Of Customs Brokers vs Mun. of Manila, 95 Phil 107, 1954

FACTS: This is a petition for declaratory relief to test the validity of

Ordinance No. 3379 passed by the Municipal Board of the City of Manila.
The Association of Customs Brokers, Inc., which is composed of all brokers
and public service operators of motor vehicles in the City of Manila, and G.
Manlapit, Inc., a member of said association challenge the validity of said
ordinance on the ground that (1) while it levies a so-called property tax it is
in reality a license tax which is beyond the power of the Municipal Board of
the City of Manila; (2) said ordinance offends against the rule of uniformity
of taxation; and (3) it constitutes double taxation. The Court of First
Instance of Manila sustained the validity of the ordinance and dismissed
the petition.

ISSUES: Is the tax imposed a property tax and is therefore within the power
of the board to impose?
Is the Ordinance violative of the rule on the uniformity of taxation?

23
RULING: NO. It is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on
the power of the municipal corporation to impose tax on motor vehicles
operating in any highway in the Philippines. The pertinent provisions are
contained in section 70 (b) which provides in part: No further fees than
those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur,
or for the operation of any motor vehicle by the owner thereof: Provided,
however, That nothing in this Act shall be construed to exempt any motor
vehicle from the payment of any lawful and equitable insular, local or
municipal property tax imposed thereupon.

24. G.R. No. L-33693-94 May 31, 1979; VERA, vs. HON. SERAFIN R. CUEVAS,

FACTS: Private respondents herein, are engaged in the manufacture, sale

and distribution of filled milk products throughout the Philippines. The
products of private respondent, Consolidated Philippines Inc. are
marketed and sold under the brand Darigold whereas those of private
respondent, General Milk Company yPhil.), Inc., under the brand iLiberty;i
and those of private respondent, Milk Industries Inc., under the brand
iDutch Baby.i Private respondent, Institute of Evaporated Filled Milk
Manufacturers of the Philippines, is a corporation organized for the
principal purpose of upholding and maintaining at its highest the standards
of local filled milk industry, of which all the other private respondents are
members.
CIR required the respondents to withdraw from the market all of their
filled milk products which do not bear the inscription required by Section
169 of the Tax Code within fifteen y15) days from receipt of the order.
Failure to comply will result to penalties. Section 169 talks of the inscription
to be placed in skimmed milk wherein all condensed skimmed milk and all
milk in whatever form, from which the fatty part has been removed totally
or in part, sold or put on sale in the Philippines shall be clearly and legibly
marked on its immediate containers, and in all the language in which such
containers are marked, with the words, iThis milk is not suitable for
nourishment for infants less than one year of age,i or with other equivalent
words.
The CFI Manila ordered the CIR to perpetually restrain from requiring
the respondents to print on the labels of their product the words iThis milk is
not suitable for nourishment for infants less than one year of age.i. Also, it
ordered the Fair Trade Board to perpetually restrain from investigating the
respondents related to the manufacture/sale of their filled milk products.

ISSUE: Whether or not skimmed milk is included in the scope of Section

169 of the Tax Code.

RULING: No, Section 169 of the Tax Code is not applicable to filled milk. The
24
use of specific and qualifying terms iskimmed milki in the headnote and
icondensed skimmed milki in the text of the cited section, would restrict the
scope of the general clause iall milk, in whatever form, from which the fatty
pat has been removed totally or in part.i In other words, the general clause
is restricted by the specific term iskimmed milki under the familiar rule
of ejusdem generis that general and unlimited terms are restrained and
limited by the particular terms they follow in the statute.
The difference, therefore, between skimmed milk and filled milk is that
in the former, the fatty part has been removed while in the latter, the fatty
part is likewise removed but is substituted with refined coconut oil or corn
oil or both. It cannot then be readily or safely assumed that Section 169
applies both to skimmed milk and filled milk. It cannot then be readily or
safely assumed that Section 169 applies both to skimmed milk and filled
milk. Also, it has been found out that ithe filled milk products of the
petitioners now private respondents) are safe, nutritious, wholesome and
suitable for feeding infants of all agesi yp. 44, Rollo) and that iup to the
present, Filipino infants fed since birth with filled milk have not suffered any
defects, illness or disease attributable to their having been fed with filled
milk. Hence, applying Section 169 to it would cause a deprivation of
property without due process of law.

25. CHURCHILL v CONCEPCION; G.R. No. 11572 September 22, 1916

FACTS: Section 100 of Act 2339 imposed an annual tax of P4 per square
meter upon electric signs, billboards, and spaces used for posting or
displaying temporary signs, and all signs displayed on premises not
occupied by buildings. The section was amended by Act 2432, reducing
the tax to P2 per square meter. Francis A. Churchill and Stewart Tait, co-
partners in Mercantile Advertising Agency, owned a billboard to which
they were taxes at P104. The tax was paid under protest. Churchill and Tait
instituted the action to recover the amount.

ISSUE: Is the statute and the tax-imposed void for lack of uniformity?

RULING: No, the tax is valid. Uniformity in taxation means that all taxable
articles or kinds of property, of the same class, shall be taxed at the same
rate. It does not mean that all lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries shall all be
assessed at the same rate. Different articles may be taxed at different
amounts provided the rate is uniform on the same class everywhere, with
all people, at all times.
Herein, the Act imposes a tax of P2 per square meter or a fraction thereof
upon every electric sign, billboard, etc. Wherever found in the Philippine
Islands. The rule of taxation upon such signs is uniform throughout the
islands. The rule does not require taxes to be graded according to the

25
value of the subjects upon which they are imposed, especially those levied
as privilege or occupation taxes.

26. G.R. No. 9972. March 25, 1915. US v SUMULONG

FACTS: The defendant was charged with the violation of a municipal

ordnance of the municipality of Los Banos, Laguna, regulating the
payment of license fees fishing privileges. The information alleged that
defendant was engaged in fishing in public waters without being provided
with a license from the municipality. Article 1 of the ordinance in question
classifies and graduates the license fees for fishing privileges. A demurrer
was interposed to the information on the ground that the facts alleged did
not constitute a public offense; first because the municipal council was
without power to impose the license taxes in question, and second, on the
ground that the ordinance was unconstitutional. The lower court in passing
upon the demurrer held that the ordinance in question was invalid for the
reason that the municipality was without the power to classify the license
fees in the manner set out in article 1 of the ordinance.

ISSUE: Whether or not the municipality has the power to classify and
graduate the license fees for fishing privileges

RULING: Yes. Under the provision of section 43 ( c) of the Municipal Code a

municipality is authorized to imposes license for fishing privileges. No
restriction whatever is placed on this power. It is therefore clearly within the
legal powers of a municipality to make any reasonable classification of the
persons engaged in fishing and to graduate the license fees accordingly.
The appellee contends that, under the grant of power conferred by
section 43 of the Municipal Code, the municipality has only the right to
impose a general license tax without regard to the apparatus used or the
benefits which are expected to result from the privilege. This contention
cannot be sustained. In considering similar questions the courts have
frequently said that it is nothing to one person, belonging to a certain class,
that someone else, belonging to another class, pays more or less than he
does, since all belonging to his class must pay the same. So far as the
record indicates the classification made by the municipality of Los Banos
was a reasonable one, and the license fees were graduated according to
the value of the privilege conferred.

27. G.R. No. L-6093, February 24, 1954; THE SHELL CO. OF P.I., LTD., vs.
E. E. VAÑO,

FACTS: In 1946, the municipal council of Cordova, Cebu issued an

ordinance which imposed, among others, an annual tax of P150.00 upon
the occupation or the exercise of the privilege of an “installation
26
manager”. Shell Company assailed the validity of the said ordinance on
the ground that it violates the equal protection clause. It appears that only
Shell had, at that time, an installation manager. In short, there is only one
installation manager in Cordova, Cebu. So Shell felt like the tax ordinance
was merely targeting Shell. Shell now wants the Treasurer of Cordova,
E.E. Vaño to be enjoined from implementing the law.

ISSUE: Whether or not the tax ordinance is not valid for being violative of
the equal protection clause.

RULING: No. The fact that there is no other person or company with a
position for an installation manager does not make the ordinance
discriminatory. The law is and will be applicable to any person or firm who
exercises such calling or occupation named or designated as “installation
manager”. In short, the law is applicable to present and future conditions.
Note again the requisites for a valid classification (not mentioned in this
particular case but mentioned in other relevant cases):
1. must rest on substantial distinctions;
2. must be germane to the purposes of the law
3. must not be limited to existing conditions only; and
4. must apply equally to all members of the same class.

28. G.R. No. L-4817, May 26, 1954; PUNSALAN, ET AL.,

vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA,

FACTS: Petitioners, who are professionals in the city, assail Ordinance No.
3398 together with the law authorizing it (Section 18 of the Revised Charter
of the City of Manila). The ordinance imposes a municipal occupation tax
on persons exercising various professions in the city and penalizes non-
payment of the same. The law authorizing said ordinance empowers the
Municipal Board of the city to impose a municipal occupation tax on
persons engaged in various professions. Petitioners, having already paid
their occupation tax under section 201 of the National Internal Revenue
Code, paid the tax under protest as imposed by Ordinance No. 3398. The
lower court declared the ordinance invalid and affirmed the validity of the
law authorizing it.

