TAXATION I | CASE DIGEST
Ong Abrantes, CPA
1. Commissioner of Internal Revenue(CIR) vs.
Algue Banuelos
TOPIC: Taxation, Taxes Defined
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, vs.
ALGUE, INC., and THE COURT OF TAX APPEALS.
Ponente: CRUZ, J.
Facts:
Opening statement of the case:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
The main issue in this case is whether or not the Collector of
Internal Revenue correctly disallowed the P75,000.00
deduction claimed by ALGUE as legitimate business expenses
in its income tax returns.
The COMMISSIONER OF INTERNAL REVENUE contends
that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said
amount had been legitimately paid by the ALGUE for actual
services rendered. The payment was in the form of
promotional fees. These were collected by the Payees for their
work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of
the properties of the Philippine Sugar Estate Development
Company.
In fact, as the said court found, the amount was earned through
the joint efforts of the persons among whom it was distributed
It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its
agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith,
O'Farell, and Pablo Sanchez, worked for the formation of the
Vegetable Oil Investment Corporation, inducing other persons
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Based on the lectures of Atty. Raymund Christian S.
to invest in it.
The COMMISSIONER OF INTERNAL REVENUE claims
that these payments are fictitious because most of the payees
are members of the same family in control of Algue. It is
argued that no indication was made as to how such payments
were made, whether by check or in cash, and there is not
enough substantiation of such payments. In short, the
COMMISSIONER OF INTERNAL REVENUE suggests a tax
dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction.
We find that these suspicions were adequately met by the
ALGUE when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments
were not made in one lump sum but periodically and in
different amounts as each payee's need arose.
Legal Issue:
W/N the said amount is allowable tax deduction.
Held:
YES. It is a proper tax deduction.
It is said that taxes are what we pay for civilization society.
Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to
must contribute his share in the running of the government.
The government for its part, is expected to respond in the form
of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in
his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.
The Solicitor General is correct when he says that the burden
is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus
has been discharged satisfactorily. The ALGUE has proved
that the payment of the fees was necessary and reasonable in
the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
business requiring millions of pesos. This was no mean feat
and should be, as it was, sufficiently recompensed.
We agree with the respondent court that the amount of the have been collected in accordance with law; that in an action
promotional fees was not excessive. The total commission for refund, the burden of proof is upon the taxpayer to show
paid by the Philippine Sugar Estate Development Co. to the that taxes are erroneously or illegally collected, and the
private respondent was P125,000.00. 21 After deducting the taxpayer's failure to sustain said burden is fatal to the action
said fees, Algue still had a balance of P50,000.00 as clear for refund; and that claims for refund are construed strictly
profit from the transaction. The amount of P75,000.00 was against tax claimants.
60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of the On August 3, 1984, respondent court denied petitioner's
Sugar Estate properties. motion for reconsideration, hence, this petition for review on
certiorari.
2. CIR vs. Tokyo Shipping Co., Ltd Dosdos
ISSUE:
G.R. No. L-68252 May 26, 1995
Whether or not private respondent Tokyo Shipping Co. Ltd., is
COMMISSIONER OF INTERNAL REVENUE,
entitled to a refund or tax credit for amounts representing pre-
petitioner, vs. TOKYO SHIPPING CO. LTD., represented
payment of income and common carrier's taxes under the
by SORIAMONT STEAMSHIP AGENCIES INC., and
National Internal Revenue Code, section 24 (b) (2), as
COURT OF TAX APPEALS, respondents.
amended. YES
FACTS:
Private respondent is a foreign corporation represented in the
RULING:
Philippines by Soriamont Steamship Agencies, Incorporated.
It owns and operates tramper vessel M/V Gardenia. In
There is no dispute about the applicable law. It is section 24
December 1980, NASUTRA chartered M/V Gardenia to load
(b) (2) of the National Internal Revenue Code which at that
16,500 metric tons of raw sugar in the Philippines. On
time provides as follows:
December 23, 1980, Mr. Edilberto Lising, the operations
supervisor of Soriamont Agency, paid the required income and
common carrier's taxes in the respective sums of FIFTY-NINE
THOUSAND FIVE HUNDRED TWENTY-THREE PESOS
and SEVENTY-FIVE CENTAVOS (P59,523.75) and A corporation organized, authorized, or existing
FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN under the laws of any foreign country, engaged
PESOS (P47,619.00), or a total of ONE HUNDRED SEVEN in trade or business within the Philippines, shall
THOUSAND ONE HUNDRED FORTY-TWO PESOS and be taxable as provided in subsection (a) of this
SEVENTY-FIVE CENTAVOS (P107,142.75) based on the section upon the total net income derived in the
expected gross receipts of the vessel. Upon arriving, however, preceding taxable year from all sources within
the Philippines: Provided, however, That
at Guimaras Port of Iloilo, the vessel found no sugar for
loading. On January 10, 1981, NASUTRA and private international carriers shall pay a tax of two and
one-half per cent (2 1/2%) on their gross
respondent's agent mutually agreed to have the vessel sail for
Japan without any cargo. Philippine billings: "Gross Philippine Billings"
include gross revenue realized from uplifts
anywhere in the world by any international
carrier doing business in the Philippines of
passage documents sold therein, whether for
Claiming the pre-payment of income and common carrier's
passenger, excess baggage or mail, provided the
taxes as erroneous since no receipt was realized from the
cargo or mail originates from the Philippines.
charter agreement, private respondent instituted a claim for tax
The gross revenue realized from the said cargo
credit or refund of the sum ONE HUNDRED SEVEN
or mail include the gross freight charge up to
THOUSAND ONE HUNDRED FORTY-TWO PESOS and
final destination. Gross revenue from chartered
SEVENTY-FIVE CENTAVOS (P107,142.75) before
flights originating from the Philippines shall
petitioner Commissioner of Internal Revenue on March 23,
likewise form part of "Gross Philippine Billings"
1981. Petitioner failed to act promptly on the claim, hence, on
regardless of the place or payment of the
May 14, 1981, private respondent filed a petition for review
passage documents . . . . .
before public respondent Court of Tax Appeals.
Pursuant to this provision, a resident foreign corporation
Petitioner contested the petition. As special and affirmative
engaged in the transport of cargo is liable for taxes depending
defenses, it alleged the following: that taxes are presumed to
1
TAXATION I | CASE DIGEST
on the amount of income it derives from sources within the
Philippines. Thus, before such a tax liability can be enforced
the taxpayer must be shown to have earned income sourced
from the Philippines.
We agree with petitioner that a claim for refund is in the
nature of a claim for exemption and should be construed in
strictissimi juris against the taxpayer. Likewise, there can be
no disagreement with petitioner's stance that private
respondent has the burden of proof to establish the factual
basis of its claim for tax refund.
The pivotal issue involves a question of fact — whether or not
the private respondent was able to prove that it derived no
receipts from its charter agreement, and hence is entitled to a
refund of the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been
adduced by the private respondent proving that it derived no
receipt from its charter agreement with NASUTRA. This
finding of fact rests on a rational basis, and hence must be
sustained. Exhibits "E", "F," and "G" positively show that the
tramper vessel M/V "Gardenia" arrived in Iloilo on January
10, 1981 but found no raw sugar to load and returned to Japan
without any cargo laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District Collector of
Customs, Port of Iloilo while Exhibit "F" is the Certification
by the Officer-in-Charge, Export Division of the Bureau of
Customs Iloilo. The correctness of the contents of these
documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been
contested by the petitioner. The records also reveal that in the
course of the proceedings in the court a quo, petitioner hedged
and hawed when its turn came to present evidence. At one
point, its counsel manifested that the BIR examiner and the
appellate division of the BIR have both recommended the
approval of private respondent's claim for refund. The same
counsel even represented that the government would withdraw
its opposition to the petition after final approval of private
respondents' claim. The case dragged on but petitioner never
withdrew its opposition to the petition even if it did not
present evidence at all. The insincerity of petitioner's stance
drew the sharp rebuke of respondent court in its Decision and
for good reason. Taxpayers owe honesty to government just as
government owes fairness to taxpayers.
3. BPI Family Savings Bank vs. CA Dulay
BPI-FAMILY SAVINGS BANK, Inc., , vs. CA, CTA and
the COMMISSIONER OF INTERNAL REVENUE G.R.
No. 122480. April 12, 2000
If the State expects its taxpayers to observe fairness and
honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments. When it
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
is undisputed that a taxpayer is entitled to a refund, the State
should not invoke technicalities to keep money not belonging
to it. No one, not even the State, should enrich oneself at the
expense of another.
FACTS:
This case involves a claim for tax refund in the amount of
P112,491.00 representing BPI’s tax withheld for the year
1989.
It appears from the foregoing 1989 ITR that BPI had a total
refundable amount of P297,492 inclusive of the P112,491.00
being claimed as tax refund in the present case. However,
petitioner declared in the same 1989 Income Tax Return that
the said total refundable amount of P297,492.00 will be
applied as tax credit to the succeeding taxable year.
On October 11, 1990, petitioner filed a written claim for
refund in the amount of P112,491.00 with the respondent
Commissioner of Internal Revenue alleging that it did not
apply the 1989 refundable amount of P297,492.00 (including
P112,491.00) to its 1990 Annual Income Tax Return or other
tax liabilities due to the alleged business losses it incurred for
the same year.
Without waiting for respondent Commissioner of Internal
Revenue to act on the claim for refund, petitioner filed a
petition for review with respondent Court of Tax Appeals,
seeking the refund of the amount of P112,491.00.
CTA: dismissed petitioners petition on the ground that
petitioner failed to present as evidence its Corporate Annual
Income Tax Return for 1990 to establish the fact that
petitioner had not yet credited the amount of P297,492.00
(inclusive of the amount P112,491.00 which is the subject of
the present controversy) to its 1990 income tax liability.
CA: It is incumbent upon the petitioner to show proof that it
has not credited to its 1990 Annual income Tax Return, the
amount of P297,492.00 (including P112,491.00), so as to
refute its previous declaration in the 1989 Income Tax Return
that the said amount will be applied as a tax credit in the
succeeding year of 1990. Having failed to submit such
requirement, there is no basis to grant the claim for refund. x x
x that it did not apply the amount as a tax credit. During the
"Tax refunds are in the nature of tax exemptions. As such,
they are regarded as in derogation of sovereign authority and
to be construed strictissimi juris against the person or entity
claiming the exemption. In other words, the burden of proof
rests upon the taxpayer to establish by sufficient and
competent evidence its entitlement to the claim for refund."[8]
ISSUE:
1. WON BPI is entitled to the refund of
P112,491.00, representing excess
creditable withholding tax paid for the
taxable year 1989."Yes.
2. respondents argue that tax refunds are in
the nature of tax exemptions and are to be
construed strictissimi juris against the
claimant.
HELD: Yes. BPI is entitled to Refund.
It is undisputed that petitioner had excess withholding taxes
for the year 1989 and was thus entitled to a refund amounting
to P112,491.
Pursuant to Section 69[10] of the 1986 Tax Code which states
that a corporation entitled to a refund may opt either (1) to
obtain such refund or (2) to credit said amount for the
succeeding taxable year, petitioner indicated in its 1989
Income Tax Return that it would apply the said amount as a
tax credit for the succeeding taxable year, 1990. Subsequently,
petitioner informed the Bureau of Internal Revenue (BIR) that
it would claim the amount as a tax refund, instead of applying
it as a tax credit. When no action from the BIR was
forthcoming, petitioner filed its claim with the Court of Tax
Appeals.
The CTA and the CA, however, denied the claim for tax
refund. Since petitioner declared in its 1989 Income Tax
Return that it would apply the excess withholding tax as a tax
credit for the following year, the Tax Court held that petitioner
was presumed to have done so. The CTA and the CA ruled
that petitioner failed to overcome this presumption because it
did not present its 1990 Return, which would have shown that
the amount in dispute was not applied as a tax credit. Hence,
the CA concluded that petitioner was not entitled to a tax
refund.
We disagree with the Court of Appeals.
As a rule, the factual findings of the appellate court are
binding on this Court. This rule, however, does not apply
where, inter alia, the judgment is premised on a
misapprehension of facts, or when the appellate court failed to
notice certain relevant facts which if considered would justify
a different conclusion.[11] This case is one such exception.
In the first place, BPI presented evidence to prove its claim
trial before the CTA, Ms. Yolanda Esmundo, the manager of
petitioners accounting department, testified to this fact. It
likewise presented its claim for refund and a certification
issued by Mr. Gil Lopez, petitioners vice-president, stating
that the amount of P112,491 "has not been and/or will not be
automatically credited/offset against any succeeding quarters
income tax liabilities for the rest of the calendar year ending
December 31, 1990." Also presented were the quarterly
returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to
controvert petitioners claim. In fact, it presented no evidence
at all. Because it ought to know the tax records of all
2
taxpayers, the CIR could have easily disproved petitioners
claim. To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for
1990 was attached to petitioners Motion for Reconsideration
filed before the CTA.[12] A final adjustment return shows
whether a corporation incurred a loss or gained a profit during
the taxable year. In this case, that Return clearly showed that
petitioner incurred P52,480,173 as net loss in 1990. Clearly, it
could not have applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said
return. It did not even file an opposition to petitioners Motion
and the 1990 Final Adjustment Return attached thereto. In
denying the Motion for Reconsideration, however, the CTA
ignored the said Return. In the same vein, the CA did not pass
upon that significant document.
True, strict procedural rules generally frown upon the
submission of the Return after the trial. The law creating the
Court of Tax Appeals, however, specifically provides that
proceedings before it "shall not be governed strictly by the
technical rules of evidence."[13] The paramount consideration
remains the ascertainment of truth. Verily, the quest for
orderly presentation of issues is not an absolute. It should not
bar courts from considering undisputed facts to arrive at a just
determination of a controversy.
In the present case, the Return attached to the Motion for
Reconsideration clearly showed that petitioner suffered a net
loss in 1990. Contrary to the holding of the CA and the CTA,
petitioner could not have applied the amount as a tax credit. In
failing to consider the said Return, as well as the other
documentary evidence presented during the trial, the appellate
court committed a reversible error.
It should be stressed that the rationale of the rules of procedure
is to secure a just determination of every action. They are tools
designed to facilitate the attainment of justice.[14] But there
can be no just determination of the present action if we ignore,
on grounds of strict technicality, the Return submitted before
the CTA and even before this Court.[15] To repeat, the
undisputed fact is that petitioner suffered a net loss in
1990; accordingly, it incurred no tax liability to which the
tax credit could be applied. Consequently, there is no
reason for the BIR and this Court to withhold the tax
refund which rightfully belongs to the petitioner.
Public respondents maintain that what was attached to
petitioners Motion for Reconsideration was not the final
adjustment Return, but petitioners first two quarterly returns
for 1990.[16] This allegation is wrong. An examination of the
records shows that the 1990 Final Adjustment Return was
attached to the Motion for Reconsideration. On the other hand,
the two quarterly returns for 1990 mentioned by respondent
were in fact attached to the Petition for Review filed before
the CTA. Indeed, to rebut respondents specific contention,
petitioner submitted before us its Surrejoinder, to which was
attached the Motion for Reconsideration and Exhibit "A"
TAXATION I | CASE DIGEST
thereof, the Final Adjustment Return for 1990.[17]
CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had done
before the CTA, to a Decision rendered by the Tax Court in
CTA Case No. 4897, involving its claim for refund for the
year 1990. In that case, the Tax Court held that "petitioner
suffered a net loss for the taxable year 1990 x x x."[18]
Respondent, however, urges this Court not to take judicial
notice of the said case.[19]
As a rule, "courts are not authorized to take judicial notice of
the contents of the records of other cases, even when such
cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard
or are actually pending before the same judge."[20]
Be that as it may, Section 2, Rule 129 provides that courts may
take judicial notice of matters ought to be known to judges
because of their judicial functions. In this case, the Court notes
that a copy of the Decision in CTA Case No. 4897 was
attached to the Petition for Review filed before this Court.
Significantly, respondents do not claim at all that the said
Decision was fraudulent or nonexistent. Indeed, they do not
even dispute the contents of the said Decision, claiming
merely that the Court cannot take judicial notice thereof.
To our mind, respondents reasoning underscores the weakness
of their case. For if they had really believed that petitioner is
not entitled to a tax refund, they could have easily proved that
it did not suffer any loss in 1990. Indeed, it is noteworthy that
respondents opted not to assail the fact appearing therein --
that petitioner suffered a net loss in 1990 in the same way that
it refused to controvert the same fact established by petitioners
other documentary exhibits.
In any event, the Decision in CTA Case No. 4897 is not the
sole basis of petitioners case. It is merely one more bit of
information showing the stark truth: petitioner did not use its
1989 refund to pay its taxes for 1990.
Finally, respondents argue that tax refunds are in the
nature of tax exemptions and are to be construed
strictissimi juris against the claimant.
Under the facts of this case, we hold that BPI has established
its claim. Petitioner may have failed to strictly comply with
the rules of procedure; it may have even been negligent. These
circumstances, however, should not compel the Court to
disregard this cold, undisputed fact: that petitioner suffered a
net loss in 1990, and that it could not have applied the amount
claimed as tax credits.
Substantial justice, equity and fair play are on the side of
petitioner. Technicalities and legalisms, however exalted,
should not be misused by the government to keep money not
belonging to it and thereby enrich itself at the expense of its
law-abiding citizens. If the State expects its taxpayers to
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess
payments of such taxes. Indeed, the State must lead by its own
example of honor, dignity and uprightness.
WHEREFORE, the Petition is hereby GRANTED and the
assailed Decision and Resolution of the CA REVERSED and
SET ASIDE. The Commissioner of Internal Revenue is
ordered to refund to petitioner BPI the amount of P112,491
as excess creditable taxes paid in 1989.
4. De Borja vs. Gella Macatol
JOSE DE BORJA, petitioner-appellee, vs. VICENTE G.
GELLA, ET AL., respondents-appellants. G.R. No. L-18330
July 31, 1963 BAUTISTA ANGELO, J.:
Facts:
Jose de Borja has been delinquent in the payment of his real
estate taxes since 1958 for properties located in the City of
Manila and Pasay City and has offered to pay them with two
negotiable, certificates of indebtedness in the amounts of
P793.40 and P717.69, respectively. Borja was, however, a
mere assignee of the aforesaid negotiable certificates, the
applicants for backpay rights covered by them being
respectively Rafael Vizcaya and Pablo Batario Luna.
The offers to pay the estate taxes in question were rejected by
the city treasurers of both Manila and Pasay cities on the
ground of their limited negotiability under Section 2, Republic
Act No. 304, as amended by Republic Act 800, and in the case
of the city treasurer of Manila on the further ground that he
was ordered not to accept them by the city mayor, for which
reason Borja was prompted to bring the question to the
Treasurer of the Philippines who opined, among others, that
the negotiable certificates cannot be accepted as payment of
real estate taxes inasmuch as the law provides for their
acceptance from their backpay holder only or the original
applicant himself, but not his assignee. In his letter of April
29, 1960 to the Treasurer of the Philippines, however, Borja
entertained hope that the certificates would be accepted for
payment in view of the fact that they are already long past due
and redeemable. So on June 30, 1960, Borja filed an action
against the treasurers of both the City of Manila and Pasay
City, as well as the Treasurer of the Philippines, to impel them
to execute an act which the law allegedly requires them to
perform, to wit: to accept the above-mentioned certificates of
indebtedness considering that they were already due and
redeemable so as not to deprive him illegally of his privilege
to pay his obligation to the government thru such means.
RTC: The treasurers of the City of Manila and Pasay City,
their agents and other persons acting in their behalf are hereby
enjoined from including petitioner's properties in the payment
of real estate, taxes, and to sell them at public auction and
respondent Treasurer of the Philippines, and the treasurers of
the City of Manila and Pasay City are hereby ordered to accept
petitioner's Negotiable Certificates of Indebtedness in payment
of real estate taxes of his properties in the City of Manila and
Pasay City, respectively.
Issues:
(a) has appellee the right to apply to the payment of his real
estate taxes to the government of Manila and Pasay cities the
certificates of indebtedness he holds while appellants have the
correlative legal duty to accept the certificates in payment of
said taxes? No
(b) can compensation be invoked to extinguish appellee's real
estate tax liability between the latter's obligation and the credit
represented by said certificates of indebtedness? No
Held:
Anent the first issue, the pertinent legal provision to be
reckoned with is Section 2 of Republic Act No. 304, as
amended by Republic Act No. 800, which in part reads:
SEC. 2. The Treasurer of the Philippines shall, upon
application, and within one year from the approval of this Act,
and under such rules and regulations as may be promulgated
by the Secretary of Finance, acknowledge and file requests for
the recognition of the right to the salaries and wages as
provided in section one hereof, and notice of such
acknowledgment shall be issued to the applicant which shall
state the total amount of such salaries or wages due to the
applicant, and certify that it shall be redeemed by the
Government of the Philippines within ten years from the date
of their issuance without interest: Provided, that upon
application . . . a certificate of indebtedness may be issued by
the Treasurer of the Philippines covering the whole or part of
the total salaries or wages the right to which has been duly
acknowledged and recognized, provided that the face value of
such certificate of indebtedness shall not exceed the amount
that the applicant may need for the payment of (1) obligations
subsisting at the time of the approval of this Act for which the
applicant may directly be liable to the Government or to any
of its branches or instrumentalities, or the corporations owned
or controlled by the Government, or to any citizen of the
Philippines, who may be willing to accept the same for such
settlement; (2) his taxes; . . . and Provided, also, That any
person who is not an alien, bank or other financial institution
at least sixty per centum of whose capital is owned by
Filipinos may, notwithstanding any provision of its charter,
articles of incorporation, by-laws, or rules and regulations to
the contrary, accept or discount at not more than three and
one-half per centum per annum for ten years a negotiable
certificate of indebtedness which shall be issued by the
Treasurer of the Philippines upon application by a holder of a
back pay acknowledgment. . . . .
It cannot be contended that appellants are in duty bound to
accept the negotiable certificates of indebtedness held by
