2003dg101 Tax1 PDF

Digests
Taxation Law I
Michael Vernon Guerrero Mendiola

2003
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Table of Contents
Commissioner vs. Algue, GR L-28890, 17 February 1988 …......... 1

Luzon Stevedoring Corp. vs. Court of Tax Appeals, GR L-30232, 29 July 1988 …......... 1
Lutz vs. Araneta, GR L-7859, 22 December 1955 …......... 2
McCollough vs. Maryland, 17 US 316 (1819) …......... 2
Panhandle Oil vs. State of Mississippi, 277 US 218 (1928) …......... 3
Commissioner vs. Lingayen Gulf Electric, GR L-23771, 4 August 1988 …......... 4
National Development Co. vs. Commissioner, GR L-53961, 30 June 1987 …......... 4
Domingo vs. Garlitos, GR L-18993, 29 June 1963 …......... 5
Commissioner vs. Itogon-Suyoc Mines, GR L-25299, 29 July 1969 …......... 5
Republic vs. Mambulao Lumber, GR L-17725, 28 February 1962 …......... 5
Francia vs. Intermediate Appellate Court, GR L-67649, 28 June 1988 …......... 6

Caltex Philippines vs. Commission on Audit (COA), GR 92585, 8 May 1992 …......... 7
Cu Unjieng vs. Patstone, GR 16254, 21 February 1922 …......... 7
Villegas vs, Hiu Chiong Tsai Pao Ho, GR L-29646, 10 November 1978 ….........8
Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City, GR 47252, 18 April 1941 …......... 8
Philippine Airlines vs. Edu, HR L-41383, 15 August 1988 …......... 9
Progressive Development Corporation vs. Quezon City, GR 36081, 24 April 1989 …......... 9
American Mail Line vs. Basilan, GR L-12647, 31 May 1961 …......... 10
Saldana vs. Iloilo, GR L-10470, 26 June 1958 …......... 10
Compania General de Tobacos de Filipinas vs. Manila, GR L-16619, 29 June 1963 …......... 11
Philippine Acetylene Co. Inc. vs. Commissioner, GR L-19707, 17 August 1967 …......... 11
Commissioner vs. American Rubber, GR L-19667, 29 November 1966 …......... 12
Commissioner vs. Gotamco, GR L-31092, 27 February 1987 …......... 12
Pascual vs. Secretary of Public Works and Communications, GR L-10405, 29 December 1960 …......... 13
Republic vs. Bacolod-Murcia Milling Co., GR L-19824-26, 9 July 1999 …......... 13
31st Infantry Post Exchange vs. Posadas, GR 33403, 4 September 1930 …......... 14
Wells Fargo vs. Collector of Internal Revenue, GR 46720, 28 June 1940 …......... 15
Philippine Match Co. Ltd. vs. Cebu City, GR L-30745, 18 January 1978 …......... 15
Commissioner vs. British Overseas Airways Corp., GR L-65773-74, 30 April 1987 …......... 16
Commissioner vs. Air India, GR L-72443, 29 January 1988 …......... 16
Allied Thread vs. City of Manila, GR L-40296, 21 November 1984 …......... 17

Abra vs. Hernando, GR L-49336, 31 August 1981 …......... 17
Association of Custom Brokers vs. Manila, GR L-4376, 22 May 1953 …......... 18
Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan, GR L-81311, 30 June 1988 …......... 18
Sison vs. Ancheta, GR L-59431, 25 July 1984 …......... 19
Juan Luna Subdivision vs. Sarmiento, GR L-3538, 28 May 1952 …......... 19
Shell Co. vs. Vano, GR L-6093, 24 February 1954…......... 20
Victorias Milling Co. vs. Municipality of Victorias, GR L-21183, 27 September 1968 …......... 20
Punsalan vs. Manila, GR L-4817, 26 May 1954 …......... 21
Ormoc Sugar vs. Treasurer of Ormoc City, GR L-23794, 17 February 1968 …......... 21
Pepsi-Cola Bottling Co. vs. City of Butuan, GR L-22814, 28 August 1968 …......... 22
Vera vs. Cuevas, GR L-33693-94, 31 May 1979 …......... 22
American Bible Society vs. Manila, GR L-9637, 30 April 1957 …......... 23
Cagayan Electric Power & Light Co. vs. Commissioner, GR L-60126, 25 September 1985 …......... 23
Casanovas vs. Hord, GR L-3473, 22 March 1907 …......... 24
Churchill vs. Concepcion, GR 11572, 22 September 1916 …......... 24
Villanueva vs. Iloilo City, GR L-26521, 28 December 1968 …......... 25
Eastern Theatrical Co. vs. Alfonso, GR L-1104, 31 May 1944 …......... 25
Reyes vs. Almanzor, GR 49839-46, 26 April 1991 …......... 26
Abra Valley College vs. Aquino, GR L-39086, 15 June 1988 …......... 26
Herrera vs. Quezon City Board of Assessment Appeals, GR L-15270, 30 September 1961 …......... 27
Lladoc vs. Commissioner, GR L-19201, 16 June 1965 …......... 27
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte, GR 27588, 31 December 1927 …......... 28
Commisioner vs. Bishop of Missionery District of the Philippine Islands, GR L-19445, 31 August 1965 …......... 28
Hodges vs. Iloilo City, GR L-18129, 31 January 1963…......... 29
Procter and Gamble vs. Jagna, GR L-24265, 28 December 1979 …......... 29
Commissioner vs. Lednicky, GR L-18169, 31 July 1964 …......... 30
Commissioner vs. Javier, GR 78953, 31 July 1991 …......... 30
Meralco vs. Vera, GR L-29987, 22 October 1975 …......... 31
Commissioner vs. Manila Jockey Club, GR L-8755, 23 March 1956 …......... 31
SSS vs. Bacolod City, GR L-35726, 21 July 1982 …......... 32

Nitafan vs. Commissioner, GR L-78780, 23 July 1987 …......... 32
Commissioner vs. Robertson, GR L-70116-19, 12 August 1986 …......... 32
Reagan vs. Commissioner, GR L-26379, 27 December 1969 …......... 33
Davao Light and Power vs. Commissioner of Customs, GR L-28739 and L-28902 …......... 33
Surigao Consolidated Mining vs. Collector, GR L-14878, 26 December 1963 …......... 34
Wonder Mechanical Engineering vs. Court of Tax Appeals, GR L-22805 and L-27858, 30 June 1975 …......... 35
Visayas Cebu Terminal vs. Commissioner, GR L-19530 and L-19444, 27 February 1965 …......... 35
Lealda Electric vs. Commissioner, GR L-16428, 30 April 1963 …......... 36
Misamis Oriental vs. Cagayan Electric, GR 45355, 12 January 1990 …......... 36
Hilado vs. Collector, GR L-9408, 31 October 1956 …......... 37

Commissioner vs. Court of Tax Appeals, GR 44007, 20 March 1991 …......... 37
Maceda vs. Macaraig, GR 88291, 31 May 1991 …......... 38
Commissioner vs. Phoenix Assurance, GR L-19727, 20 May 1965 …......... 39
Commissioner vs. Connel Bros. Co., GR L-27752-53, 30 August 1971 …......... 39
Commissioner vs. Fireman’s Fund Insurance, GR L-30644, 9 March 1987 …......... 40
Commissioner vs. Cebu Portland Cement, GR L-29059, 15 December 1987 …......... 40
Republic vs. Vda. de Fernandez, GR L-9141, 25 September 1956 …......... 41
Tanada vs. Tuvera, GR L-63915, 24 April 1985 …......... 41
Bagatsing vs. Ramirez, GR L-41631, 17 December 1976 …......... 42
Commissioner vs. Burroughs Ltd., GR L-6653, 19 June 1986 …......... 42

Commissioner vs. Mega General Merchandise, GR L-69136, 30 September 1988 …......... 43
Commissioner vs. Court of Tax Appeals, GR 108358, 20 January 1995 …......... 43
Commissioner vs. Court of Appeals, GR 119761, 29 August 1996 …......... 44
ABS-CBN Broadcating vs. Court of Tax Appeals, GR L-52306, 12 October 1981 …......... 44
In RE Zialcita, AM 90-6-015-SC, 18 October 1990 …......... 45
Commissioner vs. Court of Appeals, GR 96016, 17 October 1991 …......... 45
Borromeo vs. Civil Service Commission, GR 96032, 31 July 1991 …......... 46
Esso Standard Eastern vs. Commissioner, GR 28508-9, 7 July 1989 …......... 46
Guagua Electric Light Plant Co. vs. Collector, GR L-23611, 24 April 1967 …......... 47
Republic vs. Limaco and De Guzman Commercial Co., GR L-13081, 31 August 1962 …......... 47
Interprovincial Autobus Co. vs. Collector of Internal Revenue, GR L-6741, 31 January 1956 …......... 48
Tan Guan vs. Court of Tax Appeals, GR L-23676, 27 April 1967 …......... 49
Dayrit vs. Cruz, GR L-39910, 26 September 1988 …......... 49
Collector vs. Benipayo, GR L-13656, 31 January 1962 …......... 50
Meralco Securities Corp. vs. Savellano, GR L-36181, 23 October 1982…......... 50
Commissioner vs. Abad, GR L-19627, 27 June 1968 …......... 51
Commissioner vs. Procter & Gamble Philippines, GR L-66838, 15 April 1988 …......... 51
City Lumber vs. Domingo, GR L-18611, 30 January 1964 …......... 52
Villamin vs. Court of Tax Appeals, GR L-11536, 31 October 1960 …......... 52
Sy Po vs. Court of Tax Appeals, GR L-81446, 18 August 1988 …......... 53
This collection contains one hundred one (101) cases
summarized in this format by
Michael Vernon M. Guerrero (as a sophomore law student)
during the First Semester, school year 2003-2004
in the Taxation Law I class
under Atty. Diogenes Villarubia
at the Arellano University School of Law (AUSL).
Compiled as PDF, July 2011.
Berne Guerrero entered AUSL in June 2002

and eventually graduated from AUSL in 2006.
He passed the Philippine bar examinations immediately after (April 2007).
www.berneguerrero.com
Digests (Berne Guerrero)
[1]
Commissioner vs. Algue

GRL-28890, 17 February 1988
First Division, Cruz (J); 4 concur
Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,
authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment
Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000
and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional
fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of
P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for
reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue
had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Coourt of
Tax Appeals.
Issue: Whether the assessment was reasonable.
Held: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
Every person who is able to pay must contribute his share in the running of the government. The Government,
for his 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 is an arbitrary method of exaction by those in the seat of
power.
Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his
tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction
(pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to
compensation for personal services) had been legitimately by Algue Inc. It has further proven that the
payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing
investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of
pesos.
The assessment was not reasonable.
[2]
Luzon Stevedoring Corp. vs. Court of Tax Appeals

GR L-30232, 29 July 1988
Second Division, Paras (J): 4 concur
Facts: Luzon Stevedoring Corp. imported various engine parts and other equipment for tugboat repair and
maintenance in 1961 and 1962. It paid the assessed compensation tax under protest. Unable to secure a tax
refund from the Commissioner (for the amount of P33,442.13), it filed a petition for review with the Court of
Tax Appeals (CTA). The CTA denied the petition, as well as the motion for reconsideration filed thereafter.
Issue: Whether the corporation is exempt from the compensation tax.
Held: As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is never
presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly
Taxation Law I, 2004 ( 1 )

construed, and the same must be couched in dear and unmistakable terms in order that it may be applied. The
corporation’s tugboats do not fall under the categories of passenger or cargo vessels to avail of the exemption
from compensation tax in Section 190 of the Tax Code. It may be further noted that the amendment of Section
190 of Republic Act 3176 was intended to provide incentives and inducements to bolster the shipping industry
and not the business of stevedoring, in which the corporation is engaged in.
Luzon Stevedoring Corp. is not exempt from compensating tax under Section 190, and is thus not entitled to
refund.
[3]
Lutz vs. Araneta

GR L-7859, 22 December 1955
First Division, Reyes JBL (J): 8 concur
Facts: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to
recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner under Section e of
Commonwealth Act 567 (the Sugar Adjustment Act), alleging that such tax is unconstitutional as it levied for
the aid and support of the sugar industry exclusively, which is in his opinion not a public purpose.
Issue: Whether the tax is valid in supporting an industry.
Held: The tax is levied with a regulatory prupose, i.e. to provide means for the rehabilitation and stabilization
of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure exercise of
taxing power. As sugar production is one of the great industries of the Philippines; and that its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found that the general
welfare demanded that the industry should be stabilized, and provided that the distribution of benefits
therefrom be readjusted among its component to enable it to resist the added strain of the increase in tax that it
had to sustain. Further, it cannot be said that the devotion of tax money to experimental stations to seek
increase of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of
living and working conditions in sugar mills and plantations, without any part of such money being channeled
diectly to private persons, constitute expenditure of tax money for private purposes.
The tax is valid.
[4]
McCollough vs. Maryland

17 US 316 (1819), Marshall (CJ)
Facts: The United States Congress incorporated a bank, the Bank of the United States; and established a
branch in the State of Maryland. The State of Maryland, in turn, through its legislature, imposed a tax upon
the bank.
Issue: Whether the State of Maryland can tax a federal bank.
Held: The Government of the United States, though limited in its powers, is supreme. Its laws, when made in
pursuance of the Constitution, form the supreme law of the land, “anything in the Constitution or laws of any
State, to the contrary, not withstanding.” Among the enumerated powers of the government are to lay and
collect taxes; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies.
Still, the power of taxation is retained by the States. It is not abridged by the grant of a similar power to the

Government of the Union. It is to be concurrently exercised by the two governments. Consistently with a fair
construction of the Constitutions: the power to tax involves the power to destroy; the power to destroy may
defeat and render useless the power to create; and there is a plain repugnance in conferring on one
government a power to control the constitutional measures of another, which other, with respect to those very
measures, is declared to be supreme over that whcih exerts the control. Taxation does not necessarily and
unavoidably destroy. To carry it to the excess of destruction would be an abuse, and would banish that
confidence which is essential to all government. Hence, the States have no power to retard, impede, burden,
or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution
the powers vested in the general government. The law passed by the legislature of Maryland, imposing a tax
on the Bank of the United States, is unconstitutional and void.
[5]
Panhandle Oil vs. State of Mississippi

277 US 218 (1928), Butler (J)
Facts: The laws of Mississippi provided that “any person engaged in the business of distributor of gasoline,
or retail dealer in gasoline, shall pay an excise tax for the privilege of engaging in such business,” except that
sold in interstate commerce or puchased outside the state and brought in by the consumer for his own use.
Since 1925, Panhandle Oil Co. has been engaged in such business. Subsequently, the State sued to recover
taxes claimed on account of sales made by the company to the United States for the use of its Coast Guard
fleet in service in the Gulf of Mexico and its Veteran’s Hospital at Gulfport. The company defended on the
ground that Mississippi statutes relevant to the case, if construed to impose taxes on such sales, are repugnant
to the federal constitution.
Issue: Whether Panhandle Oil Co. is liable for the excise tax imposed by the State of Mississippi.
Held: The United States is empowered by the Constitution to maintain and operate the fleet and the hospital.
Authorization and laws enacted pursuant to the Constitution are supreme, and in case of conflict, control state
enactments. The States may not burden or interfere with the exertion of national power, or make it a source of
revenue or take the funds raised or tax the means for for the performance of federal functions. While the State
of Mississippi may impose charges upon the company for the privilege of carrying trade that is subject to the
power of the State, it may not lay any tax upon transactions by which the United States secures the things
desired for its governmental purposes. The necessary operation of the statutes when so construed is directly to
retard, impede, and burden the exertion by the United States of its constitutional powers to operate the fleet
and the hospital. The exactions demanded infringe upon the right to have the Constitutional independence of
the United States, in respect to such purchases, remain untrammeled.
Panhandle Oil Co. is, thus, not liable for the taxes claimed.
[ Note: It is not in the main body or decision, but in the dissenting opinion of Justice Holmes that the
following doctrine was enunciated:
“... (The Court), so often has defeated the attempt to tax in certain ways, can defeat an attempt to
discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is
not the power to destroy while this Court sits. The power to fix rates is the power to destroy if
unlimited, but this Court while it endeavors to prevent confiscation does not prevent the fixing of
rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales
would be one.” ]
[6]

Commissioner vs. Lingayen Gulf Electric

GR L-23771, 4 August 1988
En Banc, Sarmiento (J): 13 concur
Facts: Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of Lingayen
and Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the respective municipal councils.
The franchises provided that the grantee shall pay quarterly to the Provincial Treasury of Pangasinan 1% of
the gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the
remaining 15 years of the life of the franchise. In 1948, the Philippine President approved the franchise (RA
3843). In 1955, the BIR assessed and demanded against the company deficiency franchise taxes and
surcharges fro the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to
1954. The company asked for a reinvestigation, which was denied.
Issue [1]: Whether the Court can inquire into the wisdom of the Act.
Held [1]: The Court does not have the authority to inquire into the wisdom of the Act. Charters or special
laws granted and enacted by the Legislatur are in the nature of private contracts. They do not contitute a part
of the machinery of the general government. They are usually adopted after careful consideration of the
private rights in relation with the resultant benefits of the State. In passing a special charter, the attention of
the Legislature is directed to the facts and circumstances which the act or charter is intended to meet. The
Legislature considers and makes provision for all the circumstance of the particular case. The Court ought not
to disturb the ruling of the Court of Tax Appeals on the constitutionality of the law in question.
Issue [2]: Whether a rate below 5% on gross income violate the uniformity of tax clause in the Constitution.
Held [2]: A tax is uniform when it operates with the same force and effect in every place where the subject of
it is found. Uniformity means that all property belonging to the same class shall be taxed alike. The legislature
has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions
have never been deemed violateve of the equal protection clause. Herein, the 5% franchise tax rate provided
in Section 259 of the Tax Code was never intended to have a universal application. Section 259 expressly
allows the payment of taxes at rates lower than 5% when the charter granting the franchise precludes the
imposition of a higher tax. RA 3843 did not only fix and specify a franchise tax of 2% on its gross receipts,
but made it in lieu of any and all taxes, all laws to the contrary notwithstanding. “
The company, hence, is not liable for deficiency taxes.
[7]
National Development Co. vs. Commissioner

GR L-53961, 30 June 1987
En Banc, Cruz (J): 14 concur
Facts: The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese
shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in cash
and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in
Tokyo, the latter remitted to the shipbilders the amount of US$ 4,066,580.70 as interest on the balance of the
purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total amount
of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distraint and levy after
negotiations failed.

