Taxation Cases 1

A.
Definition
Paseo Realty and Development Corp. v. Court of Appeals

G.R. No. 119286; 13 October 2004
Facts:
Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land
at Paseo de Roxas in Makati City. On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989
declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an income tax due
thereon in the amount of P27,653.00, prior year‘s excess credit of P146,026.00, and creditable taxes withheld in 1989 of
P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.
In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and
dismissed the petition for review, stating that it has overlooked the fact that the petitioner‘s 1989 Corporate Income Tax
Return indicated that the amount of P54,104.00 subject of petitioner‘s claim for refund has already been included as part
and parcel of the P172,477.00 which the petitioner automatically applied as a tax credit for the succeeding taxable year
1990. Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10,1994. Petitioner
filed a Petition for Review dated April 3, 1994 with the Court of Appeals.
Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing creditable
taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax liability, the
appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of
P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court
elucidated on the reason for its dismissal of petitioner‘s claim for refund.
Issue:
Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded
or credited against its tax liabilities for the succeeding year.
Held:
No. The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside the
conclusion reached by an agency such as the CTA which is, by the very nature of its functions, 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 its authority. This interdiction finds particular application in this case since the
CTA, after careful consideration of the merits of the Commissioner of Internal Revenue‘s motion for reconsideration,
reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution
cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts.
Petitioner‘s 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess
credit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit
for the succeeding taxable year. According to petitioner, it successively utilized this amount when it obtained refunds in
CTA Case No. 4439 and CTA Case No. 4528 and applied its1990 tax liability, leaving a balance of P54,104.00, the amount
subject of the instant claim for refund.
The confusion as to petitioner‘s entitlement to a refund could altogether have been avoided had it presented its
tax return for 1990. Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00,
which includes the P54,104.00 creditable taxes withheld for 1989subject of the instant claim for refund, against its 1990
tax liability as it had elected in its 1989 return, or at least, whether petitioner‘s tax credit of P172,477.00 was applied to its
approved refunds as it claims.
As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess
estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return maybe credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward
of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only.
Taxation is a destructive power which interferes with the personal and property rights of the people and takes
from them a portion of their property for the support of the government. And since taxes are what we pay for civilized
society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim
of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be
mistaken. Else wise stated, taxation is the rule, exemption therefrom is the exception.
B. Nature of Internal Revenue Law
Hilado vs. Collector of Internal Revenue

G.R. No. L-9408, October 31,1956
Facts:
On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he
claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General
Circular No. V-123 issued by the Collector of Internal Revenue. On the basis of said return, an assessment notice
demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthly installments, the last payment
having been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued
General Circular No. V-139 which not only revoked and declared void his general Circular No. V-123 but laid down the
rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other
casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said
property. The deduction was disallowed and the CIR demanded from him P3,546 as deficiency income tax for said year.
The petition for reconsideration filed by petitioner was denied so he filed a petition for review with the CTA. The SC
affirmed the assessment made by the CIR. Hence this appeal.
Issue: 1. Whether Hilado can claim compensation during the war; and
2. Whether the internal revenue laws can been enforced during the war.
Held:
1. No. Assuming that said amount represents a portion of the 75% of his war damage claim which was not paid,
the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received
from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in
1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income.
In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in
contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. As of the end of 1945, there was absolutely no law under which
petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the
Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission
merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot
give rise to any enforceable right.
2. Yes. It is well known that our internal revenue laws are not political in nature and as such were continued in
force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a
matter of fact, income tax returns were filed during that period and income tax payment were effected and considered
valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.
C. Scope and Nature of Taxation
Hodges v. Municipal Board of Iloilo

G.R. No. L-18129, January 31, 1963
Facts:
In 1960, the Municipal Board of Iloilo enacted Ordinance 33 requiring the payment of a sales tax of 1⁄2 of 1% of
the selling price of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the Motors
Vehicle Office of Iloilo unless the tax has been paid. Hodges, engaged in buying-and-selling of second hand motor
vehicles in the city, assailed the ordinance as invalid for being passed in excess of the authority conferred by law upon
the municipal board.
Issue:
Whether or not the City of Iloilo empowered to impose the tax.
Held:
Yes. The City of Iloilo, through its municipal board, is empowered:
(a) To impose municipal licenses, taxes or fees upon any person engaged in any occupation or business, or
exercising any privilege, in the city;
(b) To regulate and impose reasonable fees for services rendered in connection with any business, profession or
occupation conducted within the city; and
(c) To levy for public purposes just and uniform taxes, licenses or fees.
The tax in question is in the form of percentage tax on the proceeds of the sale of a motor vehicle. The
prohibition against such tax refers only to municipalities and municipal district and does not comprehend chartered cities
as the City of Iloilo.
CIR v. Algue Inc., and Court of Tax Appeals

GR No. L-28896; February 17, 1988
Facts:
The Philippine Sugar Estate Development Company appointed private respondent Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O’Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it.
Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.
The CIR contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The CIR claims that these payments are fictitious because most of the
payees are members of the same family in control of Algue, and suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
The CTA agreed with Algue, it held that the said amount had been legitimately paid by the private respondent
for actual services rendered, in the form of promotional fees.
Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed
by private respondent Algue as legitimate business expenses in its income tax returns.
Held:
We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the PSEDC to the private respondent was P125,000.00. After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission.
This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s
hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
government.
The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer
has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. We
hold that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
CIR v. Cebu Portland Cement Company

G.R. No. L-29059, December 15, 1987
Facts:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the
Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland
Cement Company the amount of P359,408.98, representing overpayments of ad valorem taxes on cement produced and
sold by it after October 1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private
respondent, the latter moved for a writ of execution to enforce the said judgment.
The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax
liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on
the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge.
On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the
private respondent was still being questioned and therefore could not be set-off against the refund.
Issue:
Whether or not the judgment debt can be enforced against private respondent’s sales tax liability, the
latter still being questioned.
Held:
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of
the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government
functions would be paralyzed.
The Tax Code provides: Sec. 291. Injunction not available to restrain collection of tax. - No court shall have
authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by
this Code.
It goes without saying that this injunction is available not only when the assessment is already being questioned
in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the
administrative level. There is all the more reason 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 million is still due from the private respondent.
Mactan Cebu International Airport Authority v. Marcos

261 SCRA 667 (1996)
Facts:
Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act 6958. Since the time
of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of
its Charter. However on 11 October 1994, the Office of the Treasurer of Cebu, demanded for the payment of realty taxes
on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified and asserted that it is an
instrumentality of the government performing governmental functions, which puts limitations on the taxing powers of
local government units.
The City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government
controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local
Government Code (LGC), and not an instrumentality of the government but merely a government owned corporation
performing proprietary functions. MCIAA paid its tax account “under protest” when City is about to issue a warrant of
levy against the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing power of local government
units do not extend to the levy of taxes or fees on an instrumentality of the national government. It contends that by the
nature of its powers and functions, it has the footing of an agency or instrumentality of the national government; which
claim the City rejects. The trial court dismissed the petition, citing that close reading of the LGC provides the express
cancellation and withdrawal of tax exemptions of Government Owned and Controlled Corporations.
Issue:
Whether the MCIAA is exempted from realty taxes.
Held:
Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since taxes
are paid for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of
the taxing authority.
A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to
be mistaken. Taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the
exemption is merely to reduce the amount of money that has to be handled by the government in the course of its
operations.
Further, since taxation is the rule and exemption therefrom the exception, the exemption may be withdrawn at
the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties
based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution.
MCIAA is a “taxable person” under its Charter (RA 6958), and was only exempted from the payment of real
property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it
a taxable person subject to all taxes, except real property tax.
Since Republic Act 7160 or the Local Government Code (LGC) expressly provides that “All general and special
laws, acts, city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of parts
thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.”
With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly repealed
by the provisions of the LGC. Therefore, MCIAA has to pay the assessed realty tax of its properties effective after January
1, 1992 until the present.
ABAKADA Guro Party List v. Ermita

G.R. No. 168056; September 1, 2005
Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;
These provisions contain a provision which authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied.
Issues:
1) Whether or not there is a violation of Article VI, Section 24 of the Constitution.
2) Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28 (2) of
the Constitution.
3) Whether or not there is a violation of the due process and equal protection of the Constitution.
Held:
1) No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, and excise and franchise taxes.
2) No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently
the only way in which the legislative process can go forward. In this case, it is not a delegation of legislative power but a
delegation of ascertainment of facts upon which enforcement and administration of the increased rate under the law is
contingent.
3) No, the power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption
of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
D. Underlying Theory and Basis; Necessity Theory; Benefit-Received Principle
Collector of Internal Revenue v. Algue