ISSUE: Whether or Not the ordinance and law authorizing it constitute

class legislation, and authorize what amounts to double taxation.

RULING: The Legislature may, in its discretion, select what occupations shall
be taxed, and in its discretion may tax all, or select classes of occupation
for taxation, and leave others untaxed. It is not for the courts to judge
which cities or municipalities should be empowered to impose occupation
taxes aside from that imposed by the National Government. That matter is
within the domain of political departments. The argument against double
27
taxation may not be invoked if one tax is imposed by the state and the
other is imposed by the city. It is widely recognized that there is nothing
inherently terrible in the requirement that taxes be exacted with respect to
the same occupation by both the state and the political subdivisions
thereof. Judgment of the lower court is reversed with regards to the
ordinance and affirmed as to the law authorizing it.

29. G.R. No. 3473, March 22, 1907, CASANOVAS,

vs. HORD
FACTS: The Spanish Govt. by virtue of a royal decree granted the plaintiff
certain mines. The plaintiff is now the owner of those mines. TheCollector of
Internal Revenue imposed tax on the properties, contending that they
were valid perfected mine concessions and it falls within the provisions of
sec.134 of Act No. 1189 known as Internal Revenue Act. The plaintiff paid
under protest. He brought an action against the defendantCollector of
Internal Revenue to recover the sum of Php. 9, 600 paid by him as taxes.
Judgment was rendered in favor of the defendant, so the plaintiff
appealed.

ISSUE: Whether or Not Sec. 164 is void or valid.

RULING: The deed constituted a contract between the Spanish

Government and the plaintiff. The obligation of which contract was
impaired by the enactment of sec. 134 of the Internal Revenue Law
infringing sec. 5 of the Act of Congress which provides that “no law
impairing the obligation of contracts shall be enacted”. Sec. 134 of the
Internal Revenue Law of 1904 is void because it impairs the obligation of
contracts contained in the concessions of mine made by the Spanish
Government. Judgment reversed.

30. G.R. No. L-9637, April 30, 1957, AMERICAN BIBLE SOCIETY vs. CITY OF
MANILA

FACTS: American Bible Society is a foreign, non-stock, non-profit, religious,

missionary corporation duly registered and doing business in the Philippines
through its Philippine agency established in Manila in November, 1898. City
of Manila is a municipal corporation with powers that are to be exercised
in conformity with the provisions of Republic Act No. 409, known as the
Revised Charter of the City of Manila. American Bible Society has been
distributing and selling bibles and/or gospel portions throughout the
Philippines and translating the same into several Philippine dialect. City
Treasurer of Manila informed American Bible Society that it was violating
several Ordinances for operating without the necessary permit and license,
thereby requiring the corporation to secure the permit and license fees
covering the period from 4Q 1945-2Q 1953. To avoid closing of its business,
American Bible Society paid the City of Manila its permit and license fees
28
under protest. American Bible filed a complaint, questioning the
constitutionality and legality of the Ordinances 2529 and 3000, and prayed
for a refund of the payment made to the City of Manila. They contended:
They had been in the Philippines since 1899 and were not required to pay
any license fee or sales tax

ISSUE: WON American Bible Society liable to pay sales tax for the
distribution and sale of bibles

RULING: NO. Under Sec. 1 of Ordinance 3000, one of the ordinance in

question, person or entity engaged in any of the business, trades or
occupation enumerated under Sec. 3 must obtain a Mayor’s permit and
license from the City Treasurer. American Bible Society’s business is not
among those enumerated
· However, item 79 of Sec. 3 of the Ordinance provides that all other
businesses, trade or occupation not mentioned, except those upon which
the City is not empowered to license or to tax P5.00
· Therefore, the necessity of the permit is made to depend upon the
power of the City to license or tax said business, trade or occupation.
· 2 provisions of law that may have bearing on this case:
a. Chapter 60 of the Revised Administrative Code, the Municipal Board
of the City of Manila is empowered to tax and fix the license fees on retail
dealers engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in
general merchandise, including importers and indentors, except those
dealers who may be expressly subject to the payment of some other
municipal tax. Further, Dealers in general merchandise shall be classified as
(a) wholesale dealers and (b) retail dealers. For purposes of the tax on
retail dealers, general merchandise shall be classified into four main
classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are
sold in the same establishment, it shall not be compulsory for the owner to
secure more than one license if he pays the higher or highest rate of tax
prescribed by ordinance. Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance
· The only difference between the 2 provisions is the limitation as to the
amount of tax or license fee that a retail dealer has to pay per annum
· As held in Murdock vs. Pennsylvania, The power to impose a license
tax on the exercise of these freedoms provided for in the Bill of Rights, is
indeed as potent as the power of censorship which this Court has
repeatedly struck down. It is not a nominal fee imposed as a regulatory
measure to defray the expenses of policing the activities in question. It is in
no way apportioned. It is flat license tax levied and collected as a
condition to the pursuit of activities whose enjoyment is guaranteed by the
constitutional liberties of press and religion and inevitably tends to suppress
29
their exercise. That is almost uniformly recognized as the inherent vice and
evil of this flat license tax.
· Further, the case also mentioned that the power to tax the exercise
of a privilege is the power to control or suppress its enjoyment. Those who
can tax the exercise of this religious practice can make its exercise so
costly as to deprive it of the resources necessary for its maintenance. Those
who can tax the privilege of engaging in this form of missionary evangelism
can close all its doors to all those who do not have a full purse
· Under Sec. 27(e) of Commonwealth Act No. 466 or the National
Internal Revenue Code,Corporations or associations organized and
operated exclusively for religious, charitable, . . . or educational purposes, .
. .: Provided, however, That the income of whatever kind and character
from any of its properties, real or personal, or from any activity conducted
for profit, regardless of the disposition made of such income, shall be liable
to the tax imposed under this Code shall not be taxed
· The price asked for the bibles and other religious pamphlets was in
some instances a little bit higher than the actual cost of the same but this
cannot mean that American Bible Society was engaged in the business or
occupation of selling said "merchandise" for profit
· Therefore, the Ordinance cannot be applied for in doing so it would
impair American Bible Society’s free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious
beliefs.

Wherefore, and on the strength of the foregoing considerations, We

hereby reverse the decision appealed from, sentencing defendant return
to plaintiff the sum of P5,891.45 unduly collected from it

31. G.R. No. 115455 October 30, 1995, ARTURO M. TOLENTINO, vs. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE,

FACTS: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue Code. There
are various suits challenging the constitutionality of RA 7716 on various
grounds.

One contention is that RA 7716 did not originate exclusively in the House of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because
it is in fact the result of the consolidation of 2 distinct bills, H. No. 11197 and
S. No. 1630. There is also a contention that S. No. 1630 did not pass 3
readings as required by the Constitution.

ISSUE: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution
30
RULING; The argument that RA 7716 did not originate exclusively in the
House of Representatives as required by Art. VI, Sec. 24 of the Constitution
will not bear analysis. To begin with, it is not the law but the revenue bill
which is required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which
initiated the legislative process culminating in the enactment of the law
must substantially be the same as the House bill would be to deny the
Senate’s power not only to concur with amendmentsbut also to
propose amendments. Indeed, what the Constitution simply means is that
the initiative for filing revenue, tariff or tax bills, bills authorizing an increase
of the public debt, private bills and bills of localapplication must come
from the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a
body is withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3
readings on separate days as required by the Constitution because the
second and third readings were done on the same day. But this was
because the President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing but also
that of reading the bill on separate days. That upon the certification of a
bill by the President the requirement of 3 readings on separate days and of
printing and distribution can be dispensed with is supported by the weight
of legislative practice.

32. G.R. No. L-10405, December 29, 1960 | WENCESLAO PASCUAL,

vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,

FACTS: 1. Petitioner was the governor of Rizal, filed a petition assailing the
validity of R.A. 920 which contains an item providing for an appropriation
of P85,000.00 for the construction and repair of a feeder road in Pasig. The
said law was passed in Congress and approved by the President.

2. The property over which the feeder road will be constructed is however
owned by Sen. Zulueta. The property was to be donated to the local
government, though the donation was made a few months after the
appropriation was included in RA 920. The petition alleged that the said
planned feeder road would relieve Zulueta the responsibility of improving
the road which is inside a private subdivision.

3. The lower court (RTC) ruled that the petitioner has standing to assail the
validity of RA 920, due to the public interest involved in the appropriation.
31
However, he does not have a standing with respect to the donation since
he does not have an interest that will be injured by said donation, hence, it
dismissed the petition.

ISSUE: Whether or not the petitioner has the standing to file the petition.

RULING: YES.
1. Petitioner has standing. He is not merely a taxpayer but the governor of
the province of Rizal which is considered one of the most populated
biggest provinces during that time, its taxpayers bear a substantial portion
of the burden of taxation in the country.

