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Republic of the Philippines In his petition to review the said resolution, the Commissioner of

SUPREME COURT Internal Revenue claims that the refund should be charged against
Manila the tax deficiency of the private respondent on the sales of cement
under Section 186 of the Tax Code. His position is that cement is a
FIRST DIVISION manufactured and not a mineral product and therefore not exempt
from sales taxes. He adds that enforcement of the said tax deficiency
G.R. No. L-29059 December 15, 1987 was properly effected through his power of distraint of personal
property under Sections 316 and 318 5 of the said Code and,
moreover, the collection of any national internal revenue tax may not
COMMISSIONER OF INTERNAL REVENUE, petitioner, be enjoined under Section 305, 6 subject only to the exception
vs. prescribed in Rep. Act No. 1125. 7 This is not applicable to the
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX instant case. The petitioner also denies that the sales tax
APPEALS, respondents. assessments have already prescribed because the prescriptive
period should be counted from the filing of the sales tax returns,
which had not yet been done by the private respondent.

CRUZ, J.: For its part, the private respondent disclaims liability for the sales
taxes, on the ground that cement is not a manufactured product but
By virtue of a decision of the Court of Tax Appeals rendered on June a mineral product. 8 As such, it was exempted from sales taxes
21, 1961, as modified on appeal by the Supreme Court on February under Section 188 of the Tax Code after the effectivity of Rep. Act
27, 1965, the Commissioner of Internal Revenue was ordered to No. 1299 on June 16, 1955, in accordance with Cebu Portland
refund to the Cebu Portland Cement Company the amount of P Cement Co. v. Collector of Internal Revenue, 9 decided in 1968.
359,408.98, representing overpayments of ad valorem taxes on Here Justice Eugenio Angeles declared that "before the effectivity of
cement produced and sold by it after October 1957. 1 Rep. Act No. 1299, amending Section 246 of the National Internal
Revenue Code, cement was taxable as a manufactured product
On March 28, 1968, following denial of motions for reconsideration under Section 186, in connection with Section 194(4) of the said
filed by both the petitioner and the private respondent, the latter Code," thereby implying that it was not considered a manufactured
moved for a writ of execution to enforce the said judgment . 2 product afterwards. Also, the alleged sales tax deficiency could not
as yet be enforced against it because the tax assessment was not
yet final, the same being still under protest and still to be definitely
The motion was opposed by the petitioner on the ground that the
resolved on the merits. Besides, the assessment had already
private respondent had an outstanding sales tax liability to which the
prescribed, not having been made within the reglementary five-year
judgment debt had already been credited. In fact, it was stressed,
period from the filing of the tax returns. 10
there was still a balance owing on the sales taxes in the amount of P
4,789,279.85 plus 28% surcharge. 3
Our ruling is that the sales tax was properly imposed upon the
private respondent for the reason that cement has always been
On April 22, 1968, the Court of Tax Appeals * granted the motion,
considered a manufactured product and not a mineral product. This
holding that the alleged sales tax liability of the private respondent
matter was extensively discussed and categorically resolved
was still being questioned and therefore could not be set-off against
in Commissioner of Internal Revenue v. Republic Cement
the refund. 4
Corporation, 11 decided on August 10, 1983, where Justice Efren L.
Plana, after an exhaustive review of the pertinent cases, declared for given retrospective application (so as to justify the
a unanimous Court: refund of sales taxes paid before Republic Act 1299
was adopted) because laws operate prospectively
From all the foregoing cases, it is clear that only, unless the legislative intent to the contrary is
cement qua cement was never considered as a manifest, which was not so in the case of Republic
mineral product within the meaning of Section 246 of Act 1266. [The situation would have been different if
the Tax Code, notwithstanding that at least 80% of the Court instead had ruled in favor of refund, in
its components are minerals, for the simple reason which case it would have been absolutely necessary
that cement is the product of (1) to make an unconditional ruling that Republic Act
a manufacturing process and is no longer the 1299 re-classified cement as a mineral product (not
mineral product contemplated in the Tax Code (i.e.; subject to sales tax), and (2) to declare the law
minerals subjected to simple treatments) for the retroactive, as a basis for granting refund of sales
purpose of imposing the ad valorem tax. tax paid before Republic Act 1299.]

What has apparently encouraged the herein In any event, we overrule the CEPOC decision of
respondents to maintain their present posture is the October 29, 1968 (G.R. No. L-20563) insofar as its
case of Cebu Portland Cement Co. v. Collector of pronouncements or any implication therefrom
Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA conflict with the instant decision.
789) penned by Justice Eugenio Angeles. For some
portions of that decision give the impression that The above views were reiterated in the resolution 12 denying
Republic Act No. 1299, which amended Section 246, reconsideration of the said decision, thus:
reclassified cement as a mineral product that was
not subject to sales tax. ... The nature of cement as a "manufactured product"
(rather than a "mineral product") is well-settled. The
xxx xxx xxx issue has repeatedly presented itself as a threshold
question for determining the basis for computing
After a careful study of the foregoing, we conclude the ad valorem mining tax to be paid by cement
that reliance on the decision penned by Justice Companies. No pronouncement was made in these
Angeles is misplaced. The said decision is no cases that as a "manufactured product" cement is
authority for the proposition that after the enactment subject to sales tax because this was not at issue.
of Republic Act No. 1299 in 1955 (defining mineral
product as things with at least 80% mineral content), The decision sought to be reconsidered here
cement became a 'mineral product," as distinguished referred to the legislative history of Republic Act No.
from a "manufactured product," and therefore 1299 which introduced a definition of the terms
ceased to be subject to sales tax. It was not "mineral" and "mineral products" in Sec. 246 of the
necessary for the Court to so rule. It was enough for Tax Code. Given the legislative intent, the holding in
the Court to say in effect that even assuming the CEPOC case (G.R. No. L-20563) that cement
Republic Act No. 1299 had reclassified cement was was subject to sales tax prior to the effectivity •f
a mineral product, the reclassification could not be Republic Act No. 1299 cannot be construed to mean
that, after the law took effect, cement ceased to be substantial compliance with the requirement of filing
so subject to the tax. To erase any and all sales tax returns, in the same way that an income
misconceptions that may have been spawned by tax return cannot be considered as a return for
reliance on the case of Cebu Portland Cement Co. compensating tax for the purpose of computing the
v. Collector of Internal Revenue, L-20563, October period of prescription under Sec. 331. (Citing Bisaya
29, 1968 (28 SCRA 789) penned by Justice Eugenio Land Transportation Co., Inc. v. Collector of Internal
Angeles, the Court has expressly overruled it insofar Revenue, G.R. Nos. L-12100 and L-11812, May 29,
as it may conflict with the decision of August 10, 1959). There being no sales tax returns filed by
1983, now subject of these motions for CEPOC, the statute of stations in Sec. 331 did not
reconsideration. begin to run against the government. The
assessment made by the Commissioner in 1968 on
On the question of prescription, the private respondent claims that CEPOC's cement sales during the period from July
the five-year reglementary period for the assessment of its tax 1, 1959 to December 31, 1960 is not barred by the
liability started from the time it filed its gross sales returns on June five-year prescriptive period. Absent a return or
30, 1962. Hence, the assessment for sales taxes made on January when the return is false or fraudulent, the applicable
16, 1968 and March 4, 1968, were already out of time. We disagree. period is ten (10) days from the discovery of the
This contention must fail for what CEPOC filed was not the sales fraud, falsity or omission. The question in this case
returns required in Section 183(n) but the ad valorem tax returns is: When was CEPOC's omission to file tha return
required under Section 245 of the Tax Code. As Justice Irene R. deemed discovered by the government, so as to
Cortes emphasized in the aforestated resolution: start the running of said period? 13

In order to avail itself of the benefits of the five-year The argument that the assessment cannot as yet be enforced
prescription period under Section 331 of the Tax because it is still being contested loses sight of the urgency of the
Code, the taxpayer should have filed the required need to collect taxes as "the lifeblood of the government." If the
return for the tax involved, that is, a sales tax return. payment of taxes could be postponed by simply questioning their
(Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L- validity, the machinery of the state would grind to a halt and all
21516, April 29, 1966, 16 SCRA 277). Thus CEPOC government functions would be paralyzed. That is the reason why,
should have filed sales tax returns of its gross sales save for the exception already noted, the Tax Code provides:
for the subject periods. Both parties admit that
returns were made for the ad valorem mining tax. Sec. 291. Injunction not available to restrain
CEPOC argues that said returns contain the collection of tax. — No court shall have authority to
information necessary for the assessment of the grant an injunction to restrain the collection of any
sales tax. The Commissioner does not consider national internal revenue tax, fee or charge imposed
such returns as compliance with the requirement for by this Code.
the filing of tax returns so as to start the running of
the five-year prescriptive period. It goes without saying that this injunction is available not only when
the assessment is already being questioned in a court of justice but
We agree with the Commissioner. It has been held more so if, as in the instant case, the challenge to the assessment is
in Butuan Sawmill Inc. v. CTA, supra, that the filing still-and only-on the administrative level. There is all the more reason
of an income tax return cannot be considered as to apply the rule here because it appears that even after crediting of
the refund against the tax deficiency, a balance of more than P 4 Republic of the Philippines
million is still due from the private respondent. SUPREME COURT
Manila
To require the petitioner to actually refund to the private respondent
the amount of the judgment debt, which he will later have the right to FIRST DIVISION
distrain for payment of its sales tax liability is in our view an Idle
ritual. We hold that the respondent Court of Tax Appeals erred in G.R. No. L-31364 March 30, 1979
ordering such a charade.
MISAEL P. VERA, as Commissioner of Internal Revenue, and
WHEREFORE, the petition is GRANTED. The resolution dated April JAIME ARANETA, as Regional Director, Revenue Region No. 14,
22, 1968, in CTA Case No. 786 is SET ASIDE, without any Bureau of Internal Revenue, petitioners,
pronouncement as to costs. vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance
SO ORDERED. of Negros Occidental, Branch V, and FRANCIS A. TONGOY,
Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros


Occidental, Branch V in Special Proceedings No. 7794, entitled:
"Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of
Payment of Taxes by the Government of the Republic of the
Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent
in the total amount of P3,254.80, inclusive 5% surcharge, 1%
monthly interest and compromise penalties, and the second, dated
October 7, 1969, denying the Motion for reconsideration of the Order
of dismissal.

The Motion for allowance of claim and for payment of taxes dated
May 28, 1969 was filed on June 3, 1969 in the abovementioned
special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis
D. Tongoy for deficiency income taxes in the total sum of P3,254.80
as above stated, covered by Assessment Notices Nos. 11-50-29-1-
11061-21-63 and 11-50-291-1 10875-64, to which motion was of the decedent, and judgment for money against
attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The the decedent, must be filed within the time limited in
Administrator opposed the motion solely on the ground that the claim they notice; otherwise they are barred forever,
was barred under Section 5, Rule 86 of the Rules of Court (par. 4, except that they may be set forth as counter claims
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). in any action that the executor or administrator may
Finding the opposition well-founded, the respondent Judge, Jose F. bring against the claimants. Where the executor or
Fernandez, dismissed the motion for allowance of claim filed by administrator commence an action, or prosecutes an
herein petitioner, Regional Director of the Bureau of Internal action already commenced by the deceased in his
Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, lifetime, the debtor may set forth may answer the
Rollo). On September 18, 1969, a motion for reconsideration was claims he has against the decedents, instead of
filed, of the order of July 29, 1969, but was denied in an Order dated presenting them independently to the court has
October 7, 1969. herein provided, and mutual claims may be set off
against each other in such action; and in final
Hence, this appeal on certiorari, petitioner assigning the following judgment is rendered in favored of the decedent, the
errors: amount to determined shall be considered the true
balance against the estate, as though the claim has
been presented directly before the court in the
1. The lower court erred in holding that the claim for
administration proceedings. Claims not yet due, or
taxes by the government against the estate of Luis
contingent may be approved at their present value.
D. Tongoy was filed beyond the period provided in
Section 2, Rule 86 of the Rules of Court.
A perusal of the aforequoted provisions shows that it makes no
mention of claims for monetary obligation of the decedent created by
2. The lower court erred in holding that the claim for
law, such as taxes which is entirely of different character from the
taxes of the government was already barred under
claims expressly enumerated therein, such as: "all claims for money
Section 5, Rule 86 of the Rules of Court.
against the decedent arising from contract, express or implied,
whether the same be due, not due or contingent, all claim for funeral
which raise the sole issue of whether or not the statute of non-claims expenses and expenses for the last sickness of the decedent and
Section 5, Rule 86 of the New Rule of Court, bars claim of the judgment for money against the decedent." Under the familiar rule of
government for unpaid taxes, still within the period of limitation statutory construction of expressio unius est exclusio alterius, the
prescribed in Section 331 and 332 of the National Internal Revenue mention of one thing implies the exclusion of another thing not
Code. mentioned. Thus, if a statute enumerates the things upon which it is
to operate, everything else must necessarily, and by implication be
Section 5, Rule 86, as invoked by the respondent Administrator in excluded from its operation and effect (Crawford, Statutory
hid Oppositions to the Motion for Allowance of Claim, etc. of the Construction, pp. 334-335).
petitioners reads as follows:
In the case of Commissioner of Internal Revenue vs. Ilagan Electric
All claims for money against the decedent, arising & Ice Plant, et al., G.R. No. L-23081, December 30, 1969, it was held
from contracts, express or implied, whether the that the assessment, collection and recovery of taxes, as well as the
same be due, not due, or contingent, all claims for matter of prescription thereof are governed by the provisions of the
funeral expenses and expenses for the last sickness National Internal revenue Code, particularly Sections 331 and 332
thereof, and not by other provisions of law. (See also Lim Tio, Dy 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and
Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Protective Order of the Elks Inc. vs. Court of Appeals, L-41001,
Revenue, G.R. No. L-10681, March 29, 1958). Even without being September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the
specifically mentioned, the provisions of Section 2 of Rule 86 of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs.
Rules of Court may reasonably be presumed to have been also in Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax
the mind of the Court as not affecting the aforecited Section of the Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines,
National Internal Revenue Code. Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E.
more pointedly held that "taxes assessed against the estate of a Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31,
deceased person ... need not be submitted to the committee on 1969, 28 SCRA 119.) As already shown, taxes may be collected
claims in the ordinary course of administration. In the exercise of its even after the distribution of the estate of the decedent among his
control over the administrator, the court may direct the payment of heirs (Government of the Philippines vs. Pamintuan, supra; Pineda
such taxes upon motion showing that the taxes have been assessed vs. CFI of Tayabas, supra Clara Diluangco Palanca vs.
against the estate." The abolition of the Committee on Claims does Commissioner of Internal Revenue, G. R. No. L-16661, January 31,
not alter the basic ruling laid down giving exception to the claim for 1962).
taxes from being filed as the other claims mentioned in the Rule
should be filed before the Court. Claims for taxes may be collected Furthermore, as held in Commissioner of Internal Revenue vs.
even after the distribution of the decedent's estate among his heirs Pineda, supra, citing the last paragraph of Section 315 of the Tax
who shall be liable therefor in proportion of their share in the Code payment of income tax shall be a lien in favor of the
inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. Government of the Philippines from the time the assessment was
13). made by the Commissioner of Internal Revenue until paid with
interests, penalties, etc. By virtue of such lien, this court held that the
The reason for the more liberal treatment of claims for taxes against property of the estate already in the hands of an heir or transferee
a decedent's estate in the form of exception from the application of may be subject to the payment of the tax due the estate. A
the statute of non-claims, is not hard to find. Taxes are the lifeblood fortiori before the inheritance has passed to the heirs, the unpaid
of the Government and their prompt and certain availability are taxes due the decedent may be collected, even without its having
imperious need. (Commissioner of Internal Revenue vs. Pineda, G. been presented under Section 2 of Rule 86 of the Rules of Court. It
R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation may truly be said that until the property of the estate of the decedent
depends the Government ability to serve the people for whose has vested in the heirs, the decedent, represented by his estate,
benefit taxes are collected. To safeguard such interest, neglect or continues as if he were still alive, subject to the payment of such
omission of government officials entrusted with the collection of taxes as would be collectible from the estate even after his death.
taxes should not be allowed to bring harm or detriment to the people, Thus in the case above cited, the income taxes sought to be
in the same manner as private persons may be made to suffer collected were due from the estate, for the three years 1946, 1947
individually on account of his own negligence, the presumption being and 1948 following his death in May, 1945.
that they take good care of their personal affairs. This should not
hold true to government officials with respect to matters not of their Even assuming arguendo that claims for taxes have to be filed within
own personal concern. This is the philosophy behind the the time prescribed in Section 2, Rule 86 of the Rules of Court, the
government's exception, as a general rule, from the operation of the claim in question may be filed even after the expiration of the time
principle of estoppel. (Republic vs. Caballero, L-27437, September
originally fixed therein, as may be gleaned from the italicized portion THIRD DIVISION
of the Rule herein cited which reads:
[G.R. Nos. 89898-99. October 1, 1990.]
Section 2. Time within which claims shall be filed. -
In the notice provided in the preceding section, the MUNICIPALITY OF MAKATI, Petitioner, v. THE HONORABLE
court shall state the time for the filing of claims COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as
against the estate, which shall not be more than Judge RTC of Makati, Branch CXLII, ADMIRAL FINANCE
twelve (12) nor less than six (6) months after the CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO R.
date of the first publication of the notice. However, at PASTRANA, Respondents.
any time before an order of distribution is entered,
on application of a creditor who has failed to file his Defante & Elegado for Petitioner.
claim within the time previously limited the court
may, for cause shown and on such terms as are Roberto B. Lugue for private respondent Admiral Finance
equitable, allow such claim to be flied within a time Creditors’ Consortium, Inc.
not exceeding one (1) month. (Emphasis supplied)

RESOLUTION
In the instant case, petitioners filed an application (Motion for
Allowance of Claim and for an Order of Payment of Taxes) which,
though filed after the expiration of the time previously limited but
CORTES, J.:
before an order of the distribution is entered, should have been
granted by the respondent court, in the absence of any valid ground,
as none was shown, justifying denial of the motion, specially
The present petition for review is an off-shoot of expropriation
considering that it was for allowance Of claim for taxes due from the
proceedings initiated by petitioner Municipality of Makati against
estate, which in effect represents a claim of the people at large, the
only reason given for the denial that the claim was filed out of the private respondent Admiral Finance Creditors Consortium, Inc.,
previously limited period, sustaining thereby private respondents' Home Building System & Realty Corporation and one Arceli P. Jo,
involving a parcel of land and improvements thereon located at
contention, erroneously as has been demonstrated.
Mayapis St., San Antonio Village, Makati and registered in the name
of Arceli P. Jo under TCT No. S-5499.chanrobles law library : red
WHEREFORE, the order appealed from is reverse. Since the Tax
Commissioner's assessment in the total amount of P3,254.80 with 5 It appears that the action for eminent domain was filed on May 20,
% surcharge and 1 % monthly interest as provided in the Tax Code 1986, docketed as Civil Case No. 13699. Attached to petitioner’s
is a final one and the respondent estate's sole defense of complaint was a certification that a bank account (Account No. S/A
prescription has been herein overruled, the Motion for Allowance of 265-537154-3) had been opened with the PNB Buendia Branch
Claim is herein granted and respondent estate is ordered to pay and under petitioner’s name containing the sum of P417,510.00, made
discharge the same, subject only to the limitation of the interest pursuant to the provisions of Pres. Decree No. 42. After due hearing
collectible thereon as provided by the Tax Code. No pronouncement where the parties presented their respective appraisal reports
as to costs. regarding the value of the property, respondent RTC judge rendered
a decision on June 4, 1987, fixing the appraised value of the property
SO ORDERED. at P5,291,666.00, and ordering petitioner to pay this amount minus
the advanced payment of P338,160.00 which was earlier released to sum of P4,953,506.45 which corresponds to the balance of the
private Respondent. appraised value of the subject property under the RTC decision
dated June 4, 1987, from the garnished account of petitioner; and,
After this decision became final and executory, private respondent (3) ordered PSB and private respondent to execute the necessary
moved for the issuance of a writ of execution. This motion was deed of conveyance over the subject property in favor of petitioner.
granted by respondent RTC judge. After issuance of the writ of Petitioner’s motion to lift the garnishment was
execution, a Notice of Garnishment dated January 14, 1988 was denied.chanrobles.com:cralaw:red
served by respondent sheriff Silvino R. Pastrana upon the manager
of the PNB Buendia Branch. However, respondent sheriff was Petitioner filed a motion for reconsideration, which was duly opposed
informed that a "hold code" was placed on the account of petitioner. by private Respondent. On the other hand, for failure of the manager
As a result of this, private respondent filed a motion dated January of the PNB Buendia Branch to comply with the order dated
27, 1988 praying that an order be issued directing the bank to deliver September 8, 1988, private respondent filed two succeeding motions
to respondent sheriff the amount equivalent to the unpaid balance to require the bank manager to show cause why he should not be
due under the RTC decision dated June 4, 1987. held in contempt of court. During the hearings conducted for the
above motions, the general manager of the PNB Buendia Branch, a
Petitioner filed a motion to lift the garnishment, on the ground that Mr. Antonio Bautista, informed the court that he was still waiting for
the manner of payment of the expropriation amount should be done proper authorization from the PNB head office enabling him to make
in installments which the respondent RTC judge failed to state in his a disbursement for the amount so ordered. For its part, petitioner
decision. Private respondent filed its opposition to the motion. contended that its funds at the PNB Buendia Branch could neither be
garnished nor levied upon execution, for to do so would result in the
Pending resolution of the above motions, petitioner filed on July 20, disbursement of public funds without the proper appropriation
1988 a "Manifestation" informing the court that private respondent required under the law, citing the case of Republic of the Philippines
was no longer the true and lawful owner of the subject property v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].
because a new title over the property had been registered in the
name of Philippine Savings Bank, Inc. (PSB). Respondent RTC Respondent trial judge issued an order dated December 21, 1988
judge issued an order requiring PSB to make available the denying petitioner’s motion for reconsideration on the ground that the
documents pertaining to its transactions over the subject property, doctrine enunciated in Republic v. Palacio did not apply to the case
and the PNB Buendia Branch to reveal the amount in petitioner’s because petitioner’s PNB Account No. S/A 265-537154-3 was an
account which was garnished by respondent sheriff. In compliance account specifically opened for the expropriation proceedings of the
with this order, PSB filed a manifestation informing the court that it subject property pursuant to Pres. Decree No. 42. Respondent RTC
had consolidated its ownership over the property as judge likewise declared Mr. Antonio Bautista guilty of contempt of
mortgagee/purchaser at an extrajudicial foreclosure sale held on court for his inexcusable refusal to obey the order dated September
April 20, 1987. After several conferences, PSB and private 8, 1988, and thus ordered his arrest and detention until his
respondent entered into a compromise agreement whereby they compliance with the said order.
agreed to divide between themselves the compensation due from the
expropriation proceedings. Petitioner and the bank manager of PNB Buendia Branch then filed
separate petitions for certiorari with the Court of Appeals, which were
Respondent trial judge subsequently issued an order dated eventually consolidated. In a decision promulgated on June 28,
September 8, 1988 which: (1) approved the compromise agreement; 1989, the Court of Appeals dismissed both petitions for lack of merit,
(2) ordered PNB Buendia Branch to immediately release to PSB the sustained the jurisdiction of respondent RTC judge over the funds
contained in petitioner’s PNB Account No. 265-537154-3, and the doctrine that public funds are exempted from garnishment or
affirmed his authority to levy on such funds. execution as enunciated in Republic v. Palacio [supra.] At any rate,
the Court will give petitioner the benefit of the doubt, and proceed to
Its motion for reconsideration having been denied by the Court of resolve the principal issues presented based on the factual
Appeals, petitioner now files the present petition for review with circumstances thus alleged by petitioner.
prayer for preliminary injunction.
Admitting that its PNB Account No. S/A 265-537154-3 was
On November 20, 1989, the Court resolved to issue a temporary specifically opened for expropriation proceedings it had initiated over
restraining order enjoining respondent RTC judge, respondent the subject property, petitioner poses no objection to the
sheriff, and their representatives, from enforcing and/or carrying out garnishment or the levy under execution of the funds deposited
the RTC order dated December 21, 1988 and the writ of garnishment therein amounting to P99,743.94. However, it is petitioner’s main
issued pursuant thereto. Private respondent then filed its comment to contention that inasmuch as the assailed orders of respondent RTC
the petition, while petitioner filed its reply. judge involved the net amount of P4,965,506.45, the funds garnished
by respondent sheriff in excess of P99,743.94, which are public
Petitioner not only reiterates the arguments adduced in its petition funds earmarked for the municipal government’s other statutory
before the Court of Appeals, but also alleges for the first time that it obligations, are exempted from execution without the proper
has actually two accounts with the PNB Buendia Branch, to appropriation required under the law.
wit:chanrob1es virtual 1aw library
There is merit in this contention. The funds deposited in the second
x x x PNB Account No. S/A 263-530850-7 are public funds of the
municipal government. In this jurisdiction, well-settled is the rule that
public funds are not subject to levy and execution, unless otherwise
(1) Account No. S/A 265-537154-3 — exclusively for the provided for by statute [Republic v. Palacio, supra.; The
expropriation of the subject property, with an outstanding balance of Commissioner of Public Highways v. San Diego, G.R. No. L-30098,
P99,743.94. February 18, 1970, 31 SCRA 616]. More particularly, the properties
of a municipality, whether real or personal, which are necessary for
(2) Account No. S/A 263-530850-7 — for statutory obligations and public use cannot be attached and sold at execution sale to satisfy a
other purposes of the municipal government, with a balance of money judgment against the municipality. Municipal revenues
P170,098,421.72, as of July 12, 1989. derived from taxes, licenses and market fees, and which are
intended primarily and exclusively for the purpose of financing the
x x x governmental activities and functions of the municipality, are exempt
from execution [See Viuda De Tan Toco v. The Municipal Council of
Iloilo, 49 Phil. 52 (1926); The Municipality of Paoay, Ilocos Norte v.
[Petition, pp. 6-7; Rollo, pp. 11-12.] Manaois, 86 Phil. 629 (1950); Municipality of San Miguel, Bulacan v.
Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The
Because the petitioner has belatedly alleged only in this Court the foregoing rule finds application in the case at bar. Absent a showing
existence of two bank accounts, it may fairly be asked whether the that the municipal council of Makati has passed an ordinance
second account was opened only for the purpose of undermining the appropriating from its public funds an amount corresponding to the
legal basis of the assailed orders of respondent RTC judge and the balance due under the RTC decision dated June 4, 1987, less the
decision of the Court of Appeals, and strengthening its reliance on sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no
levy under execution may be validly effected on the public funds of valuable property has been taken, the compensation to be paid fixed
petitioner deposited in Account No. S/A 263-530850-7.chanrobles and the municipality is in full possession and utilizing the property for
lawlibrary : rednad public purpose, for three (3) years, the Court finds that the
municipality has had more than reasonable time to pay full
Nevertheless, this is not to say that private respondent and PSB are compensation.
left with no legal recourse. Where a municipality fails or refuses,
without justifiable reason, to effect payment of a final money WHEREFORE, the Court Resolved to ORDER petitioner Municipality
judgment rendered against it, the claimant may avail of the remedy of Makati to immediately pay Philippine Savings Bank, Inc. and
of mandamus in order to compel the enactment and approval of the private respondent the amount of P4,953,506.45. Petitioner is hereby
necessary appropriation ordinance, and the corresponding required to submit to this Court a report of its compliance with the
disbursement of municipal funds therefor [See Viuda De Tan Toco v. foregoing order within a non-extendible period of SIXTY (60) DAYS
The Municipal Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. from the date of receipt of this resolution.chanrobles virtualawlibrary
1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247 (1960)]. chanrobles.com:chanrobles.com.ph

In the case at bar, the validity of the RTC decision dated June 4, The order of respondent RTC judge dated December 21, 1988,
1987 is not disputed by petitioner. No appeal was taken therefrom. which was rendered in Civil Case No. 13699, is SET ASIDE and the
For three years now, petitioner has enjoyed possession and use of temporary restraining order issued by the Court on November 20,
the subject property notwithstanding its inexcusable failure to comply 1989 is MADE PERMANENT.
with its legal obligation to pay just compensation. Petitioner has
benefited from its possession of the property since the same has SO ORDERED.
been the site of Makati West High School since the school year
1986-1987. This Court will not condone petitioner’s blatant refusal to
settle its legal obligation arising from expropriation proceedings it
had in fact initiated. It cannot be over-emphasized that, within the
context of the State’s inherent power of eminent domain,

. . . [j]ust compensation means not only the correct determination of


the amount to be paid to the owner of the land but also the payment
of the land within a reasonable time from its taking. Without prompt
payment, compensation cannot be considered "just" for the property
owner is made to suffer the consequence of being immediately
deprived of his land while being made to wait for a decade or more
before actually receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765,
August 15, 1988, 164 SCRA 393, 400. See also Provincial
Government of Sorsogon v. Vda. de Villaroya, G.R. No. 64037,
August 27, 1987, 153 SCRA 291].

The State’s power of eminent domain should be exercised within the


bounds of fair play and justice. In the case at bar, considering that
Republic of the Philippines rates of tax upon his income arising from the exercise of his
SUPREME COURT profession vis-a-visthose which are imposed upon fixed income or
Manila salaried individual taxpayers. 4 He characterizes the above sction as
arbitrary amounting to class legislation, oppressive and capricious in
EN BANC character 5 For petitioner, therefore, there is a transgression of both
the equal protection and due process clauses 6 of the Constitution as
G.R. No. L-59431 July 25, 1984 well as of the rule requiring uniformity in taxation. 7

ANTERO M. SISON, JR., petitioner, The Court, in a resolution of January 26, 1982, required respondents
to file an answer within 10 days from notice. Such an answer, after
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal two extensions were granted the Office of the Solicitor General, was
Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of filed on May 28, 1982. 8The facts as alleged were admitted but not
Internal Revenue; TOMAS TOLEDO Deputy Commissioner, the allegations which to their mind are "mere arguments, opinions or
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, conclusions on the part of the petitioner, the truth [for them] being
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, those stated [in their] Special and Affirmative Defenses." 9 The
and CESAR E. A. VIRATA, Minister of Finance, respondents. answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise
of the State's power to tax. The authorities and cases cited while
correctly quoted or paraghraph do not support petitioner's
Antero Sison for petitioner and for his own behalf. stand." 10 The prayer is for the dismissal of the petition for lack of
merit.
The Solicitor General for respondents.
This Court finds such a plea more than justified. The petition must be
dismissed.

FERNANDO, C.J.: 1. It is manifest that the field of state activity has assumed a much
wider scope, The reason was so clearly set forth by retired Chief
The success of the challenge posed in this suit for declaratory relief Justice Makalintal thus: "The areas which used to be left to private
or prohibition proceeding 1 on the validity of Section I of Batas enterprise and initiative and which the government was called upon
Pambansa Blg. 135 depends upon a showing of its constitutional to enter optionally, and only 'because it was better equipped to
infirmity. The assailed provision further amends Section 21 of the administer for the public welfare than is any private individual or
National Internal Revenue Code of 1977, which provides for rates of group of individuals,' continue to lose their well-defined boundaries
tax on citizens or residents on (a) taxable compensation income, (b) and to be absorbed within activities that the government must
taxable net income, (c) royalties, prizes, and other winnings, (d) undertake in its sovereign capacity if it is to meet the increasing
interest from bank deposits and yield or any other monetary benefit social challenges of the times." 11 Hence the need for more
from deposit substitutes and from trust fund and similar revenues. The power to tax, an inherent prerogative, has to be
arrangements, (e) dividends and share of individual partner in the net availed of to assure the performance of vital state functions. It is the
profits of taxable partnership, (f) adjusted gross source of the bulk of public funds. To praphrase a recent decision,
income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he taxes being the lifeblood of the government, their prompt and certain
would be unduly discriminated against by the imposition of higher availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an 5. It is undoubted that the due process clause may be invoked where
attribute of sovereignty. It is the strongest of all the powers of of a taxing statute is so arbitrary that it finds no support in the
government." 13 It is, of course, to be admitted that for all its Constitution. An obvious example is where it can be shown to
plenitude 'the power to tax is not unconfined. There are restrictions. amount to the confiscation of property. That would be a clear abuse
The Constitution sets forth such limits . Adversely affecting as it does of power. It then becomes the duty of this Court to say that such an
properly rights, both the due process and equal protection clauses arbitrary act amounted to the exercise of an authority not conferred.
inay properly be invoked, all petitioner does, to invalidate in That properly calls for the application of the Holmes dictum. It has
appropriate cases a revenue measure. if it were otherwise, there also been held that where the assailed tax measure is beyond the
would -be truth to the 1803 dictum of Chief Justice Marshall that "the jurisdiction of the state, or is not for a public purpose, or, in case of a
power to tax involves the power to destroy." 14 In a separate opinion retroactive statute is so harsh and unreasonable, it is subject to
in Graves v. New York, 15 Justice Frankfurter, after referring to it as attack on due process grounds. 19
an 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free 6. Now for equal protection. The applicable standard to avoid the
use of absolutes." 16 This is merely to emphasize that it is riot and charge that there is a denial of this constitutional mandate whether
there cannot be such a constitutional mandate. Justice Frankfurter the assailed act is in the exercise of the lice power or the power of
could rightfully conclude: "The web of unreality spun from Marshall's eminent domain is to demonstrated that the governmental act
famous dictum was brushed away by one stroke of Mr. Justice assailed, far from being inspired by the attainment of the common
Holmess pen: 'The power to tax is not the power to destroy while this weal was prompted by the spirit of hostility, or at the very least,
Court sits." 17 So it is in the Philippines. discrimination that finds no support in reason. It suffices then that the
laws operate equally and uniformly on all persons under similar
3. This Court then is left with no choice. The Constitution as the circumstances or that all persons must be treated in the same
fundamental law overrides any legislative or executive, act that runs manner, the conditions not being different, both in the privileges
counter to it. In any case therefore where it can be demonstrated that conferred and the liabilities imposed. Favoritism and undue
the challenged statutory provision — as petitioner here alleges — preference cannot be allowed. For the principle is that equal
fails to abide by its command, then this Court must so declare and protection and security shall be given to every person under
adjudge it null. The injury thus is centered on the question of whether circumtances which if not Identical are analogous. If law be looked
the imposition of a higher tax rate on taxable net income derived upon in terms of burden or charges, those that fall within a class
from business or profession than on compensation is constitutionally should be treated in the same fashion, whatever restrictions cast on
infirm. some in the group equally binding on the rest." 20 That same
formulation applies as well to taxation measures. The equal
4, The difficulty confronting petitioner is thus apparent. He alleges protection clause is, of course, inspired by the noble concept of
arbitrariness. A mere allegation, as here. does not suffice. There approximating the Ideal of the laws benefits being available to all and
must be a factual foundation of such unconstitutional taint. the affairs of men being governed by that serene and impartial
Considering that petitioner here would condemn such a provision as uniformity, which is of the very essence of the Idea of law. There is,
void or its face, he has not made out a case. This is merely to adhere however, wisdom, as well as realism in these words of Justice
to the authoritative doctrine that were the due process and equal Frankfurter: "The equality at which the 'equal protection' clause aims
protection clauses are invoked, considering that they arc not fixed is not a disembodied equality. The Fourteenth Amendment enjoins
rules but rather broad standards, there is a need for of such 'the equal protection of the laws,' and laws are not abstract
persuasive character as would lead to such a conclusion. Absent propositions. They do not relate to abstract units A, B and C, but are
such a showing, the presumption of validity must prevail. 18 expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The differences. In the case of the gross income taxation embodied in
Constitution does not require things which are different in fact or Batas Pambansa Blg. 135, the, discernible basis of classification is
opinion to be treated in law as though they were the same." 21 Hence the susceptibility of the income to the application of generalized rules
the constant reiteration of the view that classification if rational in removing all deductible items for all taxpayers within the class and
character is allowable. As a matter of fact, in a leading case of Lutz fixing a set of reduced tax rates to be applied to all of them.
V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far Taxpayers who are recipients of compensation income are set apart
as to hold "at any rate, it is inherent in the power to tax that a state as a class. As there is practically no overhead expense, these
be free to select the subjects of taxation, and it has been repeatedly taxpayers are e not entitled to make deductions for income tax
held that 'inequalities which result from a singling out of one purposes because they are in the same situation more or less. On
particular class for taxation, or exemption infringe no constitutional the other hand, in the case of professionals in the practice of their
limitation.'" 23 calling and businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not be just
7. Petitioner likewise invoked the kindred concept of uniformity. then to disregard the disparities by giving all of them zero deduction
According to the Constitution: "The rule of taxation shag be uniform and indiscriminately impose on all alike the same tax rates on the
and equitable." 24 This requirement is met according to Justice Laurel basis of gross income. There is ample justification then for the
in Philippine Trust Company v. Yatco,25 decided in 1940, when the Batasang Pambansa to adopt the gross system of income taxation to
tax "operates with the same force and effect in every place where the compensation income, while continuing the system of net income
subject may be found. " 26 He likewise added: "The rule of uniformity taxation as regards professional and business income.
does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present 9. Nothing can be clearer, therefore, than that the petition is without
itself in that case. It did not arise until nine years later, when the merit, considering the (1) lack of factual foundation to show the
Supreme Court held: "Equality and uniformity in taxation means that arbitrary character of the assailed provision; 31 (2) the force of
all taxable articles or kinds of property of the same class shall be controlling doctrines on due process, equal protection, and uniformity
taxed at the same rate. The taxing power has the authority to make in taxation and (3) the reasonableness of the distinction between
reasonable and natural classifications for purposes of taxation, ... compensation and taxable net income of professionals and
. 28 As clarified by Justice Tuason, where "the differentiation" businessman certainly not a suspect classification,
complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this clause and WHEREFORE, the petition is dismissed. Costs against petitioner.
is therefore uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that the tax Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin,
"applies equally to all persons, firms and corporations placed in Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
similar situation."30
Teehankee, J., concurs in the result.
8. Further on this point. Apparently, what misled petitioner is his
failure to take into consideration the distinction between a tax rate
and a tax base. There is no legal objection to a broader tax base or Plana, J., took no part.
taxable income by eliminating all deductible items and at the same
time reducing the applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real
EN BANC appropriate of state funds can be made for other than a public
purpose. (81 C.J.S. p. 1147).
[G.R. No. L-10405. December 29, 1960.]
3. ID.; ID.; ID.; TEST OF CONSTITUTIONALITY. — The test of the
WENCESLAO PASCUAL, in his official capacity as Provincial constitutionality of a statute requiring the use of public funds is
Governor of Rizal, petitioner and appellant, v. THE SECRETARY whether the statute is designed to promote the public interests, as
OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., opposed to the furtherance of the advantage of individuals, although
respondents and appellees. such advantage to individuals might incidentally serve the public. (81
C.J.S. p. 1147).
Asst. Fiscal Noli M. Cortes and Jose P. Santos for Appellant.
4. ID.; ID.; ID.; ID.; POWERS OF CONGRESS AT THE TIME OF
Asst. Solicitor General Jose G. Bautista and Solicitor A.A. PASSAGE OF A STATUTE SHOULD BE CONSIDERED. — The
Torres for Appellee. validity of a statute depends upon the powers of Congress at the
time of its passage or approval, not upon events occurring, or acts
performed, subsequently thereto, unless the latter consist of an
SYLLABUS amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute.

1. CONSTITUTIONAL LAW; LEGISLATIVE POWERS; 5. ID.; ID.; ID.; APPROPRIATION FOR A PRIVATE PURPOSE
APPROPRIATION OF PUBLIC REVENUES ONLY FOR PUBLIC NULL AND VOID; SUBSEQUENT DONATION TO GOVERNMENT
PURPOSES; WHAT DETERMINES VALIDITY OF A PUBLIC NOT CURATIVE OF DEFECT. — Where the land on which
EXPENDITURE. — "It is a general rule that the legislature is without projected feeder roads are to be constructed belongs to a private
power to appropriate public revenues for anything but a public person, an appropriation made by Congress for that purpose is null
purpose. . . . It is the essential character of the direct object of the and void, and a donation to the Government, made over five (5)
expenditure which must determine its validity as justifying a tax and months after the approval and effectivity of the Act for the purpose of
not the magnitude of the interests to be affected nor the degree to giving a "semblance of legality" to the appropriation, does not cure
which the general advantage of the community, and thus the public the basic defect. Consequently, a judicial nullification of said
welfare, may be ultimately benefited by their promotion. Incidental donation need not precede the declaration of unconstitutionality of
advantage to the public or to the state, which results from the said appropriation.
promotion of private interests, and the prosperity of private
enterprises or business, does not justify their aid by the use of public 6. ID.; ID.; ID.; ID.; RIGHT OF TAXPAYERS TO CONTEST
money." (23 R. L. C. pp. 398-450). CONSTITUTIONALITY OF A LEGISLATION. — The relation
between the people of the Philippines and its taxpayers, on the one
2. ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE. — hand, and the Republic of the Philippines, on the other, is not
Generally, under the express or implied provisions of the identical to that obtaining between the people and taxpayers of the
constitution, public funds may be used only for a public purpose. The U.S. and its Federal Government. It is closer, from a domestic
right of the legislature to appropriate public funds is correlative with viewpoint, to that existing between the people and taxpayers of each
its right to tax, and, under constitutional provisions against taxation state and the government thereof, except that the authority of the
except for public purposes and prohibiting the collection of a tax for Republic of the Philippines over the people of the Philippines is more
one purpose and the devotion thereof to another purpose, no fully direct than that of the states of the Union, insofar as the simple
and unitary type of our national government is not subject to Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo — Gen.
limitations analogous to those imposed by the Federal Constitution Delgado — Gen. Malvar — Gen. Lim)" ; that, at the time of the
upon the states of the Union, and those imposed upon the Federal passage and approval of said Act, the aforementioned feeder roads
Government in the interest of the states of the Union. For this were "nothing but projected and planned subdivision roads, not yet
reason, the rule recognizing the right of taxpayers to assailed the constructed, . . . within the Antonio Subdivision . . . situated at . . .
constitutionality of a legislation appropriating local or state public Pasig, Rizal" (according to the tracings attached to the petition as
funds - which has been upheld by the Federal Supreme Court Annexes A and B, near Shaw Boulevard, nor far away from the
(Crampton v. Zabriskie, 101 U.S. 601) - has greater application in the intersection between the latter and Highway 54), which projected
Philippines than that adopted with respect to acts of Congress of the feeder roads "do not connect any government property or any
United States appropriating federal funds. important premises to the main highway" ; that the aforementioned
Antonio Subdivision (as well as the lands on which said feeder roads
7. CONTRACTS; DEFENSE OF ILLEGALITY; EXCEPTIONS TO were to be constructed) were private respondent Jose C. Zulueta,
ARTICLE 1421 OF THE CIVIL CODE. — Article 1421 of the Civil who, at the time of the passage and approval of said Act, was a
Code is subject to exceptions. For instance, the creditors of a party member of the Senate of the Philippines; that on May 29, 1953,
to an illegal contract may, under the conditions set forth in Article respondent Zulueta, addressed a letter to the Municipal Council of
1177 of said Code, exercise the rights and actions of the latter, Pasig, Rizal, offering to donate said projected feeder roads to the
except only those which are inherent in his person, including his right municipality of Pasig, Rizal; that, on June 13, 1953, the offer was
to the annulment of said contract, even though such creditors are not accepted by the council, subject to the condition "that the donor
affected by the same, except indirectly, in the manner indicated in would submit a plan of the said roads and agree to change the
said legal provision. names of two of them" ; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953,
respondent Zulueta wrote another letter to said council, calling
DECISION attention to the approval of Republic Act No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the projected
feeder reads in question; that the municipal council of Pasig
CONCEPCION, J.: endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement
thereon" ; that inasmuch as the projected feeder roads in question
Appeal, by petitioner Wenceslao Pascual, from a decision of the were private property at the time of the passage and approval of
Court of First Instance of Rizal, dismissing the above entitled case Republic Act No. 920, the appropriation of P85,000.00 therein made,
and dissolving the writ of preliminary injunction therein issued, for the construction, reconstruction, repair, extension and
without costs. improvement of said projected feeder roads, was "illegal and,
therefore, void ab initio" ; that said appropriation of P85,000.00 was
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial made by Congress because its members were made to believe that
Governor of Rizal, instituted this action for declaratory relief, with the projected feeder roads in question were "public roads and not
injunction upon the ground that Republic Act No. 920, entitled An Act private streets of a private subdivision" ; that, "in order to give a
Appropriating Funds for Public Works", approved on June 20, 1953, semblance of legality, when there is absolutely none, to the
contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00, aforementioned appropriation", respondent Zulueta executed, on
"for the construction, reconstruction, repair, extension and December 12, 1953, while he was a member of the Senate of the
improvement" of "Pasig feeder road terminals (Gen. Roxas — Gen. Philippines, an alleged deed of donation — copy of which is annexed
to the petition — of the four (4) parcels of land constituting said
project feeder roads, in favor of the Government of the Republic of Respondents moved to dismiss the petition upon the ground that
the Philippines; that said alleged deed of donation was on the same petitioner had "no legal capacity to sue", and that the petition did "not
date, accepted by the ten Executive Secretary; that being subject to state a cause of action." In support to this motion, respondent
an onerous condition, said donation partook of the nature of a Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial
contract; that, such, said donation violated the provision of our governor, should represent the Province Administrative Code; that
fundamental law prohibition members of Congress from being said respondent "not aware of any law which makes illegal the
directly or indirectly financially interested in any contract with the appropriation of public funds for the improvement of . . . private
Government, and, hence, is unconstitutional, as well as null and void proper" ; and that, the constitutional provision invoked by petitioner
ab initio, for the construction of the projected feeder roads in inapplicable to the donation in question, the same being a pure act of
question with public funds would greatly enhance or increase the liberality, not a contract. The other respondents, in turn, maintained
value of the aforementioned subdivision of respondent Zulueta, that petitioner could not assail the appropriation in question because
"aside from relieving him from the burden of constructing his "there is no actual bona fide case . . . in which the validity of Republic
subdivision streets or roads at his own expense" ; that the Act No. 920 is necessarily involved and petitioner "has not shown
construction of said projected feeder roads was then being that he has a personal and substantial interest" in said Act "and that
undertaken by the Bureau of Public Highways; and that, unless its enforcement has caused or will cause him a direct injury."
restrained by the court, the respondents would continue to execute,
comply with, follow and implement the aforementioned illegal Acting upon said motion to dismiss, the lower court rendered the
provision of law, "to the irreparable damage, detriment and prejudice aforementioned decision, dated October 29, 1953, holding that, since
not only to the petitioner but to the Filipino nation."cralaw virtua1aw public interest is involved in this case, the Provincial Governor of
library Rizal and the provincial fiscal thereof who represents him therein,
"have the requisite personalities" to question the constitutionality of
Petitioner prayed, therefore, that the contested item of Republic Act the disputed item of Republic Act No. 920; that "the legislature is
No. 920 be declared null and void; that the alleged deed of donation without power to appropriate public revenues for anything but a
of the feeder roads in question be "declared unconstitutional and, public purpose", that the construction and improvement of the feeder
therefore, illegal" ; that a writ of injunction be issued enjoining the roads in question, if such roads were private property, would not be a
Secretary of Public Works and Communications, the Director of the public purpose; that, being subject to the following
Bureau of Public Works, the Commissioner of the Bureau of Public condition:jgc:chanrobles.com.ph
Highways and Jose C. Zulueta from ordering or allowing the
continuance of the above-mentioned feeder roads project, and from "The within donation is hereby made upon the condition that the
making and securing any new and further releases on the Government of the Republic of the Philippines will use the parcels of
aforementioned item of Republic Act No. 926 and the disbursing land hereby donated for street purposes only and for no other
officers of the Department of Public Works and Communications, the purposes whatsoever; it being expressly understood that should the
Bureau of Public Works and the Bureau of Public Highways from Government of the Republic of the Philippines violate the condition
making any further payments out of said funds provided for in hereby imposed upon it, the title to the land hereby donated shall,
Republic Act No. 920; and that pending final hearing on the merits, a upon such violation, ipso facto revert to the DONOR, JOSE C.
writ of preliminary injunction be issued enjoining the aforementioned ZULUETA." (Italics supplied.)
parties respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and from which is onerous, the donation in question is a contract; that said
making any further payments out of said illegally appropriated funds. donation or contract is "absolutely forbidden by the Constitution" and
consequently illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existent and void from the very beginning The first proposition must be rejected most emphatically, it being
contracts "whose cause, object or purpose is contrary to law, morals inconsistent with the nature of the Government established under the
. . . or public policy" ; that the legality of said donation may not be Constitution of the Philippines and the system of checks and
contested, however, by petitioner herein, because his "interests are balances underlying our political structure. Moreover, it is refuted by
not directly affected" thereby; and that, accordingly, the appropriation the decisions of this Court invalidating legislative enactments
in question "should be upheld" and the case dismissed. deemed violative of the Constitution or organic laws. 3