appellee in payment of his real estate taxes for the simple
reason that they were not obligations subsisting at the time of
the approval of Republic Act No. 304 which took effect on
June 18, 1948. It should be noted that the real estate taxes in
question have reference to those due in 1958 and subsequent
years. The law is explicit that in order that a certificate may be
used in payment of an obligation the same must be subsisting
at the time of its approval even if we hold that a tax partakes
of this character, neither can it be contended that appellee can
compel the government to accept the alleged certificates of
indebtedness in payment of his real estate taxes under proviso
3
No. 2 above-quoted also for the reason that in order that such
payment may be allowed the tax must be owed by the
applicant himself . This is the correct implication that may be
drawn from the use by the law of the words "his taxes".
Verily, the right to use the backpay certificate in settlement of
taxes is given only to the applicant and not to any holder of
any negotiable certificate to whom the law only gives the right
to have it discounted by a Filipino citizen or corporation under
certain limitations. Here appellee is not himself the applicant
of the certificate, in question. He is merely an assignee
thereof, or a subsequent holder whose right is at most to have
it discounted upon maturity — or to negotiate it in the
meantime. A fortiori, it may be included that, not having the
right to use said certificates to pay his taxes, appellee cannot
compel appellants to accept them as he requests in the present
petition for mandamus.
With regard to the second issue, i.e., whether compensation
can be invoked insofar as the two obligations are concerned,
Articles 1278 and 1279 of the new Civil Code provide:
ART. 1278. Compensation shall take place when two persons,
in their own right, are creditors and debtors of each other.
ART. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they two liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor.
It is clear from the above legal provisions that compensation
cannot be effected with regard to the two obligations in
question. In the first place, the debtor insofar as the certificates
of indebtedness are concerned is the Republic of the
Philippines, whereas the real estate taxes owed by appellee
are due to the City of Manila and Pasay City, each one of
which having a distinct and separate personality from our
Republic. With regard to the certificates, the creditor is the
appellee while the debtor is the Republic of the Philippines.
And with regard to the taxes, the creditors are the City of
Manila and Pasay City while the debtor is the appellee. Each
one of the obligors concerning the two obligations is not at the
same time the principal creditor of the other. It cannot also be
said for certain that the certificates are already due. Although
on their faces the certificates issued to appellee state that they
are redeemable on June 18, 1958, yet the law does not say that
they are redeemable from its approval on June 18, 1948 but
"within ten years from the date of issuance" of the certificates.
There is no certainty, therefore, when the certificates are really
redeemable within the meaning of the law.
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
[q] Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972,
5. Phil Airlines vs. Sec. of Finance 1491, 1590.
Pacquiao, L
The effect of the amendment is to remove the exemption
FACTS granted to PAL, as far as the VAT is concerned.
The Value-Added Tax [VAT] is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross
Philippine Airlines [PAL] claims that its franchise under P.D.
selling price or gross value in money of goods or properties No. 1590 which makes it liable for a franchise tax of only 2%
sold, bartered or exchanged or of the gross receipts from the of gross revenues "in lieu of all the other fees and charges of
sale or exchange of services. Republic Act No. 7716 seeks to any kind, nature or description, imposed, levied, established,
widen the tax base of the existing VAT system and enhance its assessed or collected by any municipal, city, provincial, or
administration by amending the National Internal Revenue national authority or government agency, now or in the
Code.
future," cannot be amended by Rep. Act No. 7716 as to make
it [PAL] liable for a 10% value-added tax on revenues,
because Sec. 24 of P.D. No. 1590 provides that PAL's
franchise can only be amended, modified or repealed by a
These are various suits for certiorari and prohibition special law specifically for that purpose.
challenging the constitutionality of RA 7716:
ISSUE
In the case at bar, PAL attacks the formal validity of Republic
Act No. 7716. PAL contends that it violates Art. VI, Section Whether or not this amendment of Section 103 of the NIRC is
26[1] which provides that "Every bill passed by Congress shall fairly embraced in the title of Republic Act No. 7716, although
embrace only one subject which shall be expressed in the title no mention is made therein of P. D. No. 1590
thereof." It is contended that neither H. No. 11197 nor S. No.
1630 provided for removal of exemption of PAL transactions
from the payment of the VAT and that this was made only in
the Conference Committee bill which became Republic Act
HELD
No. 7716 without reflecting this fact in its title.
Yes. The court ruled in in the affirmative. The title states that
the purpose of the statute is to expand the VAT system, and
one way of doing this is to widen its base by withdrawing
The title of Republic Act No. 7716 is:
some of the exemptions granted before. To insist that P. D.
No. 1590 be mentioned in the title of the law, in addition to
Section 103 of the NIRC, in which it is specifically referred to,
would be to insist that the title of a bill should be a complete
AN ACT RESTRUCTURING index of its content.
THE VALUE-ADDED TAX
[VAT] SYSTEM, WIDENING
ITS TAX BASE AND
ENHANCING ITS
The constitutional requirement that every bill passed by
ADMINISTRATION, AND FOR
Congress shall embrace only one subject which shall be
THESE PURPOSES expressed in its title is intended to prevent surprise upon the
AMENDING AND REPEALING members of Congress and to inform the people of pending
THE RELEVANT PROVISIONS legislation so that, if they wish to, they can be heard regarding
OF THE NATIONAL it. If, in the case at bar, petitioner did not know before that its
INTERNAL REVENUE CODE, exemption had been withdrawn, it is not because of any defect
AS AMENDED, AND FOR in the title but perhaps for the same reason other statutes,
OTHER PURPOSES.
although published, pass unnoticed until some event somehow
calls attention to their existence.
Furthermore, section 103 of RA 7716 states the following:
Republic Act No. 7716 expressly amends PAL's franchise [P.
D. No. 1590] by specifically excepting from the grant of
exemptions from the VAT PAL's exemption under P. D. No.
Section 103. Exempt Transactions.- The following shall be 1590. This is within the power of Congress to do under Art.
exempt from the value-added tax:
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XII, Section 11 of the Constitution, which provides that the
grant of a franchise for the operation of a public utility is
subject to amendment, alteration or repeal by Congress when
the common good so requires.
6. Phil Bank of Communication vs. CIR Tado
PHILIPPINE BANK OF COMMUNICATIONS,
petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS, respondents.[G.R. No. 112024. January 28,
1999]
The facts:
Petitioner, Philippine Bank of Communications (PBCom) filed
its quarterly income tax returns for the first and second
quarters of 1985, reported profits, and paid the total income
tax of P5,016,954.00. The taxes due were settled by applying
PBComs tax credit memos and accordingly, the Bureau of
Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85
and 0747-85 for P3,401,701.00 and P1, 615,253.00,
respectively.
Subsequently, however, PBCom suffered losses so that when
it filed its Annual Income Tax Returns for the year-ended
December 31, 1985, it declared a net loss of P25,317,228.00,
thereby showing no income tax liability. For the succeeding
year, ending December 31, 1986, the petitioner likewise
reported a net loss of P14,129,602.00, and thus declared no tax
payable for the year.
But during these two years, PBCom earned rental income from
leased properties. The lessees withheld and remitted to the
BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of
Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the
first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund
of creditable taxes withheld by their lessees from property
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of
Internal Revenue, petitioner instituted a Petition for Review on
November 18, 1988 before the Court of Tax Appeals (CTA).
4
CTA decision: denied the request of petitioner for a tax
refund or credit in the sum amount of P5,299,749.95, on the
ground that it was filed beyond the two-year reglementary
period provided for by law. The petitioners claim for refund in
1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom
against its tax payment in the succeeding year.
Court of Appeals: affirmed in toto the CTAs resolution dated
July 20, 1993
Issue: Whether or not Revenue Regulations No. 7-85
which alters the reglementary period from two (2) years to ten
(10) years is valid.
Ruling: NO
After a careful study of the records and applicable
jurisprudence on the matter, we find that, contrary to the
petitioner's contention, the relaxation of revenue regulations
by RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the
nation." The primary purpose is to generate funds for the State
to finance the needs of the citizenry and to advance the
common wealth. 13 Due process of law under the Constitution
does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes
adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit
should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by
incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of
1977 (now Sec. 229, NIRC of 1997) provides for the
prescriptive period for filing a court proceeding for the
recovery of tax erroneously or illegally collected.
The rule states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two
(2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided,
should be computed from the time of filing the Adjustment
Return and final payment of the tax for the year.
TAXATION I | CASE DIGEST
When the Acting Commissioner of Internal Revenue issued
RMC 7-85, changing the prescriptive period of two years to
ten years on claims of excess quarterly income tax payments,
such circular created a clear inconsistency with the provision
of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more
specific and less general interpretations of tax laws) which are
issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed
upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts.
Nevertheless, such interpretation is not conclusive and will be
ignored if judicially found to be erroneous. 20 Thus, courts will
not countenance administrative issuances that override, instead
of remaining consistent and in harmony with the law they seek
to apply and implement.
Further, fundamental is the rule that the State cannot be put in
estoppel by the mistakes or errors of its officials or agents. 24
As pointed out by the respondent courts, the nullification of
RMC No. 7-85 issued by the Acting Commissioner of Internal
Revenue is an administrative interpretation which is not in
harmony with Sec. 230 of 1977 NIRC. for being contrary to
the express provision of a statute. Hence, his interpretation
could not be given weight for to do so would, in effect, amend
the statute.
7. Sunio et al vs. NLRC Banuelos
TOPIC: Importance of Taxes
Note: Nowhere in the case was there a discussion of the
topic.
ALBERTO S. SUNIO and ILOCOS COMMERCIAL
CORPORATION,
vs. NATIONAL LABOR RELATIONS COMMISSION,
NEMESIO VALENTON, SANTOS DEL ROSARIO,
VICENTE TAPUCOL, ANDRES SOLIS, CRESCENCIO
SOLLER, CECILIO LABUNI, SOTERO L. TUMANG, in
his capacity as Asst. Regional Director for Arbitration,
Regional Office No. 1, Ministry of Labor & Employment,
and AMBROSIO B. SISON, in his capacity as Acting
Regional Sheriff, Regional Office No. 1, Ministry of Labor
& Employment.G.R. No. L-57767 January 31, 1984
Ponente: MELENCIO-HERRERA, J.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Facts:
On July 30,1973, EM Ramos & Company, Inc. (EMRACO for
brevity) and Cabugao Ice Plant, Inc. (CIPI for short), sister
corporations, sold an ice plant to Rizal Development and
Finance Corporation RDFC with a mortgage on the same
properties constituted by the latter in favor of the former to
secure the payment of the balance of the purchase price.
By virtue of that sale, EMRACO-CIPI terminated the services
of all their employees including NEMESIO VALENTON, ET.
AL herein, and paid them their separation pay. RDFC hired its
own own employees and operated the plant.
On November 28, 1973, RDFC sold the ice plant to petitioner
Ilocos Commercial Corporation ICC headed by its President
and General Manager, petitioner Alberto S. Sunio. ALBERTO
S. SUNIO and ILOCOS COMMERCIAL CORPORATION
also hired their own employees as NEMESIO VALENTON,
ET. AL were no longer in the plant.
The sale was subject to the mortgage in favor of EMRACO-
CIPI. Both RDFC-ICC failed to pay the balance of the
purchase price, as a consequence of which, EMRACO-CIPI
instituted extrajudicial foreclosure proceedings. The properties
were sold at public auction on August 30, 1974, the highest
bidders being EMRACO CIPI.
On the same date, August 30, 1974, EMRACO-CIPI sold the
ice plant to Nilo Villanueva, suspect to the right of redemption
of RDFC. Nilo Villanueva then re-hired NEMESIO
VALENTON, ET. AL.
On August 27, 1975, RDFC redeemed the ice plant. Because
of the gate to Nilo Villanueva, EMRACO-CIPI were unable to
turn over possession to RDFC and/or ALBERTO S. SUNIO
and ILOCOS COMMERCIAL CORPORATION, prompting
the latter to file a complaint for recovery of possession against
EMRACO-CIPI with the then Court of First Instance of Ilocos
Sur (Civil Case No. 81-KC).
On February 1, 1978, RDFC and ALBERTO S. SUNIO and
ILOCOS COMMERCIAL CORPORATION finally obtains
possession of the ice plant by virtue of the Mandatory
Injunction previously issued, which ordered defendant
"particularly Nilo C. Villanueva and his agents
representatives, or any person found in the premises to vacate
and surrender the property in litigation." 2 ALBERTO S.
SUNIO and ILOCOS COMMERCIAL CORPORATION did hired their own employees, not the NEMESIO VALENTON,
not re-employ NEMESIO VALENTON, ET. AL. ET. AL.
NEMESIO VALENTON, ET. AL filed complaints against In fact, it may even be said that NEMESIO VALENTON, ET.
ALBERTO S. SUNIO and ILOCOS COMMERCIAL AL had slept on their rights when they failed to contest such
CORPORATION for illegal dismissal with the Regional termination at the time of sale, if they believed they had rights
Office, Ministry of Labor & Employment, San Fernando, La to protect. Further, Nilo Villanueva rehired NEMESIO
Union. VALENTON, ET. AL in August, 1974, subject to a resolutory
condition. That condition having arisen, the rights of
NEMESIO VALENTON, ET. AL who claim under him mast
be deemed to have also ceased.
Assistant Regional Director: Cabugao Ice Plant, Inc., Ilocos
Commercial Corporation and/or Alberto Sunio, are hereby
directed to reinstate the complainants to their former positions
without loss of seniority privileges and to pay their backwages Legal Issue #2: W/N SUNIO should be personally liable.
from February 1, 1978 to the date when they are actually
reinstated.
Held:
NLRC: affirmed the Regional Director's decision and
dismissed the appeal for lack of merit on March 24, 1981
reasoning that when RDFC took possession of the property NO. Sunio was impleaded in the Complaint his capacity as
and NEMESIO VALENTON, ET. AL were terminated in General Manager of petitioner corporation. where appears to
1973, the latter already had a vested right to their security of be no evidence on record that he acted maliciously or in bad
tenure, and when they were rehired those rights continued. faith in terminating the services of NEMESIO VALENTON,
ET. AL. His act, therefore, was within the scope of his
authority and was a corporate act.
Legal Issue #1: W/N there was illegal dismissal.
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons
Held: composing it as well as from that of any other legal entity to
which it may be related. 4 Mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground
NO. There was no illegal dismissal. for disregarding the separate corporate personality. 5
Petitioner Sunio, therefore, should not have been made
personally answerable for the payment of NEMESIO
VALENTON, ET. AL' back salaries.
It is true that the sale of a business of a going concern does not
ipso facto terminate the employer-employee relations insofar
as the successor-employer is concerned, and that change of
ownership or management of an establishment or company is
not one of the just causes provided by law for termination of
employment. The situation here, however, was not one of 8. Mactan Cebu Int'l Airport Authority vs. Marcos
simple change of ownership. Dosdos
MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY, petitioner, vs. HON. FERDINAND J.
MARCOS, in his capacity as the Presiding Judge of the
ALBERTO S. SUNIO and ILOCOS COMMERCIAL
Regional Trial Court, Branch 20, Cebu City, THE CITY
CORPORATION eventually acquired possession by virtue of
OF CEBU, represented by its Mayor, HON. TOMAS R.
the exercise of their right of redemption and of a Mandatory
OSMEA, and EUSTAQUIO B. CESA, respondents.
Injunction in their favor which ordered Nilo Villanueva and
"any person found in the premises" to vacate. What is more,
when EMRACO-CIPI sold the ice plant to RDFC in 1973,
NEMESIO VALENTON, ET. AL' employment was
FACTS:
terminated by EMRACO-CIPI and they were given their
separation pay, which they accepted. During the thirteen
months, therefore, that RDFC and ALBERTO S. SUNIO and
ILOCOS COMMERCIAL CORPORATION were in
possession and operating the plant up to August, 1974, they
5
TAXATION I | CASE DIGEST
Petitioner Mactan Cebu International Airport
Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to principally undertake the economical,
efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and
the Lahug Airport in Cebu City, x x x and such other airports
as may be established in the Province of Cebu x x x (Sec. 3,
RA 6958).
Since the time of its creation, petitioner MCIAA
enjoyed the privilege of exemption from payment of realty
taxes in accordance with Section 14 of its Charter:
Sec. 14. Tax Exemptions. -- The Authority shall be exempt
from realty taxes imposed by the National Government or any
of its political subdivisions, agencies and instrumentalities x x
x.
On October 11, 1994, however, Mr. Eustaquio
B. Cesa, Officer-in-Charge, Office of the Treasurer of the City
of Cebu, demanded payment for realty taxes on several parcels
of land belonging to the petitioner (Lot Nos. 913-G, 743, 88
SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F,
941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio
Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.
Petitioner objected to such demand for payment
as baseless and unjustified, claiming in its favor the aforecited
Section 14 of RA 6958 which exempts it from payment of
realty taxes. It was also asserted that it is an instrumentality of
the government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government
units:
Section 133. Common Limitations on the Taxing Powers of
Local Government Units. -- Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
a) x x x 1. Whether the parcels of land in question belong to the
x x x Republic of the Philippines whose beneficial use has been
o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
Respondent City refused to cancel and set aside
petitioners realty tax account, insisting that the MCIAA is a
government-controlled corporation whose tax exemption
privilege has been withdrawn by virtue of Sections 193 and
234 of the Local Government Code.
As the City of Cebu was about to issue a warrant
of levy against the properties of petitioner, the latter was
compelled to pay its tax account under protest and thereafter
filed a Petition for Declaratory Relief with the Regional Trial
Court of Cebu, Branch 20, on December 29, 1994. MCIAA
basically contended that the taxing powers of local
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
government units do not extend to the levy of taxes or fees of
any kind on an instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the
very nature of its powers and functions.
Respondent City, however, asserted that
MCIAA is not an instrumentality of the government but
merely a government-owned corporation performing
proprietary functions. As such, all exemptions previously
granted to it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local
Government Code when it took effect on January 1, 1992.
Petitioners claimed that its real properties
assessed by respondent City Government of Cebu are
exempted from paying realty taxes in view of the exemption
granted under RA 6958 to pay the same (citing Section 14 of
RA 6958).
However, RA 7160 expressly provides that, All
general and special laws, acts, city charters, decrees [sic],
executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with
any of the provisions of this Code are hereby repealed or
modified accordingly. (/f/, Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe
to infer and state that the tax exemption provided for in RA
6958 creating petitioner had been expressly repealed by the
provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the
assessed realty tax of its properties effective after January 1,
1992 until the present.
ISSUES:
granted to the petitioner.
2. Whether the petitioner is a taxable person.
RULING:
1. YES.
Section 15 of the petitioners Charter provides:
Sec. 15. Transfer of Existing Facilities and
Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the
airports, and all assets, powers, rights, interests and
privileges relating on airport works or air operations,
including all equipment which are necessary for the
operations of air navigation, aerodrome control towers, crash,
fire, and rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control of
all equipment necessary for the operation of radio aids to air
navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air
Transportation Office. No equipment, however, shall be
removed by the Air Transportation Office from Mactan
without the concurrence of the Authority. The Authority may
assist in the maintenance of the Air Transportation Office
equipment.
The airports referred to are the Lahug Air Port in
Cebu City and the Mactan International Airport in the
Province of Cebu, which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO).
It may be reasonable to assume that the term
lands refer to lands in Cebu City then administered by the
Lahug Air Port and includes the parcels of land the respondent
City of Cebu seeks to levy on for real property taxes. This
section involves a transfer of the lands, among other things, to
the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic of
the Philippines.
This transfer is actually an absolute conveyance
of the ownership thereof because the petitioners authorized
capital stock consists of, inter alia, the value of such real
estate owned and/or administered by the airports. Hence, the
petitioner is now the owner of the land in question and the
exception in Section 234(c) of the LGC is inapplicable.
2. YES.
The petitioner cannot claim that it was never a
taxable person under its Charter. It was only exempted from
the payment of real property taxes. The grant of the privilege
only in respect of this tax is conclusive proof of the legislative
intent to make it a taxable person subject to all taxes, except
real property tax.
Even if the petitioner was originally not a
taxable person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be
conceded to be an agency or instrumentality of the
6
Government, a taxable person for such purpose in view of the
withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier
adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner
is untenable. Reliance on Basco vs. Philippine Amusement and
Gaming Corporation is unavailing since it was decided before
the effectivity of the LGC. Besides, nothing can prevent
Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can
doubt its wisdom.
NB:
Section 234 of the LGC provides for the
exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural
and juridical persons, including government-owned and
controlled corporations, except as provided therein. It
provides:
SEC. 234. Exemptions from Real Property Tax.
The following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except when the
beneficial use thereof had been granted, for consideration or
otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages
or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable
or educational purposes;
(c) All machineries and equipment that are
actually, directly and exclusively used by local water districts
and government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemption from
payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical,
including all government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code.
These exemptions are based on the ownership,
character, and use of the property. Thus:
TAXATION I | CASE DIGEST
(a) Ownership Exemptions. Exemptions from
real property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province, (iii) a
city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and (iii)
non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real
property taxes on the basis of the actual, direct and exclusive
use to which they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively used
for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively
used by local water districts or by government-owned or
controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
and (iii) all machinery and equipment used for pollution
control and environmental protection.
To help provide a healthy environment in the
midst of the modernization of the country, all machinery and
equipment for pollution control and environmental protection
may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other
exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code.
9. Luzon Stevedoring Corp vs. CTA et al Dulay
LUZON STEVEDORING CORPORATION,
petitioner-appellant, vs. CTA and
COMMISSIONER OF INTERNAL
REVENUE, respondents-appellees.
G.R. No. L-30232 July 29, 1988
FACTS:
Luzon Stevedoring, in 1961 and 1962, for the
repair and maintenance of its tugboats, imported
various engine parts and other equipment for
which it paid, under protest, the assessed
compensating tax.
Unable to secure a tax refund from the CIR, on
January 2, 1964, it filed a Petition for Review
with the CTA, praying among others, that it be
granted the refund of the amount of P33,442.13.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
CTA: denied the various claims for tax refund,
finding petitioner's various claims for refund
amounting to P33,442.13 without sufficient legal
justification, the said claims have to be, as they
are hereby, denied.
ISSUES:
1. WON petitioner's tugboats" can be interpreted
to be included in the term "cargo vessels" for
purposes of the tax exemption provided for in
Section 190 of the National Internal Revenue
Code, as amended by Republic Act No. 3176.
2. WON The lower court erred in not allowing
the refund sought by petitioner-appellant.
HELD:
The pivotal issue in this case is whether or not
petitioner's tugboats" can be interpreted to be
included in the term "cargo vessels" for purposes
of the tax exemption provided for in Section 190
of the National Internal Revenue Code, as
amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And
Provided further, That the tax imposed in this
section shall not apply to articles to be used by
the importer himself in the manufacture or
preparation of articles subject to specific tax or
those for consignment abroad and are to form
part thereof or to articles to be used by the
importer himself as passenger and/or cargo
vessel, whether coastwise or oceangoing,
including engines and spare parts of said vessel.
....
LUZON STEVEDORING contends that
tugboats are embraced and included in the
term cargo vessel under the tax exemption
provisions of Section 190 of the Revenue
Code, as amended by Republic Act. No. 3176.
He argues that in legal contemplation, the
tugboat and a barge loaded with cargoes with the
former towing the latter for loading and
unloading of a vessel in part, constitute a single
vessel. Accordingly, it concludes that the
engines, spare parts and equipment imported by
it and used in the repair and maintenance of its
tugboats are exempt from compensating tax
(Rollo, p. 23).
On the other hand, respondents-appellees
counter that LUZON STEVEDORING's
"tugboats" are not "Cargo vessel" because
they are neither designed nor used for
carrying and/or transporting persons or
goods by themselves but are mainly employed
for towing and pulling purposes. As such, it
cannot be claimed that the tugboats in question
are used in carrying and transporting passengers
or cargoes as a common carrier by water, either
coastwise or oceangoing and, therefore, not
within the purview of Section 190 of the Tax
Code, as amended by Republic Act No. 3176
(Brief for Respondents-Appellees, pp. 45).
This Court has laid down the rule that "as the
power of taxation is a high prerogative of
sovereignty, the relinquishment is never
presumed and any reduction or dimunition
thereof with respect to its mode or its rate,
must be strictly construed, and the same must
be coached in clear and unmistakable terms
in order that it may be applied." (84 C.J.S. pp.
659-800), More specifically stated, the general
rule is that any claim for exemption from the
tax statute should be strictly construed
against the taxpayer (Acting Commissioner of
Customs v. Manila Electric Co. et al., 69 SCRA
469 [1977] and Commissioner of Internal
Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA
142 [1975]).
As correctly analyzed by the Court of Tax
Appeals, in order that the importations in
question may be declared exempt from the
compensating tax, it is indispensable that the
requirements of the amendatory law be complied
with, namely: (1) the engines and spare parts
must be used by the importer himself as a
passenger and/or cargo, vessel; and (2) the said
passenger and/or cargo vessel must be used in
coastwise or oceangoing navigation (Decision,
CTA Case No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the
amendatory provisions of Republic Act No.
3176 limit tax exemption from the compensating
tax to imported items to be used by the importer
himself as operator of passenger and/or cargo
vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax
Appeals, a tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or
power vessel, used for towing and, now, also
used for attendance on vessel. (Webster New
International Dictionary, 2nd Ed.)
A tugboat is a diesel or steam power vessel
designed primarily for moving large ships to and
from piers for towing barges and lighters in
harbors, rivers and canals. (Encyclopedia
International Grolier, Vol. 18, p. 256).
A tug is a steam vessel built for towing,
7
synonymous with tugboat. (Bouvier's Law
Dictionary.) (Rollo, p. 24).
Under the foregoing definitions, petitioner's
tugboats clearly do not fall under the
categories of passenger and/or cargo vessels.
Thus, it is a cardinal principle of statutory
construction that where a provision of law
speaks categorically, the need for interpretation
is obviated, no plausible pretense being
entertained to justify non-compliance. All that
has to be done is to apply it in every case that
falls within its terms (Allied Brokerage Corp. v.
Commissioner of Customs, L-27641, 40 SCRA
555 [1971]; Quijano, etc. v. DBP, L-26419, 35
SCRA 270 [1970]).
And, even if construction and interpretation of
the law is insisted upon, following another
fundamental rule that statutes are to be construed
in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima
etc., et al., L-42050-66, 86 SCRA 544 [1978], it
will be noted that the legislature in amending
Section 190 of the Tax Code by Republic Act
3176, as appearing in the records, intended to
provide incentives and inducements to bolster
the shipping industry and not the business of
stevedoring, as manifested in the sponsorship
speech of Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's
transactions, the Court of Tax Appeals found
that no evidence was adduced by petitioner-
appellant that tugboats are passenger and/or
cargo vessels used in the shipping industry as
an independent business. On the contrary,
petitioner-appellant's own evidence supports the
view that it is engaged as a stevedore, that is, the
work of unloading and loading of a vessel in
port; and towing of barges containing cargoes is
a part of petitioner's undertaking as a stevedore.
In fact, even its trade name is indicative that
its sole and principal business is stevedoring
and lighterage, taxed under Section 191 of the
National Internal Revenue Code as a
contractor, and not an entity which
transports passengers or freight for hire
which is taxed under Section 192 of the same
Code as a common carrier by water (Decision,
CTA Case No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no
plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.
As a matter of principle, this Court will not set
aside the conclusion reached by an agency such
as the Court of Tax Appeals, which is, by the
very nature of its function, dedicated exclusively
to the study and consideration of tax problems
and has necessarily developed an expertise on
the subject unless there has been an abuse or
TAXATION I | CASE DIGEST
improvident exercise of authority (Reyes v.
Commissioner of Internal Revenue, 24 SCRA
199 [1981]), which is not present in the instant
case.
Court of Tax Appeals is AFFIRMED.
10. Caltex Phils. Inc. vs. COA Macatol
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner, vs. THE
HONORABLE COMMISSION ON AUDIT,
HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER
ALBERTO P. CRUZ, respondents. DAVIDE, JR., J.:
Facts:
COA directed petitioner Caltex Philippines, Inc. (CPI) to remit
to the OPSF (Oil Price Stabilization Fund) its collection,
excluding that unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized under Section
8 of P.D. No. 1956 which, as of 9 March 1989, amounted to
P1,287,668,820.00 and informed it that, pending such
remittance, all of its claims for reimbursement from the OPSF
shall be held in abeyance and to desist from further offsetting
the taxes collected against outstanding claims in 1989 and
subsequent periods. Petitioner requested the COA for an early
release of its reimbursement certificates from the OPSF
covering claims with the Office of Energy Affairs since June
1987 up to March 1989, invoking in support thereof COA
Circular No. 89-299 but the COA denied petitioner's request.
Petitioner submitted to the COA a proposal for the payment of
the collections and the recovery of claims, since the outright
payment of the sum of P1.287 billion to the OEA as a
prerequisite for the processing of said claims against the OPSF
will cause a very serious impairment of its cash position. COA
approved the proposal but prohibited Caltex from further
offsetting remittances and reimbursements for the current and
ensuing years. Caltex filed an Omnibus Request for the
Reconsideration of the decision.
Issue:
Whether the amounts due from Caltex to the OPSF may be
offset against Caltex’ outstanding claims from said funds. No.
Held:
Taxation is no longer envisioned as a measure merely to raise
revenue to support the existence of the 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. 57 There can be no doubt that the oil industry is
greatly imbued with public interest as it vitally affects the
general welfare. Any unregulated increase in oil prices could
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
hurt the lives of a majority of the people and cause economic
crisis of untold proportions. It would have a chain reaction in
terms of, among others, demands for wage increases and
upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is of prime concern which the
state, via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly
provides that the source of OPSF is taxation. No amount of
semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government. 58 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. 59
In respect to the taxes for the OPSF, the oil companies merely
act as agents for the Government in the latter's collection since
the taxes are, in reality, passed unto the end-users –– the
consuming public. In that capacity, the petitioner, as one of
such companies, has the primary obligation to account for and
remit the taxes collected to the administrator of the OPSF.
This duty stems from the fiduciary relationship between the
two; petitioner certainly cannot be considered merely as a
debtor. In respect, therefore, to its collection for the OPSF vis-
a-vis its claims for reimbursement, no compensation is
likewise legally feasible. Firstly, the Government and the
petitioner cannot be said to be mutually debtors and creditors
of each other. Secondly, there is no proof that petitioner's
claim is already due and liquidated. Under Article 1279 of the
Civil Code, in order that compensation may be proper, it is
necessary that:
(1) each one of the obligors be bound principally,
and that he be at the same time a principal creditor of the
other;
(2) both debts consist in a sum of :money, or if the
things due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor.
That compensation had been the practice in the past can set no
valid precedent. Such a practice has no legal basis. Lastly,
R.A. No. 6952 does not authorize oil companies to offset their
claims against their OPSF contributions. Instead, it prohibits
the government from paying any amount from the Petroleum
Price Standby Fund to oil companies which have outstanding
obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil
Code.
11. Osmena vs. Orbos Pacquiao, L
FACTS
PD 1956 (creating a Special Account in the General Fund) was
issued by President Marcos to create the Oil Price
Stabilization Fund (OPSF) designed to reimburse oil
companies for cost increases in crude oil resulting from
exchange rate fluctuations and from increases in the prices of
oil in the world market. Subsequently, the OPSF was
reclassified into a "trust liability account," in virtue of E.O.
1024, and ordered released from the National Treasury to the
Ministry of Energy.
It was later amended by EO 137 (promulgated by Corazon
Aquino) which expands the grounds for reimbursement to oil
companies for possible cost under recover (incurred as a result
of the reduction of domestic prices of petroleum products.
In 1991, the OPSF incurred a deficit to which the Energy
Regulatory Board (ERB) tried to resolve such problem by
issuing an order to increase pump prices of petroleum and
such shall have covered the OPSF deficit within 6 months.
Petitioner Osmena reacted to this by claiming that the OPSF
should be treated as a special fund and not as a trust account
fund because a special tax collected for a specific purpose
shall have its revenue expended for such purposes only and
not channeled to another government objective.
The petitioner does not suggest that a "trust account" is illegal
per se, but maintains that the monies collected, which form
part of the OPSF, should be maintained in a special account of
the general fund for the reason that the Constitution so
provides, and because they are, supposedly, taxes levied for a
special purpose.
Moreover, Osmena assails the constitutionality of paragraph
1c of PD 1956, as amended by EO 137, empowering the
Energy Regulatory Board (ERB) to approve the increase of
fuel prices or impose additional amounts on petroleum
products which proceeds shall accrue to the Oil Price
Stabilization Fund (OPSF) established for the reimbursement
to ailing oil companies in the event of sudden price increases.
He stated that PD 1956 is unconstitutional because it confers
invalid delegation to ERB. It thus appears that the challenge
posed by the petitioner is premised primarily on the view that
the powers granted to the ERB under PD 1956, partake the
nature of the taxation power of the State.
8
ISSUES
1. Whether or not there exists an undue delegation of the
legislative power of taxation (NO)
2. Whether or not the OPSF is unconstitutional (NO)
HELD
1. With regard to the alleged undue delegation of legislative
power, the Court finds that the provision conferring the
authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which
the authority must be exercised. In addition to the general
policy of the law to protect the local consumer by
stabilizing and subsidizing domestic pump rates, P.D. 1956
expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.
2. No. It seems clear that while the funds collected may be
referred to as taxes, they are exacted in the exercise of the
police power of the State. It is levied with a regulatory
purpose, to provide a means for the stabilization of the
petroleum products industry. The levy is primarily in the
exercise of the police power of the State. Moreover, that
the OPSF as a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the
general fund; and while it is placed in what the law refers
to as a "trust liability account," the fund nonetheless
remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the
constitutional description of a "special fund."
12. Churchill et al vs. Concepcion Tado
G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART TAIT, ET
AL, plaintiffs-appellants,
vs.
VENANCIO CONCEPCION, as Acting Collector of
Internal Revenue, defendant-appellee.
Facts:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 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." This section was
subsequently amended by Act No. 2432, effective January 1,
1915, by reducing the tax on such signs, billboards, etc., to P2
per square meter or fraction thereof. Section 26 of Act No.
2432 was in turn amended by Act No. 2445, but this
amendment does not in any way affect the questions involved
in the case under consideration. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United
States on March 4, 1915.
TAXATION I | CASE DIGEST
Francis A. Churchill and Stewart Tait, copartners doing
business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard containing
an area of 52 square meters constructed on private property in
the city of Manila and exposed to public view, were taxes
thereon P104. The tax was paid under protest and the plaintiffs
having exhausted all their administrative remedies instituted
the present action under section 140 of Act No. 2339 against
the Collector of Internal Revenue to recover back the amount
thus paid.
ISSUE: WHETHER OR NOT tax is void for lack of
uniformity, because it is not graded according to value;
because the classification on which it is based on any
reasonable ground; and furthermore, because it constitutes
double taxation.
RULING: NO
If it be conceded that the Legislature has the power to impose
a tax upon signs, signboards, and billboards, then "the judicial
cannot prescribed to the legislative department of the
Government limitation upon the exercise of its acknowledge
powers." (Veazie Bank vs. Fenno, 8 Wall., 533, 548.) That the
Philippine Legislature has the power to impose such taxes, we
think there can be no serious doubt, because "the power to
impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. It reaches to
every trade or occupation; to every object of industry, use, or
enjoyment; to every species of possession; and it imposes a
burden which, in case of failure to discharge it, may be
followed by seizure and sale or confiscation of property. No
attribute of sovereignty is more pervading, and at no point
does the power of the government affect more constantly and
intimately all the relations of life than through the exactions
made under it."
If a case were presented where the abuse of the taxing power
of the local legislature was to extreme as to make it plain to
the judicial mind that the power had been exercised for the
sole purpose of destroying rights which could not be rightfully
destroyed consistently with the principles of freedom and
justice upon which the Philippine Government rests, then it
would be the duty of the courts to say that such an arbitrary act
was not merely an abuse of the power, but was the exercise of
an authority not conferred. (McCray vs. U.S., supra.) But the
instant case is not one of that character, for the reason that the
tax herein complained of falls far short of being confiscatory.
Consequently, it cannot be held that the Legislature has gone
beyond the power conferred upon it by the Philippine Bill in
so far as the amount of the tax is concerned.
Is the tax void for lack of uniformity or because it is not
graded according to value or constitutes double taxation, or
because the classification upon which it is based is mere
arbitrary selection and not based on any reasonable grounds?
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
The only limitation, in so far as these questions are concerned,
placed upon the Philippine Legislature in the exercise of its
taxing power is that found in section 5 of the Philippine Bill,
wherein it is declared "that the rule of taxation in said Islands
shall be uniform."
The statute under consideration imposes a tax of P2 per square
meter or fraction thereof upon every electric sign, bill-board,
etc., wherever found in the Philippine Islands. Or in other
words, "the rule of taxation" upon such signs is uniform
throughout the Islands. The rule, which we have just quoted
from the Philippine Bill, does not require taxes to be graded
according to the value of the subject or subjects upon which
they are imposed, especially those levied as privilege or
occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land
upon which the billboards are located is taxed at so much per
unit and the billboards at so much per square meter does not
constitute "double taxation." Double taxation, within the true
meaning of that expression, does not necessarily affect its
validity. (1 Cooley on Taxation, 3d ed., 389.)
And again, it is not for the judiciary to say that the
classification upon which the tax is based "is mere arbitrary
selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for
taxation and it must be presumed that it, in so doing, acted
with a full knowledge of the situation.
13. CIR vs. Lingayen Gulf Electric Power Co., Inc.
Banuelos
TOPIC: Scope of Legislative Taxing Power
G.R. No. L-23771 August 4, 1988
THE COMMISSIONER OF INTERNAL REVENUE, vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE
COURT OF TAX APPEALS.
Ponente: SARMIENTO, J.
Facts:
Taxpayer Lingayen Gulf Electric Power Co., Inc., operates an
electric power plant serving the adjoining municipalities of
Lingayen and Binmaley, both in the province of Pangasinan,
pursuant to the municipal franchise granted it by their
respective municipal councils, under Resolution Nos. 14 and
25 of June 29 and July 2, 1946, respectively. Section 10 of
these franchises provide that:
...The said grantee in consideration of the franchise hereby
granted, shall pay quarterly into the Provincial Treasury of
Pangasinan, one per centum (1%) of the gross earnings
obtained thru this privilege during the first twenty years and
two per centum (2%) during the remaining fifteen years of the
life of said franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to LINGAYEN GULF
ELECTRIC POWER CO., INC.
On November 21, 1955, the Bureau of Internal Revenue (BIR)
assessed against and demanded from LINGAYEN GULF
ELECTRIC POWER CO., INC. the total amount of P19,
293.41 representing deficiency franchise taxes and surcharges
for the years 1946 to 1954 applying the franchise tax rate of
5% on gross receipts from March 1, 1948 to December 31,
1954 as prescribed in Section 259 of the National Internal
Revenue Code, instead of the lower rates as provided in the
municipal franchises.
On September 29, 1956, LINGAYEN GULF ELECTRIC
POWER CO., INC. requested for a reinvestigation of the case
on the ground that instead of incurring a deficiency liability, it
made an overpayment of the franchise tax. On April 30, 1957,
the BIR through its regional director, denied LINGAYEN
GULF ELECTRIC POWER CO., INC.'s request for
reinvestigation and reiterated the demand for payment of the
same. In its letters dated July 2, and August 9, 1958 to the
COMMISSIONER OF INTERNAL REVENUE
Commissioner, LINGAYEN GULF ELECTRIC POWER
CO., INC. protested the said assessment and requested for a
conference with a view to settling the liability amicably. In his
letters dated July 25 and August 28, 1958, the Commissioner
denied the request of LINGAYEN GULF ELECTRIC
POWER CO., INC. Thus, the appeal to the Court of Tax
Appeals on September 19, 1958, docketed as C.T.A. Case No.
581.
Pending the hearing of the said cases, Republic Act (R.A.) No.
3843 was passed on June 22, 1963, granting to LINGAYEN
GULF ELECTRIC POWER CO., INC. a legislative franchise
for the operation of the electric light, heat, and power system
in the same municipalities of Pangasinan. Section 4 thereof
provides that:
In consideration of the franchise and rights hereby granted, the
grantee shall pay into the Internal Revenue office of each
9
Municipality in which it is supplying electric current to the
public under this franchise, a tax equal to two per centum (2%)
of the gross receipts from electric current sold or supplied
under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial or national, now or in the future, on
its poles, wires, insulator ... and on its franchise, rights,
privileges, receipts, revenues and profits, from which taxes
and/or licenses, the grantee is hereby expressly exempted and
effective further upon the date the original franchise was
granted, no other tax and/or licenses other than the
franchise tax of two per centum (2%) on the gross receipts
as provided for in the original franchise shall be collected,
any provision of law to the contrary notwithstanding.
On September 15, 1964, COURT OF TAX APPEALS ruled
that the provisions of R.A. No. 3843 should apply and
accordingly dismissed the claim of the Commissioner of
Internal Revenue.
It is the contention of the COMMISSIONER OF INTERNAL
REVENUE Commissioner of Internal Revenue that
LINGAYEN GULF ELECTRIC POWER CO., INC. should
have been held liable for the 5% franchise tax on gross
receipts prescribed in Section 259 of the Tax Code, instead of
the lower franchise tax rates provided in the municipal
franchises (1% of gross earnings for the first twenty years and
2% for the remaining fifteen years of the life of the franchises)
because Section 259 of the Tax Code, as amended by RA No.
39 of October 1, 1946, applied to existing and future
franchises.
The franchises of LINGAYEN GULF ELECTRIC POWER
CO., INC. were already in existence at the time of the
adoption of the said amendment, since the franchises were
accepted on March 1, 1948 after approval by the President of
the Philippines on February 24, 1948. LINGAYEN GULF
ELECTRIC POWER CO., INC.'s original franchises did not
contain the proviso that the tax provided therein "shall be in
lieu of all taxes;" moreover, the franchises contained a
reservation clause that they shall be subject to amendment,
alteration, or repeal, but even in the absence of such cause, the
power of the Legislature to alter, amend, or repeal any
franchise is always deemed reserved. The franchise of
LINGAYEN GULF ELECTRIC POWER CO., INC. have
been modified or amended by Section 259 of the Tax Code,
the COMMISSIONER OF INTERNAL REVENUE submits.
The COMMISSIONER OF INTERNAL REVENUE also
submits that the said law is unconstitutional insofar as it
provides for the payment by LINGAYEN GULF ELECTRIC
POWER CO., INC. of a franchise tax of 2% of its gross
receipts, while other taxpayers similarly situated were subject
to the 5% franchise tax imposed in Section 259 of the Tax
Code, thereby discriminatory and violative of the rule on
uniformity and equality of taxation.
TAXATION I | CASE DIGEST
Legal Issue #1: W/N the 5% franchise tax according to
Section 259 of National Internal Revenue Code should be
applied instead of 2% franchise tax under RA 8343.
Held:
NO. 2% franchise tax should be applied under 8343.
R.A. No. 3843 granted LINGAYEN GULF ELECTRIC
POWER CO., INC. a legislative franchise in June, 1963,
amending, altering, or even repealing the original municipal
franchises, and providing that LINGAYEN GULF ELECTRIC
POWER CO., INC. should pay only a 2% franchise tax on its
gross receipts, "in lieu of any and all taxes and/or licenses of