2. Public funds can only be appropriated for a public purpose. The test of
the constitutionality of a statute requiring the use of public funds is whether
it is used to promote public interest. Moreover, the validity of a stature
depends on the powers of the Congress at the time of its passage or
approval, not upon events occurring, or acts performed subsequent
thereto, unless it is an amendment of the organic law.

33. [G.R. No. L-7373. December 22, 1954.]

BENITO MENDOZA, Petitioner, v. J. M. MANGUIAT,

FACTS: In October 1953 justice of the peace and municipal courts still had
jurisdiction to try tenancy cases involving lands planted with citrus trees.
But, upon approval on August 30, 1954 of Republic Act No. 1199, which
repeals Commonwealth Acts Nos. 454 and 461, the relation between the
landowner and the tenant of citrus lands fell under the regulatory
provisions of Republic Act No. 1199; as a consequence, the power of the
municipal court to try and decide the case was revoked and transferred to
the Court of Industrial Relations. The jurisdiction that was terminated is one
over the subject-matter. A tenancy case involving citrus land field in
October 1953 should, therefore, be dismissed and the plaintiff therein
directed to file his action in the Court of Industrial Relations.

RULING: Action is brought in this Court to enjoin the Municipal Judge of

Lipa City from taking cognizance of a case therein designated as
"Tendency Case No. 3," and entitled "Francisco Macarandang v. Benito
Mendoza." Said "tendency" case was filed on October 31, 1953. In his
complaint Macarandang alleged that Benito Mendoza is cultivating a
certain parcel of land belonging to Macarandang, which is planted to
citrus. Mendoza did not like to take care of the citrus trees planted thereon
by Macarandang, but he was to raise thereon diverse crops, like palay,
corn and other short-lived crops. As a ground of action, it is alleged that
inspite of the fact that Macarandang had given Mendoza notice that he
(Macarandang) was to plant vines and other cover crops on the farm,
Mendoza plowed half of it and, through carelessness, destroyed 56 citrus
32
trees.

Mendoza, through counsel, moved to dismiss the action, on the ground

that the Court of Industrial Relations has jurisdiction to hear and decide the
said case and that he municipal court is without right to do so. The motion
was denied on the authority of the decision of this Court in the case of
Arciga v. De Jesus, 85 Phil., 348, 47 Off. Gaz. 3463. We held in said that (at
the time) no tendency law had been promulgated governing the relations
of the owner and the tenant of a coconut land. We have confirmed our
ruling in that case in the recent case of Vidal v. Roldan, 92 Phil., 137, 48 Off.
Gaz. (10) 4343.

But since then, and more specifically on August 30, 1954, Republic Act No
1199 entitled "An Act to Govern the Relations between Landholders and
Tenants of Agricultural Lands (Leasehold and Share Tenancy)" has been
approved. This law governs the relations between landlord and tenant in
all kinds of agricultural lands. It repeals C. A. No. 454, known as the Rice
Share Tenancy Act, and C. A. No. 461. The provisions of the Act are made
to apply to all kinds of agricultural lands, whatever may be their nature or
character, whether rice, sugar, corn or coconut, and all controversies
between landlord and tenant are placed within the jurisdiction of the
Court of Industrial Relations, so any controversies between landlord and
tenant, or owner and lessee falls under said court’s jurisdiction.

So that at the time of the institution of the tenancy case in the municipal
court of Lipa City on October 31, 1953, said court, therefore, still had
jurisdiction to try the case, inasmuch as no law on tenancy had yet been
passed governing citrus lands; the case was not yet cognizable by the
Court of Industrial Relations, a court of special jurisdiction. But, upon
approval of Republic Act No. 1199, the relation between the landowner
and the tenant of the citrus land fell under the regulatory provisions of the
Act; as a consequence, the power of the municipal court to try and
decide the case was revoked and transferred to the Court of Industrial
Relations. The jurisdiction that was terminated is one over the subject-
matter (not like the power in a criminal case to try the case by virtue of the
fact that the place where the offense committed was within the territorial
limits of the court’s jurisdiction). The said case should, therefore, be, as it
hereby is dismissed, and the plaintiff therein directed to file his action in the
Court of Industrial Relations.

34. Planters Products Inc vs Fertiphil Corp G.R. No. 166006 March 14, 2008

FACTS: President Ferdinand Marcos, exercising his legislative powers, issued

LOI No. 1465 which provided, among others, for the imposition of a capital
recovery component (CRC) on the domestic sale of all grades of fertilizers

33
which resulted in having Fertiphil paying P 10/bag sold to the Fertilizer and
Perticide Authority (FPA).
FPA remits its collection to Far East Bank and Trust Company who applies to
the payment of corporate debts of Planters Products Inc. (PPI)
After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10
levy. Upon return of democracy, Fertiphil demanded a refund but PPI
refused. Fertiphil filed a complaint for collection and damages against FPA
and PPI with the RTC on the ground that LOI No. 1465 is unjust,
unreaonable oppressive, invalid and unlawful resulting to denial of due
process of law.
FPA answered that it is a valid exercise of the police power of the state in
ensuring the stability of the fertilizing industry in the country and that
Fertiphil did NOT sustain damages since the burden imposed fell on the
ultimate consumers.
RTC and CA favored Fertiphil holding that it is an exercise of the power of
taxation ad is as such because it is NOT for public purpose as PPI is a
private corporation.

ISSUE:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather
the police power

RULING:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in
interest" or party who stands to be benefited or injured by the judgment in
the suit. In public suits, there is the right of the ordinary citizen to petition
the courts to be freed from unlawful government intrusion and illegal
official action subject to the direct injury test or where there must be
personal and substantial interest in the case such that he has sustained or
will sustain direct injury as a result. Being a mere procedural technicality, it
has also been held that locus standi may be waived in the public interest
such as cases of transcendental importance or with far-reaching
implications whether private or public suit, Fertiphil has locus standi.

2. As a seller, it bore the ultimate burden of paying the levy which made its
products more expensive and harm its business. It is also of paramount
public importance since it involves the constitutionality of a tax law and
use of taxes for public purpose.

3. Yes. Police power and the power of taxation are inherent powers of the
state but distinct and have different tests for validity. Police power is the
power of the state to enact the legislation that may interfere with personal
liberty on property in order to promote general welfare. While, the power
of taxation is the power to levy taxes as to be used for public purpose. The
main purpose of police power is the regulation of a behavior or conduct,
34
while taxation is revenue generation. The lawful subjects and lawful means
tests are used to determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is circumscribed by
inherent and constitutional limitations.

In this case, it is for purpose of revenue. But it is a robbery for the State
to tax the citizen and use the funds generation for a private
purpose. Public purpose does NOT only pertain to those purpose which
are traditionally viewed as essentially governmental function such
as building roads and delivery of basic services, but also includes those
purposes designed to promote social justice. Thus, public money may now
be used for the relocation of illegal settlers, low-cost housing and urban or
agrarian reform.

35. G.R. No. L-19201, June 16, 1965, REV. FR. CASIMIRO LLADOC,
vs. The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS,

FACTS: Sometime in 1957, M.B. Estate Inc., of Bacolod City, donated

10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish priest of Victorias,
Negros Occidental, and predecessor of Fr. Lladoc, for the construction of a
new Catholic church in the locality. The donated amount was spent for
such purpose.
March 3, 1958, the donor M.B. Estate filed the donor's gift tax return.
Under date of April 29, 1960. Commissioner of Internal Revenue issued an
assessment for the donee's gift tax against the Catholic Parish of Victorias
of which petitioner was the parish priest.

ISSUE: Whether or not the imposition of gift tax despite the fact the Fr.
Lladoc was not the Parish priest at the time of donation, Catholic Parish
priest of Victorias did not have juridical personality as the constitutional
exemption for religious purpose is valid.

RULING: Yes, imposition of the gift tax was valid, under Section 22(3) Article
VI of the Constitution contemplates exemption only from payment of taxes
assessed on such properties as Property taxes contra distinguished from
Excise taxes The imposition of the gift tax on the property used for religious
purpose is not a violation of the Constitution. A gift tax is not a property by
way of gift inter vivos.

The head of the Diocese and not the parish priest is the real party in interest
in the imposition of the donee's tax on the property donated to the church
for religious purpose.

36. G.R. No. L-49336 August 31, 1981

THE PROVINCE OF ABRA, vs. HONORABLE HAROLD M. HERNANDO,
35
FACTS: The Province of Abra sought to tax the properties of the Roman
Catholic Bishop, Inc. of Bangued. Judge Harold Hernando dismissed the
petition of Abra without hearing its side. Hernando ruled that there “is no
question that the real properties sought to be taxed by the Province of
Abra are properties of the respondent Roman Catholic Bishop of Bangued,
Inc.” Likewise, there is no dispute that the properties including their
produce are actually, directly and exclusively used by the Roman Catholic
Bishop of Bangued, Inc. for religious or charitable purposes.”

ISSUE: Whether or not the properties of the church (in this case) is
exempt from taxes.