Issue: Whether the NDC is liable for deficiency tax.
Held: The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the Tax
Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its
failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the
Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the
government and so should be liable for its omission.
[8]
Domingo vs. Garlitos

GR L-18993, 29 June 1963
En Banc, Labrador (J): 8 concur,
1 concur in result, 1 took no part
Facts: InDomingo 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.
[9]
Commissioner vs. Itogon-Suyoc Mines

GR L-25299, 29 July 1969
En Banc, Fernando (J): 9 concur, 1 took no part
Facts: Itogon-Suyoc Mines filed its income tax return for the fiscal year 1959 to 1960. Four months later, it
filed an amended income tax return, reporting a loss. It thus sought a refund from the Commissioner. When it
filed its income tax return on the next year, it deducted an amount representing alleged tax credit for
overpayment for the preceding fiscal year. The Commissioner imposed an amount P1,512.83 as 1% monthly
interest on the amount of P13,155.20 from January to December 1962. The basis for such assessment was
allegedly the absence of a legal right to deduct said amount before the tax credit or refund is approved by the
Commissioner.
Issue: Whether the assessment on interest was justified.
Held: The Tax Code provides that interest upon the amount determined as a deficiency shall be assessed and
shall be paid upon notice and demand from the Commissioner at the rate therein specified. It made clear,
however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was
entitled to a refund of any amount due as tax, such amount, if not refunded, may be deducted from the tax to

be paid. Although the imposition of monthly interest does not constitute penalty but a just compensation to the
State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully
should be in government’s hands; in light of the overpayment for 1959 and 1960, it cannot be said that the
taxpayer was guilty of delay enabling it to utilize the money.
The company is entitled to refund.
[10]
Republic vs. Mambulao Lumber

GR L-17725, 28 February 1962
En Banc, Barrera (J): 10 concur
Facts: Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges.
Having found liable for an aggregate amount of P4,802.37 for forest charges, it contended that since the
Republic (Government) has not made use of the reforestation charges for reforesting the denuded area of the
land covered by the company’s license, the Republic should refund said amount or, if it cannot be refunded, at
least the company should be compensated with what it owed the Republic for reforestation charges.
Issue: Whether taxes may be subject of set-off or compensation.
Held: Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A claim
for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-
off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the State or municipality to one who is liable to the State or municipality for taxes. Neither
are they subject of recoupment since they do not arise out of the contract or transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are the positive acts
of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not
required.
[11]
Francia vs. Intermediate Appellate Court

GR L-67649, 28 June 1988
Third Division, Gutierrez Jr. (J): 4 concur
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.
Issue: Whether the expropriation payment may compensate for the real estate taxes due.
Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person canot 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 annot await the results of a lawsuit agianst
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.

[ Note: See Republic vs. Mambulao, and Cordero vs. Gonda, as doctrine in said cases were merely
reiterated. ]
[12]
Caltex Philippines vs. Commission on Audit (COA)

GR 92585, 8 May 1992
En Banc, Davide (J): 12 concur, 2 took no part
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 1986 and 188 of the additional tax on petroleum products
authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement
from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its
reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal
to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from
further offseting remittances and reimbursements for the current and ensuing years. Caltex moved for
reconsideration.
Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims
from said funds.
Held: 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 that he may have against the government. Taxes cannot be the
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.
[13]
Cu Unjieng vs. Patstone

GR 16254, 21 February 1922
First Division, Ostrand (J): 4 concur, 1 took no part
Facts: G. A. Cu Unjieng desired to erect a warehouse in Azcarraga street was denied a building permit until
he shall have made provision for the construction of an arcade over the sidewalk in front of the building, and
until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila, i.e. payment of
1/2 of the assessed value of the city land. Cuunjieng filed a petition for a writ of mandamus to compel the city
engineer to issue the permit.
Issue: Whether the fee was validly imposed.
Held: The allowable amount of license fee or tax depends so much on the special circumstances of each
particular case. Adjudications, however, appear to recognize 3 classes of licenses (license forregulation of
useful occupations or enterprises; licenses for the regulation of non-useful occupations or enterprises; and
licenses for revenue only), which should be taken into consideration in determining the reasonableness of the
license fee. Herein, in imposing a fee equal to 1/2 of the assessed value of the portion of the sidewalk covered
by the arcade, the municipal board exceeded its powers. The construction of buildings is a useful enterprise
and the amount of the license fee should therefore be limited to the cost of licensing, regulating, and
surveillance. As it does not appear such cost would materially increase through the construction of the arcade,

the excess fee is clearly imposed for the purpose of revenue. There is nothing in the charter of the City
indicating legislative intent to confer tot the municipal board to impose a license tax for revenue on the
construction of buildings. Although the city can require the construction of arcades in certain circumstances,
the license fee prescribed by Ordinance 301 is illegal.
[14]
Villegas vs, Hiu Chiong Tsai Pao Ho

GR L-29646, 10 November 1978
En Banc, Fernandez (J):
4 concur, 3 concur in result, 1 took no part
Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in
the diplomatic and consular missions of foreign countries, in technical assistance programs of the government
and another country, and members of religious orders or congregations) to procure the requisite mayor’s
permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty
for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a tax.
Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by exacting P50 from
aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to
consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rank-
and-file or executive.
[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to
aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process
and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or
standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and
unrestricted powers. ]
[15]
Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City

GR 47252, 18 April 1941
En Banc, Imperial (J): 4 concur
Facts: The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws,
and with residence in Baguio, The City imposed a special assessment against properties within its territorial
jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system.
The Apostolic Prefect contends that its properties should be free of tax.
Issue: Whether the Apostolic Prefect, as a religious entity, is exempt from the payment of the special
assessment.
Held: In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a
recognized distinction between them in that assessment is confined to local impositions upon property for the
payment of the cost of public improvements in its immediate vicinity and levied with reference to special
benefits to the property assessed. A special assessment is not, strictly speaking, a tax; and neither the decree
nor the Constitution exempt the Apostolic Prefect from payment of said special assessment. Furthermore,
arguendo that exemption may encompass such assessmen, the Apostolic Prefect cannot claim exemption as it

has not proven the property in question is used exclusively for religious purposes; but that it appearsthat the
same is being used to other non-religious purposes. Thus, the Apostolic Prefect is required to pay the special
assessment.
[16]
Philippine Airlines vs. Edu

HR L-41383, 15 August 1988
En Banc, Gutierrez Jr. (J): 13 concur
Facts: The Philippine Airlines (PAL) is engaged in the air transportation business under a legislative
franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the
Secretary of Justice (Opinion 307 of 1956),
PAL was determined to have not been paying motor vehicle registration fees since 1956. The Land
Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle
registration fees. PAL protested.
Issue: Whether registration fees as to motor vehicles are taxes to which Philippine Airlines is exempt.
Held: Taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for
that reason limited in amount to what is necessary to cover the cost of the services rendered in that
connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee.
The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle
Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As
the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing
the operation of motor vehicles on public highways, but to provide revenue with which the Government is to
construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees. PAL is,
thus, exempt from paying such fees, except for the period between 27 June 1968 to 9 April 1979, where its tax
exeption in the franchise was repealed.
[17]
Progressive Development Corporation vs. Quezon City

GR 36081, 24 April 1989
Third Division, Feliciano (J): 4 concur
Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated
public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such
ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or
lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owned and
operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city on the
ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose.
Issue: Whether the supervision fee / license tax is a tax on income.
Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax
(distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local
Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged.
To be considered a license fee, the imposition must relate to an occupation or activity that so engages the
public interest in health, morals, safety and development as to require regulations for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the probable

expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental
consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the
fees or taxes due to the city to cover the latter’s administrative expenses. The use of the gross amount of stall
rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or
render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall
rentals, the higher the aggregate volume of foodstuffs and related items sold in the privately owned market;
and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and
supervision that may be reasonably required in the interest of the buying public.
[18]
American Mail Line vs. Basilan

GR L-12647, 31 May 1961
En Banc, Dizon (J): 9 concur, 1 took no part
Facts: The City Council of Basilan City enacted Ordinance 180 (1955) imposing upon a foreign vessel
engaged in coastwise trade which may anchor within the territorial waters of Basilan City to pay an anchorage
fee of half centavo per registered gross ton of the vessle for the first 24 hours, provided that the maximum
charge shall not exceed P75 per day. As the city treasurer assessed and attempted to collect from American
Mail Line the anchorage fees, the company filed an action for declaratory relief to have the courts determine
the validity of the ordinance.
Issue: Whether the anchorage fees were for regulatory or revenue purposes.
Held: The fees required are intended for revenue purposes. The fees have no proper or reasonable relation to
the cost of issuing the permits and the cost of inspection or surveillance; being based upon the tonnage of the
vessels. The fees imposed on the vessels exceed even the harbor fees imposed by the National Government to
raise revenues for the Port Works Fund. The City of Basilan was not granted a blanket authority or power of
taxation, but merely given the powers to levy and collect taxes for general and special purposes in accordance
with or as provided by law. The power to regulate as an exercise of police power does not include the power
to impose fees for review purposes.
The ordinance was invalid.
[19]
Saldana vs. Iloilo

GR L-10470, 26 June 1958
En Banc, Montemayor (J): 8 concur
Facts: In 1946, the City of Iloilo promulgated Ordinance 28, which strictly prohibits the transport of food
supply and labor animals outside Iloilo without first obtaining the necessary license permit from the mayor.
Under the ordinance, Serafin Saldana had been paying, under protest, so-called fees on fish bought in Iloilo
and sent to Manila from 16 September to 6 December 1946.
Issue: Whether the “license fee” was validly imposed.
Held: A license fee represents the permission conceded to do an act is in the main purpose of police power,
and is not supposed to be imposed for revenue. A property tax, on the other hand, is a tax in the ordinary
sense, assessing according to the value of property. Judging from the amount of fees fixed in the ordinance,
the so-called fees were in reality taxes for city revenue. As such, they are unauthorized by the law or the City

Charter, and are alson in contravention of Sections 2287 and 2629 of the Revised Administrative Code. The
prohibition against taking animals and articles outside Iloilo without mayor’s permit is in restraint of trade
and a curtailment of the rights of the owners of said animals and articles to freely sell and of prospective
purchasers to buy and dispose of them without the city limits in the ordinary course of commerce and trade.
The ordinance is ultra vires and, thus, is null and void.
[20]
Compania General de Tobacos de Filipinas vs. Manila

GR L-16619, 29 June 1963
Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the fixed license fees
prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordinance 3634 and 3816 were
passed; where the term “general merchandise” found therein included all articles in Sections 123 to 148 of the
Tax Code (thus, also liquor under Sedctions 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s
taxes. In 1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor
dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not subject to the
wholesale aand retail deaklers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera,
upon learning of said stopped including quarterly sworn declaratons required by the latter ordinances, and in
1957, demanded refunde of the alleged overpayment. The claim was disallowed.
Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634, 3301 and 3816, to
prevent refund to the company.
Held: Generally, the term “tax” applies to all kinds of exactions which become public funds. Legally,
however, a license fee is a legal concept quite distinct from tax: the former is imposed in the exercise of
police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of
raising revenues. Ordinance 3358 prescribes municipal license fees for the privilege to engage in the business
of selling liquor or alcohol beverages; considering that the sale of intoxicating liquor is (potentially) harmful
to public health and morals, and must be subject to supervision or regulation by the State and by cities and
municipalities authorized to act in the premises. On the other hand, Ordinances 3634 , 3301 and 3816
imposed taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by
the Municipal Board of Manila.
Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, without it being in violation of the rule against double taxation. The contrary view of the Treasurer in
its letter is of no consequence as the government is not bound by the errors or mistakes committed by its
officers, specially on matters of law.
The company, thus, is not entitled to refund.
[21]
Philippine Acetylene Co. Inc. vs. Commissioner

GR L-19707, 17 August 1967
En Banc, Castro (J): 7 concur, 2 took no part
Facts: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene gases. It
sold its products to the National Power Corporation (Napocor), an agency of the Philippine Government, and
the Voice of America (VOA), an agency of the United States Government. The Commissioner assessed

deficiency sales tax and surcharges against the company. The company denied liability for the payment of tax
on the ground that both Napocor and VOA are exempt from taxes.
Issue: Whether Philippine Acetylene Co. is exempt from the tax.
Held: Sales tax are paid by the manufacturer or producer who must make a true and complete return of the
amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed
from the factory or mill, warehouse and to pay the tax due thereon. The tax imposed by Section 186 of the
Tax Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very
remote and inconsequential sense. Accordingly, its levy on the sales made to tax-exempt entities like the
Napocor is permissible. On the other hand, there is nothing in the language of the Military Bases Agreement
to warrant the general exemption granted by General Circular V-41 (1947). Thus, the expansive construction
of the tax exemption is void; and the sales to the VOA are subject to the payment of percentage taxes under
Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption will nbot be held
to be conferred unless the terms under which it is granted clearly and distinctly show that such was the
intention.
[22]
Commissioner vs. American Rubber

GR L-19667, 29 November 1966
En Banc, Reyes JBL (J): 8 concur
Facts: American Rubber Company sold its rubber products locally and as prescribed by the Commissioner’s
regulation, the company declared the same for tax purposes in which the Commissioner accordingly assessed.
The company paid under protest the corresponding sales taxes thereon, claiming exemption under Section 188
(b) of the Tax Code, and subsequently claimed refund. With the Commissioner refusing to do so, the case was
brought before the Court of Tax Appeals, which upheld the Commissioner’s stand that the company is not
entitled to recover the sales tax that had been separately billed to its customers, and paid by the latter.
Issue: Whether the company can recover the sales tax paid.
Held: The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of the manufacturer,
producer, or importer, who is exclusively made liable for its timely payment. Where the tax money paid by
the company came from is really no concern of the Government, but solely a matter between the company
and its customers. Once recovered, the company must hold the refunded taxes in trust for hte individual
purchasers who advanced payment thereof, and whose names must appear in company records. Herein, the
company sales between 24 August 1956 (approval of RA 1612) to 22 June 1957 (when RA 1856 restored the
exemption of agricultural products “whether in their original form or not”) were properly taxed. Such amount
corresponding to the period are not recoverable.
[23]
Commissioner vs. Gotamco

GR L-31092, 27 February 1987
First Division, Yap (J)L 6 concur
Facts: The World Trade Organization (WHO) decided to construct a building to house its offices, as well as
the other United Nations Offices in Manila. In inviting bids for the construction of the building, the WHO
informed the bidders of its tax exemptions. The contract was awarded to John Gotamco and Sons. The
Commissioner opined that a 3% contractor’s tax should be due from the contractor. The WHO issued a

certification that Gotamco should be exempted, but the Commissioner insisted on the tax. Raised in the Court
of Tax Appeals, the court ruled in favor of Gotamco.
Issue: Whether Gotamco is likewise from the contractor’s tax in lieu of WHO’s exemption from indirect
taxes.
Held: Direct taxes are those that are demanded from the very person who, it is intended or desired, should
pay them; while indirect taxes are those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else. Herein, the contractor’s tax is payable
by the contractor but it is the owner of the building that shoulders the burden of the tax because the same is
shifted by the contractor to the owner as a matter of self-preservation. Such tax is an “indirect tax” on the
organization, as the payment thereof or its inclusion in the bid price would have meant an increase in the
construction cost of the building.
Hence, the Contractee’s (WHO) exemption from “indirect taxes” implies that contractor (Gotamco) is exempt
from contractor’s tax.
[24]
Pascual vs. Secretary of Public Works and Communications

GR L-10405, 29 December 1960
En Banc, Concepcion (J): 10 concur
Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item (Section 1
c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals
(the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision
owned by Senator Jose C. Zulueta). Zulueta “donated” said parcels of land to the Government 5 months after
the enactment of RA 920, on the condition that if the Government violates such condition the lands would
revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the
donation and the Constitutionality of the item in RA 920, it being not for a public purpose.
Issue: Whether the item in the appropriation is valid.
Held: The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional
provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose
and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a
public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed
by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed
belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and
the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the result
is that the appropriating sough a private purpose and hence, null and void.
[25]
Republic vs. Bacolod-Murcia Milling Co.