G.R. No. L-28896; February 17, 1988
Facts:
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O’Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to
the aforenamed individuals.
assessment by involving an imaginary deduction. The CTA agreed with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered, in the form of promotional fees.
Issue:
by private respondent Algue as legitimate business expenses in its income tax returns.
Held:
This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.–In computing net income there shall be allowed as deductions —
(a) Expenses:
(1) In general.–All the ordinary and necessary expenses paid or incurred during the taxable year in carrying
on any trade or business, including a reasonable allowance for salaries or other compensation for personal
services actually rendered;
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.–Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation
for personal services actually rendered.
The test of deductibility in the case of compensation payments is whether they are reasonable and are in fact
payments purely for services.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for
lack of motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard
earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
government.
The government for its part, is expected to respond in the form of tangible and intangible benefits intended to
power.
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the claimed deduction by the private respondent was permitted under the Internal Revenue Code
and should therefore not have been disallowed by the petitioner.
National Power Corporation v. City of Cabanatuan

G.R. No. 149110; April 19, 2003
Facts:
NPC, a GOCC, created under CA 120 as amended, selling electric power, was assessed by the City of Cabanatuan
for franchise tax pursuant to Sec. 37 of Ordinance No. 165-92. NPC refused to pay the tax assessment on the grounds
that the City of Cabanatuan has no authority to impose tax on government entities and also that it is exempted as a non-
profit organization. For its part, the City government alleged that NPC’s exemption from local taxes has been repealed by
sec. 193 of RA 7160.
Issue:
Whether or not NPC is liable to pay an annual franchise tax to the City government
Held:
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities
and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities.
The taxable entity is the corporation, which exercises the franchise, and not the individual stockholders. By virtue
of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be
sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. We also do not
find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provisions. In the case at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and instrumentalities."
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to
grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 165-92 which imposes an annual
franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government
clearly did not intend to exempt the petitioner from the coverage thereof.
Lorenzo v. Posadas
G.R. No. L-43082 (64 PHIL 353) June 18, 1937
Facts:
Thomas Hanley died, leaving a will and considerable amount of real and personal properties. The will
bequeathed Matthew Hanley, Thomas' nephew, the money and the real estate. Also stipulated was that the property will
only be given 10 years after Thomas' death.
The CFI appointed Moore as considered trustee to administer the real properties. Moore acted as trustee until
he resigned and Pablo Lorenzo was appointed in his stead.
Juan Posadas, the CIR, assessed inheritance tax against the estate amounting to P2,057.74. Lorenzo paid the tax
after he was ordered by the CFI due to the CIR's motion. Lorenzo claimed that the inheritance tax should have been
assessed after 10 years and asked for a refund.
The CIR denied the protest and reassessed Lorenzo of P1,191.27 which represents interest due on the tax and
which was not included in the original assessment. However, the CFI dismissed this counterclaim and also denied
Lorenzo’s claim for refund against the CIR, thus the case.
Issue:
Whether or not the provisions of Act No. 3606 should be given retroactive effect.
Held:
No. The respondent levied and assessed the inheritance tax collected from the petitioner under the provisions
of section 1544 of the Revised Administrative Code as amended by Act No. 3606. However, the latter only enacted in
1930 – not the law in force when the testator died in 1922. Laws cannot be applied retroactively. The Court states that it
is a well-settled principle that inheritance taxation is governed by the statue in force at the time of the death of the
decendent.
The Court also emphasized that “a statute should be considered as prospective in its operation, unless the
language of the statute clearly demands or expresses that it shall have retroactive effect…” Act No. 3606 does not contain
any provisions indicating a legislative intent to give it a retroactive effect. Therefore, the provisions of Act No. 3606
cannot be applied to the case at bar.
The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that
the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be
plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their
beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the
trust may last for fifty years, or for a longer period, which does not offend the rule against perpetuities. The collection of
the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning
against the acceptance of the contention of the plaintiff in the case at bar.
Taxes are essential to the very existence of government. The obligation to pay taxes rests not upon the
privileges enjoyed by, or the protection afforded to, a citizen by the government, but upon the necessity of money for
the support of the state For this reason, no one is allowed to object to or resist the payment of taxes solely because no
personal benefit to him can be pointed out. they also will not place upon tax laws so loose a construction as to permit
evasions on merely fanciful and insubstantial distinctions. When proper, a tax statute should be construed to avoid the
possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to
the government.
E. Purpose of Taxation
a. General/Fiscal/Revenue
CIR v. Algue Inc., and Court of Tax Appeals

GR No. L-28896; February 17, 1988
Facts:
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O’Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it.
Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.
assessment by involving an imaginary deduction. The CTA agreed with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered, in the form of promotional fees.
Issue:
by private respondent Algue.
Held:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s
hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
government.
The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to
power.
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. We
hold that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
Philippine Airlines v. Edu
164 SCRA 320
Facts:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative
franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes. Sometime in 1971, however, Land
Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136,
otherwise known as the Land and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under
Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under
protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu)
demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu
and National Treasurer Ubaldo Carbonell. The trial court dismissed PAL's complaint. PAL appealed to the Court of
Appeals, which in turn certified the case to the Supreme Court.
Issue:
Whether or not motor vehicle registration fees are considered as taxes.
Held:
Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration
fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount
collected is set aside for the operating expenses of the agency administering the program.
The Legislative intent and purpose behind the law requiring owners of vehicles, to pay for their registration is
mainly to raise funds for the construction and maintenance of highways and, to a much lesser degree, pay for the
operating expenses of the administering agency. It is possible for an exaction to be both a tax and a regulation. License
fees are charges, looked to as a source of revenue as well as a means of regulation. The fees may be properly regarded as
taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then the exaction is properly called a TAX.
It is clear from the provisions of section 73 of Commonwealth Act 123 and section 61 of the Land Transportation
and Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay
for the operating expenses of the administering agency.
There is a valid delegation to the Land Transportation Office. Simply put, if the exaction under RA 4136 were
merely a regulatory fee, the imposition on RA 5448 need not be an “additional” tax. RA 4136 also speaks of other “fees”
such as the special permit fees for certain types of motor vehicles (sec. 10) and additional fees for change of registration
(Sec.11).
Tolentino v. Secretary of Finance
G.R. No. 115455, August 25, 1994
Facts:
The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions for
the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
motions, of which there are 10, have been filed by several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, “even
nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”, citing in support of the case
of Murdock v. Pennsylvania.
Chamber of Real Estate and Builders Associations, Inc., (CREBA), on the other hand, asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a progressive system of
taxation”.
Further, the Cooperative Union of the Philippines (CUP) argues that legislature was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject
cooperatives to the VAT would, therefore, be to infringe a constitutional policy.
Issue:
Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added
Tax Law should be declared unconstitutional.
Held:
No. With respect to the first contention, it would suffice to say that since the law granted the press a privilege,
the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the
exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been
subject. The PPI asserts that it does not really matter that the law does not discriminate against the press because “even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional.”
The Court was speaking in that case (Murdock v. Pennsylvania) of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its
right. The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the
exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an early case that even though such taxation may affect
particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense. It is next
pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is
equally essential. The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under Section 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716.
The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To
satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, firms, and corporations
placed in similar situation. Furthermore, the Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of taxation.” The
constitutional provision has been interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.” The mandate to Congress is not to prescribe, but to evolve, a progressive
tax system.
As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the
following are exempt from taxation: charitable institutions, churches, and parsonages, by reason of Art. VI, §28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3). With all the foregoing ratiocinations, it is clear
that the subject law bears no constitutional infirmities and is thus upheld.
b. Non-Revenue/Special or Regulatory
Osmeña v. Oscar Orbos