RULING: No, they are not tax exempt. It is true that the Constitution
provides that “charitable institutions, mosques, and non-profit cemeteries”
are required that for the exemption of “lands, buildings, and
improvements,” they should not only be “exclusively” but also “actually”
and “directly” used for religious or charitable purposes. The exemption from
taxation is not favored and is never presumed, so that if granted it must be
strictly construed against the taxpayer. However, in this case, there is no
showing that the said properties are actually and directly used for religious
or charitable uses.

37. G.R. No. L-15270 September 30, 1961 JOSE V. HERRERA and ESTER
OCHANGCO HERRERA, vs. THE QUEZON CITY BOARD OF ASSESSMENT
APPEALS,

FACTS: In 1952, the Director of the Bureau of Hospitals authorized Jose V.

Herrera and Ester Ochangco Herrera to establish and operate the St.
Catherine’s Hospital. In 1953, the Herreras sent a letter to the Quezon City
Assessor requesting exemption from payment of real estate tax on the
hospital, stating that the same was established for charitable and
humanitarian purposes and not for commercial gain. The exemption was
granted effective years 1953 to 1955. In 1955, however, the Assessor
reclassified the properties from “exempt” to “taxable” effective 1956, as it
was ascertained that out of the 32 beds in the hospital, 12 of which are for
pay-patients. A school of midwifery is also operated within premises of the
hospital.

ISSUE: Whether St. Catherine’s is exempt from realty tax

RULING: Yes. The admission of pay-patients does not detract from the
charitable character of a hospital, if all its funds are devoted exclusively to
the maintenance of the institution as a public charity.
The exemption extends to facilities which are incidental to and

36
reasonably necessary for the accomplishment of said
purpose – a school for training nurses, a nurses’ home, etc.

38. G.R. No. L-19371, February 28, 1966 HOSPITAL DE SAN JUAN DE DIOS,
INC., vs. PASAY CITY,

39. G.R. No. L-39086 June 15, 1988, ABRA VALLEY COLLEGE, INC.,
represented by PEDRO V. BORGONIA, vs. HON. JUAN P. AQUINO,

FACTS: Petitioner, an educational corporation and institution of higher

learning duly incorporated with the Securities and Exchange Commission in
1948, filed a complaint 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” by respondents Municipal Treasurer and
Provincial Treasurer, defendants below, was issued for the satisfaction of
the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by

the trial court in its questioned decision. The trial court ruled for the
government, holding that the second floor of the building is being used by
the director for residential purposes and that the ground floor used and
rented by Northern Marketing Corporation, a commercial establishment,
and thus the property is not being used exclusively for educational
purposes. Instead of perfecting an appeal, petitioner availed of the instant
petition for review on certiorari with prayer for preliminary injunction before
the Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for
educational purposes.

RULING: Section 22, paragraph 3, Article VI, of the then 1935 Philippine
Constitution, 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.ﾝ Reasonable emphasis has always been made that
the exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. The use of the
school building or lot for commercial purposes is neither contemplated by
law, nor by jurisprudence. In the case at bar, the lease of the first floor of
the building to the Northern Marketing Corporation cannot by any stretch
of the imagination be considered incidental to the purpose of education.
The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution.

37
The decision of the CFI Abra (Branch I) is affirmed subject to the
modification that half of the assessed tax be returned to the petitioner. The
modification is derived from the fact that the ground floor is being used for
commercial purposes (leased) and the second floor being used as
incidental to education (residence of the director).

40. G.R. No. L-45685, November 16, 1937, THE PEOPLE OF THE PHILIPPINE
ISLANDS and HONGKONG & SHANGHAI BANKING CORPORATION,vs. JOSE
O. VERA

FACTS: Mariano Cu Unjieng was convicted by the trial court in Manila. He

filed for reconsideration and four motions for new trial but all were denied.
He then elevated to the Supreme Court and the Supreme Court
remanded the appeal to the lower court for a new trial. While awaiting
new trial, he appealed for probation alleging that the he is innocent of the
crime he was convicted of. The Judge of the Manila CFI directed the
appeal to the Insular Probation Office. The IPO denied the application.
However, Judge Vera upon another request by petitioner allowed the
petition to be set for hearing. The City Prosecutor countered alleging that
Vera has no power to place Cu Unjieng under probation because it is in
violation of Sec. 11 Act No. 4221 which provides that the act of Legislature
granting provincial boards the power to provide a system of probation to
convicted person. Nowhere in the law is stated that the law is applicable
to a city like Manila because it is only indicated therein that only provinces
are covered. And even if Manila is covered by the law it is unconstitutional
because Sec 1 Art 3 of the Constitution provides equal protection of laws.
The said law provides absolute discretion to provincial boards and this also
constitutes undue delegation of power. Further, the said probation law
may be an encroachment of the power of the executive to provide
pardon because providing probation, in effect, is granting freedom, as in
pardon.

ISSUES: Whether or not Act No. 4221 constituted an undue delegation of

legislative power
Whether or not the said act denies the equal protection of the laws

RULINGS: The Court concludes that section 11 of Act No. 4221 constitutes
an improper and unlawful delegation of legislative authority to the
provincial boards and is, for this reason, unconstitutional and void. There is
no set standard provided by Congress on how provincial boards must act
in carrying out a system of probation. The provincial boards are given
absolute discretion which is violative of the constitution and the doctrine of
the non delegation of power. Further, it is a violation of equity so protected
by the constitution. The challenged section of Act No. 4221 in section 11
which reads as follows: This Act shall apply only in those provinces in which
the respective provincial boards have provided for the salary of a
38
probation officer at rates not lower than those now provided for provincial
fiscals. Said probation officer shall be appointed by the Secretary of Justice
and shall be subject to the direction of the Probation Office.
The provincial boards of the various provinces are to determine for
themselves, whether the Probation Law shall apply to their provinces or not
at all. The applicability and application of the Probation Act are entirely
placed in the hands of the provincial boards. If the provincial board does
not wish to have the Act applied in its province, all that it has to do is to
decline to appropriate the needed amount for the salary of a probation
officer.
It is also contended that the Probation Act violates the provisions of our Bill
of Rights which prohibits the denial to any person of the equal protection
of the laws. The resultant inequality may be said to flow from the
unwarranted delegation of legislative power, although perhaps this is not
necessarily the result in every case. Adopting the example given by one of
the counsel for the petitioners in the course of his oral argument, one
province may appropriate the necessary fund to defray the salary of a
probation officer, while another province may refuse or fail to do so. In
such a case, the Probation Act would be in operation in the former
province but not in the latter. This means that a person otherwise coming
within the purview of the law would be liable to enjoy the benefits of
probation in one province while another person similarly situated in another
province would be denied those same benefits. This is obnoxious
discrimination. Contrariwise, it is also possible for all the provincial boards to
appropriate the necessary funds for the salaries of the probation officers in
their respective provinces, in which case no inequality would result for the
obvious reason that probation would be in operation in each and every
province by the affirmative action of appropriation by all the provincial
boards.

41. G.R. No. L-31685 July 31, 1975, RAMON A. GONZALES,

vs. IMELDA R. MARCOS,

FACTS: The petitioner questioned the validity of EO No. 30 creating the

Cultural Center of the Philippines, having as its estate the real and personal
property vested in it as well as donations received, financial commitments
that could thereafter be collected, and gifts that may be forthcoming in
the future. It was likewise alleged that the Board of Trustees did accept
donations from the private sector and did secure from the Chemical Bank
of New York a loan of $5 million guaranteed by the National Investment &
Development Corporation as well as $3.5 million received from President
Johnson of the United States in the concept of war damage funds, all
intended for the construction of the Cultural Center building estimated to
cost P48 million. The petition was denied by the trial court arguing that with
not a single centavo raised by taxation, and the absence of any
pecuniary or monetary interest of petitioner that could in any wise be
39
prejudiced distinct from those of the general public.

ISSUE: Has a taxpayer the capacity to question the validity of the issuance
in this case?

RULING: No. It was therein pointed out as "one more valid reason" why such
an outcome was unavoidable that "the funds administered by the
President of the Philippines came from donations [and] contributions [not]
by taxation." Accordingly, there was that absence of the "requisite
pecuniary or monetary interest." The stand of the lower court finds support
in judicial precedents. This is not to retreat from the liberal approach
followed in Pascual v. Secretary of Public Works, foreshadowed by People
v. Vera, where the doctrine of standing was first fully discussed. It is only to
make clear that petitioner, judged by orthodox legal learning, has not
satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the
assumption that public funds raised by taxation were involved, it does not
necessarily follow that such kind of an action to assail the validity of a
legislative or executive act has to be passed upon. This Court, as held in
the recent case of Tan v. Macapagal, "is not devoid of discretion as to
whether or not it should be entertained." The lower court thus did not err in
so viewing the situation.