GR L-19824-26, 9 July 1999
En Banc, Regala (J): 7 concur, 1 took no part
Facts: RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute

acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds of the sugar
tax to be collected under RA 632. The operation of the refinery for 1954 to 1957 was disastrous as the
Institute suffered tremendous losses. Contending that the purchase of the refinery with money from the
Institute’s fund was not authorized under RA 632, and that the continued operation of the refinery is inimical
to their interest, Bacolod-Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central
Azucarera del Danao refused to continue with their contribution to said fund. The trial court found them liable
under RA 632.
Issue: Whether the taxpayers may refuse to pay the special assessment, allegedly distinct from an ordinary tax
which no one can refuse to pay.
Held: The nature of a “special assessment” similar to the case has been discussed and explained in Lutz vs.
Araneta. The special assessment or levy for the Philippine Sugar Institute (Philsugin) Fund is not so much an
exercise of the power of taxation, nor the imposition of a special assessment, but the exercise of police power
for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private
citizen may lawfully resist. Section 2a of the Charter authorizing Philsugin to “conduct research work for the
sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar
industry such practices or processes that will reduce the cost of production and achieve greater efficiency in
the industry, justifies the acquisition of the refinery in question. The financial loss resulting from the operation
thereof is no means an index that the industry did not profit therefrom, as other gains of a different nature
(such as experience) may have been realized.
[26]
31st Infantry Post Exchange vs. Posadas

GR 33403, 4 September 1930
En Banc, Malcolm (J): 5 concur
Facts: The 31st Infantry Post Exchange is a post exchange constituted in accordance with Army regulations
and the laws of the United States. in the course of its duly authorized business transactions, the Exchange
made many purchases of various and diverse commodities, goods, wares and merchandise from various
merchants in the Philippines. The Commissioner collected a sales tax of 1 1/2 % ofthe gross value of the
commodities, etc. from the merchants who sold said commodities to the Exchange. A formal protest was
lodged by the Exchange.
Issue: Whether the Exchange is exempt from the sales tax imposed against its suppliers.
Held: Taxes have been collected from merchants who made sales to Army Post Exchanges since 1904 (Act
1189, Section 139). Similar taxes are paid by those who sell merchandise to the Philippine Government, and
by those who do business with the US Army and Navy in the Philippines. Herein, the merchants who effected
the sales to the Post Exchange are the ones who paid the tax; and it is the officers, soldiers, and civilian
employees and their familites who are benefited by the post exchange to whom the tax is ultimately shifted.
The tax laid upon the merchants who sell to the Army Post Exchanges does not interfere with the supremacy
of the US Government, nor with the operations of its instrumentalities, such as the US Army, to such extent or
in such a manner as to render the tax illegal. The tax does not deprive the Army of the power to serve the
Government as it was intended to serve it, or hinder the efficient exercise of its power.
An Army Post Exchange, although an agency within the US Army, cannot secure exemption from taxation for
merchants who make sales to the Post Exchange.
[27]

Wells Fargo vs. Collector of Internal Revenue

GR 46720, 28 June 1940
First Division, Moran (J): 4 concur, 1 concur in result
Facts: Birdie Lillian Eye died on 16 September 1932, at Los Angeles, California, the place of her alleged last
residence and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet
Consolidated Mining Co., an anonymous partnership (sociedad anonima), organized under the laws of the
Philippines. She left a will duly admitted to probate in California where her estate was administered and
settled. Wells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by the said will. The
Federal and California State’s inheritance taxes due thereon have been duly paid. The Collector of Internal
Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells
Fargo objected.
Issue: Whether the shares of stock are subject to Philippine inheritance tax considering that the decedent was
domiciled in California.
Held: Originally, the settled law in the United States is that intangibles have only one situs for the purpose of
inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule
has been relaxed. The maxim “mobila sequuntur personam,” upon which the rule rests, has been decried as a
mere “fiction of law having its origin in considerations of general convenience and public policy, and cannot
be applied to limit or control teh right of the State to tax property within its jurisdiction” and must “yield to
established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so
whould result in inescapable and patent injustice.” The relaxation of the original rule rests on either of two
fundamental considerations: (1) upon the recognition of the inherent power of each government to tax
persons, properties, and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2)
upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple,
distinct relationships which may be entered into with respect thereto.
Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein.
The certificates of stock remained in the Philippines up to the time when the deceased died in California, and
they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been
delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true
owner thereof. The owner residing in California has extended here her activities with respect to her
intangibles so as to avail hereself of the protection and benefit of Philippine laws. Accordingly, the
jurisdiction of the Philippine Government to tax must be upheld.
[28]
Philippine Match Co. Ltd. vs. Cebu City

GR L-30745, 18 January 1978
Second Division, Aquino (J): 3 concur, 1 on leave
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 solld in that city sahll 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 delvered 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.
[29]
Commissioner vs. British Overseas Airways Corp.

GR L-65773-74, 30 April 1987
En Banc, Melencio-Herrera (J): 7 concur, 1 took no part
Facts: British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged in
international airline business and is a member of the Interline Air Transport Association, and thus, it operates
air transportation service and sells transportation tickets over the routes of the other airline members. From
1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry
passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines --
Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC tickets
covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes
against BOAC.
Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, while
having no landing rights in the Philippines, constitute income of BOAC from Philippine sources, and
accordingly, taxable.
Held: The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the
income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency.
The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occured
within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration
of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in
relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The
2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it would
have been placed under Title V of the Tax Code covering taxes on business.
[30]
Commissioner vs. Air India

GR L-72443, 29 January 1988
First Division, Gancayco (J): 4 concur
Facts: Air India is a foreign corporation and an off-line international carrier not engaged in the business of air
transporation in the Philippines. Air India sells airplane tickets in the Philippines trhough its general sales
agent, Philippine Airlines. Said tickets are serviced by Air India outside the Philippines. The Commissioner of

Internal Revenue assessed against Air India the amount of P142,471.68 representing 2.55 income tax on its
gross Philippine billngs pursuant to Section 24 (b) (2) of the Tax Code, as amended, inclusive of th e50%
surcharge and interest for willful neglect to file a return as provided under Section 72 of the same Code. Air
India appealed to the Court of Tax Appeals.
Issue: Whether the revenue derived by an international air carrier from sles of tickets in the Philippines for air
transportation, while having no landing rights in the country, constitutes income of said carrier from
Philippine sources, and thus taxable under Section 24 (b) (2) of the Tax Code.
Held: Based on the doctrine enunciated in British Overseas Airways Corp., the revenue derived by Air India
from the sales of airplane tickets, through its agent in the Philippines, must be considered taxable income. As
correctly assessed by the Commissioner, such income is subject to a 2.5% tax pursuant to PD 1355, amending
section 24 (b) (2) of the Tax Code.
[31]
Allied Thread vs. City of Manila

GR L-40296, 21 November 1984
En Banc, Abad Santos (J): 10 concur, 2 took no part
Facts: Allied Thread Co. Inc. is engaged in the business of manufacturing sewing thread and yarn. It operates
its factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts of
the Philippines, it engaged the services of a sales broker, Ker & Co. Ltd., the latter deriving commissions
from every sale made for its principal. The City of Manila enacted Ordinance 7516 imposing business taxes
based on gross sales on a graduated basis on manufacturers, importers or producers doing business in Manila.
Allied Thread and Ker & Co. alleged that said ordinance is invalid for being contrary to Section 54 of PD
426.
Issue: Whether Alleid Thread is properly taxed in Manila.
Held: Ordinance 7516, as amended, imposes a business tax on manufacturers, importers or producers doing
business in Manila. The tax imposition is upon the performance of an act, enjoyment of a privilege, or the
engaging in an occupation, and hence is in the nature of an excise tax. The power to levy an excise upon the
perforance of an act or the engaging in an occupation does not depend upon the domicile of the person subject
tot he excise, nor upon the physical location of the property and in connection with the act or occupation
taxed, but depends upon the place in which the act is performed or occupation engaged in. Thus, since Allied
Thread sells its products in the City of Manila through its broker, Ker & Co., it cannot escapte the tax liability
imposed by Ordinance 7516, as amended.
[32]
Abra vs. Hernando

GR L-49336, 31 August 1981
Second Division, Fernando (J):
3 concur, 1 concur in result, 1 on leave
Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of
Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A
summary judgment was made granting the exemption without hearing the side of the Province of Abra.
Issue: Whether the properties of the Bishop of Bangued are tax-exempt.

Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from
taxes as tehy should not only be “exclusively” but also “actually” and “directly” used for religious purposes.
Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is
compliance with the constitutional provision that allows an exemption. There was an allegation of lack of
jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to the
province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not
favored and is never presumed, so that if granted, it must be strictly construed against the taxpayer. There
must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or
charitable) purposes to be exempted from taxation.
The case was remanded to the lower court for a trial on merits.
[33]
Association of Custom Brokers vs. Manila

GR L-4376, 22 May 1953
En Banc, Bautista-Angelo (J): 3 concur, 4 concur in result
Facts: The Association of Customs Brokers, which is composed of all brokers and public service operators of
motor vehicles in the City of Manila, challenges the validity of Ordinance 3379 on the grounds (1) that while
it levies a so-called property tax, it is in reality a license tax which is beyond the power of the Manila
Municipal Board; (2) that said ordinance offends against the rule on uniformity of taxes; and (3) that it
constitutes double taxation.
Issue: Whether the ordinance infringes on the rule on uniformity of taxes as ordained by the Constitution.
Held: While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely levied on
all motor vehicles operating within Manila with the main purpose of raising funds to be expended exclusively
for the repair, maintenance and improvement of the streets and bridges in said city. The ordinance imposes a
license fee although under the cloak of an ad valorem tax to circumvent the prohibition in the Motor Vehicle
Law. Further, it does not distinguish between a motor vehicle for hire and one which is purely for private use.
Neither does it distinguish between a motor vehicle registered in Manila and one registered in another place
but occasionally comes to Manila and uses its streets and public highways. The distinction is necessary if he
ordinance intends to burden with tax only those registered in Manila as may be inferred from the word
“operating” used therein. There is an inequality in the ordinance which renders it offensive to the
Constitution.
[34]
Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan

GR L-81311, 30 June 1988
En Banc, Padilla (J): 12 concur, 2 on leave
Facts: EO 273 was issued by the President of the Philippines which amended the Revenue Code, adopting the
value-added tax (VAT) effective 1 January 1988. Four petitions assailed the validity of the VAT Law fro being
beyond the President to enact; for being oppressive, discriminatory, regressive, and violative of the due
process and equal protection clauses, among others, of the Constitution. The Integrated Customs Brokers
Association particularly contend that it unduly discriminate against customs brokers (Section 103 [r]) as the
amended provision of the Tax Code provides that “service performed in the exercise of profession or calling
(except custom brokers) subject to occupational tax under the Local Tax Code, and professional services

performed by registered general professional partnerships are exempt from VAT.
Issue: Whether the E-VAT law discriminates against customs brokers.
Held: The phrase “except custom brokers” is not meant to discriminate against custom brokers but to avert a
potential conflict between Sections 102 and 103 of the Tax Code, as amended. The distinction of the customs
brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based
upon material differences, in that the activities of customs brokers partake more of a business, rather than a
profession and were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the Association
did not protest the classification of customs brokers then, there is no reason why it should protest now.
[35]
Sison vs. Ancheta

GR L-59431, 25 July 1984
En Banc, Fernando (J): 9 concur, 2 concur in result, 1 concur in separate opinion, 1 took no part
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts
to class legislation, and that it transgresses against the equal protection and due process clauses of the
Constitution as well as the rule requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in
taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a
violation of the due process and equal protection clauses. Absent such showing, the presumption of validity
must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. Where the differentitation conforms to the practical dictates of justice
and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the
clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income are not entitled to make
deductions for income tax purposes as there is no practically no overhead expense, while professionals and
businessmen have no uniform costs or expenses necessaryh to produce their income. There is ample
justification to adopt the gross system of income taxation to compensation income, while continuing the
system of net income taxation as regards professional and business income.
[36]
Juan Luna Subdivision vs. Sarmiento

GR L-3538, 28 May 1952
En Banc, Tuason (J): 7 concur
Facts: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for
amount to be applied to its land tax for the second semester of 1941. The records of the City Treasurer do not
show what was done with the check (It appears that it was deposited with the Philippine National Bank
[PNB]). After liberation (WWII), the City Treasurer refused to refund the corporation’s deposit or apply it to
such future taxes as might be found due, while the Philippine Trust Co (to which the check was presented)
was unwilling to reverse its debit entry against Juan Luna Subd. Said amount is also subject of another

disagreement between the corporation and the City Treasure, with the corporation claiming that the
wholeamount of the check for the taxes for the last semester of 1941 have been remitted by Commonwealth
Act 703 (1945).
Issue: Whether the provision allowing the remission covers taxes paid before the enactment of
Commonwealth Act 703, or taxes which were still unpaid.
Held: The law is clear that it applies to “taxes and penalties due and payable,” i.e. taxes owed or owing. The
remission of taxes due and payable to the exclusion og taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation
only if all taxpayers belonging to one class were not treated alike. Herein, they are not. The taxpayers who
paid their taxes before liberation and those who had not were not on the same footing on the need of material
relief. Taxpayers who had been in arrears in their obligation whould have to satisfy their liability with genuine
currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them
at a time when those notes were well-nigh worthless. To refund those taxes with restored currency would be
unduly enrich many of the payers at a greater expense to the people at large.
[37]
Shell Co. vs. Vano

GR L-6093, 24 February 1954
En Banc, Padilla (J): 10 concur
Facts: The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual tax of P150
on occupation or the exercise of the privilege of installation manager; Ordinance 9 (1947) imposing an annual
tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200
for tin can factories; and Ordinance 11 (1948) imposing an annual tax of P150 on tin can factories having a
maximum annual output capacity of 30,000 tin cans. Shell Co., a foreign corporation, filed suit for the refund
of the taxes paid by it, on the ground that the ordinances imposing such taxes are ultra vires.
Issue: Whether Ordinance 10 is discriminatory and hostile because there is no other person in the locality
who exercise such designation or occupation.
Held: The fact that there is no other person in the locality who exercises such a “designation” or calling does
not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or
firm who exercises such calling or occupation named or designated as “installation manager.”
[38]
Victorias Milling Co. vs. Municipality of Victorias

GR L-21183, 27 September 1968
En Banc, Sanchez (J): 9 concur
Facts: Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an amendment to 2
municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries.
The changes were: (1) with respect to sugar centrals, by increasing the rates of license taxes; and (2) as to
sugar refineries, by increasing the rates of license taxes as well as teh range of graduated schedule of annual
output capacity. Victorias Milling questioned the validity of Ordinance 1 as it, among others, allegedly singled
out Victorias Milling Co. since it is the only operator of a sugar central and a sugar refinery within the
jurisdiction of the municipality.