At the outset, it should be noted that we are concerned with a As regards the legal feasibility of appropriating public funds for a
decision granting the aforementioned motions to dismiss, which as private purpose the principle according to Ruling Case Law, is
such, are deemed to have admitted hypothetically the allegations of this:jgc:chanrobles.com.ph
fact made in the petition of appellant herein. According to said
petition, respondent Zulueta is the owner of several parcels of "It is a general rule that the legislature is without power to
residential land, situated in Pasig Rizal, and known as the Antonio appropriate public revenue for anything but a public purpose. . . . It is
Subdivision, certain portions of which had been reserved for the the essential character of the direct object of the expenditure which
projected feeder roads aforementioned, which, admittedly, were must determine its validity as justifying a tax, and not the magnitude
private property of said respondent when Republic Act No. 920, of the interests to be affected nor the degree to which the general
appropriating P85,000.00 for the "construction, reconstruction, repair, advantage of the community, and thus the public welfare, may be
extension and improvement" of said roads, was passed by ultimately benefited by their promotion. Incidental advantage to the
Congress, as well as when it was approved by the President on June public or to the state, which results from the promotion of private
20, 1953. The petition further alleges that the construction of said interests and the prosperity of private enterprises or business, does
feeder roads, to be undertaken with the aforementioned not justify their aid by the use of public money." (25 R.L.C. pp. 398-
appropriation of P85,000.00, would have the effect of relieving 400; Italics supplied.)
respondent Zulueta of the burden of constructing its subdivision
streets or roads at his own expenses, 1 and would greatly enhance The rule is set forth in Corpus Juris Secundum in the following
or increase the value of the subdivision" of said Respondent. The language:jgc:chanrobles.com.ph
lower court held that under these circumstances, the appropriation in
question was "clearly for a private, not a public purpose."cralaw "In accordance with the rule that the taxing power must be exercised
virtua1aw library for public purposes only, discussed supra sec. 14, money raised by
taxation can be expanded only for public purposes and not for the
Respondents do not deny the accuracy of this conclusion, which is advantage of private individuals." (85 C.J.S. pp. 645-646; Italics
self-evident. 2 However, respondent Zulueta contended, in his supplied.)
motion to dismiss that:jgc:chanrobles.com.ph
Explaining the reason underlying said rule, Corpus Juris Secundum
"A law passed by Congress and approved by the President can states:jgc:chanrobles.com.ph
never be illegal because Congress is the source of all laws . . . .
Aside from the fact that the movant is not aware of any law which "Generally, under the express or implied provisions of the
makes illegal the appropriation of public funds for the improvement of constitution, public funds may be used for a public purpose. The right
what we, in the meantime, may assume as private property . . . ." of the legislature to appropriate funds is correlative with its right to
(Record on Appeal, pp. 33.) tax, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and roads were public or private property when the bill, which, later on,
the devotion thereof to another purpose, no appropriation of state became Republic Act No. 920, was passed by Congress, or when
funds can be made for other than a public purpose. . . said bill was approved by the President and the disbursement of said
sum became effective, or on June 20, 1953 (see section 13 of said
x x x Act). Inasmuch as the land on which the projected feeder roads were
to be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and, hence, was
"The test of the constitutionality of a statute requiring the use of null and void. 4 The donation to the Government, over five (5)
public funds is whether the statute is designed to promote the public months after the approval and effectivity of said Act, made according
interests, as opposed to the furtherance of the advantage of to the petition, for the purpose of giving a "semblance of legality", or
individuals, although each advantage to individuals might incidentally legalizing, the appropriation in question, did not cure its
serve the public. . . ." (81 C.J.S. p. 1147; Italics supplied.) aforementioned basic defect. Consequently, a judicial nullification of
said donation need not precede the declaration of unconstitutionality
Needless to say, this Court is fully in accord with the foregoing views of said appropriation.
which, apart from being patently sound, are a necessary corollary to
our democratic system of government, which, as such, exists Again, Article 1421 of our Civil Code, like many other statutory
primarily for the promotion of the general welfare. Besides, reflecting enactments, is subject to exceptions. For instance, the creditors of a
as they do, the established jurisprudence in the United States, after party to an illegal contract may, under the conditions set forth in
whose constitutional system ours has been patterned, said views Article 1177 of said Code, exercise the rights and actions of the
and jurisprudence are, likewise, part and parcel of our own latter, except only those which are inherent in his person, including,
constitutional law. therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the
This notwithstanding, the lower court felt constrained to uphold the manner indicated in said legal provision.
appropriation in question, upon the ground that petitioner may not
contest the legality of the donation above referred to because the Again, it is well settled that the validity of a statute may be contested
same does not affect him directly. This conclusion is, presumably, only by one who will sustain a direct injury in consequence of its
based upon the following premises namely: (1) that, if valid, said enforcement. Yet, there are many decisions nullifying, at the instance
donation cured the constitutional infirmity of the aforementioned of taxpayers, laws providing for the disbursement of public funds, 5
appropriation; (2) that the latter may not be annulled without a upon the theory that "the expenditure of public funds by an officer of
previous declaration of unconstitutionality of the said donation; and the State for the purpose of administering an unconstitutional act
(3) that the rule set forth in Article 1421 of the Civil Code is absolute, constitutes an misapplication of such funds," which may be enjoined
and admits of no exception. We do not agree with these premises. at the request of a taxpayer. 6 Although there are some decisions to
the contrary, 7 the prevailing view in the United States is stated in
The validity of a statute depends upon the powers of Congress at the the American Jurisprudence as follows:jgc:chanrobles.com.ph
time of its passage or approval, not upon events occupying, or acts
performed, subsequently thereto, unless the latter consist of an "In the determination of the degree of interest essential to give the
amendment of the organic law, removing, with retrospective requisite standing to attack the constitutionality of a statute the
operation, the constitutional limitation infringed by said statute. general rule is that only persons individually affected, but also
Referring to the P85,000.00 appropriation for the projected feeder taxpayers, have sufficient interest in preventing the illegal
roads in question, the legality thereof depended upon whether said expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of funds — which has been upheld by the Federal Supreme Court
public moneys." (11 Am. Jur. 761; Italics supplied.) (Crampton v. Zabriskie, 101 U.S. 601) — has greater application in
the Philippines than that adopted with respect to acts of Congress of
However, this view was not favored by the Supreme Court of the the United States appropriating federal funds.
U.S. in Frothingham v. Mellon (262 U.S. 447), insofar as federal laws
are concerned, upon the ground that the relationship of a taxpayer of Indeed, in the Province of Tayabas v. Perez (56 Phil., 257), involving
the U.S. to its Federal Government is different from that of a the expropriation of a land by the Province of Tayabas, two (2)
taxpayer of a municipal corporation to its government. Indeed, under taxpayers thereof were allowed to intervene for the purpose of
the composite system of government existing in the U.S., states of contesting the price being paid to the owner thereof, as unduly
the Union are integral part of the Federation from an international exorbitant. It is true that in Custodio v. President of the Senate (42
viewpoint, but, each state enjoys internally a substantial measure of Off. Gaz., 1243), a taxpayer and employee of the Government was
sovereignty, subject to the limitations imposed by the Federal not permitted to question the constitutionality of an appropriation for
Constitution. In fact, the same was made by representatives of each backpay of members of Congress. However, in Rodriguez v.
state of the Union, not of the people of the U.S., except insofar as Treasurer of the Philippines and Barredo v. Commission on Election
the former represented the people of the respective States, and the (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
people of each State has, independently of that of the others, ratified taxpayers impugning the validity of certain appropriations of public
said Constitution. In other words, the Federal Constitution and the funds, and invalidated the same. Moreover, the reason that impelled
Federal statutes have become binding upon the people of the U.S. in this Court to take such position in said two (2) cases — the
consequence of an act of, and, in this sense, through the respective importance of the issues therein raised — is present in the case at
states of the Union of which they are citizens. The peculiar nature of bar. Again, like the petitioners in the Rodriguez and Barredo cases,
the relation between said people and the Federal Government of the petitioner herein is not merely a taxpayer. The province of Rizal,
U.S. is reflected in the election of its President, who is chosen which he represents officially as it Provincial Governor, is our most
directly, not by the people of the U.S., but by electors chosen by populated political subdivision, 7 and, the taxpayers therein bear a
each State, in such manner as the legislature thereof may direct substantial portion of the burden of taxation, in the Philippines.
(Article II, section 2, of the Federal Constitution).
Hence, it is our considered opinion that the circumstances
The relation between the people of the Philippines and its taxpayers, surrounding this case sufficiently justify petitioner’s action in
on the other hand, and the Republic of the Philippines, on the other, contesting the appropriation and donation in question; that this action
is not identical to that obtaining between the people and taxpayers of should not have been dismissed by the lower court; and that the writ
the U.S. and its Federal Government. It is closer, from a domestic of preliminary injunction should have been maintained.
viewpoint, to that existing between the people and taxpayers of each
state and the government thereof, except that the authority of the Wherefore, the decision appealed from is hereby reversed, and the
Republic of the Philippines over the people of the Philippines is more records are remanded to the lower court for further proceedings not
fully direct than that of the states of the Union, insofar as the simple inconsistent with this decision, with the costs of this instance against
and unitary type of our national government is not subject to respondent Jose C. Zulueta. It is so ordered.
limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal
Government in the interest of the states of the Union. For this
reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public
FIRST DIVISION for taxation or exemption infringe no constitutional limitation
(Carmicheal v. Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed.
[G.R. No. L-7859. December 22, 1955.] 1245, citing numerous authorities, at 1251).

WALTER LUTZ, as Judicial Administrator of the Intestate Estate


of the deceased Antonio Jayme Ledesma, Plaintiff-Appellant, v. DECISION
J. ANTONIO ARANETA, as the Collector of Internal
Revenue, Defendant-Appellee.
REYES, J. B. L., J.:
Ernesto J. Gonzaga for Appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor This case was initiated in the Court of First Instance of Negros
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete Occidental to test the legality of the taxes imposed by
for Appellee. Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.

SYLLABUS Promulgated in 1940, the law in question opens (section 1) with a


declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the
1. CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO Tydings-McDuffie Act, and the "eventual loss of its preferential
LEVY TAX IN AND SUPPORT OF SUGAR INDUSTRY. — As the position in the United States market" ; wherefore, the national policy
protection and promotion of the sugar industry is a matter of public was expressed "to obtain a readjustment of the benefits derived from
concern the Legislature may determine within reasonable bounds the sugar industry by the component elements thereof" and "to
what is necessary for its protection and expedient for its promotion. stabilize the sugar industry so as to prepare it for the eventuality of
Here, the legislative must be allowed full play, subject only to the test the loss of its preferential position in the United States market and
of reasonableness; and it is not contended that the means provided the imposition of the export taxes."cralaw virtua1aw library
in section 6 of Commonwealth Act No. 567 bear no relation to the
objective pursued or are oppressive in character. If objective an In section 2, Commonwealth Act 567 provides for an increase of the
methods are alike constitutionally valid, no reason is seen why the existing tax on the manufacture of sugar, on a graduated basis, on
state may not levy taxes to raise funds for their prosecution and each picul of sugar manufactures; while section 3 levies on owners
attainment. Taxation may be made the implement. Taxation may be or persons in control of lands devoted to the cultivation of sugar cane
made the implement of the state’s police power (Great Atl. & Pac. and ceded to others for a consideration, on lease or otherwise —
Tea Co. v. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. v. Butler,
297 U.S. 1, 80 L. Ed. 477; M’Culloch v. Maryland, 4 Wheat, 316, 4 L. "a tax equivalent to the difference between the money value of the
Ed. 579). rental or consideration collected and the amount representing 12 per
centum of the assessed value of such land."cralaw virtua1aw library
2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF
TAXATION. — It is inherent in the power to tax that a state be free to According to section 6 of the law —
select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class SEC. 6. All collections made under this Act shall accrue to a special
fund in the Philippine Treasury, to be known as the ’Sugar hereinbefore enumerated, and, likewise, authorizing the
Adjustment and Stabilization Fund,’ and shall be paid out only for disbursement from the fund herein created of the necessary amount
any or all of the following purposes or to attain any or all of the of amounts needed for salaries, wages, travelling expenses,
following objectives, as may be provided by law. equipment, and other sundry expenses or said agency or
agencies."cralaw virtua1aw library
First, to place the sugar industry in a position to maintain itself
despite the gradual loss of the preferential position of the Philippine Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
sugar in the United States market, and ultimately to insure its Intestate Estate of Antonio Jayme Ledesma, seeks to recover from
continued existence notwithstanding the loss of that market and the the Collector of Internal Revenue the sum of P14,666.40 paid by the
consequent necessity of meeting competition in the free markets of estate as taxes, under section 3 of the Act, for the crop years 1948-
the world; 1949 and 1949-1950; alleging that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry
Second, to readjust the benefits derived from the sugar industry by exclusively, which in plaintiff’s opinion is not a public purpose for
all of the component elements thereof — the mill, the landowner, the which a tax may be constitutionally levied. The action having been
planter of the sugar cane, and the laborers in the factory and in the dismissed by the Court of First Instance, the plaintiffs appealed the
field — so that all might continue profitably to engage therein; case directly to this Court (Judiciary Act, section 17).

Third, to limit the production of sugar to areas more economically The basic defect in the plaintiff’s position is his assumption that the
suited to the production thereof; and tax provided for in Commonwealth Act No. 567 is a pure exercise of
the taxing power. Analysis of the Act, and particularly of section 6
Fourth, to afford labor employed in the industry a living wage and to (heretofore quoted in full), will show that the tax is levied with a
improve their living and working conditions: Provided, That the regulatory purpose, to provide means for the rehabilitation and
President of the Philippines may, until the adjournment of the next stabilization of the threatened sugar industry. In other words, the act
regular session of the National Assembly, make the necessary is primarily an exercise of the police power.
disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the This Court can take judicial notice of the fact that sugar production in
undertaking of researchers (a)to increase the recoveries of the one of the great industries of our nation, sugar occupying a leading
centrifugal sugar factories with the view of reducing manufacturing position among its export products; that it gives employment to
costs, (b) to produce and propagate higher yielding varieties of sugar thousands of laborers in fields and factories; that it is a great source
cane more adaptable to different distinct conditions in the of the state’s wealth, is one of the important sources of foreign
Philippines, (c) to lower the costs of raising sugar cane, (d) to exchange needed by our government, and is thus pivotal in the plans
improve the buying quality of denatured alcohol from molasses for of a regime committed to a policy of currency stability. Its promotion,
motor fuel, (e) to determine the possibility of utilizing the other by- protection and advancement, therefore redounds greatly to the
products of the industry, (f) to determine what crop or crops are general welfare. Hence it was competent for the legislature to find
suitable for rotation and for the utilization of excess cane lands, and that the general welfare demanded that the sugar industry should be
(g) on other problems the solution of which would help rehabilitated stabilized in turn; and in the wide field of its police power, the law-
and stabilize the industry, and (2) for the improvement of living and making body could provide that the distribution of benefits therefrom
working conditions in sugar mills and sugar plantations, authorizing be readjusted among its components to enable it to resist the added
him to organize the necessary agency or agencies to take charge of strain of the increase in taxes that it had to sustain (Sligh v.
the expenditure and allocation of said funds to carry out the purpose Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson v. State ex rel.
Marey, 99 Fla. 1311, 128 So 853; Maxcy Inc. v. Mayo, 103 Fla. 552, should be exclusively spent in aid of the sugar industry, since it is
139 So. 121). that very enterprise that is being protected. It may be that other
industries are also in need of similar protection; but the legislature is
As stated in Johnson v. State ex rel. Marey, with reference to the not required by the Constitution to adhere to a policy of "all or none."
citrus industry in Florida — As ruled in Minnesota ex rel. Pearson v. Probate Court, 309 U. S.
270, 84 L. Ed. 744, "if the law presumably hits the evil where it is
"The protection of a large industry constituting one of the great most felt, it is not to be overthrown because there are other
sources of the state’s wealth and therefore directly or indirectly instances to which it might have been applied;" and that the
affecting the welfare of so great a portion of the population of the legislative authority, exerted within its proper field, need not embrace
State is affected to such an extent by public interests as to be within all the evils within its reach" (N. L. R. B. v. Jones & Laughlin Steel
the police power of the sovereign." (128 So. 857) Corp. 301 U. S. 1, 81 L. Ed. 893).

Once it is conceded, as it must, that the protection and promotion of Even from the standpoint that the Act is a pure tax measure, it
the sugar industry is a matter of public concern, it follows that the cannot be said that the devotion of tax money to experimental
Legislature may determine within reasonable bounds what is stations to seek increase of efficiency in sugar production, utilization
necessary for its protection and expedient for its promotion. Here, of by- products and solution of allied problems, as well as to the
the legislative discretion must be allowed full play, subject only to the improvement of living and working conditions in sugar mills or
test of reasonableness; and it is not contended that the means plantations, without any part of such money being channeled directly
provided in section 6 of the law (above quoted) bear no relation to to private persons, constitutes expenditure of tax money for private
the objective pursued or are oppressive in character. If objective and purposes, (compare Everson v. Board of Education, 91 L. Ed. 472,
methods are alike constitutionally valid, no reason is seen why the 168 ALR 1392, 1400).
state may not be levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state’s The decision appealed from is affirmed, with costs against appellant.
police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301 U. S. 412, So ordered.
81 L. Ed. 1193; U. S. v. Butler, 297 U. S. 1, 80 L. Ed. 477; M’Culloch
v. Maryland, 4 Wheat. 318, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers


themselves can hardly be a ground of complaint; indeed, it appears
rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any
rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation"
(Carmichael v. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed.
1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that


the funds raised under the Sugar Stabilization Act, now in question,
FIRST DIVISION the Philippine Phosphate Fertilizer Corporation (Philphos) for the
construction of an ammonia storage complex also at the Leyte
Industrial Development Estate.
On March 1, 1986, petitioners revenue examiners recommended
[G.R. No. 137377. December 18, 2001]
an assessment for deficiency income, branch profit remittance,
contractors and commercial brokers taxes. Respondent questioned
this assessment in a letter dated June 5, 1986.
COMMISSIONER OF INTERNAL REVENUE, petitioner, On August 27, 1986, respondent corporation received a letter
vs. MARUBENI CORPORATION, respondent. dated August 15, 1986 from petitioner assessing respondent several
deficiency taxes. The assessed deficiency internal revenue taxes,
DECISION inclusive of surcharge and interest, were as follows:

PUNO, J.: I. DEFICIENCY INCOME TAX

In this petition for review, the Commissioner of Internal Revenue FY ended March 31, 1985
assails the decision dated January 15, 1999 of the Court of Appeals
in CA-G.R. SP No. 42518 which affirmed the decision dated July 29,
Undeclared gross income (Philphos and
1996 of the Court of Tax Appeals in CTA Case No. 4109. The tax court
ordered the Commissioner of Internal Revenue to desist from
collecting the 1985 deficiency income, branch profit remittance and and NDC construction projects). . . . . . . . . . . . P 967,269,811.14
contractors taxes from Marubeni Corporation after finding the latter to
have properly availed of the tax amnesty under Executive Orders Nos. Less: Cost and expenses (50%) . . . . . . . . . . . . . . . 483,634,905.57
41 and 64, as amended.
Net undeclared income . . . . . . . . . . . . . . . . . . . . . . . 483,634,905.57
Respondent Marubeni Corporation is a foreign corporation
organized and existing under the laws of Japan. It is engaged in
general import and export trading, financing and the construction Income tax due thereon . . . . . . . . . . . . . . . . . . . . . . . 169,272,217.00
business. It is duly registered to engage in such business in the
Philippines and maintains a branch office in Manila. Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . . 84,636,108.50
Sometime in November 1985, petitioner Commissioner of
Internal Revenue issued a letter of authority to examine the books of 20% int. p.a. fr. 7-15-85 to
accounts of the Manila branch office of respondent corporation for the
fiscal year ending March 1985. In the course of the examination, to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 36,675,646.90
petitioner found respondent to have undeclared income from two (2)
contracts in the Philippines, both of which were completed in 1984. TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 290,583,972.40
One of the contracts was with the National Development Company
(NDC) in connection with the construction and installation of a II. DEFICIENCY BRANCH PROFIT REMITTANCE TAX
wharf/port complex at the Leyte Industrial Development Estate in the
municipality of Isabel, province of Leyte. The other contract was with
FY ended March 31, 1985 Add: 20% int. p.a. fr. 4-21-85 to

Undeclared net income from to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 17,854,739.46

Philphos and NDC construction projects . . . . . P 483,634,905.57 TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 85,563,625.46

Less: Income tax thereon . . . . . . . . . . . . . . . . . . . . . 169,272,217.00 IV. DEFICIENCY COMMERCIAL BROKERS TAX

Amount subject to Tax . . . . . . . . . . . . . . . . . . . . . . . 314,362,688.57 FY ended March 31, 1985

Tax due thereon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,154,403.00 Undeclared share from commission income

Add: 50% surcharge . . . . . . . . . . . . . . . . . . . . . . 23,577,201.50 (denominated as subsidy from Home

20% int. p.a. fr. 4-26-85 Office). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 24,683,114.50

to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 12,305,360.66 Tax due thereon . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,628,569.00

TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . P 83,036,965.16 Add: 50% surcharge for non-declaration. . . . . . . 814,284.50

III. DEFICIENCY CONTRACTORS TAX 25% surcharge for late payment . . . . . . . . . 407,142.25

FY ended March 31, 1985 Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,849,995.75

Undeclared gross receipts/ gross income from Add: 20% int. p.a. fr. 4-21-85

Philphos and NDC construction projects . . . . P 967,269,811.14 to 8-15-86 . . . . . . . . . . . . . . . . . . . . . . 751,539.98

Contractors tax due thereon (4%). . . . . . . . . . . . . . . 38,690,792.00 TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . P 3,600,535.68

Add: 50% surcharge for non-declaration. . . . . . 19,345,396.00 The 50% surcharge was imposed for your clients failure to report for
tax purposes the aforesaid taxable revenues while the 25%
25% surcharge for late payment . . . . . . . . . 9,672,698.00 surcharge was imposed because of your clients failure to pay on
time the above deficiency percentage taxes.
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,708,886.00
x x x x x x x x x. [1]
Petitioner found that the NDC and Philphos contracts were made on On November 17, 1986, the scope and coverage of E.O. No. 41
a turn-key basis and that the gross income from the two projects was expanded by Executive Order (E.O.) No. 64. In addition to the
amounted to P967,269,811.14. Each contract was for a piece of work income tax amnesty granted by E.O. No. 41 for the years 1981 to
and since the projects called for the construction and installation of 1985, E.O. No. 64[3] included estate and donors taxes under Title III
facilities in the Philippines, the entire income therefrom constituted and the tax on business under Chapter II, Title V of the National
income from Philippine sources, hence, subject to internal revenue Internal Revenue Code, also covering the years 1981 to 1985. E.O.
taxes. The assessment letter further stated that the same was No. 64 further provided that the immunities and privileges under E.O.
petitioners final decision and that if respondent disagreed with it, No. 41 were extended to the foregoing tax liabilities, and the period
respondent may file an appeal with the Court of Tax Appeals within within which the taxpayer could avail of the amnesty was extended to
thirty (30) days from receipt of the assessment. December 15, 1986. Those taxpayers who already filed their amnesty
return under E.O. No. 41, as amended, could avail themselves of the
On September 26, 1986, respondent filed two (2) petitions for benefits, immunities and privileges under the new E.O. by filing an
review with the Court of Tax Appeals. The first petition, CTA Case No. amended return and paying an additional 5% on the increase in net
4109, questioned the deficiency income, branch profit remittance and worth to cover business, estate and donors tax liabilities.
contractors tax assessments in petitioners assessment letter. The
second, CTA Case No. 4110, questioned the deficiency commercial The period of amnesty under E.O. No. 64 was extended to
brokers assessment in the same letter. January 31, 1987 by E.O No. 95 dated December 17, 1986.
Earlier, on August 2, 1986, Executive Order (E.O.) No. On December 15, 1986, respondent filed a supplemental tax
41[2] declaring a one-time amnesty covering unpaid income taxes for amnesty return under the benefit of E.O. No. 64 and paid a further
the years 1981 to 1985 was issued. Under this E.O., a taxpayer who amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of
wished to avail of the income tax amnesty should, on or before the increase of its net worth between 1981 and 1986.
October 31, 1986: (a) file a sworn statement declaring his net worth
as of December 31, 1985; (b) file a certified true copy of his statement On July 29, 1996, almost ten (10) years after filing of the case,
declaring his net worth as of December 31, 1980 on record with the the Court of Tax Appeals rendered a decision in CTA Case No. 4109.
Bureau of Internal Revenue (BIR), or if no such record exists, file a The tax court found that respondent had properly availed of the tax
statement of said net worth subject to verification by the BIR; and (c) amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes
file a return and pay a tax equivalent to ten per cent (10%) of the subject of said case as deemed cancelled and withdrawn. The Court
increase in net worth from December 31, 1980 to December 31, 1985. of Tax Appeals disposed of as follows:

In accordance with the terms of E.O. No. 41, respondent filed its WHEREFORE, the respondent Commissioner of Internal Revenue is
tax amnesty return dated October 30, 1986 and attached thereto its hereby ORDERED to DESIST from collecting the 1985 deficiency
sworn statement of assets and liabilities and net worth as of Fiscal taxes it had assessed against petitioner and the same are deemed
Year (FY) 1981 and FY 1986. The return was received by the BIR on considered [sic] CANCELLED and WITHDRAWN by reason of the
November 3, 1986 and respondent paid the amount of P2,891,273.00 proper availment by petitioner of the amnesty under Executive Order
equivalent to ten percent (10%) of its net worth increase between 1981 No. 41, as amended.[4]
and 1986.
The period of the amnesty in E.O. No. 41 was later extended from Petitioner challenged the decision of the tax court by filing CA-
October 31, 1986 to December 5, 1986 by E.O. No. 54 dated G.R. SP No. 42518 with the Court of Appeals.
November 4, 1986.
On January 15, 1999, the Court of Appeals dismissed the petition d) Those that have withholding tax liabilities under the
and affirmed the decision of the Court of Tax Appeals. Hence, this National Internal Revenue Code, as amended, insofar as
recourse. the said liabilities are concerned;
Before us, petitioner raises the following issues: e) Those with tax cases pending investigation by the Bureau
of Internal Revenue as of the effectivity hereof as a result
(1) Whether or not the Court of Appeals erred in affirming the of information furnished under Section 316 of the
Decision of the Court of Tax Appeals which ruled that herein National Internal Revenue Code, as amended;
respondents deficiency tax liabilities were extinguished upon f) Those with pending cases involving unexplained or
respondents availment of tax amnesty under Executive Orders Nos. unlawfully acquired wealth before the Sandiganbayan;
41 and 64.
g) Those liable under Title Seven, Chapter Three (Frauds,
(2) Whether or not respondent is liable to pay the income, branch Illegal Exactions and Transactions) and Chapter Four
profit remittance, and contractors taxes assessed by petitioner.[5] (Malversation of Public Funds and Property) of the
Revised Penal Code, as amended.
The main controversy in this case lies in the interpretation of the Petitioner argues that at the time respondent filed for income tax
exception to the amnesty coverage of E.O. Nos. 41 and 64. There are amnesty on October 30, 1986, CTA Case No. 4109 had already been
three (3) types of taxes involved herein income tax, branch profit filed and was pending before the Court of Tax Appeals. Respondent
remittance tax and contractors tax. These taxes are covered by the therefore fell under the exception in Section 4 (b) of E.O. No. 41.
amnesties granted by E.O. Nos. 41 and 64. Petitioner claims,
however, that respondent is disqualified from availing of the said Petitioners claim cannot be sustained. Section 4 (b) of E.O. No.
amnesties because the latter falls under the exception in Section 4 (b) 41 is very clear and unambiguous. It excepts from income tax amnesty
of E.O. No. 41. those taxpayers with income tax cases already filed in court as of the
effectivity hereof. The point of reference is the date of effectivity of
Section 4 of E.O. No. 41 enumerates which taxpayers cannot E.O. No. 41. The filing of income tax cases in court must have been
avail of the amnesty granted thereunder, viz: made before and as of the date of effectivity of E.O. No. 41. Thus, for
a taxpayer not to be disqualified under Section 4 (b) there must have
Sec. 4. Exceptions.The following taxpayers may not avail themselves been no income tax cases filed in court against him when E.O. No. 41
of the amnesty herein granted: took effect. This is regardless of when the taxpayer filed for income
tax amnesty, provided of course he files it on or before the deadline
a) Those falling under the provisions of Executive Order for filing.
Nos. 1, 2 and 14; E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109
b) Those with income tax cases already filed in Court as questioning the 1985 deficiency income, branch profit remittance and
of the effectivity hereof; contractors tax assessments was filed by respondent with the Court
of Tax Appeals on September 26, 1986. When E.O. No. 41 became
c) Those with criminal cases involving violations of the effective on August 22, 1986, CTA Case No. 4109 had not yet been
income tax law already filed in court as of the effectivity filed in court. Respondent corporation did not fall under the said
hereof; exception in Section 4 (b), hence, respondent was not disqualified
from availing of the amnesty for income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch profit becoming a part of the original act as if it had always been contained
remittance tax assessment. A branch profit remittance tax is defined therein,[10] it may not be given a retroactive effect unless it is so
and imposed in Section 24 (b) (2) (ii), Title II, Chapter III of the National provided expressly or by necessary implication and no vested right or
Internal Revenue Code.[6]In the tax code, this tax falls under Title II on obligations of contract are thereby impaired.[11]
Income Tax. It is a tax on income. Respondent therefore did not fall
under the exception in Section 4 (b) when it filed for amnesty of its There is nothing in E.O. No. 64 that provides that it should
deficiency branch profit remittance tax assessment. retroact to the date of effectivity of E.O. No. 41, the original
issuance. Neither is it necessarily implied from E.O. No. 64 that it or
The difficulty herein is with respect to the contractors tax any of its provisions should apply retroactively. Executive Order No.
assessment and respondents availment of the amnesty under E.O. 64 is a substantive amendment of E.O. No. 41. It does not merely
No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by change provisions in E.O. No. 41. It supplements the original act by
including estate and donors taxes and tax on business. Estate and adding other taxes not covered in the first.[12] It has been held that
donors taxes fall under Title III of the Tax Code while business taxes where a statute amending a tax law is silent as to whether it operates
fall under Chapter II, Title V of the same. The contractors tax is retroactively, the amendment will not be given a retroactive effect so
provided in Section 205, Chapter II, Title V of the Tax Code; it is as to subject to tax past transactions not subject to tax under the
defined and imposed under the title on business taxes, and is original act.[13] In an amendatory act, every case of doubt must be
therefore a tax on business.[7] resolved against its retroactive effect.[14]
When E.O. No. 64 took effect on November 17, 1986, it did not Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax
provide for exceptions to the coverage of the amnesty for business, amnesty is a general pardon or intentional overlooking by the State of
estate and donors taxes. Instead, Section 8 of E.O. No. 64 provided its authority to impose penalties on persons otherwise guilty of evasion
that: or violation of a revenue or tax law.[15] It partakes of an absolute
forgiveness or waiver by the government of its right to collect what is
Section 8. The provisions of Executive Orders Nos. 41 and 54 which due it and to give tax evaders who wish to relent a chance to start with
are not contrary to or inconsistent with this amendatory Executive a clean slate.[16] A tax amnesty, much like a tax exemption, is never
Order shall remain in full force and effect. favored nor presumed in law.[17] If granted, the terms of the amnesty,
like that of a tax exemption, must be construed strictly against the
By virtue of Section 8 as afore-quoted, the provisions of E.O. No. taxpayer and liberally in favor of the taxing authority.[18] For the right of
taxation is inherent in government. The State cannot strip itself of the
41 not contrary to or inconsistent with the amendatory act were
most essential power of taxation by doubtful words. He who claims an
reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the
exemption (or an amnesty) from the common burden must justify his
exceptions to amnesty coverage also applied to E.O. No. 64. With
claim by the clearest grant of organic or state law. It cannot be allowed
respect to Section 4 (b) in particular, this provision excepts from tax
amnesty coverage a taxpayer who has income tax cases already filed to exist upon a vague implication. If a doubt arises as to the intent of
in court as of the effectivity hereof. As to what Executive Order the the legislature, that doubt must be resolved in favor of the state.[19]
exception refers to, respondent argues that because of the words In the instant case, the vagueness in Section 4 (b) brought about
income and hereof, they refer to Executive Order No. 41.[8] by E.O. No. 64 should therefore be construed strictly against the
taxpayer. The term income tax cases should be read as to refer to
In view of the amendment introduced by E.O. No. 64, Section 4
estate and donors taxes and taxes on business while the word hereof,
(b) cannot be construed to refer to E.O. No. 41 and its date of
effectivity. The general rule is that an amendatory act operates to E.O. No. 64. Since Executive Order No. 64 took effect on November
prospectively.[9] While an amendment is generally construed as 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are
concerned, the date of effectivity referred to in Section 4 (b) of E.O. Corporation (Pasar),[21] and other industrial plants within the Estate.
No. 41 should be November 17, 1986. The bidding was participated in by Marubeni Head Office in Japan.
Respondent filed CTA Case No. 4109 on September 26, 1986. Marubeni, Japan pre-qualified and on March 22, 1982, the NDC
When E.O. No. 64 took effect on November 17, 1986, CTA Case No. and respondent entered into an agreement entitled Turn-Key Contract
4109 was already filed and pending in court. By the time respondent for Leyte Industrial Estate Port Development Project Between National
filed its supplementary tax amnesty return on December 15, 1986, Development Company and Marubeni Corporation.[22] The Port
respondent already fell under the exception in Section 4 (b) of E.O. Development Project would consist of a wharf, berths, causeways,
Nos. 41 and 64 and was disqualified from availing of the business tax mechanical and liquids unloading and loading systems, fuel oil depot,
amnesty granted therein. utilities systems, storage and service buildings, offsite facilities, harbor
service vessels, navigational aid system, fire-fighting system, area
It is respondents other argument that assuming it did not validly lighting, mobile equipment, spare parts and other related
avail of the amnesty under the two Executive Orders, it is still not liable facilities.[23] The scope of the works under the contract covered turn-
for the deficiency contractors tax because the income from the key supply, which included grants of licenses and the transfer of
projects came from the Offshore Portion of the contracts. The two technology and know-how,[24] and:
contracts were divided into two parts, i.e., the Onshore Portion and the
Offshore Portion. All materials and equipment in the contract under
the Offshore Portion were manufactured and completed in Japan, not x x x the design and engineering, supply and delivery, construction,
in the Philippines, and are therefore not subject to Philippine taxes. erection and installation, supervision, direction and control of testing
and commissioning of the Wharf-Port Complex as set forth in Annex
Before going into respondents arguments, it is necessary to I of this Contract, as well as the coordination of tie-ins at boundaries
discuss the background of the two contracts, examine their pertinent and schedule of the use of a part or the whole of the Wharf/Port
provisions and implementation. Complex through the Owner, with the design and construction of
other facilities around the site. The scope of works shall also include
The NDC and Philphos are two government corporations. In any activity, work and supply necessary for, incidental to or
1980, the NDC, as the corporate investment arm of the Philippine appropriate under present international industrial port practice, for
Government, established the Philphos to engage in the large-scale the timely and successful implementation of the object of this
manufacture of phosphatic fertilizer for the local and foreign Contract, whether or not expressly referred to in the abovementioned
markets.[20] The Philphos plant complex which was envisioned to be Annex I.[25]
the largest phosphatic fertilizer operation in Asia, and among the
largest in the world, covered an area of 180 hectares within the 435-
The contract price for the wharf/ port complex
hectare Leyte Industrial Development Estate in the municipality of
was Y12,790,389,000.00 and P44,327,940.00. In the contract, the
Isabel, province of Leyte.
price in Japanese currency was broken down into two portions: (1) the
In 1982, the NDC opened for public bidding a project to construct Japanese Yen Portion I; (2) the Japanese Yen Portion II, while the
and install a modern, reliable, efficient and integrated wharf/port price in Philippine currency was referred to as the Philippine Pesos
complex at the Leyte Industrial Development Estate. The wharf/ port Portion. The Japanese Yen Portions I and II were financed in two (2)
complex was intended to be one of the major facilities for the industrial ways: (a) by yen credit loan provided by the Overseas Economic
plants at the Leyte Industrial Development Estate. It was to be Cooperation Fund (OECF); and (b) by suppliers credit in favor of
specifically adapted to the site for the handling of phosphate rock, Marubeni from the Export-Import Bank of Japan. The OECF is a Fund
bagged or bulk fertilizer products, liquid materials and other products under the Ministry of Finance of Japan extended by the Japanese
of Philphos, the Philippine Associated Smelting and Refining government as assistance to foreign governments to promote
economic development.[26] The OECF extended to the Philippine works shall also include any activity, work and supply necessary for,
Government a loan of Y7,560,000,000.00 for the Leyte Industrial incidental to or appropriate under present international industrial
Estate Port Development Project and authorized the NDC to practice, for the timely and successful implementation of the object of
implement the same.[27] The other type of financing is an indirect type this Contract, whether or not expressly referred to in the
where the supplier, i.e., Marubeni, obtained a loan from the Export- abovementioned Annex I.[35]
Import Bank of Japan to advance payment to its sub-contractors.[28]
Under the financing schemes, the Japanese Yen Portions I and The contract price for the project was Y3,255,751,000.00
II and the Philippine Pesos Portion were further broken down and and P17,406,000.00. Like the NDC contract, the price was divided into
subdivided according to the materials, equipment and services three portions. The price in Japanese currency was broken down into
rendered on the project. The price breakdown and the corresponding the Japanese Yen Portion I and Japanese Yen Portion II while the
materials, equipment and services were contained in a list attached as price in Philippine currency was classified as the Philippine Pesos
Annex III to the contract.[29] Portion. Both Japanese Yen Portions I and II were financed by
suppliers credit from the Export-Import Bank of Japan. The pricestated
A few months after execution of the NDC contract, Philphos in the three portions were further broken down into the corresponding
opened for public bidding a project to construct and install two materials, equipment and services required for the project and their
ammonia storage tanks in Isabel. Like the NDC contract, it was individual prices. Like the NDC contract, the breakdown in the
Marubeni Head Office in Japan that participated in and won the Philphos contract is contained in a list attached to the latter as Annex
bidding. Thus, on May 2, 1982, Philphos and respondent corporation III.[36]
entered into an agreement entitled Turn-Key Contract for Ammonia
Storage Complex Between Philippine Phosphate Fertilizer The division of the price into Japanese Yen Portions I and II and
Corporation and Marubeni Corporation.[30] The object of the contract the Philippine Pesos Portion under the two contracts corresponds to
was to establish and place in operating condition a modern, reliable, the two parts into which the contracts were classifiedthe Foreign
efficient and integrated ammonia storage complex adapted to the site Offshore Portion and the Philippine Onshore Portion. In both
for the receipt and storage of liquid anhydrous ammonia[31]and for the contracts, the Japanese Yen Portion I corresponds to the Foreign
delivery of ammonia to an integrated fertilizer plant adjacent to the Offshore Portion.[37] Japanese Yen Portion II and the Philippine Pesos
storage complex and to vessels at the dock.[32] The storage complex Portion correspond to the Philippine Onshore Portion.[38]
was to consist of ammonia storage tanks, refrigeration system, ship Under the Philippine Onshore Portion, respondent does not deny
unloading system, transfer pumps, ammonia heating system, fire- its liability for the contractors tax on the income from the two projects.
fighting system, area lighting, spare parts, and other related In fact respondent claims, which petitioner has not denied, that the
facilities.[33] The scope of the works required for the completion of the income it derived from the Onshore Portion of the two projects had
ammonia storage complex covered the supply, including grants of been declared for tax purposes and the taxes thereon already paid to
licenses and transfer of technology and know-how,[34] and: the Philippine government.[39] It is with regard to the gross receipts
from the Foreign Offshore Portion of the two contracts that the
x x x the design and engineering, supply and delivery, construction, liabilities involved in the assessments subject of this case arose.
erection and installation, supervision, direction and control of testing Petitioner argues that since the two agreements are turn-key,[40] they
and commissioning of the Ammonia Storage Complex as set forth in call for the supply of both materials and services to the client, they are
Annex I of this Contract, as well as the coordination of tie-ins at contracts for a piece of work and are indivisible. The situs of the two
boundaries and schedule of the use of a part or the whole of the projects is in the Philippines, and the materials provided and services
Ammonia Storage Complex through the Owner with the design and rendered were all done and completed within the territorial jurisdiction
construction of other facilities at and around the Site. The scope of of the Philippines.[41] Accordingly, respondents entire receipts from the
contracts, including its receipts from the Offshore Portion, constitute Under the afore-quoted provision, an independent contractor is a
income from Philippine sources. The total gross receipts covering both person whose activity consists essentially of the sale of all kinds of
labor and materials should be subjected to contractors tax in services for a fee, regardless of whether or not the performance of the
accordance with the ruling in Commissioner of Internal Revenue v. service calls for the exercise or use of the physical or mental faculties
Engineering Equipment & Supply Co.[42] of such contractors or their employees. The word contractor refers to
a person who, in the pursuit of independent business, undertakes to
A contractors tax is imposed in the National Internal Revenue do a specific job or piece of work for other persons, using his own
Code (NIRC) as follows: means and methods without submitting himself to control as to the
petty details.[44]
Sec. 205. Contractors, proprietors or operators of dockyards, and
others.A contractors tax of four percent of the gross receipts is A contractors tax is a tax imposed upon the privilege of engaging
hereby imposed on proprietors or operators of the following business in business.[45] It is generally in the nature of an excise tax on the
establishments and/or persons engaged in the business of selling or exercise of a privilege of selling services or labor rather than a sale on
rendering the following services for a fee or compensation: products;[46] and is directly collectible from the person exercising the
privilege.[47] Being an excise tax, it can be levied by the taxing authority
(a) General engineering, general building and specialty only when the acts, privileges or business are done or performed
within the jurisdiction of said authority.[48]Like property taxes, it cannot
contractors, as defined in Republic Act No. 4566;
be imposed on an occupation or privilege outside the taxing district.[49]
xxxxxxxxx In the case at bar, it is undisputed that respondent was an
independent contractor under the terms of the two subject contracts.
(q) Other independent contractors. The term independent Respondent, however, argues that the work therein were not all
contractors includes persons (juridical or natural) not performed in the Philippines because some of them were completed
enumerated above (but not including individuals subject to in Japan in accordance with the provisions of the contracts.
the occupation tax under the Local Tax Code) whose An examination of Annex III to the two contracts reveals that the
activity consists essentially of the sale of all kinds of materials and equipment to be made and the works and services to
services for a fee regardless of whether or not the be performed by respondent are indeed classified into two. The first
performance of the service calls for the exercise or use of part, entitled Breakdown of Japanese Yen Portion I provides:
the physical or mental faculties of such contractors or their
employees. It does not include regional or area
headquarters established in the Philippines by Japanese Yen Portion I of the Contract Price has been subdivided
multinational corporations, including their alien executives, according to discrete portions of materials and equipment
and which headquarters do not earn or derive income from which will be shipped to Leyte as units and lots. This subdivision
the Philippines and which act as supervisory, of price is to be used by owner to verify invoice for Progress
communications and coordinating centers for their Payments under Article 19.2.1 of the Contract. The agreed
affiliates, subsidiaries or branches in the Asia-Pacific subdivision of Japanese Yen Portion I is as follows:
Region.
x x x x x x x x x. [50]
x x x x x x x x x.[43]
The subdivision of Japanese Yen Portion I covers materials and
equipment while Japanese Yen Portion II and the Philippine Pesos
Portion enumerate other materials and equipment and the to four sets of tractors, cranes and dozers, trailers and forklifts, were
construction and installation work on the project. In other words, the also manufactured and completed in Japan. They were loaded on to a
supplies for the project are listed under Portion I while labor and other shipping vessel and unloaded at the Isabel Port. These pieces of
supplies are listed under Portion II and the Philippine Pesos equipment were all on wheels and self-propelled. Once unloaded at
Portion. Mr. Takeshi Hojo, then General Manager of the Industrial the port, they were ready to be driven and perform what they were
Plant Section II of the Industrial Plant Department of Marubeni designed to do.[62]
Corporation in Japan who supervised the implementation of the two
projects, testified that all the machines and equipment listed under In addition to the foregoing, there are other items listed in
Japanese Yen Portion I in Annex III were manufactured in Japanese Yen Portion I in Annex III to the NDC contract. These other
Japan.[51] The machines and equipment were designed, engineered items consist of supplies and materials for five (5) berths, two (2)
and fabricated by Japanese firms sub-contracted by Marubeni from roads, a causeway, a warehouse, a transit shed, an administration
the list of sub-contractors in the technical appendices to each building and a security building. Most of the materials consist of steel
contract.[52]Marubeni sub-contracted a majority of the equipment and sheets, steel pipes, channels and beams and other steel structures,
supplies to Kawasaki Steel Corporation which did the design, navigational and communication as well as electrical equipment.[63]
fabrication, engineering and manufacture thereof;[53] Yashima & Co. In connection with the Philphos contract, the major pieces of
Ltd. which manufactured the mobile equipment; Bridgestone which equipment supplied by respondent were the ammonia storage tanks
provided the rubber fenders of the mobile equipment;[54] and B.S. and refrigeration units.[64] The steel plates for the tank were
Japan for the supply of radio equipment.[55] The engineering and manufactured and cut in Japan according to drawings and
design works made by Kawasaki Steel Corporation included the lay- specifications and then shipped to Isabel. Once there, respondents
out of the plant facility and calculation of the design in accordance with employees put the steel plates together to form the storage tank. As
the specifications given by respondent.[56] All sub-contractors and to the refrigeration units, they were completed and assembled in
manufacturers are Japanese corporations and are based in Japan and Japan and thereafter shipped to Isabel. The units were simply installed
all engineering and design works were performed in that country. [57] there.[65] Annex III to the Philphos contract lists down under the
The materials and equipment under Portion I of the NDC Port Japanese Yen Portion I the materials for the ammonia storage tank,
Project is primarily composed of two (2) sets of ship unloader and incidental equipment, piping facilities, electrical and instrumental
loader; several boats and mobile equipment.[58] The ship unloader apparatus, foundation material and spare parts.
unloads bags or bulk products from the ship to the port while the ship All the materials and equipment transported to the
loader loads products from the port to the ship. The unloader and Philippines were inspected and tested in Japan prior to shipment in
loader are big steel structures on top of each is a large crane and a accordance with the terms of the contracts.[66] The inspection was
compartment for operation of the crane. Two sets of these equipment made by representatives of respondent corporation, of NDC and
were completely manufactured in Japan according to the Philphos. NDC, in fact, contracted the services of a private
specifications of the project. After manufacture, they were rolled on to consultancy firm to verify the correctness of the tests on the machines
a barge and transported to Isabel, Leyte.[59] Upon reaching Isabel, the and equipment[67]while Philphos sent a representative to Japan to
unloader and loader were rolled off the barge and pulled to the pier to inspect the storage equipment.[68]
the spot where they were installed.[60] Their installation simply
consisted of bolting them onto the pier.[61] The sub-contractors of the materials and equipment under
Japanese Yen Portion I were all paid by respondent in Japan. In his
Like the ship unloader and loader, the three tugboats and a line deposition upon oral examination, Kenjiro Yamakawa, formerly the
boat were completely manufactured in Japan. The boats sailed to Assistant General Manager and Manager of the Steel Plant Marketing
Isabel on their own power. The mobile equipment, consisting of three Department, Engineering & Construction Division, Kawasaki Steel
Corporation, testified that the equipment and supplies for the two point. In that case, the Court found that Engineering Equipment,
projects provided by Kawasaki under Japanese Yen Portion I were although an independent contractor, was not engaged in the
paid by Marubeni in Japan. Receipts for such payments were duly manufacture of air conditioning units in the Philippines. Engineering
issued by Kawasaki in Japanese and English.[69] Yashima & Co. Ltd. Equipment designed, supplied and installed centralized air-
and B.S. Japan were likewise paid by Marubeni in Japan.[70] conditioning systems for clients who contracted its services.
Engineering, however, did not manufacture all the materials for the air-
Between Marubeni and the two Philippine corporations, conditioning system. It imported some items for the system it designed
payments for all materials and equipment under Japanese Yen and installed.[74] The issues in that case dealt with services performed
Portion I were made to Marubeni by NDC and Philphos also in Japan. within the local taxing jurisdiction. There was no foreign element
The NDC, through the Philippine National Bank, established letters of involved in the supply of materials and services.
credit in favor of respondent through the Bank of Tokyo. The letters of
credit were financed by letters of commitment issued by the OECF With the foregoing discussion, it is unnecessary to discuss the
with the Bank of Tokyo. The Bank of Tokyo, upon respondents other issues raised by the parties.
submission of pertinent documents, released the amount in the letters
of credit in favor of respondent and credited the amount therein to IN VIEW WHEREOF, the petition is denied. The decision in CA-
respondents account within the same bank.[71] G.R. SP No. 42518 is affirmed.