42. G.R. No. L-31156 February 27, 1976, PEPSI-COLA BOTTLING COMPANY
OF THE PHILIPPINES, INC., vs. MUNICIPALITY OF TANAUAN,

FACTS: Pepsi Cola has a bottling plant in the Municipality of Tanauan,

Leyte. In September 1962, the Municipality approved Ordinance No. 23
which levies and collects “from soft drinks producers and manufacturers a
tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked.”
In December 1962, the Municipality also approved Ordinance No. 27
which levies and collects “on soft drinks produced or manufactured within
the territorial jurisdiction of this municipality a tax of one centavo P0.01) on
each gallon of volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged that they
constitute double taxation in two instances: a) double taxation because
Ordinance No. 27 covers the same subject matter and impose practically
the same tax rate as with Ordinance No. 23, b) double taxation because
the two ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which
allows for the delegation of taxing powers to local government units; that
allowing local governments to tax companies like Pepsi Cola is
confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It
argued, among others, that only Ordinance No. 27 is being enforced and
40
that the latter law is an amendment of Ordinance No. 23, hence there is
no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether

or not there is double taxation.

RULING: No. There is no undue delegation. The Constitution even allows

such delegation. Legislative powers may be delegated to local
governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI
provides: “Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be
provided by law.” Withal, it cannot be said that Section 2 of Republic Act
No. 2264 emanated from beyond the sphere of the legislative power to
enact and vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken.
Further, Pepsi Cola’s assertion that the delegation of taxing power in itself
constitutes double taxation cannot be merited. It must be observed that
the delegating authority specifies the limitations and enumerates the taxes
over which local taxation may not be exercised. The reason is that the
State has exclusively reserved the same for its own prerogative. Moreover,
double taxation, in general, is not forbidden by our fundamental law unlike
in other jurisdictions. Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose, but not in a case where one
tax is imposed by the State and the other by the city or municipality.

43. G.R. No. L-4043, May 26, 1952, CENON S. CERVANTES, petitioner,
vs. THE AUDITOR GENERAL,

FACTS: This is a petition to review a decision of Auditor General denying

petitioner’s claim for quarters allowance as manager of the National
Abaca and other Fibers Corp. (NAFCO).
Petitioner was general manager in 1949 of NAFCO with annual salary of
P15,000.00
NAFCO Board of Directors granted P400/mo. Quarters allowance to
petitioner amounting to P1,650 for 1949.
This allowance was disapproved by the Central Committee of the
government enterprise council under Executive Order No. 93 upon
recommendation by NAFCO auditor and concurred in by the Auditor
general on two grounds:

41
a) It violates the charter of NAFCO limiting manager’s salary to
P15,000/year.
b) NAFCO is in precarious financial condition.

ISSUES: Whether or not Executive Order No. 93 exercising control over

Government Owned and Controlled Corporations (GOCC) implemented
under R.A. No. 51 is valid or null and void.
Whether or not R.A. No. 51 authorizing presidential control over GOCCs is
Constitutional.

RULING: R.A. No. 51 is constitutional. It is not illegal delegation of legislative

power to the executive as argued by petitioner but a mandate for the
President to streamline GOCC’s operation. Executive Order 93 is valid
because it was promulgated within the 1 year period given. Petition for
review DISMISSED with costs

44. G.R. No. L-46720, June 28, 1940, WELLS FARGO BANK & UNION TRUST
COMPANY, vs. THE COLLECTOR OF INTERNAL REVENUE,

FACTS: In September 1932, Birdie Lillian Eye died in Los Angeles, California,
USA which was also her place of domicile. She left various properties.
Among those properties include some intangibles consisting of 70,000
shares in the Benguet Consolidated Mining Company, a corporation
organized and existing under Philippine laws.
The Collector of Internal Revenue sought to assess and collect estate tax
on the said shares. Wells Fargo Banks & Union Trust Company, the trustee of
the estate of the decedent Eye, objected to said assessment. Wells Fargo
averred that said shares were already subjected to inheritance tax in
California and hence cannot be taxed again in the Philippines (note at
that time the Philippines was still under the Commonwealth and were not
yet totally independent from the US).

ISSUE: Whether or not the shares are subject to estate tax in the Philippines.

RULING: Yes. The Supreme Court ruled that even though the Philippines was
considered a US territory at that time, it is still a separate jurisdiction from
the US in several aspects particularly taxation. Hence, the Philippines has
the power to tax said shares. The situs of taxation is here in the Philippines
because the situs of the shares of stock concerned is here in the Philippines
because of the fact that the said shares were issued here by a corporation
organized and existing under the laws of the Philippines which is also
domiciled here. Further, (and this is the deeper reason), when Eye was
alive, she actually delivered the title to said shares to the resident secretary
of the corporation here in the Philippines hence the shares never left the
Philippines.

42
 45. G.R. Nos. L-9456 and L-9481, January 6, 1958, THE COLLECTOR OF
INTERNAL REVENUE, vs. DOMINGO DE LARA,

46. G.R. No. L-26521, December 28, 1968, EUSEBIO VILLANUEVA, ET AL., vs.
CITY OF ILOILO, defendants-appellants.

FACTS: On September 30, 1946, the Municipal Board of Iloilo City enacted
Ordinance 86 imposing license tax fees upon
tenement houses. The validity of such ordinance was challenged by
Eusebio and Remedios Villanueva, owners of four tenement houses
containing 34 apartments. The Supreme Court held the ordinance to be
ultra views. On January 15, 1960, however, the municipal board, believing
that it acquired authority to enact an ordinance of the same nature
pursuant to the Local Autonomy Act, enacted Ordinance 11, Eusebio and
Remedios Villanueva assailed the ordinance anew.

ISSUE: Does Ordinance 11 violate the rule of uniformity of taxation?

RULING: No. The Court has ruled the tenement houses constitute a
distinct class of property and that taxes are uniform and equal when
imposed upon all property of the same class or character within the taxing
authority. The fact that the owners of the other classes of buildings in Iloilo
are not imposed upon by the ordinance, or that tenement taxes are
imposed in other cities do not violate the rule of equality and uniformity.
The rule does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time. So long as the
burden of tax falls equally and impartially on all owners or operators of
tenement houses similarly classified or situated, equality and uniformity is
accomplished. The presumption that tax statutes are intended to operate
uniformly and equally was not overthrown therein.

47. G.R. No. L-20312 February 26, 1972, SAN MIGUEL BREWERY, INC vs.
THE CITY OF CEBU,

PUNSALAN v. MUN. BOARD OF CITY OF MANILA

GR No. L-23645, October 29, 1968
95 PHIL 46

FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a

CPA, and a pharmacist--sought the annulment of Ordinance No.3398 of
the City of Manila which imposes a municipal occupation tax on persons
exercising various professions in the city and penalizes non-payment of the
tax, contending in substance that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what

43
amounts to double taxation. 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, but 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.

ISSUE: Does the law constitute a class legislation? Is it for the Court to
determine which political unit should impose taxes and which should not?

HELD: No. It is not 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.

Veronica Sanchez v. Collector of Internal Revenue

(Constitutionality of Double Taxation)

FACTS: -Veronica Sanchez constructed her 4 door accessoria purposely for

rent or profit
-she had been continuously leasing the same to third persons since its
construction in 1947;
-she manages her property herself; and that said leased holding appears
to her main source of livelihood
-The building has an assessed value of 21,540, and the land assessed at
7,980; a total of 29,540. In 1949, she derived an income of 7,540 annually,
She runs a small dry good store in Pasay market with an income of 1, 300
annually.
-In early part of 1951, CIR made a demanded upon the appellant for the
payment of 163.51 as income tax for the yr 1950, and 637as real estate
dealer’s tax for the year 1946 to 1950 , plus the sum of 50 pesos as
compromise. The appellant paid the taxes demanded under protest. Oct
16, 1951 she filed and action against CIR in the court of first instance.

Issue/s: WON Veronica Sanchez is a real estate dealer 2. WON she can
refund payment of taxes

HELD: Yes she is a real estate dealer a. “includes all persons who for their
own account are engaged in the sale of lands, bdgs, interests therein or
leasing real estate” (RA No 42) b. Constructed the accessoria purposely
for profit or rent, leased to third persons since 1947, manages the property
44
herself, lease is her main source of livelihood therefore she is engaged in
leasing the real estate and she is a real estate dealer 2. She can refund
only her payment for 1946 a. She started her operations in 1947 but paid
real estate dealer’s tax for 1946 b. Petitioner: she is paying real estate
taxes and she is now required to pay real estate broker’s tax as well. This
amounts to double taxation c. Supreme court: license tax may be levied
upon a business or occupation although the land/ property used may be
subjected to property tax, and that the state may collect an ad valorem
tax on property used in a calling, and at the same time impose a license
tax on the pursuit on a latter kind of tax being in a sense of double tax.