Issue: Whether Ordinance 1 is discriminatory.
Held: The ordinance does not single out Victorias as the only object of the ordinance but is made to apply to
any sugar central or sugar refinery which may happen to operate in the municipality. The fact that Victorias
Milling is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance
discriminatory. The ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City,
which specifically spelled out Ormoc Sugar as the subject of the taxation, the name of the company herein
was never mentioned in the ordinance.
[39]
Punsalan vs. Manila

GR L-4817, 26 May 1954
En Banc, Reyes (J): 7 concur
Facts: Ordinance 3398 was enacted pursuant to paragraph 1 of Section 18 ofthe Revised Charter of the City
of Manila, imposing a municipal occupation tax on persons exercising various professions in the city. Various
professionals filed suit to annul the ordinance and the provision of law authorizing the enactment of the
ordinance, and to call for the refund collected taxes under the ordinance.
Issue: Whether the Ordinance violates the equal protection clause.
Held: The legislature may, in its discretion, select what occupation shall be taxed, and in the exercise of that
discretion it may tax all, or it may select for taxation certain classes and leave the other untaxed. Manila, as
the seat of the National Government and with a population and volume of trade many times that of any other
Philippine city or municipality, offers a more lucrative field for the practice of the professions, so that it is but
fair that the professionals in Manila be made to pay a higher occupation tax than their brethen in the
provinces. The ordinance imposes the tax upon every person “exercising” or “pursuing” any of the occupation
named in the ordinance, and does not make any distinction between professional having offices in Manila and
outsiders who practice their profession therein. What constitutes exercise or pursuit of a profession in the city
is a matter of judicial determination.
The Ordinance does not violate the equal protection clause.
[40]
Ormoc Sugar vs. Treasurer of Ormoc City

GR L-23794, 17 February 1968
En Banc, Bangzon JP (J): 9 concur
Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions
of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax equivalent to 1% per
export sale to the United States and other foreign countries. The company paid the said tax under protest. It
subsequently filed a case seeking to invalidate the ordinance for being unconstitutional.
Issue: Whether the ordinance violates the equal protection clause.
Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc. and
none other. At the time of the taxing ordinance’s enacted, the company was the only sugar central in Ormoc
City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The
taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar

central, of the same class as the present company, from the coverage of the tax. As it is now, even if later a
similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to the
company as the entity to be levied upon.
[41]
Pepsi-Cola Bottling Co. vs. City of Butuan

GR L-22814, 28 August 1968
En Banc, Concepcion (J): 5 concur
Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of
softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person,
association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with
“agent or consignee” being particularly defined on the inserted provision Section 3-A. In effect, merchants
engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of another
dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover
sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is discriminatory.
Held: The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales , and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the city, would be exempt from the tax. The
classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not only to present conditions but
also to future conditions substantially identical to those of the present; and the classification applies equally to
all those who belong to the same class. These conditions are not fully met by the ordinance in question.
[42]
Vera vs. Cuevas

GR L-33693-94, 31 May 1979
First Division, De Castro (J): 4 concur, 1 took no part
Facts: Consolidated Philippines Inc., General Milk Co. (Phil.) Inc., and Milk Industries Inc. are engaged in
the manufacture, sale and distribution of filled milk products throughout the Philippines. The Institute of
Evaporated Fulled Milk Manufacturers of the Philippines is a corporation organized to uphold and maintain
the highest standards of local filled milk industries, of which the companies are members. The Commissioner
required the companies to withdraw from the market all of their filled milk products which do not bear the
inscription required by Section 169 (Inscription to be placed on skimmed milk) of the Tax Code within 15
days from receipt of order with explicit warning of prosection for non-compliance. The companies filed an
action for prohibition and injunction.
Issue: Whether Section 169 of theTax Code can be enforced against the companies.
Held: With Section 141 (specific tax imposed on skimmed milk) and Section 177 (penalty on sale of
skimmed milk without payment of specific tax and legend required in Section 169) repealed by RA 344 and
RA 463, respectively; Section 169 has lost its tax purpose, and thus the Commissioner necessary lost his

authority to enforce the same. Further, Section 169 applies to skimmed milk, which is different to filled milk.
Furthermore, Section 169 is only being enforced against the respondent companies nad not against
manufacturers, distributors or sellers of condensed skimmed milk such as SIMILAC, SMA, BREMIL,
ENFAMIL, and OLAC. Such kind of enforcement amounts to an unconstitutional denial of the equal
protection of the laws, for the law, if not equally enforced to persons similarly situated, would offend against
the Constitution.
[43]
American Bible Society vs. Manila

GR L-9637, 30 April 1957
Second Division, Felix (J): 7 concur, 1 concur in result
Facts: In the course of its ministry, the Philippine agency of the American Bible Society has been distributing
and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into
several Philippine dialets. The acting City Treasurer of Manila required the society to secure the
corresponding Mayor’s permit and municipal license fees, together with compromise covering the period
from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit
questioning the legality of the ordinances under which the fees are being collected.
Issue: Whether the municipal ordinances violate the freedom of religious profession and worship.
Held: A tax on the income of one who engages in religious activities is different from a tax on property used
or employed in connection with those activities. It is one thing to impose a tax on the income or property of a
preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the
exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press
are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely
religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles,
etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business
for profit. Ordinance 2529 and 3000 are not applicable to the Society.
[44]
Cagayan Electric Power & Light Co. vs. Commissioner

Second Division, Aquino (J): 5 concur
Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3%
tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended
the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c)
(1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns
and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency
income taxes for 1968 to 1971.
Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the
Constitution.
Held: Congress could impair the company’s legislative franchise by making it liable for income tax. The
Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the
public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by
Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income

tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax
fpr the period of 1 January to 3 August 1969.
[45]
Casanovas vs. Hord

GR L-3473, 22 March 1907
First Division, Willard (J): 4 concur, 1 dissents
Facts: In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may
1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is
now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within
the provisions of Section 134 of Act 1189 (Internal Revenue Act). The Commissioner, JNO S. Hord, imposed
upon these properties the tax mentioned in Section 134, which Casanovas paid under protest.
Issue: Whether Section 134 of Act 1189 is valid.
Held: The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the
contract was impaired by the enactment of Section 134 ofthe Internal Revenue La, thereby infringing the
provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section
60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of
illegality in the procedure by which they wer obtained, or for failure to comply with the conditions prescribed
as requisites for their retention in the laws under which they wer granted. The grounds were not shown or
claimed in the case. As to the allegation that the section violates uniformity of taxation, the Court found it
unnecessary to consider the claim in view of the result at which the Court has arrived.
[46]
Churchill vs. Concepcion

GR 11572, 22 September 1916
Second Division, Trent (J): 4 concur
Facts: Section 100 of Act 2339 (promulgated 1914) imposed an annual tax of P4 per square meter upon
electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed
on premises not occupied by buildings. The section was amended by Act 2432, reducing the tax to P2 per
square meter. The taxes imposed by Act 2432 were ratified by the US Congress on 4 March 1915. Francis A.
Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owed a billboard to which they
were taxed at P104. The tax was paid under protest. Churchill and Tait instituted the action to recover the
amount.
Issue: Whether the statute or tax is void for lack of uniformity.
Held: Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be
taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be taxed at
different amounts provided the rate is uniform on the same class everywhere, with all people, at all times.
Herein, the Act imposes a tax of P2 per square meter or a fraction thereof upon every electric sign, billboard,
etc., wherever found in the Philippine Islands. The rule of taxation upon such signs is uniform throughout the
islands. The rule does not require taxes to be graded according to the value of the subject(s) upon which they
are imposed, especially those levied as privilege or occupation taxes.

[47]
Villanueva vs. Iloilo City

GR L-26521, 28 December 1968
En Banc, Castro (J): 8 concur
Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license tax
fees upon tenement house (P25); tenemen house partly engaged or wholly engaged in and dedicated to
business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and tenement house, padtly or wholly
engaged in business in other streets (P12 per apartment). The validity of such ordinance was challenged by
Eusebio and Remedios Villanueva, owners of four tenement houses containing 34 apartments. The Supreme
Court held the ordinance to be ultra vires. On 15 January 1960, however, the municipal board, believing that it
acquired authority to enact an ordinance of the same nature pursuant to the Local Autonomy Act, enacted
Ordinance 11 (series of 1960), Eusebio and Remedios Villaniueva assailed the ordinance anew.
Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.
Held: The Court has ruled that tenement houses constitute a distinct class of property; and that taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or
that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The rule
does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the
same time. So long as the burden of tax falls equally and impartially on all owners or operators of tenement
houses similarly classified or situated, equality and uniformity is accomplished. The presumption that tax
statutes are intended to operate uniformly and equally was not overthrown herein.
[48]
Eastern Theatrical Co. vs. Alfonso

GR L-1104, 31 May 1944
Second Division, Perfecto (J): 5 concur
Facts: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of
every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing
exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Eastern Theatrical
Co., among others, question the validity of ordinance, on the ground that it is unconstitutional for being
contrary to the provisions on uniformity and equality of taxation and the equal protection of the laws
inasmuch as the ordinance does not tax other kinds of amusement, such as race tracks, cockpits, cabarets,
concert halls, circuses, and other places of amusement.
Issue: Whether the ordinance violates the rule on uniformity and equality of taxation.
Held: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation; and the theater companies cannot point out what places of amusement
taxed by the ordinance do not constitute a class by themselves and which can be confused with those not
included in the ordinance. The fact that somew places of amusement are not taxed while others, like the ones
herein, are taxed is no argument at all against the equality and uniformity of the tax imposition.
[49]

Reyes vs. Almanzor

GR 49839-46, 26 April 1991
En Banc, Paras (J): 15 concur
Facts: JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and
occupied as dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of monthly
rentals of dwelling units or of land on which another dwelling is located for one year after effectivity for
rentals not exceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also
suspended the operation of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA 6359 by
absolutely prohibiting the increase and indefinitely suspending Article 1673. The Reyeses, thus, were
precluded from raising the rentals and from ejecting the tenants. In 1973, the City Assessor of Manila
reclassified and reassessed the value of the properties based on the schedule of market values duly reviewed
by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a
memorandum of disagreement with the Board of Tax Assessment Appeals and averring therein that the
reassessments were excessive, unwarranted, unequitable, confiscatory and unconstitutional inasmuch as the
taxes imposed exceeded the annual income derived from their properties; and that the income approach
should have been used in determining land values instead of the comparative sales approach which the
assessor adopted.
Issue: Whether the reassessment is unequitable.
Held: Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive when its
rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or
kinds of property of the same class are taxed at the same rate. The taxing power has the authority to make
reasonable and natural classification for purposes of taxation. Laws should operate equally and uniformly,
however, on all persons under similar circumstances or that all persons mus t be treated in the same manner,
the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under the
Real Property Tax Code (PD 464), property must be appraised at its cuurent and fair market value. The market
value of the properties covered by PD 20, thus cannot be equated with the market value of properties not so
covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental
restrictions. Although taxes are the lifeblood of the government and should be collected without unnecessary
hindrance, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. As teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20),
they should not be penalized by the same government by the imposition of excessive taxes they cancan ill
afford and would eventually result in the forfeiture of their properties, under the principle of social justice.
[50]
Abra Valley College vs. Aquino

GR L-39086, 15 June 1988
Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing
Corporation while the second floor thereof is used by the Director of the College for residential purposes. The
municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale”
due to the alleged failure of the College to pay real estate taxes and penalties thereon. The school filed suit to
annul said notices, claiming that it is tax-exempt.
Issue: Whether the College is exempt from taxes.

Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively ised
for educational purposes,” reasonable emphasis has always been made that exemption extends to facilities
which are incidental to and reasonably necessary for the accomplishment of the main purposes. While the
second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by
any stretch of imagination be considered incidental to the purposes of education. The test of exemption from
taxation is the use of the property for purposes mentioned in the Constititution.
[51]
Herrera vs. Quezon City Board of Assessment Appeals

First Division, Concepcion (J): 6 concur
Facts: In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester Ochangco
Herrera to establish and operate the St. Catherine’s Hospital. In 1953, the Herreras sent a letter to the Quezon
City Assessor requesting exemption from payment of real estate tax on the hospital, stating that the same was
established for charitable and humanitarian purposes and not for commercial gain. The exemption was
granted effective years 1953 to 1955. In 1955, however, the Assessor reclassified the properties from
“exempt” to “taxable” effective 1956, as it was ascertained that out 32 beds in the hospital, 12 of which are
for pay-patients. A school of midwifery is also operated within the premises of the hospital.
Issue: Whether St. Catherine’s Hospital is exempt from reallty tax.
Held: The admission of pay-patients does not detract from the charitable character of a hospital, if all its
funds are devoted exclusively to the maintenance of the institution as a public charity. The exemption in
favor of property used exclusively for charitable or educational purpose is not limited to property actually
indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purpose, such as in the case of hospitals -- a school for training nurses; a nurses’
home; property used to provide housing facilities for interns, resident doctors, superintendents and otehr
members of the hospital staff; and recreational facilities for student nurses, interns and residents. Within the
purview of the Constitution, St. Catherine’s Hospital is a charitable institution exempt from taxation.
[52]
Lladoc vs. Commissioner

GR L-19201, 16 June 1965
En Banc, Paredes (J): 9 concur, 1 took no part
Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of Victorias,
Negros Occidental; the amount spent for the construction of a new Catholic Church in the locality,m as
intended. In1958, MB Estate filed the donor’s gift tax return. In 1960, the Commissioner issued an assessment
for donee’s gift tax against the parish. The priest lodged a protest to the assessment and requested the
withdrawal thereof.
Issue: Whether the Catholic Parish is tax exempt.
Held: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds of
taxes. The exemption is only from the payment of taxes assessed on such properties as property taxes as
contradistinguished from excise taxes. A donee’s gift tax is not a property tax but an excise tax imposed on the
transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the
use made of the properties, upon the exercise of the privilege of receiving the properties. The imposition of

such excise tax on property used for religious purpose do not constitute an impairment of the Constitution.
The tax exemption of the parish, thus, does not extend to excise taxes.
[53]
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte

GR 27588, 31 December 1927
En Banc, Avancena (J): 5 concur
Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte.
On the south side is a part of the Church yard, the convent and an adjacent lost used for a vegetable garden in
which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard
and the Church. On the north side is an old cemetery with its two walls still standing, and a portion where
formerly stood a tower. The provincial board assessed land tax on lots comprising the north and south side,
which the church paid under protest. It filed suit to recover the amount.
Issue: Whether the lots are covered by the Church’s tax exemption.
Held: The exemption in favor of the convent in the payment of land tax refers to the home of the priest who
presides over the church and who has to take care of himself in order to discharge his duties. The exemption
includes not only the land actually occupied by the Church but also the adjacent ground destined to the
ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent, where its use is limited
to the necessity of the priest, comes under the exemption. Further, land used as a lodging house by the people
who participate in religious festivities, which constitutes an incidental use in religious functions, likewise
comes within the exemption. It cannot be taxed according to its former use, i.e. a cemetery.
[54]
Commisioner vs. Bishop of Missionery District of the Philippine Islands

GR L-19445, 31 August 1965
En Banc, Regala (J): 7 concur, 1 took no part
Facts: The Missioner y District of the Philippine Islands, of the Protestant Episcopal Church in the United
States, owns and operates the St. Luke’s Hospital in Quezon City, the Brent Hospital in Zamboanga City, and
the St. Stephen’s High School in Manila. In 1957 to 1959, the Missionary District received various shipments
of materials, supplies, equipment and other articles intended for use in the construction and operation of the
new St. Luke’s Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary
District filed claims for refund, but which was denied by the Commissioner on the ground that St. Luke’s
Hospital was not a charitable institution and therefore was not exempt from taxes.
Issue: Whether the shipments for St. Luke’s Hospital are tax-exempt.
Held: Under RA 1916, which covers taxes on donations in any form and all articles imported into the
Philippines, requires that the imported articles ush have been donated, the donee must be a duly incorporated
or established international civic organization, religious or charitable society or institution for civic, religious
or charitable purposes; and the articles must have been donated for the use of the organization, society or
institution; or for free distribution and not for sale, barter or hire. As the law does not distinguish or qualify
the enjoyment or the exemption (as the Secretary of Finance did in Departent Order 18, series of 1958), the
admission of pay patients does not detract from the charitable character of a hospital, if its funds are devoted
exclusively to the maintenance of the institution. Thus, the shipments are tax exempt.