Clearly, the service of design and engineering, supply and SO ORDERED.


delivery, construction, erection and installation, supervision, direction
and control of testing and commissioning, coordination[72]of the two
projects involved two taxing jurisdictions. These acts occurred in two
countries Japan and the Philippines. While the construction and
installation work were completed within the Philippines, the evidence
is clear that some pieces of equipment and supplies were completely
designed and engineered in Japan. The two sets of ship unloader and
loader, the boats and mobile equipment for the NDC project and the
ammonia storage tanks and refrigeration units were made and
completed in Japan. They were already finished products when
shipped to the Philippines. The other construction supplies listed
under the Offshore Portion such as the steel sheets, pipes and
structures, electrical and instrumental apparatus, these were not
finished products when shipped to the Philippines. They, however,
were likewise fabricated and manufactured by the sub-contractors in
Japan. 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 the taxing jurisdiction of the Philippines and are
therefore not subject to contractors tax.
Contrary to petitioners claim, the case of Commissioner of
Internal Revenue v. Engineering Equipment & Supply Co [73]is not in
SECOND DIVISION race tracks, horse races, theatrical performances, public exhibition,
circus and other performances and places of amusements, will show
[G.R. No. L-1104. May 31, 1949.] conclusively that the power to tax amusement is expressly included
within the power granted by section 2444 (m) of the Revised
EASTERN THEATRICAL CO., INC., ET AL., Plaintiffs-Appellants, Administrative Code.
v. VICTOR ALFONSO, as City Treasurer of Manila, THE
MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN 3. ID.; ID.; REPEAL BY IMPLICATION; COMMONWEALTH ACT
NOLASCO, as Mayor of the City of Manila, Defendants- NO. 466 DID NOT REPEAL SECTION 2444 (m) OF THE REVISED
Appellees. ADMINISTRATIVE CODE. — In support of the contention that
section 2444 (m) of the Revised Administrative Code was repealed,
Francisco Zulueta and H. Poblador, Jr. for Appellants. plaintiffs aver that the Charter of the City of Manila, containing
section 2444 (m) of the Revised Administrative Code, was enacted
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio on December 8, 1929. On April 25, 1940, the National Assembly
Villamor for Appellees. enacted Commonwealth Act No. 466, including provisions on
amusement tax, covering the whole field on taxation and provided for
Assistant Solicitor General Carmelino G. Alvendia, Solicitor more than what the ordinance in question has provided. As a result,
Guillermo E. Torres and Manuel D. Baldeo as amici curiae. there are two taxing powers seeking to occupy exactly the same field
of legislation, and so the apparent conflict must be resolved with the
SYLLABUS conclusion that, with the enactment of Commonwealth Act No. 466,
as later amended by Republic Act No. 39, section 2444 (m) of the
1. TAXATION; STATUTORY CONSTRUCTION; TAX ON Revised Administrative Code has been impliedly repealed and the
BUSINESS AND ON AMUSEMENT; PROVISIONS OF SECTION power therein delegated to the City of Manila withdrawn. Held: That
2444 (m) OF THE REVISED ADMINISTRATIVE CODE, the conflict pointed out is imaginary. Both provisions of law may
CONSTRUED. — The whole argument of plaintiffs hinges on the stand together and be enforced at the same time without any
assumption that the power granted to the City of Manila by section incompatibility.
2444 (m) of the Revised Administrative Code is limited to the
authority to impose a tax on business, with exclusion of the power to 4. CONSTITUTIONAL LAW; EQUALITY AND UNIFORMITY OF
impose a tax on amusement; but, the assumption is based on an TAXATION; VALIDITY OF ORDINANCE NO. 2958. — Appellants
arbitrary labeling of the kind of tax authorized by said section 2444 point out to the fact that the ordinance in question does not tax "may
(m). The distinction as to the power to tax business and the power to more kinds of amusements" than those therein specified, such as
tax amusement has no ground under the provisions of section 2444 "race tracks, cockpits, cabarets, concerts halls, circuses, and other
(m) of the Revised Administrative Code. The tax therein authorized places of amusement." The argument has absolutely no merit. The
cannot be defined as tax on business and cannot be restricted within fact that some places of amusement are not taxed while others, such
a smaller scope than what is authorized by the words used, to the as cinematographs, theaters, vaudeville companies, theatrical
extent of excluding what plaintiffs describe as tax on amusement. shows, and boxing exhibitions and other kinds of amusements or
places of amusements are taxed, is no argument at all against the
2. ID.; ID.; ID.; ID. — They very fact that section 2444 (m) of the equality and uniformity of the tax imposition. Equality and uniformity
Revised Administrative Code includes theaters, cinematography, in taxation means that all taxable articles or kinds of property of the
public billiard tables, public pool tables, bowling alleys, dance halls, same class shall be taxed at the same rate. The taxing power has
public dancing halls, cabarets, circuses and other similar places, the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what
places of amusement taxed by the ordinance do not constitute a "c. For every ticket sold the price of which is from P2 to
class by themselves and which can be confused with those not
included in the ordinance. P2.99 P0.15

"d. For every ticket sold the price of which is from P3 to


DECISION
P4.99 P0.20

PERFECTO, J.: "e. For every ticket sold the price of which is from P5 to

P5.99 P0.25
Twelve corporations engaged in motion picture business have
initiated these proceedings through a complaint dated May 5, 1946, "f. For every ticket sold the price of which is from P10 to
to impugn the validity of Ordinance No. 2958 of the City of Manila,
which was enacted by the Municipal Board of said city on April 25, P14.99 P0.35
1946, approved by the Mayor on April 27, 1946, and took effect on
May 1, 1946, said ordinance reading as "g. For every ticket sold the price of which is from P15
follows:jgc:chanrobles.com.ph
or more P0.50.
"AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY
ADMISSION TICKET SOLD BY CINEMATOGRAPHS THEATERS, "SEC. 2. It shall be the duty of every proprietor. lessee, promoter, or
VAUDEVILLE COMPANIES, THEATRICAL SHOWS AND BOXING operator of such cinematographs, theaters, vaudeville companies,
EXHIBITIONS; AND PROVIDING FOR OTHER PURPOSES. theatrical shows and boxing exhibition to provide himself with tickets
which shall be serially numbered, indicating therein the name of
"SEC. 1 In addition to the fees paid by cinematographs, theaters, amusement place and the fee charged for admission. Before such
vaudeville companies, theatrical shows and boxing exhibitions, as tickets are sold, the same shall be presented to the Office of the City
provided for in sections 633 and 778 of Ordinance No. 1600, known Treasurer, for registration. Tickets once issued and presented at the
as the Revised Ordinance of the City of Manila, as amended, there gate of entrance shall be cut by the gatekeeper into halves, the first
shall be collected from the places of amusement, which are half to be returned to the customer and the other half to be retained
specifically mentioned above, the following fees on the price of every by the gatekeeper.
admission ticket sold by such enterprises:jgc:chanrobles.com.ph
"It shall be the duty of every proprietor, lessee, promoter, or operator
"a. For every ticket sold the price of which is from P0.25 to deliver to the Office of the City Treasurer the fees corresponding
to the number of tickets old by him within two days after the
to P0.99 P0.05 performance or exhibition has taken place.

"b. For every ticket sold the price of which is from P1 to "SEC. 3. The fees herein prescribed shall not be paid where the
admission fees or charges are collected for and in behalf of any
P1.99 P0.10 charitable, educational or religious institution or association.
exhibitions similarly situated and as a class without distinction or
"All places of amusement which are operated by U. S. Army and exception the same does not violate the constitutional prohibition
Navy with funds belonging to the U. S. Government are hereby against uniformity and equality of taxation; (c) that the graduated tax
exempted from fees herein imposed. on admission tickets to theaters another places of amusement
imposed by the National Internal Revenue Code (Commonwealth Act
‘SEC. 4. Any person violating any of the provisions of this Ordinance No. 466) is collected by and for the purposes of the National
shall, upon conviction thereof, be punished by a fine of not more than Government, whereas, Ordinance No. 2958 imposes and requires
P200 or by imprisonment in the discretion of the court. If the violation the collection of a similar tax by and for the purposes of the
is committed by the club, firm or corporation, the manager, the Government of the City of Manila, and there is no case of double
managing director or person charged with the management of the taxation; (d) that said ordinance having been enacted under the
business of such club, firm or corporation, shall be criminally express power of the Municipal Board to tax for revenue, as
responsible therefor. distinguished from its power to license for purely police purposes, the
fact that the amounts collected thereunder are higher than what are
SEC. 5. This Ordinance shall take effect on May 1, 1946."cralaw needed for police regulation and supervision does not render said
virtua1aw library ordinance unfair, unjust, capricious. unreasonable and oppressive;
(e) that, considering the nature of the business they handle, the
Plaintiffs, operators of theaters in Manila and distributors of local or graduated tax fixed by the ordinance is not unreasonable.
imported films, allege that they are interested in the provisions of
sections 1, 2 and 4 of said ordinance, which they impugn as null and Defendants allege also that since May 1, 1946, when the ordinance
void upon the following grounds: (a) For violating the Constitution, in question took effect, plaintiffs have been charging the theater-
more particularly the provisions regarding the uniformity and equality going public increased prices for admissions to the cinematographs
of taxation and the equal protection of the laws; (b) because the owned and operated by them at graduated rates equal and
Municipal Board of Manila exceeded and over-stepped the powers corresponding to the graduated tax imposed by said ordinance, and
granted it by the Charter of the City of Manila; (c) because it as a result, while refusing to pay said tax but at the same time
contravenes, violates, and is inconsistent with, existing national collecting an amount equal to said tax, plaintiffs have taken undue
legislation, more particularly revenue and tax laws; and, (d) because advantage of said ordinance to realize more profits.
it is unfair, unjust, arbitrary, capricious, unreasonable, oppressive,
and is contrary to and violates our basic and recognized principles of On September 5, 1946, Judge Emilio Peña of the Court of First
taxation and licensing laws. Instance of Manila rendered a decision upholding the validity of
Ordinance No. 2958.
Defendants allege as affirmative defenses the following: (a) That the
ordinance was passed by the Municipal Board of Manila by virtue of Plaintiffs-appellants assign in their brief three errors committed by
its express legislative powers to tax, fix the license fee and regulate the trial court. We will consider them separately.
the business of theaters, cinematographs and further to fix the
location of, and to tax, fix the license fee for, and regulate the Appellants contend that the lower court erred in holding that under
business, of theatrical performances, public exhibitions, circus and section 2444 (m) of the Revised Administrative Code the Municipal
other performances public exhibitions, circus and other Board of the City of Manila had the power to enact Ordinance No.
performances and places of amusements; (b) that the graduated tax 2958.
required by said ordinance being applied to all cinematographs,
theaters, vaudeville companies, theatrical shows and boxing Section 2444 (m) of the Revised Administrative Code reads as
follows:jgc:chanrobles.com.ph
"(b) Estate, inheritance and gift taxes;
"To tax, fix the license fee and regulate the business of hotels,
restaurants, refreshment places, cafes, lodging houses, boarding "(c) Specific taxes on certain articles;
houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs; and further to fix the location of, and to tax, fix the "(d) Privilege taxes on business or occupation;
license fee for, and regulate the business, of livery stables, boarding
stables, embalmers, public billiard tables, public pool tables, bowling "(e) Documentary stamp taxes;
alleys, dance halls, public dancing halls, cabarets, circus and other
similar parades, public vehicles, race tracks, horse races, junk "(f) Mining taxes;
dealers, theatrical performances, public exhibitions, circus and other
performances and places of amusements, match factories, "(g) Miscellaneous taxes, fees and charges, namely, taxes on banks,
blacksmith shops, foundries, steam, boilers, lumber yards, shipyards, and insurance companies, franchise taxes, taxes on amusements,
the storage and sale of gunpowder, tar, pitch, resin, coal, oil, charges on forest products, fees for sealing weights and measures,
gasoline, benzine, turpentine, hemp. cotton, nitroglycerin, petroleum firearms license fees, radio registration fees, tobacco inspection
or any of the products thereof and of all other highly combustible or fees, and water rentals."cralaw virtua1aw library
explosive materials and other establishments likely to endanger the
public safety or give rise to conflagrations or explosions, and subject "SEC. 260. Amusement taxes. — There shall be collected from the
to the provisions of ordinances issued by the (Philippine Health proprietor, lessee, or operator of theaters, cinematographs, concert
Service) Bureau of Health in accordance with law, tanneries, halls, circuses, boxing exhibitions, and other places of amusement
renderies, tallow chandleries, bone factories, and soap the following taxes:jgc:chanrobles.com.ph
factories."cralaw virtua1aw library
"(a) When the amount paid for admission exceeds twenty-nine
Appellants’ line of argument runs as follows:chanrob1es virtual 1aw centavos, two centavos on each admission;
library
"(b) When the amount paid for admission exceeds twenty-nine but
By virtue of the specific power granted in the above quoted provision does not exceed thirty-nine centavos, three centavos on each
of the Revised Administrative Code, Ordinance No. 2958 was admission;
enacted.
"(c) When the amount paid for admission exceeds thirty-nine
On August 7, 1940, the National Assembly enacted Commonwealth centavos but does not exceed forty-nine centavos, four centavos on
Act. No. 466, known as the National Internal Revenue Code, each admission;
sections 18, 260 and 261 of which read as
follows:jgc:chanrobles.com.ph "(d) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos, six centavos on each
"SEC. 18. Sources of revenue. — The following taxes, fees, and admission.
charges are deemed to be national internal-revenue
taxes:jgc:chanrobles.com.ph "(e) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos, six centavos on each
"(a) Income tax:jgc:chanrobles.com.ph admission.
behalf of any religious, charitable, scientific, or educational institution
"(f) When the amount paid for admission exceeds fifty-nine centavos or association, and where no part of the net proceeds of such
but does not exceed seventy-nine centavos, seven centavos on each admission fees or charges inures to the benefit of any private
admission. stockholder or individual."cralaw virtua1aw library

"(g) When the amount paid for admission exceeds seventy-nine Ordinance No. 2958 does not specify the kind of the tax sought to be
centavos but does not exceed eighty-nine centavos, eight centavos imposed but the seven schedules and other details of said ordinance
on each admission; are, in every respect, identical with the amusement tax provided by
section 260 of Commonwealth Act No. 466.
"(h) When the amount paid for admission exceeds eighty-nine
centavos but does not exceed ninety-nine centavos, nine centavos But, plaintiffs argue, that section 2444(m) of the Revised
on each admission; Administrative Code confers upon the City of Manila the power to
impose a tax on business but not on amusement and, consequently,
"(i) When the amount paid for admission exceeds ninety-nine Ordinance No. 2958 was enacted beyond the charter powers of the
centavos, ten centavos on each admission. City of Manila.

"In the case of cinematographs, the taxes herein prescribed shall first The whole argument of plaintiffs hinges, therefore, on the
be deducted and withheld by the proprietors, lessees, or operators of assumption that the power granted to the City of Manila by section
such theaters or cinematographs and paid to the Collector of Internal 2444(m) of the Revised Administrative Code is limited to the
Revenue before the gross receipts are divided between the authority to impose a tax on business, with exclusion of the power to
proprietors, lessees, or operators of the theaters or cinematographs impose a tax on amusement; but, the assumption is based on an
and the distributors of the cinematographic films. arbitrary labeling of the kind of tax authorized by said section
2444(m). The distinction made by plaintiffs as to the power to tax on
"In the case of cockpits, race tracks, and cabarets, there shall be business and the power to tax on amusement has no ground under
collected from the proprietor, lessee, or operator a tax equivalent the provisions of section 2444(m) of the Revised Administrative
collected from the proprietor, lessee, or operator a tax equivalent to Code. The tax therein authorized cannot be defines as tax on
ten per centum of the gross receipts, irrespective of whether or not business and cannot be restricted within a smaller scope than what
any amount is charged or paid for admission: Provided, however, is authorized by the words used, to the extent of excluding what
That in the case of race tracks, this tax is in addition to the privilege plaintiffs describe as tax on amusement.
tax prescribed in section 193. For the purpose of the amusement tax,
the term ’gross receipts’ embraces all the receipts of the proprietor, The very fact that section 2444 (m) of the Revised Administrative
lessee, or operator of the amusement place, excluding the receipts Code includes theaters, cinematographs, public billiard tables, public
derived by him from the sale of liquors, beverages, or other articles pool tables, bowling alleys, dance halls, public dancing halls,
subject to specific tax, or from any business subject to tax under this cabarets, circuses and other similar places, race tracks, horse races,
Code." (This section was amended by section 8, Republic Act No. theatrical performances, public exhibition, circus and other
39, effective October 1, 1946. We are quoting the original provision performances and places of amusements, will show conclusively that
to show the status of the law when the Ordinance was passed.) the power to tax amusement is expressly included within the power
granted by section 2444(m) of the Revised Administrative Code.
"SEC. 261. Exemption. — The tax herein imposed shall not be paid
where the admission fee or charges are collected by or for and in Plaintiffs-appellants contend that the lower court erred in not holding
that section 2444(m) of the Revised Administrative Code was shall be taxed at the same rate. The taxing power has the authority
repealed or the power therein contained was withdrawn by the to make reasonable and natural classifications for purposes of
National Assembly by the enactment of Commonwealth Act No. 466 taxation; and the appellants cannot point out what places of
known as the National Internal Revenue Code. amusement taxed by the ordinance do not constitute a class by
themselves and which can be confused with those not included in
In support of this contention, plaintiffs aver that the Charter of the the ordinance.
City of Manila, containing section 2444(m) of the Revised
Administrative Code, was enacted on December 8, 1929. On April
25, 1940, the National Assembly enacted Commonwealth Act No.
466, including provisions on amusement tax, covering the whole field
on taxation and provided for more than what the ordinance in
question has provided. As a result, there are two taxing powers
seeking to occupy exactly the same field of legislation, and so the
apparent conflict must be resolved with the conclusion that, with the
enactment of Commonwealth Act No. 466, as later amended by
Republic Act No. 39, section 2444(m) of the Revised Administrative
Code has been impliedly repealed and the power therein delegated
to the City of Manila withdrawn.

We see absolutely no force in plaintiffs’ contention. The conflict


pointed out by them is imaginary. Both provisions of law may stand
together and be enforced at the same time without any
incompatibility among themselves.

Finally, plaintiffs contend that the trial court erred in not holding that
Ordinance No. 2958 violated the principle of equality and uniformity
of taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI,
Constitution of the Philippines).

To support this contention, appellants point out to the fact that the
ordinance in question does not tax "many more kinds of
amusements" than those therein specified such as "race tracks,
cockpits, cabarets, concert halls, circuses, and other places of
amusement." The argument has absolutely no merit. The fact that
some places of amusement are not taxed while others, such a
cinematographs, theaters, vaudeville companies, theatrical shows,
and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is no argument at all against the equality and
uniformity of the tax imposition. Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class
EN BANC improvement of the streets and bridges in said city. This is precisely
what the Motor Vehicle Law (Act No. 3992) intends to prevent, for
[G.R. No. L-4376. May 22, 1953.] the reason that, under said Act, municipal corporations already
participate in the distribution of the proceeds that are raised for the
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. same purpose of repairing, maintaining and improving bridges and
MANLAPIT, INC., Petitioners-Appellants, v. THE MUNICIPAL public highways (Motor Vehicle Law, sec. 73). This prohibition is
BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE intended to prevent duplication in the imposition of fees for the same
CITY MAYOR, all of the City of Manila, Respondents-Appellees. purpose. It is for this reason that it is believed that the ordinance in
question merely imposes a license fee although under the cloak of
Teotimo A. Roja for Appellants. an ad valorem tax to circumvent the prohibition adverted to.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. 3. ID.; ID.; ID.; UNIFORMITY OF TAXATION. — The said ordinance
Serrano for Appellees. infringes also the rule of uniformity of taxation ordained by our
Constitution. It exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor
SYLLABUS vehicle for hire and one which is purely for private use. Neither does
it distinguish between a motor vehicle registered in the City of Manila
and one registered in another place but occasionally comes to
1. TAXATION; TAXES ON MOTOR VEHICLES; NO FEES OTHER Manila and uses its streets and public highways. There is no
THAN PROPERTY TAX AND THOSE PROVIDED IN ACT No. 3992 pretense that the ordinance equally applies to motor vehicles which
MAY BE EXACTED ON MOTOR VEHICLES. — Under section 70-b come to Manila for a temporary stay or for short errands, and it
of Act No. 3992 as amended, no fees may be exacted or demanded cannot be denied that they contribute in no small degree to the
for the operation of any motor vehicle other than those therein deterioration of the streets and public highways. As they are
provided, the only exception being that which refers to property tax benefited by their use they should also be made to share the
which may be imposed by a municipal corporation. This provision is corresponding burden. This is an inequality which is found in the
all-inclusive in the sense that it applies to all motor vehicles. In this ordinance in question end which renders it offensive to the
sense, this provision should be construed as limiting the broad grant Constitution.
of power conferred upon the City of Manila by its Charter to impose
taxes. When Section 18 of said Charter provides that the City of
Manila can impose a tax on motor vehicles operating within its limits, DECISION
it can only refer to property tax, as a different interpretation would
make it repugnant to the Motor Vehicle Law.
BAUTISTA ANGELO, J.:
2. ID.; CONSTITUTIONAL LAW; ORDINANCE No. 3379 OF
MANILA, INVALID; PROPERTY TAX, DISTINGUISHED FROM
EXCISE TAX OR LICENSE FEE. — While Ordinance No. 3379 of This is a petition for declaratory relief to test the validity of Ordinance
the City of Manila refers to property tax and it is fixed ad volorem yet No. 3379 passed by the Municipal Board of the City of Manila on
we can not reject the idea that it is merely levied on motor vehicles March 24, 1950.
operating within the said city with the main purpose of raising funds
to be expended exclusively for the repair, maintenance and The Association of Customs Brokers, Inc., which is composed of all
brokers and public service operators of motor vehicles in the City of vehicle by the owner thereof: Provided, however, That nothing in this
Manila, and G. Manlapit, Inc., a member of said association, also a Act shall be construed to exempt any motor vehicle from the
public service operator of trucks in said City, challenge the validity of payment of any lawful and equitable insular, local or municipal
said ordinance on the ground that (1) while it levies a so-called property tax imposed thereupon. . . .
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 Note that under the above section no fees may be exacted or
against the rule of uniformity of taxation; and (3) it constitutes double demanded for the operation of any motor vehicle other than those
taxation. therein provided, the only exception being that which refers to
property tax which may be imposed by a municipal corporation. This
The respondents, represented by the city fiscal, contend on their part provision is all-inclusive in the sense that it applies to all motor
that the challenged ordinance imposes a property tax which is within vehicles. In this sense, this provision should be construed as limiting
the power of the City of Manila to impose under its Revised Charter the broad grant of power conferred upon the City of Manila by its
[Section 18 (p) of Republic Act No. 409], and that the tax in question Charter to impose taxes. When section 18 of said Charter provides
does not violate the rule of uniformity of taxation, nor does it that the City of Manila can impose a tax on motor vehicles operating
constitute double taxation. within its limits, it can only refer to property tax as a different
interpretation would make it repugnant to the Motor Vehicle Law.
The issues having been joined, the Court of First Instance of Manila
sustained the validity of the ordinance and dismissed the petition. Coming now to the ordinance in question, we find that its title refers
Hence this appeal. to it as "An Ordinance Levying a Property Tax on All Motor Vehicles
Operating Within the City of Manila", and that in its section 1 it
The disputed ordinance was passed by the Municipal Board of the provides that the tax should be 1 per cent ad valorem per annum. It
City of Manila under the authority conferred by section 18 (p) of also provides that the proceeds of the tax "shall accrue to the Streets
Republic Act No. 409. Said section confers upon the municipal board and Bridges Funds of the City and shall be expended exclusively for
the power "to tax motor and other vehicles operating within the City the repair, maintenance and improvement of its streets and bridges."
of Manila the provisions of any existing law to the contrary Considering the wording used in the ordinance in the light of the
notwithstanding." It is contended that this power is broad enough to purpose for which the tax is created, can we consider the tax thus
confer upon the City of Manila the power to enact an ordinance imposed as property tax, as claimed by respondents?
imposing a property tax on motor vehicles operating within the city
limits. While as a rule an ad valorem tax is a property tax, and this rule is
supported by some authorities, the rule should not be taken in its
In deciding the issue before us it is necessary to bear in mind the absolute sense if the nature and purpose of the tax as gathered from
pertinent provisions of the Motor Vehicle Law, as amended, (Act No. the context show that it is in effect an excise or a license tax. Thus, it
3992) which has a bearing on the power of a municipal corporation has been held that "If a tax is in its nature an excise, it does not
to impose tax on motor vehicles operating on any highway in the become a property tax because it is proportioned in amount to the
Philippines. The pertinent provisions are contained in section 70 (b) value of the property used in connection with the occupation,
which provides in part:jgc:chanrobles.com.ph privilege or act which is taxed. Every excise necessarily must finally
fall upon and be paid by property and so may be indirectly a tax upon
"No further fees than those fixed in this Act shall be exacted or property; but if it is really imposed upon the performance of an act,
demanded by any public highway, bridge or ferry, or for the exercise enjoyment of a privilege, or the engaging in an occupation, it will be
of the profession of chauffeur, or for the operation of any motor considered an excise." (26 R. C. L., 35-36.) It has also been held that
Vehicle Law no motor vehicle can be operated without previous
"The character of a tax as a property tax or a license or occupation payment of the registration fees. There is no pretense that the
tax must be determined by its incidents, and from the natural and ordinance equally applies to motor vehicles who come to Manila for a
legal effect of the language employed in the act or ordinance, and temporary stay or for short errands, and it cannot be denied that they
not by the name by which it is described, or by the mode adopted in contribute in no small degree to the deterioration of the streets and
fixing its amount. If it is clearly a property tax, it will be so regarded, public highways. The fact that they are benefited by their use they
even though nominally and in form it is a license or occupation tax; should also be made to share the corresponding burden. And yet
and, on the other hand, if the tax is levied upon persons on account such is not the case. This is an inequality which we find in the
of their business, it will be construed as a license or occupation tax, ordinance, and which renders it offensive to the Constitution.
even though it is graduated according to the property used in such
business, or on the gross receipts of the business." (37 C. J., 172.) Wherefore, reversing the decision appealed from, we hereby declare
the ordinance null and void.
The ordinance in question falls under the foregoing rules. While it
refers to property tax and it is fixed ad valorem yet we cannot reject
the idea that it is merely levied on motor vehicles operating within the
City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the
streets and bridges in said city. This is precisely what the Motor
Vehicle Law (Act No. 3992) intends to prevent, for the reason that,
under said Act, municipal corporations already participate in the
distribution of the proceeds that are raised for the same purpose of
repairing, maintaining and improving bridges and public highways
(section 73 of the Motor Vehicle Law). This prohibition is intended to
prevent duplication in the imposition of fees for the same purpose. It
is for this reason that we believe that the ordinance in question
merely imposes a license fee although under the cloak of an ad
valorem tax to circumvent the prohibition above adverted to.

It is also our opinion that the ordinance infringes the rule of uniformity
of taxation ordained by our Constitution. Note that the ordinance
exacts the tax upon all motor vehicles operating within the City of
Manila. It does not distinguish between a motor vehicle for hire and
one which is purely for private use. Neither does it distinguish
between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and
uses its streets and public highways. The distinction is important if
we note that the ordinance intends to burden with the tax only those
registered in the City of Manila as may be inferred from the word
"operating" used therein. The word "operating" denotes a
connotation which is akin to a registration, for under the Motor
EN BANC
3. ID.; MUNICIPAL ORDINANCE IMPOSING TAX ON TIN CAN
[G.R. No. L-6093. February 24, 1954.] FACTORIES VALID AND LAWFUL. — Ordinance No. 11, series of
1948, which imposes a municipal tax of P150 on tin can factories
THE SHELL COMPANY OF P. I. LTD., Plaintiff-Appellant, v. E. E. having a maximum annual output capacity of 300,000 tin cans, is
VAÑO, as Municipal Treasurer of the municipality of Cordova, valid and lawful because it is neither a percentage tar nor one on
Province of Cebu, Defendant-Appellee. specified articles.

C. J. Johnston & A. P. Deen for Appellant. 4. ID.; ACTION FOR REFUND OF MUNICIPAL TAXES; REAL
PARTY IN INTEREST. — In an action for refund of municipal taxes
Provincial Fiscal Jose C. Borromeo and Assistant Provincial claimed to have been paid and collected under an illegal ordinance,
Fiscal Ananias V. Maribao for Appellee. the real party in interest is not the municipal treasurer but the
municipality concerned that is empowered to sue and be sued.

SYLLABUS
DECISION

1. TAXATION; MUNICIPAL COUNCILS; POWER TO IMPOSE


MUNICIPAL LICENSE TAXES. — The municipal council, in the PADILLA, J.:
exercise of its regulative authority, may require any person engaged
in any business or occupation to obtain a permit for which a
reasonable fee, in no case to exceed P10 per annum, may be The Municipal Council of Cordova, Province of Cebú, adopted the
charged, and Commonwealth Act No. 472 authorizes municipal following ordinances: No. 10, series of 1946, which imposes an
councils and municipal district councils to impose municipal license annual tax of P150 on occupation or the exercise of the privilege of
taxes upon such persons. installation manager; No. 9, series of 1947, which imposes an annual
tax of P40 for local deposits in drums of combustible and
2. ID.; INSTALLATION MANAGER NOT EXEMPT FROM TAX; inflammable materials and an annual tax of P200 for tin can
ORDINANCE IMPOSING TAX ON THE EXERCISE OF PRIVILEGE factories; and No. 11, series of 1948, which imposes an annual tax of
OF INSTALLATION MANAGER, NOT DISCRIMINATORY AND P150 on tin can factories having a maximum annual output capacity
HOSTILE. — Even if all installation manager is a salaried employee, of 30,000 tin cans. The Shell Company of P. I. Ltd., a foreign
still his employment is an occupation, and one occupation or line of corporation, filed suit for the refund of the taxes paid by it, on the
business does not become exempt by being conducted with some ground that the ordinances imposing such taxes are ultra vires. The
other occupation or business for which taxes have been paid and the defendant denies that they are so. The controversy was submitted
occupation tax must be paid by each individual engaged in a calling for judgment upon stipulation of facts which reads as
subject thereto. The mere fact that there is no other person in the follows:chanrob1es virtual 1aw library
locality who exercises the privilege of installation manager does not
make the ordinance discriminatory and hostile inasmuch as it is and Come now the parties in the above-entitled case by their
will be applicable to any person or firm who exercises such calling or undersigned attorneys and hereby agree to the following stipulation
occupation named or designated as "installation manager."cralaw of facts:chanrob1es virtual 1aw library
virtua1aw library
1. That the parties admit the allegations contained in Paragraph 1 of of the approval of the Honorable Secretary of Finance of the same
the Amended Complaint referring to residence, personality, and Ordinance is herein marked as Exhibit "4" for the defendant.
capacity of the parties except the fact that E. E. Vaño is now
replaced by F. A. Corbo as Municipal Treasurer of Córdova, Cebú; Wherefore, aside from oral evidence which may be offered by the
parties and other points not covered by this stipulation, this case is
2. That the parties admit the allegations contained in paragraph 2 of hereby submitted upon the foregoing agreed facts and record of
the Amended Complaint. Official Receipts Nos. A-1280606, A- evidence.
3760742, A-3769352 and A-21030388 are herein marked as Exhibits
A, B, C, and D, respectively, for the plaintiff; Cebu City, Philippines, January 20, 1950.

3. That the parties admit that payments made under Exhibits B, C, THE SHELL CO. OF P. I. LTD. C. D. JOHNSTON & A. P.
and D were all under protest and plaintiff admits that Exhibit A was DEEN(Sgd.) L. DE C. BLECHYNDEN(Sgd.) A. P. DEEN.
not paid under protest;
Plaintiff Attys. for the plaintiff.
4. That the parties admit that Official Receipt No. A-1280606 for P40
and Official Receipt No. A-3760742 for P200 were collected by the THE MUNICIPALITY OF CóRDOVA (Sgd.) JOSÉ C.
defendant by virtue of Ordinance No. 9, (Secs. E-4 and E-6, BORROMEO(Sgd.) F. A. CORBO Provincial Fiscal.
respectively) under Resolution No. 31, series of 1947, enacted
December 15, 1947, approved by the Provincial Board of Cebú in its Defendant Attorney for the defendant.
Resolution No. 644, series of 1948. Copy of said Ordinance No. 9,
series of 1947 is herein marked as Exhibit "E" for the plaintiff, and as (Record on Appeal, pp. 15-18.) .
Exhibit "I" for the defendant;
The parties reserved the right to introduce parole evidence but no
5. That the parties admit that Official Receipt No. A-3760852 for such evidence was submitted by either party. From the judgment
P150 was paid for taxes imposed on Installation Managers, collected holding the ordinances valid and dismissing the complaint the
by the defendant by virtue of Ordinance No. 10 (section 3, E-12) plaintiff has appealed.
under Resolution No. 38, series of 1946, approved by the Provincial
Board of Cebú in its Resolution No. 1070, series of 1946. Copy of It is contended that as the municipal ordinance imposing an annual
said Ordinance No. 10, series of 1946 is marked as Exhibit "F" for tax of P40 for "minor local deposit in drums of combustible and
the plaintiff and as Exhibit "2" for the defendant; inflammable materials," and of P200 "for tin factory" was adopted
under and pursuant to section 2244 of the Revised Administrative
6. That the parties admit that Official Receipt No. A-21030388 for Code, which provides that the municipal council in the exercise of
P5,450 was paid by plaintiff and that said amount was collected by regulative authority may require any person engaged in any business
defendant by virtue of Ordinance No. 11, series of 1948 (under or occupation, such as "storing combustible or explosive materials"
Resolution No. 46) enacted August 31, 1948 and approved by the or "the conducting of any other business of an unwholesome,
Provincial Board of Cebú in its Resolution No. 115, series of 1949, obnoxious, offensive, or dangerous character," to obtain a permit for
and same was approved by the Honorable Secretary of Finance which a reasonable fee, in no case to exceed P10 per annum, may
under the provisions of section 4 of Commonwealth Act No. 472. be charged, the annual tax of P40 and P200 are unauthorized and
Copy of said Ordinance No. 11, series of 1948 is herein marked as illegal. The permit and the fee referred to may be required and
Exhibit "G" for the plaintiff, and as Exhibit "3" for the defendant. Copy charged by the Municipal Council of Córdova in the exercise of its
regulative authority, whereas the ordinance which imposes the taxes municipal council was not empowered to adopt the ordinance and
in question was adopted under and pursuant to the provisions of not that it was not approved by the Department of Finance. The fact
Commonwealth Act No. 472, which authorizes municipal councils that it was not stated in the stipulation of facts justifies the
and municipal district councils "to impose municipal license taxes presumption that the ordinance was approved in accordance with
upon persons engaged in any occupation or business, or exercising law.
privileges in the municipality or municipal district, by requiring them
to secure licenses at rates fixed by the municipal council or municipal The contention that the ordinance is discriminatory and hostile
district council," which shall be just and uniform but not "percentage because there is no other person in the locality who exercises such
taxes and taxes on specified articles." Likewise, Ordinance No. 10, "designation" or occupation is also without merit, because the fact
series of 1946, which imposes an annual tax of P150 on "installation that there is no other person in the locality who exercises such a
manager" comes under the provisions of Commonwealth Act No. "designation" or calling does not make the ordinance discriminatory
472. But it is claimed that "installation manager" is a designation and hostile, inasmuch as it is and will be applicable to any person or
made by the plaintiff and such designation cannot be deemed to be a firm who exercises such calling or occupation named or designated
"calling" as defined in section 178 of the National Internal Revenue as "installation manager."cralaw virtua1aw library
Code (Com. Act No. 466), and that the installation manager
employed by the plaintiff is a salaried employee which may not be Lastly, Ordinance No. 11, series of 1948, which imposes a municipal
taxed by the municipal council under the provisions of tax of P150 on tin can factories having a maximum annual output
Commonwealth Act No. 472. This contention is without merit, capacity of 30,000 tin cans which, according to the stipulation of
because even if the installation manager is a salaried employee of facts, was approved by the Provincial Board of Cebú and the
the plaintiff, still it is an occupation "and one occupation or line of Department of Finance, is valid and lawful, because it is neither a
business does not become exempt by being conducted with some percentage tax nor one on specified articles which are the only
other occupation or business for which such tax has been paid’ 1 exceptions provided for in section 1, Commonwealth Act No. 472.
and the occupation tax must be paid "by each individual engaged in Neither does it fall under any of the prohibitions provided for in
a calling subject thereto." 2 And pursuant to section 179 of the section 3 of the same Act. Specific taxes enumerated in the National
National Internal Revenue Code, "The payment of . . . occupation tax Internal Revenue Code are those that are imposed upon "things
shall not exempt any person from any tax, . . . provided by law or manufactured or produced in the Philippines for domestic sale or
ordinance in places where such . . . occupation in . . . regulated by consumption" and upon "things imported from the United States and
municipal law, nor shall the payment of any such tax be held to foreign countries," such as distilled spirits, domestic denatured
prohibit any municipality from placing a tax upon the same . . alcohol, fermented liquors, products of tobacco, cigars and
.occupation, for local purposes, where the imposition of such tax is cigarettes, matches, mechanical lighters, firecrackers, skimmed milk,
authorized by law." It is true that, according to the stipulation of facts, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
Ordinance No. 10, series of 1946, was approved by the Provincial cinematographic films, playing cards, sacharine. 1 And it is not a
Board of Cebú in its Resolution No. 1070, series of 1946, and that it percentage tax because it is tax on business and the maximum
does not appear that it was approved by the Department of Finance, annual output capacity is not a percentage, because it is not a share
as provided for and required in section 4, paragraph 2, of or a tax based on the amount of the proceeds realized out of the sale
Commonwealth Act No. 472, the rate of municipal tax being in of the tin cans manufactured therein but on the business of
excess of P50 per annum. But as this point on the approval by the manufacturing tin cans having a maximum annual output capacity of
Department of Finance was not raised in the court below, it cannot 30,000 tin cans.
be raised for the first time on appeal. The issue joined by the parties
in their pleadings and the point raised by the plaintiff is that the In an action for refund of municipal taxes claimed to have been paid
and collected under an illegal ordinance, the real party in interest is Republic of the Philippines
not the municipal treasurer but the municipality concerned that is SUPREME COURT
empowered to sue and be sued. 2 Manila

The judgment appealed from is affirmed, with costs against SECOND DIVISION
the Appellant.
G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V.


BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra;
ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V.
BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF
PATERNO MILLARE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the


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

IN VIEW OF ALL THE FOREGOING, the Court


hereby declares:

That the distraint seizure and sale by the Municipal


Treasurer of Bangued, Abra, the Provincial
Treasurer of said province against the lot and
building of the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia located at
Bangued, Abra, is valid;
That since the school is not exempt from paying Bangued, Abra, offered the highest bid of P6,000.00 which was duly
taxes, it should therefore pay all back taxes in the accepted. The certificate of sale was correspondingly issued to him.
amount of P5,140.31 and back taxes and penalties
from the promulgation of this decision; On August 10, 1972, the respondent Paterno Millare (now deceased)
filed through counstel a motion to dismiss the complaint.
That the amount deposited by the plaintaff him the
sum of P60,000.00 before the trial, be confiscated to On August 23, 1972, the respondent Provincial Treasurer and
apply for the payment of the back taxes and for the Municipal Treasurer, through then Provincial Fiscal Loreto C.
redemption of the property in question, if the amount Roldan, filed their answer (Annex "2" of Answer by the respondents
is less than P6,000.00, the remainder must be Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This
returned to the Director of Pedro Borgonia, who was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-
represents the plaintiff herein; 103) on August 31, 1972.

That the deposit of the Municipal Treasurer in the On September 1, 1972 the respondent Paterno Millare filed his
amount of P6,000.00 also before the trial must be answer (Annex "5," ibid; Rollo, pp. 106-108).
returned to said Municipal Treasurer of Bangued,
Abra;
On October 12, 1972, with the aforesaid sale of the school premises
at public auction, the respondent Judge, Hon. Juan P. Aquino of the
And finally the case is hereby ordered dismissed Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid;
with costs against the plaintiff. Rollo, pp. 109-110) the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the proceeds of the auction
SO ORDERED. (Rollo, pp. 22-23) sale. Hence, on December 14, 1972, petitioner, through Director
Borgonia, deposited with the trial court the sum of P6,000.00
Petitioner, an educational corporation and institution of higher evidenced by PNB Check No. 904369.
learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer by the On April 12, 1973, the parties entered into a stipulation of facts
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, adopted and embodied by the trial court in its questioned decision.
1972 in the court a quo to annul and declare void the "Notice of Said Stipulations reads:
Seizure' and the "Notice of Sale" of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes and penalties STIPULATION OF FACTS
amounting to P5,140.31. Said "Notice of Seizure" of the college lot
and building covered by Original Certificate of Title No. Q-83 duly COME NOW the parties, assisted by counsels, and
registered in the name of petitioner, plaintiff below, on July 6, 1972, to this Honorable Court respectfully enter into the
by respondents Municipal Treasurer and Provincial Treasurer,
following agreed stipulation of facts:
defendants below, was issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to be served upon the
petitioner by the respondent treasurers on July 8, 1972 for the sale at 1. That the personal circumstances of the parties as
public auction of said college lot and building, which sale was held stated in paragraph 1 of the complaint is admitted;
on the same date. Dr. Paterno Millare, then Municipal Mayor of but the particular person of Mr. Armin M. Cariaga is
to be substituted, however, by anyone who is Aside from the Stipulation of Facts, the trial court among others,
actually holding the position of Provincial Treasurer found the following: (a) that the school is recognized by the
of the Province of Abra; government and is offering Primary, High School and College
Courses, and has a school population of more than one thousand
2. That the plaintiff Abra Valley Junior College, Inc. students all in all; (b) that it is located right in the heart of the town of
is the owner of the lot and buildings thereon located Bangued, a few meters from the plaza and about 120 meters from
in Bangued, Abra under Original Certificate of Title the Court of First Instance building; (c) that the elementary pupils are
No. 0-83; housed in a two-storey building across the street; (d) that the high
school and college students are housed in the main building; (e) that
the Director with his family is in the second floor of the main building;
3. That the defendant Gaspar V. Bosque, as
and (f) that the annual gross income of the school reaches more than
Municipal treasurer of Bangued, Abra caused to be
one hundred thousand pesos.
served upon the Abra Valley Junior College, Inc. a
Notice of Seizure on the property of said school
under Original Certificate of Title No. 0-83 for the From all the foregoing, the only issue left for the Court to determine
satisfaction of real property taxes thereon, and as agreed by the parties, is whether or not the lot and building in
amounting to P5,140.31; the Notice of Seizure being question are used exclusively for educational purposes. (Rollo, p. 20)
the one attached to the complaint as Exhibit A;
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his
4. That on June 8, 1972 the above properties of the Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the
Abra Valley Junior College, Inc. was sold at public Government on March 25, 1974, and a Supplemental Memorandum
auction for the satisfaction of the unpaid real on May 7, 1974, wherein they opined "that based on the evidence,
property taxes thereon and the same was sold to the laws applicable, court decisions and jurisprudence, the school
defendant Paterno Millare who offered the highest building and school lot used for educational purposes of the Abra
bid of P6,000.00 and a Certificate of Sale in his favor Valley College, Inc., are exempted from the payment of taxes."
was issued by the defendant Municipal Treasurer. (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

5. That all other matters not particularly and specially Nonetheless, the trial court disagreed because of the use of the
covered by this stipulation of facts will be the subject second floor by the Director of petitioner school for residential
of evidence by the parties. purposes. He thus ruled for the government and rendered the
assailed decision.
WHEREFORE, it is respectfully prayed of the
Honorable Court to consider and admit this After having been granted by the trial court ten (10) days from
stipulation of facts on the point agreed upon by the August 6, 1974 within which to perfect its appeal (Per Order dated
parties. August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead
availed of the instant petition for review on certiorari with prayer for
preliminary injunction before this Court, which petition was filed on
Bangued, Abra, April 12, 1973.
August 17, 1974 (Rollo, p.2).
S
g
In the resolution dated August 16, 1974, this Court resolved to give Petitioner contends that the primary use of the lot and building for
DUE COURSE to the petition (Rollo, p. 58). Respondents were educational purposes, and not the incidental use thereof, determines
required to answer said petition (Rollo, p. 74). and exemption from property taxes under Section 22 (3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of subject college
Petitioner raised the following assignments of error: lot and building, which are contrary thereto as well as to the provision
of Commonwealth Act No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore void.
I

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE On the other hand, private respondents maintain that the college lot
and building in question which were subjected to seizure and sale to
SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING
answer for the unpaid tax are used: (1) for the educational purposes
USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
of the college; (2) as the permanent residence of the President and
Director thereof, Mr. Pedro V. Borgonia, and his family including the
II in-laws and grandchildren; and (3) for commercial purposes because
the ground floor of the college building is being used and rented by a
THE COURT A QUO ERRED IN DECLARING THAT THE commercial establishment, the Northern Marketing Corporation (See
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT photograph attached as Annex "8" (Comment; Rollo, p. 90]).
USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY
BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM Due to its time frame, the constitutional provision which finds
OF THE COLLEGE BUILDING. application in the case at bar is Section 22, paragraph 3, Article VI,
of the then 1935 Philippine Constitution, which expressly grants
III exemption from realty taxes for "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands,
THE COURT A QUO ERRED IN DECLARING THAT THE buildings, and improvements used exclusively for religious,
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT charitable or educational purposes ...
EXEMPT FROM PROPERTY TAXES AND IN ORDERING
PETITIONER TO PAY P5,140.31 AS REALTY TAXES. Relative thereto, Section 54, paragraph c, Commonwealth Act No.
470 as amended by Republic Act No. 409, otherwise known as the
IV Assessment Law, provides:

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION The following are exempted from real property tax
OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY under the Assessment Law:
PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES.
(See Brief for the Petitioner, pp. 1-2) xxx xxx xxx

The main issue in this case is the proper interpretation of the phrase (c) churches and parsonages or convents
"used exclusively for educational purposes." appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious,
charitable, scientific or educational purposes.
xxx xxx xxx school for training nurses, a nurses' home, property
use to provide housing facilities for interns, resident
In this regard petitioner argues that the primary use of the school lot doctors, superintendents, and other members of the
and building is the basic and controlling guide, norm and standard to hospital staff, and recreational facilities for student
determine tax exemption, and not the mere incidental use thereof. nurses, interns, and residents' (84 CJS 6621), such
as "Athletic fields" including "a firm used for the
As early as 1916 in YMCA of Manila vs. Collector of lnternal inmates of the institution. (Cooley on Taxation, Vol.
Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be 2, p. 1430).
true that the YMCA keeps a lodging and a boarding house and
maintains a restaurant for its members, still these do not constitute The test of exemption from taxation is the use of the property for
business in the ordinary acceptance of the word, but an institution purposes mentioned in the Constitution (Apostolic Prefect v. City
used exclusively for religious, charitable and educational purposes, Treasurer of Baguio, 71 Phil, 547 [1941]).
and as such, it is entitled to be exempted from taxation.
It must be stressed however, that while this Court allows a more
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos liberal and non-restrictive interpretation of the phrase "exclusively
Norte, 51 Phil. 352 [1972], this Court included in the exemption a used for educational purposes" as provided for in Article VI, Section
vegetable garden in an adjacent lot and another lot formerly used as 22, paragraph 3 of the 1935 Philippine Constitution, reasonable
a cemetery. It was clarified that the term "used exclusively" considers emphasis has always been made that exemption extends to facilities
incidental use also. Thus, the exemption from payment of land tax in which are incidental to and reasonably necessary for the
favor of the convent includes, not only the land actually occupied by accomplishment of the main purposes. Otherwise stated, the use of
the building but also the adjacent garden devoted to the incidental the school building or lot for commercial purposes is neither
use of the parish priest. The lot which is not used for commercial contemplated by law, nor by jurisprudence. Thus, while the use of
purposes but serves solely as a sort of lodging place, also qualifies the second floor of the main building in the case at bar for residential
for exemption because this constitutes incidental use in religious purposes of the Director and his family, may find justification under
functions. the concept of incidental use, which is complimentary to the main or
primary purpose—educational, the lease of the first floor thereof to
the Northern Marketing Corporation cannot by any stretch of the
The phrase "exclusively used for educational purposes" was further
clarified by this Court in the cases of Herrera vs. Quezon City Board imagination be considered incidental to the purpose of education.
of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 It will be noted however that the aforementioned lease appears to
[1965], thus — have been raised for the first time in this Court. That the matter was
not taken up in the to court is really apparent in the decision of
respondent Judge. No mention thereof was made in the stipulation of
Moreover, the exemption in favor of property used
exclusively for charitable or educational purposes is facts, not even in the description of the school building by the trial
'not limited to property actually indispensable' judge, both embodied in the decision nor as one of the issues to
resolve in order to determine whether or not said properly may be
therefor (Cooley on Taxation, Vol. 2, p. 1430), but
exempted from payment of real estate taxes (Rollo, pp. 17-23). On
extends to facilities which are incidental to and
the other hand, it is noteworthy that such fact was not disputed even
reasonably necessary for the accomplishment of
after it was raised in this Court.
said purposes, such as in the case of hospitals, "a
Indeed, it is axiomatic that facts not raised in the lower court cannot EN BANC
be taken up for the first time on appeal. Nonetheless, as an
exception to the rule, this Court has held that although a factual
issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual [G.R. No. 144104. June 29, 2004]
matter. "The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision." (Perez vs.
Court of Appeals, 127 SCRA 645 [1984]). LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON
CITY and CONSTANTINO P. ROSAS, in his capacity as
Under the 1935 Constitution, the trial court correctly arrived at the City Assessor of Quezon City, respondents.
conclusion that the school building as well as the lot where it is built,
should be taxed, not because the second floor of the same is being DECISION
used by the Director and his family for residential purposes, but
because the first floor thereof is being used for commercial CALLEJO, SR., J.:
purposes. However, since only a portion is used for purposes of
commerce, it is only fair that half of the assessed tax be returned to This is a petition for review on certiorari under Rule 45 of the
the school involved. Rules of Court, as amended, of the Decision[1] dated July 17, 2000 of
the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
PREMISES CONSIDERED, the decision of the Court of First decision of the Central Board of Assessment Appeals holding that the
Instance of Abra, Branch I, is hereby AFFIRMED subject to the lot owned by the petitioner and its hospital building constructed
modification that half of the assessed tax be returned to the thereon are subject to assessment for purposes of real property tax.
petitioner.