G.R. No. 99886 March 31, 1993
Facts:
On October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General
Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost
increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in
the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President
Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost
under recovery incurred as a result of the reduction of domestic prices of petroleum products.
The petitioner argues inter alia that "the money collected pursuant to . . P.D. 1956, as amended, must be treated
as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose,
the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not
channeled to another government objective." Petitioner further points out that since "a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created."
Issue:
Whether or not the funds collected under PD 1956 is an exercise of the power of taxation.
Held:
No. The fluctuations in world market prices and foreign exchange rates would in a completely free market
translate into corresponding adjustments in domestic prices of oil and petroleum products with sympathetic frequency.
But domestic prices which vary from day to day would result in a chaotic market with unpredictable effects upon the
country’s economy. The OPSF was established to protect local consumers from the adverse consequences that frequent
oil price adjustments may have upon the economy. The OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized instead of fluctuating every so often.
The establishment and maintenance of the OPSF is well within that power and responsibility of the government
to secure the physical and economic survival—it is within the police power of the State. The stabilization and subsidy of
domestic prices of petroleum products is regarded as public purpose. With regard to undue delegation of legislative
power, the Court finds that the authority conferred upon the ERB to impose additional amounts on petroleum provides a
sufficient standard. PD 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.
What is here involved is not so much the power of taxation as police power. Although the provision authorizing
the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that
the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law
which are embraced by the police power of the State. Constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products do not conveniently permit the setting of fixed or rigid
parameters in the law as proposed by the petitioner. As such, the standard as it is expressed, suffices to guide the
delegate in the exercise of the delegated power.
Caltex Philippines, Inc. v. Commission on Audit
208 SCRA 755
Quick Facts: Caltex Philippines questions the decisions of COA for disallowing the offsetting of its claims for
reimbursement with its due OPSF remittance.
Facts:
In 1989, the Commission on Audit sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum
products authorized under the PD 1956. Pending such remittance, all of its claims for reimbursement from the OPSF shall
be held in abeyance. The grant total of its unremitted collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to the Commission for the payment and the recovery of claims. COA approved the
proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing
years. Caltex moved for reconsideration but was denied. Hence the present petition.
Issue:
Whether the amounts due from Caltex to the OPSF may be offset against Caltex’s outstanding claims
from said funds.
Held:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of
government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not
offset taxes due from the claims he may have against the government. Taxes cannot be subject of compensation because
the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off. Hence, COA decision is affirmed except that Caltex’s
claim for reimbursement of under-recovery arising from sales to the National Power Corporation is allowed.
F. Principles of a Sound Tax System
Chavez v. Ongpin
G.R. No. 76778; June 6, 1990
Facts:
Section 21 of Presidential Decree No. 464 provides that every five years starting calendar year 1978, there shall
be a provincial or city general revision of real property assessments. The revised assessment shall be the basis for the
computation of real property taxes for the five succeeding years.
On the strength of the aforementioned law, the general revision of assessments was completed in 1984.
However, Executive Order No. 1019 was issued, which deferred the collection of real property taxes based on the 1984
values to January 1, 1988 instead of January 1, 1985.
On November 25, 1986, President Corazon Aquino issued Executive order No. 73. It states that beginning
January 1, 1987, the 1984 assessments shall be the basis of the real property collection. Thus, it effectively repealed
Executive Order No. 1019.
Francisco Chavez, a taxpayer and a landowner, questioned the constitutionality of Executive Order No. 73. He
alleges that it will bring unreasonable increase in real property taxes. In fact, according to him, the application of the
assailed order will cause an excessive increase in real property taxes by 100% to 400% on improvements and up to 100%
on land.
Issue:
Whether or not Executive Order no. 73 imposes unreasonable increase in real property taxes, thus,
should be declared unconstitutional.
Held:
No. The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a
continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464
which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree.
Without Executive Order No. 73, the basis for collection of real property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound
tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues
must be adequate to meet government expenditures and their variations.
Diaz v. Secretary of Finance

G.R. No. 193007; July 19, 2011
FACTS:
Petitioners filed this petition for declaratory relief assailing the validity of the impending imposition of value-
added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to
impose VAT on toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other
sectors to such move. But, upon President Benigno C. Aquino III's assumption of office in 2010, the BIR revived the idea
and would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the
meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose
VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non-impairment clause of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the
law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as
early as 2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the non-impairment of contracts clause
since they clearly have no personal interest in existing toll operating agreements between the government and tollway
operators. Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll
rates cannot exempt tollway operators from VAT.
ISSUE: Whether or not the imposition of VAT on tollway operators is not administratively feasible and cannot be
implemented?
HELD:
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should
be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance
of the canon, however, will not render a tax. imposition invalid "except to the extent that specific constitutional or
statutory limitations are impaired." Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any
declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature.
Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about
it, the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. Besides, any
concern about how the VAT on tollway operations will be enforced. must first be addressed to the BIR on whom the task
of implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIR's discretion on the matter,
absent any clear violation of law or the Constitution.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT law's
coverage when she sought to impose VAT on tollway operations Section 108(A) of the Code clearly states that services of
all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway
operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their
services among the VAT-exempt transactions under Section 109 of the Code. If the legislative intent was to exempt
tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say
so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken.
But as the law is written, no such exemption obtains for tollway operators.
G. Comparison with Police Power and Eminent Domain
Roxas v. CTA
23 SCRA 276
Doctrine:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest
the tax collector kill the “hen that lays the golden egg”.
Facts:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession several properties. To manage the above-mentioned properties, said children, namely, Antonio Roxas,
Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. At the conclusion of the World War II, the
tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y
Cia the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional
mandate to acquire big landed estates and apportion them among landless tenant farmers, persuaded the Roxas
brothers to part with their landholdings.
Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell
13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000 for
survey and distribution expenses. It turned out however that the Government did not have funds to cover the purchase
price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia the
amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers.
Under the arrangement, Roxas y Cia allowed the farmers to buy the lands for the same price but by installment,
and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations
paid by the farmers. The CIR demanded from Roxas y Cia. the payment of deficiency income taxes resulting from the
inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of
the Nasugbu farmlands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia and the Roxas brothers.
For the reason that Roxas y Cia subdivided its Nasugbu farmlands and sold them to the farmers on installment,
the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits
derived there from was taxed. The Roxas brothers protested the assessment but inasmuch as said protest was denied,
they instituted an appeal in the CTA which sustained the assessment. Hence this appeal.
Issue:
Whether or not Roxas y Cia is liable for the payment of the fixed tax on real estate dealers.
Held:
No. A real estate dealer is any person engaged in the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an
owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or
more a year:
Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at
least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals. The fact that there were
hundreds of vendees and them being paid for their respective holdings in installment for a period of ten years, it would
nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. The sale of the
Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in
obedience to the request and pursuant to the policy of our Government to allocate lands to the landless
It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its
haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. But due to the
lack of funds, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the
farmers in the same way and under the same terms as would have been the case had the Government done it itself
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly.
Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34
of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain,
taxable only to the extent of 50%.
Tanada v. Angara
G.R. No. 118295; May 2, 1997
Facts:
The Philippines joined World Trade Organization as a founding member with the goal of improving Philippine
access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports. The
President also saw in the WTO the opening of new opportunities for the services sector, the reduction of costs and
uncertainty associated with exporting and the attraction of more investments into the country.
On April 15, 1994, respondent Navarro, then DTI Secretary, signed in Morocco the Final Act Embodying the
Results of the Uruguay Round of Multilateral Negotiations. On December 14, 1994, the Senate concurred in the
ratification of the President of the Philippines of the Agreement Establishing the WTO which includes various agreements
and associated legal instruments. On December 16, 1994, the President signed the Instrument of Ratification.
Issue:
Whether or not the provisions of the WTO Agreement restricts and impairs Philippine sovereignty,
specifically the legislative power vested in the Congress
Held:
No. While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is
however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a
member of the family of nations.
Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the
world. By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which
are considered to be automatically part of our laws. A treaty engagement is not a mere moral obligation on the parties.
By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty.
The Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain
and police power. The underlying consideration in this partial sovereignty is the reciprocal commitment of the other
contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens. The same
reciprocity characterizes the same commitments under WTO-GATT. The point is that a portion of sovereignty may be
waived without violating the Constitution, based on the rationale that the Philippines adopts the generally accepted
principles of international law as part of the law of the land and adheres to the policy of cooperation and amity with all
nations.
LTO v. City of Butuan