[55]
Hodges vs. Iloilo City

GR L-18129, 31 January 1963
En Banc, Bautista Angelo (J): 7 concur, 2 affirm, 1 took no part
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 tas has been paid. It also expressly required that the
payment of the municipal tax shall be a requirement for registration and transfer of ownership. CN Hodges,
engaged in buying-and-selling of second hand motor vehicles in the city, assailed the ordinance as invalid for
being passed in excessof the authority conferred by law upon the municipal board.
Issue: Whether the City of Iloilo is empowered to impose the tax.
Held: The City of Iloilo is empowered to impose municipal licenses, taxes or fees upon any person engaged
in any occupation or business, or exercising any privilege in the City; to regulate and impose reasonable fees
for services rendered conducted within the city, and 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 refer only to municipalities and municipal districts and does not
comprehend chartered cities as the City of Iloilo.
[56]
Procter and Gamble vs. Jagna

GR L-24265, 28 December 1979
First Division, Melencio Herrera (J): 8 concur
Facts: Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and
Gamble Trading Company. It is engaged in the manufacture of soap, edible oil, margarine and otehr similar
products; and maintains a “bodega” in the municipality of Jagna, where it stores copra purchased in the
municipality and therefrom ships the same for its manufacturing and other operations. In 1954, the Municipal
Council enacted Ordinance 4, imposing storage fees of all exportable copra deposite in the bodega within the
jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality,
allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared
inapplicable to it, and if not, that it be declared ultra vires and void.
Issue: Whether the Ordinance i s void, as it amounts to double taxation.
Held: The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon
municipalites by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the
Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the
privilege of storing copra within the municipality’s territorial jurisdiction. Such fees imposed do not amount
to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be
taxed but once. A tax on the company’s producs is different from the tax on the privilege of storing copra in a
bodega situated within the territorial boundary of the municipality.
[57]
Commissioner vs. Lednicky

GR L-18169, L-18286, L-21434; 31 July 1964

En Banc, Reyes JBL (J): 8 concur
Facts: Spouses VE and Maria Valero Lednicky are American citizens residing in the Philippines, and have
derived all their income from Philippine sources since 1947. In 1955, the spouses filed with the US Internal
Revenue agent in Manila their Federal income tax return for 1947, 1951 to 1954 on income from Philippine
sources. From 1956 to 1958, they filed their domesic income tax returns in compliance with local laws. They
amended their tax returns in 1959 to include their taxes paid to the US Federal Government, interests, and
exchange and bank charges. They filed their claims for refund.
Issue: Whether income tax paid to foreign governments can be deducted from the gross income or as a tax
credit.
Held: The law’s intent is that the right to deduct income taxes paid to foreign government from the taxpayer’s
gross income is given only as an alternative or substitute to his right to claim a tax credit for sich foreign
income taxes; so that unless the alien resident has a right to claim such tax credit if he so chooses, he is
precluded from deducting the foreign income taxes from his gross income. The prupose of the law is to
prevent the taxpayer from claiming twice the benefits of his payment of foreign taxes, by deduction from
gross income and by tax credit. To allow an alien resident to deduct from his gross income whatever taxes he
pays to his own government amounts to confer on the latter power to reduce the tax income of the Philippine
Government. Such result is incompatible with the status of the Philippines as an independent and sovereign
state. Any relief from the alleged double taxation should come from the United States, since its right to burden
the taxpayer is solely predicated on the taxpayer’s citizenship, without contributing to the production of the
wealth that is being taxed.
[58]
Commissioner vs. Javier

GR 78953, 31 July 1991
Second Division, Sarmiento (J): 3 concur, 1took no part
Facts: In 1977, Victoria Javier (wife of Melchor), received from the Prudential Bank and Trust Co.
US$999,973.70 remitted by her sister, Dolores Ventosa, through some banks in the United States, among them
Mellon Bank NA. Mellon Bank filed suit to recover the excess amount of US$9999,000 as the remittance of
US$ 1 million was a clerical error and should have been US $1,000 only (Compare facts in Mellon Bank vs.
Magsino, GR 71479, 18 October 1990). In 1978, Melchor Javier filed his income tax return for 1977showing
a gross income of P53,053.38 and a net income of P48,053.38 and stating in the footnote of the return that
“taxpayer was recepient of some money received from abroad which he presumed to be a gift but turned out
to be an error and is now subject of litigation. In 1980, the Commissioner assessed and demanded from Javier
deficiency assessment of P9,287,297.51 for 1977. Javier protested such assessment, where the Commissioner
in turn imposed a 50% fraud penalty against Javier.
Issue: Whether Javier is liable for the 50% fraud penalty.
Held: Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud
penalty of 50% of the tax due from him or of the deficiency tax in case payment has been made on the basis
of the return filed before the discovery of the falsity or fraud. The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted
to in order to induce another to give up some legal right. Fraud is never imputed and the courts never sustain
findings of fraud upon circumstances which, at most created only suspicion. A fraudulent return is always an
attempt to evade a tax, but a merely false return may not be. Herein, there was no actual and intentional fraud

through willful and deliberate misleading of the government agency concerned (BIR) committed by Javire.
Javier did not conceal anything to induce the government to give some legal right and place itself at a
disadvantage. Error or mistake of law is not fraud. As ruled by the Court of Tax Appeals, the 50% surcharge
imposed as fraud penalty in the deficiency assessment should be deleted.
[59]
Meralco vs. Vera

GR L-29987, 22 October 1975
First Division, Munoz Palma (J): 4 concur, 1 took no part
Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat , and
power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from
abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of
Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating tax.
Meralco claimed for refund for the said yeares, but such claims were either not acted upon or denied by the
Commissioner.
Issue: Whether Meralco is exempt from payment of a compensating tax on poles, wires, transformers and
insulators imported by it for use in the operation of its electric light, heat, and power system.
Held: Meralco is not exempt from paying the compensationg tax provided for in Section 190 of the Tax Code,
the prupose of which is to “place casual importers, who are not merchants on equal forring with established
merchants who pay sales tax on articles imported by them.” Meralco’s claim for exemption from payment of
the compensating tax is not clear or expressed, contrary to the rule that “exemptions from taxation are highly
disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of
organic or statute law.” Tax exemptiion are strictly construed against the taxpayer, they being highly
disfavored and may almost be said to be “odious to the law.” When exemption is claimed, it must be shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim.
[60]
Commissioner vs. Manila Jockey Club

GR L-8755, 23 March 1956
First Division, Bautista Angelo (J): 9 concur
Facts: The Manila Jockey Club is the owner of the San Lazaro Hippodrome, which is used for holding horse
races either by the club itself or by the Philippine Charity Sweepstakes Office (PCSO) or other charitable
institutions authorized by law to hold horse races. On 1951 and 1952, the PCSO held benefit races for
charitable, relief and civic purposes in which the Club was paid in the form of rentals, which was included in
its declared income taxes in its return for said years. The Club claimed for refund of the sum collected by the
Commissioner as to the rentals, contending that it is exempt under Section 3 of RA 79.
Issue: Whether the Club is exempt from income derived from the PCSO races.
Held: The exemption does not refer to any income tax that may be imposed on the rentals that may be paid
for the use of racing tracks and other paraphernalia. The income earned by the Club herein did not come from
the horse races held by said club but it came to it as rentals paid for the use of its property. The tax paid for
such income cannot be considered as one connected with those races within the purview of the exemption
clause in RA 79. By its very nature, the law that exempts one from tax must be clearly expressed because the
exemption must be able to justify his claim by the clearest grant of organic or statute law.

[61]
SSS vs. Bacolod City

GR L-35726, 21 July 1982
Second Division, Escolin (J): 5 concur
Facts: The Social Security System (SSS) is a government agency created under RA 1161. In pursuance of its
operations, SSS maintains a number of regional offices, one of which is a 5-storey building occupying 4
parcels of land in Bacolod City. Said building and lands were assessed for taxation. For failure to pay the
realty taxes thereon, the city levid upon said properties. SSS sought reconsideration on the ground that SSS is
a government-owned and -controlled corporation and is exempt from payment of real estate taxes.
Issue: Whether SSS property in Bacolod City is tax-exempt.
Held: The distinction whether the government-owned or controlled corporation exercises ministrant or
proprietory function is of no relevance as the exemption does not relate to legal fees but on realty taxes. The
Charter of Bacolod City does not contain any qualification whatsoever in providing fro the exemption from
real estate taxes of lands and building owned by the Government/ It is axiomatic that when public property is
involved, exemption is the rule and taxation is the exception. PD 24, amending the Social Security Act of
1954, has already removed all doubts as to the exemption of the SS from taxation (Section 16).
[62]
Nitafan vs. Commissioner

GR L-78780, 23 July 1987
Resolution
En Banc, Melencio-Herrera (J): 12 concur, 1 on leave
Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to
continue to deduct withholding taxes from the salaries of the Justices of the Supreme Court and other
members of the judiciary. This was affirmed by the Supreme Court En Banc on 4 December 1987. RTC
judges seek to prohibit or enjoin the Commissioner of the Internal Revenue and the Financial Officer of the
Supreme Court from making any deduction of withholding taxes from their salaries.
Issue: Whether the salaries of judges are subject to tax.
Held: The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers.
Although such intent was somehoe and inadvertently not clearly set forth in the final text of the 1987
Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the intent of
the framers is to revert to the original concept of “non-diminution” of salaries of judicial officers. Hence, the
doctrine in Perfecto v. Meere and Endencia vs. David do not apply anymore. Justices and judges are not only
the citizens whose income have been reduced in accepting service in government and yet subjecte to income
tax. Such is true also of Cabinet members and all other employees.
[63]
Commissioner vs. Robertson

GR L-70116-19, 12 August 1986

Facts: Frank and James Robertson, Robert Cathey, and John Garrison are citizens of the United States,
holders of American passports, and admitted as Special Termporary Visitors under Section 9 (a) visa of the
Philippine Immigration Act of 1940, and are civilian employees in a US Military Base in the Philippines in
connection with its construction, maintenance, operation and defense (The Roberstons and Garrison were
born in the Philippines). Their incomes are solely derived from salaries from the US Government by reason of
their employment in the US Bases in the Philippines. The Commissioner of Internal Revenue assessed
deficiency income tax against them from taxable years 1969 to 1972.
Issue: Whether Robertson, et. al., are exempted from tax.
Held: In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement (Article XIII,
Paragraph a), one must be a national of the United States employed in connection with the construction,
maintenance, operation or defense, of the bases, residing in the Philippines by reason of such employment,
and the income derived is from the US Government. Said circumstances are all present in the present case.
The basic intendment is to exempt all US citizens working in the military bases from the burden of paying
Philippine Income Tax without distinction as to those born locally or born in their country of origin. Where
the law does not distinguish, one must not distinguish. Ubi lex non ditinguit nec nos tinguere debemos.
[64]
Reagan vs. Commissioner

GR L-26379, 27 December 1969
En Banc, Fernando (J):
7 concur, 1 concur in result, 1 took no part
Facts: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83,
including freight, insurance and other charges. After acquiring a permit to sell the car from the base
commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps
stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred Meneses, a
Filipino. As a result of the transaction, the Commissioner rendered Reagan liable for income tax in the sum of
P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, “a base outside the
Philippines.”
Issue: Whether Reagan was tax-exempt.
Held: The Philippines, as an independent and sovereign country, exercises its authority over its entire domain.
Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It
may allow another power to participate in the exercise of jurisdictional right over certain portions of its
territory. By doing so, it by no means follows that such areas become impressed with an alien character. The
areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and
thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does not
look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be misinterpreted. Reagan has not done so, and cannot do so.
[65]
Davao Light and Power vs. Commissioner of Customs

GR L-28739 and L-28902
First Division, Reyes JBL (J): 9 concur

Facts: Davao Light is a grantee of a legislative franchise to install, operate and maintain an electric light, heat
and power plant in the city of Davao, for 50 years. On two occasions, it imported electrical supplies, materials
and equipment for installation in its power plant. The importations arrived in the port of Cebu City, where the
Collector imposed custom duties and taxes amounting to P9,928. Davao Light paid under protest, claiming it
is similarly tax-exempted as the National Power Corporation, which is allegedly posing as competition to
Davao Light in its business.
Issue: Whether Davao Light is similarly tax-exempt as Napocor.
Held: Davao Light’s purpose in securing a franchise to establish and operate an electric plant and power
stations was to engage in a business or profit-making venture, while Napocor was specifically created to
undertake the development of hydraulic power nationwide and the production of power from other sources,
for use of the government and the general public. In isolated sale of electric power to one government-owned
plant (National Development Co., in Davao) would not be enough to classify the Napocor as a “competing”
concern to Davao Light’s enterprise. Napocor’s tax exemption (RA 358) was granted in order to facilitate the
liquidation by said corporation of its liabilities, and the consequential release by the government itself fro its
obligation in the transactions entered into by the President on behalf of Napocor. Davao Light is not entitled
to the same exemption privileges enjoyed by another operator without an express provision of the law to that
effect. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be
clear and express. It cannot be made to rest on vague implications.
[66]
Surigao Consolidated Mining vs. Collector

GR L-14878, 26 December 1963
En Banc, Ragala (J): 10 concur
Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining
concessions in Mainit, Surigao. Due to the interruption of communications at the outbreak of the war, the
th
company lost contact with its mines and never received the production reports for the 4 quarter of 1941. To
avoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the City
Treasurer, in payment of ad valorem taxes for the said period. After the war, the company filed its ad valorem
tax for the said period pursuant to Commonwealth Act 772. Its return was revised, until eventually the
company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for refund.
Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a
subsequent law, RA 81.
Held: RA 81, Section 1(d) provided that “all unpaid royalties, ad valorem or specific taxes on all minerals
mined from mining claims or concessions existing an din force on 1 January 1942, and which minerals were
lost by reason of war, of circumstance arising therefrom are condoned…” The provision refers to the
condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax
exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be extended
beyond the plain meaning of those terms. He who claims an exemption from his share of the common burden
of taxation must justify his claim by showing t hat the Legislature intended to exempt him. The company
failed to show any portion of the law that explicitly provided for a refund of those taxpayers who had paid
their taxes on the items.
[67]

Wonder Mechanical Engineering vs. Court of Tax Appeals

GR L-22805 and L-27858, 30 June 1975
First Division, Esguerra (J): 4 concur
Facts: Wonder Mechanical Engineering Corp. was granted tax exemption privilege under RA 35 in respect to
the “manufacture of machines for making cigarette papers, pails, washers, rivets, nails, candies, chairs, etc.”
The tax exemption expired on 30 May 1951. In 1953, the company applied with the secretary of Finance for
the reinstatement of the exemption privilege under the provisions of RA 901, the reinstatement to commence
on the date RA 901 took effect. The company was given a Certificate of Tax Exemption on 7 July 1954,
exemption it similarly as in RA 35 until 31 December 1958, with diminishing exemption until 20 June 1955.
The Commissioner assessed sales tax on gross sales of articles manufactured by it, including steel chairs. The
company appealed to the Court of Tax Appeals.
Issue: Whether the company is exempted from the tax imposed on the manufacture and sale of articles, such
as steel chairs.
Held: The company was granted tax exemption in the manufacture and sale of “machines for making
cigarette paper, pails, etc.” but not for the manufacture and sale of articles produced by those machines. The
manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain
products would not fall under the classification of “new and necessary” industries envisioned in RA 35 and
901 as to entitle the company to tax exemption. Exemptions are highly disfavored in law and he who claims
tax exemption must be able to justify his claim or right thereto by the clearest grant of organic or statute law.
Tax exemption must be clearly expressed and cannot be established by implication.
[68]
Visayas Cebu Terminal vs. Commissioner

GR L-19530 and L-19444, 27 February 1965
Facts: Visayan CebuTerminal Co. was appointed the sole manager of the Irrastre Service at the Port of Cebu,
after a public bidding in 1957, covering import cargoes, including transit import cargoes. In 1958, the Bureau
of Internal Revenue (Manila) demanded the payment of percentage taxes and penalties due to the
Government. Subsequently, however, BIR examiners stated that the company was not subjected of the 3%
percentage tax, it has been paying 28% of the gross receipts to the Bureau of Customs.
Issue: Whether Visayas Cebu Terminal Co. In c. is exempted from the percentage tax.
Held: The company is an arrastre contractor and is covered by Section 191 of the Tax Code. Section 191 of
the Tax Code does not establish any distinction between an arrastre operator who handles only imported cargo
in its arrastre operations , pursuant to RA 140, and those handling interisland cargo, so as to exempt the
company from the percentage tax. It is a well settled rule that he who claim s exemption should prove by
convincing proofs that he is exempted. The company failed to present such proofs. Further, the
recommendation of the examiners are subject to the review of their superiors, who may countermand or
affirm them. The government is never estopped to collect legitimate taxes because of the error committed by
its agents.
However, as the company pays 28% of the total monthly gross receipts derived from the arrastre service to the
Bureau of Customs, to hold the company liable for the payment of percentage tax is unjust and not
contemplated by Section 191 of the Tax Code.