any kind, nature or description levied, established, or collected
by any authority whatsoever, municipal, provincial, or
national, now or in the future ... and effective further upon the
date the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum on the
gross receipts ... shall be collected, any provision of law to the
contrary notwithstanding." Thus, by virtue of R.A- No. 3843,
LINGAYEN GULF ELECTRIC POWER CO., INC. was
liable to pay only the 2% franchise tax, effective from the date
the original municipal franchise was granted.
Legal Issue #2: W/N RA 3843 is unconstitutional for being
violative of the rule on uniformity and equality of taxation.
Held:
NO. RA 8343 is valid and constitutional.
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
violative of the equal protection clause. It is true that
LINGAYEN GULF ELECTRIC POWER CO., INC.s
municipal franchises were obtained under Act No. 667 2 of the
Philippine Commission, but these original franchises have
been replaced by a new legislative franchise, i.e. R.A. No.
3843. As correctly held by the COURT OF TAX APPEAL,
the latter was granted subject to the terms and conditions
established in Act No. 3636, as amended by C.A. No. 132.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
These conditions Identify LINGAYEN GULF ELECTRIC
POWER CO., INC.'s power plant as falling within that class of
power plants created by Act No. 3636, as amended. The
benefits of the tax reduction provided by law (Act No. 3636 as
amended by C.A. No. 132 and R.A. No. 3843) apply to the
LINGAYEN GULF ELECTRIC POWER CO., INC.'s power
plant and others circumscribed within this class. R.A-No. 3843
merely transferred the COMMISSIONER OF INTERNAL
REVENUE's power plant from that class provided for in Act
No. 667, as amended, to which it belonged until the approval
of R.A- No. 3843, and placed it within the class falling under
Act No. 3636, as amended. Thus, it only effected the transfer
of a taxable property from one class to another.
We do not have the authority to inquire into the wisdom of
such act. Furthermore, the 5% franchise tax rate provided
in Section 259 of the Tax Code was never intended to have
a universal application. We note that the said Section 259 of
the Tax Code expressly allows the payment of taxes at rates
lower than 5% when the charter granting the franchise of a
grantee, like the one granted to LINGAYEN GULF
ELECTRIC POWER CO., INC. under Section 4 of R.A. No.
3843, precludes the imposition of a higher tax. R.A. No. 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," thus, leaving no room for doubt
regarding the legislative intent.
"Charters or special laws granted and enacted by the
Legislature are in the nature of private contracts. They do not
constitute a part of the machinery of the general government.
They are usually adopted after careful consideration of the
private rights in relation with resultant benefits to 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 consider (sic) and make
(sic) provision for all the circumstances of a particular case." 5
In view of the foregoing, we find no reason to disturb the
COURT OF TAX APPEAL's ruling upholding the
constitutionality of the law in question.
Given its validity, should the said law be applied retroactively
so as to render uncollectible the taxes in question which were
assessed before its enactment? The question of whether a
statute operates retrospectively or only prospectively depends
on the legislative intent. In the instant case, Act No. 3843
provides that "effective ... upon the date the original franchise
was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts ... shall
be collected, any provision to the contrary notwithstanding."
Republic Act No. 3843 therefore specifically provided for the
retroactive effect of the law.
14. Bisaya Land Transpo Co., vs. Collector of
Internal Revenue Dosdos
BISAYA LAND TRANSPORTATION CO., INC. vs
COLLECTOR OF INTERNAL REVENUE
NB: An assessment is the official action of an
administrative officer determining the amount of tax due
from a taxpayer, or it may be the notice to the effect that
the amount therein stated is due from the taxpayer that the
payment of the tax or deficiency stated therein.
FACTS:
Between June 1945 and January 15, 1957, petitioner Bisaya
Land Transportation Co., acquired equipment from the United
States Commercial Co. which it used in the operation of its
buses, without paying the corresponding compensating and
specific taxes. On investigation of its books by revenue agents,
it was discovered that its gross receipts of the transportation
business from 1946 to 1951 were not declared for taxation. It
was also found out that from 1945 to 1952, the petitioner
issued freight receipts but the corresponding documentary
stamps were not affixed thereto. A deficiency additional
residence tax was also determined.
After a series of exchange communications between the
petitioner and the respondent Collector of Internal Revenue,
the latter assessed the petitioner and demanded the total
amount of P 4, 949. 91, consisting of (1) compensating tax; (2)
common carrier’s percentage tax; (3) documentary stamp tax;
and (4) additional residence tax.
On January 11, 1955, the present petition for review was filed
with the Court of Tax Appeals, which rendered a decision
upholding the assessment, as to the deficiency common
carrier’s percentage tax for 1946 and the first quarter of 1947
and the additional residence tax for 1947, the collection of
which was held to be barred by the statute of limitations.
10
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
15. CIR vs. Santos Dulay RTC: Declaring Section 104 of the Tariff and the Custom
Code of the Philippines, Hdg, 71.01, 71.02, 71.03, and 71.04,
Chapter 71 as amended by Executive Order No. 470, imposing
three to ten (3% to 10%) percent tariff and customs duty on
[G.R. No. 119252. August 18, 1997] natural and cultured pearls and precious or semi-precious
stones, and Section 150 par. (a)the National Internal Revenue
COMMISIONER OF INTERNAL REVENUE and Code of 1977, as amended, renumbered and rearranged by
COMMISIONER OF CUSTOMS, petitioners, Executive Order 273, imposing twenty (20%) percent excise
tax on jewelry, pearls and other precious stones, as
vs. RTC Judge APOLINARIO B. SANTOS, ANTONIO M. INOPERATIVE and WITHOUT FORCE and EFFECT
MARCO; JEWELRY BY MARCO & CO., INC., and insofar as petitioners are concerned.
GUILD OF PHILIPPINE JEWELLERS, INC.,
respondents. Under the foregoing factual circumstances, the Court finds
the questioned statutory provisions confiscatory and
FACTS: destructive of the proprietary right of the petitioners to
engage in business in violation of Section 1, Article III of
the Constitution which states, as follows:
There is a judicial pronouncement of the RTC that certain
provisions of the Tariff & Customs Code and the National No person shall be deprived of the life, liberty, or property
Internal Revenue Code are unconstitutional. The without due process of law x x x.[12]
Commissioner of Internal Revenue and the Commissioner of
Customs jointly seek the reversal of the RTC Decision. xxx
Guild of Philippine Jewelers, Inc., is an association of Filipino ISSUE:
jewelers engaged in the manufacture of jewelers (sic) and
allied undertakings. Antonio M. Marco is the President of the
Guild.
1. WON the RTC has authority to pass judgment upon
the taxation policy of the government. No.
The BIR, acting for and in behalf of the CIR, issued Regional 2. WON there was showing that the tax laws on jewelry
Mission Order to BIR officers to conduct surveillance, are confiscatory and destructive of private respondents
monitoring, and inventory of all imported articles of Hans proprietary rights.
Brumann, Inc., and place the same under preventive embargo.
Accordingly, Mr. Hans Brumann, the owner of the
establishment, signed a receipt for Goods, Articles, and Things HELD:
Seized under Authority of the National Internal Revenue
Code, acknowledging that the articles inventoried have been We rule in favor of the petitioners.
seized and left in his possession, and promising not to dispose
of the same without authority of the Commissioner of Internal
Revenue pending investigation. It is interesting to note that public respondent, in the
dispositive portion of his decision, perhaps keeping in mind
his limitations under the law as a trial judge, did not go so far
Subsequently, BIR officer submitted to his superiors a report as to declare the laws in question to be unconstitutional.
of the inventory conducted and a computation of the value- However, therein he declared the laws to be inoperative and
added tax and ad valorem tax on the articles for evaluation and without force and effect insofar as the private respondents are
disposition. concerned. But, respondent judge, in the body of his
decision, unequivocally but wrongly declared the said
Similar Letters of Authority were issued to BIR officers to provisions of law to be violative of Section 1, Article III of
examine the books of accounts and other accounting records the Constitution. In fact, in their Supplemental Comment on
of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold the Petition for Review,[14] the private respondents insist that
International Traders, Inc., for stocktaking/investigation for Judge Santos, in his capacity as judge of the Regional Trial
excise tax purpose for the period January 1, 1988 to present. Court, acted within his authority in passing upon the issues, to
wit:
Respondents Antonio M. Marco and Jewelry By Marco & Co.,
Inc. filed with the RTC, a petition for declaratory relief with A perusal of the appealed decision would undoubtedly
writ of preliminary injunction and/or temporary restraining disclose that public respondent did not pass judgment on
order against herein petitioners and Revenue Regional the soundness or wisdom of the government's tax policy on
Director Felicidad L. Viray (docketed as Civil Case No. jewelry. True, public respondent, in his questioned decision,
56736) praying that Sections 126, 127(a) and (b) and 150 (a) observed, inter alia, that indeed government tax policy treats
of the National Internal Revenue Code and Hdg. No 71.01, jewelry as non-essential item, and therefore, taxed heavily;
71.02, 71.03 and 71.04, Chapter 71 of the Tariff and Customs that the present tariff and tax structure increase manufacturing
Code of the Philippines be declared unconstitutional and void, cost and renders the local jewelry manufacturers
and that the Commissioner of Internal Revenue and Customs uncompetitive against other countries even before they start
be prevented or enjoined from issuing mission orders and manufacturing and trading; that many of the local
other orders of similar nature. x x x manufacturers do not legally exist or operate unofficially or
underground; and that the manufacturers have no recourse but
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
to the back door for smuggled goods if only to be able to
compete even if ineffectively or cease manufacturing
activities.
BUT, public respondent did not, in any manner, interfere
with or encroach upon the prerogative of the legislature to
determine what should be the tax policy on jewelry. On the
other hand, the issue raised before, and passed upon by, the
public respondent was whether or not Section 150, paragraph
(a) of the National Internal Revenue Code (NIRC) and Section
104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the Tariff and
Customs Code are unconstitutional, or differently stated,
whether or not the questioned statutory provisions affect the
constitutional right of private respondents to engage in
business.
It is submitted that RTC judge confined himself on this issue
which is clearly a judicial question.
We find it incongruous, in the face of the sweeping
pronouncements made by Judge Santos in his decision, that
private respondents can still persist in their argument that the
former did not overreach the restrictions dictated upon him by
law. There is no doubt in the Courts mind, despite
protestations to the contrary, that respondent judge
encroached upon matters properly falling within the
province of legislative functions. In citing as basis for his
decision unproven comparative data pertaining to differences
between tax rates of various Asian countries, and concluding
that the jewelry industry in the Philippines suffers as a result,
the respondent judge took it upon himself to supplant
legislative policy regarding jewelry taxation. In advocating
the abolition of local tax and duty on jewelry simply
because other countries have adopted such policies, the
respondent judge overlooked the fact that such matters are
not for him to decide. There are reasons why jewelry, a non-
essential item, is taxed as it is in this country, and these
reasons, deliberate upon by our legislature, are beyond the
reach of judicial questioning. As held in Macasiano vs.
National Housing Authority:
The policy of our courts is to avoid ruling on constitutional
questions and to presume that the acts of the political
departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to
sustain, this presumption is based on the doctrine of separation
of powers which enjoins upon each department a becoming
respect for the acts of the other departments. The theory is that
as the joint act of Congress and the President of the
Philippines, a law has been carefully studied and determined
to be in accordance with the fundamental law before it was
finally enacted. (emphasis ours)
What we see here is a debate on the WISDOM of the laws in
question. This is a matter on which the RTC is not competent
to rule. As Cooley observed: Debatable questions are for the
legislature to decide. The courts do not sit to resolve the merits
of conflicting issues.[17] In Angara vs. Electoral
Commission,[18] Justice Laurel made it clear that the
judiciary does not pass upon question of wisdom, justice or
expediency of legislation. And fittingly so, for in the exercise
of judicial power, we are allowed only to settle actual
controversies involving rights which are legally demandable
and enfoceable, and may not annul an act of the political
departments simply because we feel it is unwise or
11
impractical.[19] This is not to say that Regional Trial Courts
have no power whatsoever to declare a law unconstitutional.
In J. M. Tuason and Co. v. Court of Appeals[20] we said that
[p]lainly the Constitution contemplates that the inferior
courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of
appellate review of final judgments of inferior courts in
cases where such constitutionality happens to be in issue.
this authority of lower courts to decide questions of
constitutionality in the first instance was reaffirmed in
Ynos v. Intermediate Court of Appeals. But this authority
does not extend to deciding questions which pertain to
legislative policy.
The trial court is not the proper forum for the ventilation
of the issues raised by the private respondents. The
arguments they presented focus on the wisdom of the
provisions of law which they seek to nullify. Regional Trial
Courts can only look into the validity of a provision, that is,
whether or not it has been passed according to the procedures
laid down by law, and thus cannot inquire as to the reasons for
its existence. Granting arguendo that the private
respondents may have provided convincing arguments
why the jewelry industry in the Philippines should not be
taxed as it is, it is to the legislature that they must resort to
for relief, since with the legislature primarily lies the
discretion to determine the nature (kind), object (purpose),
extent (rate), coverage (subjects) and situs (place) of
taxation. This Court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on legislative
judgment.
As succinctly put in Lim vs. Pacquing:[23] Where a
controversy may be settled an a platform other than one
involving constitutional adjudication, the court should exercise
becoming modesty and avoid the constitutional question. As
judges, we can only interpret and apply the law and, despite
our doubts about its wisdom, cannot repeal or amend it.[24]
The respondents presented an exhaustive study on the tax rates
on jewelry levied by different Asian countries. This is meant
to convince us that compared to other countries, the tax rates
imposed on said industry in the Philippines is oppressive and
confiscatory. This Court, however, cannot subscribe to the
theory that the tax rates of other countries should be used as a
yardstick in determining what may be the proper subjects of
taxation in our own country. It should be pointed out that in
imposing the aforementioned taxes and duties, the State,
acting through the legislative and executive branches, is
exercising its sovereign prerogative. It is inherent in the power
to tax that the State be free to select the subjects of taxation,
and it has been repeatedly held that inequalities which result
from singling out of one particular class for taxation, or
exemption, infringe no constitutional limitation.[25]
TAXATION I | CASE DIGEST
16. Misamis Oriental Assoc. of Coconut Traders
Inc. vs. DOF Macatol
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO
TRADERS, INC., petitioner, vs. DEPARTMENT OF
FINANCE SECRETARY, COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE (BIR), AND
REVENUE DISTRICT OFFICER, BIR MISAMIS
ORIENTAL, respondents. MENDOZA, J.:
Facts:
Petitioner Misamis Oriental Association of Coco Traders, Inc.
is engaged in the buying and selling of copra in Misamis
Oriental. The petitioner alleges that prior to the issuance of
Revenue Memorandum Circular 47-91 on June 11, 1991,
which implemented VAT Ruling 190-90, copra was classified
as agricultural food product under Section 103(b) of the
National Internal Revenue Code and, therefore, exempt from
VAT at all stages of production or distribution.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions. — The following shall be
exempt from the value-added tax:
(a) Sale of nonfood agricultural, marine and forest products in
their original state by the primary producer or the owner of the
land where the same are produced;
(b) Sale or importation in their original state of agricultural
and marine food products, livestock and poultry of a kind
generally used as, or yielding or producing foods for human
consumption, and breeding stock and genetic material
therefor;
Under §103(a), as above quoted, the sale of agricultural non-
food products in their original state is exempt from VAT only
if the sale is made by the primary producer or owner of the
land from which the same are produced. The sale made by any
other person or entity, like a trader or dealer, is not exempt
from the tax. On the other hand, under §103(b) the sale of
agricultural food products in their original state is exempt
from VAT at all stages of production or distribution regardless
of who the seller is.
On June 11, 1991, respondent Commissioner of Internal
Revenue issued the circular in question, classifying copra as
an agricultural non-food product and declaring it "exempt
from VAT only if the sale is made by the primary producer
pursuant to Section 103(a) of the Tax Code, as amended."
The reclassification had the effect of denying to the petitioner
the exemption it previously enjoyed when copra was classified
as an agricultural food product under §103(b) of the NIRC.
Petitioner challenges RMC No. 47-91 on various grounds,
which will be presently discussed although not in the order
raised in the petition for prohibition.
Issue:
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Whether RMC No. 47-91 is counterproductive because traders
and dealers would be forced to buy copra from coconut
farmers who are exempt from the VAT and that to the extent
that prices are reduced the government would lose revenues as
the 10% tax base is correspondingly diminished. No
Held:
The sale of agricultural non-food products is exempt from
VAT only when made by the primary producer or owner of
the land from which the same is produced, but in the case of
agricultural food products their sale in their original state is
exempt at all stages of production or distribution. At any rate,
the argument that the classification of copra as agricultural
non-food product is counterproductive is a question of wisdom
or policy which should be addressed to respondent officials
and to Congress.
Another Issue:
Petitioner complains that it was denied due process because it
was not heard before the ruling was made. No.
Held:
There is a distinction in administrative law between legislative
rules and interpretative rules. 3 There would be force in
petitioner's argument if the circular in question were in the
nature of a legislative rule. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is in the
nature of subordinate legislation, designed to implement a
primary legislation by providing the details thereof. In the
same way that laws must have the benefit of public hearing, it
is generally required that before a legislative rule is adopted
there must be hearing. In this connection, the Administrative
Code of 1987 provides:
Public Participation. — If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate notices
of proposed rules and afford interested parties the opportunity
to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid
unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks before
the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be
observed. 4
In addition such rule must be published.5 On the other hand,
interpretative rules are designed to provide guidelines to the
law which the administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to
make three inquiries: (i) whether the rule is within the
delegated authority of the administrative agency; (ii) whether
it is reasonable; and (iii) whether it was issued pursuant to
proper procedure. But the court is not free to substitute its
judgment as to the desirability or wisdom of the rule for the
legislative body, by its delegation of administrative judgment,
has committed those questions to administrative judgments
and not to judicial judgments. In the case of an interpretative
rule, the inquiry is not into the validity but into the correctness
or propriety of the rule. As a matter of power a court, when
confronted with an interpretative rule, is free to (i) give the
force of law to the rule; (ii) go to the opposite extreme and
substitute its judgment; or (iii) give some intermediate degree
of authoritative weight to the interpretative rule. 6
In the case at bar, we find no reason for holding that
respondent Commissioner erred in not considering copra as an
"agricultural food product" within the meaning of § 103(b) of
the NIRC. The Commissioner of Internal Revenue is not
bound by the ruling of his predecessors. 7 To the contrary, the
overruling of decisions is inherent in the interpretation of laws.
Another Issue:
Whether copra is an agricultural food or non-food product for
purposes of this provision of the NIRC. Agricultural food
Held:
In interpreting §103(a) and (b) of the NIRC, the Commissioner
of Internal Revenue gave it a strict construction consistent
with the rule that tax exemptions must be strictly construed
against the taxpayer and liberally in favor of the state. Indeed,
even Dr. Kintanar said that his classification of copra as food
was based on "the broader definition of food which includes
agricultural commodities and other components used in the
manufacture/processing of food."
Moreover, as the government agency charged with the
enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is
plainly wrong, is entitled to great weight. Indeed, the ruling
was made by the Commissioner of Internal Revenue in the
exercise of his power under § 245 of the NIRC to "make
rulings or opinions in connection with the implementation of
the provisions of internal revenue laws, including rulings on
the classification of articles for sales tax and similar
purposes."
17. Chavez vs. Ongpin Pacquiao, L
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance
and FIDELINA CRUZ, in her capacity as Acting
Municipal Treasurer of the Municipality of Las Piñas,
respondents, REALTY OWNERS ASSOCIATION OF
THE PHILIPPINES, INC., petitioner-intervenor.
FACTS
12
On November 25, 1986, President Corazon Aquino issued EO
73 (PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL
PROPERTY VALUES, AS PROVIDED FOR UNDER
SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED) stating that beginning January 1, 1987, the 1984
assessments shall be the basis of real property taxes. Francisco
Chavez, a taxpayer and landowner, questioned the
constitutionality of EO 74. He alleges that it will bring
unreasonable increase in real property taxes.
Petitioner Chavez, is a taxpayer and an owner of three parcels
of land. He alleges the following:
1. that EO 73 accelerated the application of the
general revision of assessments to January 1, 1987
thereby mandating an excessive increase in real
property taxes by 100% to 400% on improvements,
and up to 100% on land;
2. that any increase in the value of real property
brought about by the revision of real property
values and assessments would necessarily lead to a
proportionate increase in real property taxes;
3. that sheer oppression is the result of increasing real
property taxes at a period of time when harsh
economic conditions prevail; and
4. that the increase in the market values of real
property as reflected in the schedule of values was
brought about only by inflation and economic
recession.
Intervenor Realty Owners Association of the Philippines, Inc.
(ROAP), which is the national association of owners-lessors,
joins Chavez in his petition to declare unconstitutional EO No.
73, but additionally alleges the following:
1. that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional
one percent (1%) tax on all property owners to
raise funds for education, as real property tax is
admittedly a local tax for local governments;
2. that the General Revision of Assessments does not
meet the requirements of due process as regards
publication, notice of hearing, opportunity to be
heard and insofar as it authorizes "replacement
cost" of buildings (improvements) which is not
provided in Presidential Decree No. 464, but only
in an administrative regulation of the Department
of Finance; and
3. that the Joint Local Assessment/Treasury
Regulations No. 2-86 2 is even more oppressive
and unconstitutional as it imposes successive
increase of 150% over the 1986 tax.
ISSUE:
Is Executive Order 73 unconstitutional?
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA

RULING:
No. Without EO 73, the basis for collection of real property
taxes will still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the
increases in the value of real properties that have occurred
since then is not in consonance with a sound tax system.
Petitioners contend that EO 273 is unconstitutional on the
Ground that the President had no authority to issue EO 273 on
25 July 1987.
ISSUE: WHETHER EO 273 IS UNCONSTITUTIONAL on
the Ground that the President had no authority to issue EO 273
on 25 July 1987.
The 1987 Constitution mentions a specific date when the G.R. No. 104786 January 27, 1994
President loses her power to legislate. If the framers of said
Constitution had intended to terminate the exercise of
legislative powers by the President at the beginning of the
term of office of the members of Congress, they should have ALFREDO PATALINGHUG, vs. HON. COURT OF
so stated (but did not) in clear and unequivocal terms. The APPEALS, RICARDO CRIBILLO, MARTIN ARAPOL,
Court has not power to re-write the Constitution and give it a CORAZON ALCASID, PRIMITIVA SEDO.
meaning different from that intended.

RULING: NO Ponente: ROMERO, J.

Fiscal adequacy, which is one of the characteristics of a sound
tax system, requires that sources of revenue must be adequate
to meet government expenditures and their variations.
18. Kapatiran Ng Mga Naglilingkod sa Pamahalaan
ng Pilipines vs. Tan Tado
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA
PAMAHALAAN NG PILIPINAS, INC.,
HERMINIGILDO C. DUMLAO, GERONIMO Q.
QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, respondent.
Facts:
These four (4) petitions seek to nullify Executive Order No.
273 for being unconstitutional in that its enactment is not
alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of
the 1987 Constitution.
The VAT is a tax levied on a wide range of goods and
services. It is a tax on the value, added by every seller, with
aggregate gross annual sales of articles and/or services,
exceeding P200,00.00, to his purchase of goods and services,
unless exempt. VAT is computed at the rate of 0% or 10% of
the gross selling price of goods or gross receipts realized from
the sale of services.
The VAT is said to have eliminated privilege taxes, multiple
rated sales tax on manufacturers and producers, advance sales
tax, and compensating tax on importations. The framers of EO
273 that it is principally aimed to rationalize the system of
taxing goods and services; simplify tax administration; and
make the tax system more equitable, to enable the country to
attain economic recovery.
It should be recalled that under Proclamation No. 3, which
decreed a Provisional Constitution, sole legislative authority
was vested upon the President. Art. II, sec. 1 of the Provisional
Constitution states:
Sec. 1. Until a legislature is elected and convened under a new
Constitution, the President shall continue to exercise
legislative powers.
On 15 October 1986, the Constitutional Commission of 1986
adopted a new Constitution for the Republic of the Philippines
which was ratified in a plebiscite conducted on 2 February
1987. Article XVIII, sec. 6 of said Constitution, hereafter
referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
It should be noted that, under both the Provisional and the
1987 Constitutions, the President is vested with legislative
powers until a legislature under a new Constitution is
convened. The first Congress, created and elected under the
1987 Constitution, was convened on 27 July 1987. Hence, the
enactment of EO 273 on 25 July 1987, two (2) days before
Congress convened on 27 July 1987, was within the
President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was
really convened on 30 June 1987 (not 27 July 1987). He
contends that the word "convene" is synonymous with "the
date when the elected members of Congress assumed office."
The contention is without merit. The word "convene" which
has been interpreted to mean "to call together, cause to
assemble, or convoke," 1 is clearly different from assumption
of office by the individual members of Congress or their
taking the oath of office. As an example, we call to mind the
interim National Assembly created under the 1973
Constitution, which had not been "convened" but some
members of the body, more particularly the delegates to the
1971 Constitutional Convention who had opted to serve
therein by voting affirmatively for the approval of said
Constitution, had taken their oath of office.
The Court also finds no merit in the petitioners' claim that EO
273 was issued by the President in grave abuse of discretion
amounting to lack or excess of jurisdiction.
Petitioners have failed to show that EO 273 was issued
capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It appears
that a comprehensive study of the VAT had been extensively
discussed by this framers and other government agencies
involved in its implementation, even under the past
administration.
They have failed to adequately show that the VAT is
oppressive, discriminatory or unjust. Petitioners merely rely
upon newspaper articles which are actually hearsay and have
evidentiary value. To justify the nullification of a law. there
must be a clear and unequivocal breach of the Constitution,
not a doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a
valid tax. It is uniform.
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt, at
the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engage in business with
an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm
and marine products, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within the
reach of the general public.
19. Patalinghug vs. CA Banuelos
TOPIC: Basic Principles of a Sound Tax System
Facts:
On November 17, 1982, the Sangguniang Panlungsod of
Davao City enacted Ordinance No. 363, series of 1982
otherwise known as the "Expanded Zoning Ordinance of
Davao City," Section 8 of which states:
Sec. 8. USE REGULATIONS IN C-2 DISTRICTS
(Shaded light red in the Expanded Zoning Map) — AC-2
District shall be dominantly for commercial and compatible
industrial uses as provided hereunder:
xxx xxx xxx
3.1 Funeral Parlors/Memorial Homes with adequate off
street parking space (see parking standards of P.D. 1096) and
provided that they shall be established not less than 50
meters from any residential structures, churches and other
institutional buildings.
Upon prior approval and certification of zoning compliance by
Zoning Administrator issued on February 10, 1987 Building
Permit No. 870254 in favor of PATALINGHUG for the
construction of a funeral parlor in the name and style of
Metropolitan Funeral Parlor at Cabaguio Avenue, Agdao,
Davao City.
Thereafter, PATALINGHUG commenced the construction of
his funeral parlor.
Acting on the complaint of several residents of Barangay
Agdao, Davao City that the construction of
PATALINGHUG's funeral parlor violated Ordinance No. 363,
since it was allegedly situated within a 50-meter radius from
the Iglesia ni Kristo Chapel and several residential structures,
the Sangguniang Panlungsod conducted an investigation and

Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros 13
TAXATION I | CASE DIGEST
found that "the nearest residential structure, owned by Wilfred
G. Tepoot is only 8 inches to the south. . . . ."
Notwithstanding the findings of the Sangguniang Panlungsod,
PATALINGHUG continued to construct his funeral parlor
which was finished on November 3, 1987.
Consequently, RICARDO CRIBILLO, et al filed on
September 6, 1988 a case for the declaration of nullity of a
building permit with preliminary prohibitory and mandatory
injunction and/or restraining order with the trial court.
RTC: dismissed the complaint based on the following
findings:
1. that the residential building owned by Cribillo and Iglesia ni
Kristo chapel are 63.25 meters and 55.95 meters away,
respectively from the funeral parlor.
2. Although the residential building owned by certain Mr.
Tepoot is adjacent to the funeral parlor, and is only separated
therefrom by a concrete fence, said residential building is
being rented by a certain Mr. Asiaten who actually devotes it
to his laundry business with machinery thereon.
Hence, RICARDO CRIBILLO, et al appealed to the Court of
Appeals.
CA: Reversed the lower court by annulling building permit
No. 870254 issued in favor of PATALINGHUG. It ruled that
although the buildings owned by Cribillo and Iglesia ni Kristo
were beyond the 50-meter residential radius prohibited by
Ordinance 363, the construction of the funeral parlor was
within the 50-meter radius measured from the Tepoot's
building. The Appellate Court disagreed with the lower court's
determination that Tepoot's building was commercial and
ruled that although it was used by Mr. Tepoot's lessee for
laundry business, it was a residential lot as reflected in the
tax declaration, thus paving the way for the application of
Ordinance No. 363.
Legal Issue: W/N the lot where Tepoot’s building stand should
be considered as a residential lot not commercial/industrial.
Held:
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
NO. It is considered commercial or industrial notwithstanding
the tax declaration.
The reversal by the Court of Appeals of the trial court's
decision was based on Tepoot's building being declared for
taxation purposes as residential. It is our considered view,
however, that a tax declaration is not conclusive of the
nature of the property for zoning purposes. A property may
have been declared by its owner as residential for real estate
taxation purposes but it may well be within a commercial
zone. A discrepancy may thus exist in the determination of the
nature of property for real estate taxation purposes vis-a-vis
the determination of a property for zoning purposes.
Needless to say, even if we are to examine the evidentiary
value of a tax declaration under the Real Property Tax Code, a
tax declaration only enables the assessor to identify the same
for assessment levels. In fact, a tax declaration does not
bind a provincial/city assessor, for under Sec. 22 of the
Real Estate Tax Code, appraisal and assessment are based
on the actual use irrespective of "any previous assessment
or taxpayer's valuation thereon," which is based on a
taxpayer's declaration. In fact, a piece of land declared by a
taxpayer as residential may be assessed by the provincial or
city assessor as commercial because its actual use is
commercial.
The trial court's determination that Mr. Tepoot's building is
commercial and, therefore, Sec. 8 is inapplicable, is
strengthened by the fact that the Sangguniang Panlungsod has
declared the questioned area as commercial or C-2.
Consequently, even if Tepoot's building was declared for
taxation purposes as residential, once a local government has
reclassified an area as commercial that determination for
zoning purposes must prevail. While the commercial character
of the questioned vicinity has been declared thru the
ordinance, RICARDO CRIBILLO, et al have failed to present
convincing arguments to substantiate their claim that
Cabaguio Avenue, where the funeral parlor was constructed,
was still a residential zone. Unquestionably, the operation of a
funeral parlor constitutes a "commercial purpose," as gleaned
from Ordinance No. 363.
The declaration of the said area as a commercial zone thru a
municipal ordinance is an exercise of police power to promote
the good order and general welfare of the people in the
locality. Corollary thereto, the state, in order to promote the
general welfare, may interfere with personal liberty, with
property, and with business and occupations. Thus, persons
may be subjected to certain kinds of restraints and burdens in
order to secure the general welfare of the state and to this
fundamental aim of government, the rights of the individual
may be subordinated. The ordinance which regulates the
location of funeral homes has been adopted as part of
comprehensive zoning plans for the orderly development of
the area covered thereunder.
20. Taganito vs. Mining vs. CIR, CTA Dosdos
TAGANITO MINING CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE
NATURE: A claim for refund of excise taxes in mineral
products allegedly overpaid by Taganito Mining Corporation.
FACTS:
Petitioner Corporation has been expressly
granted a permit by the government via an
operating contract to explore, develop and utilize
mineral deposits found in a specified portion of a
mineral reservation area located in Surigao del
Norte and owned by the government. In
exchange for the privilege given, Taganito
Mining Corporation is obliged to pay royalty to
the government over and above other taxes.
During the period covering the months of July to December
1989, petitioner removed, shipped and sold substantial
quantities of Beneficiated Nickel Silicate ore and chromite ore
and as a consequence paid excise taxes in the amount of P 6,
277, 993.65 in compliance with section 151 (3) of the Tax
Code. The 5% excise tax was based on the amount and weight
shown in the provisional invoice issued by Taganito Mining
Corporation. These metallic minerals are then shipped abroad
to Japanese buyers where these minerals are analyzed
allegedly by independent surveyors upon unloading at its port
of destination. The analysis abroad would oftentimes reveal a
different value for the metallic minerals from that indicated in
the temporary or provisional invoice submitted by seller
Taganito Mining Corporation. There is almost always a
variance in the MARKET VALUES between that shown in
the provisional invoice and that indicated in the final
calculation sheet presented by the buyers.
The differences reveal that variances occur in the
weight of the shipment or the price of the
metallic minerals per kilogram and sometimes in
their metallic content resulting in discrepancies
in the total selling price. It is always the price
indicated in the final invoice that is
determinative of the amount that the buyers will
eventually pay Taganito.
Petitioner(TAGANITO) has no quarrel with the
price that they will receive from the clients for
the metallic minerals sold, it however claims that
there has been overpayment of excise taxes
14
already paid to the government declaring that the
5% excise taxes were based on the amount
indicated in the provisional invoice and final
computation show that if it based its excise taxes
on the amount shown in the final invoice, which
they assert is the actual market value, they
would have been required to pay a lesser
amount.
According to Petitioner, it is entitled to claim for a refund of
excise taxes in the amount of P 362, 628.82 because the actual
market value that should be made the basis of these taxes is
that amount specified by the independent surveyor abroad
after analysis of the products and indicated in the final
calculation sheet. To strengthen this assertion, petitioner
mentioned the fact that even the government in receiving the
royalties due it from the mining corporation based the 5% for
nickel and 8% for chromite royalty fees in the amount
indicated in the final invoice, which is the rate determined
after its analysis abroad.
Commissioner defense:
(1) Claim for refund is subject pending administrative
investigation;
(2) Tax was collected in accordance with law;
(3) Burden of proof is upon the taxpayer to establish the right
to refund;
(4) Mere allegations of refund ability do not ipso facto merit
refund claimed;
(5) Claims for refund of taxes are construed strictly against
claimant, it being in the nature of an exemption;
(6) TMC’s right to claim for refund is already barred after
failing to file it within the 2 year prescriptive period, which
should be counted from the time specified by law for payment
and not on the date of actual payment.
ISSUES:
1. WON TMC is entitled to refund.
2. WON the actual market value that should be used should be
the market value after the assessment abroad was conducted.
HELD:
1. NO. Tax refund partake of the nature of an exemption,
and as such, tax exemption cannot be allowed unless granted
in the most explicit and categorical language. Taxes are what
we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate
and operate it.
TAXATION I | CASE DIGEST
2. NO. Use market value right after removal from the bed
or mines.
Sec. 151(3) of the Tax Code1: on all metallic minerals, a tax
of five percent (5%) based on the actual market value of the
gross output thereof at the time of removal, in the case of
those locally extracted or produced: or the value used by the
Bureau of Customs in determining tariff and customs duties,
net of excise tax and value-added tax, in case of importation.
The law refers to the actual market value of the
minerals at the time these minerals were moved
away from the position it occupied, i.e.
Philippine valuation and analysis because it is in
this country where these minerals were
extracted, removed and eventually shipped
abroad. To reckon the actual market value at the
time of removal is also consistent with the
essence of an excise tax. It is a charge upon the
privilege of severing or extracting minerals from
the earth, and is due and payable upon removal
of the mineral products from its bed or mines
(Republic Cement vs. Comm, 23 SCRA967).
The law is clear. It does not speak of actual
market value at the time the mineral products are
unloaded at the country of destination neither
does it speak of the selling price as the basis of
the excise tax. The law even requires payment of
excise taxes upon the removal of the mineral
product or quarry resources from the locality
where mined or upon removal from customs
custody in the case of importations (Sec. 151 ©
of the Tax Code). It would then necessitate an
analysis of these metallic minerals upon its
removal to be able to accomplish the payment of
excise taxes as required by law.
Furthermore, it would be impossible for one to
comply with the date prescribed by law for
payment of excise taxes if one has to wait for the
final analysis to be done in the country where it
is to be shipped and certainly impractical. This
set-up established by the petitioner is contrary to
the principle of administrative feasibility which
is one of the basic principles of a sound tax
system. Tax laws should be capable of
convenient, just and effective administration
which is why it fixes a standard or a uniform tax
base upon which taxes should be paid. In the
case of excise taxes on mineral and mineral
products, the basis provided by law is the actual
market value of these minerals at the time of
removal.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
21. Roxas vs. CTA Dulay
TOPIC: TAXATION DISTINGUISHED
FROM POLICE POWER AND EMINENT
DOMAIN
G.R. No. L-25043 April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y
CIA., in their own respective behalf and as judicial co-
guardians of JOSE ROXAS
Vs. COURT OF TAX APPEALS and COMMISSIONER
OF INTERNAL REVENUE
FACTS:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects,
transmitted to their grandchildren by hereditary succession the
following properties:
(1) Agricultural lands with a total area of 19,000 hectares,
situated in the municipality of Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate,
Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children,
namely, Antonio Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants
who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas
y Cia. the parcels which they actually occupied. For its part,
the Government, in consonance with the constitutional
mandate to acquire big landed estates and apportion them
among landless tenants-farmers, persuaded the Roxas
brothers to part with their landholdings. Conferences were
held with the farmers in the early part of 1948 and finally the
Roxas brothers agreed to sell 13,500 hectares to the
Government for distribution to actual occupants for a price
of P2,079,048.47 plus P300,000.00 for survey and subdivision
expenses.
It turned out however that the Government did not have
funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance
Corporation to advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such loan were the lands
proposed to be sold to the farmers. Under the arrangement,
Roxas y Cia. allowed the farmers to buy the lands for the same
price but by installment, and contracted with the
Rehabilitation Finance Corporation to pay its loan from the
proceeds of the yearly amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said
installment payments a net gain of P42,480.83 and
P29,500.71. 50% of said net gain was reported for income
tax purposes as gain on the sale of capital asset held for
more than one year pursuant to Section 34 of the Tax
Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the
residential house at Wright St., Malate, Manila, which they
inherited from their grandparents. After Antonio and Eduardo
got married, they resided somewhere else leaving only Jose in
the old house. In fairness to his brothers, Jose paid to Roxas y
Cia. rentals for the house in the sum of P8,000.00 a year.
ASSESSMENTS
On June 17, 1958, the CIR demanded from Roxas y Cia the
payment of real estate dealer's tax for 1952 in the amount of
P150.00 plus P10.00 compromise penalty for late payment,
and P150.00 tax for dealers of securities for 1952 plus P10.00
compromise penalty for late payment. The assessment for real
estate dealer's tax was based on the fact that Roxas y Cia.
received house rentals from Jose Roxas in the amount of
P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of
a real estate who derives a yearly rental income therefrom in
the amount of P3,000.00 or more is considered a real estate
dealer and is liable to pay the corresponding fixed tax.
The CIR justified his demand for the fixed tax on dealers
of securities against Roxas y Cia., on the fact that said
partnership made profits from the purchase and sale of
securities.
In the same assessment, the Commissioner assessed
deficiency income taxes against the Roxas Brothers for the
years 1953 and 1955, as follows: xxx
The deficiency income taxes resulted from the inclusion as
income of Roxas y Cia. of the unreported 50% of the net
profits for 1953 and 1955 derived from the sale of the
Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses
and contributions claimed by Roxas y Cia. and the Roxas
brothers. For the reason that Roxas y Cia. subdivided its
Nasugbu farm lands and sold them to the farmers on
installment, the Commissioner considered the partnership
as engaged in the business of real estate, hence, 100% of
the profits derived therefrom was taxed.
The following deductions were disallowed:
xxx
The Roxas brothers protested the assessment but
inasmuch as said protest was denied, they instituted an
appeal in the Court of Tax Appeals on January 9, 1961.
CTA: sustaining the assessment except the demand for the
payment of the fixed tax on dealer of securities and the
disallowance of the deductions for contributions to the
15
Philippine Air Force Chapel and Hijas de Jesus' Retiro de
Manresa. Roxas’ were ordered to pay the CIR as deficiency
income taxes for the years 1953 and 1955, plus 5% surcharge
and 1% monthly interest as provided for in Sec. 51(a) of the
Revenue Code; and modified with respect to the partnership
Roxas y Cia. in the sense that it should pay only P150.00, as
real estate dealer's tax.
ISSUES:
(1) Is the gain derived from the sale of the Nasugbu farm lands
an ordinary gain, hence 100% taxable? (No, capital gain= 50%
taxable only)
(2) Is Roxas y Cia. liable for the payment of the fixed tax on
real estate dealers?
Contention:
CIR: contends that Roxas y Cia. could be considered a real
estate dealer because it engaged in the business of selling
real estate. The business activity alluded to was the act of
subdividing the Nasugbu farm lands and selling them to the
farmers-occupants on installment. To bolster his stand on the
point, he cites one of the purposes of Roxas y Cia. as
contained in its articles of partnership.
HELD:
The above-quoted purpose notwithstanding, the proposition
of the Commissioner of Internal Revenue cannot be
favorably accepted by the SC in this isolated transaction
with its peculiar circumstances in spite of the fact that
there were hundreds of vendees. Although they paid for their
respective holdings in installment for a period of ten years, it
would nevertheless not make the vendor Roxas y Cia. a real
estate dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm
lands to the very farmers who tilled them for generations was
not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to
allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very
reasonable terms and prices. However, the Government could
not comply with its duty for lack of funds. Obligingly, Roxas
y Cia. shouldered the Government's burden, went out of its
way and sold lands directly to the farmers in the same way and
under the same terms as would have been the case had the
Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing
the people's gratitude.
The power of taxation is sometimes called also the power
TAXATION I | CASE DIGEST
to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the
tax collector kill the "hen that lays the golden egg". And,
in order to maintain the general public's trust and
confidence in the Government this power must be used
justly and not treacherously. It does not conform with Our
sense of justice in the instant case for the Government to
persuade the taxpayer to lend it a helping hand and later
on to penalize him for duly answering the urgent call.
In fine, Roxas y Cia. CANNOT be considered a real estate
dealer for the sale in question. Hence, pursuant to Section 34
of the Tax Code the lands sold to the farmers are capital
assets, and the gain derived from the sale thereof is capital
gain, taxable only to the extent of 50%.
xxx
Lastly, Roxas y Cia. questions the imposition of the real estate
dealer's fixed tax upon it, because although it earned a rental
income of P8,000.00 per annum in 1952, said rental income
came from Jose Roxas, one of the partners. Section 194 of the
Tax Code, in considering as real estate dealers owners of
real estate receiving rentals of at least P3,000.00 a year,
does not provide any qualification as to the persons paying
the rentals. The law, which states:
. . . "Real estate dealer" includes any person engaged in the
business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year: . . .
(Emphasis supplied)
is too clear and explicit to admit construction. The findings of
the Court of Tax Appeals or, this point is sustained.
To Summarize, no deficiency income tax is due for 1953
from Antonio Roxas, Eduardo Roxas and Jose Roxas.
For 1955 they are liable to pay deficiency income tax in the
sum of P109.00, P91.00 and P49.00, respectively, computed
as follows:
xxx
Roxas y Cia. is hereby ordered to pay the sum of P150.00 as
real estate dealer's fixed tax for 1952, and Antonio Roxas,
Eduardo Roxas and Jose Roxas are ordered to pay the
respective sums of P109.00, P91.00 and P49.00 as their
individual deficiency income tax all corresponding for the year
1955.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
22. Tanada vs. Angara Macatol
WIGBERTO E. TAñADA and ANNA DOMINIQUE
COSETENG, as members of the Philippine Senate and as
taxpayers ET AL VS. vs. EDGARDO ANGARA,
ALBERTO ROMULO ET AL PANGANIBAN, J.:
Facts:
On April 15, 1994, Respondent Rizalino Navarro, then
Secretary of the Department of Trade and Industry (Secretary
Navarro, for brevity), representing the Government of the
Republic of the Philippines, signed in Marrakesh, Morocco,
the Final Act Embodying the Results of the Uruguay Round of
Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act,[2] Secretary Navarro on behalf of the
Republic of the Philippines, agreed:
(a) to submit, as appropriate, the WTO Agreement for the
consideration of their respective competent authorities, with a
view to seeking approval of the Agreement in accordance with
their procedures; and
(b) to adopt the Ministerial Declarations and Decisions.
On August 12, 1994, the members of the Philippine Senate
received a letter dated August 11, 1994 from the President of
the Philippines,[3] stating among others that the Uruguay
Round Final Act is hereby submitted to the Senate for its
concurrence pursuant to Section 21, Article VII of the
Constitution.
. United Nations stationed in Geneva, Switzerland, to submit a
On August 13, 1994, the members of the Philippine Senate
received another letter from the President of the Philippines[4]
likewise dated August 11, 1994, which stated among others
that the Uruguay Round Final Act, the Agreement
Establishing the World Trade Organization, the Ministerial
Declarations and Decisions, and the Understanding on
Commitments in Financial Services are hereby submitted to
the Senate for its concurrence pursuant to Section 21, Article
VII of the Constitution.
On December 9, 1994, the President of the Philippines
certified the necessity of the immediate adoption of P.S. 1083,
a resolution entitled Concurring in the Ratification of the
Agreement Establishing the World Trade Organization.[5]
On December 14, 1994, the Philippine Senate adopted
Resolution No. 97 which Resolved, as it is hereby resolved,
that the Senate concur, as it hereby concurs, in the ratification
by the President of the Philippines of the Agreement
Establishing the World Trade Organization.[6] The text of the
WTO Agreement is written on pages 137 et seq. of Volume I
of the 36-volume Uruguay Round of Multilateral Trade
Negotiations and includes various agreements and associated
legal instruments (identified in the said Agreement as Annexes
1, 2 and 3 thereto and collectively referred to as Multilateral
Trade Agreements, for brevity).
On December 16, 1994, the President of the Philippines
signed[7] the Instrument of Ratification.
To emphasize, the WTO Agreement ratified by the President
of the Philippines is composed of the Agreement Proper and
the associated legal instruments included in Annexes one (1),
two (2) and three (3) of that Agreement which are integral
parts thereof.
On the other hand, the Final Act signed by Secretary Navarro
embodies not only the WTO Agreement but also (1) the
Ministerial Declarations and Decisions and (2) the
Understanding on Commitments in Financial Services. In his
Memorandum dated May 13, 1996,[8] the Solicitor General
describes these two latter documents as follows:
The Ministerial Decisions and Declarations are twenty-five
declarations and decisions on a wide range of matters, such as
measures in favor of least developed countries, notification
procedures, relationship of WTO with the International
Monetary Fund (IMF), and agreements on technical barriers to
trade and on dispute settlement.
The Understanding on Commitments in Financial Services
dwell on, among other things, standstill or limitations and
qualifications of commitments to existing non-conforming
measures, market access, national treatment, and definitions of
non-resident supplier of financial services, commercial
presence and new financial service.
On December 29, 1994, the present petition was filed. After
careful deliberation on respondents comment and petitioners
reply thereto, the Court resolved on December 12, 1995, to
give due course to the petition, and the parties thereafter filed
their respective memoranda. The Court also requested the
Honorable Lilia R. Bautista, the Philippine Ambassador to the
paper, hereafter referred to as Bautista Paper,[9] for brevity, (1)
providing a historical background of and (2) summarizing the
said agreements.
During the Oral Argument held on August 27, 1996, the Court
directed:
(a) the petitioners to submit the (1) Senate Committee Report
on the matter in controversy and (2) the transcript of
proceedings/hearings in the Senate; and
(b) the Solicitor General, as counsel for respondents, to file (1)
a list of Philippine treaties signed prior to the Philippine
adherence to the WTO Agreement, which derogate from
Philippine sovereignty and (2) copies of the multi-volume
WTO Agreement and other documents mentioned in the Final
Act, as soon as possible.
After receipt of the foregoing documents, the Court said it
would consider the case submitted for resolution. In a
Compliance dated September 16, 1996, the Solicitor General
submitted a printed copy of the 36-volume Uruguay Round of
Multilateral Trade Negotiations, and in another Compliance
dated October 24, 1996, he listed the various bilateral or
multilateral treaties or international instruments involving
derogation of Philippine sovereignty. Petitioners, on the other
hand, submitted their Compliance dated January 28, 1997, on
January 30, 1997.
16
The Issues
DO THE PROVISIONS OF SAID AGREEMENT AND ITS
ANNEXES LIMIT, RESTRICT, OR IMPAIR THE
EXERCISE OF LEGISLATIVE POWER BY CONGRESS?
Yes
Held:
The WTO Agreement provides that (e)ach Member shall
ensure the conformity of its laws, regulations and
administrative procedures with its obligations as provided in
the annexed Agreements.[39] Petitioners maintain that this
undertaking unduly limits, restricts and impairs Philippine
sovereignty, specifically the legislative power which under
Sec. 2, Article VI of the 1987 Philippine Constitution is vested
in the Congress of the Philippines. It is an assault on the
sovereign powers of the Philippines because this means that
Congress could not pass legislation that will be good for our
national interest and general welfare if such legislation will
not conform with the WTO Agreement, which not only relates
to the trade in goods x x x but also to the flow of investments
and money x x x as well as to a whole slew of agreements on
socio-cultural matters x x x.[40]
More specifically, petitioners claim that said WTO proviso
derogates from the power to tax, which is lodged in the
Congress.[41] And while the Constitution allows Congress to
authorize the President to fix tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts, such authority is subject to specified limits and x x x
such limitations and restrictions as Congress may provide,[42]
as in fact it did under Sec. 401 of the Tariff and Customs
Code.
Sovereignty Limited by International Law and Treaties
This Court notes and appreciates the ferocity and passion by
which petitioners stressed their arguments on this issue.
However, while sovereignty has traditionally been deemed
absolute and all-encompassing on the domestic level, it is
however subject to restrictions and limitations voluntarily
agreed to by the Philippines, expressly or impliedly, as a
member of the family of nations. Unquestionably, the
Constitution did not envision a hermit-type isolation of the
country from the rest of the world. In its Declaration of
Principles and State Policies, the Constitution adopts the
generally accepted principles of international law as part of the
law of the land, and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity, with all nations."[43]
By the doctrine of incorporation, the country is bound by
generally accepted principles of international law, which are
considered to be automatically part of our own laws.[44] One of
the oldest and most fundamental rules in international law is
pacta sunt servanda -- international agreements must be
performed in good faith. A treaty engagement is not a mere
moral obligation but creates a legally binding obligation on the
parties x x x. A state which has contracted valid international
obligations is bound to make in its legislations such
modifications as may be necessary to ensure the fulfillment of
the obligations undertaken.[45]
By their inherent nature, treaties really limit or restrict the
absoluteness of sovereignty. By their voluntary act, nations
TAXATION I | CASE DIGEST
may surrender some aspects of their state power in exchange
for greater benefits granted by or derived from a convention or
pact. After all, states, like individuals, live with coequals, and
in pursuit of mutually covenanted objectives and benefits, they
also commonly agree to limit the exercise of their otherwise
absolute rights. Thus, treaties have been used to record
agreements between States concerning such widely diverse
matters as, for example, the lease of naval bases, the sale or
cession of territory, the termination of war, the regulation of
conduct of hostilities, the formation of alliances, the regulation
of commercial relations, the settling of claims, the laying
down of rules governing conduct in peace and the
establishment of international organizations.[46] The
sovereignty of a state therefore cannot in fact and in reality be
considered absolute. Certain restrictions enter into the picture:
(1) limitations imposed by the very nature of membership in
the family of nations and (2) limitations imposed by treaty
stipulations.As aptly put by John F. Kennedy, Today, no
nation can build its destiny alone. The age of self-sufficient
nationalism is over. The age of interdependence is here.[47]
UN Charter and Other Treaties Limit Sovereignty
Thus, when the Philippines joined the United Nations as one
of its 51 charter members, it consented to restrict its sovereign
rights under the concept of sovereignty as auto-limitation.47-A
Under Article 2 of the UN Charter, (a)ll members shall give
the United Nations every assistance in any action it takes in
accordance with the present Charter, and shall refrain from
giving assistance to any state against which the United Nations
is taking preventive or enforcement action. Such assistance
includes payment of its corresponding share not merely in
administrative expenses but also in expenditures for the peace-
keeping operations of the organization. In its advisory opinion
of July 20, 1961, the International Court of Justice held that
money used by the United Nations Emergency Force in the
Middle East and in the Congo were expenses of the United
Nations under Article 17, paragraph 2, of the UN
Charter.Hence, all its members must bear their corresponding
share in such expenses. In this sense, the Philippine Congress
is restricted in its power to appropriate. It is compelled to
appropriate funds whether it agrees with such peace-keeping
expenses or not. So too, under Article 105 of the said Charter,
the UN and its representatives enjoy diplomatic privileges and
immunities, thereby limiting again the exercise of sovereignty
of members within their own territory.Another example:
although sovereign equality and domestic jurisdiction of all
members are set forth as underlying principles in the UN
Charter, such provisos are however subject to enforcement
measures decided by the Security Council for the maintenance
of international peace and security under Chapter VII of the
Charter. A final example: under Article 103, (i)n the event of a
conflict between the obligations of the Members of the United
Nations under the present Charter and their obligations under
any other international agreement, their obligation under the
present charter shall prevail, thus unquestionably denying the
Philippines -- as a member -- the sovereign power to make a
choice as to which of conflicting obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into
many other international pacts -- both bilateral and multilateral
-- that involve limitations on Philippine sovereignty. These are
enumerated by the Solicitor General in his Compliance dated
October 24, 1996, as follows:
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
(a) Bilateral convention with the United States regarding taxes
on income, where the Philippines agreed, among others, to
exempt from tax, income received in the Philippines by,
among others, the Federal Reserve Bank of the United States,
the Export/Import Bank of the United States, the Overseas
Private Investment Corporation of the United States. Likewise,
in said convention, wages, salaries and similar remunerations
paid by the United States to its citizens for labor and personal
services performed by them as employees or officials of the
United States are exempt from income tax by the Philippines.
(b) Bilateral agreement with Belgium, providing, among
others, for the avoidance of double taxation with respect to
taxes on income.
(c) Bilateral convention with the Kingdom of Sweden for the
avoidance of double taxation.
(d) Bilateral convention with the French Republic for the
avoidance of double taxation.
(e) Bilateral air transport agreement with Korea where the
Philippines agreed to exempt from all customs duties,
inspection fees and other duties or taxes aircrafts of South
Korea and the regular equipment, spare parts and supplies
arriving with said aircrafts.
(f) Bilateral air service agreement with Japan, where the
Philippines agreed to exempt from customs duties, excise
taxes, inspection fees and other similar duties, taxes or charges
fuel, lubricating oils, spare parts, regular equipment, stores on
board Japanese aircrafts while on Philippine soil.
(g) Bilateral air service agreement with Belgium where the
Philippines granted Belgian air carriers the same privileges as
those granted to Japanese and Korean air carriers under
separate air service agreements.
(h) Bilateral notes with Israel for the abolition of transit and
visitor visas where the Philippines exempted Israeli nationals
from the requirement of obtaining transit or visitor visas for a
sojourn in the Philippines not exceeding 59 days.
(I) Bilateral agreement with France exempting French
nationals from the requirement of obtaining transit and visitor
visa for a sojourn not exceeding 59 days.
(j) Multilateral Convention on Special Missions, where the
Philippines agreed that premises of Special Missions in the
Philippines are inviolable and its agents can not enter said
premises without consent of the Head of Mission
concerned.Special Missions are also exempted from customs
duties, taxes and related charges.
(k) Multilateral Convention on the Law of Treaties. In this
convention, the Philippines agreed to be governed by the
Vienna Convention on the Law of Treaties.
(l) Declaration of the President of the Philippines accepting
compulsory jurisdiction of the International Court of Justice.
The International Court of Justice has jurisdiction in all legal
disputes concerning the interpretation of a treaty, any question
of international law, the existence of any fact which, if
established, would constitute a breach of international Registration and Permit, and Imposing Penalties for Violations
obligation. thereof and for other Purposes." The ordinance provided for,
among other things, the payment of franchise fees for the grant
In the foregoing treaties, the Philippines has effectively agreed of the franchise of tricycles-for-hire, fees for the registration of
to limit the exercise of its sovereign powers of taxation, the vehicle, and fees for the issuance of a permit for the
eminent domain and police power. The underlying driving thereof.
consideration in this partial surrender of sovereignty is the
reciprocal commitment of the other contracting states in
granting the same privilege and immunities to the Philippines,
its officials and its citizens. The same reciprocity characterizes Petitioner LTO explains that one of the functions of the
the Philippine commitments under WTO-GATT. national government that, indeed, has been transferred to local
government units is the franchising authority over tricycles-
for-hire of the Land Transportation Franchising and
International treaties, whether relating to nuclear disarmament,
Regulatory Board ("LTFRB") but not, it asseverates, the
human rights, the environment, the law of the sea, or trade,
authority of LTO to register all motor vehicles and to issue to
constrain domestic political sovereignty through the
qualified persons of licenses to drive such vehicles.
assumption of external obligations. But unless anarchy in
international relations is preferred as an alternative, in most
cases we accept that the benefits of the reciprocal obligations
involved outweigh the costs associated with any loss of
political sovereignty. (T)rade treaties that structure relations The RTC and CA ruled that the power to give registration and
license for driving tricycles has been devolved to LGU's.
by reference to durable, well-defined substantive norms and
objective dispute resolution procedures reduce the risks of
larger countries exploiting raw economic power to bully
smaller countries, by subjecting power relations to some form
of legal ordering. In addition, smaller countries typically stand ISSUE
to gain disproportionately from trade liberalization. This is due
to the simple fact that liberalization will provide access to a Whether or not, the registration of tricycles was given to
larger set of potential new trading relationship than in case of LGU's, hence the ordinance is a valid exercise of police power
the larger country gaining enhanced success to the smaller
countrys market.[48]
The point is that, as shown by the foregoing treaties, a portion HELD
of sovereignty may be waived without violating the
Constitution, based on the rationale that the Philippines adopts No. Based on the-"Guidelines to Implement the Devolution of
the generally accepted principles of international law as part of LTFRBs Franchising Authority over Tricycles-For-Hire to
the law of the land and adheres to the policy of x x x Local Government units pursuant to the Local Government
cooperation and amity with all nations. Code"- the newly delegated powers to LGU's pertain to the
franchising and regulatory powers exercised by the LTFRB
and not to the functions of the LTO relative to the registration
of motor vehicles and issuance of licenses for the driving
thereof. Corollarily, the exercised of a police power must be
through a valid delegation. In this case the police power of
registering tricycles was not delegated to the LGU’s, but
23. LTO vs. City of Butuan Pacquiao, L remained in the LTO.
LAND TRANSPORTATION OFFICE [LTO], represented
by Assistant Secretary Manuel F. Bruan, LTO Regional
Office, Region X represented by its Regional Director,
Clearly unaffected by the Local Government Code are the
Timoteo A. Garcia; and LTO Butuan represented by
powers of LTO under R.A. No.4136 requiring the registration
Rosita G. Sadiaga, its Registrar, petitioners, vs. CITY OF
of all kinds of motor vehicles "used or operated on or upon
BUTUAN, represented in this case by Democrito D. Plaza
any public highway" in the country.
II, City Mayor, respondents.
The Commissioner of Land Transportation and his deputies
[G. R. No. 131512. January 20, 2000]
are empowered at anytime to examine and inspect such motor
vehicles to determine whether said vehicles are registered, or
are unsightly, unsafe, improperly marked or equipped, or
otherwise unfit to be operated on because of possible
FACTS
excessive damage to highways, bridges and other
infrastructures. The LTO is additionally charged with being
Relying on the fiscal autonomy granted to LGU's by the
the central repository and custodian of all records of all motor
Constitution and the provisions of the Local Government
vehicles.
Code, the Sangguniang Panglunsod of the City of Butuan
enacted an ordinance "Regulating the Operation of Tricycles-
for-Hire, providing mechanism for the issuance of Franchise,
17
TAXATION I | CASE DIGEST
Adds the Court, the reliance made by respondents on the broad
taxing power of local government units, specifically under
Section 133 of the Local Government Code, is tangential.
Police power and taxation, along with eminent domain, are
inherent powers of sovereignty which the State might share
with local government units by delegation given under a
constitutional or a statutory fiat. All these inherent powers are
for a public purpose and legislative in nature but the
similarities just about end there. The basic aim of police power
is public good and welfare. Taxation, in its case, focuses on
the power of government to raise revenue in order to support
its existence and carry out its legitimate objectives. Although
correlative to each other in many respects, the grant of one
does not necessarily carry with it the grant of the other. The
two powers are, by tradition and jurisprudence, separate and
distinct powers, varying in their respective concepts, character,
scopes and limitations.
To construe the tax provisions of Section 133 (1) of the LGC
indistinctively would result in the repeal to that extent of
LTO's regulatory power which evidently has not been
intended. If it were otherwise, the law could have just said so
in Section 447 and 458 of Book III of the Local Government
Code in the same manner that the specific devolution of
LTFRB's power on franchising of tricycles has been provided.
Repeal by implication is not favored.
The power over tricycles granted under Section 458(a)(3)(VI)
of the Local Government Code to LGUs is the power to
regulate their operation and to grant franchises for the
operation thereof. The exclusionary clause contained in the tax
provisions of Section 133 (1) of the Local Government Code
must not be held to have had the effect of withdrawing the
express power of LTO to cause the registration of all motor
vehicles and the issuance of licenses for the driving thereof.
These functions of the LTO are essentially regulatory in
nature, exercised pursuant to the police power of the State,
whose basic objectives are to achieve road safety by insuring
the road worthiness of these motor vehicles and the
competence of drivers prescribed by R. A. 4136. Not
insignificant is the rule that a statute must not be construed in
isolation but must be taken in harmony with the extant body of
laws.
LGUs indubitably now have the power to regulate the
operation of tricycles-for-hire and to grant franchises for the
operation thereof, and not to issue registration. Ergo, the
ordinance being repugnant to a statute is void and ultra vires.
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
24. Matalin vs. Municipal Council of Malabang
Tado
MATALIN COCONUT CO., INC., petitioner-appellee, vs.
THE MUNICIPAL COUNCIL OF MALABANG, LANAO
DEL SUR, AMIR M. BALINDONG and HADJI
PANGILAMUN MANALOCON, MUNICIPAL MAYOR
and MUNICIPAL TREASURER OF MALABANG,
LANAO DEL SUR, respondents-appellants. PURAKAN
PLANTATION COMPANY, intervenor-appellee. G.R. No.
L-28138 August 13, 1986
Facts:
On August 24, 1966, the Municipal Council of Malabang,
Lanao del Sur, invoking the authority of Section 2 of Republic
Act No. 2264, otherwise known as the Local Autonomy Act,
enacted Municipal Ordinance No. 45-46, entitled "AN
ORDINANCE IMPOSING A POLICE INSPECTION FEE
OF P.30 PER SACK OF CASSAVA STARCH PRODUCED
AND SHIPPED OUT OF THE MUNICIPALITY OF
MALABANG AND IMPOSING PENALTIES FOR
VIOLATIONS THEREOF." The ordinance made it unlawful
for any person, company or group of persons "to ship out of
the Municipality of Malabang, cassava starch or flour without
paying to the Municipal Treasurer or his authorized
representatives the corresponding fee fixed by (the)
ordinance."
The validity of the ordinance was challenged by the Matalin
Coconut, Inc. in a petition for declaratory relief filed with the
then Court of First Instance of Lanao del Sur against the
Municipal Council, the Municipal Mayor and the Municipal
Treasurer of Malabang, Lanao del Sur. Alleging among others
that the ordinance is not only ultra vires, being violative of
Republic Act No. 2264, but also unreasonable, oppressive and
confiscatory, the petitioner prayed that the ordinance be
declared null and void ab initio, and that the respondent
Municipal Treasurer be ordered to refund the amounts paid by
petitioner under the ordinance.
LC: municipal ordinance in question null and void
ISSUE: Whether or not the municipal ordinance is null and
void
RULING:
We agree with the finding of the trial court that the amount
collected under the ordinance in question partakes of the
nature of a tax, although denominated as "police inspection
fee" since its undeniable purpose is to raise revenue. However,
we cannot agree with the trial court's finding that the tax
imposed by the ordinance is a percentage tax on sales which is
beyond the scope of the municipality's authority to levy under
Section 2 of the Local Autonomy Act. Under the said
provision, municipalities and municipal districts are prohibited
from imposing" any percentage tax on sales or other taxes in
any form based thereon. " The tax imposed under the
ordinance in question is not a percentage tax on sales or any
other form of tax based on sales. It is a fixed tax of P.30 per
bag of cassava starch or flour "shipped out" of the
municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken
down on another ground. According to Section 2 of the
abovementioned Act, the tax levied must be "for public
purposes, just and uniform" (Emphasis supplied.) As correctly
held by the trial court, the so-called "police inspection fee"
levied by the ordinance is "unjust and unreasonable." Said the
court a quo:
... It has been proven that the only service
rendered by the Municipality of Malabang, by
way of inspection, is for the policeman to verify
from the driver of the trucks of the petitioner
passing by at the police checkpoint the number
of bags loaded per trip which are to be shipped
out of the municipality based on the trip tickets
for the purpose of computing the total amount of
tax to be collect (sic) and for no other purpose.
The pretention of respondents that the police,
aside from counting the number of bags shipped
out, is also inspecting the cassava flour starch
contained in the bags to find out if the said
cassava flour starch is fit for human
consumption could not be given credence by the
Court because, aside from the fact that said
purpose is not so stated in the ordinance in
question, the policemen of said municipality are
not competent to determine if the cassava flour
starch are fit for human consumption.
… it has been shown, beyond doubt, that the petitioner has not
asked for the said police protection because there has been no
occasion where its trucks have been molested, even for once,
by bad elements from the police checkpoint to the bodega at
the beach, it is solely for the purpose of verifying the correct
number of bags of cassava flour starch loaded on the trucks of
the petitioner as stated in the trip tickets, when unloaded at its
bodega at the beach. The imposition, therefore, of a police
inspection fee of P.30 per bag, imposed by said ordinance is
unjust and unreasonable.
25. Lutz vs. Araneta Banuelos
TOPIC: Taxation distinguished from Police Power and
Eminent Domain
WALTER LUTZ, as Judicial Administrator of the Intestate
Estate of the deceased Antonio Jayme Ledesma, vs. J.
ANTONIO ARANETA, as the Collector of Internal Revenue.
G.R. No. L-7859 December 22, 1955
18
Ponente: REYES, J.B L., J.
Facts:
Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover
from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of Commonwealth
Act No. 567, otherwise known as the Sugar Adjustment
Act, for the crop years 1948-1949 and 1949-1950; alleging
that such tax is unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in
WALTER LUTZ's opinion is not a public purpose for which a
tax may be constitutionally levied.
The case was initiated in the Court of First Instance of Negros
Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.
Section 3 levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for
a consideration, on lease or otherwise — a tax equivalent to
the difference between the money value of the rental or
consideration collected and the amount representing 12 per
centum of the assessed value of such land.
Section 6. All collections made under this Act shall accrue to
a special fund in the Philippine Treasury, to be known as the
'Sugar Adjustment and Stabilization Fund,' and shall be paid
out only for any or all of the following purposes or to attain
any or all of the following objectives, as may be provided by
law:
First, to place the sugar industry in a position to maintain
itself, despite the gradual loss of the preferential position of
the Philippine sugar in the United States market;
Second, to readjust the benefits derived from the sugar
industry by all of the component elements thereof — the mill,
the landowner, the planter of the sugar cane, and the laborers
in the factory and in the field — so that all might continue
profitably to engage therein;
Third, to limit the production of sugar to areas more
economically suited to the production thereof; and
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA

The protection of a large industry constituting one of the great

sources of the state's wealth and therefore directly or indirectly
Fourth, to afford labor employed in the industry a living wage affecting the welfare of so great a portion of the population of
and to improve their living and working conditions. the State is affected to such an extent by public interests as to
be within the police power of the sovereign.

The action having been dismissed by the Court of First

Instance, the WALTER LUTZ appealed the case directly to
this Court (Judiciary Act, section 17).
Legal Issue: W/N the said Commonwealth Act is a pure
exercise of taxing power.
Held:
Once it is conceded, as it must, that the protection and
promotion of the sugar industry is a matter of public concern,
it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion
must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no
reason is seen why the state may not levy taxes to raise funds
for their prosecution and attainment. Taxation may be made
the implement of the state's police power.

NO. It is an exercise of Police Power.

That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from those
The basic defect in the WALTER LUTZ's position is his
who are to be benefited from the expenditure of the funds
assumption that the tax provided for in Commonwealth Act
derived from it. At any rate, it is inherent in the power to tax
No. 567 is a pure exercise of the taxing power. Analysis of the
that a state be free to select the subjects of taxation, and it has
Act, and particularly of section 6, will show that the tax is
been repeatedly held that "inequalities which result from a
levied with a regulatory purpose, to provide means for the
singling out of one particular class for taxation, or exemption
rehabilitation and stabilization of the threatened sugar
infringe no constitutional limitation".
industry. In other words, the act is primarily an exercise of the
police power.

Even from the standpoint that the Act is a pure tax measure, it
cannot be said that the devotion of tax money to experimental
This Court can take judicial notice of the fact that sugar
stations to seek increase of efficiency in sugar production,
production is one of the great industries of our nation, sugar
utilization of by-products and solution of allied problems, as
occupying a leading position among its export products; that it
well as to the improvements of living and working conditions
gives employment to thousands of laborers in fields and
in sugar mills or plantations, without any part of such money
factories; that it is a great source of the state's wealth, is one of
being channeled directly to private persons, constitutes
the important sources of foreign exchange needed by our
expenditure of tax money for private purposes.
government, and is thus pivotal in the plans of a regime
committed to a policy of currency stability.

26. Mendoza vs. Municipality of Meycauayan

Dosdos
Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the TOPIC: Inherent Limitations on the Taxing Power
legislature to find that the general welfare demanded that the
sugar industry should be stabilized in turn; and in the wide
field of its police power, the lawmaking body could provide
that the distribution of benefits therefrom be readjusted among
its components to enable it to resist the added strain of the
increase in taxes that it had to sustain.