SO ORDERED. The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and


non-profit entity established on January 16, 1981 by virtue of
Presidential Decree No. 1823.[2] It is the registered owner of a parcel
of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-
000495, located at Quezon Avenue corner Elliptical Road, Central
District, Quezon City. The lot has an area of 121,463 square meters
and is covered by Transfer Certificate of Title (TCT) No. 261320 of the
Registry of Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to medical or
professional practitioners who use the same as their private clinics for
their patients whom they charge for their professional services. Almost Undaunted, the petitioner filed its petition in this Court contending
one-half of the entire area on the left side of the building along Quezon that:
Avenue is vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased for A. THE COURT A QUO ERRED IN DECLARING
commercial purposes to a private enterprise known as the Elliptical PETITIONER AS NOT ENTITLED TO REALTY TAX
Orchids and Garden Center. EXEMPTIONS ON THE GROUND THAT ITS LAND,
BUILDING AND IMPROVEMENTS, SUBJECT OF
The petitioner accepts paying and non-paying patients. It also ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
renders medical services to out-patients, both paying and non- EXCLUSIVELY DEVOTED FOR CHARITABLE
paying. Aside from its income from paying patients, the petitioner PURPOSES.
receives annual subsidies from the government.
B. WHILE PETITIONER IS NOT DECLARED AS REAL
On June 7, 1993, both the land and the hospital building of the PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD
petitioner were assessed for real property taxes in the amount 1823, SAID EXEMPTION MAY NEVERTHELESS BE
of P4,554,860 by the City Assessor of Quezon City.[3] Accordingly, EXTENDED UPON PROPER APPLICATION.
Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-
2518-A) were issued for the land and the hospital building, The petitioner avers that it is a charitable institution within the
respectively.[4] On August 25, 1993, the petitioner filed a Claim for context of Section 28(3), Article VI of the 1987 Constitution. It asserts
Exemption[5] from real property taxes with the City Assessor, that its character as a charitable institution is not altered by the fact
predicated on its claim that it is a charitable institution. The petitioners that it admits paying patients and renders medical services to them,
request was denied, and a petition was, thereafter, filed before the leases portions of the land to private parties, and rents out portions of
Local Board of Assessment Appeals of Quezon City (QC-LBAA, for the hospital to private medical practitioners from which it derives
brevity) for the reversal of the resolution of the City Assessor. The income to be used for operational expenses. The petitioner points out
petitioner alleged that under Section 28, paragraph 3 of the 1987 that for the years 1995 to 1999, 100% of its out-patients were charity
Constitution, the property is exempt from real property taxes. It patients and of the hospitals 282-bed capacity, 60% thereof, or 170
averred that a minimum of 60% of its hospital beds are exclusively beds, is allotted to charity patients. It asserts that the fact that it
used for charity patients and that the major thrust of its hospital receives subsidies from the government attests to its character as a
operation is to serve charity patients. The petitioner contends that it is charitable institution. It contends that the exclusivity required in the
a charitable institution and, as such, is exempt from real property Constitution does not necessarily mean solely. Hence, even if a
taxes. The QC-LBAA rendered judgment dismissing the petition and portion of its real estate is leased out to private individuals from whom
holding the petitioner liable for real property taxes.[6] it derives income, it does not lose its character as a charitable
institution, and its exemption from the payment of real estate taxes on
The QC-LBAAs decision was, likewise, affirmed on appeal by the its real property. The petitioner cited our ruling in Herrera v. QC-
Central Board of Assessment Appeals of Quezon City (CBAA, for BAA[9] to bolster its pose. The petitioner further contends that even if
brevity)[7] which ruled that the petitioner was not a charitable institution P.D. No. 1823 does not exempt it from the payment of real estate
and that its real properties were not actually, directly and exclusively taxes, it is not precluded from seeking tax exemption under the 1987
used for charitable purposes; hence, it was not entitled to real property Constitution.
tax exemption under the constitution and the law. The petitioner
sought relief from the Court of Appeals, which rendered judgment In their comment on the petition, the respondents aver that the
affirming the decision of the CBAA.[8] petitioner is not a charitable entity. The petitioners real property is not
exempt from the payment of real estate taxes under P.D. No. 1823
and even under the 1987 Constitution because it failed to prove that it
is a charitable institution and that the said property is actually, directly The Issues
and exclusively used for charitable purposes. The respondents noted
that in a newspaper report, it appears that graft charges were filed with
the Sandiganbayan against the director of the petitioner, its The issues for resolution are the following: (a) whether the
administrative officer, and Zenaida Rivera, the proprietress of the petitioner is a charitable institution within the context of Presidential
Elliptical Orchids and Garden Center, for entering into a lease contract Decree No. 1823 and the 1973 and 1987 Constitutions and Section
over 7,663.13 square meters of the property in 1990 for only P20,000 234(b) of Republic Act No. 7160; and (b) whether the real properties
a month, when the monthly rental should be P357,000 a month as of the petitioner are exempt from real property taxes.
determined by the Commission on Audit; and that instead of
complying with the directive of the COA for the cancellation of the
contract for being grossly prejudicial to the government, the petitioner The Courts Ruling
renewed the same on March 13, 1995 for a monthly rental of
only P24,000. They assert that the petitioner uses the subsidies
granted by the government for charity patients and uses the rest of its The petition is partially granted.
income from the property for the benefit of paying patients, among
other purposes. They aver that the petitioner failed to adduce On the first issue, we hold that the petitioner is a charitable
substantial evidence that 100% of its out-patients and 170 beds in the institution within the context of the 1973 and 1987 Constitutions. To
hospital are reserved for indigent patients. The respondents further determine whether an enterprise is a charitable institution/entity or not,
assert, thus: the elements which should be considered include the statute creating
the enterprise, its corporate purposes, its constitution and by-laws, the
13. That the claims/allegations of the Petitioner LCP do not speak methods of administration, the nature of the actual work performed,
well of its record of service. That before a patient is admitted for the character of the services rendered, the indefiniteness of the
treatment in the Center, first impression is that it is pay-patient and beneficiaries, and the use and occupation of the properties.[11]
required to pay a certain amount as deposit. That even if a patient is In the legal sense, a charity may be fully defined as a gift, to be
living below the poverty line, he is charged with high hospital applied consistently with existing laws, for the benefit of an indefinite
bills. And, without these bills being first settled, the poor patient number of persons, either by bringing their minds and hearts under
cannot be allowed to leave the hospital or be discharged without first the influence of education or religion, by assisting them to establish
paying the hospital bills or issue a promissory note guaranteed and themselves in life or otherwise lessening the burden of
indorsed by an influential agency or person known only to the government.[12] It may be applied to almost anything that tend to
Center; that even the remains of deceased poor patients suffered the promote the well-doing and well-being of social man. It embraces the
same fate. Moreover, before a patient is admitted for treatment as improvement and promotion of the happiness of man.[13] The word
free or charity patient, one must undergo a series of interviews and charitable is not restricted to relief of the poor or sick.[14] The test of a
must submit all the requirements needed by the Center, usually charity and a charitable organization are in law the same. The test
accompanied by endorsement by an influential agency or person whether an enterprise is charitable or not is whether it exists to carry
known only to the Center. These facts were heard and admitted by out a purpose reorganized in law as charitable or whether it is
the Petitioner LCP during the hearings before the Honorable QC- maintained for gain, profit, or private advantage.
BAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they prefer to Under P.D. No. 1823, the petitioner is a non-profit and non-stock
be treated at the Quezon Institute. Can such practice by the Center corporation which, subject to the provisions of the decree, is to be
be called charitable?[10] administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was 1. To construct, establish, equip, maintain, administer and conduct
organized for the welfare and benefit of the Filipino people principally an integrated medical institution which shall specialize in the
to help combat the high incidence of lung and pulmonary diseases in treatment, care, rehabilitation and/or relief of lung and allied diseases
the Philippines. The raison detre for the creation of the petitioner is in line with the concern of the government to assist and provide
stated in the decree, viz: material and financial support in the establishment and maintenance
of a lung center primarily to benefit the people of the Philippines and
Whereas, for decades, respiratory diseases have been a priority in pursuance of the policy of the State to secure the well-being of the
concern, having been the leading cause of illness and death in the people by providing them specialized health and medical services
Philippines, comprising more than 45% of the total annual deaths and by minimizing the incidence of lung diseases in the country and
from all causes, thus, exacting a tremendous toll on human elsewhere.
resources, which ailments are likely to increase and degenerate into
serious lung diseases on account of unabated pollution, 2. To promote the noble undertaking of scientific research related to
industrialization and unchecked cigarette smoking in the country; the prevention of lung or pulmonary ailments and the care of lung
patients, including the holding of a series of relevant congresses,
Whereas, the more common lung diseases are, to a great extent, conventions, seminars and conferences;
preventable, and curable with early and adequate medical care,
immunization and through prompt and intensive prevention and 3. To stimulate and, whenever possible, underwrite scientific
health education programs; researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lung or pulmonary diseases
Whereas, there is an urgent need to consolidate and reinforce and their control; and to collect and publish the findings of such
existing programs, strategies and efforts at preventing, treating and research for public consumption;
rehabilitating people affected by lung diseases, and to undertake
research and training on the cure and prevention of lung diseases, 4. To facilitate the dissemination of ideas and public acceptance of
through a Lung Center which will house and nurture the above and information on lung consciousness or awareness, and the
related activities and provide tertiary-level care for more difficult and development of fact-finding, information and reporting facilities for
problematical cases; and in aid of the general purposes or objects aforesaid, especially in
human lung requirements, general health and physical fitness, and
Whereas, to achieve this purpose, the Government intends to other relevant or related fields;
provide material and financial support towards the establishment and
maintenance of a Lung Center for the welfare and benefit of the 5. To encourage the training of physicians, nurses, health officers,
Filipino people.[15] social workers and medical and technical personnel in the practical
and scientific implementation of services to lung patients;
The purposes for which the petitioner was created are spelled out
in its Articles of Incorporation, thus: 6. To assist universities and research institutions in their studies
about lung diseases, to encourage advanced training in matters of
SECOND: That the purposes for which such corporation is formed the lung and related fields and to support educational programs of
are as follows: value to general health;
7. To encourage the formation of other organizations on the national, every other act and thing incidental thereto or connected
provincial and/or city and local levels; and to coordinate their various therewith.[16]
efforts and activities for the purpose of achieving a more effective
programmatic approach on the common problems relative to the Hence, the medical services of the petitioner are to be rendered
objectives enumerated herein; to the public in general in any and all walks of life including those who
are poor and the needy without discrimination. After all, any person,
8. To seek and obtain assistance in any form from both international the rich as well as the poor, may fall sick or be injured or wounded and
and local foundations and organizations; and to administer grants become a subject of charity.[17]
and funds that may be given to the organization;
As a general principle, a charitable institution does not lose its
character as such and its exemption from taxes simply because it
9. To extend, whenever possible and expedient, medical services to derives income from paying patients, whether out-patient, or confined
the public and, in general, to promote and protect the health of the in the hospital, or receives subsidies from the government, so long as
masses of our people, which has long been recognized as an the money received is devoted or used altogether to the charitable
economic asset and a social blessing; object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the
10. To help prevent, relieve and alleviate the lung or pulmonary institution.[18] In Congregational Sunday School, etc. v. Board of
afflictions and maladies of the people in any and all walks of life, Review,[19] the State Supreme Court of Illinois held, thus:
including those who are poor and needy, all without regard to or
discrimination, because of race, creed, color or political belief of the [A]n institution does not lose its charitable character, and consequent
persons helped; and to enable them to obtain treatment when such exemption from taxation, by reason of the fact that those recipients
disorders occur; of its benefits who are able to pay are required to do so, where no
profit is made by the institution and the amounts so received are
11. To participate, as circumstances may warrant, in any activity applied in furthering its charitable purposes, and those benefits are
designed and carried on to promote the general health of the refused to none on account of inability to pay therefor. The
community; fundamental ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the public by
12. To acquire and/or borrow funds and to own all funds or them, and a consequent relief, to some extent, of the burden upon
equipment, educational materials and supplies by purchase, the state to care for and advance the interests of its citizens.[20]
donation, or otherwise and to dispose of and distribute the same in
such manner, and, on such basis as the Center shall, from time to As aptly stated by the State Supreme Court of South Dakota
time, deem proper and best, under the particular circumstances, to in Lutheran Hospital Association of South Dakota v. Baker:[21]
serve its general and non-profit purposes and objectives;
[T]he fact that paying patients are taken, the profits derived from
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, attendance upon these patients being exclusively devoted to the
transfer and dispose of properties, whether real or personal, for maintenance of the charity, seems rather to enhance the usefulness
purposes herein mentioned; and of the institution to the poor; for it is a matter of common observation
amongst those who have gone about at all amongst the suffering
14. To do everything necessary, proper, advisable or convenient for classes, that the deserving poor can with difficulty be persuaded to
the accomplishment of any of the powers herein set forth and to do enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being Even as we find that the petitioner is a charitable institution, we
placed in an institution in which paying patients are also hold, anent the second issue, that those portions of its real property
received. The fact of receiving money from some of the patients that are leased to private entities are not exempt from real property
does not, we think, at all impair the character of the charity, so long taxes as these are not actually, directly and exclusively used for
as the money thus received is devoted altogether to the charitable charitable purposes.
object which the institution is intended to further.[22]
The settled rule in this jurisdiction is that laws granting exemption
from tax are construed strictissimi juris against the taxpayer and
The money received by the petitioner becomes a part of the trust liberally in favor of the taxing power. Taxation is the rule and
fund and must be devoted to public trust purposes and cannot be exemption is the exception. The effect of an exemption is equivalent
diverted to private profit or benefit.[23] to an appropriation. Hence, a claim for exemption from tax payments
Under P.D. No. 1823, the petitioner is entitled to receive must be clearly shown and based on language in the law too plain to
donations. The petitioner does not lose its character as a charitable be mistaken.[26] As held in Salvation Army v. Hoehn:[27]
institution simply because the gift or donation is in the form of
subsidies granted by the government. As held by the State Supreme An intention on the part of the legislature to grant an exemption from
Court of Utah in Yorgason v. County Board of Equalization of Salt the taxing power of the state will never be implied from language
Lake County:[24] which will admit of any other reasonable construction. Such an
intention must be expressed in clear and unmistakable terms, or
Second, the government subsidy payments are provided to the must appear by necessary implication from the language used, for it
project. Thus, those payments are like a gift or donation of any other is a well settled principle that, when a special privilege or exemption
kind except they come from the government. In both Intermountain is claimed under a statute, charter or act of incorporation, it is to be
Health Care and the present case, the crux is the presence or construed strictly against the property owner and in favor of the
absence of material reciprocity. It is entirely irrelevant to this analysis public. This principle applies with peculiar force to a claim of
that the government, rather than a private benefactor, chose to make exemption from taxation . [28]
up the deficit resulting from the exchange between St. Marks Tower
and the tenants by making a contribution to the landlord, just as it Section 2 of Presidential Decree No. 1823, relied upon by the
would have been irrelevant in Intermountain Health Care if the petitioner, specifically provides that the petitioner shall enjoy the tax
patients income supplements had come from private individuals exemptions and privileges:
rather than the government.
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit,
Therefore, the fact that subsidization of part of the cost of furnishing non-stock corporation organized primarily to help combat the high
such housing is by the government rather than private charitable incidence of lung and pulmonary diseases in the Philippines, all
contributions does not dictate the denial of a charitable exemption if donations, contributions, endowments and equipment and supplies
the facts otherwise support such an exemption, as they do here.[25] to be imported by authorized entities or persons and by the Board of
Trustees of the Lung Center of the Philippines, Inc., for the actual
In this case, the petitioner adduced substantial evidence that it use and benefit of the Lung Center, shall be exempt from income
spent its income, including the subsidies from the government for and gift taxes, the same further deductible in full for the purpose of
1991 and 1992 for its patients and for the operation of the hospital. It determining the maximum deductible amount under Section 30,
even incurred a net loss in 1991 and 1992 from its operations. paragraph (h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the Section 28(3), Article VI of the 1987 Philippine Constitution
payment of taxes, charges and fees imposed by the Government or provides, thus:
any political subdivision or instrumentality thereof with respect to
equipment purchases made by, or for the Lung Center.[29] (3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
It is plain as day that under the decree, the petitioner does not buildings, and improvements, actually, directly and exclusively used
enjoy any property tax exemption privileges for its real properties as for religious, charitable or educational purposes shall be exempt from
well as the building constructed thereon. If the intentions were taxation.[32]
otherwise, the same should have been among the enumeration of tax
exempt privileges under Section 2: The tax exemption under this constitutional provision
covers property taxes only.[33] As Chief Justice Hilario G. Davide, Jr.,
It is a settled rule of statutory construction that the express mention then a member of the 1986 Constitutional Commission, explained: . .
of one person, thing, or consequence implies the exclusion of all . what is exempted is not the institution itself . . .; those exempted from
others. The rule is expressed in the familiar maxim, expressio unius real estate taxes are lands, buildings and improvements actually,
est exclusio alterius. directly and exclusively used for religious, charitable or educational
purposes.[34]
The rule of expressio unius est exclusio alterius is formulated in a Consequently, the constitutional provision is implemented by
number of ways. One variation of the rule is principle that what is Section 234(b) of Republic Act No. 7160 (otherwise known as the
expressed puts an end to that which is implied. Expressium facit Local Government Code of 1991) as follows:
cessare tacitum. Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by interpretation or
construction, be extended to other matters. SECTION 234. Exemptions from Real Property Tax. The following
are exempted from payment of the real property tax:
...
...
The rule of expressio unius est exclusio alterius and its variations are
canons of restrictive interpretation. They are based on the rules of (b) Charitable institutions, churches, parsonages or convents
logic and the natural workings of the human mind. They are appurtenant thereto, mosques, non-profit or religious cemeteries and
predicated upon ones own voluntary act and not upon that of all lands, buildings, and improvements actually, directly,
others. They proceed from the premise that the legislature would not and exclusively used for religious, charitable or educational
have made specified enumeration in a statute had the intention been purposes.[35]
not to restrict its meaning and confine its terms to those expressly
mentioned.[30] We note that under the 1935 Constitution, ... all lands, buildings,
and improvements used exclusively for charitable purposes shall be
The exemption must not be so enlarged by construction since the exempt from taxation.[36] However, under the 1973 and the present
reasonable presumption is that the State has granted in express terms Constitutions, for lands, buildings, and improvements of the charitable
all it intended to grant at all, and that unless the privilege is limited to institution to be considered exempt, the same should not only be
the very terms of the statute the favor would be intended beyond what exclusively used for charitable purposes; it is required that such
was meant.[31] property be used actually and directly for such purposes.[37]
In light of the foregoing substantial changes in the Constitution, the real property that is determinative of whether the property is used
the petitioner cannot rely on our ruling in Herrera v. Quezon City Board for tax-exempt purposes.[44]
of Assessment Appeals which was promulgated on September 30,
1961before the 1973 and 1987 Constitutions took effect.[38] As this The petitioner failed to discharge its burden to prove that the
Court held in Province of Abra v. Hernando:[39] entirety of its real property is actually, directly and exclusively used for
charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to
Under the 1935 Constitution: Cemeteries, churches, and parsonages them, whether paying or non-paying, other portions thereof are being
or convents appurtenant thereto, and all lands, buildings, and leased to private individuals for their clinics and a canteen. Further, a
improvements used exclusively for religious, charitable, or portion of the land is being leased to a private individual for her
educational purposes shall be exempt from taxation. The present business enterprise under the business name Elliptical Orchids
Constitution added charitable institutions, mosques, and non-profit and Garden Center. Indeed, the petitioners evidence shows that it
cemeteries and required that for the exemption of lands, buildings, collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for
and improvements, they should not only be exclusively but also 1992 from the said lessees.
actually and directly used for religious or charitable purposes. The
Constitution is worded differently. The change should not be Accordingly, we hold that the portions of the land leased to private
ignored. It must be duly taken into consideration. Reliance on past entities as well as those parts of the hospital leased to private
decisions would have sufficed were the words actually as well as individuals are not exempt from such taxes.[45] On the other hand, the
directly not added. There must be proof therefore of portions of the land occupied by the hospital and portions of the
the actual and direct use of the lands, buildings, and improvements hospital used for its patients, whether paying or non-paying, are
for religious or charitable purposes to be exempt from taxation. exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160
GRANTED. The respondent Quezon City Assessor is hereby
in order to be entitled to the exemption, the petitioner is burdened to
DIRECTED to determine, after due hearing, the precise portions of the
prove, by clear and unequivocal proof, that (a) it is a charitable
land and the area thereof which are leased to private persons, and to
institution; and (b) its real properties
compute the real property taxes due thereon as provided for by law.
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. Exclusive is defined as possessed and enjoyed to the SO ORDERED.
exclusion of others; debarred from participation or enjoyment; and
exclusively is defined, in a manner to exclude; as enjoying a privilege
exclusively.[40] If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is
subject to taxation.[41] The words dominant use or principal use cannot
be substituted for the words used exclusively without doing violence
to the Constitutions and the law.[42] Solely is synonymous with
exclusively.[43]
What is meant by actual, direct and exclusive use of the property
for charitable purposes is the direct and immediate and actual
application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from
FIRST DIVISION Marcos� x x x� relating to and concerning the properties and assets
of� Ferdinand Marcos located in the Philippines and/or abroad --
including the so-called Marcos gold hoard�; and (2) to �[c]ompel
respondent[s] to make public all negotiations and agreement, be they
[G.R. No. 130716.� December 9, 1998] ongoing or perfected, and all documents related to or relating to such
negotiations and agreement between the PCGG and the Marcos
heirs.�[1]

FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL


COMMISSION ON GOOD GOVERNMENT (PCGG) and The Facts
MAGTANGGOL GUNIGUNDO, (in his capacity as
chairman of the PCGG), respondents. GLORIA A.
JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, Petitioner Francisco I. Chavez, as �taxpayer, citizen and former
and TERESA A. JOPSON, petitioners-in-intervention. government official who initiated the prosecution of the Marcoses and
their cronies who committed unmitigated plunder of the public treasury
DECISION and the systematic subjugation of the country�s economy,� alleges
that what impelled him to bring this action were several news
PANGANIBAN, J:
reports[2] bannered in a number of broadsheets sometime in
September 1997.� These news items referred to (1) the alleged
Petitioner asks this Court to define the nature and the extent of discovery of billions of dollars of Marcos assets deposited in various
the people�s constitutional right to information on matters of public coded accounts in Swiss banks; and (2) the reported execution of a
concern.� Does this right include access to the terms of government compromise, between the government (through PCGG) and the
negotiations prior to their consummation or conclusion?� May the Marcos heirs, on how to split or share these assets.
government, through the Presidential Commission on Good
Government (PCGG), be required to reveal the proposed terms of a Petitioner, invoking his constitutional right to information[3] and
compromise agreement with the Marcos heirs as regards their alleged the correlative duty of the state to disclose publicly all its transactions
ill-gotten wealth?� More specifically, are the �General Agreement� involving the national interest,[4] demands that respondents make
and �Supplemental Agreement,� both dated December 28, 1993 public any and all negotiations and agreements pertaining to
and executed between the PCGG and the Marcos heirs, valid and PCGG�s task of recovering the Marcoses� ill-gotten wealth.� He
binding? claims that any compromise on the alleged billions of ill-gotten wealth
involves an issue of �paramount public interest,� since it has a
�debilitating effect on the country�s economy� that would be
greatly prejudicial to the national interest of the Filipino
The Case people.� Hence, the people in general have a right to know the
transactions or deals being contrived and effected by the government.
These are the main questions raised in this original action Respondents, on the other hand, do not deny forging a
seeking (1) to prohibit and �[e]njoin respondents [PCGG and its compromise agreement with the Marcos heirs.� They claim, though,
chairman] from privately entering into, perfecting and/or executing any that petitioner�s action is premature, because there is no showing
agreement with the heirs of the late President Ferdinand E. that he has asked the PCGG to disclose the negotiations and the
Agreements.� And even if he has, PCGG may not yet be compelled The Republic of the Philippines, through the Presidential
to make any disclosure, since the proposed terms and conditions of Commission on Good Government (PCGG), a
the Agreements have not become effective and binding. governmental agency vested with authority defined under
Executive Orders Nos. 1, 2 and 14, with offices at the
Respondents further aver that the Marcos heirs have submitted Philcomcen Building, Pasig, Metro Manila, represented by
the subject Agreements to the Sandiganbayan for its approval in Civil its Chairman referred to as the FIRST PARTY,
Case No. 141, entitled Republic v. Heirs of Ferdinand E. Marcos, and
that the Republic opposed such move on the principal grounds that (1)
said Agreements have not been ratified by or even submitted to the --� and� --
President for approval, pursuant to Item No. 8 of the General
Agreement; and (2) the Marcos heirs have failed to comply with their Estate of Ferdinand E. Marcos, represented by Imelda
undertakings therein, particularly the collation and submission of an Romualdez Marcos and Ferdinand R. Marcos, Jr., all of
inventory of their assets.� The Republic also cited an April 11, 1995 legal age, and with address at c/o No. 154 Lopez Rizal St.,
Resolution in Civil Case No. 0165, in which the Sandiganbayan Mandaluyong, Metro Manila, and Imelda Romualdez
dismissed a similar petition filed by the Marcoses� attorney-in-fact. Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr.,
and Irene Marcos Araneta, hereinafter collectively referred
Furthermore, then President Fidel V. Ramos, in his May 4, 1998 to as the PRIVATE PARTY.
Memorandum[5] to then PCGG Chairman Magtanggol Gunigundo,
categorically stated: W I T N E S S E T H:

�This is to reiterate my previous position embodied in the Palace WHEREAS, the PRIVATE PARTY has been impelled by their sense
Press Release of 6 April 1995 that I have not authorized you to of nationalism and love of country and of the entire Filipino people,
approve the Compromise Agreements of December 28, 1993 or any and their desire to set up a foundation and finance impact projects
agreement at all with the Marcoses, and would have disapproved like installation of power plants in selected rural areas and initiation
them had they been submitted to me. of other community projects for the empowerment of the people;

�The Full Powers of Attorney of March 1994 and July 4, 1994, did WHEREAS, the FIRST PARTY has obtained a judgment from the
not authorize you to approve said Agreements, which I reserve for Swiss Federal Tribunal of December 21, 1990, that the $356 million
myself as President of the Republic of the Philippines.� belongs in principle to the Republic of the Philippines provided
certain conditionalities are met, but even after 7 years, the FIRST
The assailed principal Agreement[6] reads: PARTY has not been able to procure a final judgment of conviction
against the PRIVATE PARTY;
�GENERAL AGREEMENT
WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn
KNOW ALL MEN BY THESE PRESENTS: out litigation which, as proven by the past 7 years, is consuming
money, time and effort, and is counter-productive and ties up assets
which the FIRST PARTY could otherwise utilize for its
This Agreement entered into this 28th day of December, 1993, by Comprehensive Agrarian Reform Program, and other urgent needs;
and between -
WHEREAS, His Excellency, President Fidel V. Ramos, has adopted PRIVATE PARTY in favor of the FIRST PARTY.� For
a policy of unity and reconciliation in order to bind the nation�s this purpose, the parties shall cooperate in taking the
wounds and start the process of rebuilding this nation as it goes on appropriate action, judicial and/or extrajudicial, to
to the twenty-first century; recover the same for the FIRST PARTY.
4.� All disclosures of assets made by the PRIVATE PARTY
WHEREAS, this Agreement settles all claims and counterclaims
shall not be used as evidence by the FIRST PARTY in
which the parties may have against one another, whether past,
any criminal, civil, tax or administrative case, but shall be
present, or future, matured or inchoate.
valid and binding against said PARTY for use by the
FIRST PARTY in withdrawing any account and/or
NOW, THEREFORE, for and in consideration of the mutual recovering any asset.� The PRIVATE PARTY
covenants set forth herein, the parties agree as follows: withdraws any objection to the withdrawal by and/or
release to the FIRST PARTY by the Swiss banks and/or
1.� The parties will collate all assets presumed to be owned Swiss authorities of the $356 million, its accrued
by, or held by other parties for the benefit of, the interests, and/or any other account; over which the
PRIVATE PARTY for purposes of determining the totality PRIVATE PARTY waives any right, interest or
of the assets covered by the settlement.� The subject participation in favor of the FIRST PARTY.� However,
assets shall be classified by the nature thereof, any withdrawal or release of any account
namely:� (a) real estate; (b) jewelry; (c) paintings and aforementioned by the FIRST PARTY shall be made in
other works of art; (d) securities; (e) funds on deposit; (f) the presence of any authorized representative of the
precious metals, if any, and (g) miscellaneous assets or PRIVATE PARTY.
assets which could not appropriately fall under any of the
preceding classification.� The list shall be based on the 5.� The trustees, custodians, safekeepers, depositaries,
full disclosure of the PRIVATE PARTY to insure its agents, nominees, administrators, lawyers, or any other
accuracy. party acting in similar capacity in behalf of the PRIVATE
PARTY are hereby informed through this General
2.� Based on the inventory, the FIRST PARTY shall Agreement to insure that it is fully implemented and this
determine which shall be ceded to the FIRST PARTY, shall serve as absolute authority from both parties for full
and which shall be assigned to/retained by the PRIVATE disclosure to the FIRST PARTY of said assets and for
PARTY.� The assets of the PRIVATE PARTY shall be the FIRST PARTY to withdraw said account and/or
net of, and exempt from, any form of taxes due the assets and any other assets which the FIRST PARTY on
Republic of the Philippines.� However, considering the its own or through the help of the PRIVATE PARTY/their
unavailability of all pertinent and relevant documents and trustees, etc., may discover.
information as to balances and ownership, the actual
6.� Any asset which may be discovered in the future as
specification of assets to be retained by the PRIVATE
belonging to the PRIVATE PARTY or is being held by
PARTY shall be covered by supplemental agreements
another for the benefit of the PRIVATE PARTY and
which shall form part of this Agreement.
which is not included in the list per No. 1 for whatever
3.� Foreign assets which the PRIVATE PARTY shall fully reason shall automatically belong to the FIRST PARTY,
disclose but which are held by trustees, nominees, and the PRIVATE PARTY in accordance with No. 4
agents or foundations are hereby waived over by the above, waives any right thereto.
7.� This Agreement shall be binding on, and inure to the ESTATE OF FERDINAND E.
benefit of, the parties and their respective legal MARCOS, IMELDA R. MARCOS,
representatives, successors and assigns and shall MA. IMELDA MARCOS-MANOTOC,
supersede any other prior agreement. FERDINAND R. MARCOS, JR., &
IRENE MARCOS-ARANETA
8.� The PARTIES shall submit this and any other
implementing Agreements to the President of the
By:
Philippines for approval.� In the same manner, the
PRIVATE PARTY shall provide the FIRST PARTY
assistance by way of testimony or deposition on any [Sgd.]IMELDA ROMUALDEZ-
information it may have that could shed light on the cases MARCOS
being pursued by the FIRST PARTY against other
parties.� The FIRST PARTY shall desist from instituting [Sgd.] MA. IMELDA MARCOS-
new suits already subject of this Agreement against the MANOTOC
PRIVATE PARTY and cause the dismissal of all other
cases pending in the Sandiganbayan and in other courts. FERDINAND R. MARCOS, JR.[7]
9.� In case of violation by the PRIVATE PARTY of any of
[Sgd.] IRENE MARCOS-ARANETA
the conditions herein contained, the PARTIES shall be
restored automatically to the status quo ante the signing
of this Agreement. Assisted by:

For purposes of this Agreement, the PRIVATE PARTY shall be [Sgd.] ATTY. SIMEON M. MESINA,
represented by Atty. Simeon M. Mesina, Jr., as their only Attorney-in- JR.
Fact. Counsel & Attorney-in-Fact�

IN WITNESS WHEREOF, the parties have signed this instrument Petitioner also denounces this supplement to the above
this 28th day of December, 1993, in Makati, Metro Manila. Agreement: [8]

PRESIDENTIAL COMMISSION ON �SUPPLEMENTAL AGREEMENT


GOOD GOVERNMENT
This Agreement entered into this 28th day of December, 1993, by
By: and between --

[Sgd.] MAGTANGGOL C. GUNIGUNDO The Republic of the Philippines, through the Presidential
Commission on Good Government (PCGG), a
Chairman governmental agency vested with authority defined under
Executive Orders Nos. 1, 2 and 14, with offices at the
Philcomcen Building, Pasig, Metro Manila, represented by
its Chairman Magtanggol C. Gunigundo, hereinafter [Sgd.] MAGTANGGOL C. GUNIGUNDO
referred to as the FIRST PARTY,
-- and -- Chairman

Estate of Ferdinand E. Marcos, represented by Imelda ESTATE OF FERDINAND E.


Romualdez Marcos and Ferdinand R. Marcos, Jr., all of MARCOS, IMELDA R. MARCOS,
legal age, and with address at c/o No. 154 Lopez Rizal St., MA. IMELDA MARCOS-MANOTOC,
Mandaluyong, Metro Manila, and Imelda Romualdez FERDINAND R. MARCOS, JR., &
Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., IRENE MARCOS-ARANETA
and Irene Marcos Araneta, hereinafter collectively referred
to as the PRIVATE PARTY. By:
W I T N E S S E T H:
[Sgd.] IMELDA ROMUALDEZ-
The parties in this case entered into a General Agreement MARCOS
dated Dec. 28, 1993;
The PRIVATE PARTY expressly reserve their right to [Sgd.] MA. IMELDA MARCOS-
pursue their interest and/or sue over local assets located MANOTOC
in the Philippines against parties other than the FIRST
PARTY. FERDINAND R. MARCOS, JR.[9]
The parties hereby agree that all expenses related to the
recovery and/or withdrawal of all assets including [Sgd.] IRENE MARCOS-ARANETA
lawyers� fees, agents� fees, nominees� service fees,
bank charges, traveling expenses and all other expenses Assisted by:
related thereto shall be for the account of the PRIVATE
PARTY. [Sgd.] ATTY. SIMEON M. MESINA,
JR.
In consideration of the foregoing, the parties hereby agree that the � Counsel & Attorney-in-
PRIVATE PARTY shall be entitled to the equivalent of 25% of the Fact�
amount that may be eventually withdrawn from said $356 million
Swiss deposits. Acting on a motion of petitioner, the Court issued a Temporary
Restraining Order[10] dated March 23, 1998, enjoining respondents,
IN WITNESS WHEREOF, the parties have signed this instrument their agents and/or representatives from �entering into, or perfecting
this 28th day of December, 1993, in Makati, Metro Manila. and/or executing any agreement with the heirs of the late President
Ferdinand E. Marcos relating to and concerning their ill-gotten
PRESIDENTIAL COMMISSION ON wealth.�
GOOD GOVERNMENT

By:
Issues
Marcos properties may adversely affect their legitimate claims.� In a
minute Resolution issued on August 24, 1998, the Court granted their
motion to intervene and required the respondents to comment
The Oral Argument, held on March 16, 1998, focused on the thereon.� The September 25, 1998 Comment[12] of the solicitor
following issues: general on said motion merely reiterated his aforecited arguments
against the main petition.[13]
�(a)� Procedural:

(1)� Whether or not the petitioner has the personality or legal The Court�s Ruling
standing to file the instant petition; and

(2)� Whether or not this Court is the proper court before which this The petition is imbued with merit.
action may be filed.

(b)� Substantive: First Procedural Issue:� Petitioner�s Standing

(1)� Whether or not this Court could require the PCGG to disclose
to the public the details of any agreement, perfected or not, with the Petitioner, on the one hand, explains that as a taxpayer and
Marcoses; and citizen, he has the legal personality to file the instant petition.� He
submits that since ill-gotten wealth �belongs to the Filipino people
(2)� Whether or not there exist any legal restraints against a and [is], in truth and in fact, part of the public treasury,� any
compromise agreement between the Marcoses and the PCGG compromise in relation to it would constitute a diminution of the public
relative to the Marcoses� ill-gotten wealth.�[11] funds, which can be enjoined by a taxpayer whose interest is for a full,
if not substantial, recovery of such assets.�
After their oral presentations, the parties filed their respective Besides, petitioner emphasizes, the matter of recovering the ill-
memoranda. gotten wealth of the Marcoses is an issue �of transcendental
importance to the public.�� He asserts that ordinary taxpayers have
On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all
a right to initiate and prosecute actions questioning the validity of acts
surnamed Jopson, filed before the Court a Motion for Intervention,
or orders of government agencies or instrumentalities, if the issues
attaching thereto their Petition in Intervention.� They aver that they
raised are �of paramount public interest;� and if they
are �among the 10,000 claimants whose right to claim from the
�immeasurably affect the social, economic, and moral well-being of
Marcos Family and/or the Marcos Estate is recognized by the decision
in In re Estate of Ferdinand Marcos, Human Rights Litigation, Maximo the people.��
Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals� for Moreover, the mere fact that he is a citizen satisfies the
the 9th Circuit� US App. Lexis 14796, June 16, 1994 and the requirement of personal interest, when the proceeding involves the
Decision of the Swiss Supreme Court of December 10, 1997.�� As assertion of a public right,[14] such as in this case.� He invokes
such, they claim to have personal and direct interest in the subject several decisions[15] of this Court which have set aside the procedural
matter of the instant case, since a distribution or disposition of the
matter of locus standi, when the subject of the case involved public the Manila International Container Terminal, �public interest [was]
interest. definitely involved considering the important role [of the subject
contract]� x x x� in the economic development of the country and
On the other hand, the solicitor general, on behalf of respondents,
the magnitude of the financial consideration involved.�� We
contends that petitioner has no standing to institute the present action,
concluded that, as a consequence, the disclosure provision in the
because no expenditure of public funds is involved and said petitioner
Constitution would constitute sufficient authority for upholding the
has no actual interest in the alleged agreement.� Respondents
petitioner�s standing.
further insist that the instant petition is premature, since there is no
showing that petitioner has requested PCGG to disclose any such Similarly, the instant petition is anchored on the right of the
negotiations and agreements; or that, if he has, the Commission has people to information and access to official records, documents and
refused to do so. papers -- a right guaranteed under Section 7, Article III of the 1987
Indeed, the arguments cited by petitioner constitute the Constitution.� Petitioner, a former solicitor general, is a Filipino
controlling decisional rule as regards his legal standing to institute the citizen.� Because of the satisfaction of the two basic requisites laid
instant petition.� Access to public documents and records is a public down by decisional law to sustain petitioner�s legal standing, i.e. (1)
right, and the real parties in interest are the people themselves. [16] the enforcement of a public right (2) espoused by a Filipino
citizen,� we rule that the petition at bar should be allowed.
In Ta�ada v. Tuvera,[17] the Court asserted that when the issue
concerns a public right and the object of mandamus is to obtain the In any event, the question on the standing of Petitioner Chavez
enforcement of a public duty, the people are regarded as the real is rendered moot by the intervention of the Jopsons, who are among
parties in interest; and because it is sufficient that petitioner is a citizen the legitimate claimants to the Marcos wealth.� The standing of the
and as such is interested in the execution of the laws, he need not Jopsons is not seriously contested by the solicitor general.� Indeed,
show that he has any legal or special interest in the result of the said petitioners-intervenors have a legal interest in the subject matter
action.[18] In the aforesaid case, the petitioners sought to enforce their of the instant case, since a distribution or disposition of the
right to be informed on matters of public concern, a right then Marcoses� ill-gotten properties may adversely affect the satisfaction
recognized in Section 6, Article IV of the 1973 Constitution,[19] in of their claims.
connection with the rule that laws in order to be valid and enforceable
must be published in the Official Gazette or otherwise effectively
promulgated.� In ruling for the petitioners� legal standing, the Court Second Procedural Issue:The Court�s Jurisdiction
declared that the right they sought to be enforced �is a public right
recognized by no less than the fundamental law of the land.�
Petitioner asserts that because this petition is an original action
Legaspi v. Civil Service Commission,[20] while
for mandamus and one that is not intended to delay any proceeding in
reiterating Ta�ada, further declared that �when the Sandiganbayan, its having been filed before this Court was
a mandamus proceeding involves the assertion of a public right, the
proper.� He invokes Section 5, Article VIII of the Constitution, which
requirement of personal interest is satisfied by the mere fact that
confers upon the Supreme Court original jurisdiction over petitions for
petitioner is a citizen and, therefore, part of the general �public� prohibition and mandamus.
which possesses the right.�[21]
The solicitor general, on the other hand, argues that the petition
Further, in Albano v. Reyes,[22] we said that while expenditure of has been erroneously brought before this Court, since there is neither
public funds may not have been involved under the questioned a justiciable controversy nor a violation of petitioner�s rights by the
contract for the development, the management and the operation of
PCGG.� He alleges that the assailed agreements are already the Public Disclosure of Terms of Any Agreement, Perfected or Not
very lis mota in Sandiganbayan Civil Case No. 0141, which has yet to
dispose of the issue; thus, this petition is premature.� Furthermore,
respondents themselves have opposed the Marcos heirs� motion, In seeking the public disclosure of negotiations and agreements
filed in the graft court, for the approval of the subject pertaining to a compromise settlement with the Marcoses as regards
Agreements.� Such opposition belies petitioner�s claim that the their alleged ill-gotten wealth, petitioner invokes the following
government, through respondents, has concluded a settlement with provisions of the Constitution:
the Marcoses as regards their alleged ill-gotten assets.
�Sec. 7 [Article III].� The right of the people to information on
In Ta�ada and Legaspi, we upheld therein petitioners� resort matters of public concern shall be recognized.� Access to official
to a mandamus proceeding, seeking to enforce a public right as well records, and to documents, and papers pertaining to official acts,
as to compel performance of a public duty mandated by no less than transactions, or decisions, as well as to government research data
the fundamental law.[23]Further, Section 5, Article VIII of the used as basis for policy development, shall be afforded the citizen,
Constitution, expressly confers upon the Supreme subject to such limitations as may be provided by law.�
Court original jurisdiction over petitions
for certiorari, prohibition, mandamus, quo warranto and habeas
corpus. �Sec. 28 [Article II].� Subject to reasonable conditions prescribed
by law, the State adopts and implements a policy of full public
Respondents argue that petitioner should have properly sought disclosure of all its transactions involving public interest.�
relief before the Sandiganbayan, particularly in Civil Case No. 0141,
in which the enforcement of the compromise Agreements is pending Respondents� opposite view is that the above constitutional
resolution.� There may seem to be some merit in such argument, if provisions refer to completed and operative official acts, not to those
petitioner is merely seeking to enjoin the enforcement of the still being considered.� As regards the assailed Agreements entered
compromise and/or to compel the PCGG to disclose to the public the into by the PCGG with the Marcoses, there is yet no right of action that
terms contained in said Agreements.� However, petitioner is here has accrued, because said Agreements have not been approved by
seeking the public disclosure of �all negotiations and agreement, be the President, and the Marcos heirs have failed to fulfill their express
they ongoing or perfected, and documents related to or relating to undertaking therein.� Thus, the Agreements have not become
such negotiations and agreement between the PCGG and the Marcos effective.� Respondents add that they are not aware of any ongoing
heirs.�� negotiation for another compromise with the Marcoses regarding their
In other words, this petition is not confined to the Agreements that alleged ill-gotten assets.
have already been drawn, but likewise to any other ongoing or future The �information� and the �transactions� referred to in the
undertaking towards any settlement on the alleged Marcos subject provisions of the Constitution have as yet no defined scope
loot.� Ineluctably, the core issue boils down to the precise and extent.� There are no specific laws prescribing the exact
interpretation, in terms of scope, of the twin constitutional provisions limitations within which the right may be exercised or the correlative
on �public transactions.�� This broad and prospective relief sought state duty may be obliged.� However, the following are some of the
by the instant petition brings it out of the realm of Civil Case No. 0141. recognized restrictions:� (1) national security matters and
intelligence information, (2) trade secrets and banking transactions,
(3) criminal matters, and (4) other confidential information.
First Substantive Issue:
Limitations to the Right: (1) National Security Matters (4) Other Confidential Information

At the very least, this jurisdiction recognizes the common law The Ethical Standards Act[31] further prohibits public officials and
holding that there is a governmental privilege against public disclosure employees from using or divulging �confidential or classified
with respect to state secrets regarding military, diplomatic and other information officially known to them by reason of their office and not
national security matters.[24] But where there is no need to protect such made available to the public.�[32]
state secrets, the privilege may not be invoked to withhold documents
and other information,[25] provided that they are examined �in strict Other acknowledged limitations to information access include
confidence� and given �scrupulous protection.� diplomatic correspondence, closed door Cabinet meetings and
executive sessions of either house of Congress, as well as the internal
Likewise, information on inter-government exchanges prior to the deliberations of the Supreme Court.[33]
conclusion of treaties and executive agreements may be subject to
reasonable safeguards for the sake of national interest. [26]
Scope:� Matters of Public Concern and Transactions Involving
Public Interest
(2)� Trade Secrets and Banking Transactions

In Valmonte v. Belmonte Jr.,[34] the Court emphasized that the


The drafters of the Constitution also unequivocally affirmed that, information sought must be �matters of public concern,� access to
aside from national security matters and intelligence information, trade which may be limited by law.� Similarly, the state policy of full public
or industrial secrets (pursuant to the Intellectual Property Code[27] and disclosure extends� only� to� �transactions� involving public
other related laws) as well as banking transactions (pursuant to the interest� and may also be �subject to reasonable conditions
Secrecy of Bank Deposits Act[28]) are also exempted from compulsory prescribed by law.�� As to the meanings of the terms �public
disclosure.[29] interest� and �public concern,� the Court, in Legaspi v. Civil
Service Commission,[35] elucidated:

(3) Criminal Matters �In determining whether or not a particular information is of public
concern there is no rigid test which can be applied.� �Public
concern� like �public interest� is a term that eludes exact
Also excluded are classified law enforcement matters, such as definition.� Both terms embrace a broad spectrum of subjects which
those relating to the apprehension, the prosecution and the detention the public may want to know, either because these directly affect
of criminals,[30] which courts may not inquire into prior to such arrest, their lives, or simply because such matters naturally arouse the
detention and prosecution.� Efforts at effective law enforcement interest of an ordinary citizen.� In the final analysis, it is for the
would be seriously jeopardized by free public access to, for example, courts to determine on a case by case basis whether the matter at
police information regarding rescue operations, the whereabouts of issue is of interest or importance, as it relates to or affects the
fugitives, or leads on covert criminal activities.
public.�
Considered a public concern in the above-mentioned case was well-informed public that a government remains responsive to the
the �legitimate concern of citizens to ensure that government changes desired by the people.[40]
positions requiring civil service eligibility are occupied only by persons
who are eligibles.�� So was the need to give the general public
adequate notification of various laws that regulate and affect the
The Nature of the Marcoses� Alleged Ill-Gotten Wealth
actions and conduct of citizens, as held in Ta�ada.� Likewise did the
�public nature of the loanable funds of the GSIS and the public office
held by the alleged borrowers (members of the defunct Batasang We now come to the immediate matter under consideration.
Pambansa)� qualify the information sought in Valmonte as matters
of public interest and concern.� In Aquino-Sarmiento v. Upon the departure from the country of the Marcos family and
Morato,[36] the Court also held that official acts of public officers done their cronies in February 1986, the new government headed by
in pursuit of their official functions are public in character; hence, the President Corazon C. Aquino was specifically mandated to �[r]ecover
records pertaining to such official acts and decisions are within the ill-gotten properties amassed by the leaders and supporters of the
ambit of the constitutional right of access to public records. previous regime and [to] protect the interest of the people through
orders of sequestration or freezing of assets or accounts.�[41] Thus,
Under Republic Act No. 6713, public officials and employees are President Aquino�s very first executive orders (which partook of the
mandated to �provide information on their policies and procedures in nature of legislative enactments) dealt with the recovery of these
clear and understandable language, [and] ensure openness of alleged ill-gotten properties.�
information, public consultations and hearings whenever
appropriate� x x x,� except when �otherwise provided by law or Executive Order No. 1, promulgated on February 28, 1986, only
when� required� by� the public interest.�� In particular, the law two (2) days after the Marcoses fled the country, created the PCGG
mandates free public access, at reasonable hours, to the annual which was primarily tasked to assist the President in the recovery of
performance reports of offices and agencies of government and vast government resources allegedly amassed by former President
government-owned or controlled corporations; and the statements of Marcos, his immediate family, relatives and close associates both
assets, liabilities and financial disclosures of all public officials and here and abroad.�
employees.[37]
Under Executive Order No. 2, issued twelve (12) days later, all
In general, writings coming into the hands of public officers in persons and entities who had knowledge or possession of ill-gotten
connection with their official functions must be accessible to the public, assets and properties were warned and, under pain of penalties
consistent with the policy of transparency of governmental prescribed by law, prohibited from concealing, transferring or
affairs.� This principle is aimed at affording the people an opportunity dissipating them or from otherwise frustrating or obstructing the
to determine whether those to whom they have entrusted the affairs recovery efforts of the government.�
of the government are honestly, faithfully and competently performing
On May 7, 1986, another directive (EO No. 14) was issued giving
their functions as public servants.[38] Undeniably, the essence of
additional powers to the PCGG which, taking into account the
democracy lies in the free flow of thought;[39] but thoughts and ideas
overriding considerations of national interest and national survival,
must be well-informed so that the public would gain a better
required it to achieve expeditiously and effectively its vital task of
perspective of vital issues confronting them and, thus, be able to
recovering ill-gotten wealth.
criticize as well as participate in the affairs of the government in a
responsible, reasonable and effective manner.� Certainly, it is by With such pronouncements of our government, whose authority
ensuring an unfettered and uninhibited exchange of ideas among a emanates from the people, there is no doubt that the recovery of the
Marcoses� alleged ill-gotten wealth is a matter of public concern and �MR. OPLE.� The �transactions� used here, I suppose, is
imbued with public interest.[42] We may also add that �ill-gotten generic and, therefore, it can cover both steps leading to a contract,
wealth,� by its very nature, assumes a public character.� Based on and already a consummated contract, Mr. Presiding Officer.
the aforementioned Executive Orders, �ill-gotten wealth� refers to
assets and properties purportedly acquired, directly or indirectly, by �MR. SUAREZ.� This contemplates inclusion of negotiations
former President Marcos, his immediate family, relatives and close leading to the consummation of the transaction?
associates through or as a result of their improper or illegal use of
government funds or properties; or their having taken undue ��MR. OPLE.� Yes, subject to reasonable safeguards on the
advantage of their public office; or their use of powers, influences or
national interest.�
relationships, �resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the
Considering the intent of the framers of the Constitution, we
Philippines.�� Clearly, the assets and properties referred to
believe that it is incumbent upon the PCGG and its officers, as
supposedly originated from the government itself.� To all intents and
well as other government representatives, to disclose sufficient
purposes, therefore, they belong to the people.� As such, upon public information on any proposed settlement they have
reconveyance they will be returned to the public treasury, subject only decided to take up with the ostensible owners and holders of ill-
to the satisfaction of positive claims of certain persons as may be
gotten wealth.� Such information, though, must pertain to definite
adjudged by competent courts.� Another propositions of the government, not necessarily to intra-agency or
declared� overriding� consideration for the expeditious recovery of inter-agency recommendations or communications[44] during the stage
ill-gotten wealth is that it may be used for national economic recovery. when common assertions are still in the process of being formulated
We believe the foregoing disquisition settles the question of or are in the �exploratory� stage.� There is a need, of course, to
whether petitioner has a right to respondents� disclosure of any observe the same restrictions on disclosure of information in general,
agreement that may be arrived at concerning the Marcoses� as discussed earlier -- such as on matters involving national security,
purported ill-gotten wealth. diplomatic or foreign relations, intelligence and other classified
information.