[69]
Lealda Electric vs. Commissioner

GR L-16428, 30 April 1963
Facts: In 1915, Julian Locsin Anson was granted a franchise to operate an electric light and power plant in
Legaspi and Daraga, in Albay province. He sold the franchise, the certificate of public convenience, and
electric plant to Saturnino Benito; who in turn sold the same to Lealda Electric (a partnership formed by the
Benitos and other parties in 1951). Since 1915, the original grantee and its successors-in-interest paid a
franchise tax of 2% on the gross earnings or receipts from the business under the franchise, until 1946 when
RA 39 amended Section 259 of the Tax Code, increasingly the franchise tax to 5%. Lealda Electric maintains
it is only liable to 2% franchise tax, and not 5%.
Issue: Whether Lealda Electric is exempted from the tax increase in light of its franchise.
Held: Lealda Electric’s franchise does not specifically state that the rate of the franchise tax to be paid shall
be 2% of its gross earnings or receipts. The intent of the legislature was to impose upon the grantee (and its
successors), the obligation to pay the same franchise tax imposed upon other grantee or franchise holders at
the time its franchise (Act2475) was enacted. Lealda’s charter contains an express provision to the effect that
the same may be altered or repealed by Congress, and does not contain any provision providing that the
franchise tax were required to pay was to be “in lieu of all taxes of any kind levied, established, or collected
by any authority whatsoever, now or in the future” or in lieu of all taxes of every name and nature—
municipal, provincial or central,,,” Tax exemptions are not to be presumed.
[70]
Misamis Oriental vs. Cagayan Electric

GR 45355, 12 January 1990
First Division, Grino Aquino (J): 4 concur
Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in 1961 under RA
3247 to install, operate and maintain an electric light, heat and power system in Cagayan de Oro and its
suburbs. In 1973, the Local Tax Code (PD 231) was promulgated, where Section 9 thereof providing for a
franchise tax. Pursuant thereto, the province of Misamis Oriental enacted Provincial Revenue Ordinance 19,
whose Section 12 also provides for a franchise tax. The Provincial Treasurer demanded payment of the
provincial franchise tax from CEPALCO. CEPALCO paid under protest.
Issue: Whether CEPALCO is exempt from the provincial franchise tax.
Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 1976 made it clear that the franchise
tax provided in the Local Tax Code may only be imposed on companies with franchise that do not contain the
exempting clause, i.e. “in-lieu-of-all-taxes-proviso.” CEPALCO’s franchise i.e. RA 3247, 3571 and 6020
(Section 3 thereof), uniformly provides that “in consideration of the franchise and rights hereby granted, the
grantee shall pay a franchise tax equal to 3% of the gross earnings for electric current sold under the
franchise, of which 2% goes to the national Treasury and 1% goes into the treasury of the municipalities of
Tagoloan, Opol, Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Provided, that the said franchise
tax of 3% of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise and poles, wires, transformers, and insulators of the grantee from
which taxes and assessments the grantee is hereby expressly exempted.

[71]
Hilado vs. Collector

GR L-9408, 31 October 1956
En Banc, Bautista Angelo (J): 8 concur
Facts: Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming
a deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the
Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular V-
139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property which
occurred in 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 deductions were
disallowed.
Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim
compensation for destruction of his property during the war.
Held: Philippines 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.
Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end
of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle for
the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims by
the War Damage Commission depended upon its discretions non-payment of which does not give rise to any
enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his war damage
claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross
income) as the last installment and notice of discontinuation of payment by the War Damage Commission was
made in 1950.
[72]
Commissioner vs. Court of Tax Appeals

GR 44007, 20 March 1991
First Division, Medialdea (J): 3 concur, 1 on leave
Facts: Facts: Eastern Extension Australasia and China Telegraph Co. ( a foreign corporation) was given a
concession for the construction, operation and maintenance of submarine telegraph cable from Hong Kong to
Manila on 30 March 1898 by a Royal Decree of the Spanish Government. When the concession expired in
1952, RA 808 was approved, giving the company a legislative franchise “to land, construct, maintain and
operate a submarine telegraph cable connecting Manila to Hong Kong”, and a tax exception from the payment
of all taxes except a franchise tax of 5% of the gross earnings and the tax on its real property. The
Commissioner, however, assessed deficiency income tax (inclusive of surcharges, interests and penalties
thereon for years 1965-1970) against the company on the belief that the franchise is inoperative for failure to
conform with the constitutional requirement that franchise holders should be organized under Philippine Laws
and that 80% of its capital owned by Filipinos
Issue: Whether the franchise is inoperative, rendering the company liable for deficiency income tax.
Held: A law is presumed constitutional as it is supposed to have been carefully studied and determined to
constitutional before it was finally enacted by Congress and approved by the Chief Executive. No
constitutional question would be resolved unless the requisites of a judicial inquiry are present; i.e. the
existence of an appropriate case, an interest personal and substantial by the party raising the constitutional

question, the plea that the function be exercised at the earliest opportunity, and the necessity that the
constitutional question be passed in order to decide the case. Herein, the last criterion is missing; and
accordingly, the Court gives high respect for the acts of the other departments of the government and, as much
as possible, avoids deciding the constitutional question.
The company duly complied with the conditions set forth in the legislative franchise. It has also complied
with the tax requirement by paying to the Republic a tax of 5% of the gross earnings from Philippines
operations regularly since its creation. As a legislative franchise partakes of the nature of a contract; the
franchise is the law between the parties and they are bound by the terms thereof. The government agency
cannot declare the franchise as “ineffective and unenforceable” merely by stating that the company failed to
comply with the requirements of the general statutes (e.g. Public Service Act and the Corporation law) which
are not mentioned in RA 808. Still, a remand of the case to the Court of Tax Appeals is necessary to
determine the income tax liability of the company corresponding to its income beyond the scope of RA 808.
[73]
Maceda vs. Macaraig

GR 88291, 31 May 1991
En Banc, Gancayco (J): 6 concur, 2 took no part, 1 dissents
Facts: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. RA 358 (1949) granted NAPOCOR tax and
duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the
policy of the national electrification, and provided in detail NAPOCOR’s tax exceptions. PD 380 (1974)
specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938
integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President
or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore,
partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February
1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985.
Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987)
again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCOR’s
exemption, which was approved by the President on 5 October 1987.
Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and
delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion
thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for
refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR
moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt,
regardless of the period of delivery.
Issue: Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the exemption in
general terms.
Held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly
owned by the government of the Republic of the Philippines. From the very beginning of the corporation’s
existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and
obligation” and effective implementation of the policy enunciated in Section 1 of RA 6395. From the
preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed
against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhance
the tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not

apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of
property owned by the state or a city or other public corporations, the express exception should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state,
since as to such property “exception is the rule and taxation the exception.”
[74]
Commissioner vs. Phoenix Assurance

GR L-19727, 20 May 1965
En Banc, Bengzon JP (J): 10 concur
Facts: Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain,
licensed to do business in the Philippines. Through its head office in London, it entered into worldwide
reinsurance treaties with various foreign insurance companies. It agreed to cede a portion of premiums
received on original insurances underwritten by its head office, subsidiaries, and branch offices around the
world, in consideration for assumption by the foreign insurance companies of n equivalent portion of the
liability form such original insurances. Pursuant to such treaties, the company ceded portions of its premiums
it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The
company thereafter amended its tax returns (1950-1954) excluding reinsurance premium and items of
deduction attributable to such premium. The Commissioner assessed deficiency income tax against the
company.
Issue: Whether the Commissioner is justified in the assessment of deficiency tax.
Held: The changes and alteration embodied in the amended tax return consisted of the exclusion of
reinsurance premium received from domestic insurance companies by the company’s head office, reinsurance
premium ceded to foreign insurers not doing business in the Philippines and various items of deductions
attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. As
amended return is substantially different from the original return, the period of limitation of the right to issue
the same should be counted from the filing of the amended income tax return. The right of the Commissioner
to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way
for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and
amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper
tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance
tax avoidance to its prejudice.
[75]
Commissioner vs. Connel Bros. Co.

GR L-27752-53, 30 August 1971; En Banc, Reyes, Jr.(J).: 10 concur
Facts: The Commissioner disallowed the deductions for bad debts, depreciation, and excess in valuation of
leasehold improvements by Connel Bros. Co. in its income tax return for taxable year 1954 and 1955. The
Commissioner thus assessed against the company deficiency taxes or assessments for said years. The Court
of Tax Appeals modified the assessment by including the corresponding interest and surcharges pursuant to
Section 51 of the Tax Code.
Issue: Whether the interest and surcharges on delinquents tax payments are chargeable.
Held: Delinquency indicates non-payment of the correct and collectible tax, and such state of delinquency
exists not from the assessment of the deficiency but from the very time the taxpayer failed to pay the correct

amount due from him. Herein, the delinquency taxes became due and the assessment therefore were made
before the amendment of Section 51 on 2 June 1959; and thus, the company’s liability should be determined
pursuant to the old Section (e) of the Tax code. Under the old Section, a delinquent tax payer would have to
pay, in addition to the unpaid tax, a 5% surcharge thereon computed from the time the tax became due, plus
interest on the whole unpaid amount at the rate of 1% a month. Under RA 2343, the delinquent taxpayer shall
pay at the rate of 6% per annum computed from the date prescribed for payment of the income tax up to the
assessment of the delinquency tax, but which shall not exceed the amount corresponding to a period of 3
years. Section 13 of the amendatory act shoes that there is no intent to make RA 2343 retroactive.
[76]
Commissioner vs. Fireman’s Fund Insurance

GR L-30644, 9 March 1987
Second Division, Paras (J): 5 concur, 1 on leave
Facts: Fireman’s Funds Insurance is a resident foreign insurance corporation organized under the laws of the
United States, authorized and duly licensed to do business in the Philippines. From 1952-1958, the company
entered into various insurance contracts involving causality, fire and marine risks, for which the
corresponding insurance policies were issued. From 1952-1956, documentary stamps were bought and
affixed to the corresponding pages of the policy register, instead of on the insurance policies issued. The
Commissioner assessed and demanded from the company the payment of documentary stamps for the years
1952-1958, plus compromise penalties.
Issue: Whether the affixture of documentary stamp on pages other than those authorized by law is
tantamount to failure to pay the same.
Held: Although the documentary stamps were affixed to papers other than those authorized by law, it is not
tantamount to failure to pay the same as the company purchased and paid the documentary stamps
corresponding to the various insurance policies. Sections 210, 232, 221, 237 and 239 of the Tax Code have
the overriding purpose to collect taxes, and the steps involving documentary taxes (purchase, affixture, and
cancellation) are but a means to that end. Although the insurance policies with the corresponding
documentary stamps affixed are the best evidence to prove payment of said documentary stamp tax, it does
not preclude the admissibility of other proofs which are uncontradicted and considerable weight. Still,
whenever the interpretation of statute levying taxes or duties are in doubt, such statutes are to be construed
most strongly against the government and in favor of the subjects or citizens, because burdens are not to be
imposed, nor presumed to be imposed beyond what statutes expressly and clearly import. There is no
justification for the government which has already realized the revenue, which is the object of the imposition
of the subject stamp tax, to require payment of the same tax for the same documents.
[77]
Commissioner vs. Cebu Portland Cement

GR L-29059, 15 December 1987
First Division, Cruz (J): 4 concur
Facts: By virtue of a decision of the Court of Tax Appeals, modified by the Supreme Court, the
Commissioner was ordered to refund overpayments of ad valorem taxes on cement produced and sold by the
company after October 1957. The company moved for a writ of execution, which was opposed by the
Commissioner on the ground that the company had an outstanding sales tax liability to which the judgment
debt had already been credited. The Court of Tax Appeals held that the alleged sales tax liability was still
being questioned and therefore cannot be set-off against the refund.

Issue: Whether the assessment of sales tax liability may be enforced, i.e. to set off against the refund.
Held: The argument, that the assessment cannot as yet be enforced because it is still being contested, loss
sight of the urgency of the need to collect taxes as “the life blood 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. To require the Commissioner to actually refund to the
company the amount of the judgment debt. Which he will later have the right to distrait for payment of its
sales tax liability, is an idle ritual.
[78]
Republic vs. Vda. de Fernandez

En Banc, Labrador (J): 7 concur
Facts: Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8, 000 on 8 December 1941.
During the Japanese occupation, the spouses acquired several real properties. At the time of the husband’s
death in 1945, he had a net worth of P31,489. The Collector of Internal Revenue assessed a war profits tax
(RA 55) on the estate of the deceased at P7, 614.00, which was administrative refused to pay. The validity of
RA 55 was questioned, as well as the validity and the legality of the assessment.
Issue: Whether the War Profits tax Law may be retroactively applied without violating the Constitution
(especially the provision on ex-post facto laws).
Held: The prohibition against the ex facto laws applies only to criminal or penal matters, and not to laws
which concern civil matters or proceedings generally, or which affect or regulate civil or private right. Ex
post facto is confined to laws respecting criminal punishments, and had no relation whatever to retrospective
legislation of any other description. Retrospective laws, when not of a criminal nature, do not come in
conflict with the Constitution, unless obnoxious to its provisions on other grounds than their respective
character. The law may not be considered harsh and oppressive because of the force of its impact fell on
those who had amassed wealth or increased their wealth during the war, but did not touch the less fortunate.
The policy followed is the same as that which underlies the Income Tax Law, imposing the burden upon those
who have and relieving those who have not.
[79]
Tanada vs. Tuvera

GR L-63915, 24 April 1985
En Banc, Escolin (J): 1 concur, 2 concur with reservation, 1 on leave, 1 took no part
Facts: Invoking the people’s right to be informed on matters of public concern as well as the principle that
laws to be valid and enforceable must be published in the Official Gazette or otherwise effectively
promulgated, Tañada, et.al. seek a writ of mandamus to compel public officials to publish presidential
decrees, letters of instructions, general orders, proclamation, executive orders, letter of implementation and
administrative orders.
Issue: Whether the unpublished laws have binding force and effect.
Held: The publication in the Official Gazette is required to give the general public adequate notice of the
various laws which are to regulate their actins and conduct as citizens. Publication is necessary to apprise the

public of the contents of regulations and make penalties binding on the person affected thereby. The
publication of all presidential issuances of a “public nature” or “of general applicability” is a mandated by
law, and is a requirement of due process. Presidential decrees that provide for fines, forfeitures or penalties
for their violation or otherwise impose a burden on the people, such as tax and revenue measures fall within
this category. Before a person may be bound by law, he must be first be officially and specifically informed
of its contents. When not published, such shall have no force and effect. However, the
implementation/enforcement of the presidential decrees prior to their publication in the Gazette is an
operative facts, which may have consequences which cannot be justly ignored.
(Note: The aspect of “operative facts” was dropped in subsequent resolution.)
[80]
Bagatsing vs. Ramirez

GR L-41631, 17 December 1976
En Banc, Martin (J): 7 concur, 1 concur with qualification, 1 reserved vote
Facts: In 1974, the Municipal Board of Manila enacted Ordinance 7522, regulating the operation of public
markets and prescribing fees for the rentals of stalls and providing penalties for violation thereof. The
Federation of Manila Market Vendors Inc. assailed the validity of the ordinance, alleging among others the
non-compliance to the publication requirement under the Revised Charter of the City of Manila.
Issue: Whether the publication requirement was complied with.
Held: The Revised Charter of the City of Manila is a special act since it relates only to the City of Manila,
whereas the Local Tax Code id a general law because it applies universally to all local governments. Section
17 of the Charter speaks of “ordinance” in general. Whereas, Section 43 of the Local Tax Code relates to
“ordinances levying or imposing taxes, fees or other charges” in particular. While the Charter requires
publication, before the enactment of the ordinance and after approval thereof, in two daily newspapers of the
general circulation in the city, the Local Tax Code only prescribes for publication widely circulated within the
jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in
two other conspicuous places within the territorial jurisdiction of the local government. Being a general law
with a special provision applicable in the case, the Local Tax Code prevails.
[81]
Commissioner vs. Burroughs Ltd.