G.R. No. 131512; January 20, 2000
FACTS:
Relying on the fiscal autonomy granted to LGU's by the Constitution and the provisons of the Local Government
Code, the Sangguniang Panglunsod of the City of Butuan enacted an ordinance "Regulating the Operation of Tricycles-
for-Hire, providing mechanism for the issuance of Franchise, Registration and Permit, and Imposing Penalties for
Violations thereof and for other Purposes."
The ordinance provided for, among other things, the payment of franchise fees for the grant of the franchise of
tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof.
Petitioner LTO explains that one of the functions of the national government that, indeed, has been transferred
to local government units is the franchising authority over tricycles-for-hire of the Land Transportation Franchising and
Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to register all motor vehicles and to issue to
qualified persons of licenses to drive such vehicles.
ISSUE: Whether or not, the registration of tricycles was given to LGU's, hence the ordinance is a valid exercise of
police power.
HELD:
No, based on the "Guidelines to Implement the Devolution of LTFRBs Franchising Authority over Tricycles-For-
Hire to Local Government units pursuant to the Local Government Code" the newly delegated powers to LGU's pertain to
the franchising and regulatory powers exercised by the LTFRB and not to the functions of the LTO relative to the
registration of motor vehicles and issuance of licenses for the driving thereof. Corollarily, the exercised of a police power
must be through a valid delegation. In this case the police power of registering tricycles was not delegated to the LGU’s,
but remained in the LTO.
Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No.4136 requiring the
registration of all kinds of motor vehicles "used or operated on or upon any public highway" in the country.
The Commissioner of Land Transportation and his deputies are empowered at anytime to examine and inspect
such motor vehicles to determine whether said vehicles are registered, or are unsightly, unsafe, improperly marked or
equipped, or otherwise unfit to be operated on because of possible excessive damage to highways, bridges and other
infrastructures. The LTO is additionally charged with being the central repository and custodian of all records of all motor
vehicles.
Adds the Court, the reliance made by respondents on the broad taxing power of local government units,
specifically under Section 133 of the Local Government Code, is tangential.
Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State
might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent
powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police
power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to
support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the
grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence,
separate and distinct powers, varying in their respective concepts, character, scopes and limitations.
To construe the tax provisions of Section 133 (1) of the LGC indistinctively would result in the repeal to that
extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the law could have just said
so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of
LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored.
The power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the
power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in
the tax provisions of Section 133 (1) of the Local Government Code must not be held to have had the effect of
withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the
driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of
the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and
the competence of drivers prescribed by R. A. 4136. Not insignificant is the rule that a statute must not be construed in
isolation but must be taken in harmony with the extant body of laws.
LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the
operation thereof, and not to issue registration. Ergo, the ordinance being repugnant to a statute is void and ultra vires.
Philippine Match Co. v. Cebu

81 SCRA 99
Facts:
Cebu City imposed a quarterly tax (sales tax of 1%) on gross sales or receipts of merchants, dealers, importers
and manufacturers or any commodity doing business in Cebu City, through Ordinance 279. Section 9 of the Ordinance
provided that, for the purpose of the tax, “all deliveries of goods or commodities stored in Cebu City, or if not stored are
sold in that city shall be considered as sales in the city and shall be taxable.”
Philippine Match Co. Ltd., with principal office in Manila, questioned the legality of the tax collected by the City
of Cebu on sales of matches stored by the company in Cebu City but delivered to customers outside the city.
Issue:
Whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but
where the matches were delivered to customers outside the city.
Held:
The city can validly tax the sales of matches to customers outside of the city as long as the orders were booked
and paid for in the company’s branch office in the city. Those matches can be regarded as sold in the city, as
contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City. Generally, delivery to the
carrier is delivery to the buyer (Article 1523, Civil Code). A different interpretation would defeat the tax ordinance in
question or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the
outskirts of the city though the purchases were effected and paid for in the company’s branch office in the city. The
municipal board of the city is empowered to provide for the levy and collection of taxes for general and special purposes
in accordance with law.
Matalin v. Mun. Council of Malabang

143 SCRA 404
Facts:
The Municipal Council of Malabang, enacted Municipal Ordinance No. 45-46, entitled "AN ORDINANCE
IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF THE
MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES FOR VIOLATIONS THEREOF."
The ordinance made it unlawful for any person, company or group of persons "to ship out of the Municipality of
Malabang, cassava starch or flour without paying to the Municipal Treasurer or his authorized representatives the
corresponding fee fixed by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack of cassava starch or
flour, which shall be paid by the shipper before the same is transported or shipped outside the municipality. Any person
or company or group of individuals violating the ordinance "is liable to a fine of not less than P100.00, but not more than
P1,000.00, and to pay Pl.00 for every sack of flour being illegally shipped outside the municipality, or to suffer
imprisonment of 20 days, or both, in the discretion of the court.
The validity of the ordinance was challenged by the Matalin Coconut, Inc. Alleging among others that the
ordinance is not only ultra vires, being violative of Republic Act No. 2264, but also unreasonable, oppressive and
confiscatory, the petitioner prayed that the ordinance be declared null and void ab initio, and that the respondent
Municipal Treasurer be ordered to refund the amounts paid by petitioner under the ordinance.
Issue:
Whether or not Ordinance No. 45-66 enacted by respondent Municipal Council of Malabang, Lanao del
Sur, is valid.
Held:
No, the ordinance is invalid. Since the enactment of the Local Autonomy Act, a liberal rule has been followed by
this Court in construing municipal ordinances enacted pursuant to the taxing power granted under Section 2 of said law.
This Court has construed the grant of power to tax under the above-mentioned provision as sufficiently plenary to cover
"everything, excepting those which are mentioned" therein, subject only to the limitation that the tax so levied is for
public purposes, just and uniform.
The amount collected under the ordinance in question partakes of the nature of a tax, although denominated as
"police inspection fee" since its undeniable purpose is to raise revenue. However, the tax imposed by the ordinance is a
percentage tax on sales which is beyond the scope of the municipality's authority to levy under Section 2 of the Local
Autonomy Act. Under the said provision, municipalities and municipal districts are prohibited from imposing" any
percentage tax on sales or other taxes in any form based thereon. " The tax imposed under the ordinance in question is
not a percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag of cassava starch or
flour "shipped out" of the municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken down on another ground. According to Section 2
of the abovementioned Act, the tax levied must be "for public purposes, just and uniform" As correctly held by the trial
court, the so-called "police inspection fee" levied by the ordinance is "unjust and unreasonable."
Lutz v. Araneta
G.R. No. L-7859, December 22, 1955
FACTS:
Walter Lutz in his capacity as the Judicial Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of fourteen thousand six hundred
sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also
known as the Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2
provides for an increase of the existing tax on the manufacture of sugar on a graduated basis, on each picul of sugar
manufacturer; while section 3 levies on the owners or persons in control of the land devoted to the cultivation of
sugarcane and ceded to others for consideration, on lease or otherwise - "a tax equivalent to the difference between the
money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value
of such land. It was alleged that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied.
ISSUE:
Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.
HELD:
Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in the
fields and factories; that it is a great source of the state's wealth, is one of the important source of foreign exchange
needed by our government and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for
the legislature to find that the general welfare demanded that the sugar industry be stabilized in turn; and in the wide
field of its police power, the law-making body could provide that the distribution of benefits therefrom be readjusted
among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.
The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily a valid exercise of police power.
NTC v. CA
311 SCRA 508
FACTS:
Sometime in 1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance
Telephone Company (PLDT) the following assessment notices and demands for payment:
1. The amount of P7,495,161.00 as supervision and regulation fee under Section 40 (e) of the PSA for the said
year
2. The amount of P9.0 Million as permit fee under Section 40 (f) of the PSA for the approval of the protestant's
increase of its authorized capital stock from P2.7 Billion to P4.5 Billion; and
3. The amounts of P12,261,600.00 and P33,472,030.00 as permit fees under Section 40 (g) of the PSA in
connection with the Commission's decisions in NTC Cases Nos. 86-13 and 87-008 respectively, approving the Protestant's
equity participation in the Fiber Optic Interpacific Cable systems and X-5 Service Improvement and Expansion Program.
In its two letter-protests and position papers, the PLDT challenged the aforesaid assessments, theorizing that:
(a) The assessments were being made to raise revenues and not as mere reimbursements for actual regulatory
expenses in violation of the doctrine in PLDT vs. PSC, 66 SCRA 341
(b) The assessment under Section 40 (e) should only have been on the basis of the par values of private
respondent's outstanding capital stock;
(c) Petitioner has no authority to compel private respondents payment of the assessed fees under Section 40 (f)
for the increase of its authorized capital stock since petitioner did not render any supervisory or regulatory activity and
incurred no expenses in relation thereto.
ISSUE:
Whether the CA erred in holding that the computation of supervision and regulation fees under sec 40
(f) of the Public Service Act should be based on the par value of the subscribed capital stock.
HELD:
Yes. The CA erred. The law in point is clear and categorical. There is no room for construction. It simply calls for
application. To repeat, the fee in question is based on the capital stock subscribed or paid, nothing less nothing more.
It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the
power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation, the distinction between
police power and the power to tax, which could be significant if the exercising authority were mere political subdivisions
(since delegation by it to such political subdivisions of one power does not necessarily include the other), would not be
of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done would
be to apply and enforce the law when sufficiently definitive and not constitutional infirm.
The term "capital" and other terms used to describe the capital structure of a corporation are of universal
acceptance, and their usages have long been established in jurisprudence. Briefly, capital refers to the value of the
property or assets of a corporation. The capital subscribed is the total amount of the capital that persons (subscribers or
shareholders) have agreed to take and pay for, which need not necessarily be, and can be more than, the par value of the
shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the
original issuance of the shares. In the case of stock dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that can loosely be termed as the "trust fund" of the
corporation.
The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the payment of the debts of the
corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the
subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares)
without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments
cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the
consideration therefor.
II. TAXES
A. Essential Characteristics of Taxes
TAN VS DEL ROSARIO