Access to Information on Negotiating Terms


Second Substantive Issue: Legal Restraints on a Marcos-PCGG
Compromise
But does the constitutional provision likewise guarantee access
to information regarding ongoing negotiations or proposals prior to the
final agreement?� This same clarification was sought and clearly Petitioner lastly contends that any compromise agreement
addressed by the constitutional commissioners during their between the government and the Marcoses will be a virtual
deliberations, which we quote hereunder:[43] condonation of all the alleged wrongs done by them, as well as an
unwarranted permission to commit graft and corruption.
�MR. SUAREZ.� And when we say �transactions� which should Respondents, for their part, assert that there is no legal restraint
be distinguished from contracts, agreements, or treaties or whatever, on entering into a compromise with the Marcos heirs, provided the
does the Gentleman refer to the steps leading to the consummation agreement does not violate any law.
of the contract, or does he refer to the contract itself?
Prohibited Compromises However,� any compromise relating to the civil liability
arising from an offense does� not� automatically terminate the
criminal proceeding against or extinguish the criminal liability of
In general, the law encourages compromises in civil cases, the malefactor.[55] While a compromise in civil suits is expressly
except with regard to the following matters:� (1) the civil status of authorized by law, there is no similar general sanction as regards
persons, (2) the validity of a marriage or a legal separation, (3) any criminal liability.� The authority must be specifically conferred.� In
ground for legal separation, (4) future support, (5) the jurisdiction of the present case, the power to grant criminal immunity was conferred
courts, and (6) future legitime.[45] And like any other contract, the terms on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A,
and conditions of a compromise must not be contrary to law, morals, which provides:
good customs, public policy or public order.[46] A compromise is
binding and has the force of law between the parties,[47] unless the
�SECTION 5.� The Presidential Commission on Good
consent of a party is vitiated -- such as by mistake, fraud, violence,
Government is authorized to grant immunity from criminal
intimidation or undue influence -- or when there is forgery, or if the
prosecution to any person who provides information or testifies in
terms of the settlement are so palpably unconscionable.� In the latter
any investigation conducted by such Commission to establish the
instances, the agreement may be invalidated by the courts.[48]
unlawful manner in which any respondent, defendant or accused has
acquired or accumulated the property or properties in question in any
case where such information or testimony is necessary to ascertain
Effect of Compromise on Civil Actions or prove the latter�s guilt or his civil liability.� The immunity thereby
granted shall be continued to protect the witness who repeats such
testimony before the Sandiganbayan when required to do so by the
One of the consequences of a compromise, and usually its latter or by the Commission.�
primary object, is to avoid or to end a litigation.[49] In fact, the law urges
courts to persuade the parties in a civil case to agree to a fair The above provision specifies that the PCGG may exercise such
settlement.[50] As an incentive, a court may mitigate damages to be
authority under these conditions:� (1) the person to whom criminal
paid by a losing party who shows a sincere desire to compromise.[51]
immunity� is� granted� provides� information or testifies in an
In Republic & Campos Jr. v. Sandiganbayan,[52] which affirmed investigation conducted by the Commission; (2) the information or
the grant by the PCGG of civil and criminal immunity to Jose Y. testimony pertains to the unlawful manner in which the respondent,
Campos and family, the Court held that in the absence of an express defendant or accused acquired or accumulated ill-gotten property; and
prohibition, the rule on compromises in civil actions under the Civil (3) such information or testimony is necessary to ascertain or prove
Code is applicable to PCGG cases.� Such principle is pursuant to the guilt or civil liability of such individual.� From the wording of the law,
objectives of EO No. 14, particularly the just and expeditious recovery it can be easily deduced that the� person referred to is a witness in
of ill-gotten wealth, so that it may be used to hasten economic the proceeding, not the principal respondent, defendant or accused.
recovery.� The same principle was upheld in Benedicto v. Board of
Thus, in the case of Jose Y. Campos, the grant of both civil and
Administrators of Television Stations RPN, BBC and
IBC[53] and Republic v. Benedicto,[54] which ruled in favor of the validity criminal immunity to him and his family was �[i]n consideration of the
full cooperation of Mr. Jose Y. Campos [with] this Commission, his
of the PCGG compromise agreement with Roberto S. Benedicto.
voluntary surrender of the properties and assets [--] disclosed and
declared by him to belong to deposed President Ferdinand E. Marcos
[--] to the Government of the Republic of the Philippines[;] his full,
Immunity from Criminal Prosecution complete and truthful disclosures[;] and his commitment to pay a sum
of money as determined by the Philippine provides:� �No law granting any tax exemption shall be passed
Government.�[56] Moreover, the grant of criminal immunity to the without the concurrence of a majority of all the Members of the
Camposes and the Benedictos was limited to acts and omissions prior Congress.�� The PCGG has absolutely no power to grant tax
to February 25, 1996.� At the time such immunity was granted, no exemptions, even under the cover of its authority to compromise
criminal cases have yet been filed against them before the competent ill-gotten wealth cases.
courts.
Even granting that Congress enacts a law exempting the
Marcoses from paying taxes on their properties, such law will definitely
not pass the test of the equal protection clause under the Bill of
Validity of the PCGG-Marcos Compromise Agreements Rights.� Any special grant of tax exemption in favor only of the
Marcos heirs will constitute class legislation.� It will also violate the
constitutional rule that �taxation shall be uniform and equitable.�[59]
Going now to the subject General and Supplemental Agreements
between the PCGG and the Marcos heirs, a cursory perusal thereof Neither can the stipulation be construed to fall within the power
reveals serious legal flaws.� First, the Agreements do not conform to of the commissioner of internal revenue to compromise taxes.� Such
the above requirements of EO Nos. 14 and 14-A.� We believe that authority may be exercised only when (1) there
criminal immunity under Section 5 cannot be granted to the is reasonable� doubt� as� to� the� validity of� the
Marcoses, who are the principal defendants in the spate of ill- claim� against the taxpayer, and (2) the taxpayer�s financial
gotten wealth cases now pending before the position demonstrates a clear inability to pay.[60] Definitely, neither
Sandiganbayan.� As stated earlier, the provision is applicable requisite is present in the case of the Marcoses, because under the
mainly to witnesses who provide information or testify against a Agreement they are effectively conceding the validity of the claims
respondent, defendant or accused in an ill-gotten wealth case.� against their properties, part of which they will be allowed to
retain.� Nor can the PCGG grant of tax exemption fall within the
While the General Agreement states that the Marcoses �shall power of the commissioner to abate or cancel a tax liability.� This
provide the [government] assistance by way of testimony or deposition power can be exercised only when (1) the tax appears to be unjustly
on any information [they] may have that could shed light on the cases or excessively assessed, or (2) the administration and collection costs
being pursued by the [government] against other parties,�[57] the involved do not justify the collection of the tax due.[61] In this instance,
clause does not fully comply with the law.� Its inclusion in the the cancellation of tax liability is done even before the determination
Agreement may have been only an afterthought, conceived in pro of the amount due.� In any event, criminal violations of the Tax Code,
forma compliance with Section 5 of for which legal actions have been filed in court or in which fraud is
EO� No.� 14,� as� amended.� There is no indication involved, cannot be compromised.[62]
whatsoever that any of the Marcos heirs has indeed provided vital
information against any respondent or defendant as to the manner in Third, the government binds itself to cause the dismissal of all
which the latter may have unlawfully acquired public property. cases against the Marcos heirs, pending before the Sandiganbayan
and other courts.[63] This is a direct encroachment on judicial powers,
Second, under Item No. 2 of the General Agreement, the PCGG particularly in regard to criminal jurisdiction.� Well-settled is the
commits to exempt from all forms of taxes the properties to be retained doctrine that once a case has been filed before a court of competent
by the Marcos heirs.� This is a clear violation of the jurisdiction, the matter of its dismissal or pursuance lies within the full
Constitution.� The power to tax and to grant tax exemptions is vested discretion and control of the judge.� In a criminal case, the manner
in the Congress and, to a certain extent, in the local legislative in which the prosecution is handled, including the matter of whom to
bodies.[58] Section 28 (4), Article VI of the Constitution, specifically present as witnesses, may lie within the sound discretion of the
government prosecutor;[64] but the court decides, based on the Agreement provides that the Marcoses shall be entitled to 25 per cent
evidence proffered, in what manner it will dispose of the of the $356 million Swiss deposits (less government recovery
case.� Jurisdiction, once acquired by the trial court, is not lost despite expenses), such sharing arrangement pertains only to the said
a resolution, even by the justice secretary, to withdraw the information deposits.� No similar splitting scheme is defined with respect to the
or to dismiss the complaint.[65] The prosecution�s motion to withdraw other properties.� Neither is there, anywhere in the Agreements, a
or to dismiss is not the least binding upon the court.� On the contrary, statement of the basis for the 25-75 percent sharing ratio.� Public
decisional rules require the trial court to make its own evaluation of the officers entering into an arrangement appearing to be manifestly and
merits of the case, because granting such motion is equivalent to grossly disadvantageous to the government, in violation of the Anti-
effecting a disposition of the case itself.[66] Graft and Corrupt Practices Act,[69] invite their indictment for corruption
under the said law.
Thus, the PCGG, as the government prosecutor of ill-gotten
wealth cases, cannot guarantee the dismissal of all such criminal Finally, the absence of then President Ramos� approval of the
cases against the Marcoses pending in the courts, for said principal Agreement, an express condition therein, renders the
dismissal is not within its sole power and discretion. compromise incomplete and unenforceable.� Nevertheless, as
detailed above, even if such approval were obtained, the Agreements
Fourth, the government also waives all claims and counterclaims,
would still not be valid.
�whether past, present, or future, matured or inchoate,� against the
Marcoses.[67] Again, this all-encompassing stipulation is contrary to From the foregoing disquisition, it is crystal clear to the
law.� Under the Civil Code, an action for future fraud may not be Court that the General and Supplemental Agreements, both
waived.[68] The stipulation in the Agreement does not specify the exact dated December 28, 1993, which the PCGG entered into with the
scope of future claims against the Marcoses that the government Marcos heirs, are violative of the Constitution and the laws
thereby relinquishes.� Such vague and broad aforementioned.
statement� may� well be interpreted to include all future illegal acts
of any of the Marcos heirs, practically giving them a license to WHEREFORE, the petition is GRANTED.� The General and
perpetrate fraud against the government without any liability at Supplemental Agreements dated December 28, 1993, which PCGG
and the Marcos heirs entered into are hereby declared NULL� AND
all.� This is a palpable violation of the due process and equal
VOID for being contrary to law and the Constitution.� Respondent
protection guarantees of the Constitution.� It effectively ensconces
PCGG, its officers and all government functionaries and officials who
the Marcoses beyond the reach of the law.� It also sets a dangerous
are or may be
precedent for public accountability.� It is a virtual warrant for public
directly� or� indirectly� involved� in� the� recovery� of� the
officials to amass public funds illegally, since there is an open
option to compromise their liability in exchange for only a portion � alleged ill-gotten wealth of the Marcoses and their associates
of their ill-gotten wealth. are DIRECTED to disclose to the public the terms of any proposed
compromise settlement, as well as the final agreement, relating to
Fifth, the Agreements do not provide for a definite or such alleged ill-gotten wealth, in accordance with the discussions
determinable period within which the parties shall fulfill their respective embodied in this Decision.� No pronouncement as to costs.�
prestations.� It may take a lifetime before the Marcoses submit an
SO ORDERED.
inventory of their total assets.
Sixth, the Agreements do not state with specificity the standards
for determining which assets shall be forfeited by the government and
which shall be retained by the Marcoses.� While the Supplemental
EN BANC sugar industry (Lutz v. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a
[G.R. No. 77194. March 15, 1988.] "Special Fund," a "Development and Stabilization Fund," almost
identical to the "Sugar Adjustment and Stabilization Fund" created
VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, under Section 6 of Commonwealth Act 567. The tax collected is not
OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS, in a pure exercise of the taxing power. It is levied with a regulatory
CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER purpose, to provide means for the stabilization of the sugar industry.
LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO The levy is primarily in the exercise of the police power of the State
LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE (Lutz v. Araneta, supra.).
JAMANDRE, AURELIO GAMBOA, ET AL., Petitioners, v.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR
COMMISSION, and SUGAR REGULATORY DECISION
ADMINISTRATION, Respondents, ANGEL H. SEVERINO, JR.,
GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA
PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE MELENCIO-HERRERA, J.:
PLANTERS, intervenors.

Petitioners are sugar producers, sugarcane planters and millers, who


SYLLABUS have come to this Court in their individual capacities and in
representation of other sugar producers, planters and millers, said to
be so numerous that it is impracticable to bring them all before the
1. STATUTES; PRESIDENTIAL DECREE 388; STABILIZATION Court although the subject matter of the present controversy is of
FUND; NOT IMPLIED TRUST CREATED IN FAVOR OF SUGAR common interest to all sugar producers, whether parties in this action
PROCEDURES. — No implied trust in favor of the sugar producers or not.
either can be deduced from the imposition of the levy. "The essential
idea of an implied trust involves a certain antagonism between the Respondent Philippine Sugar Commission (PHILSUCOM, for short)
cestui que trust and the trustee even when the trust has not arisen was formerly the government office tasked with the function of
out of fraud nor out of any transaction of a fraudulent or immoral regulating and supervising the sugar industry until it was superseded
character (65 CJ 222). It is not clearly shown from the statute itself by its co-respondent Sugar Regulatory Administration (SRA, for
that the PHILSUCOM imposed on itself the obligation of holding the brevity) under Executive Order No. 18 on May 28, 1986. Although
stabilization fund for the benefit of the sugar producers. It must be said Executive Order abolished the PHILSUCOM, its existence as a
categorically demonstrated that the very administrative agency which juridical entity was mandated to continue for three (3) more years "for
is the source of such regulation would place a burden on itself the purpose of prosecuting and defending suits by or against it and
(Batchelder v. Central Bank of the Philippines, L-25071, July 29, enabling it to settle and close its affairs, to dispose of and convey its
1972, 46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 property and to distribute its assets."cralaw virtua1aw library
[1954]).
Respondent Republic Planters Bank (briefly, the Bank) is a
2. ID.; ID.; STABILIZATION FEES; NATURE; PURPOSE OF LEVY. commercial banking corporation.
— 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 Angel H. Severino, Jr., Et Al., who are sugarcane planters planting
and milling their sugarcane in different mill districts of Negros The Solicitor General aptly summarizes the basic issues thus: (1)
Occidental, were allowed to intervene by the Court, since they have whether the stabilization fees collected from sugar planters and
common cause with petitioners and respondents having interposed millers pursuant to Section 7 of P.D. No. 388 are funds in trust for
no objection to their intervention. Subsequently, on January 14, them, or public funds; and (2) whether shares of stock in respondent
1988, the National Federation of Sugar Planters (NFSP) also moved Bank paid for with said stabilization fees belong to the PHILSUCOM
to intervene, which the Court allowed on February 16, 1988. or to the different sugar planters and millers from whom the fees
were collected or levied.
Petitioners and Intervenors have come to this Court praying for a
Writ of Mandamus commanding respondents:jgc:chanrobles.com.ph P.D. No. 388, promulgated on February 2, 1974, which created the
PHILSUCOM, provided for the collection of a Stabilization Fund as
"TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF follows:jgc:chanrobles.com.ph
REPUBLIC PLANTERS BANK BY THE TRANSFER AND
DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK, "SEC. 7. Capitalization, Special Fund of the Commission,
NOW HELD BY AND STILL CARRIED IN THE NAME OF THE Development and Stabilization Fund. — There is hereby established
PHILIPPINE SUGAR COMMISSION, TO THE SUGAR a fund for the commission for the purpose of financing the growth
PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE and development of the sugar industry and all its components,
BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES stabilization of the domestic market including the foreign market to
VALUED AT P36,548,000.00, AND 53,005,045 PREFERRED be administered in trust by the Commission and deposited in the
SHARES (A, B & C) WITH A TOTAL PAR VALUE OF Philippine National Bank derived in the manner herein below cited
P254,424,224.72, OR A TOTAL INVESTMENT OF from the following sources:chanrob1es virtual 1aw library
P290,972,224.72, THE SAID INVESTMENT HAVING BEEN
FUNDED BY THE DEDUCTION OF P1.00 PER PICUL FROM a. Stabilization fund shall be collected as provided for in the various
SUGAR PROCEEDS OF THE SUGAR PRODUCERS provisions of this Decree.
COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS
STABILIZATION FUND PURSUANT TO P.D. #388."cralaw b. Stabilization fees shall be collected from planters and millers in the
virtua1aw library amount of Two (P2.00) Pesos for every picul produced and milled for
a period of five years from the approval of this Decree and One
Respondent Bank does not take issue with either petitioners or its (P1.00) Peso for every picul produced and milled every year
co-respondents as it has no beneficial or equitable interest that may thereafter.
be affected by the ruling in this Petition, but welcomes the filing of
the Petition since it will settle finally the issue of legal ownership of Provided: That fifty (P0.50) centavos per picul of the amount levied
the questioned shares of stock. on planters, millers and traders under Section 4(c) of this Decree will
be used for the payment of salaries and wages of personnel, fringe
Respondents PHILSUCOM and SRA, for their part, squarely traverse benefits and allowances of officers and employees for the purpose of
the petition arguing that no trust results from Section 7 of P.D. No. accomplishing and employees for the purpose of accomplishing the
388; that the stabilization fees collected are considered government efficient performance of the duties of the Commission.
funds under the Government Auditing Code; that the transfer of
shares of stock from PHILSUCOM to the sugar producers would be Provided, further: That said amount shall constitute a lien on the
irregular, if not illegal; and that this suit is barred by laches. sugar quedan and/or warehouse receipts and shall be paid
immediately by the planters and mill companies, sugar centrals and
refineries to the Commission." (paragraphing and bold supplied). accomplished, not by any capital investment by Mr. Benedicto, but
by PHILSUCOM, which set aside the proceeds of the P1.00 per picul
Section 7 of P.D. No. 388 does provide that the stabilization fees stabilization fund to pay for its subscription in shares of stock of
collected "shall be administered in trust by the Commission." respondent Bank. It is petitioners’ submission that all shares were
However, while the element of an intent to create a trust is present, a placed in PHILSUCOM’s name only out of convenience and
resulting trust in favor of the sugar producers, millers and planters necessity and that they are the true and beneficial owners thereof.
cannot be said to have ensued because the presumptive intention of
the parties is not reasonably ascertainable from the language of the In point of fact, we cannot see our way clear to upholding petitioners’
statute itself. position that the investment of the proceeds from the stabilization
fund in subscriptions to the capital stock of the Bank were being
"The doctrine of resulting trusts is founded on the presumed intention made for and on their behalf. That could have been clarified by the
of the parties; and as a general rule, it arises where, and only where Trust Agreement, dated May 28, 1986, entered into between
such may be reasonably presumed to be the intention of the parties, PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as
as determined from the facts and circumstances existing at the time Officer-in-Charge, and respondent RPB-Trust Department" as
of the transaction out of which it is sought to be established (89 "Trustee," acknowledging that PHILSUCOM "holds said shares for
C.J.S. 947)."cralaw virtua1aw library and in behalf of the sugar producers," the latter "being the true and
beneficial owners thereof." The Agreement, however, did not get off
No implied trust in favor of the sugar producers either can be the ground because it failed to receive the approval of the
deduced from the imposition of the levy. "The essential idea of an PHILSUCOM Board of Commissioners as required in the Agreement
implied trust involves a certain antagonism between the cestui que itself.
trust and the trustee even when the trust has not arisen out of fraud
nor out of any transaction of a fraudulent or immoral character (65 The SRA, which succeeded PHILSUCOM, neither approved the
CJ 222). It is not clearly shown from the statute itself that the Agreement because of the adverse opinion of the SRA Resident
PHILSUCOM imposed on itself the obligation of holding the Auditor, dated June 25, 1986, which was affirmed by the Chairman
stabilization fund for the benefit of the sugar producers. It must be of the Commission on Audit, on January 26, 1987.
categorically demonstrated that the very administrative agency which
is the source of such regulation would place a burden on itself On February 19, 1987, the SRA resolved to revoke the Trust
(Batchelder v. Central Bank of the Philippines, L-25071, July 29, Agreement "in the light of the ruling of the Commission on Audit that
1972, 46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 the aforementioned Agreement is of doubtful validity."cralaw
[1954]). virtua1aw library

Neither can petitioners place reliance on the history of respondent From the legal standpoint, we find basis for the opinion of the
Bank. They recite that at the beginning, the Bank was owned by the Commission on Audit reading:jgc:chanrobles.com.ph
Roman-Rojas Group. Because it underwent difficulties early in the
year 1978, Mr. Roberto S. Benedicto, then Chairman of the "That the government, PHILSUCOM or its successor-in-interest,
PHILSUCOM, submitted a proposal to the Central Bank for the Sugar Regulatory Administration, in particular, owns and stocks.
rehabilitation of the Bank. The Central Bank acted favorably on the While it is true that the collected stabilization fees were set aside by
proposal at the meeting of the Monetary Board on March 31, 1978 PHILSUCOM to pay its subscription to RPB, it did not collect said
subject to the infusion of fresh capital by the Benedicto Group. fees for the account of the sugar producers. That stabilization fees
Petitioners maintain that this infusion of fresh capital was are charges/levies on sugar produced and milled which accrued to
PHILSUCOM under PD 338, as amended. . . ."cralaw virtua1aw emphasized by the fact that the funds are deposited in the Philippine
library National Bank and not in the Philippine Treasury, moneys from which
may be paid out only in pursuance of an appropriation made by law
The stabilization fees collected are in the nature of a tax, which is (1987) Constitution, Article VI, Sec. 29[1], 1973 Constitution, Article
within the power of the State to impose for the promotion of the VIII, Sec. 18[1]).
sugar industry (Lutz v. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a That the fees were collected from sugar producers, planters and
"Special Fund," a "Development and Stabilization Fund," almost millers, and that the funds were channeled to the purchase shares of
identical to the "Sugar Adjustment and Stabilization Fund" created stock in respondent Bank do not convert the funds into a trust fund
under Section 6 of Commonwealth Act 567. 1 The tax collected is for their benefit nor make them the beneficial owners of the shares
not in a pure exercise of the taxing power. It is levied with a so purchased. It is but rational that the fees be collected from them
regulatory purpose, to provide means for the stabilization of the since it is also they who are to be benefited from the expenditure of
sugar industry. The levy is primarily in the exercise of the police the funds derived from it. The investment in shares of respondent
power of the State (Lutz v. Araneta, supra.). Bank is not alien to the purpose intended because of the Bank’s
character as a commodity bank for sugar conceived for the industry’s
"The protection of a large industry constituting one of the great growth and development. Furthermore, of note is the fact that one-
sources of the state’s wealth and therefore directly or indirectly half, (1/2) or P0.50 per picul, of the amount levied under P.D. No.
affecting the welfare of so great a portion of the population of the 388 is to be utilized for the "payment of salaries and wages of
State is affected to such an extent by public interests as to be within personnel, fringe benefits and allowances of officers and employees
the police power of the sovereign." (Johnson v. State ex rel. Marey, of PHILSUCOM" thereby immediately negating the claim that the
128 So. 857, cited in Lutz v. Araneta, supra). entire amount levied is in trust for sugar, producers, planters and
millers.
The stabilization fees in question are levied by the State upon sugar
millers, planters and producers for a special purpose — that of To rule in petitioners’ favor would contravene the general principle
"financing the growth and development of the sugar industry and all that revenues derived from taxes cannot be used for purely private
its components, stabilization of the domestic market including the purposes or for the exclusive benefit of private persons. The
foreign market." The fact that the State has taken possession of Stabilization Fund is to be utilized for the benefit of the entire sugar
moneys pursuant to law is sufficient to constitute them state funds, industry, "and all its components, stabilization of the domestic market
even though they are held for a special purpose (Lawrence v. including the foreign market," the industry being of vital importance to
American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. the country’s economy and to national interest.
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 WHEREFORE, the Writ of Mandamus is denied and the Petition
language of the statute, "administered in trust" for the purpose hereby dismissed. No costs.
intended. Once the purpose has been fulfilled or abandoned, the
balance, if any, is to be transferred to the general funds of the This Decision is immediately executory.
Government. That is the essence of the trust intended (See 1987
Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, SO ORDERED.
Article VI, Sec. 23[1]). 2

The character of the Stabilization Fund as a special fund is


SECOND DIVISION No. 20-2013 imposes as a prerequisite to the enjoyment by non-
stock, non-profit educational institutions of the privilege of tax
March 8, 2017 exemption under Sec. 4(3) of Article XIV of the Constitution both a
registration and approval requirement, i.e., that they submit an
G.R. No. 215383 application for tax exemption to the BIR subject to approval by CIR in
the form of a Tax[]Exemption Ruling (TER) which is valid for a period
of [three] years and subject to renewal."5 According to SPCM, RMO
HON. KIM S. JACINTO-HENARES, in her official capacity as No. 20-2013 adds a prerequisite to the requirement under
COMMISSIONER OF THE BUREAU OF INTERNAL Department of Finance Order No. 137-87,6 and makes failure to file
REVENUE, Petitioner an annual information return a ground for a non-stock, nonprofit
vs educational institution to "automatically lose its income tax-exempt
ST. PAUL COLLEGE OF MAKATI, Respondent status."7

RESOLUTION In a Resolution dated 27 December 2013,8 the RTC issued a


temporary restraining order against the implementation of RMO No.
CARPIO, J.: 20- 2013. It found that failure of SPCM to comply with RMO No. 20-
2013 would necessarily result to losing its tax-exempt status and
The Case cause irreparable injury.

This petition for review1 assails the Decision dated 25 July 20142 and In a Resolution dated 22 January 2014,9 the RTC granted the writ of
Joint Resolution dated 29 October 20143 of the Regional Trial Court, preliminary injunction after finding that RMO No. 20-2013 appears to
Branch 143, Makati City (RTC), in Civil Case No. 13-1405, declaring divest non-stock, non-profit educational institutions of their tax
Revenue Memorandum Order (RMO) No. 20-2013 unconstitutional. exemption privilege. Thereafter, the RTC denied the CIR's motion for
reconsideration. On 29 April 2014, SPCM filed a Motion for
The Facts Judgment on the Pleadings under Rule 34 of the Rules of Court.

On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in her The Ruling of the RTC
capacity as then Commissioner of Internal Revenue (CIR), issued
RMO No. 20-2013, "Prescribing the Policies and Guidelines in the In a Decision dated 25 July 2014, the RTC ruled in favor of SPCM
Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non- and declared RMO No. 20-2013 unconstitutional.1âwphi1It held that
Profit Corporations and Associations under Section 30 of the "by imposing the x x x [prerequisites alleged by SPCM,] and if not
National Internal Revenue Code of 1997, as Amended." complied with by nonstock, non-profit educational institutions, [RMO
No. 20-2013 serves] as diminution of the constitutional privilege,
On 29 November 2013, respondent St. Paul College of Makati which even Congress cannot diminish by legislation, and thus more
(SPCM), a non-stock, non-profit educational institution organized and so by the [CIR] who merely exercise[s] quasi-legislative function."10
existing under Philippine laws, filed a Civil Action to Declare
Unconstitutional [Bureau of Internal Revenue] RMO No. 20-2013 The dispositive portion of the Decision reads:
with Prayer for Issuance of Temporary Restraining Order and Writ of
Preliminary Injunction4 before the RTC. SPCM alleged that "RMO
WHEREFORE, in view of all the foregoing, the Court hereby NONSTOCK, NON-PROFIT EDUCATIONAL INSTITUTION MAY
declares BIR RMO No. 20-2013 as UNCONSTITUTIONAL for being AVAIL OF THE TAX EXEMPTION UNDER SECTION 4(3), ARTICLE
violative of Article XIV, Section 4, paragraph 3. Consequently, all XIV OF THE CONSTITUTION.
Revenue Memorandum Orders subsequently issued to implement
BIR RMO No. 20-2013 are declared null and void. WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT
RMO NO. 20-2013 ADDS TO THE REQUIREMENT UNDER
The writ of preliminary injunction issued on 03 February 2014 is DEPARTMENT OF FINANCE ORDER NO. 137-87.15
hereby made permanent.
The Ruline of the Court
SO ORDERED.11
We deny the petition on the ground of mootness.
On 18 September 2014, the CIR issued RMO No. 34-2014,12 which
clarified certain provisions of RMO No. 20-2013, as amended by We take judicial notice that on 25 July 2016, the present CIR Caesar
RMO No. 28-2013.13 R. Dulay issued RMO No. 44-2016, which provides that:

In a Joint Resolution dated 29 October 2014, the RTC denied the SUBJECT: Amending Revenue Memorandum Order No. 20- 2013,
CIR's motion for reconsideration, to wit: as amended (Prescribing the Policies and Guidelines in the Issuance
of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit
WHEREFORE, viewed in the light of the foregoing premises, the Corporations and Associations under Section 30 of the National
Motion for Reconsideration filed by the respondent is hereby Internal Revenue Code of 1997, as Amended)
DENIED for lack of merit.
In line with the Bureau's commitment to put in proper context the
Meanwhile, this Court clarifies that the phrase "Revenue nature and tax status of non-profit, non-stock educational institutions,
Memorandum Order" referred to in the second sentence of its this Order is being issued to exclude non-stock, non-profit
decision dated July 25, 2014 refers to "issuance/s" of the respondent educational institutions from the coverage of Revenue Memorandum
which tends to implement RMO 20-2013 for if it is otherwise, said Order No. 20-2013, as amended.
decision would be useless and would be rendered nugatory.
SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-
SO ORDERED.14 stock, non-profit educational institutions is directly conferred by
paragraph 3, Section 4, Article XIV of the 1987 Constitution, the
Hence, this present petition. pertinent portion of which reads:

The Issues "All revenues and assets of non-stock, non-profit educational


institutions used actually, directly and exclusively (or educational
purposes shall be exempt from taxes and duties."
The CIR raises the following issues for resolution:

This constitutional exemption is reiterated in Section 30 (H) of the


WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT
1997 Tax Code, as amended, which provides as follows:
RMO [NO.] 20-2013 IMPOSES A PREREQUISITE BEFORE A
"Sec. 30. Exempt from Tax on Corporations. - The following b. Certified true copy of the Certificate of Good Standing
organizations shall not be taxed under this Title in respect to income issued by the Securities and Exchange Commission;
received by them as such:
c. Original copy of the Certification under Oath of the
xxx xxx xxx Treasurer as to the amount of the income, compensation,
salaries or any emoluments paid to its trustees, officers and
(H) A non-stock and non-profit educational institution; x x x." other executive officers;

It is clear and unmistakable from the aforequoted constitutional d. Certified true copy of the Financial Statements of the
provision that non-stock, non-profit educational institutions are corporation for the last three (3) years;
constitutionally exempt from tax on all revenues derived in
pursuance of its purpose as an educational institution and used e. Certified true copy of government
actually, directly and exclusively for educational purposes. This recognition/permit/accreditation to operate as an educational
constitutional exemption gives the non-stock, non-profit educational institution issued by the Commission on Higher Education
institutions a distinct character. And for the constitutional exemption (CHED), Department of Education (DepEd), or Technical
to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule Education and Skills Development Authority (TESDA);
that there are only two requisites: (1) The school must be non-stock Provided, that if the government
and non-profit; and (2) The income is actually, directly and recognition/permit/accreditation to operate as an educational
exclusively used for educational purposes. There are no other institution was issued five (5) years prior to the application
conditions and limitations. for tax exemption, an original copy of a current Certificate of
Operation/Good Standing, or other equivalent document
In this light, the constitutional conferral of tax exemption upon non- issued by the appropriate government agency (i.e., CHED,
stock and non-profit educational institutions should not be DepEd, or TESDA) shall be submitted as proof that the non-
implemented or interpreted in such a manner that will defeat or stock and non-profit education is currently operating as such;
diminish the intent and language of the Constitution. and

SECTION 2. Application for Tax Exemption. --- Non-stock, nonprofit f. Original copy of the Certificate of utilization of annual
educational institutions shall file their respective Applications for Tax revenues and assets by the Treasurer or his equivalent of
Exemption with the Office of the Assistant Commissioner, Legal the non-stock and nonprofit educational institution.
Service, Attention: Law Division.
SECTION 4. Request for Additional Documents. --- In the course of
SECTION 3. Documentary Requirements. --- The non-stock, review of the application for tax exemption, the Bureau may require
nonprofit educational institution shall submit the following additional information or documents as the circumstances may
documents: warrant.

a. Original copy of the application letter for issuance of Tax SECTION 5. Validity of the Tax Exemption Ruling. --- Tax Exemption
Exemption Ruling; Rulings or Certificates of Tax Exemption of non-stock, nonprofit
educational institutions shall remain valid and effective, unless
recalled for valid grounds. They are not required to renew or WHEREFORE, we DENY the petition on the ground of mootness.
revalidate the Tax exemption rulings previously issued to them. We SET ASIDE the Decision dated 25 July 2014 and Joint
Resolution dated 29 October 2014 of the Regional Trial Court,
The Tax Exemption Ruling shall be subject to revocation if there are Branch 143, Makati City, declaring Revenue Memorandum Order
material changes in the character, purpose or method of operation of No. 20-2013 unconstitutional. The writ of preliminary injunction is
the corporation which are inconsistent with the basis for its income superseded by this Resolution.
tax exemption.
SO ORDERED.
SECTION 6. Transitory Provisions. --- To update the records of the
Bureau and for purposes of a better system of monitoring, non-stock,
nonprofit educational institutions with Tax Exemption Rulings or
Certificates of Exemption issued prior to June 30, 2012 are required
to apply for new Tax Exemption Rulings.

SECTION 7. Repealing Clause. --- Any revenue issuance which is


inconsistent with this Order is deemed revoked, repealed, or
modified accordingly.

SECTION 8. Effectivity. --- This Order shall take effect immediately.


(Emphases supplied)

A moot and academic case is one that ceases to present a


justiciable controversy by virtue of supervening events, so that an
adjudication of the case or a declaration on the issue would be of no
practical value or use.16 Courts generally decline jurisdiction over
such case or dismiss it on the ground of mootness.17

With the issuance of RMO No. 44-2016, a supervening event has


transpired that rendered this petition moot and academic, and
subject to denial.1âwphi1 The CIR, in her petition, assails the RTC
Decision finding RMO No. 20-2013 unconstitutional because it
violated the non-stock, non-profit educational institutions' tax
exemption privilege under the Constitution. However, subsequently,
RMO No. 44-2016 clarified that non-stock,
nonprofit educational institutions are excluded from the coverage of
RMO No. 20-2013. Consequently, the RTC Decision no longer
stands, and there is no longer any practical value in resolving the
issues raised in this petition.
Republic of the Philippines Plaintiff protested against this requirement, but the City Treasurer
SUPREME COURT demanded that plaintiff deposit and pay under protest the sum of
Manila P5,891.45, if suit was to be taken in court regarding the same
(Annex B). To avoid the closing of its business as well as further
EN BANC fines and penalties in the premises on October 24, 1953, plaintiff
paid to the defendant under protest the said permit and license fees
G.R. No. L-9637 April 30, 1957 in the aforementioned amount, giving at the same time notice to the
City Treasurer that suit would be taken in court to question the
legality of the ordinances under which, the said fees were being
AMERICAN BIBLE SOCIETY, plaintiff-appellant, collected (Annex C), which was done on the same date by filing the
vs. complaint that gave rise to this action. In its complaint plaintiff prays
CITY OF MANILA, defendant-appellee. that judgment be rendered declaring the said Municipal Ordinance
No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364
City Fiscal Eugenio Angeles and Juan Nabong for appellant. illegal and unconstitutional, and that the defendant be ordered to
Assistant City Fiscal Arsenio Nañawa for appellee. refund to the plaintiff the sum of P5,891.45 paid under protest,
together with legal interest thereon, and the costs, plaintiff further
FELIX, J.: praying for such other relief and remedy as the court may deem just
equitable.
Plaintiff-appellant is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in the Defendant answered the complaint, maintaining in turn that said
Philippines through its Philippine agency established in Manila in ordinances were enacted by the Municipal Board of the City of
November, 1898, with its principal office at 636 Isaac Peral in said Manila by virtue of the power granted to it by section 2444,
City. The defendant appellee is a municipal corporation with powers subsection (m-2) of the Revised Administrative Code, superseded on
that are to be exercised in conformity with the provisions of Republic June 18, 1949, by section 18, subsection (1) of Republic Act No.
Act No. 409, known as the Revised Charter of the City of Manila. 409, known as the Revised Charter of the City of Manila, and praying
that the complaint be dismissed, with costs against plaintiff. This
In the course of its ministry, plaintiff's Philippine agency has been answer was replied by the plaintiff reiterating the unconstitutionality
distributing and selling bibles and/or gospel portions thereof (except of the often-repeated ordinances.
during the Japanese occupation) throughout the Philippines and
translating the same into several Philippine dialects. On May 29 Before trial the parties submitted the following stipulation of facts:
1953, the acting City Treasurer of the City of Manila informed plaintiff
that it was conducting the business of general merchandise since COME NOW the parties in the above-entitled case, thru their
November, 1945, without providing itself with the necessary Mayor's undersigned attorneys and respectfully submit the following
permit and municipal license, in violation of Ordinance No. 3000, as stipulation of facts:
amended, and Ordinances Nos. 2529, 3028 and 3364, and required
plaintiff to secure, within three days, the corresponding permit and 1. That the plaintiff sold for the use of the purchasers at its
license fees, together with compromise covering the period from the principal office at 636 Isaac Peral, Manila, Bibles, New
4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of Testaments, bible portions and bible concordance in English
P5,821.45 (Annex A). and other foreign languages imported by it from the United
States as well as Bibles, New Testaments and bible portions 3rd quarter 1950 25,004.55
in the local dialects imported and/or purchased locally; that
from the fourth quarter of 1945 to the first quarter of 1953 4th quarter 1950 45,287.92
inclusive the sales made by the plaintiff were as follows:
1st quarter 1951 37,841.21

Quarter Amount of Sales 2nd quarter 1951 29,103.98

4th quarter 1945 P1,244.21 3rd quarter 1951 20,181.10

1st quarter 1946 2,206.85 4th quarter 1951 22,968.91

2nd quarter 1946 1,950.38 1st quarter 1952 23,002.65

3rd quarter 1946 2,235.99 2nd quarter 1952 17,626.96

4th quarter 1946 3,256.04 3rd quarter 1952 17,921.01

1st quarter 1947 13,241.07 4th quarter 1952 24,180.72

2nd quarter 1947 15,774.55 1st quarter 1953 29,516.21

3rd quarter 1947 14,654.13


2. That the parties hereby reserve the right to present
4th quarter 1947 12,590.94 evidence of other facts not herein stipulated.
1st quarter 1948 11,143.90
WHEREFORE, it is respectfully prayed that this case be set
2nd quarter 1948 14,715.26 for hearing so that the parties may present further evidence
on their behalf. (Record on Appeal, pp. 15-16).
3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90 When the case was set for hearing, plaintiff proved, among other
things, that it has been in existence in the Philippines since 1899,
1st quarter 1949 23,975.10 and that its parent society is in New York, United States of America;
that its, contiguous real properties located at Isaac Peral are exempt
2nd quarter 1949 17,802.08 from real estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the American
3rd quarter 1949 16,640.79 Bible Society in the United States pay any license fee or sales tax for
4th quarter 1949 15,961.38 the sale of bible therein. Plaintiff further tried to establish that it never
made any profit from the sale of its bibles, which are disposed of for
1st quarter 1950 18,562.46 as low as one third of the cost, and that in order to maintain its
operating cost it obtains substantial remittances from its New York
2nd quarter 1950 21,816.32 office and voluntary contributions and gifts from certain churches,
both in the United States and in the Philippines, which are interested
in its missionary work. Regarding plaintiff's contention of lack of profit 2. In holding that subsection m-2 of Section 2444 of the
in the sale of bibles, defendant retorts that the admissions of plaintiff- Revised Administrative Code under which Ordinances Nos.
appellant's lone witness who testified on cross-examination that 2592 and 3000 were promulgated, was not repealed by
bibles bearing the price of 70 cents each from plaintiff-appellant's Section 18 of Republic Act No. 409;
New York office are sold here by plaintiff-appellant at P1.30 each;
those bearing the price of $4.50 each are sold here at P10 each; 3. In not holding that an ordinance providing for taxes based
those bearing the price of $7 each are sold here at P15 each; and on gross sales or receipts, in order to be valid under the new
those bearing the price of $11 each are sold here at P22 each, Charter of the City of Manila, must first be approved by the
clearly show that plaintiff's contention that it never makes any profit President of the Philippines; and
from the sale of its bible, is evidently untenable.
4. In holding that, as the sales made by the plaintiff-appellant
After hearing the Court rendered judgment, the last part of which is have assumed commercial proportions, it cannot escape
as follows: from the operation of said municipal ordinances under the
cloak of religious privilege.
As may be seen from the repealed section (m-2) of the
Revised Administrative Code and the repealing portions (o) The issues. — As may be seen from the proceeding statement of the
of section 18 of Republic Act No. 409, although they case, the issues involved in the present controversy may be reduced
seemingly differ in the way the legislative intent is to the following: (1) whether or not the ordinances of the City of
expressed, yet their meaning is practically the same for the Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are
purpose of taxing the merchandise mentioned in said legal constitutional and valid; and (2) whether the provisions of said
provisions, and that the taxes to be levied by said ordinances are applicable or not to the case at bar.
ordinances is in the nature of percentage graduated taxes
(Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1,
Section 1, subsection (7) of Article III of the Constitution of the
Group 2, of Ordinance No. 2529, as amended by Ordinance Republic of the Philippines, provides that:
No. 3364).
(7) No law shall be made respecting an establishment of
IN VIEW OF THE FOREGOING CONSIDERATIONS, this
religion, or prohibiting the free exercise thereof, and the free
Court is of the opinion and so holds that this case should be exercise and enjoyment of religious profession and worship,
dismissed, as it is hereby dismissed, for lack of merits, with without discrimination or preference, shall forever be
costs against the plaintiff.
allowed. No religion test shall be required for the exercise of
civil or political rights.
Not satisfied with this verdict plaintiff took up the matter to the Court
of Appeals which certified the case to Us for the reason that the Predicated on this constitutional mandate, plaintiff-appellant
errors assigned to the lower Court involved only questions of law. contends that Ordinances Nos. 2529 and 3000, as respectively
amended, are unconstitutional and illegal in so far as its society is
Appellant contends that the lower Court erred: concerned, because they provide for religious censorship and
restrain the free exercise and enjoyment of its religious profession, to
1. In holding that Ordinances Nos. 2529 and 3000, as wit: the distribution and sale of bibles and other religious literature to
respectively amended, are not unconstitutional; the people of the Philippines.
Before entering into a discussion of the constitutional aspect of the Therefore, the necessity of the permit is made to depend upon the
case, We shall first consider the provisions of the questioned power of the City to license or tax said business, trade or occupation.
ordinances in relation to their application to the sale of bibles, etc. by
appellant. The records, show that by letter of May 29, 1953 (Annex As to the license fees that the Treasurer of the City of Manila
A), the City Treasurer required plaintiff to secure a Mayor's permit in required the society to pay from the 4th quarter of 1945 to the 1st
connection with the society's alleged business of distributing and quarter of 1953 in the sum of P5,821.45, including the sum of P50 as
selling bibles, etc. and to pay permit dues in the sum of P35 for the compromise, Ordinance No. 2529, as amended by Ordinances Nos.
period covered in this litigation, plus the sum of P35 for compromise 2779, 2821 and 3028 prescribes the following:
on account of plaintiff's failure to secure the permit required by
Ordinance No. 3000 of the City of Manila, as amended. This
SEC. 1. FEES. — Subject to the provisions of section 578 of
Ordinance is of general application and not particularly directed
the Revised Ordinances of the City of Manila, as amended,
against institutions like the plaintiff, and it does not contain any
there shall be paid to the City Treasurer for engaging in any
provisions whatever prescribing religious censorship nor restraining
of the businesses or occupations below enumerated,
the free exercise and enjoyment of any religious profession. Section quarterly, license fees based on gross sales or receipts
1 of Ordinance No. 3000 reads as follows: realized during the preceding quarter in accordance with the
rates herein prescribed: PROVIDED, HOWEVER, That a
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for person engaged in any businesses or occupation for the first
any person or entity to conduct or engage in any of the time shall pay the initial license fee based on the probable
businesses, trades, or occupations enumerated in Section 3 gross sales or receipts for the first quarter beginning from
of this Ordinance or other businesses, trades, or occupations the date of the opening of the business as indicated herein
for which a permit is required for the proper supervision and for the corresponding business or occupation.
enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health
xxx xxx xxx
of the employees engaged in the business specified in said
section 3 hereof, WITHOUT FIRST HAVING OBTAINED A
PERMIT THEREFOR FROM THE MAYOR AND THE GROUP 2. — Retail dealers in new (not yet used)
NECESSARY LICENSE FROM THE CITY TREASURER. merchandise, which dealers are not yet subject to the
payment of any municipal tax, such as (1) retail dealers in
general merchandise; (2) retail dealers exclusively engaged
The business, trade or occupation of the plaintiff involved in this case in the sale of . . . books, including stationery.
is not particularly mentioned in Section 3 of the Ordinance, and the
record does not show that a permit is required therefor under existing
laws and ordinances for the proper supervision and enforcement of xxx xxx xxx
their provisions governing the sanitation, security and welfare of the
public and the health of the employees engaged in the business of As may be seen, the license fees required to be paid quarterly in
the plaintiff. However, sections 3 of Ordinance 3000 contains item Section 1 of said Ordinance No. 2529, as amended, are not imposed
No. 79, which reads as follows: directly upon any religious institution but upon those engaged in any
of the business or occupations therein enumerated, such as retail
79. All other businesses, trades or occupations not "dealers in general merchandise" which, it is alleged, cover the
mentioned in this Ordinance, except those upon which the business or occupation of selling bibles, books, etc.
City is not empowered to license or to tax P5.00
Chapter 60 of the Revised Administrative Code which includes Often the legislature, instead of simply amending the pre-
section 2444, subsection (m-2) of said legal body, as amended by existing statute, will repeal the old statute in its entirety and
Act No. 3659, approved on December 8, 1929, empowers the by the same enactment re-enact all or certain portions of the
Municipal Board of the City of Manila: preexisting law. Of course, the problem created by this sort
of legislative action involves mainly the effect of the repeal
(M-2) To tax and fix the license fee on (a) dealers in new upon rights and liabilities which accrued under the original
automobiles or accessories or both, and (b) retail dealers in statute. Are those rights and liabilities destroyed or
new (not yet used) merchandise, which dealers are not yet preserved? The authorities are divided as to the effect of
subject to the payment of any municipal tax. simultaneous repeals and re-enactments. Some adhere to
the view that the rights and liabilities accrued under the
repealed act are destroyed, since the statutes from which
For the purpose of taxation, these retail dealers shall be
they sprang are actually terminated, even though for only a
classified as (1) retail dealers in general merchandise, and
very short period of time. Others, and they seem to be in the
(2) retail dealers exclusively engaged in the sale of (a)
majority, refuse to accept this view of the situation, and
textiles . . . (e) books, including stationery, paper and office
supplies, . . .: PROVIDED, HOWEVER, That the combined consequently maintain that all rights an liabilities which have
accrued under the original statute are preserved and may be
total tax of any debtor or manufacturer, or both, enumerated
enforced, since the re-enactment neutralizes the repeal,
under these subsections (m-1) and (m-2), whether dealing in
therefore, continuing the law in force without interruption.
one or all of the articles mentioned herein, SHALL NOT BE
IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM. (Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409
and appellee's counsel maintains that City Ordinances Nos. 2529
introduces a new and wider concept of taxation and is different from
and 3000, as amended, were enacted in virtue of the power that said
the provisions of Section 2444(m-2) that the former cannot be
Act No. 3669 conferred upon the City of Manila. Appellant, however,
considered as a substantial re-enactment of the provisions of the
contends that said ordinances are longer in force and effect as the
law under which they were promulgated has been expressly latter. We have quoted above the provisions of section 2444(m-2) of
repealed by Section 102 of Republic Act No. 409 passed on June 18, the Revised Administrative Code and We shall now copy hereunder
the provisions of Section 18, subdivision (o) of Republic Act No. 409,
1949, known as the Revised Manila Charter.
which reads as follows:
Passing upon this point the lower Court categorically stated that
(o) To tax and fix the license fee on dealers in general
Republic Act No. 409 expressly repealed the provisions of Chapter
merchandise, including importers and indentors, except
60 of the Revised Administrative Code but in the opinion of the trial
those dealers who may be expressly subject to the payment
Judge, although Section 2444 (m-2) of the former Manila Charter
of some other municipal tax under the provisions of this
and section 18 (o) of the new seemingly differ in the way the
section.
legislative intent was expressed, yet their meaning is practically the
same for the purpose of taxing the merchandise mentioned in both
legal provisions and, consequently, Ordinances Nos. 2529 and 3000, Dealers in general merchandise shall be classified as (a)
as amended, are to be considered as still in full force and effect wholesale dealers and (b) retail dealers. For purposes of the
uninterruptedly up to the present. 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 but this requirement of the President's approval was not contained in
prescribed for each class but where commodities of different section 2444 of the former Charter of the City of Manila under which
classes are sold in the same establishment, it shall not be Ordinance No. 2529 was promulgated. Anyway, as stated by
compulsory for the owner to secure more than one license if appellee's counsel, the business of "retail dealers in general
he pays the higher or highest rate of tax prescribed by merchandise" is expressly enumerated in subsection (o), section 18
ordinance. Wholesale dealers shall pay the license tax as of Republic Act No. 409; hence, an ordinance prescribing a
such, as may be provided by ordinance. municipal tax on said business does not have to be approved by the
President to be effective, as it is not among those referred to in said
For purposes of this section, the term "General subsection (ii). Moreover, the questioned ordinances are still in force,
merchandise" shall include poultry and livestock, agricultural having been promulgated by the Municipal Board of the City of
products, fish and other allied products. Manila under the authority granted to it by law.