GR L-6653, 19 June 1986
Facts: Burroughs Ltd is a foreign corporation authorized to engage in business in the Philippines. Its branch
office in Makati applied with the Central Bank for authority to remit to its parent company abroad, branch
profits. It paid 15% branch profit remittance tax. The branch, however, later claimed for a refund or credit
contending that the branch profit remittance tax pursuant to a BIR ruling of 21 January 1980. The Court of
Tax Appeals granted the company’s petition. The Commissioner filed a petition for certiorari, claiming
Memorandum Circular 8-82 (17 March 1982) should apply.
Issue: Whether the Memorandum Circular 8-82 should be retroactively applied.
Held: Revenue Ruling of 21 January 1980 remains to apply in the case as the company paid the tax on 14
March 1979. Memorandum Circular 8-82 cannot be given retroactive effect in the light of Section 327 (non-

retroactively of rulings) of the tax code. The retroactive application of the Circular would deprive the
company the substantial amount of P172,058.90. The misstates or omits material facts from his return or I
any document required of him by the BIR, or where the facts subsequently gathered by the BIR are materially
different from the facts on which the ruling is based, or where the taxpayer acted in bad faith to allow the
retroactive application of the circular.
[82]
Commissioner vs. Mega General Merchandise

Facts: Prior to the promulgation of PD 392, all importations of paraffin wax, irrespective of kind and nature,
were subject to 7% advance sales tax on landed costs plus 25% markup (Section 183[b] in relation to Section
186 of the Tax Code. With the promulgation of PD 392, effective 18 February 1974, all importation of
paraffin wax were subject to the specific tax imposed under Section 142 (i) of the Tax Code, instead of the
former 7% sales tax. When the issue “whether imported crude paraffin wax was subject to the specific tax”
was brought to the BIR for clarification, then Commissioner Vera ruled that only wax used as high pressure
lubricant and micro-crystalline is subject to specific tax, while the rest are subject to the sales tax. Thus, Mega
General Merchandise filed claims for tax refund or tax credit. Acting Commissioner Plana denied the claims
in 28 January 1977. On 11 January 1978, however, Plana granted the corporation’s claim for refund or credit
pertaining to the importation made 18 April 1975. The Corporation protested the tax assessment of 8 May
1978, which was denied by the Commissioner.
Issue: Whether the 11 January 1978 grant (letter) revoked the ruling dated 28 January 1977.
Held: The letter dated 11 January 1978 did not in any way revoke the ruling dated 28 January 1977, which
ruling applied the specific tax to was without distinction. The reason Plana removed in 1978 the company’s
liability for specific tax was because he wanted to revoke his ruling of 28 January 1977 but because the tax
referred to an importation made before 28 January 1977 (i.e. 18 April 1975), which was still covered by the
ruling of Commissioner Vera (ruling of 14 May 1975).
[83]
Commissioner vs. Court of Tax Appeals

GR 108358, 20 January 1995
Third Division, Vitug (J): 4 concur
Facts: On 22 August 1986, Executive Order 41 was promulgated declaring a one-time tax amnesty on unpaid
income taxes, later amended to include estate and donor’s taxes and taxes on business for the taxable years
1981 to 19985. Availing itself of the amnesty, ROH Autoparts Philippines Inc. filed its Tax Amnesty Return
and paid the corresponding amnesty taxes due. The Company requested that the deficiency tax notice (13
August 1986) be cancelled and withdrawn as it has availed of the tax amnesty. The Commissioner denied the
request, construing that the amnesty coverage include only assessments issued by the BIR after the
promulgation of EO41 and not to assessments theretofore made.
Issue: Whether the assessment can withstand effects of tax amnesty.
Held: A tax amnesty, being a general pardon or intentional overlooking by the state its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the government itself of its right to collect what otherwise would be due it, and in
this sense, prejudicial thereto, to give tax evaders, who wish to relent and are willing to reform a chance to for

so and thereby become a part of the new society with a clean slate. Section 4 of EO 41 enumerated, in no
uncertain terms, taxpayers who may not avail to the amnesty granted. The company does not fall under any
of the exceptions. The added exception urged by the Commissioner based on Revenue Memorandum Order
4-87, further restricting the scope of the amnesty, work against the raison d’etre of EO 41 and clearly amounts
to an alt of administrative legislation contrary to the mandate of the law which the regulation ought to
implement. The rule in the order that only assessments issued after 21 August 1986 shall be abated is beyond
the contemplation of the law.
[84]
Commissioner vs. Court of Appeals

GR 119761, 29 August 1996
First Division, Vitug (J): 2 concur
Facts: Fortune Tobacco is engaged in the manufacture of different brands of cigarettes, specifically
“Champion”, “Hope4”, and “More” (which are foreign brands listed in the World Tobacco Directory as
belonging to foreign companies. Fortune Tobacco, however, changed names of “Hope” to “Luxury” and
“More” to “Premium More” thereby removing said brands from the foreign brand category. Proof was also
made/ submitted to the BIR that “Champion” was an original Fortune Tobacco Corp. register and thus a local
brand. RA 7654 was enacted on 10 June 1993, levying a P5 minimum tax on locally manufactured cigarettes
taxed at 55% or exportation of which is not authorized by contract, and P2 minimum tax per pack on other
locally manufactured cigarette. The BIR sent the Company a month later a copy Revenue Memorandum
Circular 37-93 declaring “Hope”, “More” and “Champion” as foreign brands, and thus subjecting them to
55% as valorem tax, a review of RMC 37-93 was denied.
Issue: Whether the brands may be placed within the scope of the amendatory law (RA 7654) and subject then
to an increased, through RMC 37-93.
Held: Prior to the issuance of RMC 37-93, the brands were in the category of locally manufactured cigarettes
not bearing foreign brands, subject to 45% ad valorem tax. Without RMC 37-93, the enactment of RA7654
would not have new tax rate consequences on the company’s products. In issuing RMC 37-93, the BIR
legislated under its quasi-legislative authority and not simply interpreted the law. When an administrative
rule goes beyond merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of those governed. It behooves
the agency to accord at least to those directly affected a chance to be heard, and thereby be duly informed,
before that new issuance is given the force and effect of law.
[85]
ABS-CBN Broadcating vs. Court of Tax Appeals

GR L-52306, 12 October 1981
First Division, Melencio Herrrera (J): 4 concur
Facts: In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334.
Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of ½ of
the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last
year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, RA 5431
amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis
from “such amount” referring to rents, etc. to “gross income.” In 1971, the Commissioner issued a letter of
assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company
requested for reconsideration; where the Commissioner did not act upon.

Issue: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively
applied.
Held: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so
apply them would be prejudicial to taxpayers. Herein ,the prejudice the company of the retroactive
application of Memorandum Circular 4-71 is beyond question. The company was no longer in a position to
withhold taxes due from foreign corporations because it had already remitted all film rentals and had no
longer control over them when the new circular was issued. Insofar as the enumerated exceptions are
concerned, the company does not fall under any of them.
[86]
In RE Zialcita
AM 90-6-015-SC, 18 October 1990
En Banc, Gutierrez Jr. (J): 13 concur, 1 on leave
Facts: Amounts were claimed by Atty. Bernardo F. Zialcity on the occasion of his retirement. On 23 August
1990, a resolution was issued by the Court En Banc stating that the terminal leave pay of Atty. Zialcita
received by virtue of his compulsory retirement can never be considered a part of his salary subject to the
payment of income tax but falls under the phrase “other benefits received by retiring employees and
workers,” within the meaning of Section 1 of PD 220 and is thus exempt from the payment of income tax.
That the money value of his accrued leave credits is not part of his salary is buttessed by Section 3 of PD 985,
which it makes it clear that the actual service is the period of time for which pay has been received, excluding
the period covered by terminal leave. The Commissioner filed a motion for reconsideration.
Issue: Whether terminal leave pay is exempt from tax; as well as other amounts claimed herein.
Held: Applying Section 12 (c) of Commonwealth Act 186, as incorporated into RA 660, and Section 28 (c) of
the former law, the amount received by Atty. Zialcita as a result of the converson of unused leave credits,
commonly known as terminal leave, is applied for by an officer or employee who retires, resigns, or is
separated from the service through no fault of his own. Since the terminal leave is applied for after the
severance of the employment, terminal pay is no longer compensation for services rendered. It cannot be
viewed as salary. Further, the terminal leave pay may also be considered as a retirement gratuity, which is also
another exclusion from gross income as provided for in Section 28 (b), 7 (f) of the Tax Code.
The 23 August Resolution (AM 90-6-015-SC), however, specifically applies only to employees of the
Judiciary who retire, resign or are separated through no fault of their own. The resolution cannot be made to
apply to otehr government employees, absent an actual case or controversy, as that would be in principle an
advisory opinion.
[87]
Commissioner vs. Court of Appeals

GR 96016, 17 October 1991
Second Division, Padilla (J): 2 concur, 1 on leave
Facts: Efren Castaneda retired from government service as Revenue Atrtache in the Philippine Embassy in
London, England on 10 December 1982 under the provisiions of Section 12 (c) of Commonwealth Act 186, as
amended. Upon retirement, he received, among other benefits, terminal leave pay from which the
Commissioner withheld P12,557.13, allegedly representing income tax thereon. Castaneda claimed for a

refund.
Issue: Whether terminal leave pay is subject to withholding income tax.
Held: Terminal Leave Pay received by a government official or employee is not subject to withholding
income tax. In the exercise of sound personnel policy, the Government encourages unused leaves to be
accumulated. The Government recognizes that retirement pay for public servants is less than generous, if not
meager or scrimpy. Terminal leave payments are given thus not only at the same time but also foor the same
policy considerations governing retirement benefits. Not being part of the gross salary or income of a
government official or employee but a retirement benefit, terminal leave pay is not subject to income tax.
[88]
Borromeo vs. Civil Service Commission

GR 96032, 31 July 1991
En Banc, Gutierrez Jr. (J): 15 concur
Facts: Jesus N. Borromeo was the Chairman of the Civil Service Commission until his retirement on 1 April
1986. In 1988, he wrote the Commission on Audit requesting an opinion whether the money value of the
terminal leave of retired Constitutional Commission members should include the allowances received at the
time of retirement. Borromeo requested for the payment ofterminal leave differential representing the unpaid
Cost of Living Allowance (COLA) and Representation and Transportation Allownace (RATA) amounting to
P111,229.04. The Department of Budget and Management denied the request.
Issue: Whether the terminal leave pay of the former CSC Chairman should be computed on the basis of the
highest monthly salary plus COLA and RATA, or solely on the basis of highest monthly salary without said
allowances.
Held: An application for terminal leave is an application for a “commutation of leave credits” and not a
“commutation of salary” as the officer or employee has already severed his conncection with his employer
and is no longer working. The cash value of his accumulated leave credits should not be treated as
compensation for services rendered at that time. Inasmuch as terminal leave payments are given not only at
teh same time but also for the same policy considerations governing retirement benefits, the payments
therefore should include COLA and RATA. Section 286 of the Revised Administrative Code is not applicable.
It cannot be construed as limiting the basis of the computation of terminal leave pay to monthly salary only.
[89]
Esso Standard Eastern vs. Commissioner

GR 28508-9, 7 July 1989
First Division, Cruz (J): 4 concur
Facts: 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 conscessions. The
Commissioner disallowed the claim on the ground that the expenses should be capitalized and might be
written off as a loss only when a “dry hole” should result. Hence, ESSO filed an amended return where it
asked for the refund of P323,270 by reason of its abandonment, as dry holes, of several of its oil wells. It also
claimed as ordinary and necessary expenses in the same return amount representing margin fees it had paid to
the Central Bank on its profit remittances to its New York Office.
Issue: Whether the margin fees may be considered ordinary and necessary expenses when paid.

Held: For an item to be deductible as a business expense, the expense must ebe ordinary and necessary; it
must be paid or incurred within the taxable year; and it must be paid or incurred in carrying on a trade or
business. In addition, the taxpayrer must substantially prove by evidence or records teh deductions claimed
under law, otherwise, the same will be disallowed. There has been no attempt to define “ordinary and
necessary” with precision. However, as guiding principle in the proper adjudication of conflicting claims, an
expenses is considered necessary where the expenditure is appropriate and helpdul 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. Assuming that the expenditure is ordinary and necessary in
the operation of the taxpayer’s business; the expenditure, to be an allowable deduction as a business expense,
must be determined from the nature of the expenditure itself, and on the extent and permanency of the work
accomplished by the expenditure. Herein, ESSO has not shown that the remittance to the head office of part
of its profits was made in furtherance of its own trade or business. The petitioner merely presumed that all
corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra
vires; which is erroneous. Claims for deductions are a matter of legislative grace and do not turn on mere
equitable considerations.
[90]
Guagua Electric Light Plant Co. vs. Collector

GR L-23611, 24 April 1967
Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by the municpal councils of
Guagua and Sexmoan, Pampanga. It reported a gross income of P1,133,003.44 for 1947 go 1956 and paid
thereon a franchise tax of P56,664.97 computed at 5% in accordance with Section 259 of the Tax Code.
Believing that it should pay a lower franchise tax as provided by its franchises, it filed a claim for refund on
25 March 1957 for overpayment. The Commissioner denied the refund of franchise tax for the period prior to
the 4th quarter of 1951 on the ground that the right to refund has prescribed. The Commissioner allowed the
refund of P16,593.87. Later however, due to the holding in Hoa Hin Co. vs. David, the Commissioner
assessed against the company deficiency franchise tax subject to a 25% surcharge, and thereby including the
amount previously allowed by the Commissioner to be refunded.
Issue: Whether the tax “refunded erroneously” should be imposed against the company, or if the right to
recover has prescribed.
Held: Guagua Electric would be paying the same deficiency tax for the period of 1 January to 30 November
1956 if it is required to pay P16,593.87 in addition to the sum of P19,938.12, the difference between the tax
computed at 5% pursuant to Section 259 of the Tax Code and the franchise tax paid at 1% and 2% under the
franchise. Further, by insisting on the payment of P16,593.87 (September 1951 to November 1956), the
Commissioner is trying to collect the same deficiency tax where the right to assess the same, according to
him, has been lost by prescription. The demand on the taxpayer to pay the sum of P16,593.87 is in effecct an
assessment of deficiency franchise tax. The right to assess, thus, and to collect is governed by Section 331 of
the Tax Code rather than by Article 1145 of the Civil Code, as a special law prevails over a general law.
Guagua Electric is absolved from the payment of P16,593.87.
[91]
Republic vs. Limaco and De Guzman Commercial Co.

GR L-13081, 31 August 1962

Facts: In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes. To guarantee
payment of revenue taxes, the company and the Visayan Surety and Insurance Corp.. as surety, executed 2
importer bonds. On 27 June 1946, the company filed with the Bureau of Customs entry papers covering
shipment of 2 million “Spud” cigarettes it had imported from New York. the specific tax due thereon
amounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid the Bureau of Customs the
tax with P1000 in cash and P5,000 in a PNB Check on 15 July 1946. The cigarettes were released to the
company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment
of the deficiency specific tax. The amount remained unpaid. On 15 April 1951, the company requested that
action be deferred as it intends to settle the matter amicably with the BIR. The Republic filed a complaint for
the forfeiture of the bonds, and the payment of the sum of P5,000 plus interest. The company invoked the
defense of estoppel and prescription.
Issue: Whether the action has prescribed.
Held: Under Section 332 (c) of the Tax Code, the collection of the tax by summary method or by judicial
action shall be effected within 5 years after the assessment of the tax. To assess means to impose a tax; to
charge with a tax; to declare a tax to be payable; to apportion a tax to be paid or contributed; to fix a rate, to
fix or settle a sum to be paid by way of tax; to set, fix or charge a certain sum to each taxpayer; to settle,
determine or fix the amount of tax to be paid. Herein, the assessment was made on 17 June 1948 (when a
letter of demand for the amount of the rubber check was sent to the company) and not on 15 Jne 1946 (the
date of payment). Even assuming that the latter date is the date of assessment, the action is still not barred by
the statute of limitations as teh statute was suspended when the company acknowledged the debt in writing in
April 1951, and requested the deferment of the judicial action to be taken by the Government towards the
collection of the obligation, so that the company could make representations with the COllector to settle the
matter amicably. Prescription has not set in.
[92]
Interprovincial Autobus Co. vs. Collector of Internal Revenue

GR L-6741, 31 January 1956
First Division, Labrador (J): 8 concur
Facts: Interprovincial Autobus Co. is a common carrier engaged in transporting passengers and freight by
means of TPU buses in Misamis Occidental and Northern Zamboanga. The company was not able to preserve
the receipt stubs from 1936 to 1938 but was able to preserve those for 1939 and 1940. The provincial revenue
agent for Misamis Occidental ascertained the number of receipts by referring to the conductor’s daily report
for the said period 1936 to 1938. From there, the tax assessed amounted to P7,776.24, which was collected
from the company’s deposit in Philippine National Bank. The company demanded the refund of the said
amount, but which was denied.
Issue: Whether the freight receipts were actually issued for more than P5 each, to warrant the assessed tax of
P7,776.24.
Held: Receipts must have been issued for valuable cargo to insure against the loss of which, unlike cargo
handcarried by townfolks and farmers where the latter avoid to secure receipts thereto. Such finding by the
revenue agent was not controverted. In actions fro the recovery of taxes assessed and collected, the taxpayer
has the burden of proving that the assessment is illegal as all presumptions are in favor of the correctness of
tax assessments. The good faith of tax assessors and the validity of their actions are presumed. As such rule,
on the burden of proof, has not been complied with, the action for recovery must be denied.