237 SCRA 324
Facts:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation Scheme ("SNIT"), which
amended certain provisions of the NIRC, as well as the Rules and Regulations promulgated by public respondents
pursuant to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the following provisions of the Constitution:
-Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in
the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
- Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be
denied the equal protection of the laws.
3. Petitioners contended that public respondents exceeded their rule-making authority in applying SNIT to general
professional partnerships. Petitioner contends that the title of HB 34314, progenitor of RA 7496, is deficient for being
merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of
their Profession" (Petition in G.R. No. 109289) when the full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In The
Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code,' as amended. Petitioners
also contend it violated due process.
5. The Solicitor General espouses the position taken by public respondents.

6. The Court has given due course to both petitions.
ISSUE:
Whether or not the tax law is unconstitutional for violating due process
HELD:
NO. The due process clause may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not violate classification as long
as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve
the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards
the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present global
treatment on taxable corporations. The Court does not view this classification to be arbitrary and inappropriate.
CIR VS SANTOS
GR No. 119252
Facts:
Guild of Phil. Jewellers questions the constitutionality of certain provisions of the NIRC and Tariff and Customs Code of
the Philippines. It is their contention that present Tariff and tax structure increases manufacturing costs and render local
jewelry manufacturers uncompetitive against other countries, in support of their position, they submitted what they
purported to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax
rates levied in the country. Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and oppressive
and declared them inoperative and without force and effect insofar as petitioners are concerned. Petitioner CIR assailed
decision rendered by respondent judge contending that the latter has no authority to pass judgment upon the taxation
policy of the government. Petitioners also impugn the decision by asserting that there was no showing that the tax laws
on jewelry are confiscatory.
ISSUE:
Whether or not the Regional Trial Court has authority to pass judgment upon taxation policy of the government.
HELD:
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political
departments are valid in the absence of a clear and unmistakable showing to the contrary. This is not to say that RTC has
no power whatsoever to declare a law unconstitutional. But this authority does not extend to deciding questions which
pertain to legislative policy. RTC have the power to declare the law unconstitutional but this authority does not extend to
deciding questions which pertain to legislative policy. RTC can only look into the validity of a provision, that is whether or
not it has been passed according to the provisions laid down by law, and thus cannot inquire as to the reasons for its
existence.
GEROCHI VS DOE
GR No. 159796
FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001. Petitioners Romeo P. Gerochi and
company assail the validity of Section 34 of the EPIRA Law for being an undue delegation of the power of taxation.
Section 34 provides for the imposition of a “Universal Charge” to all electricity end users after a period of (1) one year
after the effectively of the EPIRA Law. The universal charge to be collected would serve as payment for government
debts, missionary electrification, equalization of taxes and royalties applied to renewable energy and imported energy,
environmental charge and for a charge to account for all forms of cross subsidies for a period not exceeding three years.
The universal charge shall be collected by the ERC on a monthly basis from all end users and will then be managed by the
PSALM Corp. through the creation of a special trust fund.
ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC
HELD:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the regulatory power (police power)
of the state. The universal charge under section 34 is incidental to the regulatory duties of the ERC, hence the provision
assailed is not for generation of revenue and therefore it cannot be considered as tax, but an execution of the states
police power thru regulation.
Moreover, the amount collected is not made certain by the ERC, but by the legislative parameters provided for in the law
(RA 9136) itself, it therefore cannot be understood as a rule solely coming from the ERC. The ERC in this case is only a
specialized administrative agency which is tasked of executing a subordinate legislation issued by congress; which before
execution must pass both the completeness test and the sufficiency of standard test. The court in appreciating Section 34
of RA 9136 in its entirety finds the said law and the assailed portions free from any constitutional defect and thus
deemed complete and sufficient in form.
B. Taxes Distinguished from:

 Debts
CALTEX VS COA
208 SCRA 726
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the PD 1956.
Pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. The grant total of
its unremitted collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but
prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing years. Caltex
moved for reconsideration but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding claims from said funds
HELD:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government. Taxes
may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes
due from the claims he may have against the government. Taxes cannot be subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand,, contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery arising from sales to the
National Power Corporation is allowed.
FRANCIA VS IAC
162 SCRA 735
FACTS:
Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was
expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from
1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Francia filed a complaint
to annual the auction sale. The lower court dismissed the complaint and the Intermediate Appellate Court affirmed the
decision of the lower court in toto. Hence, this petition for review. Francia contends that his tax delinquency of P 2,400
has been extinguished by legal compensation. He claims that the government owed him P 4,116 when a portion of his
land was expropriated on October 15, 1977.
ISSUE:
May the expropriation payment compensate for the real estate taxes due?
HELD:
No. There can be no offsetting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government. Internal revenue
taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors
of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining property. It would
have been an easy matter to withdraw P 2,400 from the deposit so that he could pay the tax obligation thus aborting the
sale at public auction. Thus, the petition for review is dismissed. The taxes assessed are the obligations of the taxpayer
arising from law, while the money judgment against the government is an obligation arising from contract, whether
express or implied.
RP VS ERICTA AND SAMPAGUITA PICTURES

172 SCRA 653
FACTS:
This case has to do with the so-called "back pay certificates" issued by the Philippine Government in the
aftermath of the Pacific War, pursuant to Republic Act No. 304, as amended by Republic Act No. 800. It appears that in
relation to its business of producing motion pictures, Sampaguita Pictures, Inc., hereafter simply Sampaguita, came to
incur an obligation for percentage, withholding and amusement taxes in the amount of P10,268.41 in favor of the
Republic of the Philippines. In satisfaction thereof, and of another obligation of the same nature due from Vera-Perez
Corporation, SampaguitaPictures, Inc. tendered and delivered to the Office of the Municipal Treasurer of Bocaue, Bulacan,
on June 9, 1961, sixteen (16) back pay negotiable certificates of indebtedness in the aggregate sum of P16,763.50, which
had earlier been negotiated to them by the original holders thereof; and official receipts therefor were duly issued.
Thirteen (13) days later, however, the Assistant Regional Director of the BIR wrote to Vera-Perez Corporation (his
letter is dated June 22, 1961) advising that the acceptance of the Negotiable Certificates of Indebtedness in payment of
amusement, percentage and withholding taxes (in the total sum of P16,753.50) was erroneous and the payment was
invalid, because actually said certificates were "not acceptable as payments of internal revenue taxes in accordance with
the provisions of ** General Circular No. V-289 dated May 8, 1959." Request was thus made for the payment of the tax
liabilities in cash. Evidently neither corporation responded one way or the other to this letter.
Anyway, the next letter adverted to by the Government is that dated August 18, 1967, written by the Acting
Deputy Commissioner of Internal Revenue to both Sampaguita and Vera-Perez Corporation. That letter gave the
corporations "a last 15-day period within which to pay the said amount of P16,763.50 in cash or certified check." Again,
no acceptable response seems to have been made by the corporations. So on June 9, 1969, eight (8) years to the day
when the negotiable certificates of indebtedness were accepted in payment of taxes by the Municipal Treasurer at
Bocaue, Bulacan, the Solicitor General brought suit in behalf of the Republic of the Philippines in relation thereto. The
case was docketed as Civil Case No. Q-13270 of the Court of First Instance at Quezon City, and assigned to Branch XVIII
thereof, then presided over by herein respondent, Hon. Vicente G. Ericta
ISSUE:
Whether the Republic's claim is offset by Sampaguita's counterclaim
HELD:
No. according to the Trial Court, at least as of date of judgment, more than 10 years from June 18, 1958, the
date when, as expressly stated in the certificates of indebtedness, the same were redeemable, the obligation thereby
evidenced was unquestionably already due and payable; hence, Sampaguita was entitled to a judgment against the
Republic for the payment of the face value of the certificates, the same having already been presented and surrendered
within the said period of ten years (on June 9, 1961) to the Treasurer of the Philippines (thru the Municipal Treasurer of
Bocaue, Bulacan).[1] This is correct. In other words, even if as the Solicitor General points out, "there is no certainty when
the certificates are actually redeemable" because the law says "that they are redeemable ** 'within ten years from the date
of issuance,'"[2] there can be no question that after the lapse of ten (10) years from the declared date of redeemability,
payment of the indebtedness was already exigible. The Trial Court was saying in effect that while judgment should be
rendered in favor of the Republic against Sampaguita for unpaid taxes in the amount of P10,268.41, judgment ought at
the same time to issue for Sampaguita commanding payment to it by the Republic of the same sum, representing the
face value of the certificates of indebtedness assigned to it and for recovery of which it had specifically prayed in its
counterclaim.
REPUBLIC VS MAMBULAO LUMBER COMPANY