The only essential difference that We find between these two The question that now remains to be determined is whether said
provisions that may have any bearing on the case at bar, is that, ordinances are inapplicable, invalid or unconstitutional if applied to
while subsection (m-2) prescribes that the combined total tax of any the alleged business of distribution and sale of bibles to the people of
dealer or manufacturer, or both, enumerated under subsections (m- the Philippines by a religious corporation like the American Bible
1) and (m-2), whether dealing in one or all of the articles mentioned Society, plaintiff herein.
therein, shall not be in excess of P500 per annum, the corresponding
section 18, subsection (o) of Republic Act No. 409, does not contain With regard to Ordinance No. 2529, as amended by Ordinances
any limitation as to the amount of tax or license fee that the retail Nos. 2779, 2821 and 3028, appellant contends that it is
dealer has to pay per annum. Hence, and in accordance with the unconstitutional and illegal because it restrains the free exercise and
weight of the authorities above referred to that maintain that "all enjoyment of the religious profession and worship of appellant.
rights and liabilities which have accrued under the original statute are
preserved and may be enforced, since the reenactment neutralizes Article III, section 1, clause (7) of the Constitution of the Philippines
the repeal, therefore continuing the law in force without interruption", aforequoted, guarantees the freedom of religious profession and
We hold that the questioned ordinances of the City of Manila are still worship. "Religion has been spoken of as a profession of faith to an
in force and effect. active power that binds and elevates man to its Creator" (Aglipay vs.
Ruiz, 64 Phil., 201).It has reference to one's views of his relations to
Plaintiff, however, argues that the questioned ordinances, to be valid, His Creator and to the obligations they impose of reverence to His
must first be approved by the President of the Philippines as per being and character, and obedience to His Will (Davis vs. Beason,
section 18, subsection (ii) of Republic Act No. 409, which reads as 133 U.S., 342). The constitutional guaranty of the free exercise and
follows: enjoyment of religious profession and worship carries with it the right
to disseminate religious information. Any restraints of such right can
(ii) To tax, license and regulate any business, trade or only be justified like other restraints of freedom of expression on the
occupation being conducted within the City of Manila, not grounds that there is a clear and present danger of any substantive
otherwise enumerated in the preceding subsections, evil which the State has the right to prevent". (Tañada and Fernando
including percentage taxes based on gross sales or receipts, on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the
subject to the approval of the PRESIDENT, except case at bar the license fee herein involved is imposed upon appellant
amusement taxes. for its distribution and sale of bibles and other religious literature:
In the case of Murdock vs. Pennsylvania, it was held that an all those who do not have a full purse. Spreading religious
ordinance requiring that a license be obtained before a beliefs in this ancient and honorable manner would thus be
person could canvass or solicit orders for goods, paintings, denied the needy. . . .
pictures, wares or merchandise cannot be made to apply to
members of Jehovah's Witnesses who went about from door It is contended however that the fact that the license tax can
to door distributing literature and soliciting people to suppress or control this activity is unimportant if it does not
"purchase" certain religious books and pamphlets, all do so. But that is to disregard the nature of this tax. It is a
published by the Watch Tower Bible & Tract Society. The license tax — a flat tax imposed on the exercise of a
"price" of the books was twenty-five cents each, the "price" privilege granted by the Bill of Rights . . . The power to
of the pamphlets five cents each. It was shown that in impose a license tax on the exercise of these freedom is
making the solicitations there was a request for additional indeed as potent as the power of censorship which this
"contribution" of twenty-five cents each for the books and Court has repeatedly struck down. . . . It is not a nominal fee
five cents each for the pamphlets. Lesser sum were imposed as a regulatory measure to defray the expenses of
accepted, however, and books were even donated in case policing the activities in question. It is in no way apportioned.
interested persons were without funds. It is flat license tax levied and collected as a condition to the
pursuit of activities whose enjoyment is guaranteed by the
On the above facts the Supreme Court held that it could not constitutional liberties of press and religion and inevitably
be said that petitioners were engaged in commercial rather tends to suppress their exercise. That is almost uniformly
than a religious venture. Their activities could not be recognized as the inherent vice and evil of this flat license
described as embraced in the occupation of selling books tax."
and pamphlets. Then the Court continued:
Nor could dissemination of religious information be
"We do not mean to say that religious groups and the press conditioned upon the approval of an official or manager even
are free from all financial burdens of government. if the town were owned by a corporation as held in the case
See Grosjean vs. American Press Co., 297 U.S., 233, 250, of Marsh vs. State of Alabama (326 U.S. 501), or by the
80 L. ed. 660, 668, 56 S. Ct. 444. We have here something United States itself as held in the case of Tucker vs. Texas
quite different, for example, from a tax on the income of one (326 U.S. 517). In the former case the Supreme Court
who engages in religious activities or a tax on property used expressed the opinion that the right to enjoy freedom of the
or employed in connection with activities. It is one thing to press and religion occupies a preferred position as against
impose a tax on the income or property of a preacher. It is the constitutional right of property owners.
quite another to exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the City of "When we balance the constitutional rights of owners of
Jeannette is a flat license tax, payment of which is a property against those of the people to enjoy freedom of
condition of the exercise of these constitutional privileges. press and religion, as we must here, we remain mindful of
The power to tax the exercise of a privilege is the power to the fact that the latter occupy a preferred position. . . . In our
control or suppress its enjoyment. . . . Those who can tax the view the circumstance that the property rights to the
exercise of this religious practice can make its exercise so premises where the deprivation of property here involved,
costly as to deprive it of the resources necessary for its took place, were held by others than the public, is not
maintenance. Those who can tax the privilege of engaging in sufficient to justify the State's permitting a corporation to
this form of missionary evangelism can close all its doors to govern a community of citizens so as to restrict their
fundamental liberties and the enforcement of such restraint right granted by the Constitution, nor tax the exercise of religious
by the application of a State statute." (Tañada and Fernando practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427,
on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304- this point was elucidated as follows:
306).
An ordinance by the City of Griffin, declaring that the practice
Section 27 of Commonwealth Act No. 466, otherwise known as the of distributing either by hand or otherwise, circulars,
National Internal Revenue Code, provides: handbooks, advertising, or literature of any kind, whether
said articles are being delivered free, or whether same are
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. being sold within the city limits of the City of Griffin, without
— The following organizations shall not be taxed under this first obtaining written permission from the city manager of
Title in respect to income received by them as such — the City of Griffin, shall be deemed a nuisance and
punishable as an offense against the City of Griffin, does not
deprive defendant of his constitutional right of the free
(e) Corporations or associations organized and operated
exclusively for religious, charitable, . . . or educational exercise and enjoyment of religious profession and worship,
even though it prohibits him from introducing and carrying
purposes, . . .: Provided, however, That the income of
out a scheme or purpose which he sees fit to claim as a part
whatever kind and character from any of its properties, real
of his religious system.
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; It seems clear, therefore, that Ordinance No. 3000 cannot be
considered unconstitutional, even if applied to plaintiff Society. But
as Ordinance No. 2529 of the City of Manila, as amended, is not
Appellant's counsel claims that the Collector of Internal Revenue has
applicable to plaintiff-appellant and defendant-appellee is powerless
exempted the plaintiff from this tax and says that such exemption
to license or tax the business of plaintiff Society involved herein for,
clearly indicates that the act of distributing and selling bibles, etc. is
purely religious and does not fall under the above legal provisions. as stated before, it would impair plaintiff's right to the free exercise
and enjoyment of its religious profession and worship, as well as its
rights of dissemination of religious beliefs, We find that Ordinance
It may be true that in the case at bar the price asked for the bibles No. 3000, as amended is also inapplicable to said business, trade or
and other religious pamphlets was in some instances a little bit occupation of the plaintiff.
higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said
Wherefore, and on the strength of the foregoing considerations, We
"merchandise" for profit. For this reason We believe that the
hereby reverse the decision appealed from, sentencing defendant
provisions of City of Manila Ordinance No. 2529, as amended,
return to plaintiff the sum of P5,891.45 unduly collected from it.
cannot be applied to appellant, for in doing so it would impair its free
Without pronouncement as to costs. It is so ordered.
exercise and enjoyment of its religious profession and worship as
well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires


the obtention the Mayor's permit before any person can engage in
any of the businesses, trades or occupations enumerated therein,
We do not find that it imposes any charge upon the enjoyment of a
FIRST DIVISION observed by the Solicitor General, the facts of this case show that
petitioner’s failure to appeal to the Office of the President on time
[G.R. No. 73705. August 27, 1987.] stems entirely from its own negligence and not from a purported
ignorance of the proper procedural steps to take. Petitioner had been
VICTORIAS MILLING CO., INC., Petitioner, v. OFFICE OF THE aware of the rules governing PPA procedures. In fact, as embodied
PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS and in the December 16, 1985 Order of the Office of the President,
petitioner even assailed the PPA’s rule making powers at the hearing
PHILIPPINE PORTS AUTHORITY, Respondents.
before the Court of Tax Appeals. It is axiomatic that the right to
appeal is merely a statutory privilege and may be exercised only in
the manner and in accordance with the provision of law (United CMC
SYLLABUS Textile Workers Union v. Clave, 137 SCRA 346, citing the cases of
Bello v. Fernando, 4 SCRA 138; Aguila v. Navarro, 55 Phil. 898; and
Santiago v. Valenzuela, 78 Phil. 397).
1. ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY;
EMPOWERED TO PROMULGATE RULES AS AID IN 4. TAXATION; NATIONAL INTERNAL REVENUE CODE;
ACCOMPLISHING ITS PURPOSE. — While it is true that neither BERTHING CHARGES; COLLECTED FOR THE PRIVILEGE OF
Presidential Decree No. 505 nor Presidential Decree No. 857 NAVIGATING IN PUBLIC HARBORS, STREAMS OR WATERS. —
provides for the remedy of appeal to the Office of the President, As correctly stated by the Solicitor General, the fees and charges
nevertheless, Presidential Decree No. 857 empowers the PPA to PPA collects are not for the use of the wharf that petitioner owns but
promulgate such rules as would aid it in accomplishing its purpose. for the privilege of navigating in public waters, of entering and
Section 6 of the said Decree provides — "Sec. 6. Corporate Powers leaving public harbors and berthing on public streams or waters.
and Duties — "a. The corporate duties of the Authority shall be: ". . . . (Rollo, pp. 056-057). In Compañia General de Tabacos de Filipinas
(III) To prescribe rules and regulations, procedures, and guidelines v. Actg. Commissioner of Customs (23 SCRA 600), this Court laid
governing the establishment, construction, maintenance, and down the rule that berthing charges against a vessel are collectible
operation of all other ports, including private ports in the country.." . . regardless of the fact that mooring or berthing is made from a private
. Pursuant to the aforequoted provision, PPA enacted Administrative pier or wharf. This is because the government maintains bodies of
Order No. 13-77 precisely to govern, among others, appeals from water in navigable condition and it is to support its operations in this
PPA decisions. regard that dues and charges are imposed for the use of piers and
wharves regardless of their ownership.
2. ID.; ID.; ID.; ADMINISTRATIVE RULES AND REGULATIONS
HAVE THE FORCE AND EFFECT OF LAW. — It is now finally 5. ID.; ID.; HANDLING CHARGES; 10% THEREOF TO BE
settled that administrative rules and regulations issued in accordance REMITTED TO THE NATIONAL GOVERNMENT, IN THE NATURE
with law, like PPA Administrative Order No. 13-77, have the force OF CONTRACTUAL COMPENSATION. — As to the requirement to
and effect of law (Valerio v. Secretary of Agriculture and Natural remit 10% of the handling charges, Section 6B-(ix) of the Presidential
Resources, 7 SCRA 719; Antique Sawmills, Inc. v. Zayco, Et Al., 17 Decree No. 857 authorized the PPA "To levy dues, rates, or charges
SCRA 316; and Macailing v. Andrada, 31 SCRA 126), and are for the use of the premises, works, appliances, facilities, or for
binding on all persons dealing with that body. services provided by or belonging to the Authority, or any
organization concerned with port operations." This 10% government
3. REMEDIAL LAW; ACTIONS; RIGHT TO APPEAL, A share of earnings of arrastre and stevedoring operators is in the
STATUTORY PRIVILEGE. — It must be stated that as correctly nature of contractual compensation to which a person desiring to
operate arrastre service must agree as a condition to the grant of the denied on January 14, 1982.
permit to operate.
On March 29, 1982, petitioner served notice to PPA that it is
appealing the case to the Court of Tax Appeals; and accordingly, on
DECISION March 31, 1982, petitioner filed a Petition for Review with the said
Court, entitled "Victorias Milling Co., Inc. v. Philippine Ports
Authority," and docketed therein as CTA Case No. 3466.
PARAS, J.:
On January 10, 1984, the Court of Tax Appeals dismissed
petitioner’s action on the ground that it has no jurisdiction. It
This is a petition for review on certiorari of the July 27, 1984 Decision recommended that the appeal be addressed to the Office of the
of the Office of the Presidential Assistant For Legal Affairs dismissing President.
the appeal from the adverse ruling of the Philippine Ports Authority
on the sole ground that the same was filed beyond the reglementary On January 23, 1984, petitioner filed a Petition for Review with this
period. Court, docketed as G.R. No. 66381, but the same was denied in a
Resolution dated February 29, 1984.
On April 28, 1981, the Iloilo Port Manager of respondent Philippine
Ports Authority (PPA for short) wrote petitioner Victorias Milling Co., On April 2, 1984, petitioner filed an appeal with the Office of the
requiring it to have its tugboats and barges undergo harbor President, but in a Decision dated July 27, 1984 (Record, p. 22), the
formalities and pay entrance/clearance fees as well as berthing fees same was denied on the sole ground that it was filed beyond the
effective May 1, 1981. PPA, likewise, requiring petitioner to secure a reglementary period. A motion for Reconsideration was filed, but in
permit for cargo handling operations at its Da-an Banua wharf and an Order dated December 16, 1985, the same was denied (ibid., pp.
remit 10% of its gross income for said operations as the 3-21): Hence, the instant petition.
government’s share.
The Second Division of this Court, in a Resolution dated June 2,
To these demands, petitioner sent two (2) letters, both dated June 2, 1986, resolved to require the respondents to comment (ibid., p. 45);
1981, wherein it maintained that it is exempt from paying PPA any and in compliance therewith, the Solicitor General filed his Comment
fee or charge because: (1) the wharf and all its facilities were built on June 4, 1986 (Ibid., pp. 50-59).
and installed in its land; (2) repair and maintenance thereof were and
solely paid by it; (3) even the dredging and maintenance of the In a Resolution of July 2, 1986, petitioner was required to file a reply
Malijao River Channel from Guimaras Strait up to said private wharf (Ibid., p. 61) but before receipt of said resolution, the latter filed a
are being done by petitioner’s equipment and personnel; and (4) at motion on July 1, 1986 praying that it be granted leave to file a reply
no time has the government ever spent a single centavo for such to respondents’ Comment, and an extension of time up to June 30,
activities. Petitioner further added that the wharf was being used 1986 within which to file the same. (Ibid., p. 62).
mainly to handle sugar purchased from district planters pursuant to
existing milling agreements.chanrobles law library On July 18, 1986, petitioner filed its reply to respondents’ Comment
(Ibid., pp. 68-76).
In reply, on November 3, 1981, PPA Iloilo sent petitioner a
memorandum of PPA’s Executive Officer, Maximo Dumlao, which The Second Division of this Court, in a Resolution dated August 25,
justified the PPA’s demands. Further request for reconsideration was 1986, resolved to give due course to the petition and to require the
parties to file their respective simultaneous memoranda (Ibid., p. 78). the PPA is vested merely with corporate powers and duties (Sec. 6),
which do not and can not include the power to legislate on
On October 8, 1986, the Solicitor General filed a Manifestation and procedural matters, much less to effectively take away from the
Rejoinder, stating, among others, that respondents are adopting en Court of Tax Appeals the latter’s appellate jurisdiction.
toto their Comment of June 3, 1986 as their memorandum; with the
clarification that the assailed PPA Administrative Order No. 13-77 These contentions are untenable for while it is true that neither
was duly published in full in the nationwide circulated newspaper, Presidential Decree No. 505 nor Presidential Decree No. 857
"The Times Journal", on November 9, 1977 (ibid., pp. 79- provides for the remedy of appeal to the Office of the President,
81).chanrobles virtual lawlibrary nevertheless, Presidential Decree No. 857 empowers the PPA to
promulgate such rules as would aid it in accomplishing its purpose.
The sole legal issue raised by the petitioner is — Section 6 of the said Decree provides —

WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL UNDER "Sec. 6. Corporate Powers and Duties —
SECTION 131 OF PPA ADMINISTRATIVE ORDER NO. 13-77 WAS
TOLLED BY THE PENDENCY OF THE PETITIONS FILED FIRST "a. The corporate duties of the Authority shall
WITH THE COURT OF TAX APPEALS, AND THEN WITH THIS be:jgc:chanrobles.com.ph
HONORABLE TRIBUNAL.
"x x x.
The instant petition is devoid of merit.
(III) To prescribe rules and regulations, procedures, and guidelines
Petitioner, in holding that the recourse first to the Court of Tax governing the establishment, construction, maintenance, and
Appeals and then to this Court tolled the period to appeal, submits operation of all other ports, including private ports in the country.
that it was guided, in good faith, by considerations which lead to the
assumption that procedural rules of appeal then enforced still hold "x x x."
true. It contends that when Republic Act No. 1125 (creating the Court
of Tax Appeals) was passed in 1955, PPA was not yet in existence; Pursuant to the aforequoted provision, PPA enacted Administrative
and under the said law, the Court of Tax Appeals had exclusive Order No. 13-77 precisely to govern, among others, appeals from
appellate jurisdiction over appeals from decisions of the PPA decisions. It is now finally settled that administrative rules and
Commissioner of Customs regarding, among others, customs duties, regulations issued in accordance with law, like PPA Administrative
fees and other money charges imposed by the Bureau under the Order No. 13-77, have the force and effect of law (Valerio v.
Tariff and Customs Code. On the other hand, neither in Presidential Secretary of Agriculture and Natural Resources, 7 SCRA 719;
Decree No. 505, creating the PPA on July 11, 1974 nor in Antique Sawmills, Inc. v. Zayco, Et Al., 17 SCRA 316; and Macailing
Presidential Decree No. 857, revising its charter (said decrees, v. Andrada, 31 SCRA 126), and are binding on all persons dealing
among others, merely transferred to the PPA the powers of the with that body.chanrobles.com.ph : virtual law library
Bureau of Customs to impose and collect customs duties, fees and
other money charges concerning the use of ports and facilities As to petitioner’s contention that Administrative Order No. 13-77,
thereat) is there any provision governing appeals from decisions of specifically its Section 131, only provides for appeal when the
the PPA on such matters, so that it is but reasonable to seek decision is adverse to the government, worth mentioning is the
recourse with the Court of Tax Appeals. Petitioner, likewise, observation of the Solicitor General that petitioner misleads the
contends that an analysis of Presidential Decree No. 857, shows that Court. Said Section 131 provides —
397).chanrobles.com.ph : virtual law library
"Sec. 131. Supervisory Authority of General Manager and PPA
Board. — If in any case involving assessment of port charges, the Furthermore, even if petitioner’s appeal were to be given due course,
Port Manager/OIC renders a decision adverse to the government, the result would still be the same as it does not present a
such decision shall automatically be elevated to, and reviewed by, substantially meritorious case against the PPA.
the General Manager of the authority; and if the Port Manager’s
decision would be affirmed by the General Manager, such decision Petitioner maintains and submits that there is no basis for the PPA to
shall be subject to further affirmation by the PPA Board before it shall assess and impose the dues and charges it is collecting, since the
become effective; Provided, however, that if within thirty (30) days wharf is private, constructed and maintained at no expense to the
from receipt of the record of the case by the General Manager, no government, and that it exists primarily so that its tugboats and
decision is rendered, the decision under review shall become final barges may ferry the sugarcane of its Panay planters.
and executory; Provided further, that any party aggrieved by the
decision of the General Manager as affirmed by the PPA Board may As correctly stated by the Solicitor General, the fees and charges
appeal said decision to the Office of the President within thirty (30) PPA collects are not for the use of the wharf that petitioner owns but
days from receipt of a copy thereof." (Emphasis supplied). for the privilege of navigating in public waters, of entering and
leaving public harbors and berthing on public streams or waters.
From a cursory reading of the aforequoted provision, it is evident that (Rollo, pp. 056-057).
the above contention has no basis.
In Compañia General de Tabacos de Filipinas v. Actg.
As to petitioner’s allegation that to its recollection there had been no Commissioner of Customs (23 SCRA 600), this Court laid down the
prior publication of said PPA Administrative Order No. 13-77, the rule that berthing charges against a vessel are collectible regardless
Solicitor General correctly pointed out that said Administrative Order of the fact that mooring or berthing is made from a private pier or
was duly published in full in the nationwide newspaper, "The Times wharf. This is because the government maintains bodies of water in
Journal", on November 9, 1977. navigable condition and it is to support its operations in this regard
that dues and charges are imposed for the use of piers and wharves
Moreover, it must be stated that as correctly observed by the regardless of their ownership.
Solicitor General, the facts of this case show that petitioner’s failure
to appeal to the Office of the President on time stems entirely from As to the requirement to remit 10% of the handling charges, Section
its own negligence and not from a purported ignorance of the proper 6B-(ix) of the Presidential Decree No. 857 authorized the PPA "To
procedural steps to take. Petitioner had been aware of the rules levy dues, rates, or charges for the use of the premises, works,
governing PPA procedures. In fact, as embodied in the December appliances, facilities, or for services provided by or belonging to the
16, 1985 Order of the Office of the President, petitioner even Authority, or any organization concerned with port operations." This
assailed the PPA’s rule making powers at the hearing before the 10% government share of earnings of arrastre and stevedoring
Court of Tax Appeals. operators is in the nature of contractual compensation to which a
person desiring to operate arrastre service must agree as a condition
It is axiomatic that the right to appeal is merely a statutory privilege to the grant of the permit to operate.
and may be exercised only in the manner and in accordance with the
provision of law (United CMC Textile Workers Union v. Clave, 137 PREMISES CONSIDERED, the instant petition is hereby
SCRA 346, citing the cases of Bello v. Fernando, 4 SCRA 138; DISMISSED.
Aguila v. Navarro, 55 Phil. 898; and Santiago v. Valenzuela, 78 Phil. SO ORDERED.
SECOND DIVISION monthly statements of policies issued; and from 1957 to 1958
documentary stamps were bought and affixed to the corresponding
[G.R. No. L-30644. March 9, 1987.] pages of the policy register, instead of on the insurance policies
issued. On July 3, 1959, respondent company discovered that its
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. monthly statements of business and policy register were lost. The
FIREMAN’S FUND INSURANCE COMPANY and the COURT OF loss was reported to the Building Administration of Ayala Building
TAX APPEALS, Respondents. and the National Bureau of Investigation on July 6, 1959. Herein
petitioner was also informed of such loss by respondent company,
B.V . Abela, M.C. Gutierrez & F.J . Malate, Jr., for Respondents. through the latter’s auditors, Sycip, Gorres and Velayo, in a letter
dated July, 14, 1959. After conducting an investigation of said loss,
petitioner’s examiner’s examiner ascertained that respondent
DECISION company failed to affix the required documentary stamps to the
insurance policies issued by it and failed to preserve its accounting
records within the time prescribed by Section 337 of the Revenue
PARAS, J.: Code by using loose leaf forms as registers of documentary stamps
without written authority from the Commissioner of Internal Revenue
as required by Section 4 of Revenue Regulations No. V-1. As a
This is an appeal from the decision of the respondent Court of Tax consequence of these findings, Petitioner, in a letter dated
Appeals dated May 24, 1969, in C.T.A. Case No. 1629, entitled December 7, 1962, assessed and demanded from petitioner the
"FIREMAN’S FUND INSURANCE COMPANY v. COMMISSIONER payment of documentary stamp taxes for the years 1952 to 1958 in
OF INTERNAL REVENUE," which reversed the decision of petitioner the total amount of P79,806.87 and plus compromise penalties, a
Commissioner of Internal Revenue holding private respondent total of P81,406.87.
Fireman’s Fund Insurance Company liable for the payment of the
amount of P81,406.87 as documentary stamp taxes and compromise A breakdown of the amount of taxes due and collectible are as
penalties for the years 1952 to 1958.chanroblesvirtualawlibrary follows:chanrob1es virtual 1aw library

Private respondent is a resident foreign insurance corporation YEAR AMOUNT


organized under the laws of the United States, authorized and duly
licensed to do business in the Philippines. It is a member of the 1952 P6,500.00
American Foreign Insurance Association, through which its business
is cleared (Brief for Respondents, pp. 1-2). 1953 9,977.72

The antecedent facts of this case are as follows:chanrob1es virtual 1954 10,908.89
1aw library
1955 14,204.52
From January, 1952 to December, 1958, herein private respondent
Fireman’s Fund Insurance Company entered into various insurance 1956 12,108.26
contracts involving casualty, fire and marine risks, for which the
corresponding insurance policies were issued. From January, 1952 1957 7,880.68
to 1956, documentary stamps were bought and affixed to the
1958 16,257.60 the assessment. After petitioner denied the protest in a decision
dated March 17, 1965, respondent company appealed to the
Total stamp taxes due on respondent Court of Tax Appeals on May 8, 1965. After hearing
respondent court rendered its decision dated May 24, 1969 (Rollo,
policies issued from 1952 to 1958 77,837.67 pp. 16-21) reversing the decision of the Commissioner of Internal
Revenue. The assailed decision reads in part:jgc:chanrobles.com.ph
Add: Stamp taxes on monthly
"The affixture of documentary stamps to papers other than those
statements during:chanrob1es virtual 1aw library authorized by law is not tantamount to failure to pay the same. It is
true that the mode of affixing the stamps as prescribed by law was
1957 1,218.35 not followed, but the fact remains that the documentary stamps
corresponding to the various insurance policies were purchased and
1958 3,264.39 paid by petitioner. There is no legal justification for respondent to
require petitioner to pay again the documentary stamp tax which it
———— had already paid. To sustain respondent’s stand would require
petitioner to pay the same tax twice. If at all, petitioner should be
Total P82,320.41 proceeded against for failure to comply with the requirement of
affixing the documentary stamps to the taxable insurance policies
Less: Stamp taxes paid per voucher shown:chanrob1es virtual 1aw and not for failure to pay the tax. (See Sec. 239 and 332, Rev.
library Code).

1957 P 416.82 "It should be observed that the law allows the affixture of
documentary stamps `to such other paper as may be indicated by
1958 2,096.72 2,513.54 law or regulations as the proper recipient of the stamp.’ It appears
from this provision that respondent has authority to allow
——— documentary stamps to be affixed to papers other than the
documents or instruments taxed. Although the practice adopted by
AMOUNT DUE & COLLECTIBLE P79,906.87 petitioner in affixing the documentary stamps to the business
statements and policy register was without specific permission from
======= respondent but only on the strength of his ruling given to Wise &
Company (see Petitioner’s Memorandum, p. 176, CTA rec.; p. 24,
(CTA Decision, Rollo, pp. 16-17). t.s.n.), one of the general agents of petitioner, however, considering
that petitioner actually purchased the documentary stamps, affixed
The compromise penalties consisted of the sum of P1,000.00 as them to the business statements and policy register and cancelled
penalty for the alleged failure to affix documentary stamps and the the stamps by perforating them, we hold that petitioner cannot be
further sum of P600.00 as penalty for an alleged violation of held liable to pay again the same tax.
Revenue Regulations No. V-1 otherwise known as the Bookkeeping
Regulations (Brief for Respondents, p. 4). "With respect to the ‘compromise penalties’ in the total sum of
P1,600.00, suffice it to say that penalties cannot be imposed in the
In a letter dated January 14, 1963, respondent company contested absence of a showing that petitioner consented thereto. A
compromise implies agreement. If the offer is rejected by the Code while medical certificate is taxable under Section 237 of the
taxpayer, as in this case, respondent cannot enforce it except same Code.
through a criminal action. (See Comm. of Int. Rev. v. Abad, L-19627,
June 27, 1968.)" (CTA Decision, Rollo, pp. 20-21). "Insurance policies are issued in the place where delivered to the
person insured." (As amended.)
Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).
"SEC. 221. Stamp tax on policies of insurance upon property. — On
The petition is devoid of merit. all policies of insurance or other instruments by whatever name the
same may be called, by which insurance shall be made or renewed
The principal issue in this case is whether or not respondent upon property of any description, including rents or profits, against
company may be required to pay again the documentary stamps it peril by sea or on inland waters, or by fire or lightning, there shall be
has actually purchased, affixed and cancelled. collected a documentary stamp tax of six centavos on each four
persons, or fractional part thereof, of the amount of premium
The relevant provisions of the National Internal Revenue Code charged." (Now Sec. 250.).
provide:jgc:chanrobles.com.ph
"SEC. 237. Payment of documentary stamp tax. — Documentary
"SEC. 210. Stamp taxes upon documents, instruments, and papers. stamp taxes shall be paid by the purchase and affixture of
— Upon documents, instruments, and papers, and upon documentary stamps to the document or instrument taxed or to such
acceptances, assignments, sales, and transfers of the obligation, other paper as may be indicated by law or regulations as the proper
right, or property incident thereto, there shall be levied, collected and recepient of the stamp, and by the subsequent cancellation of same,
paid, for and in respect of the transaction so had or accomplished, such cancellation to be accomplished by writing, stamping, or
the corresponding documentary stamp taxes prescribed in the perforating the date of the cancellation across the face of each
following sections of this Title, by the person making, signing, stamp in such manner that part of the writing, impression, or
issuing, accepting, or transferring the same, and at the same time perforation shall be on the stamp itself and part on the paper to
such act is done or transaction had." (Now. Sec. 222). which it is attached; Provided, That if the cancellation is
accomplished by writing or stamping the date of cancellation, a hole
"SEC. 232. Stamp tax on life insurance policies. — On all policies of sufficiently large to be visible to the naked eye shall be punched, cut
insurance or other instruments by whatever name the same may be or perforated on both the stamp and the document either by the use
called, whereby any insurance shall be made or renewed upon any of a hand punch, knife, perforating machine, scissors, or any other
life or lives, there shall be collected a documentary stamp tax of cutting instrument but if the cancellation is accomplished by
thirty-five centavos on each two hundred pesos or fractional part perforating the date of cancellation, no other hole need be made on
thereof, of the amount issued by any such policy. (220) (As amended the stamp." (Now Sec. 249.).
by PD 1457).
SEC. 239. Failure to affix or cancel documentary stamps. — Any
"Insurance policies issued by a Philippine company to persons in person who fails to affix the correct amount of documentary stamps
other countries are not subject to documentary stamp tax. (Rev. to any taxable document, instrument, or paper, or to cancel in the
Regs. No. 26). manner prescribed by section 237 any documentary stamp affixed to
any document, instrument, or paper, shall be subject to a fine of not
"Medical certificate attached to an insurance policy is not a part of less than twenty pesos or more than three hundred pesos.
the said policy. Insurance policy is subject to Section 232 of the Tax (Emphasis supplied.) (Now Sec. 250.)
affixed were small in amount are still intact.
As correctly pointed out by respondent Court of Tax Appeals, under
the above-quoted provisions of law, documentary tax is deemed paid "The taxpayer was found to be negligent in the preservation and
by: (a) the purchase of documentary stamps; (b) affixture of keeping of its records. Although the loss was found by the
documentary stamps to the document or instrument taxed or to such company’s private investigator (see attached true copies of his
other paper as may be indicated by law or regulations; and (c) reports) was not an `Inside Job,’ still the company should be held
cancellation of the stamps as required by law (Rollo, p. 18). liable for its negligence, it appearing that the said records were
placed in a bodega, where almost all patrons of the coffee shop
It will be observed however, that the over-riding purpose of these nearby could see them. The company also violated the provision of
provisions of law is the collection of taxes. The three steps above- Section 221 of the National Internal Revenue Code which provides
mentioned are but the means to that end. Thus, the purchase of the that the documentary stamps should be affixed and cancelled on the
stamps is the form of payment made; the affixture thereof on the duplicates of bonds and policies issued. In this case, the said stamps
document or instrument taxed is to insure that the corresponding tax were affixed on the register of documentary stamps. (pp. 35-36, BIR
has been paid for such document while the cancellation of the rec.; Emphasis supplied.)" (CTA Decision, Rollo, pp. 18-19.)
stamps is to obviate the possibility that said stamps will be reused for
similar documents for similar purposes. Such findings were confirmed by the Memorandum of Acting
Commissioner of Internal Revenue Jose B. Lingad, dated November
In the case at bar, there appears to be no dispute on the fact that the 7, 1962 to the Chief, Business Tax Division, which
documentary stamps corresponding to the various policies were states:jgc:chanrobles.com.ph
purchased and paid for by the respondent Company. Neither is there
any argument that the same were cancelled as required by law. In "The records show that the FIREMAN’S FUND INSURANCE
fact such were the findings of petitioner’s examiner Amando B. COMPANY allegedly paid P77,837.67 in documentary stamp taxes
Melgar who stated as follows:jgc:chanrobles.com.ph for the policies of insurance issued by it for the years 1952 to 1958
but could only present as proof of payment P11,936.56 of said taxes
"Investigation disclosed that the subject insurance company is a duly as the rest of the amount of P65,901.11 were lost due to robbery.
organized corporation doing business in the Philippines. It keeps the Upon verification of this payment however it was found that the
necessary books of accounts and other accounting records needed FIREMAN’S FUND INSURANCE COMPANY affixed the
by the business. Further verification revealed that it has, since July, documentary stamps not on the individual insurance policies issued
1959, been using a `HASLER’ franking machine, Model F-88, which by it but on a monthly statement of business and a register of
stamps the documentary stamps on the duplicates of the policies documentary stamps, the use of which was not authorized by this
issued. Prior to the acquisition of the said machine, the company Office. It was claimed that the same procedure was used in the case
buys its stamps by allowing the Manager to issue a Manager’s check of the lost documentary stamps aforementioned. As this practice is
drawn against the National City Bank of New York and payable to irregular and the remaining records are not conclusive proofs of the
the City Treasurer of Manila. It was also found out that during this payment of the corresponding documentary stamp tax on the
period (1952 to 1958), the total purchases of documentary stamps policies, the FIREMAN’S FUND AND INSURANCE COMPANY is
amounted to P77,837.67, while the value of the used stamps lost still liable for the payment of the documentary stamp taxes on the
amounted to P65.901.11. Verification with the files revealed that policies found not affixed with stamps." (Original BIR Record, p. 87).
most of the monthly statements of business and registers of
documentary stamps corresponding to insurance policies issued Later, respondent Court of Tax Appeals correctly observed that the
were missing while some where the punched documentary stamps purchase of documentary stamps and their being affixed to the
monthly statements of business and policy registers were also company specifically, but under the general principle of agency,
admitted by counsel for the Government as could clearly be gleaned where the acts of the agents bind the principal, the conclusion is
from his Memorandum submitted to the respondent Court. (Decision, inescapable that the justification for the acts of the agents may also
CTA Rollo, pp. 4-5) be claimed for the acts of the principal itself (Brief for the
Respondents, pp. 12-13).
Thus, all investigations made by the petitioner show the same factual
findings that respondent company purchased documentary stamps Be that as it may, there is no justification for the government which
for the various policies it has issued for the period in question has already realized the revenue which is the object of the imposition
although it has attached the same on documents not authorized by of subject stamp tax, to require the payment of the same tax for the
law.chanrobles virtual lawlibrary same documents. Enshrined in our basic legal principles is the time
honored doctrine that no person shall unjustly enrich himself at the
There is no argument to petitioner’s contention that the insurance expense of another. It goes without saying that the government is not
policies with the corresponding documentary stamps affixed are the exempted from the application of this doctrine (Ramie Textiles, Inc.
best evidence to prove payment of said documentary stamp tax. This v. Mathay Sr., 89 SCRA 587 [1979]).
rule however does not preclude the admissibility of other proofs
which are uncontradicted and of considerable weight, such as: Under the circumstances, this court RESOLVED to DISMISS this
copies of the applications for manager’s checks, copies of the petition and to AFFIRM the assailed decision of the Court of Tax
manager’s check vouchers of the bank showing the purchases of Appeals.
documentary stamps corresponding to the various insurance policies
issued during the years 1952-1958 duly and properly identified by
the witnesses for respondent company during the hearing and
admitted by the respondent Court of Tax Appeals (Brief for
Respondent, p. 15).

It is a general rule in the interpretation of statutes levying taxes or


duties, that in case of doubt, such statutes are to be construed most
strongly against the government and in favor of the subjects or
citizens, because burdens are not to be imposed, nor presumed to
be imposed beyond what statutes expressly and clearly import
(Manila Railroad Co. v. Collector of Customs, 52 Phil. 950 [1929]).

There appears to be no question that the purpose of imposing


documentary stamp taxes is to raise revenue and the corresponding
amount has already been paid by respondent and has actually
become part of the revenue of the government. In the same manner,
it is evident that the affixture of the stamps on documents not
authorized by law is not attended by bad faith as the practice was
adopted from the authority granted to Wise & Company, one of
respondent’s general agents (CTA Decision, Rollo, p. 20). Indeed,
petitioner argued that such authority was not given to respondent
FIRST DIVISION private respondent are not exempt for they did not go into the
construction of the bases.
[G.R. No. L-24754. July 18, 1975.]
Judgment reversed.chanroblesvirtuallawlibrary
THE COMMISSIONER OF INTERNAL REVENUE, Petitioner-
Appellant, v. P. J. KIENER COMPANY, LTD., INTERNATIONAL
CONSTRUCTION CORPORATION, GAVINO T. UNCHUAN AND SYLLABUS
THE COURT OF TAX APPEALS, Respondents-Appellees.

Solicitor General Antonio P. Barredo, Assistant Solicitor 1. TAXATION EXEMPTION, PROVISION THEREFOR IN THE
General Felicisimo R. Rosete, and Special Attorney Antonio H . MUTUAL DEFENSE AGREEMENT BETWEEN THE UNITED
Garces for Petitioner-Appellant. STATES OF AMERICA AND THE REPUBLIC OF THE
PHILIPPINES, CONSTRUED. — The phrases "for exclusive use in
Andres T . Velarde for Respondents-Appellees. the construction," "acquired in connection with the construction,"
"acquired with the project" used in the tax exemption provisions of
SYNOPSIS the Military Bases Agreement, the Aide Memoire" and the
stipulations in the contract for the construction of a military air base
Private respondents entered into a contract with the government for could only mean, collectively, "construction" materials or supplies
the construction of the Mactan Airfield in Cebu. The "General which must necessarily be incorporated in the construction of the
Conditions" of the contract, adopting the tax exemption clause of the airfield. For the terms "materials’ and "supplies" refers to something
Mutual Defense Agreement between the United States and the "going into or consumed" in the performance of the work such as
Philippines, provided that "no tax of any kind or description will be mortar, cement, sand, bricks, lumber or nails, glass, hardware, and a
levied on any material, equipment or supplies which may be thousand other things that might be meant, which are necessary to
purchased or otherwise acquired in connection with the project under the completed erection of a building or structure.
contract, which material equipment or supplies are required solely for
such project." Thereafter, private respondents sought from petitioner 2. ID.; ID.; ID.; PETROLEUM PRODUCTS WHICH DO NOT GO
a refund of the amount of P21,478.31 paid by Caltex as taxes for the INTO THE CONSTRUCTION OF THE BASES, NOT TAX EXEMPT;
petroleum products sold to it which amount had been included in the REASON. — The petroleum products purchased by contractors "to
purchase price. Since no answer was forthcoming private run their machineries and equipment" used in the construction of an
respondents instituted a petition for review before the Court of Tax air base cannot be categorized as such "materials" or "supplies" as
Appeals. Petitioner thereafter, denied the claim for return, but the are subject to tax exemption under the Military Bases Agreement,
Tax Court came up with a decision allowing tax credit in the amount since they do not go into or are consumed in the construction, but in
of P18,272.21 deducting from the amount claimed taxes for the machineries and equipment. Moreover, the stipulation in the
petroleum products used in the demolition of the Opon Church in contract between the government and the contractor providing that"
Mactan and taxes which can no longer be claimed because of (o)nly equipment which will be incorporated in the construction can
prescription. be imported tax on certification of the Engineer," deals centrally on
the importation of equipment, for which the government had
Hence, this petition for review. conceded the privilege of exemption because the same may not be
"economically procurable in terms of price and quality in the
The Supreme Court held that the petroleum products acquired by Philippines." To assure however that the privilege is not abused and
to restrain against possible detour of the revenue and customs laws, to be misinterpreted."cralaw virtua1aw library
the government has stipulated that the equipment must be
incorporated in the construction. 6. ID.; ID.; ID.; FINDINGS OF COURT OF TAX APPEALS BINDING.
— The findings of the Tax Court that the specific tax paid by Caltex
3. ID.; ID.; ID.; ID.; CASE OF COMMISSIONER OF CUSTOM VS. (Phil.) Inc. has been shifted by it to private respondents must be
CALTEX PHILIPPINES NOT APPLICABLE TO THE CASE AT BAR. accorded deference, such being well-nigh conclusive upon the
— In the case of Commissioner of Customs v. Caltex (Phil.) Inc., No. Supreme Court.
L-13067, December 29, 1959, gasoline and oil furnished to the
drivers during the constitution of the petroleum refinery came within
the import of the "materials" or "supplies" that are tax-exempt. This DECISION
ruling cannot be applied where there is an express provision in the
treaties that the "materials" or "supplies" must be "for exclusive use
in the construction." Where it is explicitly provided that the "materials" MARTIN, J.:
and "supplies" must be for exclusive use in, in connection with, and
required solely for the construction of an air base, they must be
incorporated in the construction for the exemption to apply. This is a case that draws Us to the tax exemption provision written in
the Military Bases Agreement 1 celebrated by the Republic of the
4. ID.; ID.; ID.; RULING OF THE SECRETARY OF FINANCE IN A Philippines and the United States of America on March 14, 1947,
SIMILAR CASE ENTITLED TO GREAT WEIGHT IN THE and pursued in the "Aide Memoire" 2 between the two Governments
DETERMINATION OF THE PRESENT ISSUE. — The ruling of the on April 27, 1955.
Secretary of Finance — that oils used by contractors in the operation
of their machines or other equipment are not materials to be used A quo a decision was rendered by respondent Court of Tax Appeals
solely for military projects but petroleum products to be used in the ordering the Commissioner of Internal Revenue "to give tax credit to
operation of the contractor’s machine, and therefore not exempt — [private respondents] the amount of P18,272.21, without
commands respect and weight, since it proceeds from the official of pronouncement as to costs." The Tax Court modified the ruling of the
the government called upon to execute or implement administrative Commissioner of Internal Revenue denying the request of the private
laws it lays down a sound rule on the matter. respondents for tax credit amounting to P21,478.31, the total of
specific taxes supposedly paid by them. Petitioner seeks a review of
5. ID.; ID.; INTERPRETATION OF STIPULATIONS. — If two said judgment.
meanings of a stipulation are admissible, that which is least to the
advantage of the party for whose benefit the stipulation was inserted Respondent P. J. Kiener Company, Ltd. is a domestic limited co-
in the treaty should be preferred. Thus, an ambiguity in the tax partnership, doing business in the Philippines, while respondent
exemption provision in the Military Bases Agreement and in the "Aide International Construction Corporation is a domestic corporation duly
Memoire" in a accordance with which a contract was entered into, organized and existing under and by virtue of the laws of the
cannot be interpreted in favor of the American Government or for Philippines, likewise engaged in business in the Philippines. 3 On or
that matter a party claiming under it, like a taxpayer, especially when about December 14, 1957, respondent companies entered into a
it is considered that for the Philippine Government "the exception joint venture with respondent Gavino T. Unchuan, a licensed Filipino
contained in tax statutes must be strictly construed against the one civil engineer, to bid for the construction of the Mactan Airfield in
claiming exemption and that he who would seek to be thus privileged Mactan Island, Municipality of Opon (now Lapu-lapu City), Cebu.
must justify it by words too plain to be mistaken and too categorical Respondents won the bid. And so, on February 19, 1958, the
Republic of the Philippines, represented by Lt. Gen. Alfonso
Arellano, then Chief of Staff, Armed Forces of the Philippines, Subsequently, or on 7 January 1963, petitioner formally denied the
entered into a contract with private respondents, Article I of which request of Caltex (Phil.) Inc. stating that as per the ruling of the
provides, inter alia,." . . That the . . . general conditions . . . are Department of Finance in its answer to the query of the Philippine
hereby made integral parts of this contract by incorporation and Electrical Supply, dated July 18, 1962:jgc:chanrobles.com.ph
reference respectively." Of these "General Conditions", Section 3-19
provides:jgc:chanrobles.com.ph "Oils used by contractors in the operation of their machines or other
equipment in pursuance of their contract are not materials to be used
"3-19 Taxes — In accordance with the Mutual defense Agreement solely for the aforesaid military projects but petroleum products to be
between the United States of America and the Republic of the used in the operation of contractor’s machines or equipment
Philippines, no tax of any kind or description will be levied on any Consequently, the same cannot he exempted from local taxes as
material, equipment or supplies which may be purchased or well as customs duties and special import tax."cralaw virtua1aw
otherwise acquired in connection with the project under contract, library
which material, equipment or supplies are required solely for such
project." (Emphasis supplied) After trial, the Tax Court rendered the judgment appealed from. It
deducted from the P21,478.31 claimed for the specific tax of
This is the root of the controversy. P908.40 (petroleum products used in the demolition of the Opon
Church in Mactan) and the specific tax of P2,297.74 paid on January
Towards the middle of 1958, private respondents commenced 15, and 25, 1960 for being barred by prescription (claim for refund
construction of the Mactan Airfield and started purchasing "petroleum was filed only on January 31, 1962. 9
products to run and maintain their machineries and equipment" from
Caltex (Phil.) Inc. 4 During the period of February 1, 1960 through Petitioner delimits its issue or question to the dispositive portion of
April 11, 1960, they likewise purchased motor gasoline, kerosene, the Tax Court decision ordering petitioner "to give tax credit to
lubricating and/or motor oil, and diesel fuel from Caltex (Phil.) Inc. [private respondents in the amount of P18,272.21 . . ." 10 and
For these petroleum products, Caltex (Phil.) Inc. paid the Bureau of assigns that the Tax Court erred.
Internal Revenue P21,478.31 of specific taxes. This amount was, in
turn, included in the prices of the petroleum products paid by private I
respondents to Caltex (Phil.) Inc. 5

On 29 December 1960, private respondents wrote petitioner, ". . . IN HOLDING THAT UNDER THE MUTUAL DEFENSE
requesting it to refund to Caltex (Phil.) Inc. the amount of AGREEMENT BETWEEN THE UNITED STATES OF AMERICA
P21,478.31. 6 Caltex (Phil.) Inc. followed the request with a formal AND THE REPUBLIC OF THE PHILIPPINES THE PETROLEUM
claim for tax credit on January 12, 1961. Since no answer was PRODUCTS IN QUESTION ARE EXEMPT FROM THE PAYMENT
forthcoming, private respondents instituted on January 31, 1962, a OF THE SPECIFIC TAX.
petition for review with the respondent Court of Tax Appeals. They
prayed that they be credited the amounts of P21,478.31 and II
P151.65, specific and sales taxes, respectively, plus interest at the
legal rate from that date until the grant of the tax credit. 7 However,
before the trial of the case, the sales tax of P151.65 was credited in ". . . IN HOLDING THAT UNDER THE ‘AIDE MEMOIRE’ OF APRIL
favor of Caltex (Phil.) Inc. 8 27, 1955, BETWEEN THE PHILIPPINE REPUBLIC AND THE
UNITED STATES OF AMERICA, THE PETROLEUM PRODUCTS "solely" for such project.
IN QUESTION ARE EXEMPT FROM THE PAYMENT OF SPECIFIC
TAX. Private respondents flawlessly narrate that when they began
construction towards the middle of 1958, they started purchasing the
III petroleum products from Caltex (Phil.) Inc. "to run and maintain their
machineries and equipment used in the construction." The
"equipment" refers to fuel pumping machineries, radar facilities, and
". . . IN HOLDING THAT THE PETROLEUM PRODUCTS IN the like. Purchase went through April 11,1960, when months
QUESTION COME WITHIN THE PURVIEW OF THE WORDS thereafter the conflict on the tax credit arose. Private respondents
‘MATERIAL’ OR ‘SUPPLIES’ MENTIONED IN THE ‘AIDE would deliver the conclusion that these petroleum products are tax-
MEMOIRE’ OF APRIL 27, 1955, BETWEEN THE PHILIPPINE exempt since they have been." . . purchased or otherwise acquired in
REPUBLIC AND THE UNITED STATES OF AMERICA, AND OF connection with the project . . ." The fact that they are not
SECTION 3-19 OF THE GENERAL CONDITIONS ATTACHED TO incorporated into the Mactan Air base would not defeat the
THE SPECIFICATION FOR MACTAN AIRFIELD WHICH WAS exemption. 11
MADE AN INTEGRAL PART OF THE CONTRACT BETWEEN THE
PHILIPPINE GOVERNMENT AND THE RESPONDENTS P.J. The sense which private respondents proffer to attach to the terms
KIENER COMPANY, LTD., INTERNATIONAL CONSTRUCTION "materials" and "supplies" eludes the link welded into the Military
CORPORATION AND GAVINO T. UNCHUAN. Bases Agreement and "Aide Memoire" and recognized in Section 3-
19 of the "General Conditions." The Military Bases Agreement states
IV that ‘No import, excise, consumption or other tax ... shall be charged
on material, equipment, supplies or goods, . . . for exclusive use in
the construction . . . of the bases . . ." (Art. V, footnote 1). The "Aide
". . . IN HOLDING THAT THE RESPONDENTS P. J. KIENER Memoire" provides: ". . . no internal taxes of any kind or description,
COMPANY LTD., INTERNATIONAL CONSTRUCTION except income taxes, shall be levied on any materials, equipment,
CORPORATION AND GAVINO T. UNCHUAN ARE ENTITLED TO supplies and/or services which may be purchased or otherwise
CLAIM FOR TAX CREDIT OF THE SPECIFIC TAXES WHICH acquired in connection with the [construction of the Mactan Airfield]
THEY ALLEGEDLY PAID ON THE PETROLEUM PRODUCTS IN ..." (Sec. 6, Footnote 2). Section 13-9 of the "General Condition"
QUESTION; AND. stipulates that." . . no tax of any kind or description will be levied on
any material, equipment or supplies which may be purchased or
V otherwise acquired in connection with the project . . ." Reduced into
simple terms, the underscored phrases continuously used in the two
treaties and in the contract could only mean, collectively
". . . IN ORDERING THE HEREIN PETITIONER TO GIVE TAX "construction" materials or supplies which must necessarily be
CREDITS TO THE RESPONDENTS IN THE AMOUNT OF incorporated in the construction of the airfield. For the terms
P18,272.21. "materials" and "supplies" refer to something "going into or
consumed" in the performance of the work 12 such as mortar,
The matrix of these imputations, however, is whether the petroleum cement, sand, bricks, lumber 13 or nails, glass, hardware, and a
products in question are "materials" or "supplies" purchased or thousand other things that might be meant, which are necessary to
otherwise acquired "in connection with" the construction of the the completed erection of a building or structure. 14 Thus, examined,
Mactan Airfield and which "materials" or "supplies" are required the petroleum products purchased by the private respondents "to run
and maintain their machineries and equipment" cannot be Private respondents would, however, seek a final refuge in the
categorized as "materials" or "supplies" since they do not go into or Commissioner of Customs v. Caltex (Phil.) Inc., No. L13067,
are consumed in the construction, but in the machineries and December 29, 1959 ruling that "gasoline and oil furnished [Caltex]
equipment. drivers during the construction job come within the import of the
‘material or supplies’." In that case, Caltex (Phil.) Inc. was granted by
Nonetheless, private respondents would unwrap a thesis that if the Secretary of Agriculture and Natural Resources a petroleum
Section 13-9 of the "General Conditions" intended to refer only to refining concession with the right to establish and operate a
"materials" or "supplies" which form part and/or incorporated into the petroleum refinery in the municipalities of Bauan and Batangas,
project, the said section would have so stated, just like when it province of Batangas. The concession made the provisions of
provided that "Only equipment which will be incorporated in the Republic Act No. 387 16 as an integral part. In its operation, Caltex
construction" are tax free. 15 They would thus seize the absence of (Phil.) Inc. used as basic material crude oil imported from abroad.
such proviso as a recognition of the tax-exemption of those Customs duties were imposed on this imported crude oil and so,
"materials" or "supplies" not necessarily incorporated in the Caltex sought for refund. The Court of Tax Appeals ordered a refund.
construction. The argument misses the point. In its textual On petition for review, the Supreme Court held that under Article 103
completeness, Section 13-9 provides: "Only equipment which will be of the Act. 17 the petroleum products imported by respondent Caltex
incorporated in the construction can be imported tax free on (Phil.) Inc. for its use during the construction of the refinery are
certification of the Engineer." (Last sentence, 2nd par.) It deals exempt from the customs duties and that gasoline and oil furnished
centrally on the importation of equipment. The Government had its drivers during the construction job come within the import of the
conceded the privilege of exemption to this item because the same words "material" or "supplies"
may not be "economically procurable in terms of price and quality
within the Philippines." (Sec. 2, "Aide Memoire"). To assure, It bears emphasis, however, that the words "material" or "supplies" in
however, that the privilege is not abused or circumvented, the that ruling were interpreted in relation to the provisions of the Act,
Government has stipulated in Section 13-9 of the "General particularly Article 103. Unlike the treaties and contract in the case at
Conditions" that the equipment" [must] be incorporated in the bar, no express provision 18 is therein contained that the "materials"
construction . . ." It was intended by the Government as an open or "supplies" must be "for exclusive use in the construction" (Art. V,
restraint against possible detour of the revenue and customs laws. Military Bases Agreement) or "in connection with the [construction] . .
The reason is easily discernible. There still pervaded even at that . which materials . . . supplies are required solely for such projects."
time the sentiment of preference to local products, as can be plucked (Cf. Sec. 6, "Aide Memoire" and Sec. 13-9 of "General Conditions").
from the ultimate sentence of Section 2, "Aide Memoire", It is understandable why. At that time there was no Philippine crude
thus:jgc:chanrobles.com.ph petroleum available for the use of any refinery in the Philippines, and
so imported crude petroleum was allowed so as not to defeat the
"Locally produced materials, however, shall be used wherever such objective of the Act which was to promote and encourage the
materials are of satisfactory quality and are available at reasonable, exploration, development, production and utilization of the petroleum
comparable prices."cralaw virtua1aw library resources of the Philippines. Thus far, the importation of these
"materials" and "supplies" was only circumscribed by a liberal proviso
Under these circumstances, the contractual proviso in Section 13-9 that the exemption shall not be allowed on "goods imported by the
(supra) cannot be isolated and stretched to mean that "materials" concessionaire for his personal use or that of any others." 19 Beyond
and "supplies" need not be incorporated in the construction to be tax- that, the exemption operates. As far as the "materials" and "supplies"
exempt. It is essentially non sequitur. are concerned, they need not be incorporated into the construction to
fall within the province of the exemption.
paid by them, and that the phrase "Statement of Specific Tax
The present case is situated on a different plane. Explicitly, the Excluded from Sales to P. J. Kiener Co. Ltd." appearing in both
"materials" and "supplies" must be for exclusive use in, in connection Exhibits A and B of private respondents means that the purchase
with, and required solely for the construction of the Mactan Airfield. price did not include said taxes. 28 The Court of Tax Appeals,
In short, the "materials" and "supplies" need be incorporated in the however, found that the tax of P21,478.31 has been shifted by
construction for the exemption to apply. It, therefore, results that the Caltex (Phil.) Inc. to private respondents. 29 This finding of the Tax
Caltex ruling cannot be invoked as it is to be interpreted within the Court must be accorded deference, "being well-nigh conclusive"
context of Republic Act 387. upon the Supreme Court. 30