G.R. No. L-24265, December 28, 1979 PROCTER G GAMBLE PHILIPPINE

MANUFACTURING CORPORATION, vs. THE MUNICIPALITY OF JAGNA,
PROVINCE OF BOHOL,

FACTS: December 13, 1957, the Municipal Council of Jagna, Bohol

enacted Mun. Ordinance No. 4 Series of 1957. Imposing Storage Fees [on]
All Exportable Copra Deposited in the Bodega Within the Jurisdiction of the
Municipality.” For six years (1958-1963), Procter G Gamble paid the
Municipality under protest, storage fees totaling P42,265.13.
March 3, 1964, Procter G Gamble (PGG) filed suit in the CFI of Manila
seeking that: 1) Ordinance no 4 be declared inapplicable to it, or that it be
called ultra vires , and 2) that the Municipality be ordered to refund the
amount paid under protest + costs. a.
Municipality: questioned the jurisdiction of the trial court to take
cognizance of the action and pleaded prescription and laches for failure
to timely question the validity of the ordinance.
TC: Upheld jurisdiction as well as Municipality’s power to enact the
Ordinance under the Revised Admin Code’s sec. 2238, known as the
general welfare clause. It also declared PGG’s right of action prescribed
under the 5 year period provided by Art 1149 NCC. 5. PGG appeals the
case submitting that: a. The ordinance is inapplicable as it is not engaged
in the business trade of storing copra for others for compensation or profit,
and that the only copra it stores is for exclusive use in connection with its
business as a manufacturer of soap, edible oil, margarine and other similar
products. b. That the levy is intended as an “export tax” since it is collected
from “exportable copra” which is beyond the powers of the Municipal
Council. c. That the fee of P0.10 for every 100 kilos of copra stored in the
bodega is excessive, unreasonable and oppressive and is imposed more
for revenue than as a regulatory fee.

ISSUES: W/N the Municipality of Jagna was authorized to impose and

collect the storage fee provided or in Ordinance No. 4.
HELD: YES. The validity of the ordinance is sustained.

45
G.R. No. L-8799, August 31, 1956, THE CITY OF MANILA, vs. THE INTER-ISLAND
GAS SERVICE, INC.,

G.R. No. L-8154 December 20, 1915, JOAQUIN DE VILLATA,

vs. J.S. STANLEY,

Republic v. Gonzales13 SCRA 633G.R. NO. L-17962 April 30, 1965

FACTS: Defendant-appellant, Blas Gonzales is a private concessionaire in

the US military Base at Clark Field, Angeles City, who is engaged in the
manufacture of furniture and, per agreement with base authorities,
supplied them with his manufactured articles.The BIR discovered that for
the years 1946-47, appellant have undeclared income for the two years
causing deficiency in its tax dues. Despite the demand of the BIR to pay its
tax due, appellant failed to do so. Indefense, appellant claim that as a
concessionaire in an American Air Base, he is not subject to Philippine Tax
laws pursuant to the US-Phil. Military Bases Agreement.

ISSUE: Is appellant is exempt from taxes?

RULING: No. A Filipino concessionaire in an American Air Base is subject to

Philippine Income Tax laws under the US-Phil Military Bases Agreement. Non
in the provisions of the agreement shields a concessionaire, like the
appellant, from the payment of the income tax. For one thing, even the
exemption in favor of members of the US armed forces and nationals of
the US does not include income derived from Philippine sources.

Yutivo Sons Hardware Co vs CTA

FACTS: Yutivo is a domestic corporation engaged in importation and sale

of hardware supplies and equipment. After the liberation in 1946, resumed
its business and until 1946 bout a number of cars and trucks from General
Motors (GM), an American corporation doing business in the Philippines. As
importer, GM paid sales tax prescribed by the Tax Code on the basis of its
selling price to Yutivo. Yutivo paid no further sales tax on its sales to the
public.In June 1946, Southern Motors (SM) organized to engage in the
business of selling cars, trucks and spare parts. One of its major subscribers
is Yu Tiong Yee, a founder of Yutivo. After the incorporation of SM and until
the withdrawal of GM from Phil, the cars and trucks were purchased by
Yutivo from GM then sold by Yutivo to Sm and then SM sold these to the
public.The same way that GM used to pay taxes on the basis of its sales to
Yutivo, Yutivo paid taxes on the basis of its sales to SM. SM paid no taxes on
its sales to the public.CIR made an assessment and charged Yutivo 1.8M as
deficiency tax plus surcharge. Petitioner contested before CTA. CTA ruled
46
that SM is a mere subsidiary or instrumentality of Yutivo, hence, its separate
corporate existence must be disregarded.

ISSUE: WON Yutivo and SM are two separate entities.

HELD: No. It is an elementary and fundamental principle of corporation law

that a corporation is an entity separate and distinct from its stockholders
and from other corporation petitions to which it may be connected.
However, "when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime," the law will
regard the corporation as an association of persons, or in the case of two
corporations merge them into one. Another rule is that, when the
corporation is the "mere alter ego or business conduit of a person, it may
be disregarded.However, the Court here HELD that they are inclined to rule
that the Court of Tax Appeals was not justified in finding that SM was
organized for no other purpose than to defraud the Government of its
lawful revenues. In the first place, this corporation was organized in June,
1946 when it could not have caused Yutivo any tax savings. From that date
up to June 30, 1947, or a period of more than one year, GM was the
importer of the cars and trucks sold to Yutivo, which, in turn resold them to
SM. During that period, it is not disputed that GM as importer, was the one
solely liable forsales taxes. Neither Yutivo or SM was subject to the sales
taxes on their sales of cars and trucks. The sales tax liability of Yutivo did not
arise until July 1, 1947 when it became the importer and simply continued
its practice of selling to SM. The decision,herefore, of the Tax Court that SM
was organized purposely as a tax evasion device runs counter to the fact
that there was no tax to evade.

INTERNATIONAL EXCHANGE BANK v . COMMISSIONER OF INTERNAL REVENUE

FACTS: To claim that time deposits evidenced by passbooks should not be

subject to documentary stamp tax is a clear evasion of the rule on equality
and uniformity in taxation that requires the imposition of documentary
stamp tax on documents evidencing transactions of the same kind, in this
particular case, on all certificates of deposits drawing interest.
The International Exchange Bank (IEB) personally received an
assessment for deficiency Documentary Stamp Tax (DST) on its purchases
of securities from the Bangko Sentral ng Pilpinas (BSP) or Government
Securities Purchased-Reverse Repurchase Agreement (RRPA) and its
Savings Account- Fixed Savings Deposit (FSD) for the taxable years 1996
and 1997. The IEB then filed a protest letter alleging that its FSD is not
subject to DST since it cannot be considered a certificate of deposit
subject to DST under Section 180 of the Tax Code for, unlike a certificate of
deposit which is a negotiable instrument, the passbook it issued for its FSD
was not payable to the order of the depositor or to some other person as
the deposit could only be withdrawn by the depositor or by a duly
47
authorized representative. Furthermore, the bank argued that deposits
evidenced by a passbook which have features akin to a time deposit such
as petitioner’s FSD, is not subject to DST under the Tax Code and the NIRC.

ISSUE: Whether or not the IEB’s Fixed Savings Deposit evidenced by a

passbook is subject to Documentary Stamp Tax for the years assessed

HELD: A passbook representing an interest earning deposit account issued

by a bank qualifies as a certificate of deposit drawing interest. A
document to be deemed a certificate of deposit requires no specific form
as long as there is some written memorandum that the bank accepted a
deposit of a sum of money from a depositor. What is important and
controlling is the nature or meaning conveyed by the passbook and not
the particular label or nomenclature attached to it, inasmuch as
substance, not form, is paramount. The negotiable character of any and
all documents under Section 180 is immaterial for purposes of imposing DST.
Orders for the payment of sum of money payable at sight or on demand
are of course explicitly exempted from the payment of DST. Thus, a regular
savings account with a passbook which is withdrawable at any time is not
subject to DST, unlike a time deposit which is payable on a fixed maturity
date.
As for the IEB’s argument that its FSD is similar to a regular savings
deposit because it is evidenced by a passbook, the same does not lie.
The FSD, like a time deposit, provides for a higher interest rate when the
deposit is not withdrawn within the required fixed period; otherwise, it earns
interest pertaining to a regular savings deposit. Having a fixed term and the
reduction of interest rates in case of pre-termination are essential features
of a time deposit.
It bears emphasis that DST is an excise tax upon the privilege,
opportunity or facility offered at exchanges for the transaction of the
business. While tax avoidance schemes and arrangements are not
prohibited, tax laws cannot be circumvented in order to evade payment
of just taxes. To claim that time deposits evidenced by passbooks should
not be subject to DST is a clear evasion of the rule on equality and
uniformity in taxation that requires the imposition of DST on documents
evidencing transactions of the same kind, in this particular case, on all
certificates of deposits drawing interest.

48
G.R. No. 156 September 27, 1946

MILTON GREENFIELD, plaintiff-appellant,

vs.
BIBIANO L. MEER, defendant-appellee.

FACTS:
Since the year 1933, the plaintiff has been continuously engaged in
theembroidery business. In 1935, the plaintiff began engaging in buying
and sellingmining stocks and securities for his own exclusive account and
not for theaccount of others.

The plaintiff has not been a dealer in securities as defined in section 84 (t)
of Commonwealth Act No. 466; he has no established place of business for
thepurchase and sale of mining stocks and securities; and he was never a
member of any stock exchange.