[93]
Tan Guan vs. Court of Tax Appeals

GR L-23676, 27 April 1967
Facts: In 1947, Tan Guan and Sia Lin, Chinamen, organized and registered the Philippine Surplus Company,
a general partnership. A general partnership is exempt from income tax although it is required to file an
income tax return. Profits, whether distributed or not, are considered income of the partners. Acting upon a
confidential report, however, that the company posted fictitious expesnes in its books to avoid taxes, the BIR
investigated in 1954 the books of the partnership and discovered that the expenses were not covered by
receipts, that the names of payees were erased, and that the payees did not report the sums in question in their
income tax. The BIR disallowed expense deductions for the year 1948 amounting to P206,380 for being
fictitious. Said sum was treated as income of the individual partners, and thus, the BIR assessed P50,956.57 as
deficiency income tax against Tan Guan. Tan Guan appealed.
Issue: Whether the deduction claimed by the company as business income should be allowed, and thus
absolve Tan Guan of the assessed tax liability.
Held: The Commissioner’s finding on the facts constituting fraud, proven, and found established by the Court
of Tax Appeals, was not rebutted by the taxpayer. Tan Guan did not present any evidence to disprove the
findings that the expenses are fictitious; considering that the investigation on Tan Guan’s liability was made
prior to the expiration of the 5-year period to preserve and keep receipts as set fgorth in Section 337 of the
Tax Code. As the determination of the Commissioner is presumed correct, it behooves the taxpayers to rebut
such presumption. For failure to overcome the burden, Tan Guan or the company cannot claim the expenses
as deduction from gross income.
[94]
Dayrit vs. Cruz

First Division, Gancayco (J): 3 concur, 1 took no part
Facts: Cecilia Teodoro Dayrit, Toribia Teodoro Castaneda, Prudencio Teodor, Francisco Teodoro and Josefina
Teodoro Tiongson are legitimate children and heirs of the deceased spouses Marta and Toribio Teodoro who
died intestate on 1 July 1965 and 30 August 1965. The heirs separately filed estate and inheritance tax returns
for the estates of the spouses with the BIR. In 1972, the BIR issued deficiency estate and inheritance tax
assessments for P1,662,072,34 and P1,747,790.94 respectively for the Estate of Dona Marta and
P1,542,293.01 amd P518,458.72, respectively for the Estate of Don Toribio. The heirs asked for
reconsideration as the assessment was allegedly contrary to law and not supported by sufficient evidence. In a
tax return dated 31 March 1973, Dayrit declared an additional amount of P3,655,595.78 as part of the estates
of the Teodoro spouses. The BIR issued tax payment acceptance orders, as the heirs and estate have paid a
total of P285,046.88. In 1974, the Commissioner filed a motion for allowance of claim against the estates, and
for an order of payment of taxes before the trial court, praying that Dayrit be ordered to pay the BIR the sum
of P6,470,391.91 plus surcharges and interest. Dayrit filed oppositions contending that the taxes have been
settled according to the provisions of PD 23, as amended by PD 67.
Issue: Whether the assessment is final, executory, and demandable.
Held: The act of the Commissioner, in filing an action for allowance of the claim for estate and inheritance
taxes, may be construed as a denial of the taxpayers’ request for reconsideration. From the date of receipt of

the copy of the Commissioner’s letter for collection of taxes, the taxpayers must contest and dispute the same,
and upon denial thereof, they have a period of 30 days to appeal the case to the Court of Tax Appeals. Tax
assessment made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove
otherwise. Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the assessments
fina, executory and demandable.
[95]
Collector vs. Benipayo

GR L-13656, 31 January 1962
Facts: Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953, the internal revenue
agent investigated Benipayo’s tax liability for the period of August 1952 to September 1953. The examiner
recommended a deficiency tax assessment in the sum of P11,193.45 inclusive of 25% surcharge plus a
suggested compromise penalty of P900.00 based on the conclusion that Benipayo sold 2 tax-free 20c ticlets
fraudulently in order to avoid payment of amusement tax prescribed by Section 260 of the Tax Code (based
on a reverse ratio of adult to children; 3:1 in 1949 to 1951, and 1:3 for period in question; and average
attendance for the past years). Benipayo protested, claiming that the findings of the examiners are mrere
presumptions and conclusions, devoid of findings of fact of alleged fraudulent practices by him.
Issue: Whether there is evidence in the record to show Benipayo committed the alleged act to cheat or
defraud the Government.
Held: An assessment fixes and determines the tax liability of a taxpayer. In order to stand the test of judicial
scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment, being a
mere presumption, cannot be made to rest on another presumption, no matter how reasonable or logical such
may be; i.e. that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to
1951, and July 1955. There are no substantial facts to support the assessment in question. Neither was there
any proof of the fraud allegedly committed. Fraud is a serious charge, and to be sustained, it must also be
supported by clear and convincing proof.
[96]
Meralco Securities Corp. vs. Savellano

GR L-36181, 23 October 1982
First Division, Teehankee (J): 4 concur, 1 took no part
Facts: In 1967, the late Juan G. Maniago submitted to the Commissioner confidential denunciation against
the Meralco Securities Corp. for tax evasion for not having paid income tax on 25% of the dividends it
received from the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the investigation of
the denunciation and found that no deficiency corporate tax was due from Meralco Securities. Maniago was
informed of the findings. The Secretary of Finance sustained the Commissioner’s action. Maniago filed a
petition for mandamus against the Commissioner so as to compel it to impose the alleged deficiency tax
assessment against Meralco Securities and to award him the corresponding informer’s award.
Issue: Whether the Commissioner may be compelled to impose the alleged deficiency tax assessment.
Held: Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the
performance of discretionary power. Mandamus may not be made against teh Commissioner to compel him to
impose a tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of

executive functions. Purely administrative and discretionary functions may not be interfered with by the
Courts. The discretionary power vested in the proper executive official, in the absence of arbitrariness or
grave abuse so as to go beyonf the statutory authority, is not subject to the contrary judgment or control of
others.
[97]
Commissioner vs. Abad

GR L-19627, 27 June 1968
En Banc, Castro (J): 8 concur
Facts: Armando Abad (Republic Alcohol Distillery) is a manufacturer and seller of denatured alcohol. On 14
August 1958, he applied for the denaturation of 33,000 gauge liters of rectified alcohol. On 21 August 1958, a
denaturing committee from the BIR supervised the denaturation of the alcohol in Abad’s warehouse in
Caloocan, Rizal .The alcohol was certified to be denatured by the Committee. Domestic alcohol, when
denatured and used for industrial purposes, is exempt from payment of specific tax. In a surprise inspection
on 25 August 1958, however, the BIR inspectors found that the alcohol has not been completely denatured
and still may be used for compounding liquors. The team also discovered that only 10,480 gauge liters were
left. Abad was made liable for specific tax.
Issue: Whether the government is estopped by mistakes of its agents.
Held: The BIR denaturing committed remissed in its performance of its duties as it certified the alcohol to be
denatured, where it was found in a subsequent examination that it is not completely denatured. It is a settled
rule in the performance of its governmental functions, the State cannot be estopped by the neglect or omission
of its agents. For if otherwise held, it would be easy for manufacturers to evade liability on the pretext that
some government official has certified to the quality of their products (and possibly the tax exemption
resulting therefrom) and that they have every right to rely on this certificate. Abad was ordered to pay
P19,402.20 as specific tax, with interest thereon from the date of last sale.
[98]
Commissioner vs. Procter & Gamble Philippines

GR L-66838, 15 April 1988
Second Division, Paras (J)
Facts: Procter and Gamble Philippines is a wholly owned subsidiary of Procter and Gamble USA (PMC-
USA), a non-resident foreign corporation in the Philippines, not engaged in trade and business therein. PMC-
USA is the sole shareholder of PMC Philippines and is entitled to receive income from PMC Philippines in
the form of dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC Philippines filed its
income tax return and also declared dividends in favor of PMC-USA. In 1977, PMC Philippines, invoking the
tax-sparing provision of Section 24 (b) as the withholding agent of the Philippine Government with respect to
dividend taxes paid by PMC-USA, filed a claim for the refund of 20 percentage point portion of the 35
percentage whole tax paid with the Commissioner of Internal Revenue.
Issue: Whether PMC Philippines is entitled to the 15% preferential tax rate on dividends declared and
remitted to its parent corporation.
Held: The issue raised is one made for the first time before the Supreme Court. Under the same underlying
principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower
court cannot be generally raised for the first time on appeal. Nonetheless, it is axiomatic that the state can

never be allowed to jeopardize the government’s financial position. The submission of the Commissioner that
PMC Philippines is but a withholding agent of the government and therefore cannot claim reimbursement of
alleged overpaid taxes, is completely meritorious. The real party in interest is PMC-USA, which should prove
that it is entitled under the US Tax Code to a US Foreign Tax Credit equivalent to at least 20 percentage
points spared or waived as otherwise considered or deemed paid by the Government. Herein, the claimant
failed to show or justify the tax return of the disputed 15% as it failed to show the actual amount credited by
the US Government against the income tax due from PMC-USA on the dividends received from PMC
Philippines; to present the income tax return of PMC-USA for 1975 when the dividends were received; and to
submit duly authenticated document showing that the US government credited teh 20% tax deemed paid in
the Philippines.
[99]
City Lumber vs. Domingo

GR L-18611, 30 January 1964
En Banc, Labrador (J): 8 concur, 2 took no part
Facts: The Commissioner assessed on an additional income against City Lunber Inc., representing minor
deductions from alleged expenses on undisclosed sales of plywood, nails, and GI sheets amounting to
P7,902.07 and on a cash credit balance of P7,896.80. The company claims that the plywood and the GI sheets
were actually lost in a fire occuring in the city and thatthe credit cash balance is a loan secured by it. It
appears that the regional director reviewing the case reduced the assessment from P5,028.00 to P176. Still, the
company alleged that the assessment is violative of Memorandum Order V-634 (of 3 July 1956), issued by the
Commissioner, granting Regional Directors authority to close tax cases involving deficiency assessments not
exceeding P10,000 in taxes and penalties.
Issue: Whether the assessment violates Memorandum Order V-634.
Held: The order in question was applicable only to subordinace officers of the BIR and could not bind the
Commissioner himself, who has been entrusted by law to make final assessments. The Commissioner cannot
delegate this power to make a final assessment to his subordinate. Delegatus nor potest delegare; i.e. the
peroson to whom an office or duty is delegated cannot lawfully devolve the duty on another.
[100]
Villamin vs. Court of Tax Appeals

GR L-11536, 31 October 1960
Second Division, Bautista Angelo (J):
7 concur, 1 concur in result
Facts: An assessment was issued by the Provincial Revenue agent of Oriental Mindoro against Tomas B.
Villamin. In 1955, Villamin requested reconsideration of the assessment, but which was denied by the
Collector of Internal Revenue, through the Acting Chief of the Assessment Department on 7 June 1955.
Issue: Whether the letter signed by the Acting Chief of the Assessment Department is the decision
contemplated by law.
Held: The issue is of no moment considering that Memorandum Order V-603 (15 March 1956) of the Bureau
of Internal Revenue, which authorizes said official (Acting Chief of Assessment Department) to sign letters of
demand involving assessment in behald of the Collector of Internal Revenue. Moreover, the subsequent letters
signed by the Collector affirming and upholding the correctness of the assessment made by his Assessment

Department constitutes evident proof that the official who signed the letter of 7 June 1955 was duly
authorized to do so.
[101]
Sy Po vs. Court of Tax Appeals

GR L-81446, 18 August 1988
Second Division, Sarmiento (J): 3 concur
Facts: Bonifacio Sy Po is the widow of the late Po Bien Sing, (who died on 7 September 1980). In the taxable
years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory (Talisay,
Cebu), and was engaged in the business of manufacture and sale of compounded liquors, using alcohol and
other ingredients as raw materials. On the basis of a denunciation against Silver Cup, the Secretary of Finance
directed the Finance-BIR-NBI team to investigate. Silver Cup was required to produce accounting records
and other related documents for the examination of the team. Po Bien Sing failed to do so. This prompted the
team to enter the factory bodega of Silver Cup and seize different brands, consisting of 1,555 cases of alcohol
products. On the basis of the team’s report of investigation, the Commissioner assessed Po Bien Sing
deficiency income tax for 1966 to 1970 in thhe amount of P7,154,685.16 and for deficiency specific tax for 2
January 1964 to 19 January 1972 in the amount of P5,595,003.68. Po Bien Sing protested the assessment.
Issue: Whether the assessment have valid and legal bases.
Held: Section 16 (b) of the National Internal Revenue Code of 1977 is specific and clear. The rule on the
“best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not
available or when the tax report is incomplete or fraudulent. Herein, the persistent failure of Po Bien Sing and
Bonifacia Sy Po to present their books of accounts for examination for the taxable years involved left the
Commissioner no other legal option except to resort to the power conferred upon him under Section 16 of the
Tax Code.

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Digests

Michael Vernon Guerrero Mendiola

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Commissioner vs. Algue, GR L-28890, 17 February 1988 …......... 1

Francia vs. Intermediate Appellate Court, GR L-67649, 28 June 1988 …......... 6

Allied Thread vs. City of Manila, GR L-40296, 21 November 1984 …......... 17

SSS vs. Bacolod City, GR L-35726, 21 July 1982 …......... 32

Hilado vs. Collector, GR L-9408, 31 October 1956 …......... 37

Commissioner vs. Burroughs Ltd., GR L-6653, 19 June 1986 …......... 42

Berne Guerrero entered AUSL in June 2002

Commissioner vs. Algue

Issue: Whether the assessment was reasonable.

The assessment was not reasonable.

Luzon Stevedoring Corp. vs. Court of Tax Appeals

Issue: Whether the corporation is exempt from the compensation tax.

Taxation Law I, 2004 ( 1 )

Lutz vs. Araneta

Issue: Whether the tax is valid in supporting an industry.

The tax is valid.

McCollough vs. Maryland

Issue: Whether the State of Maryland can tax a federal bank.

Taxation Law I, 2004 ( 2 )

Panhandle Oil vs. State of Mississippi

Taxation Law I, 2004 ( 3 )

Commissioner vs. Lingayen Gulf Electric

The company, hence, is not liable for deficiency taxes.

National Development Co. vs. Commissioner

Taxation Law I, 2004 ( 4 )

Issue: Whether the NDC is liable for deficiency tax.

Domingo vs. Garlitos

Issue: Whether a tax and a debt may be compensated.

Commissioner vs. Itogon-Suyoc Mines

Issue: Whether the assessment on interest was justified.

Taxation Law I, 2004 ( 5 )

The company is entitled to refund.

Republic vs. Mambulao Lumber

Issue: Whether taxes may be subject of set-off or compensation.

Francia vs. Intermediate Appellate Court

Taxation Law I, 2004 ( 6 )

Caltex Philippines vs. Commission on Audit (COA)

Cu Unjieng vs. Patstone

Issue: Whether the fee was validly imposed.

Taxation Law I, 2004 ( 7 )

Villegas vs, Hiu Chiong Tsai Pao Ho

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City

Taxation Law I, 2004 ( 8 )

Philippine Airlines vs. Edu

Progressive Development Corporation vs. Quezon City

Issue: Whether the supervision fee / license tax is a tax on income.

Taxation Law I, 2004 ( 9 )

American Mail Line vs. Basilan

The ordinance was invalid.

Saldana vs. Iloilo

Issue: Whether the “license fee” was validly imposed.

Taxation Law I, 2004 ( 10 )

Compania General de Tobacos de Filipinas vs. Manila

The company, thus, is not entitled to refund.

Philippine Acetylene Co. Inc. vs. Commissioner

Taxation Law I, 2004 ( 11 )

Issue: Whether Philippine Acetylene Co. is exempt from the tax.

Commissioner vs. American Rubber