Anent this, the Secretary of Finance in its letter of July 18, 1962 to IN VIEW OF THE FOREGOING, the judgment of the Court of Tax
the Philippine Electrical Supply Co., Inc. ruled that "Oils used by Appeals ordering petitioner "to give tax credit to [private respondents]
contractors in the operation of their machines or other equipment . . . the amount of P18,272.21" is reversed and set aside. In all other
are not materials to be used solely for . . . military projects but respects the judgment appealed from is affirmed. Without
petroleum products to be used in the operation of the contractor’s pronouncement as to costs.
machines or equipment." 20 They are, consequently, not tax-exempt.
The ruling commands much respect and weight, since it proceeds SO ORDERED.
from the official of the government called upon to execute or
implement administrative laws 21 and it lays down a sound rule on
the matter. 22

Nor could the ambiguity that thus sprang from the tax-exemption
provision in the Military Bases Agreement and in the "Aide Memoire"
in accordance with which 23 the contract in question was entered
into be interpreted in favor of the American Government or, for that
matter, any party claiming under it, like private respondents. 24
Lauterpacht says that "if two meanings of a stipulation are
admissible, that which is least to the advantage of the party for
whose benefit the stipulation was inserted in the treaty should be
preferred." 25 Especially when it is considered that for the Philippine
Government, "the exception contained in the tax statutes must be
strictly construed against the one claiming the exemption" 26
because the law "does not look with favor on tax exemptions and
that he who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be misinterpreted." 27

An error has been assigned by petitioner that while the petroleum


products were all purchased by private respondents from the Caltex
(Phil.) Inc., for which the latter paid the specific taxes and sales
taxes, private respondents did not come up with proofs that the
specific taxes of P21,478.31 were included in the purchase price
SECOND DIVISION items to be used by the importer himself as operator of passenger
and/or cargo vessel.
[G.R. No. L-30232. July 29, 1988.]
3. STATUTORY CONSTRUCTION AND INTERPRETATION; TERM
LUZON STEVEDORING CORPORATION, Petitioner-Appellant, v. "TUGBOAT" DEFINED. — As quoted in the decision of the Court of
COURT OF TAX APPEALS and the HONORABLE Tax Appeals, a tugboat is defined as follows: "A tugboat is a strongly
COMMISSIONER OF INTERNAL REVENUE, respondents- built, powerful steam or power vessel, used for towing and, now, also
appellee. used for attendance on vessel. (Webster New International
Dictionary, 2nd Ed.). "A tugboat is a diesel or steam power vessel
H. San Luis & V.L. Simbulan for Petitioner-Appellant. designed primarily for moving large ships to and’ from piers for
towing barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p. 256). "A tug is a
SYLLABUS steam vessel built for towing, synonymous with tugboat." (Bouvier’s
Law Dictionary.) Under the foregoing definitions, petitioner’s tugboats
clearly do not fall under the categories of passenger and/or cargo
1. TAXATION; TAX EXEMPTIONS; ANY DIMINUTION OF POWER vessels. Thus, it is a cardinal principle of statutory construction that
TO TAX STRICTLY CONSTRUED; REASON. — This Court has laid where a provision of law speaks categorically, the need for
down the rule that "as the power of taxation is a high prerogative of interpretation is obviated, no plausible pretense being entertained to
sovereignty, the relinquishment is never presumed and any reduction justify non-compliance. All that has to be done is to apply it in every
or dimunition thereof with respect to its mode or its rate, must be case that falls within its terms (Allied Brokerage Corp. v.
strictly construed, and the same must be coached in clear and Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano,
unmistakable terms in order that it may be applied." (84 C.J.S. pp. etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
659-800), More specifically stated, the general rule is that any claim
for exemption from the tax statute should be strictly construed 4. ID.; STATUTES ARE TO BE CONSTRUED IN THE LIGHT OF
against the taxpayer (Acting Commissioner of Customs v. Manila THE PURPOSES TO BE ACHIEVED. — Even if construction and
Electric Co. Et. Al., 69 SCRA 469 [1977] and Commissioner of interpretation of the law is insisted upon, following another
Internal Revenue v. P.J. Kiener Co. Ltd., Et Al., 65 SCRA 142 fundamental rule that statutes are to be construed in the light of
[1975]). purposes to be achieved and the evils sought to be remedied
(People v. Purisima etc., Et Al., L-42050-66, 86 SCRA 544 [1978], it
2. ID.; ID.; TAX EXEMPTIONS FROM COMPENSATING TAX; will be noted that the legislature in amending Section 190 of the Tax
REQUIREMENTS OF AMENDATORY LAW ENUMERATED. — As Code by Republic Act 3176, as appearing in the records, intended to
correctly analyzed by the Court of Tax Appeals, in order that the provide incentives and inducements to bolster the shipping industry
importations in question may be declared exempt from the and not the business of stevedoring, as manifested in the
compensating tax, it is indispensable that the requirements of the sponsorship speech of Senator Gil Puyat.
amendatory law be complied with, namely: (1) the engines and spare
parts must be used by the importer himself as a passenger and/or 5. TAXATION; COURT OF TAX APPEALS; FINDINGS AND
cargo vessel; and (2) the said passenger and/or cargo vessel must CONCLUSION NOT DISTURBED LACKING ABUSE OF
be used in coastwise or oceangoing navigation. As pointed out by AUTHORITY; CASE AT BAR. — On analysis of petitioner-
the Court of Tax Appeals, the amendatory provisions of Republic Act appellant’s transactions, the Court of Tax Appeals found that no
No. 3176 limit tax exemption from the compensating tax to imported evidence was adduced by petitioner-appellant that tugboats are
passenger and/or cargo vessels used in the shipping industry as an claims have to be, as they are hereby, denied. With costs against
independent business. There appears to be no plausible reason to petitioner."cralaw virtua1aw library
disturb the findings and conclusion of the Court of Tax Appeals. As a
matter of principle, this Court will not set aside the conclusion On January 24,1969, petitioner-appellant filed a Motion for
reached by an agency such as the Court of Tax Appeals, which is, Reconsideration (Ibid., pp. 28-34), but the same was denied in a
by the very nature of its function, dedicated exclusively to the study Resolution dated February 20,1969 (Ibid., p. 35). Hence, th instant
and consideration of tax problems and has necessarily developed an petition.
expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal This Court, in a Resolution dated March 13, 1969, gave due course
Revenue, 24 SCRA 199 [1981]), which is not present in the instant to the petition (Ibid., p. 40).
case.
Petitioner-appellant raised three (3) assignments of error, to
wit:chanrob1es virtual 1aw library
DECISION
I

PARAS, J.:
The lower court erred in holding that the petitioner-appellant is
engaged in business as stevedore, the work of unloading and
This is a petition for review of the October 21, 1968 Decision ** of the loading of a vessel in port, contrary to the evidence on record.
Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring
Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal II
Revenue", denying the various claims for tax refund; and the
February 20,1969 Resolution of the same court denying the motion
for reconsideration. The lower court erred in not holding that the business in which
petitioner-appellant is engaged, is part and parcel of the shipping
Herein petitioner-appellant, in 1961 and 1962, for the repair and industry.
maintenance of its tugboats, imported various engine parts and other
equipment for which it paid, under protest, the assessed III
compensating tax. Unable to secure a tax refund from the
Commissioner of Internal Revenue, on January 2, 1964, it filed a
Petition for Review (Rollo, pp. 14-18) with the Court o Tax Appeals, The lower court erred in not allowing the refund sought by Petitioner-
docketed therein as CTA Case No. 1484, praying among others, that Appellant.
it be granted the refund of the amount o P33,442.13. The Court of
Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., The instant petition is without merit.
pp. 22-27), denied the various claims for tax refund. The decretal
portion of the said decision reads:jgc:chanrobles.com.ph The pivotal issue in this case is whether or not petitioner’s "tugboats"
can be interpreted to be included in the term "cargo vessels" for
"WHEREFORE, finding petitioner’s various claims for refund purposes of the tax exemption provided for in Section 190 of the
amounting to P33,442.13 without sufficient legal justification, the said National Internal Revenue Code, as amended by Republic Act No.
3176. general rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer (Acting
Said law provides:jgc:chanrobles.com.ph Commissioner of Customs v. Manila Electric Co. Et. Al., 69 SCRA
469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co.
"Sec. 190. Compensating tax — . . . And Provided further, That the Ltd., Et Al., 65 SCRA 142 [1975]).
tax imposed in this section shall not apply to articles to be used by
the importer himself in the manufacture or preparation of articles As correctly analyzed by the Court of Tax Appeals, in order that the
subject to specific tax or those for consignment abroad and are to importations in question may be declared exempt from the
form part thereof or to articles to be used by the importer himself as compensating tax, it is indispensable that the requirements of the
passenger and/or cargo vessel, whether coastwise or ocean-going, amendatory law be complied with, namely: (1) the engines and spare
including engines and spare parts of said vessel. . ."cralaw virtua1aw parts must be used by the importer himself as a passenger and/or
library cargo vessel; and (2) the said passenger and/or cargo vessel must
be used in coastwise or oceangoing navigation (Decision, CTA Case
Petitioner contends that tugboats are embraced and included in the No. 1484; Rollo, p. 24).
term cargo vessel under the tax exemption provisions of Section 190
of the Revenue Code, as amended by Republic Act. No. 3176. He As pointed out by the Court of Tax Appeals, the amendatory
argues that in legal contemplation, the tugboat and a barge loaded provisions of Republic Act No. 3176 limit tax exemption from the
with cargoes with the former towing the latter for loading and compensating tax to imported items to be used by the importer
unloading of a vessel in part, constitute a single vessel. Accordingly, himself as operator of passenger and/or cargo vessel (Ibid., p. 25).
it concludes that the engines, spare parts and equipment imported
by it and used in the repair and maintenance of its tugboats are As quoted in the decision of the Court of Tax Appeals, a tugboat is
exempt from compensating tax (Rollo, p. 23). defined as follows:jgc:chanrobles.com.ph

On the other hand, respondents-appellees counter that petitioner- "A tugboat is a strongly built, powerful steam or power vessel, used
appellant’s "tugboats" are not "cargo vessel" because they are for towing and, now, also used for attendance on vessel. (Webster
neither designed nor used for carrying and/or transporting persons or New International Dictionary, 2nd Ed.)
goods by themselves but are mainly employed for towing and pulling
purposes. As such, it cannot be claimed that the tugboats in question "A tugboat is a diesel or steam power vessel designed primarily for
are used in carrying and transporting passengers or cargoes as a moving large ships to and’ from piers for towing barges and lighters
common carrier by water, either coastwise or oceangoing and, in harbors, rivers and canals. (Encyclopedia International Grolier,
therefore, not within the purview of Section 190 of the Tax Code, as Vol. 18, p.256).
amended by Republic Act No. 3176 (Brief for Respondents-
Appellees, pp. 4-5). "A tug is a steam vessel built for towing, synonymous with tugboat.
(Bouvier’s Law Dictionary.)" (Rollo, p.24).
This Court has laid down the rule that "as the power of taxation is a
high prerogative of sovereignty, the relinquishment is never Under the foregoing definitions, petitioner’s tugboats clearly do not
presumed and any reduction or dimunition thereof with respect to its fall under the categories of passenger and/or cargo vessels. Thus, it
mode or its rate, must be strictly construed, and the same must be is a cardinal principle of statutory construction that where a provision
coached in clear and unmistakable terms in order that it may be of law speaks categorically, the need for interpretation is obviated,
applied." (84 C.J.S. pp. 659-800), More specifically stated, the no plausible pretense being entertained to justify non-compliance. All
that has to be done is to apply it in every case that falls within its Revenue, 24 SCRA 199 [1981]), which is not present in the instant
terms (Allied Brokerage Corp. v. Commissioner of Customs, L- case.
27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419,35
SCRA 270 [1970]). PREMISES CONSIDERED, the instant petition is DISMISSED and
the decision of the Court of Tax Appeals is AFFIRMED.
And, even if construction and interpretation of the law is insisted
upon, following another fundamental rule that statutes are to be SO ORDERED.
construed in the light of purposes to be achieved and the evils
sought to be remedied (People v. Purisima etc., Et Al., L-42050-66,
86 SCRA 544 [1978], it will be noted that the legislature in amending
Section 190 of the Tax Code by Republic Act 3176, as appearing in
the records, intended to provide incentives and inducements to
bolster the shipping industry and not the business of stevedoring, as
manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p.
26).

On analysis of petitioner-appellant’s transactions, the Court of Tax


Appeals found that no evidence was adduced by petitioner-appellant
that tugboats are passenger and/or cargo vessels used in the
shipping industry as an independent business. On the contrary,
petitioner-appellant’s own evidence supports the view that it is
engaged as a stevedore, that is, the work of unloading and loading of
a vessel in port; and towing of barges containing cargoes is a part of
petitioner’s undertaking as a stevedore. In fact, even its trade name
is indicative that its sole and principal business is stevedoring and
lighterage, taxed under Section 191 of the National Internal Revenue
Code as a contractor, and not an entity which transports passengers
or freight for hire which is taxed under Section 192 of the same Code
as a common carrier by water (Decision, CTA Case No. 1484; Rollo,
p. 25).

Under the circumstances, there appears to be no plausible reason to


disturb the findings and conclusion of the Court of Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion
reached by an agency such as the Court of Tax Appeals, which is,
by the very nature of its function, dedicated exclusively to the study
and consideration of tax problems and has necessarily developed an
expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal
FIRST DIVISION sales and percentage taxes inclusive of surcharges and costs
for the years 1957 to 1960, plus penalties for violations of the
[G.R. Nos. L-22805 & L-27858. June 30, 1975.] Tax Code and B.I.R. Bookkeeping Regulations.

WONDER MECHANICAL ENGINEERING CORPORATION Petitioner contended that the company was granted a tax
represented by Mr. LUCIO QUIJANO, President & General exemption privilege under Republic Act No. 35 and Republic Act
Manager, Petitioner, v. THE HON. COURT OF TAX APPEALS and No. 901; hence, it should not be required to pay the sales and
THE BUREAU OF INTERNAL REVENUE BEING REPRESENTED percentage taxes for the manufacture and sale of steel chairs,
BY THE COMMISSIONER OF INTERNAL jeepney parts, and for job orders done by petitioner.
REVENUE, Respondents.
The Supreme Court ruled that the manufacture and sale of the
L-22805 articles in question do not fall under the classification of "new
and necessary" industries envisioned in Republic Act Nos. 35
Sarte & Espinosa for Petitioner. and 901 as to entitle petitioner to tax exemption. Decisions of
the respondent court affirmed with costs against the Petitioner.
Solicitor General Arturo A. Alafriz, Solicitor Alejandro B.
Afurong and Special Attorney Augusto A. Lim for Respondents.

L-27858 SYLLABUS

Jose Sarte for Petitioner.


1. TAXATION; COMPROMISE; PENALTY; CONFORMITY OF
Solicitor General Antonio P. Barredo, Assistant Solicitor TAXPAYER REQUIRED. — Compromise penalty cannot be
General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and imposed or collected without the agreement and conformity of the
Special Attorney Elpidio C. Cid for Respondents. taxpayer.

SYNOPSIS 2. APPEALS; TIMELINESS; DECISION OF THE COMMISSIONER


OF INTERNAL REVENUE MUST BE APPEALED TO THE COURT
L-22805 — Petitioner questioned the order of respondent Court OF TAX APPEALS WITHIN THIRTY (30) DAYS. — Under Section
of Tax Appeals dismissing its appeal from the decision of the 11 of Republic Act No. 1126, an appeal from the decision of the
Commissioner of Internal Revenue for lack of jurisdiction, the Commissioner of Internal Revenue must be perfected within the
appeal having been filed late, and affirming the tax delinquency statutory period of 30 days, otherwise, the tax court acquires no
assessments made against petitioner for unpaid sales, fixed jurisdiction.
and percentage taxes inclusive of surcharge plus penalties for
violations of the Tax Code and Bureau of Internal Revenue 3. TAXATION; EXEMPTION; EXEMPTION OF NEW AND
Bookkeeping Regulations, for the years 1953-1954. NECESSARY INDUSTRY; REASONS. — The tax exemption
privilege pursuant to Republic Act No. 35, as amended by Republic
L-27858 — Petitioner likewise questioned the decision of Act No. 901, is granted to new and necessary industry as a
respondent court affirming the deficiency assessment levied on governmental incentive to greater and adequate production of
it by the Commissioner of Internal Revenue for its failure to pay products made scarce by the second World War which wrought
havoc to the national economy, a production "sufficient to meet local jurisdiction, the same having been filed beyond the 30 day period
demand or consumption" ; that will contribute "to the attainment of a prescribed in Section 11 of Republic Act No. 1125", and confirmed
stable and balanced national economy" ; an industry that "will make the decision of respondent Commissioner of Internal Revenue which
its products available to the general public in quantities and at prices "assessed against petitioner the total amount of P69,699.56 as fixed
which will justify its operation."cralaw virtua1aw library taxes and sales and percentage taxes, inclusive of the 25%
surcharge for the years 1953-54." The second decision (L-27858)
4. ID.; ID.; ID.; EXEMPTION STRICTLY CONSTRUED. — Where a ordered the same petitioner to pay respondent Commissioner of
taxpayer is granted tax exemption in the manufacture and sale of Internal Revenue the amount of "P25,080.91 as deficiency sales and
machines for making cigarette paper, pails, lead washers, nails, percentage taxes from 1957 to June 30, 1960, inclusive of the 25%
rivets and candies, etc., under Republic Act No. 35, as a new and surcharge, plus costs", based on the common principal issue of
necessary industry, such exemption does not extend to manufacturer "whether or not the manufacture and sale of steel chairs, jeepney
of steel chairs, jeep parts and other articles not constituting parts and other articles which are not machines for making other
machines for making the products mentioned in the exemption, nor products, and job orders done by petitioner come within the purview
does it extend to manufacture and sale of the articles produced by of the tax exemption granted it under Republic Act Nos. 35 and
those machines. 901."cralaw virtua1aw library

5. ID.; ID.; ID.; CONSTRUCTION BY THE EXECUTIVE BRANCH Petitioner is a corporation which was granted tax exemption privilege
OF THE GOVERNMENT. — In construing tax exemptions, the clear under Republic Act 35 in respect to the "manufacture of machines for
intention of the State in granting the privilege as manifested in the making cigarette paper, pails, lead washers, rivets, nails, candies,
acts of its duly authorized representatives in the Executive branch of chairs, etc.." The tax exemption expired on May 30, 1951. On
the government should be upheld. September 14, 1953, petitioner applied with the Secretary of Finance
for reinstatement of the exemption privilege under the provisions of
6. ID.; ID.; ID.; TAX EXEMPTION MUST PROCEED FROM CLEAR R.A. 901 approved July 7, 1954, the reinstatement to commence on
STATUTORY GRANT. — Tax exemptions are highly disfavored in June 20, 1953, the date Republic Act 901 took effect.
law, and he who claims tax exemption must be able to justify his
claim or right thereto by the clearest grant of organic or statute law. In G.R. No. L-22805, respondent Commissioner of Internal Revenue,
Exemption from a common burden must be clearly expressed and sometime in 1955, caused the investigation of petitioner for the
cannot be permitted to exist upon vague implication. purpose of ascertaining whether or not it had any tax liability. The
findings of Revenue Examiner Alfonso B. Camillo on September 30,
1955, stated "that during the years 1953 and 1954 the petitioner was
DECISION engaged in the business of manufacturing various articles, namely,
auto spare parts, flourescent lamp shades, rice threshers, post clips,
radio screws, washers, electric irons, kerosene stoves and other
ESGUERRA, J.: articles; that it also engaged in business of electroplating and in
repair of machines; that although it was engaged in said business, it
did not provide itself with the proper privilege tax receipts as required
Two petitions for review of the decisions of the respondent Court of by Section 182 of the Tax Code and did not pay the sales tax on its
Tax Appeals in G.R. Nos. L-22805 and L-27858. The first decision gross sales of articles manufactured by it and the percentage tax due
(L-22805) dismissed the appeal of petitioner Wonder Mechanical on the gross receipts of its electroplating and repair business
Engineering Corporation in C.T.A. Case No. 1036, "for lack of pursuant to Sections 183, 185, 186 and 191 of the same Code."
Bookkeeping Regulation; and failed to produce its books of accounts
Based on the foregoing, respondent Commissioner of Internal and business records for inspection and examination when required
Revenue assessed against petitioner on November 29, 1955, the to do so by the revenue examiner in violation of the Bookkeeping
total amount of P69,699.56 as fixed taxes and sales and percentage Regulations (pp. 17-18 B.I.R. rec.)."
taxes, inclusive of the 25% surcharge, as follows:chanrob1es virtual
1aw library Based on the foregoing, the respondent Commissioner of Internal
Revenue on October 6, 1961, assessed against the petitioner "the
Sales and percentage taxes for payment of P25,080.91 as deficiency percentage taxes and 25%
surcharge for 1957 to 1960 and suggested the payment of P5,020.00
1953 and 1954 P55,719.65 as total compromise penalty in extrajudicial settlement of the various
violations of the Tax Code and Bookkeeping Regulation (pp. 28-29
25% surcharge 13,929.91 B.I.R. rec.)."cralaw virtua1aw library

C-14 fixed tax (1953-1954) 20.00 Regarding the compromise penalty suggested by respondent Bureau
of Internal Revenue in both G.R. L-22805 and L-27858, it does not
C-4 (27) fixed tax (1954) 10.00 appear that petitioner accepted the imposition of the compromise
amounts. Hence We find no compelling reasons to alter the decision
C-4 (37) fixed tax (1953-1954) 20.00 of respondent Court of Tax Appeals in L-27858 that —

TOTAL P69.699.56 "With respect to the compromise penalty in the total amount of
P5,020.00 suggested by respondent to be paid by petitioner, it is
Respondent also suggested the payment of the amount of P3,300.00 now a well settled doctrine that compromise penalty cannot be
as penalties in extrajudicial settlement of petitioner’s violations of imposed or collected without the agreement and conformity of the
Sections 182, 183, 185, 186 and 191 of the Tax Code and of the taxpayer (Collector of Internal Revenue v. University of Santo
Bookkeeping Regulations (p. 25, B.I.R. rec.). Tomas, Et Al., G.R. Nos. L-11274 & L-11280, November 28, 1958;
the Collector of Internal Revenue v. Bautista, Et Al., G.R. Nos. L-
In G.R. No. L-27858, respondent Commissioner of Internal Revenue 12250 & 12259, May 27, 1959; the Philippines International Fair, Inc.
caused the investigation of petitioner for the purpose of ascertaining v. Collector of Internal Revenue, G.R. Nos. L-12928 & L-12932,
its tax liability on August 10, 1960, as a result of which on December March 31, 1962)." (Emphasis for emphasis)
7, 1960, Revenue Examiner Pedro Cabigao reported that "petitioner
had manufactured and sold steel chairs without paying the 30% Inasmuch as the figures appearing in the Bureau of Internal
sales tax imposed by Section 185(c) of the Tax Code; accepted job Revenue’s tax delinquency assessments in both cases (L-22805 and
orders without paying the 3% tax in gross receipts imposed by L-27858) are not in dispute, and the respondent Court of Tax
Section 191 of the same Code; manufactured and sold other articles Appeals ruled in its decision in G.R. No. L-27858 on the lone issue
subject to 7% sales tax under Section 186 of the same Code but not presented in both cases that the tax assessment of "P25,080.91 as
covered by the tax exemption privilege; failed to register with the deficiency sales and percentage taxes from 1957 to June 30, 1960"
Bureau of Internal Revenue books of accounts and sales invoices as must be paid by petitioner as the sale of other manufactured items
required by the Bookkeeping Regulations; failed to indicate in the did not come within the purview of the tax exemption granted
sales invoices the Residence Certificate number of customers who petitioner. We find it no longer necessary to make a definite stand on
purchased articles worth P50.00 or over, in violation of the the question raised in L-22805 as to the alleged error committed by
respondent Court of Tax Appeals in dismissing the appeal in C.T.A. existing or operating on a commercial scale prior to January first,
1036 (subject matter of L-22805) for lack of jurisdiction, the same nineteen hundred and forty-five. Where several applications for
having been filed beyond the 30-day period prescribed in Section 11 exemption are filed in connection with the same kind of industry, the
of Republic Act 1126. Suffice it to say on that issue that appellants Secretary of Finance shall approve them in the order in which they
must perfect their appeal from the decision of the Commissioner of have been filed until the total output or production of those already
Internal Revenue to the Court of Tax Appeals within the statutory granted exemption for that particular kind of industry is sufficient to
period of 30 days, otherwise said Court acquires no jurisdiction. meet local demand or consumption; Provided, That the limitation
shall not apply to products intended for export." (Emphasis for
We turn Our attention on the vital issue of tax exemption claimed by emphasis)
petitioner as basis for questioning the tax assessments made by
respondent Bureau of Internal Revenue in both cases (G.R. L-22805 "Sec. 3. For the purposes of this Act, a "necessary" industry is one
and 27858). There is no doubt that petitioner was given a Certificate complying with the following requirements:chanrob1es virtual 1aw
of Tax Exemption by the Secretary of Finance of July 7, 1954, as library
follows:jgc:chanrobles.com.ph
(1) Where the establishment of the industry will contribute to the
"Be it known that upon application filed by Wonder Mechanical attainment of a stable and balanced national economy.
Engineering Corporation, 1310 M. Hizon, Sta. Cruz, Manila, in
respect to the manufacture of machines for making cigarette paper, (2) Where the industry will operate on a commercial scale in
pails, lead washers, nails, rivets, candies, etc., the said conformity with up-to-date practices and will make its products
industry/industries have been determined to be new and necessary available to the general public in quantities and at prices which will
under the provisions of Republic Act No. 901 (or of Republic Act No. justify its operation with a reasonable degree of permanency.
35), in view of which this Certificate of Tax Exemption has been
issued entitling the abovenamed firm/person to tax exemption from (3) Where the imported raw materials represent a value not
the payment of taxes directly payable by it/him in respect to the said exceeding sixty percentum of the manufacturing cost plus
industry/industries until December 31, 1958, and thereafter to a reasonable selling and administrative expenses: Provided, That a
diminishing exemption until June 20, 1959, as provided in section 1 grantee of tax exemption shall use materials of domestic origin,
of Republic Act No. 901, except the exemption from the income tax growth, or manufacture wherever the same are available or could be
which will wholly terminate on June 20, 1955, (B.I.R. rec., page 13)." made available in reasonable quantity and quality and at reasonable
(Emphasis for emphasis) prices. . . .." (Emphasis for emphasis)

Republic Act 35, approved on September 30, 1946, grants to From the above-quoted provisions of the law, it is clear that an
persons "who or which shall engage in a new and necessary industry to be entitled to tax exemption must be "new and necessary"
industry", for a period of four years from the date of the organization and that the tax exemption was granted to new and necessary
of such industry, exemption "from the payment of all internal revenue industries as an incentive to greater and adequate production of
taxes directly payable by such person." Republic Act 901, approved products made scarce by the second world war which wrought havoc
on June 20, 1953, which amended Republic Act 35 by extending the on our national economy, a production "sufficient to meet local
period of tax exemption, elaborated on the meaning of "new and demand or consumption" ; that will contribute "to the attainment of a
necessary industry" as follows:jgc:chanrobles.com.ph stable and balanced national economy" ; an industry that "will make
its products available in the general public in quantities and at prices
"Sec. 2. For the purposes of this Act, a "new industry is one not which will justify its operation."cralaw virtua1aw library
‘S i r s:jgc:chanrobles.com.ph
Viewed in the light of the foregoing reasons for the State grant of tax
exemption, We are firmly convinced that petitioner was granted tax "I have the honor to advise you that His Excellency, the President,
exemption in the manufacture and sale "of machines for making has today, upon recommendation of the Honorable, the Secretary of
cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as Finance, approved your application for exemption from the payment
explicitly stated in the Certificate of Exemption (Annex A of the of internal revenue taxes on your business of manufacturing
petition in G.R. No. L-22805), but certainly not for the manufacture machines for making a number of products, such as cigarette paper,
and sale of the articles produced by those machines. pails, lead washers, rivets, nails, candies, chairs, etc., under the
provisions of Section 2 of Republic Act No. 35.
That such was the intention of the State when it granted tax
exemption to the petitioner in the manufacture of machines for Very respectfully,
making certain products could be deduced from the
following:jgc:chanrobles.com.ph (SGD.) TEODORO EVANGELISTA

"Before the approval of the original grant of tax exemption to Executive Secretary’"
petitioner for engaging in a new and necessary industry under
Republic Act No. 35, the then Secretary of Finance submitted a (Emphasis for emphasis)
memorandum to the Cabinet, dated March 3, 1949, the pertinent
portions of which read as follows:chanrob1es virtual 1aw library Aside from the clarity of the State’s intention in granting tax
exemption to petitioner in so far as it manufactures machines for
‘. . . If (petitioner) turns out machines whenever orders therefore are making certain products, as manifested in the acts of its duly
received. Among its products are a medicine tablet wrapping authorized representatives in the Executive branch of the
machine for Dr. Agustin Liboro, photographs of which are attached, a government, it is quite difficult for Us to believe that the manufacture
loud speaker for the Manila Supply, and a "Lompia wrapping" of steel chairs, jeep parts, and other articles not constituting
machine for a certain Chinese. . . . machines for making certain products would fall under the
classification of "new and necessary" industries envisioned in
The manufacture of the above-mentioned machines can be Republic Acts 35 and 901 as to entitle the petitioner to tax
considered a new and necessary industry for the purpose of exemption.
Republic Act No. 35. It is recommended that the benefits of said Act
be extended to this corporation in respect to said industry. There is no way to dispute the "cardinal rule in taxation that
exemptions therefrom are highly disfavored in law and he who claims
Respectfully submitted:chanrob1es virtual 1aw library tax exemption must be able to justify his claim or right thereto by the
clearest grant of organic or statute law" as succinctly stated in the
(SGD.) PIO PEDROSA decision of the respondent Court of Tax Appeals in C.T.A. No. 1265
(L-27858).
Secretary’"
Tax exemption must be clearly expressed and cannot be established
"The letter of the Executive Secretary to the petitioner dated May 30, by implication. Exemption from a common burden cannot be
1949, reads as follows:chanrob1es virtual 1aw library permitted to exist upon vague implication. (Asiatic Petroleum Co. v.
Llanes, 49 Phil. 466; House v. Posadas, 53 Phil. 338; Collector of
Internal Revenue v. Manila Jockey Club, Inc., G.R. No. L-8755, FIRST DIVISION
March 23, 1956, 98 Phil. 676).
[G.R. No. L-31092. February 27, 1987.]
WHEREFORE, the decisions of respondent Court of Tax Appeals in
these two cases are affirmed. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. JOHN
GOTAMCO & SONS, INC. and THE COURT OF TAX
Costs against the petitioner in both cases. APPEALS, Respondents.

SYLLABUS

1. POLITICAL AND INTERNATIONAL LAW; HOST AGREEMENTS


MAY BE ENTERED INTO BY THE CHIEF EXECUTIVE WITHOUT
THE CONCURRENCE OF THE LEGISLATURE. — While treaties
are required to be ratified by the Senate under the Constitution, less
formal types of international agreements may be entered into by the
Chief Executive and become binding without the concurrence of the
legislative body. The Host Agreement comes within the latter
category; it is a valid and binding international agreement even
without the concurrence of the Philippine Senate. The privileges and
immunities granted to the WHO under the Host Agreement have
been recognized by this Court as legally binding on Philippine
authorities.

2. TAXATION; CONTRACTOR’S TAX; AN INDIRECT TAX


PAYABLE BY THE OWNER OF THE BUILDING. — In context,
direct taxes are those are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those
that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone
else (Pollock v. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39
Law. 759.) The contractor’s tax is of course payable by the
contractor but in the last analysis it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the
contractor to the owner as a matter of self-preservation. Thus, it is an
indirect tax. And it is an indirect tax on the WHO because, although it
is payable by the petitioner, the latter can shift its burden on the
WHO. In the last analysis the contractor and it certainly cannot be
said that ‘this tax has no bearing upon the World Health
Organization. organization which has a regional office in Manila. As an
international organization, it enjoys privileges and immunities which
3. ID.; ID.; ID.; The Host Agreement, in specifically exempting to are defined more specifically in the Host Agreement entered into
WHO form "indirect taxes", contemplates taxes which, although not between the Republic of the Philippines and the said Organization on
imposed upon or paid by the Organization directly, form part of the July 22,1951. Section 11 of that Agreement provides, inter alia, that
price paid or to be paid by it. This is made clear in Section 12 of the "the Organization, its assets, income and other properties shall be:
Host Agreement which provides: "While the Organization will not, as (a) exempt from all direct and indirect taxes. It is understood,
general rule, in the case of minor purchases, claim exemption from however, that the Organization will not claim exemption from taxes
excise duties, and from taxes on the sale of movable and immovable which are, in fact, no more than charges for public utility services; . .
property which from part of the price to be paid, nevertheless, when ."cralaw virtua1aw library
the Organization is making important purchases for official use of
property on which such duties and taxes have been charged or are When the WHO decided to construct a building to house its own
chargeable the Government of the Republic of the Philippines shall offices, as well as the other United Nations offices stationed in
make appropriate administrative arrangements for the remission or Manila, it entered into a further agreement with the Government of
return of the amount of duty or tax." (Emphasis supplied). The the Republic of the Philippines on November 26, 1957. This
above-quoted provision, although referring only to purchases made agreement contained the following provision (Article III, paragraph
by the WHO, elucidates the clear intention of the Agreement to 2):jgc:chanrobles.com.ph
exempt the WHO from "indirect" taxation. The certification issued by
the WHO, dated January 20, 1960, sought exemption of the "The Organization may import into the country materials and fixtures
contractor, Gotamco, from any taxes in connection of the required for the construction free from all duties and taxes and
construction of the WHO office building. The 3% contractor’s tax agrees not to utilize any portion of the international reserves of the
would be within the category and should be viewed as a form of an Government."cralaw virtua1aw library
"direct tax" on the Organization, as the payment thereof or its
inclusion in the bid price would have meant an increase in the Article VIII of the above-mentioned agreement referred to the Host
construction cost of the building. Agreement concluded on July 22, 1951 which granted the
Organization exemption from all direct and indirect taxes.

DECISION In inviting bids for the construction of the building, the WHO informed
the bidders that the building to be constructed belonged to an
international organization with diplomatic status and thus exempt
YAP, J.: from the payment of all fees, licenses, and taxes, and that therefore
their bids "must take this into account and should not include items
for such taxes, licenses and other payments to Government
The question involved in this petition is whether respondent John agencies."cralaw virtua1aw library
Gotamco & Sons, Inc. should pay the 3% contractor’s tax under
Section 191 of the National Internal Revenue Code on the gross The construction contract was awarded to respondent John Gotamco
receipts it realized from the construction of the World Health & Sons, Inc. (Gotamco for short) on February 10, 1958 for the
Organization office building in Manila.chanrobles law library : red stipulated price of P370,000.00, but when the building was
completed the price reached a total of P452,544.00.chanrobles law
The World Health Organization (WHO for short) is an international library : red
Tax Appeal’s decision is now before us for review on certiorari.
Sometime in May 1958, the WHO received an opinion from the
Commissioner of the Bureau of Internal Revenue stating that "as the In his first assignment of error, petitioner questions the entitlement of
3% contractor’s tax is an indirect tax on the assets and income of the the WHO to tax exemption, contending that the Host Agreement is
Organization, the gross receipts derived by contractors from their null and void, not having been ratified by the Philippine Senate as
contracts with the WHO for the construction of its new building, are required by the Constitution. We find no merit in this contention.
exempt from tax in accordance with . . . the Host Agreement." While treaties are required to be ratified by the Senate under the
Subsequently, however, on June 3, 1958, the Commissioner of Constitution, less formal types of international agreements may be
Internal Revenue reversed his opinion and stated that "as the 3% entered into by the Chief Executive and become binding without the
contractor’s tax is not a direct nor an indirect tax on the WHO, but a concurrence of the legislative body. 1 The Host Agreement comes
tax that is primarily due from the contractor, the same is not covered within the latter category; it is a valid and binding international
by . . . the Host Agreement."cralaw virtua1aw library agreement even without the concurrence of the Philippine Senate.
The privileges and immunities granted to the WHO under the Host
On January 2, 1960, the WHO issued a certification stating, inter Agreement have been recognized by this Court as legally binding on
alia,:jgc:chanrobles.com.ph Philippine authorities. 2

"When the request for bids for the construction of the World Health Petitioner maintains that even assuming that the Host Agreement
Organization office building was called for, contractors were informed granting tax exemption to the WHO is valid and enforceable, the 3%
that there would be no taxes or fees levied upon them for their work contractor’s tax assessed on Gotamco is not an "indirect tax" within
in connection with the construction of the building as this will be its purview. Petitioner’s position is that the contractor’s tax "is in the
considered an indirect tax to the Organization caused by the nature of an excise tax which is a charge imposed upon the
increase of the contractor’s bid in order to cover these taxes. This performance of an act, the enjoyment of a privilege or the engaging
was upheld by the Bureau of Internal Revenue and it an be stated in an occupation . . . It is a tax due primarily and directly on the
that the contractors submitted their bids in good faith with the contractor, not on the owner of the building. Since this tax has no
exemption in mind. bearing upon the WHO, it cannot be deemed an indirect taxation
upon it."cralaw virtua1aw library
The undersigned, therefore, certifies that the bid of John Gotamco &
Sons, made under the condition stated above, should be exempted We agree with the Court of Tax Appeals in rejecting this contention
from any taxes in connection with the construction of the World of the petitioner. Said the respondent court:chanrobles
Health Organization office building."cralaw virtua1aw library virtualawlibrary chanrobles.com:chanrobles.com.ph

On January 17, 1961, the Commissioner of Internal Revenue sent a "In context, direct taxes are those that are demanded from the very
letter of demand to Gotamco demanding payment of P16,970.40, person who, it is intended or desired, should pay them; while indirect
representing the 3% contractor’s tax plus surcharges on the gross taxes are those that are demanded in the first instance from one
receipts it received from the WHO in the construction of the latter’s person in the expectation and intention that he can shift the burden
building.chanrobles virtual lawlibrary to someone else. (Pollock v. Farmers, L & T Co., 1957 US 429,15 S.
Ct. 673, 39 Law. Ed. 759.) The contractor’s tax is of course payable
Respondent Gotamco appealed the Commissioner’s decision to the by the contractor but in the last analysis it is the owner of the building
Court of Tax Appeals, which after trial rendered a decision, in favor that shoulders the burden of the tax because the same is shifted by
of Gotamco and reversed the Commissioner’s decision. The Court of the contractor to the owner as a matter of self-preservation. Thus, it
is an indirect tax. And it is an indirect tax on the WHO because, exempt the WHO from "indirect" taxation.
although it is payable by the petitioner, the latter can shift its burden
on the WHO. In the last analysis it is the WHO that will pay the tax The certification issued by the WHO, dated January 20, 1960, sought
indirectly through the contractor and it certainly cannot be said that exemption of the contractor, Gotamco, from any taxes in connection
`this tax has no bearing upon the World Health Organization.’" with the construction of the WHO office building. The 3% contractor’s
tax would be within this category and should be viewed as a form of
Petitioner claims that under the authority of the Philippine Acetylene an "indirect tax" on the Organization, as the payment thereof or its
Company versus Commissioner of Internal Revenue, Et Al., 3 the inclusion in the bid price would have meant an increase in the
3% contractor’s tax falls directly on Gotamco and cannot be shifted construction cost of the building.
to the WHO. The Court of Tax Appeals, however, held that the said
case is not controlling in this case, since the Host Agreement Accordingly, finding no reversible error committed by the respondent
specifically exempts the WHO from "indirect taxes." We agree. The Court of Tax Appeals, the appealed decision is hereby affirmed.
Philippine Acetylene case involved a tax on sales of goods which
under the law had to be paid by the manufacturer or producer; the SO ORDERED.
fact that the manufacturer or producer might have added the amount
of the tax to the price of the goods did not make the sales tax "a tax
on the purchaser." The Court held that the sales tax must be paid by
the manufacturer or producer even if the sale is made to tax-exempt
entities like the National Power Corporation, an agency of the
Philippine Government, and to the Voice of America, an agency of
the United States Government.

The Host Agreement, in specifically exempting the WHO from


"indirect taxes," contemplates taxes which, although not imposed
upon or paid by the Organization directly, form part of the price paid
or to be paid by it. This is made clear in Section 12 of the Host
Agreement which provides:jgc:chanrobles.com.ph

"While the Organization will not, as a general rule, in the case of


minor purchases, claim exemption from excise duties, and from
taxes on the sale of movable and immovable property which form
part of the price to be paid, nevertheless, when the Organization is
making important purchases for official use of property on which
such duties and taxes have been charged or are chargeable the
Government of the Republic of the Philippines shall make
appropriate administrative arrangements for the remission or return
of the amount of duty or tax." (Emphasis supplied).