4 SCRA 622
FACTS:
Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation charges for the years 1947
to 1956. It is the company’s contention that said sum of 9,127.50, not having been used in the reforestation of the area
covered by its license, the same is refundable to it or may be applied in compensation of P 4,802.37 due from it as forest
charges. Court of First Instance of Manila ordered the company to pay the government the sum of P 4,802.37 with 6%
interest thereon from date of the filing of the complaint until fully paid, plus costs. Thus, the present appeal.
ISSUE:
Whether the set-off or compensation is proper
HELD:
No. There is nothing in the law which requires that the amount collected as reforestation charges should be used
exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used,
the same shall be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which
forms part of the Forestation Fund, payable by him irrespective of whether the area covered by his license is reforested or
not.
Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely,
the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation.
The weight of authority is to the effect that internal revenue taxes, such as the forest charges in question is not subject to
set-off or compensation. Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are
positive acts of the government, to the making and enforcing of which, the personal consent of the individual taxpayers
is not required.
With respect to the forest charges which the company has paid to the government, they are in the coffers of the
government as tax collected, and the government does not owe anything. It is crystal clear that the Republic of the
Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation
refers to mutual debts.
PHILEX MINING VS CIR
GR No. 125704
FACTS:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of
the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for
VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore
these claims for tax credit/refund should be applied against the tax liabilities.
ISSUE:
Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?
HELD:
No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical
reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To
be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim
for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for
the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government
Domingo v. Garlitos
8 SCRA 443
Facts:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Hon.
Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the
respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for
internal revenue taxes. In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the
order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties
amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal,
however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is
indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Government’s
indebtedness to the Estate.
Issue:
Whether a tax and a debt may be compensated.
Held:
The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has
been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under
the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper
remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs.
 License fees/fees
Progressive Development Corporation V. Quezon City
Gr No. L-36081, 1989-04-24
Facts:
The City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as
the Market Code of Quezon City, which provided under section 3 of the said code:
"Sec. 3. Supervision Fee. -- Privately owned and operated public markets shall submit monthly to the Treasurer's
Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, x x x and
shall pay 10% of the gross receipts from stall rentals to the City, x x x, as supervision fee. Failure to submit said list and to
pay the corresponding amount within the period herein prescribed shall subject the operator to the penalties provided in
this Code x x x including revocation of permit to operate. x x x."
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which
reads:
"SECTION 1. There is hereby imposed a five percent (5%) tax on gross receipts on rentals or lease of space in
privately-owned public markets in Quezon City.
Progressive Development Corporation, owner and operator of a public market known as the "Farmers Market &
Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against respondent... on the ground that the
supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income which respondent
may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended
Petitioner, however, insists that the "supervision fee" collected from rentals, being a return from capital invested
in the construction of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from
respondent's taxing authority, and... thus beyond the latter's competence.
Issue:
Whether or not the tax imposed by respondent on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax or, alternatively, of a license fee.
Held:
The "Farmers' Market and Shopping Center" being a public market in the sense of a market open to and inviting
the, patronage of the general public, even though privately owned, petitioner's operation thereof required a license
issued by the respondent City, the issuance... of which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power.
The operation of a privately owned market is, as correctly noted by the Solicitor General,... equivalent to or quite
the same as the operation of a government-owned market; We believe and so hold that the five percent (5%) tax
imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax... but rather a license tax or fee for
the regulation of the business in which the petitioner is engaged.
Philippine Airlines, Inc. V. Edu

G.R. No. L- 41383, August 15, 1988
Facts:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative
franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation
pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and Traffic Code, requiring all
tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under
Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under
protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu)
demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu
and National Treasurer Ubaldo Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the case
to the Supreme Court.
Issue:
Whether or not motor vehicle registration fees are considered as taxes.
Held:
Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration
fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount
collected is set aside for the operating expenses of the agency administering the program. The respondent administrative
agency may not be required to refund the amounts stated in the complaint of PAL. May the respondent administrative
agency be required to refund the amounts stated in the complaint of PAL? The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments
were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all
earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this case.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax
exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to PAL in
1979 under section 13 of PD 1590.
ESSO v. CIR
175 SCRA 149
Facts:
In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its
ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum
concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses
should be capitalized and might be written off as a loss only when a "dry hole" should result.
Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment
as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the
amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York
head office.
On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the
margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed
as deductible business expenses. Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it
had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and
necessary business expense. However, Esso’s appeal was denied.
Issues:
1. Whether or not the margin fees are taxes
2. Whether or not the margin fees are necessary and ordinary business expenses
Held:
1. No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are
applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its
police power and not the power of taxation.
2. No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in
the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the
business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the
remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch
in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful
in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct
of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss
in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the corporate
affairs of Esso in New York, but certainly not in the Philippines.
 Special Assessments/Levies
The Apostolic Prefect of the Mountain Province v. The Treasurer of the City of Baguio
G.R. No. L- 47252, April 18, 1941
Facts:
Plaintiff is a corporation of a religious nature, organized in accordance with the laws of the Philippines, with
residence in the city of Baguio and its land is dedicated to worship and education. Defendant is a public servant of the
City of Baguio and acts as treasurer and collector of said city.
Defendant demanded and collected from the plaintiff the sum of P1, 019.37 under the provisions of Ordinance
No. 137. Payment was made by the plaintiff under protest. Said ordinance listed properties in Baguio City and a "special
assessment list” was made for the construction of a drainage and sewage system.
The construction of the sewage and drainage system has benefited and is benefiting directly and especially to
all owners whose lots and lands are included in the “special assessment list”. The system of drainage and sewerage has
promoted the cleanliness and sanitary condition of the lands of the aforementioned list.
Issue:
Whether or not the properties on which the special contribution is collected are exempt from said
payment.
Held:
No. It is not exempt from payment. It is a well established rule in tax matters that the special contributions that
are created and charged to amortize extraordinary expenses that cause works, such as the drainage and sewerage
system, that benefit the inhabitants in a special way is not a tax its sense legal.
The special contribution charged to the properties located in the City of Baguio, was created to amortize the
extraordinary expenses caused by the sewage and drainage system that was built, a work that especially benefits all
owners.
Plaintiff- appellant cannot successfully invoke the exemption established by the Constitution because it has not
been admitted or proved that its properties that paid the special contribution were used exclusively for religious purpose.
PCGG v. Cojuanco
G.R. No. 147062-64
Facts:
The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of
allegedly ill-gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters
Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr.
On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside the Resolution of the
Sandiganbayan, which lifted the sequestration of the subject UCPB shares.
Issue:
Whether or not the Coconut Levy Funds was raised through the State’s police and taxing powers?
Held:
Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of
government and for all public needs.
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from
persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the
government.
Taxation is done not merely to raise revenues to support the government, but also to provide means for the
rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the
police power of the State.
Osmeña v. Orbos
G.R. No. 99886, March 31, 1993
Facts:
President Marcos created a special account in the General Fund designated as the Oil Price Stabilization Fund
(OPSF). The OPSF was designated to reimburse oil companies for cost increases in crude oil. Subsequently, EO 137
expanded the grounds for reimbursement to oil companies for cost underrecovery. Now, the petition avers that the
creation of the trust fund violates the Constitution that if a special tax is collected for a specific purpose, the revenue
generated as a special fund to be used only for the purpose indicated.
Issue:
Whether or not the OPSF is constitutional?
Held:
Yes. The OPSF was established precisely to protect local consumers from the adverse consequences that such
frequent oil price adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a
portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for
increases in, as well as under recovery of, costs of crude importation.
OPSF is thus a buffer mechanism. Domestic consumer prices of oil and petroleum products are stabilized,
instead of fluctuating every so often. The OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part.
It appears to the Court that the establishment and maintenance of the OPSF is... well within that pervasive and
non-waivable power and responsibility of the government to secure the physical and economic survival and well-being of
the community, that comprehensive sovereign authority we designate as the police power of the State.
The tax collected is not in a pure... exercise of the taxing power. It is levied with a regulatory purpose, to provide
a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State
"The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are
deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in
pursuance of an... appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1).
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise
of the police power of the State.
Diaz v. Secretary of Finance