The plaintiff filed an income tax return where he claims a deduction of

P67,307.80 representing the net loss sustained by him in mining
stockssecurities during the year 1939. The defendant disallowed said item
of deductionon the ground that said losses were sustained by the plaintiff
from the sale of mining stocks and securities which are capital assets, and
that the loss arisingfrom the sale of the same should be allowed only to the
extent of the gains fromsuch sales, which gains were already taken into
consideration in the computationof the alleged net loss of P67,307.80.

ISSUE:
Whether the personal and additional exemptions granted by section 23 of
Commonwealth Act No. 466 should be considered as a credit against or
bededucted from the net income, or whether it is the tax on such
exemptions thatshould be deducted from the tax on the total net income.

HELD/Ratio
Personal and additional exemptions claimed by appellant should be
credited against or deducted from the net income.

"Exception is an immunity or privilege; it is freedom from a charge or

burden to which others are subjected." (If the amounts of personal and
additional exemptions fixed in section 23 are exempt from taxation, they
should not be included as part of the net income, which is taxable. There is
nothing in said section 23 to justify the contention that the tax on personal
exemptions (which are exempt from taxation) should first be fixed, and
then deducted from the tax on the net income.

49
G.R. Nos. L-21633-34 June 29, 1967

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS,

petitioners,
vs.
BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC.,
respondents.

50
G.R. No. L-12401 October 31, 1960

MARCELO STEEL CORPORATION, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

51
G.R. No. L-19074 January 31, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ANTONIO G. GUERRERO, and the COURT OF TAX APPEALS, respondents.

FACTS:

The Commissioner of Internal Revenue denied the claim for refund in the
sum of P2,441.93 filed by the administrator of the estate of Paul I. Gunn.

The deceased operated an air transportation business under the business

name and style of Philippine Aviation Development.

61,048.19 liters of gasoline was actually used in aviation during the period
from October 3, 1956 to May 31, 1957.

The estate, as claimed, was entitled to the same rights and privileges as
Filipino citizens operating public utilities including privileges in the matter of
taxation.

The Commissioner of Internal Revenue disagreed.

The matter was brought to the Court of Tax Appeals and ordered the
petitioner to refund to the respondent the sum of P2,441.93.

Court of Tax Appeals decision was reversed.

ISSUE:

Whether or not Section 142 of the National Internal Revenue Code

allowing Filipinos a refund of 50 percentum of the specific tax paid on
aviation oil, could be availed by citizens of the United States and all forms
of business enterprises owned or controlled directly by them in view of the
privilege under the Ordinance to operate public utilities in the same
manner as to, and under the same conditions imposed upon, citizens of
the Philippines or corporations or associations owned or controlled by
citizens of the Philippines.

DECISION: 1.

No. The decision of the Court of Tax Appeals is reversed and the case is
remanded to it, to grant respondent Administrator the opportunity of
proving whether the estate could claim the benefits of Section 142 of the
National Internal Revenue Code, allowing refund to citizens of foreign
countries on a showing of reciprocity. With costs.
52
Bank of the Philippine Islands vs. Wenceslao Trinidad, Collector of Internal
Revenue, defendant-appellee

53
G.R. No. L-42780 January 17, 1936

MANILA GAS CORPORATION, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

FACTS:
This is an action brought by the Manila Gas Corporation against the
Collector of Internal Revenue for the recovery of P56,757.37, which the
plaintiff was required by the defendant to deduct and withhold from the
various sums paid it to foreign corporations as dividends and interest on
bonds and other indebtedness and which the plaintiff paid under protest.

ISSUES:
Won the Collector of Internal Revenue was justified in withholding income
taxes on interest on bonds and other indebtedness paid to nonresident
corporations

RULING:

YES. The approved doctrine is that no state may tax anything not within its
jurisdiction without violating the due process clause of the constitution. The
taxing power of a state does not extend beyond its territorial limits, but
within such it may tax persons, property, income, or business. If an interest
in property is taxed, the situs of either the property or interest must be found
within the state. If an income is taxed, the recipient thereof must have a
domicile within the state or the property or business out of which the
income ISSUES must be situated within the state so that the income may be
said to have a situs therein. Personal property may be separated from its
owner, and he may be taxed on its account at the place where the
property is although it is not the place of his own domicile and even
though he is not a citizen or resident of the state which imposes the tax. But
debts owing by corporations are obligations of the debtors, and only
possess value in the hands of the creditors.The Manila Gas Corporation
operates its business entirely within the Philippines. Its earnings, therefore
come from local sources. The place of material delivery of the interest to
the foreign corporations paid out of the revenue of the domestic
corporation is of no particular moment. The place of payment even if
conceded to be outside of the country cannot alter the fact that the
income was derived from the Philippines. The word "source" conveys only
one idea, that of origin, and the origin of the income was the Philippines.

54
G.R. No. 117982 February 6, 1997

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and ALHAMBRA INDUSTRIES,
INC., respondents.

55
G.R. No. L-35726 July 21, 1982

SOCIAL SECURITY SYSTEM, petitioner,

vs.
CITY OF BACOLOD and MIGUEL REYNALDO as City Treasurer of Bacolod
City, respondents.

56
G.R. No. L-26686 & L-26698 October 30, 1980

ATLAS FERTILIZER CORPORATION, petitioner,

vs.
COMMISSION OF INTERNAL REVENUE and COURT OF TAX APPEALS,
respondents;

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ATLAS FERTILIZER CORPORATION and COURT OF TAX APPEALS, respondents.

57
G.R. No. L-28463 May 31, 1971

REPUBLIC FLOUR MILLS INC., petitioner,

vs.
THE COMMISSIONER OF CUSTOMS and THE COURT OF TAX APPEALS,
respondents.

FACTS:
From December 1963 to July 1964, Republic Flour Mills (petitioner) exported
Pollard and/or bran which was loaded from lighters alongside vessels
engaged in foreign trade while anchored near the breakwater. The
Commissioner of Customs and The Court of Tax Appeals(respondent)
assessed the petitioner by way of wharf age dues on the said exportations
in the sum of P7,948.00, which assessment was paid by petitioner under
protest. In this case, Republic Flour Mills, Inc. would want the Court to
interpret the words“products of the Philippines” found in Section 2802 of
the Tariff and Custom Code,as excluding bran (ipa) and pollard (darak) on
the ground that, coming as they do from wheat grain which is imported in
the Philippines, they are merely waste from the production of flour. Another
main argument of the petitioner is that no government or private wharves
or government facilities were utilized in exporting such products. In that
way, it would not be liable at all for the wharf age dues assessed under
such section by respondent Commission of Customs.On the other hand,
the stand of respondent Commissioner of Customs was that petitioner was
liable for wharf age dues “upon receipt or discharge of the exported
goods by a vessel engaged in foreign trade regardless of the non-use of
government-owned or private wharves.” Respondent Court of Tax Appeals
sustained the action taken by the Commissioner of Customs under the
appropriate provision of the Tariff and Customs Code.

ISSUE:
Whether or not such collection of wharf age dues was in accordance with
law

RULING/HELD:
As stated on the Section 2802 of the Tariff and Custom Code, "There shall
be levied,collected and paid on all articles imported or brought into the
Philippines, and on products of the Philippines exported from the
Philippines, a charge of two pesos per gross metric ton as a fee for wharf
age." appears to be quite precise. Section 2802 refers to what is imported
and exported.The objective of this act must be carried out. Even if there is
doubt to the meaning of the language employed, the interpretation
should not be at war with the end sought to be attained. If petitioner were
to prevail, subsequent pleas motivated by the same desire to be excluded
from the operation of the Tariff and Customs Code would likewise be
entitled to sympathetic consideration. It was desirable then that the gates
58
to such efforts at unjustified restriction of the coverage of the Act are kept
closed. Otherwise, the end result would be not respect for, but defiance of,
a clear legislative mandate. The decision of respondent Court of Tax
Appeals of November 27, 1967 is affirmed with costs against petitioner.

59
COMMISSIONER OF INTERNAL REVENUE
vs.
MARUBENI CORP.

FACTS:

CIR assails the CA decision which affirmed CTA, ordering CIR to desist from
collecting the 1985 deficiency income, branch profit remittance and
contractor’s taxes from Marubeni Corp after finding the latter to have
properly availed of the tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export

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

On August 27, 1986, Marubeni received a letter from CIR assessing it for
several deficiency taxes. CIR claims that the income respondent derived
were income from Philippine sources, hence subject to internal revenue
taxes. On Sept 1986, respondent filed 2 petitions for review with CTA: the
first, questioned the deficiency income, branch profit remittance and
contractor’s tax assessments and second questioned the deficiency
commercial broker’s assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for
1981-85, and that taxpayers who wished to avail this should on or before
Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and

donor’s taxes under Title 3 and business tax under Chap 2, Title 5 of NIRC,
extended the period of availment to Dec 15, 1986 and stated those who
already availed amnesty under EO 41 should file an amended return to
avail of the new benefits. Marubeni filed a supplemental tax amnesty
return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and
deemed cancelled the deficiency taxes. CA affirmed on appeal.