The above-quoted provision, although referring only to purchases


made by the WHO, elucidates the clear intention of the Agreement to
THIRD DIVISION Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international
organizations, private foundations and government
agencies.
[G.R. No. 115349. April 18, 1997]
On July 8, 1983, private respondent received from
petitioner Commissioner of Internal Revenue a demand
letter dated June 3, 1983, assessing private respondent the
sum of P174,043.97 for alleged deficiency contractors tax,
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE and an assessment dated June 27, 1983 in the sum
COURT OF APPEALS, THE COURT OF TAX APPEALS of P1,141,837 for alleged deficiency income tax, both for
and ATENEO DE MANILA UNIVERSITY, respondents. the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest
DECISION and subsequently filed with the latter a memorandum
contesting the validity of the assessments.
PANGANIBAN, J.:
On March 17, 1988, petitioner rendered a letter-decision
In conducting researches and studies of social organizations and canceling the assessment for deficiency income tax but
cultural values thru its Institute of Philippine Culture, is the Ateneo de modifying the assessment for deficiency contractors tax by
Manila University performing the work of an independent contractor increasing the amount due to P193,475.55.Unsatisfied,
and thus taxable within the purview of then Section 205 of the National private respondent requested for a reconsideration or
Internal Revenue Code levying a three percent contractors tax? This reinvestigation of the modified assessment. At the same
question is answered by the Court in the negative as it resolves this time, it filed in the respondent court a petition for review of
petition assailing the Decision[1] of the Respondent Court of the said letter-decision of the petitioner.While the petition
Appeals[2] in CA-G.R. SP No. 31790 promulgated on April 27, 1994 was pending before the respondent court, petitioner issued
affirming that of the Court of Tax Appeals.[3] a final decision dated August 3, 1988 reducing the
assessment for deficiency contractors tax
from P193,475.55 to P46,516.41, exclusive of surcharge
and interest.
The Antecedent Facts
On July 12, 1993, the respondent court rendered the
questioned decision which dispositively reads:
The antecedents as found by the Court of Appeals are
reproduced hereinbelow, the same being largely undisputed by the WHEREFORE, in view of the foregoing,
parties. respondents decision is SET ASIDE. The
deficiency contractors tax assessment in the
Private respondent is a non-stock, non-profit educational amount of P46,516.41 exclusive of surcharge
institution with auxiliary units and branches all over the and interest for the fiscal year ended March 31,
Philippines. One such auxiliary unit is the Institute of 1978 is hereby CANCELED. No pronouncement
Philippine Culture (IPC), which has no legal personality as to cost.
separate and distinct from that of private respondent. The
IPC is a Philippine unit engaged in social science studies of SO ORDERED.
Not in accord with said decision, petitioner has come to this service calls for the exercise or use of the physical or
Court via the present petition for review raising the following mental faculties of such contractors or their employees.
issues:
1)WHETHER OR NOT PRIVATE xxxxxxxxx
RESPONDENT FALLS UNDER THE Petitioner contends that the respondent court erred in
PURVIEW OF INDEPENDENT holding that private respondent is not an independent
CONTRACTOR PURSUANT TO contractor within the purview of Section 205 of the Tax
SECTION 205 OF THE TAX CODE; and Code. To petitioner, the term independent contractor, as
2) WHETHER OR NOT PRIVATE defined by the Code, encompasses all kinds of services
RESPONDENT IS SUBJECT TO 3% rendered for a fee and that the only exceptions are the
CONTRACTORS TAX UNDER following:
SECTION 205 OF THE TAX CODE. a. Persons, association and corporations under
The pertinent portions of Section 205 of the National contract for embroidery and apparel for export
Internal Revenue Code, as amended, provide: and gross receipts of or from pioneer industry
registered with the Board of Investment under
Sec. 205. Contractor, proprietors or operators of R.A. No. 5186;
dockyards, and others. - A contractors tax of
three per centum of the gross receipts is hereby b. Individuals occupation tax under Section 12 of
imposed on the following: the Local Tax Code (under the old Section 182
[b] of the Tax Code); and
xxxxxxxxx
c. Regional or area headquarters established in
the Philippines by multinational corporations,
(16) Business agents and other independent contractors including their alien executives, and which
except persons, associations and corporations under headquarters do not earn or derive income from
contract for embroidery and apparel for export, as well as the Philippines and which act as supervisory,
their agents and contractors and except gross receipts of communication and coordinating centers for their
or from a pioneer industry registered with the Board of affiliates, subsidiaries or branches in the Asia
Investments under Republic Act No. 5186: Pacific Region (Section 205 of the Tax Code).

xxxxxxxxx Petitioner thus submits that since private respondent falls


under the definition of an independent contractor and is not
among the aforementioned exceptions, private respondent
The term independent contractors include persons
(juridical or natural) not enumerated above (but not is therefore subject to the 3% contractors tax imposed
under the same Code.[4]
including individuals subject to the occupation tax under
Section 12 of the Local Tax Code) whose activity consists The Court of Appeals disagreed with the Petitioner
essentially of the sale of all kinds of services for a fee Commissioner of Internal Revenue and affirmed the assailed decision
regardless of whether or not the performance of the of the Court of Tax Appeals. Unfazed, petitioner now asks us to
reverse the CA through this petition for review.
The Issues apparel for export, as well as their agents and
contractors, and except gross receipts of or from
a pioneer industry registered with the Board of
Petitioner submits before us the following issues: Investments under the provisions of Republic Act
No. 5186;
1) Whether or not private respondent falls under the
purview of independent contractor pursuant to xxxxxxxxx
Section 205 of the Tax Code
The term independent contractors include
2) Whether or not private respondent is subject to 3% persons (juridical or natural) not enumerated
contractors tax under Section 205 of the Tax above (but not including individuals subject to the
Code.[5] occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the
In fine, these may be reduced to a single issue: Is Ateneo de
sale of all kinds of services for a fee regardless of
Manila University, through its auxiliary unit or branch -- the Institute of
whether or not the performance of the service
Philippine Culture -- performing the work of an independent contractor
calls for the exercise or use of the physical or
and, thus, subject to the three percent contractors tax levied by then
mental faculties of such contractors or their
Section 205 of the National Internal Revenue Code?
employees.
The term independent contractor shall not include
The Courts Ruling regional or area headquarters established in the
Philippines by multinational corporations,
including their alien executives, and which
The petition is unmeritorious. headquarters do not earn or derive income from
the Philippines and which act as supervisory,
communications and coordinating centers for
their affiliates, subsidiaries or branches in the
Interpretation of Tax Laws Asia-Pacific Region.
The term gross receipts means all amounts
The parts of then Section 205 of the National Internal Revenue received by the prime or principal contractor as
Code germane to the case before us read: the total contract price, undiminished by amount
paid to the subcontractor, shall be excluded from
SEC. 205. Contractors, proprietors or operators of the taxable gross receipts of the subcontractor.
dockyards, and others. -- A contractors tax of three per
centum of the gross receipts is hereby imposed on the Petitioner Commissioner of Internal Revenue contends that
following: Private Respondent Ateneo de Manila University falls within the
definition of an independent contractor and is not one of those
xxxxxxxxx mentioned as excepted; hence, it is properly a subject of the three
(16) Business agents and other independent percent contractors tax levied by the foregoing provision of
contractors, except persons, associations and law.[6] Petitioner states that the term independent contractor is not
corporations under contract for embroidery and specifically defined so as to delimit the scope thereof, so much so that
any person who x x x renders physical and mental service for a fee, is The Ateneo de Manila University Did Not Contract
now indubitably considered an independent contractor liable to 3% for the Sale of the Services of its Institute of Philippine Culture
contractors tax.[7] according to petitioner, Ateneo has the burden of
proof to show its exemption from the coverage of the law.
After reviewing the records of this case, we find no evidence that
We disagree. Petitioner Commissioner of Internal Revenue erred Ateneos Institute of Philippine Culture ever sold its services for a fee
in applying the principles of tax exemption without first applying the to anyone or was ever engaged in a business apart from and
well-settled doctrine of strict interpretation in the imposition of taxes. It independently of the academic purposes of the university.
is obviously both illogical and impractical to determine who are
exempted without first determining who are covered by the aforesaid Stressing that it is not the Ateneo de Manila University per
provision. The Commissioner should have determined first if private se which is being taxed, Petitioner Commissioner of Internal Revenue
respondent was covered by Section 205, applying the rule of strict contends that the tax is due on its activity of conducting researches for
interpretation of laws imposing taxes and other burdens on the a fee.The tax is due on the gross receipts made in favor of IPC
populace, before asking Ateneo to prove its exemption therefrom. The pursuant to the contracts the latter entered to conduct researches for
Court takes this occasion to reiterate the hornbook doctrine in the the benefit primarily of its clients. The tax is imposed on the exercise
interpretation of tax laws that (a) statute will not be construed as of a taxable activity. x x x [T]he sale of services of private respondent
imposing a tax unless it does so clearly, expressly, is made under a contract and the various contracts entered into
and unambiguously. x x x (A) tax cannot be imposed without clear and between private respondent and its clients are almost of the same
express words for that purpose. Accordingly, the general rule of terms, showing, among others, the compensation and terms of
requiring adherence to the letter in construing statutes applies with payment.[11] (Underscoring supplied.)
peculiar strictness to tax laws and the provisions of a taxing act are not
In theory, the Commissioner of Internal Revenue may be
to be extended by implication.[8] Parenthetically, in answering the
correct. However, the records do not show that Ateneos IPC in fact
question of who is subject to tax statutes, it is basic that in case of
contracted to sell its research services for a fee. Clearly then, as found
doubt, such statutes are to be construed most strongly against the
by the Court of Appeals and the Court of Tax Appeals, petitioners
government and in favor of the subjects or citizens because burdens
theory is inapplicable to the established factual milieu obtaining in the
are not to be imposed nor presumed to be imposed beyond what
instant case.
statutes expressly and clearly import.[9]
In the first place, the petitioner has presented no evidence to
To fall under its coverage, Section 205 of the National Internal
prove its bare contention that, indeed, contracts for sale of services
Revenue Code requires that the independent contractor be engaged
were ever entered into by the private respondent. As appropriately
in the business of selling its services. Hence, to impose the three
pointed out by the latter:
percent contractors tax on Ateneos Institute of Philippine Culture, it
should be sufficiently proven that the private respondent is indeed An examination of the Commissioners Written Formal Offer
selling its services for a fee in pursuit of an independent business. And of Evidence in the Court of Tax Appeals shows that only the
it is only after private respondent has been found clearly to be subject following documentary evidence was presented:
to the provisions of Sec. 205 that the question of exemption therefrom
would arise. Only after such coverage is shown does the rule of Exhibit 1 BIR letter of authority no. 331844
construction -- that tax exemptions are to be strictly construed against 2 Examiners Field Audit Report
the taxpayer -- come into play, contrary to petitioners position. This is 3 Adjustments to Sales/Receipts
the main line of reasoning of the Court of Tax Appeals in its 4 Letter-decision of BIR Commissioner
decision,[10] which was affirmed by the CA. Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be it accepted sponsorship for IPCs unfunded projects is
contracts between private respondent and third parties.[12] merely incidental. For, the main function of the IPC is to
undertake research projects under the academic agenda of
Moreover, the Court of Tax Appeals accurately and correctly the private respondent. Moreover, the records do not show
declared that the funds received by the Ateneo de Manila University that in accepting sponsorship of research work, IPC
are technically not a fee. They may however fall as gifts or donations realized profits from such work. On the contrary, the
which are tax-exempt as shown by private respondents compliance evidence shows that for about 30 years, IPC had
with the requirement of Section 123 of the National Internal Revenue continuously operated at a loss, which means that
Code providing for the exemption of such gifts to an educational sponsored funds are less than actual expenses for its
institution.[13] research projects. That IPC has been operating at a loss
loudly bespeaks of the fact that education and not profit is
Respondent Court of Appeals elucidated on the ruling of the the motive for undertaking the research projects.
Court of Tax Appeals:
Then, too, granting arguendo that IPC made profits from
To our mind, private respondent hardly fits into the the sponsored research projects, the fact still remains that
definition of an independent contractor. there is no proof that part of such earnings or profits was
ever distributed as dividends to any stockholder, as in fact
For one, the established facts show that IPC, as a unit of
none was so distributed because they accrued to the
the private respondent, is not engaged in
benefit of the private respondent which is a non-profit
business. Undisputedly, private respondent is mandated by
educational institution.[14]
law to undertake research activities to maintain its
university status.In fact, the research activities being carried Therefore, it is clear that the funds received by Ateneos Institute
out by the IPC is focused not on business or profit but on of Philippine Culture are not given in the concept of a fee or price in
social sciences studies of Philippine society and exchange for the performance of a service or delivery of an
culture. Since it can only finance a limited number of IPCs object. Rather,the amounts are in the nature of an endowment or
research projects, private respondent occasionally accepts donation given by IPCs benefactors solely for the purpose of
sponsorship for unfunded IPC research projects from sponsoring or funding the research with no strings attached. As found
international organizations, private foundations and by the two courts below, such sponsorships are subject to IPCs terms
governmental agencies. However, such sponsorships are and conditions. No proprietary or commercial research is done, and
subject to private respondents terms and conditions, among IPC retains the ownership of the results of the research, including the
which are, that the research is confined to topics consistent absolute right to publish the same.The copyrights over the results of
with the private respondents academic agenda; that no the research are owned by Ateneo and, consequently, no portion
proprietary or commercial purpose research is done; and thereof may be reproduced without its permission.[15] The amounts
that private respondent retains not only the absolute right to given to IPC, therefore, may not be deemed, it bears stressing, as fees
publish but also the ownership of the results of the research or gross receipts that can be subjected to the three percent contractors
conducted by the IPC. Quite clearly, the aforementioned tax.
terms and conditions belie the allegation that private
respondent is a contractor or is engaged in business. It is also well to stress that the questioned transactions of
Ateneos Institute of Philippine Culture cannot be deemed either as a
For another, it bears stressing that private respondent is a contract of sale or a contract for a piece of work. By the contract of
non-stock, non-profit educational corporation. The fact that sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay education. One of the departments shall be
therefor a price certain in money or its equivalent.[16] By its very nature, science and technology. The competence of the
a contract of sale requires a transfer of ownership. Thus, Article 1458 staff shall be judged by their effective teaching,
of the Civil Code expressly makes the obligation to transfer ownership scholarly publications and research activities
as an essential element of the contract of sale, following modern published in its school journal as well as their
codes, such as the German and the Swiss. Even in the absence of leadership activities in the profession.
this express requirement, however, most writers, including Sanchez
Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have (f) The institution must show evidence of
considered such transfer of ownership as the primary purpose of adequate and stable financial resources and
sale. Perez and Alguer follow the same view, stating that the delivery support, a reasonable portion of which should be
of the thing does not mean a mere physical transfer, but is a means of devoted to institutional development and
transmitting ownership. Transfer of title or an agreement to transfer it research. (underscoring supplied)
for a price paid or promised to be paid is the essence of sale.[17] In the xxxxxxxxx
case of a contract for a piece of work, the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain 32. University status may be withdrawn, after due notice
price or compensation. x x x If the contractor agrees to produce the and hearing, for failure to maintain satisfactorily the
work from materials furnished by him, he shall deliver the thing standards and requirements therefor.[20]
produced to the employer and transfer dominion over the thing. x x
Petitioners contention that it is the Institute of Philippine Culture
x.[18] Ineludably, whether the contract be one of sale or one for a piece
that is being taxed and not the Ateneo is patently erroneous because
of work, a transfer of ownership is involved and a party necessarily
the former is not an independent juridical entity that is separate and
walks away with an object.[19] In the case at bench, it is clear from the
distinct from the latter.
evidence on record that there was no sale either of objects or services
because, as adverted to earlier, there was no transfer of ownership
over the research data obtained or the results of research projects
undertaken by the Institute of Philippine Culture. Factual Findings and Conclusions of the Court of Tax Appeals
Affirmed by the Court of Appeals Generally Conclusive
Furthermore, it is clear that the research activity of the Institute of
Philippine Culture is done in pursuance of maintaining Ateneos
university status and not in the course of an independent business of In addition, we reiterate that the Court of Tax Appeals is a highly
selling such research with profit in mind. This is clear from a reading specialized body specifically created for the purpose of reviewing tax
of the regulations governing universities: cases. Through its expertise, it is undeniably competent to determine
31.In addition to the legal requisites an institution must the issue of whether[21] Ateneo de Manila University may be deemed
meet, among others, the following requirements before an a subject of the three percent contractors tax through the evidence
application for university status shall be considered: presented before it. Consequently, as a matter of principle, this Court
will not set aside the conclusion reached by x x x the Court of Tax
xxxxxxxxx Appeals which is, by the very nature of its function, dedicated
exclusively to the study and consideration of tax problems and has
(e) The institution must undertake research and necessarily developed an expertise on the subject unless there has
operate with a competent qualified staff at least been an abuse or improvident exercise of authority x x x.[22] This point
three graduate departments in accordance with becomes more evident in the case before us where the findings and
the rules and standards for graduate
conclusions of both the Court of Tax Appeals and the Court of Appeals ultimately, to public service.For the institute to have tenaciously
appear untainted by any abuse of authority, much less grave abuse of continued operating for so long despite its accumulation of significant
discretion. Thus, we find the decision of the latter affirming that of the losses, we can only agree with both the Court of Tax Appeals and the
former free from any palpable error. Court of Appeals that education and not profit is [IPCs] motive for
undertaking the research projects.[25]
WHEREFORE, premises considered, the petition
Public Service, Not Profit, is the Motive is DENIED and the assailed Decision of the Court of Appeals is
hereby AFFIRMED in full.

The records show that the Institute of Philippine Culture SO ORDERED.


conducted its research activities at a huge deficit of P1,624,014.00 as
shown in its statements of fund and disbursements for the period 1972
to 1985.[23]In fact, it was Ateneo de Manila University itself that had
funded the research projects of the institute, and it was only when
Ateneo could no longer produce the needed funds that the institute
sought funding from outside. The testimony of Ateneos Director for
Accounting Services, Ms. Leonor Wijangco, provides significant
insight on the academic and nonprofit nature of the institutes research
activities done in furtherance of the universitys purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero
(Office Manager of the Institute of Philippine Culture)
that as far as grants from sponsored research it is
possible that the grant sometimes is less than the
actual cost.Will you please tell us in this case when the
actual cost is a lot less than the grant who shoulders
the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a
university, because a university has to have its own
research institute.[24]
So, why is it that Ateneo continues to operate and conduct
researches through its Institute of Philippine Culture when it
undisputedly loses not an insignificant amount in the process? The
plain and simple answer is that private respondent is not a contractor
selling its services for a fee but an academic institution conducting
these researches pursuant to its commitments to education and,
FIRST DIVISION "A perusal of Sections 331 and 332(a) will reveal that they refer to a
tax, the basis of which is required by law to be reported in a return
[G.R. No. L-29485. November 21, 1980.] such as for example, income tax or sales tax. However, the surtax
imposed by Section 25 of the Tax Code is not one such tax.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. AYALA Accumulated surplus are never returned for tax purposes, as there is
SECURITIES CORPORATION and THE HONORABLE COURT OF no law requiring that such surplus be reported in a return for
TAX APPEALS, Respondents. purposes of the 25% surtax. In fact, taxpayers resort to all means
and devices to cover up the fact that they have unreasonably
accumulated surplus."cralaw virtua1aw library
DECISION
Petitioner, therefore, submits that

TEEHANKEE, J.: "As there is no law requiring taxpayers to file returns of their
accumulated surplus, it is obvious that neither Section 331 nor
Section 332(a) of the Tax Code applies in a case involving the 25%
Before the court is petitioner Commissioner of Internal Revenue’s surtax imposed by Section 25 of the Tax Code . . ."cralaw virtua1aw
motion for reconsideration of the Court’s decision of April 8, 1976 library
wherein the Court affirmed in toto the appealed decision of
respondent Court of Tax Appeals, the dispositive portion of which Petitioner cites the Court of Tax Appeals’ ruling in the earlier case of
provides as follows:chanrobles.com.ph : virtual law library United Equipment & Supply Company v. Commissioner of Internal
Revenue (CTA Case No. 1795, October 30, 1971) which was
"WHEREFORE, the decision of the respondent Commissioner of appealed by petitioner taxpayer to this Court in G. R. No. L-35653
Internal Revenue assessing petitioner the amount of P758,687.04 as bearing the same title, which appeal was denied by this Court en
25% surtax and interest is reversed. Accordingly, said assessment of banc for lack of merit as per its Resolution of October 25, 1972. In
respondent for 1955 is hereby cancelled and declared of no force said case, the tax court squarely ruled that the provisions of sections
and effect. Without pronouncement as to costs."cralaw virtua1aw 331 and 332 of the National Internal Revenue Code for prescriptive
library periods of five (5) and ten (10) years after the filing of the return do
not apply to the tax on the taxpayer’s unreasonably accumulated
This Court’s decision under reconsideration held that the surplus under section 25 of the Tax Code since no return is required
assessment made on February 21, 1961 by petitioner against to be filed by law or by regulation on such unduly accumulated
respondent corporation (and received by the latter on March 22, surplus on earnings, reasoning as follows:chanrobles virtualawlibrary
1961) in the sum of P758,687.04 on its surplus of P2,758,442.37 for chanrobles.com:chanrobles.com.ph
its fiscal year ending September 30, 1955 fell under the five-year
prescriptive period provided in section 331 of the National Internal "In resisting the assessment amounting to P10,864.26 as
Revenue Code and that the assessment had, therefore, been made accumulated earnings tax for 1957, petitioner also invoked the
after the expiration of the said five-year prescriptive period and was defense of prescription against the right of respondent to assess the
of no binding force and effect. said tax. It is contended that since its income tax return for 1957 was
filed in 1958, and with the clarification by respondent in his letter
Petitioner has urged that dated May 14, 1963, that the amount sought to be collected was
petitioner’s surtax liability under Section 25 rather than deficiency
corporate income tax under Section 24 of the National Internal
Revenue Code, the assessment has already prescribed under "SEC. 332. Exceptions as to period of limitation of assessment and
Section 331 of the same Code. collection of taxes. — (a) In the case of a false or fraudulent return
with intent to evade tax or of failure to file a return, the tax may be
"Section 331 of the Revenue Code provides:jgc:chanrobles.com.ph assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten years after the
"SEC. 331. Period of limitation upon assessment and collection. — discovery of the falsity, fraud, or omission.
Except as provided in the succeeding section, internal revenue taxes
shall be assessed within five years after the return was filed, and no "(b) Where before the expiration of the time prescribed in the
proceeding in court without assessment for the collection of such preceding section for the assessment of the tax, both the
taxes shall be begun after the expiration of such period. For the Commissioner of Internal Revenue and the taxpayer have consented
purpose of this section a return filed before the last day prescribed in writing to its assessment after such time, the tax may be assessed
by law for the filing thereof shall be considered as filed on such last at any time prior to the expiration of the period agreed upon. The
day; Provided, That this limitation shall not apply to cases already period so agreed upon may be extended by subsequent agreements
investigated prior to the approval of this Code. in writing made before the expiration of the period previously agreed
upon.
"Obviously, Section 331 applies to assessment of National Internal
Revenue Taxes which requires the filing of returns. A return the filing "(c) Where the assessment of any internal revenue tax has been
of which is necessary to start the running of the five-year period for made within the period of limitation above prescribed such tax may
making an assessment, must be one which is required for the be collected by distraint or levy by a proceeding in court, but only if
particular tax. Consequently, it has been held that the filing of an begun (1) within five years after the assessment of the tax, or (2)
income tax return does not start the running of the statute of prior to the expiration of any period for collection agreed upon in
limitation for assessment of the sales tax. (Butuan Sawmill, Inc. v. writing by the Commissioner of Internal Revenue and the taxpayer
Court of Tax Appeals, G.R. No. L-20601, Feb. 28, 1966, 16 SCRA before the expiration of such five-year period. The period so agreed
277). upon may be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
"Although petitioner filed an income tax return, no return was filed
covering its surplus profits which were improperly accumulated. In "It will be noted that Section 332 has reference to national internal
fact, no return could have been filed, and the law could not possibly revenue taxes which require the filing of returns. This is Implied from
require, for obvious reasons, the filing of a return covering the provision that the ten-year period for assessment specified
unreasonable accumulation of corporate surplus profits. A tax therein treats of the filing of a false or fraudulent return or of a failure
imposed upon unreasonable accumulation of surplus is in the nature to file a return. There can be no failure or omission to file a return
of a penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It where no return is required to be filed by law or by regulations. It is,
would not be proper for the law to compel a corporation to report therefore, our opinion that the ten-year period for making an
improper accumulation of surplus. Accordingly, Section 331 limiting assessment under Section 332 does not apply to internal revenue
the right to assess internal revenue taxes within five years from the taxes which do not require the filing of a return.
date the return was filed or was due does not apply.
"It is well settled limitations upon the right of the government to
"Neither does Section 332 apply. Said Section assess and collect taxes will not be presumed in the absence of
provides:jgc:chanrobles.com.ph clear legislation to the contrary. The existence of a time limit beyond
which the government may recover unpaid taxes is purely dependent adequately rebutted by the respondent corporation.chanrobles.com :
upon some express statutory provision, (51 Am. Jur. 867; 10 virtual law library
Mertens Law on Federal Income Taxation, par. 57. 02.). It follows
that in the absence of express statutory provision, the right of the Thus, Mr. Lamberto J. Cabral, the accountant of the corporation,
government to assess unpaid taxes is imprescriptible. Since there is testified before the court as follows:jgc:chanrobles.com.ph
no express statutory provision limiting the right of the Commissioner
of Internal Revenue to assess the tax on unreasonable accumulation "Atty. Garces
of surplus provided in Section 25 of the Revenue Code, said tax may
be assessed at any time." (Emphasis copied) The investigation Your Honor, shows that for the year 1955, the
Ayala Securities Corporation had 175,000 outstanding shares of
Such ruling was in effect upheld by this Court en banc upon its stock and out of these shares of Ayala Securities Corporation, the
dismissal of the taxpayer’s appeal for lack of merit as above Ayala and Company owned 174,996 shares of stock.
stated.chanrobles law library : red
"Q. Is that right, Mr. Cabral?
The Court is persuaded by the fundamental principle invoked by
petitioner that limitations upon the right of the government to assess "Atty. Ong
and collect taxes will not be presumed in the absence of clear
legislation to the contrary and that where the government has not by Objection, Your Honor, on the materiality of the question.
express statutory provision provided a limitation upon its right to
assess unpaid taxes, such right is imprescriptible. "Judge Alvarez

The Court, therefore, reconsiders its ruling in its decision’ under What is the materiality of the question?
reconsideration that the right to assess and collect the assessment in
question had prescribed after five years, and instead rules that there "Atty. Garces
is no such time limit on the right of the Commissioner of Internal
Revenue to assess the 25% tax on unreasonably accumulated We want to prove to this Honorable Court that Ayala Securities
surplus provided in section 25 of the Tax Code, since there is no Corporation is a holding or investment company, the parent company
express statutory provision limiting such right or providing for its being Ayala and Company.
prescription. The underlying purpose of the additional tax in question
on a corporation’s improperly accumulated profits or surplus is as set "Judge Alvarez
forth in the text of section 25 of the Tax Code itself 1 to avoid the
situation where a corporation unduly retains its surplus earnings Witness may answer.
instead of declaring and paying dividends to its shareholders or
members who would then have to pay the income tax due on such "A. I think so; yes.
dividends received by them. The record amply shows that
respondent corporation is a mere holding company of its "Q. And Ayala and Company is owned almost wholly by the Zobel
shareholders through its mother company, a registered co- Family and the Ayala Family?
partnership then set up by the individual shareholders belonging to
the same family and that the prima facie evidence and presumption "Atty. Ong
set up by the Tax Code, therefore, applied without having been
If Your Honor please, objection again on the materiality. What would operating company and the employees were the employees of the
counsel for the respondent prove on this point? Ayala and Company; (t.s.n., pp. 32-37)

"Atty. Garces Another witness, Mr. Salvador J. Lorayes, the Secretary and head of
the Legal Department of the corporation, also testified
Same purpose, Your Honor; to prove that Ayala Securities that:chanrob1es virtual 1aw library
Corporation is a mere investment or holding company.
Judge Alvarez questions
"Atty. Ong
"Q. May we know from you whether Ayala Securities Corporation is
What is the materiality of the case if it is a mere investment an affiliate of Ayala and Company?
company. In fact, we are here in court to prove the reasonableness
or unreasonableness of the accumulation of profit. I think counsel for "A. Yes, Your Honor.
the respondent is trying to harp on presumption; but actually we will
not be delving on presumption but on actual facts proving the "Q. Do we understand from you that Ayala and Company is the
reasonableness of the accumulation based on actual evidence. mother corporation of this affiliate?

"Judge Alvarez. "A. That is correct.

In order to determine the reasonableness or unreasonableness, "Q. And that the policy of Ayala Securities Corporation is practically
there must be a basis. Witness will have to answer the question. governed by the officers or partners of Ayala and Company?

"A. Yes. "A. They have a strong influence over the policy of Ayala Securities
Corporation.
x x x
"Q. So that whatever is decided by the partners of Ayala and
Company for a certain investment or project would also be followed
"Q. As of September 30, 1955 when the Ayala Securities Corporation by Ayala Securities Corporation?
filed its income tax return, were the officers of the Ayala Securities
Corporation and the Ayala and Company housed in the same "A. If the project is assigned to Ayala Securities Corporation, it will be
building? followed by Ayala Securities Corporation; if to another affiliate, no
(t.s.n., pp. 149-150). . . ." chanrobles virtualawlibrary
"A. Yes, sir; they were. chanrobles.com:chanrobles.com.ph

"Q. And also are the employees of the Ayala Securities Corporation Respondent corporation was therefore fully shown to fall under
and the Ayala and Company the same — meaning that the Revenue Regulation No. 2 implementing the provisions of the
employees of the Ayala Securities Corporation are also the income tax law which provides on holding and investment companies
employees of the Ayala and Company? that

"A. At the time, if I remember right, Ayala and Company was the "SEC. 20. Holding and Investment Companies. — A corporation
having practically no activities except holding property, and collecting Collector vs. Bisaya Land Transportation, GR L-12100, MY 29, 1958
the income therefrom or investing therein shall be considered a
holding company within the meaning of section 25."cralaw virtua1aw
library (DI KO MAKITA D: )

Petitioner commissioner’s plausible alternative contention is that


even if the 25% surtax were to be deemed subject to prescription,
computed from the filing of the income tax return in 1955, the intent
to evade payment of the surtax is an inherent quality of the violation
and the return filed must necessarily partake of a false and or
fraudulent character which would make applicable the 10-year
prescriptive period provided in section 332(a) of the Tax Code and
since the assessment was made in 1961 (the sixth year), the
assessment was clearly within the 10-year prescriptive period. The
Court sees no necessity, however, for ruling on this point in view of
its adherence to the ruling in the earlier case of United Equipment &
Supply Co., supra, holding that the 25% surtax is not subject to any
statutory prescriptive period.

ACCORDINGLY, the Court’s decision of April 8, 1976 is set aside


and in lieu thereof, judgment is hereby rendered ordering respondent
corporation to pay the assessment in the sum of P758,687.04 as
25% surtax on its unreasonably accumulated surplus, plus the 5%
surcharge and 1% monthly interest thereon, pursuant to section 51
(e) of the National Internal Revenue Code, as amended by R. A.
2343. With Costs.chanrobles virtual lawlibrary

Makasiar, Fernandez, Guerrero and De Castro, *, JJ., concur.

Melencio-Herrera, J., took no part.


EN BANC
4. ID.; ID.; INTERNAL REVENUE TAXES. — Internal Revenue
[G.R. No. L-17725. February 28, 1962.] Taxes, such as forest charges, cannot be the subject of set-off or
compensation. It is because taxes are not in the nature of contracts
REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellee, v. between the parties but grow out of a duty to, and are positive acts
MAMBULAO LUMBER COMPANY, ET AL., Defendants- of, the government, to the making and enforcing of which, the
Appellants. personal consent of the individual taxpayer is not required.

Solicitor General for Plaintiff-Appellee.


DECISION
Arthur Tordesillas, for Defendants-Appellants.

BARRERA, J.:
SYLLABUS

From the decision of the Court of First Instance of Manila (in Civil
1. PUBLIC FORESTS; REFORESTATION CHARGES; NATURE OF Case No. 34100) ordering it to pay to plaintiff Republic of the
FUND COLLECTED. — Under Section 1 of Republic Act No. 115 the Philippines the sum of P4,802.37 with 6% interest thereon from the
amount collected as reforestation charges from a timber licensee or date of the filing of the complaint until fully paid, plus costs,
concessionaire, reforestation charges from a timber licensee or defendant Mambulao Lumber Company interposed the present
concessionaire, shall constitute a fund to be known as the appeal. 1
Reforestation Fund, and the same shall be expanded by the Director
of Forestry, with the approval of the Secretary of Agriculture and The facts of the case are briefly stated in the decision of the trial
Natural Resources for the reforestation or afforestation, among court, to wit:jgc:chanrobles.com.ph
others, of denuded areas which, upon investigation, are found to be
needing reforestation or afforestation. "The facts of this case are not contested and may be briefly
summarized as follows: (a) under the first cause of action, for forest
2. ID.; ID.; ID.; The amount paid by a licensee as reforestation or charges covering the period from September 10, 1952 to May 24,
afforestation charges, is in the nature of a tax which forms part of the 1953, defendants admitted that they have a liability of P587.37,
Reforestation Fund, payable by him, irrespective of whether the area which liability is covered by a bond executed by defendant General
covered by his license is reforested or not. Said Fund, as the law Insurance & Surety Corporation for Mambulao Lumber Company,
expressly provides, shall be expended in carrying out the purposes jointly and severally in character, on July 29, 1953, in favor of herein
provided for thereunder, namely, the reforestation or afforestation, plaintiff; (b) under the second cause of action, both defendants
among others, of denuded areas needing reforestation or admitted a joint and several liability in favor of plaintiff in the sum of
afforestation. P286.70, also covered by a bond dated November 27, 1953; and (c)
under the third cause of action, both defendants admitted a joint and
3. OBLIGATIONS AND CONTRACTS; COMPENSATION WHEN several liability in favor of plaintiff for P3,928.30, also covered by a
PARTIES ARE NOT CREDITOR OR DEBTOR OF EACH OTHER. bond dated July 20, 1954. These three liabilities aggregate to
— Where appellant and appellee are not mutually creditors and P4,802.37. If the liability of defendants in favor of plaintiff in the
debtors of each other, the law on compensation is inapplicable. amount already mentioned is admitted, then what is the defense
interposed by the defendants? The defense presented by the The only issue to be resolved in this appeal is whether the sum of
defendants is quite unusual in more ways than one. It appears from P9,127.50 paid by defendant-appellant company to plaintiff-appellee
Exh. 3 that from July 21, 1948 to December 29, 1956, defendant as reforestation charges from 1947 to 1956 may be set off or applied
Mambulao Lumber Company paid to the Republic of the Philippines to the payment of the sum of P4,802.37 as forest charges due and
P8,200.52 for `reforestation charges’ and for the period commencing owing from appellant to appellee. It is appellant’s contention that said
from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to sum of P9,127.50, not having been used in the reforestation of the
the Republic of the Philippines for `reforestation charges’. These area covered by its license, the same is refundable to it or may be
reforestation charges were paid to the plaintiff in pursuance of applied in compensation of said sum of P4,802.37 due from it as
Section 1 of Republic Act 115 which provides that there shall be forest charges.
collected, in addition to the regular forest charges provided under
Section 264 of Commonwealth Act 466 known as the National We find appellant’s claim devoid of any merit. Section 1 of Republic
Internal Revenue Code, the amount of P0.50 on each cubic meter of Act No. 115, provides:jgc:chanrobles.com.ph
timber . . . cut out and removed from any public forest for commercial
purposes. The amount collected shall be expended by the director of "SECTION 1. There shall be collected, in addition to the regular
forestry, with the approval of the secretary of agriculture and forest charges provided for under section two hundred and sixty-four
commerce, for reforestation and afforestation of water sheds, of Commonwealth Act Numbered Four Hundred sixty-six, known as
denuded areas . . . and other public forest lands, which upon the National Internal Revenue Code, the amount of fifty centavos on
investigation, are found needing reforestation or afforestation . . . . each cubic meter of timber for the first and second groups and forty
The total amount of the reforestation charges paid by Mambulao centavos for the third and fourth groups cut out and removed from
Lumber Company is P9,127.50, and it is the contention of defendant any public forest for commercial purposes. The amount collected
Mambulao Lumber Company that since the Republic of the shall be expended by the Director of Forestry, with the approval of
Philippines has not made use of those reforestation charges the Secretary of Agriculture and Natural Resources (Commerce), for
collected from it for reforesting the denuded area of the land covered reforestation and afforestation of watersheds, denuded areas and
by its license, the Republic of the Philippines should refund said cogon and open lands within forest reserves, communal forest,
amount, or, if it cannot be refunded, at least it should be national parks, timber lands, sand dunes, and other public forest
compensated with what Mambulao Lumber Company owed the lands, which, upon investigation, are found needing reforestation or
Republic of the Philippines for reforestation charges. In line with afforestation, or needing to be under forest cover for the growing of
these thought, defendant Mambulao Lumber Company wrote the economic trees for timber, tannin, oils, gums, and other minor forest
director of forestry, on February 21, 1957 letter Exh. 1, in paragraph products or medicinal plants, or for watersheds protection, or for
4 of which said defendant requested `that our account with your prevention of erosion and floods and preparation of necessary plans
bureau be credited with all the reforestation charges that you have and estimate of costs and for reconnaissance survey of public forest
imposed on us from July 1, 1947 to June 14, 1956, amounting to lands and for such other expenses as may be deemed necessary for
around P2,988.62. . . .." This letter of defendant Mambulao Lumber the proper carrying out of the purposes of this Act.
Company was answered by the director of forestry on March 12,
1957, marked Exh. 2, in which the director of forestry quoted an "All revenues collected by virtue of, and pursuant to, the provisions of
opinion of the secretary of justice, to the effect that he has no the preceding paragraph and from the sale of barks, medicinal plants
discretion to extend the time for paying the reforestation charges and and other products derived from plantations as herein provided shall
also explained why not all denuded areas are being constitute a fund to be known as Reforestation Fund, to be expended
reforested."cralaw virtua1aw library exclusively in carrying out the purposes provided for under this Act.
All provincial or city treasurers and their deputies shall act as agents
of the Director of Forestry for the collection of the revenues or the coffers of the government as taxes collected, and the
incomes derived from the provisions of this Act." (Emphasis government does not owe anything to defendant Mambulao Lumber
supplied.) Company. So, it is crystal clear that the Republic of the Philippines
and the Mambulao Lumber Company are not creditors and debtors
Under this provision, it seems quite clear that the amount collected of each other, because compensation refers to mutual debts. . . .
as reforestation charges from a timber licensee or concessionaire ."cralaw virtua1aw library
shall constitute a fund to be known as the Reforestation Fund, and
that the same shall be expended by the Director of Forestry, with the And the weight of authority is to the effect that internal revenue
approval of the Secretary of Agriculture and Natural Resources for taxes, such as the forest charges in question, can not be the subject
the reforestation or afforestation, among others, of denuded areas of set-off or compensation.
which, upon investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which requires that "A claim for taxes is not such a debt, demand, contract or judgment
the amount collected as reforestation charges should be used as is allowed to be set-off under the statutes of set-off, which are
exclusively for the reforestation of the area covered by the license of construed uniformly, in the light of public policy, to exclude the
a licensee or concessionaire, and that if not so used, the same remedy in an action or any indebtedness of the state or municipality
should be refunded to him. Observe too, that the licensee’s area may to one who is liable to the state or municipality for taxes. Neither are
or may not be reforested at all, depending on whether the they a proper subject of recoupment since they do not arise out of
investigation thereof by the Director of Forestry shows that said area the contract or transaction sued on. . . . ." (80 C.J.S. 73-74.)
needs reforestation. The conclusion seems to be that the amount
paid by a licensee as reforestation charges is in the nature of a tax "The general rule, based on grounds of public policy is well- settled
which forms a part of the Reforestation Fund, payable by him that no set-off is admissible against demands for taxes levied for
irrespective of whether the area covered by his license is reforested general or local governmental purposes. The reason on which the
or not. Said fund, as the law expressly provides, shall be expended general rule is based, is that taxes are not in the nature of contracts
in carrying out the purposes provided for thereunder, namely, the between the party and party but grow out of a duty to, and are the
reforestation or afforestation, among others, of denuded areas positive acts of the government, to the making and enforcing of
needing reforestation or afforestation. which, the personal consent of individual taxpayers is not required. . .
. If the taxpayer can properly refuse to pay his tax when called upon
Appellant maintains that the principle of compensation in Article 1278 by the Collector, because he has a claim against the governmental
of the new Civil Code 2 is applicable, such that the sum of P9,127.50 body which is not included in the tax levy, it is plain that some
paid by it as reforestation charges may compensate its indebtedness legitimate and necessary expenditure must be curtailed. If the
to appellee in the sum of P4,802.37 as forest charges. But in the taxpayer’s claim is disputed, the collection of the tax must await and
view we take of this case, appellant and appellee are not mutually abide the result of a lawsuit, and meanwhile the financial affairs of
creditors and debtors of each other. Consequently, the law on the government will be thrown into great confusion." (47 Am. Jur.
compensation is inapplicable. On this point, the trial court correctly 766-767.)
observed:jgc:chanrobles.com.ph
WHEREFORE, the judgment of the trial court appealed from is
"Under Article 1278, NCC, compensation should take place when hereby affirmed in all respects, with costs against the defendant-
two persons in their own right are creditors and debtors of each appellant. So ordered.
other. With respect to the forest charges which the defendant
Mambulao Lumber Company has paid to the government, they are in
Republic of the Philippines justifiable as the Government is indebted to the estate under
SUPREME COURT administration in the amount of P262,200. The orders of the court
Manila below dated August 20, 1960 and September 28, 1960, respectively,
are as follows:
EN BANC
Atty. Benedicto submitted a copy of the contract between
G.R. No. L-18994 June 29, 1963 Mrs. Simeona K. Price, Administratrix of the estate of her
late husband Walter Scott Price and Director Zoilo Castrillo
MELECIO R. DOMINGO, as Commissioner of Internal of the Bureau of Lands dated September 19, 1956 and
Revenue, petitioner, acknowledged before Notary Public Salvador V. Esguerra,
legal adviser in Malacañang to Executive Secretary De Leon
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the dated December 14, 1956, the note of His Excellency, Pres.
Court of First Instance of Leyte, Carlos P. Garcia, to Director Castrillo dated August 2, 1958,
and SIMEONA K. PRICE, as Administratrix of the Intestate directing the latter to pay to Mrs. Price the sum
Estate of the late Walter Scott Price, respondents. ofP368,140.00, and an extract of page 765 of Republic Act
No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by
Office of the Solicitor General and Atty. G. H. Mantolino for the administratrix Simeona K. Price, as directed in the above
petitioner. note of the President. Considering these facts, the Court
Benedicto and Martinez for respondents. orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue as
LABRADOR, J.: ordered paid by this Court on July 5, 1960 in accordance
with the order of the Supreme Court promulgated July 30,
This is a petition for certiorari and mandamus against the Judge of 1960 in G.R. No. L-14674, be deducted from the amount of
the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, P262,200.00 due and payable to the Administratrix Simeona
presiding, seeking to annul certain orders of the court and for an K. Price, in this estate, the balance to be paid by the
order in this Court directing the respondent court below to execute Government to her without further delay. (Order of August
the judgment in favor of the Government against the estate of Walter 20, 1960)
Scott Price for internal revenue taxes.
The Court has nothing further to add to its order dated
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. August 20, 1960 and it orders that the payment of the claim
Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared of the Collector of Internal Revenue be deferred until the
as final and executory the order for the payment by the estate of the Government shall have paid its accounts to the
estate and inheritance taxes, charges and penalties, amounting to administratrix herein amounting to P262,200.00. It may not
P40,058.55, issued by the Court of First Instance of Leyte in, special be amiss to repeat that it is only fair for the Government, as
proceedings No. 14 entitled "In the matter of the Intestate Estate of a debtor, to its accounts to its citizens-creditors before it can
the Late Walter Scott Price." In order to enforce the claims against insist in the prompt payment of the latter's account to it,
the estate the fiscal presented a petition dated June 21, 1961, to the specially taking into consideration that the amount due to the
court below for the execution of the judgment. The petition was, Government draws interests while the credit due to the
however, denied by the court which held that the execution is not
present state does not accrue any interest. (Order of The legal basis for such a procedure is the fact that in the testate or
September 28, 1960) intestate proceedings to settle the estate of a deceased person, the
properties belonging to the estate are under the jurisdiction of the
The petition to set aside the above orders of the court below and for court and such jurisdiction continues until said properties have been
the execution of the claim of the Government against the estate must distributed among the heirs entitled thereto. During the pendency of
be denied for lack of merit. The ordinary procedure by which to settle the proceedings all the estate is in custodia legis and the proper
claims of indebtedness against the estate of a deceased person, as procedure is not to allow the sheriff, in case of the court judgment, to
an inheritance tax, is for the claimant to present a claim before the seize the properties but to ask the court for an order to require the
probate court so that said court may order the administrator to pay administrator to pay the amount due from the estate and required to
the amount thereof. To such effect is the decision of this Court in be paid.
Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No.
L-2360, Dec. 29, 1949, thus: Another ground for denying the petition of the provincial fiscal is the
fact that the court having jurisdiction of the estate had found that the
. . . a writ of execution is not the proper procedure allowed claim of the estate against the Government has been recognized and
by the Rules of Court for the payment of debts and expenses an amount of P262,200 has already been appropriated for the
of administration. The proper procedure is for the court to purpose by a corresponding law (Rep. Act No. 2700). Under the
order the sale of personal estate or the sale or mortgage of above circumstances, both the claim of the Government for
real property of the deceased and all debts or expenses of inheritance taxes and the claim of the intestate for services rendered
administrator and with the written notice to all the heirs have already become overdue and demandable is well as fully
legatees and devisees residing in the Philippines, according liquidated. Compensation, therefore, takes place by operation of law,
to Rule 89, section 3, and Rule 90, section 2. And when sale in accordance with the provisions of Articles 1279 and 1290 of the
or mortgage of real estate is to be made, the regulations Civil Code, and both debts are extinguished to the concurrent
contained in Rule 90, section 7, should be complied amount, thus:
with.1äwphï1.ñët
ART. 1200. When all the requisites mentioned in article 1279
Execution may issue only where the devisees, legatees or are present, compensation takes effect by operation of law,
heirs have entered into possession of their respective and extinguished both debts to the concurrent amount,
portions in the estate prior to settlement and payment of the eventhough the creditors and debtors are not aware of the
debts and expenses of administration and it is later compensation.
ascertained that there are such debts and expenses to be
paid, in which case "the court having jurisdiction of the estate It is clear, therefore, that the petitioner has no clear right to execute
may, by order for that purpose, after hearing, settle the the judgment for taxes against the estate of the deceased Walter
amount of their several liabilities, and order how much and in Scott Price. Furthermore, the petition for certiorari and mandamus is
what manner each person shall contribute, and may issue not the proper remedy for the petitioner. Appeal is the remedy.
execution if circumstances require" (Rule 89, section 6; see
also Rule 74, Section 4; Emphasis supplied.) And this is not The petition is, therefore, dismissed, without costs.
the instant case.
U
E
THIRD DIVISION
2nd Qtr.,
1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
[G.R. No. 125704. August 28, 1998]
3rd Qtr.,
1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER 4th Qtr.,


OF INTERNAL REVENUE, COURT OF APPEALS, and THE 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
COURT OF TAX APPEALS, respondents.
------------------- ----------------- ----------------- ---------------------
DECISION
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
ROMERO, J.:
1st Qtr.,
Petitioner Philex Mining Corp. assails the decision of the Court of 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
Appeals promulgated on April 8, 1996 in CA-G.R. SP No.
36975[1] affirming the Court of Tax Appeals decision in CTA Case No.
2nd Qtr.,
4872 dated March 16, 1995[2] ordering it to pay the amount
1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
of P110,677,668.52 as excise tax liability for the period from the
2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Sections 248 43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
and 249 of the Tax Code of 1977.
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
The facts show that on August 5, 1992, the BIR sent a letter to
Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter
========== ========== =========== ===========[3]
of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount
of P123,821,982.52 computed as follows:
In a letter dated August 20, 1992,[4] Philex protested the demand
for payment of the tax liabilities stating that it has pending claims for
PERIOD COVERED BASIC TAX
VAT input credit/refund for the taxes it paid for the years 1989 to 1991
25% SURCHARGE INTEREST TOTAL EXCISE
in the amount of P119,977,037.02 plus interest. Therefore, these
claims for tax credit/refund should be applied against the tax liabilities,
T our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
citing
A Inc.[5]
Mines,
X
DIn reply, the BIR, in a letter dated September 7, 1992,[6] found no
merit in Philexs position. Since these pending claims have not yet
been established or determined with certainty, it follows that no legal Aggrieved with the decision, Philex appealed the case before the
compensation can take place. Hence, he BIR reiterated its demand Court of Appeals docketed as CA-G.R. CV No.
that Philex settle the amount plus interest within 30 days from the 36975.[11] Nonetheless, on April 8, 1996, the Court of Appeals affirmed
receipt of the letter. the Court of Tax Appeals observation. The pertinent portion of which
reads:[12]
In view of the BIRs denial of the offsetting of Philexs claim for
VAT input credit/refund against its exercise tax obligation, Philex
raised the issue to the Court of Tax Appeals on November 6, WHEREFORE, the appeal by way of petition for review is hereby
1992.[7] In the course of the proceedings, the BIR issued a Tax Credit DISMISSED and the decision dated March 16, 1995 is AFFIRMED.
Certificate SN 001795 in the amount of P13,144,313.88 which,
applied to the total tax liabilities of Philex of P123,821,982.52; Philex filed a motion for reconsideration which was, nevertheless,
effectively lowered the latters tax obligation of P110,677,688.52. denied in a Resolution dated July 11, 1996.[13]

Despite the reduction of its tax liabilities, the CTA still ordered However, a few days after the denial of its motion for
Philex to pay the remaining balance of P110,677,688.52 plus interest, reconsideration, Philex was able to obtain its VAT input credit/refund
elucidating its reason, to wit: not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows:[14]
Thus, for legal compensation to take place, both obligations must Period Covered By Tax Credit Certificate Date Of Issue Amount
be liquidated and demandable. Liquidated debts are those where the Claims For Vat Number
exact amount has already been determined (PARAS, Civil Code of refund/credit
the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the
instant case, the claims of the Petitioner for VAT refund is still
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
pending litigation, and still has to be determined by this Court (C.T.A.
Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated 1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
claim which Petitioner conceived to exist in its favor (see Compaia
General de Tabacos vs.French and Unson, No. 14027, November 8, 1989 007732 11 July 1996 P37,322,799.19
1918, 39 Phil. 34).[8]
1990-1991 007751 16 July 1996 P84,662,787.46
Moreover, the Court of Tax Appeals ruled that taxes cannot be
subject to set-off on compensation since claim for taxes is not a debt 1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
or contract.[9] The dispositive portion of the CTA decision[10] provides:
In view of the grant of its VAT input credit/refund, Philex now
In all the foregoing, this Petition for Review is hereby DENIED for contends that the same should, ipso jure, off-set its excise tax
lack of merit and Petitioner is hereby ORDERED to PAY the liabilities[15] since both had already become due and demandable, as
Respondent the amount of P110,677,668.52 representing excise tax well as fully liquidated;[16] hence, legal compensation can properly
liability for the period from the 2nd quarter of 1991 to the 2nd quarter take place.
of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended. We see no merit in this contention.
In several instances prior to the instant case, we have already Revenue Code of 1977 was enacted, the same provision upon which
made the pronouncement that taxes cannot be subject to the Itogon-Suyoc pronouncement was based was
compensation for the simple reason that the government and the omitted.[22] Accordingly, the doctrine enunciated in Itogon-
taxpayer are not creditors and debtors of each other. [17] There is a Suyoc cannot be invoked by Philex.
material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Despite the foregoing rulings clearly adverse to Philexs position,
Government in its sovereign capacity.[18] We find no cogent reason to it asserts that the imposition of surcharge and interest for the non-
deviate from the aforementioned distinction. payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the
Prescinding from this premise, in Francia v. Intermediate excise liabilities within the prescribed period since, after all, it still has
Appellate Court,[19] we categorically held that taxes cannot be subject pending claims for VAT input credit/refund with BIR.[23]
to set-off or compensation, thus:
We fail to see the logic of Philexs claim for this is an outright
disregard of the basic principle in tax law that taxes are the lifeblood
We have consistently ruled that there can be no off-setting of of the government and so should be collected without unnecessary
taxes against the claims that the taxpayer may have against the hindrance.[24] Evidently, to countenance Philexs whimsical reason
government. A person cannot refuse to pay a tax on the ground that would render ineffective our tax collection system. Too simplistic, it
the government owes him an amount equal to or greater than the tax finds no support in law or in jurisprudence.
being collected. The collection of tax cannot await the results of a
lawsuit against the government. 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
The ruling in Francia has been applied to the subsequent case or credit against the government which has not yet been granted. It
of Caltex Philippines, Inc. v. Commission on Audit,[20] which reiterated must be noted that a distinguishing feature of a tax is that it is
that: compulsory rather than a matter of bargain.[25] Hence, a tax does not
depend upon the consent of the taxpayer. [26] If any payer can defer the
x x x a taxpayer may not offset taxes due from the claims that he payment of taxes by raising the defense that it still has a pending claim
may have against the government. Taxes cannot be the subject of for refund or credit, this would adversely affect the government
compensation because the government and taxpayer are not revenue system. A taxpayer cannot refuse to pay his taxes when they
mutually creditors and debtors of each other and a claim for taxes is fall due simply because he has a claim against the government or that
not such a debt, demand, contract or judgment as is allowed to be the collection of the tax is contingent on the result of the lawsuit it filed
set-off. against the government.[27] 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
Further, Philexs reliance on our holding in Commissioner of of authority over the manner by which taxpayers credit and offset their
Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled that a tax liabilities.
pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the Corollarily, the fact that Philex has pending claims for VAT input
Commissioner,[21] is no longer without any support in statutory law. claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the
It is important to note that the premise of our ruling in the Tax Code of 1977. The payment of the surcharge is mandatory and
aforementioned case was anchored on Section 51(d) of the National the BIR is not vested with any authority to waive the collection
Revenue Code of 1939. However, when the National Internal thereof.[28] The same cannot be condoned for flimsy
reasons,[29] similar to the one advanced by Philex in justifying its non- To be sure, this is not state that the taxpayer is devoid of remedy
payment of its tax liabilities. against public servants or employees especially BIR examiners who,
in investigating tax claims are seen to drag their feet needlessly. First,
Finally, Philex asserts that the BIR violated Section 106(e)[30] of if the BIR takes time in acting upon the taxpayer's claims for refund,
the National Internal Revenue Code of 1977, which requires the the latter can seek judicial remedy before the Court of Tax Appeals in
refund of input taxes within 60 days,[31] when it took five years for the the manner prescribed by law.[38] Second, if the inaction can be
latter to grant its tax claim for VAT input credit/refund.[32] characterized as willful neglect of duty, then recourse under the Civil
In this regard, we agree with Philex. While there is no dispute that Code and the Tax Code can also be availed of.
a claimant has the burden of proof to establish the factual basis of his Article 27 of the Civil Code provides:
or her claim for tax credit or refund,[33] 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 "Art. 27. Any person suffering material or moral loss because a
taxpayers owe honesty to government it is but just that government public servant or employee refuses or neglects, without just cause, to
render fair service to the taxpayers.[34] perform his official duty may file an action for damages and other
relief against the latter, without prejudice to any disciplinary action
In the instant case, the VAT input taxes were paid between 1989 that may be taken."
to 1991 but the refund of these erroneously paid taxes was only
granted in 1996. Obviously, had the BIR been more diligent and More importantly, Section 269 (c) of the National Internal
judicious with their duty, it could have granted the refund earlier. We Revenue Act of 1997 states:
need not remind the BIR that simple justice requires the speedy refund
of wrongly-held taxes.[35] Fair dealing and nothing less, is expected by "xxx xxx xxx
the taxpayer from the BIR in the latter's discharge of its function. As
aptly held in Roxas v. Court of Tax Appeals:[36] (c) wilfully neglecting to give receipts, as by law required for any sum
collected in the performance of duty or wilfully neglecting to perform,
"The power of taxation is sometimes called also the power to any other duties enjoined by law."
destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised Simply put, both provisions abhor official inaction, willful neglect and
fairly, equally and uniformly, lest the tax collectot kill the 'hen that unreasonable delay in the performance of official duties.[39] In no
lays the golden egg.' And, in the order to maintain the general uncertain terms must we stress that every public employee or
public's trust and confidence in the Government this power must be servant must strive to render service to the people with utmost
used justly and not treacherously." diligence and efficiency. Insolence and delay have no place in
government service. The BIR, being the government collecting arm,
Despite our concern with the lethargic manner by which the BIR must and should do no less. It simply cannot be apathetic and
handled Philex's tax claim, it is a settled rule that in the performance laggard in rendering service to the taxpayer if it wishes to remain true
of governmental function, the State is not bound by the neglect of its to its mission of hastening the country's development. We take
agents and officers. Nowhere is this more true than in the field of judicial notice of the taxpayer's generally negative perception
taxation.[37] Again, while we understand Philex's predicament, it must towards the BIR; hence, it is up to the latter to prove its detractors
be stressed that the same is not valid reason for the non- payment of wrong.
its tax liabilities.
In sum, while we can never condone the BIR's apparent
callousness in performing its duties, still, the same cannot justify
Philex's non-payment of its tax liabilities. The adage "no one should
take the law into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is
hereby DISMISSED. The assailed decision of the Court of Appeals
dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.