G.R. No. L-22977
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol filed this petition for declaratory relief assailing the validity
of value-added tax (VAT) on the collections of toll way operators.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the
meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not a sale of services; that to impose VAT
on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non-impairment clause of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including toll
way operations, except where the law provides otherwise.
Issue:
Whether or not the government is unlawfully expanding VAT coverage by including toll way operators and toll
way operations in the terms franchise grantees and sale of services.
Held:
No. It is plain from the law imposes VAT on all kinds of services rendered in the Philippines for a fee, including
those specified in the list. The enumeration of affected services is not exclusive. By qualifying services with the words all
kinds, Congress has given the term services an all-encompassing meaning.
What the government seeks to tax here are fees collected from toll ways that are constructed, maintained, and
operated by private toll way operators. Fees paid by the public to toll way operators for use of the toll ways, are not taxes
in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues
to fund public expenditures. Toll fees, on the other hand, are collected by private toll way operators as reimbursement for
the costs and expenses incurred in the construction, maintenance and operation of the toll ways, as well as to assure
them a reasonable margin of income.
Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that
can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees
may be demanded by either the government or private individuals or entities, as an attribute of ownership.
Parenthetically, VAT on toll way operations cannot be deemed a tax on tax due to the nature of VAT as an
indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller
who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In
such a case, what is transferred is not the sellers liability but merely the burden of the VAT.
Consequently, VAT on toll way operations is not really a tax on the toll way user, but on the toll way operator.
VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words,
the seller of services, who in this case is the toll way operator, is the person liable for VAT. The latter merely shifts the
burden of VAT to the toll way user as part of the toll fees.
Penalties
I. NDC vs. CIR
FACTS: The NDC entered into contract in Tokyo with several Japanese shipbuilding companies for the construction of its
12 ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by the Central Bank. Initial
payments were made in cash and through irrevocable letter of credit. Fourteen (14) promissory notes were signed for
the balance by the NDC guaranteed by Republic of the Philippines.
Pursuant thereto, the remaining payments and the interest thereon were remitted in due time by the NDC to Tokyo. The
NDC remitted to the ship builders in Tokyo the total amount of US$4,066,580 as interest on the balance of the purchase
price. No tax was withheld.
The Commissioner then held the NDC liable on such tax in the total sum of PhP5,115,234.74. The BIR thereupon served
on the NDC a warrant of distraint and levy to enforcce collection of the claimed amount.
Petitioner argues that the Japanese ship builders were not subject to tax under the sec. 37 of the Tax Code because all
the related activities- the signing of the contract, the construction of the vessels, the payment of the stipulated price, and
their delivery to the NDC - were done in Tokyo.
ISSUE: WON the Tokyo shipbuilders are subject to tax?
HELD:
The law specifies: interest derived from sources within the Philippines, and interest on bonds, notes, or other interest-
bearing obligation of resident, corporate or otherwise. Nothing there speak of the 'acts or activity' of non-residential
corporation in the Philippines, or place where the contract is signed.
The residence of the obligor who pays the interest rather than the physical location of the securities, bonds or notes or
the place of payment, is the determining factor of the source of interest income. Accordingly, if the obligor is a resident
of the Philippines the interest payment paid by him can have no other source than within the Philippines. The interest is
paid not by the bond note or other interest-bearing obligations, but by the obligor.
Collector of customs v. Torres
Facts:
A shipment of 158 packages of imported goods and personal effects arrived and were unloaded at the port of
Manila. Said packages were covered by Customs Consumption Entries Nos. 74586 and 74587, series of 1963. After the
amount of P10,887.00 as customs duties, internal revenue taxes, fees and other charges were paid by respondents Angela
Alvaran and Elpidio Floresca, said packages were released from the Manila customhouse. On October 19, 1963, while the
packages were being transported from the customs area to their destination the packages were intercepted by agents of
the Manila Police Department and were brought to the MPD Headquarters. Atencia requested the Collector of Customs
for the issuance of a proper warrant of seizure During the progress of the search and seizure, Angela Alvaran, Elpidio E.
Floresca and Leticia Africa filed with the Court of First Instance of Rizal a petition praying for a writ of injunction to
restrain herein petitioners from proceeding with the further enforcement of the warrants and for a declaration of nullity
of the warrant of seizure and detention issued by therein respondent Collector of Customs., herein petitioners filed with
Branch VIII of the Court of First Instance of Rizal, presided by respondent Judge Torres, an opposition to the petition for
writ of preliminary injunction, with a motion to lift the restraining order.
Herein petitioners maintained then that the Collector of Customs has exclusive jurisdiction over the goods in
question by virtue of Seizure. Replying to said opposition and motion, herein respondents Alvaran, Floresca and Africa
contended that the Bureau of Customs had lost jurisdiction over the goods, and therefore, the Collector of Customs
could no longer validly institute seizure proceedings respecting said goods. respondent Judge Torres issued an order
denying herein petitioners' opposition to the petition for preliminary injunction and motion to lift the restraining order
previously issued and set the case for hearing Petitioners' contention that respondent Judge Torres can not legally take
cognizance of civil case because of the pendency of Seizure is well taken. In short, the petition in the court sought not
only the recovery of the possession of goods subject of seizure proceedings before the Collector of Customs but also the
review by the Court of First Instance of the acts and/or resolutions of the Collector of Customs in the aforementioned
seizure proceedings.It is now the settled rule that it is the Court of Tax Appeals and not the Court of First Instance that
has jurisdiction to review the actuations of the Customs authorities regarding the legality or illegality of a seizure,
detention, or release of imported goods; and regarding fines, forfeiture or other penalties imposed in relation thereto, or
other matters arising under the Customs Law or other laws or part of laws administered by the Bureau of Customs. It may
be added that the goods in question were seized by virtue of a warrant of seizure and detention prior to the filing of the
petition before the lower court. From the time seizure had been effected the Bureau of Customs had acquired jurisdiction
over the goods for the purpose of the enforcement of the tariff and customs laws, to the exclusion of the regular courts.
Issue:
W/N the court of first instance has jurisdiction over the case?
Held:
No. the filing by respondents of a petition with respondent Judge Reyes for the return of the goods seized, etc.,
and the action of the latter granting said petition, were a departure from the procedure outlined by law. Respondent
Alvaran, Floresca and Africa should have filed said petition or protest with the Collector of Customs. On the other hand,
while it is true that respondent Judge Reyes was the one who issued the search warrant respecting the goods in question,
said search warrant was obtained pursuant to Section 2209 of the Tariff and Customs Code so that the PAGCOM-PC-
Customs agents could search the dwelling house adjoining the private bodega where the goods were kept. In other
words, the search warrant was secured merely as an auxiliary means in the enforcement of the warrant of seizure and
detention issued by petitioner Collector of Customs. To permit respondent Judge Reyes or the lower court, to take
custody of the goods subject of the seizure proceedings would in effect render ineffective the power of the customs
authorities under the customs law and deprive the Court of Tax Appeals of its exclusive appellate jurisdiction. It is Our
considered view that the law, in requiring a search warrant to be issued by a judge of the court of first instance or by a
municipal judge, in order to search a dwelling house, did not intend to divest the customs authorities of the custody of
the articles seized or held in virtue of the search warrant. Otherwise, a municipal judge, or a judge of the court of first
instance for that matter, who issued the search warrant would have greater powers over the seized articles than the
Collector of Customs — a situation that is certainly not contemplated by the law. Therefore the court of first instance has
no jurisdiction over the said case
Republic v. Gonzales
G.R. NO. L-17962 April 30, 1965
Facts
Defendant-appellant, Blas Gonzales is a private concessionaire in the US military Base at Clark Field, Angeles
City, who is engaged in the manufacture of furniture and, per agreement with base authorities, supplied them with his
manufactured articles. The BIR discovered that for the years 1946-47, appellant have undeclared income for the two years
causing deficiency in its tax dues. Despite the demand of the BIR to pay its tax due, appellant failed to do so. In defense,
appellant claim that as a concessionaire in an American Air Base, he is not subject to Philippine Tax laws pursuant to the
US-Phil. Military Bases Agreement.
Issue:
Whether or not appellant is exempt from taxes
Ruling
No. A Filipino concessionaire in an American Air Base is subject to Philippine Income Tax laws under the US-Phil
Military Bases Agreement. Non in the provisions of the agreement shields a concessionaire, like the appellant, from the
payment of the income tax. For one thing, even the exemption in favor of members of the US armed forces and nationals
of the US does not include income derived from Philippine sources
DELPHER TRADES CORPORATION vs. IAC