60
ISSUE:
W/N Marubeni is exempted from paying tax

HELD:

Yes.

1. On date of effectivity

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

“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of

the amnesty herein granted: xxx b) Those with income tax cases already
filed in Court as of the effectivity hereof;”

Petitioner argues that at the time respondent filed for income tax amnesty
on Oct 30, 1986, a case had already been filed and was pending before
the CTA and Marubeni therefore fell under the exception. However, the
point of reference is the date of effectivity of EO 41 and that the filing of
income tax cases must have been made before and as of its effectivity.

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

The difficulty herein is with respect to the contractor’s tax assessment

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

“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not
contrary to or inconsistent with this amendatory Executive Order shall
remain in full force and effect.”

Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO

41 and its date of effectivity. The general rule is that an amendatory act
operates prospectively. It may not be given a retroactive effect unless it is
so provided expressly or by necessary implication and no vested right or
obligations of contract are thereby impaired.
61
2. On situs of taxation

Marubeni contends that assuming it did not validly avail of the amnesty, it
is still not liable for the deficiency tax because the income from the
projects came from the “Offshore Portion” as opposed to “Onshore
Portion”. It claims all materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan, not in the
Philippines, and are therefore not subject to Philippine taxes.

(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were broken
down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion
and financed either by OECF or by supplier’s credit. The Japanese Yen
Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine
Onshore Portion. Marubeni has already paid the Onshore Portion, a fact
that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the
supply of both materials and services to the client, they are contracts for a
piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and materials should
be subjected to contractor’s tax (a tax on the exercise of a privilege of
selling services or labor rather than a sale on products).

Marubeni, however, was able to sufficiently prove in trial that not all its work
was performed in the Philippines because some of them were completed
in Japan (and in fact subcontracted) in accordance with the provisions of
the contracts. All services for the design, fabrication, engineering and
manufacture of the materials and equipment under Japanese Yen Portion
I were made and completed in Japan. These services were rendered
outside Philippines’ taxing jurisdiction and are therefore not subject to
contractor’s tax. Petition denied.

62
EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE
AND THE COURT OF TAX APPEALS, RESPONDENTS; G.R. No. L-9408 October
31, 1956;Bautista Angelo J

FACTS:

On March 31, 1952, petitioner filed his income tax return for 1951 with the
treasurer of Bacolod City wherein he claimed, among other things, the
amount of P12,837.65 as a deductible item from his gross income pursuant
to General Circular No. V-123 issued by the Collector of Internal Revenue.
On the basis of said return, an assessment notice demanding the payment
of P9,419 was sent to petitioner, who paid the tax in monthly installments,
the last payment having been made on January 2, 1953.

Meanwhile, on August 30, 1952, the Secretary of Finance, through the

Collector of Internal Revenue, issued General Circular No. V-139 which not
only revoked and declared void his general Circular No. V-123 but laid
down the rule that losses of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty, or from robbery,
theft, or embezzlement are deductible in the year of actual loss or
destruction of said property. The deduction was disallowed and the CIR
demanded from him P3,546 as deficiency income tax for said year. The
petition for reconsideration filed by petitioner was denied so he filed a
petition for review with the CTA. The SC affirmed the assessment made by
the CIR. Hence, this appeal.

Issue: 1. Whether Hilado can claim compensation during the war; and
2. Whether the internal revenue laws can been enforced during the
war
Ruling:

No. Assuming that said amount represents a portion of the 75% of his war
damage claim which was not paid, the same would not be deductible as
a loss in 1951 because, according to petitioner, the last installment he
received from the War Damage Commission, together with the notice that
no further payment would be made on his claim, was in 1950. In the
circumstance, said amount would at most be a proper deduction from his
1950 gross income. In the second place, said amount cannot be
considered as a "business asset" which can be deducted as a loss in
contemplation of law because its collection is not enforceable as a matter
of right, but is dependent merely upon the generosity and magnanimity of
the U. S. government. As of the end of 1945, there was absolutely no law
under which petitioner could claim compensation for the destruction of his
properties during the battle for the liberation of the Philippines. And under
the Philippine Rehabilitation Act of 1946, the payments of claims by the
War Damage Commission merely depended upon its discretion to be
63
exercised in the manner it may see lit, but the non-payment of which
cannot give rise to any enforceable right.

Yes. It is well known that our internal revenue laws are not political in
nature and as such were continued in force during the period of enemy
occupation and in effect were actually enforced by the occupation
government. As a matter of fact, income tax returns were filed during that
period and income tax payment were effected and considered valid and
legal. Such tax laws are deemed to be the laws of the occupied territory
and not of the occupying enemy.

64
LORENZO vs. POSADAS JR.
G.R. No. L-43082
June 18, 1937

FACTS: Thomas Hanley died, leaving a will and a considerable amount of

real and personal properties. Proceedings for the probate of his will and
the settlement and distribution of his estate were begun in the CFI of
Zamboanga. The will was admitted to probate.
The CFI considered it proper for the best interests of the estate to appoint a
trustee to administer the real properties which, under the will, were to pass
to nephew Matthew ten years after the two executors named in the will
was appointed trustee. Moore acted as trustee until he resigned and the
plaintiff Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector
of Internal Revenue (Posadas) assessed against the estate an inheritance
tax, together with the penalties for deliquency in payment. Lorenzo paid
said amount under protest, notifying Posadas at the same time that unless
the amount was promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzo’s protest and refused to refund the said
amount. Plaintiff went to court. The CFI dismissed Lorenzo’s complaint and
Posadas’ counterclaim. Both parties appealed to this court.
ISSUE:
(e) Has there been delinquency in the payment of the inheritance tax?

HELD: The judgment of the lower court is accordingly modified, with costs
against the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent’s property to the
trustee. Stated otherwise, the defendant contends that delivery to the
trustee was delivery to the cestui que trust, the beneficiary in this case,
within the meaning of the first paragraph of subsection (b) of section 1544
of the Revised Administrative Code. This contention is well taken and is
sustained. A trustee is but an instrument or agent for the cestui que trust

The appointment of Moore as trustee was made by the trial court in

conformity with the wishes of the testator as expressed in his will. It is true
that the word “trust” is not mentioned or used in the will but the intention to
create one is clear. No particular or technical words are required to create
a testamentary trust. The words “trust” and “trustee”, though apt for the
purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created. ” To constitute a valid
testamentary trust there must be a concurrence of three circumstances:

(1) Sufficient words to raise a trust;

(2) a definite subject;
65
(3) a certain or ascertain object; statutes in some jurisdictions expressly or in
effect so providing.”

There is no doubt that the testator intended to create a trust. He ordered in

his will that certain of his properties be kept together undisposed during a
fixed period, for a stated purpose. The probate court certainly exercised
sound judgment in appointmening a trustee to carry into effect the
provisions of the will

As the existence of the trust was already proven, it results that the estate
which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when
Moore became trustee. On that date trust estate vested in him. The interest
due should be computed from that date.

66
CIR VS SC JOHNSON & SON, INCS AND CA [G.R. No. 127105. June 25, 1999]

FACTS:
Respondent is a domestic corporation organized and operating under the
Philippine Laws, entered into a licensed agreement with the SC Johnson
and Son, USA, a non-resident foreign corporation based in the USA
pursuant to which the respondent was granted the right to use the
trademark, patents and technology owned by the later including the right
to manufacture, package and distribute the products covered by the
Agreement and secure assistance in management, marketing and
production from SC Johnson and Son USA.

For the use of trademark or technology, respondent was obliged to pay SC

Johnson and Son, USA royalties based on a percentage of net sales and
subjected the same to 25% withholding tax on royalty payments which
respondent paid for the period covering July 1992 to May 1993 in the total
amount of P1,603,443.00.

On October 29, 1993, respondent filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that, the antecedent FACTS attending respondents case
fall squarely within the same circumstances under which said MacGeorge
and Gillette rulings were issued. Since the agreement was approved by the
Technology Transfer Board, the preferential tax rate of 10% should apply to
the respondent. So, royalties paid by the respondent to SC Johnson and
Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent
SC Johnson & Son, Inc. then filed a petition for review before the CTA, to
claim a refund of the overpaid withholding tax on royalty payments from
July 1992 to May 1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and
ordered the CIR to issue a tax credit certificate in the amount of
P163,266.00 representing overpaid withholding tax on royalty payments
beginning July 1992 to May 1993.

The CIR thus filed a petition for review with the CA which rendered the
decision subject of this appeal on November 7, 1996 finding no merit in the
petition and affirming in to the CTA ruling.

ISSUE: Whether or not tax refunds are considered as tax exemptions.

HELD:
67
It bears stress that tax refunds are in the nature of tax exemptions. As such
they are registered as in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the
exemption. The burden of proof is upon him who claims the exemption in
his favor and he must be able to justify his claim by the clearest grant of
organic or statute law. Private respondent is claiming for a refund of the
alleged overpayment of tax on royalties; however there is nothing on
record to support a claim that the tax on royalties under the RP-US Treaty is
paid under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.

68
69