G.R. No. L-69259 January 26, 1988
Facts:
Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On April 3, 1974,
they leased to Construction Components International Inc. the property and providing for a right of firstrefusal should it
decide to buy the said property.
Construction Components International, Inc. assigned its rights and obligations under the contract of lease in
favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of Delfin and Pelagia. In 1976, a deed of
exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby
the Pachecos conveyed to the latter the leased property together with another parcel of land also located in Malinta
Estate, Valenzuela for 2,500 shares of stock of defendant corporation with a total value of P1.5M.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the
lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot.
Issue:
WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on
the other was meant to be a contract of sale which, in effect, prejudiced the Hydro Phil's right of first refusal over the
leased property included in the "deed of exchange,"
Held:
No, by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their
equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the
Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and
change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades
Corporation to take control of their properties and at the same time save on inheritance taxes.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a light of first refusal.
Heng Tong Textiles v. CIR
Facts: Textiles from abroad were withdrawn from Customs by Pan-Asiatic Commercial, which paid, in the name of Heng
Tong Textiles, the corresponding advance sales tax under Sec 183 of the Internal Revenue Code.
CIR then assessed against Heng Tong Textiles deficiency sales taxes and surcharges from 1949-1950 in the sum of P89k
for the importation of textiles from abroad. This was on the ground that Heng Tong was the REAL IMPORTER of goods
and did not pay taxes due on the basis of gross selling prices. Hen Tong appealed the assessment to the Board of
Appeals, and the case was transferred to the CTA upon its organization in 1954.
Issue: 1) W/n the Hen Tong was the importer of the goods;
2) W/n it was guilty of fraud to warrant the imposition of a penalty of 50% deficiency
Ruling:
YES HT was the importer but there was NO fraud to warrant imposition of penalty
SC affirmed CTA findings that Heng Tong was the importer of the goods based on evidence:
HT and Pan-Asiatic were sister corporations.
Commercial docs covering the importations (shipping docs, insurance papers, etc.) were all in the name of HT
In connection w/ advance sales tax, Pan-Asiatic wrote a letter to HT providing a breakdown of the 5% sales tax together
w/ official receipt numbers and other details
There is both documentary and testimonial evidence (witness declarations) to show that PA acted merely as INDENTOR.
HT placed through PA orders for importations of textiles from the US.
Although HT avers that the importation papers were placed in HT’s name only to accommodate and introduce HT to textile
suppliers abroad and that it was in no position to make the importations due to its small P30k capital, these circumstances
only show a PRIVATE ARRANGEMENT between HT and PA. It did not affect the role of HT as importer.
SC perceived it the entire set-up as an ARRANGEMENT through w/c sales tax could be MINIMIZED by having PA as
indorser withdraw goods from Customs upon payment of advance sales tax then sell it to Hen Tong at cost / negligible
profit.
The goods were made to appear as having been sold so that no sales tax was paid by HT upon the sale of goods, nor was
any sales tax paid on the supposed sales by PA. (The sales tax on sales of imported articles was based on GROSS SELLING
price)
HOWEVER, the arrangement itself does not justify the penalty imposed by CTA. Sec 183 of the Internal Revenue Code
speaks of willful neglect to file the return / wilful making of a false / fraudulent return. An attempt to minimize one’s
tax does not necessarily constitute fraud. A taxpayer may diminish his liability by any means w/c the law permits.
CIR vs Lincoln life
FACTS:
Respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life Insurance Company, Inc.) is a domestic
corporation engaged in life insurance business. Respondents issued a special kind of life insurance policy known as the
Junior Estate Builder Policy, in which there is a clause providing for an automatic increase in the amount of life insurance
coverage upon attainment of a certain age by the insured without the need of issuing a new policy.
CIR then issued deficiency documentary stamps tax assessment corresponding to the amount of automatic increase of
the sum assured on the policy issued by respondent.
Respondent filed a petition with the CTA which was held in their favor. The CIR appealed with the CA affirming the
decision of the CTA.
ISSUE:
Whether or not a new insurance policy is distinct from the main policy making it liable for additional
taxes.
RULING: YES.
The subject insurance policy at the time it was issued contained an automatic increase clause. Although the clause was to
take effect on a later date, it was written into the policy at the time of its issuance.
Section 173 of the NIRC provides that the payment of documentary stamp taxes is done at the time the act is
done. Section 183 of the NIRC provides that the tax base for the computation of documentary stamp taxes on life
insurance policies is the amount fixed in policy.
Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the amount of
the increase was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the
time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was
already determinable at the time the transaction was entered into and formed part of the policy.
The additional insurance was an obligation subject to a suspensive obligation, but still a part of the insurance sold to
which respondent was liable for the payment of the documentary stamp tax. The deficiency of documentary stamp tax
imposed on respondent is not on the amount of the original insurance coverage, but on the increase of the amount
insured upon the effectivity of the Junior Estate Builder Policy.
CIR v. Toda, Jr.

GR No. 147188
Facts:
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital
stock, to sell the Cibeles Building. On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. Three and a
half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and demand letter to the CIC for
deficiency income tax for the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-
administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the CIR for deficiency
income tax for the year 1989. The Estate thereafter filed a letter of protest.
The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with the
CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the
government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same
constituted mere tax avoidance, and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency
of income tax. The Commissioner filed a petition for review with the Court of Appeals. The Court of Appeals affirmed the
decision of the CTA, hence, this recourse.
Issue:
Whether or not this is a case of tax evasion or tax avoidance.
Held:
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e. the payment of less than
that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”;
and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case.
The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e. from
CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted
with fraud. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to
create a tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability.

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A.

Paseo Realty and Development Corp. v. Court of Appeals

Hilado vs. Collector of Internal Revenue

C. Scope and Nature of Taxation

Hodges v. Municipal Board of Iloilo

CIR v. Algue Inc., and Court of Tax Appeals

CIR v. Cebu Portland Cement Company

Mactan Cebu International Airport Authority v. Marcos

ABAKADA Guro Party List v. Ermita

D. Underlying Theory and Basis; Necessity Theory; Benefit-Received Principle

Collector of Internal Revenue v. Algue

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

National Power Corporation v. City of Cabanatuan

CIR v. Algue Inc., and Court of Tax Appeals

Osmeña v. Oscar Orbos

F. Principles of a Sound Tax System

Diaz v. Secretary of Finance

G. Comparison with Police Power and Eminent Domain

LTO v. City of Butuan

Philippine Match Co. v. Cebu

Matalin v. Mun. Council of Malabang

TAN VS DEL ROSARIO

5. The Solicitor General espouses the position taken by public respondents.

B. Taxes Distinguished from:

RP VS ERICTA AND SAMPAGUITA PICTURES

REPUBLIC VS MAMBULAO LUMBER COMPANY

Philippine Airlines, Inc. V. Edu

Diaz v. Secretary of Finance

I. NDC vs. CIR

Collector of customs v. Torres

DELPHER TRADES CORPORATION vs. IAC

Heng Tong Textiles v. CIR

CIR vs Lincoln life

CIR v. Toda, Jr.

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