As stated in Johnson vs. State ex rel. Marey, with reference to

the citrus industry in Florida —

Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros 19
TAXATION I | CASE DIGEST
27. Gomez vs. Palomar Dulay
TOPIC: Inherent Limitations on the Taxing Power
BENJAMIN P. GOMEZ, petitioner-appellee,
vs. ENRICO PALOMAR, in his capacity as Postmaster
General, HON. BRIGIDO R. VALENCIA, in his capacity as
Secretary of Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as Acting Postmaster of
San Fernando, Pampanga G.R. No. L-23645 October
29, 1968
FACTS:
The Case involves the constitutionality of Republic Act 1635,
as amended.
“To help raise funds for the Philippine
Tuberculosis Society, the Director of Posts shall order for the
period from August 19 to September 30 every year the
printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage
charge plus the additional amount of five centavos for the said
purpose, and during the said period, no mail matter shall
be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five
centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps
shall constitute a special fund and be deposited with the
National Treasury to be expended by the Philippine
Tuberculosis Society in carrying out its noble work to
prevent and eradicate tuberculosis.
Postmaster General, in implementation of the law, thereafter
issued four (4) administrative orders and the same were issued
with the approval of the Secretary of Public Works and
Communications.
xxx
Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain
Agustin Aquino of Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was
returned to Gomez.
Gomez brough suit for declaratory relief in the CFI of
Pampanga, to test the constitutionality of the statute, as well
as the implementing administrative orders issued,
contending that it violates the equal protection clause of
the Constitution as well as the rule of uniformity and
equality of taxation.
CFI: declared the statute and the orders unconstitutional;
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Hence this appeal by the respondent postal authorities.
ISSUE:
WON the tax in question is invalid
first, because it is not levied for a public purpose as no special
benefits accrue to mail users as taxpayers; and
second, because it violates the rule of uniformity in taxation.
HELD: No. For the reasons set out in this opinion, the
judgment appealed from must be reversed.
EQUAL PROTECTION CLAUSE
1. It is said that the statute is violative of the equal
protection clause of the Constitution. More specifically the claim is
made that it constitutes mail users into a class for the purpose of the
tax while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants exemption
to newspapers while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to offices
performing governmental functions.
The five centavo charge levied by Republic Act 1635, as
amended, is in the nature of an excise tax, laid upon the exercise
of a privilege, namely, the privilege of using the mails. As such
the objections levelled against it must be viewed in the light of
applicable principles of taxation.
To begin with, it is settled that the legislature has the
INHERENT POWER to select the subjects of taxation and to
grant exemptions. This power has aptly been described as "of wide
range and flexibility." Indeed, it is said that in the field of taxation,
more than in other areas, the legislature possesses the greatest
freedom in classification. The reason for this is that traditionally,
classification has been a device for fitting tax programs to local
needs and usages in order to achieve an equitable distribution of the
tax burden.
That legislative classifications must be reasonable is of course
undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship
to the end sought to be attained, and that absent such relationship
the selection of mail users is constitutionally impermissible. This is
altogether a different proposition. As explained in Commonwealth
v. Life Assurance Co.:
While the principle that there must be a reasonable
relationship between classification made by the
legislation and its purpose is undoubtedly true in
some contexts, it has no application to a measure
whose sole purpose is to raise revenue ... So long as
the classification imposed is based upon some
standard capable of reasonable comprehension, be
that standard based upon ability to produce revenue
or some other legitimate distinction, equal protection
of the law has been afforded. See Allied Stores of
Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S.
Ct. at 441; Brown Forman Co. v. Commonwealth of
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580
(1910).
We are not wont to invalidate legislation on equal protection
grounds except by the clearest demonstration that it sanctions
invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature.
Now, the classification of mail users is not without any reason. It
is based on ability to pay, let alone the enjoyment of a privilege,
and on administrative convenience. In the allocation of the tax
burden, Congress must have concluded that the contribution to
the anti-TB fund can be assured by those whose who can afford
the use of the mails.
The classification is likewise based on considerations of
administrative convenience. For it is now a settled principle of law
that "consideration of practical administrative convenience and cost
in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class." In the case
of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail users
as subjects of the tax is the relative ease and convenience of
collecting the tax through the post offices. The small amount of five
centavos does not justify the great expense and inconvenience of
collecting through the regular means of collection. On the other
hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute
constituted mail users into a class. Mail users were already a class
by themselves even before the enactment of the statue and all that
the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract identities
is lifeless logic."10
Granted the power to select the subject of taxation, the State's
power to grant exemption must likewise be conceded as a
necessary corollary. Tax exemptions are too common in the
law; they have never been thought of as raising issues under the
equal protection clause.
It is thus erroneous for the trial court to hold that because
certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The application of
the lower courts theory would require all mail users to be taxed,
a conclusion that is hardly tenable in the light of differences in
status of mail users. The Constitution does not require this kind
of equality.
As the United States Supreme Court has said, the legislature may
withhold the burden of the tax in order to foster what it conceives to
be a beneficent enterprise. This is the case of newspapers which,
under the amendment introduced by Republic Act 2631, are exempt
from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption
rests on the State's sovereign immunity from taxation. The State
cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly construed.
Administrative Order 9 of the respondent Postmaster General,
which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but
20
a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it
singles out tuberculosis to the exclusion of other diseases which, it
is said, are equally a menace to public health. But it is never a
requirement of equal protection that all evils of the same genus be
eradicated or none at all. As this Court has had occasion to say, "if
the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have
been applied."
MAIN TOPIC
2. The petitioner GOMEZ further argues that
the tax in question is invalid, first, because it is not levied
for a public purpose as no special benefits accrue to mail
users as taxpayers, and second, because it violates the rule
of uniformity in taxation.
The eradication of a dreaded disease is a public purpose,
but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established and
safeguarded by the devotion of taxes to public purposes. Any
other view would preclude the levying of taxes except as they
are used to compensate for the burden on those who pay them
and would involve the abandonment of the most fundamental
principle of government — that it exists primarily to provide
for the common good.15
Nor is the rule of uniformity and equality of taxation
infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of
the mail or the extent of the service rendered. We have said
that considerations of administrative convenience and cost
afford an adequate ground for classification. The same
considerations may induce the legislature to impose a flat tax
which in effect is a charge for the transaction, operating
equally on all persons within the class regardless of the
amount involved. As Mr. Justice Holmes said in sustaining the
validity of a stamp act which imposed a flat rate of two cents
on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of
the face value of $100, the other $172. The
inequality of the tax, so far as actual values are
concerned, is manifest. But, here again equality
in this sense has to yield to practical
considerations and usage. There must be a fixed
and indisputable mode of ascertaining a stamp
tax. In another sense, moreover, there is
equality. When the taxes on two sales are equal,
the same number of shares is sold in each case;
that is to say, the same privilege is used to the
same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of
appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning
capacity, and many others, illustrate the
TAXATION I | CASE DIGEST
necessity and practice of sometimes substituting
count for weight ...
According to the trial court, the money raised from the sales of
the anti-TB stamps is spent for the benefit of the Philippine
Tuberculosis Society, a private organization, without
appropriation by law. But as the Solicitor General points out,
the Society is not really the beneficiary but only the agency
through which the State acts in carrying out what is essentially
a public function. The money is treated as a special fund and
as such need not be appropriated by law.
ACCORDINGLY, the judgment a quo is reversed,
28. Macatol
G.R. No. 101273 July 3, 1992
CONGRESSMAN ENRIQUE T. GARCIA (Second
District of Bataan), petitioner, vs. THE EXECUTIVE
SECRETARY, THE COMMISSIONER OF CUSTOMS,
THE NATIONAL ECONOMIC AND DEVELOPMENT
AUTHORITY, THE TARIFF COMMISSION, THE
SECRETARY OF FINANCE, and THE ENERGY
REGULATORY BOARD, respondents. FELICIANO, J.:
Facts:
On 27 November 1990, the President issued Executive Order
No. 438 which imposed, in addition to any other duties, taxes
and charges imposed by law on all articles imported into the
Philippines, an additional duty of five percent (5%) ad
valorem. This additional duty was imposed across the board
on all imported articles, including crude oil and other oil
products imported into the Philippines. This additional duty
was subsequently increased from five percent (5%) ad
valorem to nine percent (9%) ad valorem by the promulgation
of Executive Order No. 443, dated 3 January 1991.
On 24 July 1991, the Department of Finance requested the
Tariff Commission to initiate the process required by the
Tariff and Customs Code for the imposition of a specific levy
on crude oil and other petroleum products, covered by HS
Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the
Tariff and Customs Code as amended. Accordingly, the Tariff
Commission, following the procedure set forth in Section 401
of the Tariff and Customs Code, scheduled a public hearing to
give interested parties an opportunity to be heard and to
present evidence in support of their respective positions.
Meantime, Executive Order No. 475 was issued by the
President, on 15 August 1991 reducing the rate of additional
duty on all imported articles from nine percent (9%) to five
percent (5%) ad valorem, except in the cases of crude oil and
other oil products which continued to be subject to the
additional duty of nine percent (9%) ad valorem.
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Upon completion of the public hearings, the Tariff
Commission submitted to the President a "Report on Special
Duty on Crude Oil and Oil Products" dated 16 August 1991,
for consideration and appropriate action. Seven (7) days later,
the President issued Executive Order No. 478, dated 23
August 1991, which levied (in addition to the aforementioned
additional duty of nine percent (9%) ad valorem and all other
existing ad valorem duties) a special duty of P0.95 per liter or
P151.05 per barrel of imported crude oil and P1.00 per liter of
imported oil products.
In the present Petition for Certiorari, Prohibition and
Mandamus, petitioner assails the validity of Executive Orders
Nos. 475 and 478. He argues that Executive Orders Nos. 475
and 478 are violative of Section 24, Article VI of the 1987
Constitution which provides as follows:
Sec. 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or
concur with amendments.
He contends that since the Constitution vests the authority to
enact revenue bills in Congress, the President may not assume
such power by issuing Executive Orders Nos. 475 and 478
which are in the nature of revenue-generating measures.
Petitioner further argues that Executive Orders No. 475 and
478 contravene Section 401 of the Tariff and Customs Code,
which Section authorizes the President, according to
petitioner, to increase, reduce or remove tariff duties or to
impose additional duties only when necessary to protect local
industries or products but not for the purpose of raising
additional revenue for the government.
Thus, petitioner questions first the constitutionality and second
the legality of Executive Orders Nos. 475 and 478, and asks us
to restrain the implementation of those Executive Orders.
Issue:
Whether that Executive Orders Nos. 475 and 478 are violative
of Section 24, Article VI of the 1987 Constitution. No
Held:
Executive Orders Nos. 475 and 478 which may be conceded to
be substantially moved by the desire to generate additional
public revenues, are not, for that reason alone, either
constitutionally flawed, or legally infirm under Section 401 of
the Tariff and Customs Code. Petitioner has not successfully
overcome the presumptions of constitutionality and legality to
which those Executive Orders are entitled.
Turning first to the question of constitutionality, under Section
24, Article VI of the Constitution, the enactment of
appropriation, revenue and tariff bills, like all other bills is, of
course, within the province of the Legislative rather than the
Executive Department. It does not follow, however, that
therefore Executive Orders Nos. 475 and 478, assuming they
may be characterized as revenue measures, are prohibited to
the President, that they must be enacted instead by the
Congress of the Philippines. Section 28(2) of Article VI of the
Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonage and wharfage dues, and other duties or imposts
within the framework of the national development program of
the Government. (Emphasis supplied)
There is thus explicit constitutional permission 1 to Congress
to authorize the President "subject to such limitations and
restrictions is [Congress] may impose" to fix "within specific
limits" "tariff rates . . . and other duties or imposts . . ."
The relevant congressional statute is the Tariff and Customs
Code of the Philippines, and Sections 104 and 401, the
pertinent provisions thereof. These are the provisions which
the President explicitly invoked in promulgating Executive
Orders Nos. 475 and 478. Section 104 of the Tariff and
Customs Code provides in relevant part:
Sec. 104. All tariff sections, chapters, headings and
subheadings and the rates of import duty under Section 104 of
Presidential Decree No. 34 and all subsequent amendments
issued under Executive Orders and Presidential Decrees are
hereby adopted and form part of this Code.
There shall be levied, collected, and paid upon all imported
articles the rates of duty indicated in the Section under this
section except as otherwise specifically provided for in this
Code: Provided, that, the maximum rate shall not exceed one
hundred per cent ad valorem.
The rates of duty herein provided or subsequently fixed
pursuant to Section Four Hundred One of this Code shall be
subject to periodic investigation by the Tariff Commission and
may be revised by the President upon recommendation of the
National Economic and Development Authority.xxx xxx xxx
Section 401 of the same Code needs to be quoted in full:
Sec. 401. Flexible Clause. —
a. In the interest of national economy, general welfare and/or
national security, and subject to the limitations herein
prescribed, the President, upon recommendation of the
National Economic and Development Authority (hereinafter
referred to as NEDA), is hereby empowered: (1) to increase,
reduce or remove existing protective rates of import duty
(including any necessary change in classification). The
existing rates may be increased or decreased but in no case
shall the reduced rate of import duty be lower than the basic
rate of ten (10) per cent ad valorem, nor shall the increased
rate of import duty be higher than a maximum of one hundred
(100) per cent ad valorem; (2) to establish import quota or to
ban imports of any commodity, as may be necessary; and (3)
to impose an additional duty on all imports not exceeding ten
(10) per cent ad valorem, whenever necessary; Provided, That
upon periodic investigations by the Tariff Commission and
recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section One
21
hundred and four of this Code, including those subsequently
granted pursuant to this section.
b. Before any recommendation is submitted to the President by
the NEDA pursuant to the provisions of this section, except in
the imposition of an additional duty not exceeding ten (10) per
cent ad valorem, the Commission shall conduct an
investigation in the course of which they shall hold public
hearings wherein interested parties shall be afforded
reasonable opportunity to be present, produce evidence and to
be heard. The Commission shall also hear the views and
recommendations of any government office, agency or
instrumentality concerned. The Commission shall submit their
findings and recommendations to the NEDA within thirty (30)
days after the termination of the public hearings.
c. The power of the President to increase or decrease rates of
import duty within the limits fixed in subsection "a" shall
include the authority to modify the form of duty. In modifying
the form of duty, the corresponding ad valorem or specific
equivalents of the duty with respect to imports from the
principal competing foreign country for the most recent
representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the
Commission a copy of all customs import entries as filed in
the Bureau of Customs. The Commission or its duly
authorized representatives shall have access to, and the right to
copy all liquidated customs import entries and other
documents appended thereto as finally filed in the
Commission on Audit.
e. The NEDA shall promulgate rules and regulations necessary
to carry out the provisions of this section.
f. Any Order issued by the President pursuant to the provisions
of this section shall take effect thirty (30) days after
promulgation, except in the imposition of additional duty not
exceeding ten (10) per cent ad valorem which shall take effect
at the discretion of the President. (Emphasis supplied)
In the first place, there is nothing in the language of either
Section 104 or of 401 of the Tariff and Customs Code that
suggest such a sharp and absolute limitation of authority. The
entire contention of petitioner is anchored on just two (2)
words, one found in Section 401 (a)(1): "existing protective
rates of import duty," and the second in the proviso found at
the end of Section 401 (a): "protection levels granted in
Section 104 of this Code . . . . " We believe that the words
"protective" and ''protection" are simply not enough to support
the very broad and encompassing limitation which petitioner
seeks to rest on those two (2) words.
It seems also important to note that tariff rates are commonly
established and the corresponding customs duties levied and
collected upon articles and goods which are not found at all
and not produced in the Philippines. The Tariff and Customs
Code is replete with such articles and commodities: among the
more interesting examples are ivory, etc. In such cases,
customs duties may be seen to be imposed either for revenue
purposes purely or perhaps, in certain cases, to discourage any
importation of the items involved. In either case, it is clear that
customs duties are levied and imposed entirely apart from
TAXATION I | CASE DIGEST
whether or not there are any competing local industries to
protect.
29. Pepsi Bottling Co vs. City of Butuan
Pacquiao, L
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs.
CITY OF BUTUAN 24 SCRA 789 GR No. L-22814,
August 28, 1968
"The classification made in the exercise of power to tax, to be
valid, must be reasonable ."
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the
sums paid by it under protest, to the City of Butuan, and
collected by the latter, pursuant to its Municipal Ordinance
No. 110 which plaintiff assails as null and void because it
partakes of the nature of an import tax, amounts to double
taxation, highly unjust and discriminatory, excessive,
oppressive and confiscatory, and constitutes an invlaid
delegation of the power to tax. The ordinance imposes taxes
for every case of softdrinks, liquors and other carbonated
beverages, regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or any person or
company having its actual business outside the City.
ISSUE:
Does the tax ordinance violate the uniformity requirement of
taxation?
HELD:
Yes. The tax levied is discriminatory. Even if the burden in
question were regarded as a tax on the sale of said beverages,
it would still be invalid, as discriminatory, and hence, violative
of the uniformity required by the Constitution and the law
therefor, 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 of Butuan, would be exempt from
the disputed tax.
It is true that the uniformity essential to the valid exercise of
the power of taxation does not require identity or equality
under all circumstances, or negate the authority to classify the
objects of taxation. The classification made in the exercise of
this authority, to be valid, must, however, be reasonable and
this requirement is not deemed satisfied unless: (1) it is based
upon substantial distinctions which make real differences; (2)
these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
identical to those of the present; and (4) the classification
applies equally to all those who belong to the same class.
30. Wells Fargo Bank and Union Trust vs. Collector
of Internal Revenue Tado
G.R. No. L-46720 June 28, 1940
WELLS FARGO BANK & UNION TRUST COMPANY
vs. COLLECTOR OF INTERNAL REVENUE
FACTS
In September 1932, Birdie Lillian Eye died in Los Angeles,
California, USA which was also her place of domicile. She left
various properties. Among those properties include some
intangibles consisting of 70,000 shares in the Benguet
Consolidated Mining Company, a corporation organized and
existing under Philippine laws. Petitioner-appellant, Wells
Fargo Bank & Union Trust Company, was duly appointed
trustee of the created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been
duly paid.
The Collector of Internal Revenue sought to assess and collect
estate tax on the said shares. Wells Fargo Banks & Union
Trust Company objected to said assessment.
A petition for a declaratory judgment was filed. the
transmission by will of the said 35,000 shares of stock is
subject to Philippine inheritance tax.
CFI:the transmission by will of the said 35,000 shares of stock
is subject to Philippine inheritance tax.
On appeal, petitioner concedes (1) that the Philippine
inheritance tax is not a tax property, but upon transmission by
inheritance and (2) that as to real and tangible personal
property of a non-resident decedent, located in the Philippines,
the Philippine inheritance tax may be imposed upon their
transmission by death.
However, it contends that, as to intangibles, like the shares of
stock in question, their situs is in the domicile of the owner
thereof, and, therefore, their transmission by death necessarily
takes place under his domiciliary laws.
ISSUE:
Whether or not the shares are subject to estate tax in the
Philippines.
HELD: Yes.
In the instant case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein. And
besides, the certificates of stock have remained in this country
up to the time when the deceased died in California, and they
were in possession of one Syrena McKee, secretary of the
Benguet Consolidated Mining Company, to whom they have
been delivered and indorsed in blank. This indorsement gave
Syrena McKee the right to vote the certificates at the general
meetings of the stockholders, to collect dividends, and dispose
of the shares in the manner she may deem fit, without
prejudice to her liability to the owner for violation of
instructions. For all practical purposes, then, Syrena McKee
had the legal title to the certificates of stock held in trust for
the true owner thereof. In other words, the owner residing in
California has extended here her activities with respect to her
intangibles so as to avail herself of the protection and benefit
of the Philippine laws. Accordingly, the jurisdiction of the
Philippine Government to tax must be upheld.
31. CIR vs. British Overseas Airways Anino
G.R. No. L-65773-74 April 30, 1987
COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs. BRITISH OVERSEAS AIRWAYS CORPORATION
and COURT OF TAX APPEALS, respondents.
FACTS:
Appeal from a decision of the CTA setting aside CIR’s
assessment of deficiency income taxes against British Airways
from 1959 to 1967, 1968-1969 to 1970-1971. British Overseas
Airways Corporation is a 100% British Government-owned
corporation organized and existing under the laws of the
United Kingdom. It engaged in the international airline
business. It operates air transportation service and sells
transportation tickets over the routes of the other airline
members. For the periods of the disputed assessments, BOAC
had no landing rights in the Philippines and not granted a
CPCN to operate in the Philippines. It merely maintained a
general sales agent in the Philippines (Warner Barnes and Co.
and later Quantas Airways) responsible for selling BOAC
tickets covering passengers and cargo.
22
In 1968 CIR assessed BOAC the amount of 2,498,350 Php for
deficiency income tax from 1959-1963, which
BOACprotested. Investigation resulted in the issuance of a
new (modified) assessment for the years 1959-1967 which
amounted to 858,307 Php. This was paid by BOAC under
protest. BOAC filed a claim for refund of the money they
paid, which was eventually denied by the CIR. Before denial,
BOAC already filed a petition for review with the CTA (this
case) assailing the assessment and praying for the refund of
the amount.
British Airways contended that the proceeds of sales of BOAC
passage tickets by their sales agent do not constitute income
from Philippine sources since ―no service of carriage of
passengers or freight was performed by BOAC within the
Philippines. Thus, not subject to Philippine income taxes. Said
that income from transportation is income from services so
that the place where services are rendered determines the
source.
ISSUE:
Whether or not British Airways are liable for payment of taxes
for services that did not happen in Philippines
Whether or not sales of tickets in the Philippines for services
that did not take place inside the country are taxable
RULING:
Under Section 20 of the 1977 Tax Code :( h) the term 'resident
foreign corporation' applies to a foreign corporation engaged
in trade or business within the Philippines or having an office
or place of business therein. (i) The term 'non-resident foreign
corporation' applies foreign corporation not engaged in trade
or business within the Philippines and not having any office or
place of business therein. Was BOAC, during the fiscal years
in question, BOAC a resident foreign corporation doing
business in the Philippines or has an office or place of
business in the Philippines and thus taxable on its income?
YES. No specific criterion as to what constitutes ―doing‖ or
―engaging in‖ or ―transacting‖ business. In order that a
foreign corporation may be regarded as doing business within
a State, there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character (Pacific
Micronesian Line, Inc. vs. Del Rosario and Peligon). BOAC,
during the periods for assessment, maintained a general sales
agent in the Philippines engaged in the selling and issuing of
tickets, receiving fares, allocating the trips to airline
companies. Such activities were in exercise of the functions
which are normally incident to, and are in progressive pursuit
of the purpose of an international air carrier. Such is the very
lifeblood of the airline business. No doubt that BOAC was
―engaged in‖ business in the Philippines. Thus, subject to tax
upon its total net income.
Does the revenue from sales of tickets by BOAC in the
Philippines constitute “income from Philippine sources” and
taxable under income tax laws? YES. Under Philippine tax
laws, ―income‖ refers to the flow of wealth, cash received or
its equivalent. Settled that the Philippine gross income of
BOAC from 68-69, 70-71 amounted to Php 10,428,368
TAXATION I | CASE DIGEST
But did such flow of wealth come from ―sources within the
Philippines‖? 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. In this case, the sale of tickets produces the
income. The cash and payments for fares were received in the
Philippines. The flow of wealth proceeded from, and occurred
within, the Philippine territory, enjoying protection from the
Philippine government. Thus, the flow of wealth proceeded
from Philippine territory.
Sec. 37(a) of the tax code, in enumerating the sources of
income, was not meant to be exclusive. Sales of airline tickets
are included in the definition of gross income.
Is BOAC’s argument on the “source” of income being outside
the Philippines tenable? NO. BOAC argues that income is
derived from transportation is income for services, and thus
the place where the services are rendered should determine the
source. Thus, since the transportation is performed outside the
Philippines, income cannot be taxed under its laws. The
absence of flight operations to and from the Philippines is not
determinative of the source of income or theists of income
taxation. The test of taxability is the "source"; and the source
of an income is that activity x x x which produced the income.
The word "source" conveys one essential idea that of origin,
and the origin of the income herein is the Philippines. Revenue
was acquired from a business activity regularly pursued within
the Philippines.
32. Tolentino vs. Sec of Finance
Arevalo
ARTURO M. TOLENTINO, petitioner, vs. THE
SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE,
respondents. G.R. No. 115455 October 30, 1995
FACTS:
Republic Act No. 7716, or the Expanded Value-Added Tax
Law, was enacted sometime in 1994. This act seeks to widen
the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue
Code. After its enactment, various suits questioning and
challenging the constitutionality of RA 7716 on various
grounds was instituted by several parties. One of the
substantive issues raised was that RA 7716 violate Article VI
Section 28 (1) and Section 28 (3) of the Constitution.
The broad argument against the VAT is that it is regressive
and that it violates the requirement that "The rule of taxation
shall be uniform and equitable [and] Congress shall evolve a
progressive system of taxation.
Petitioners in G.R. No. 115781 quote from a paper, entitled
"VAT Policy Issues: Structure, Regressivity, Inflation and
Exports" by Alan A. Tait of the International Monetary Fund,
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
that "VAT payment by low-income households will be a
higher proportion of their incomes (and expenditures) than
payments by higher-income households. That is, the VAT will
be regressive." Petitioners contend that as a result of the
uniform 10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before were
taxed at a rate higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging from
3% to 5%, are now taxed at a higher rate.
ISSUE:
WON RA 7716 is unconstitutional
RULING:
NO. Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich," as the
Cooperative Union of the Philippines (CUP) claims in G.R.
No. 115873, is largely an academic exercise. Nor is the
contention of the Chamber of Real Estate and Builders
Association (CREBA), petitioner in G.R. 115754, that the
VAT will reduce the mark up of its members by as much as
85% to 90% any more concrete.
It is a mere allegation. On the other hand, the claim of the
Philippine Press Institute, petitioner in G.R. No. 115544, that
the VAT will drive some of its members out of circulation
because their profits from advertisements will not be enough
to pay for their tax liability, while purporting to be based on
the financial statements of the newspapers in question, still
falls short of the establishment of facts by evidence so
necessary for adjudicating the question whether the tax is
oppressive and confiscatory.
Regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to
do is to "evolve a progressive system of taxation." This is a
directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and
political inequalities (Art. XIII, § 1), or for the promotion
of the right to "quality education" (Art. XIV, § 1). These
provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights. In view of
the absence of a factual foundation of record, claims that the
law is regressive, oppressive and confiscatory and that it
violates vested rights protected under the Contract Clause are
prematurely raised.
33. Sison Jr. vs. Ancheta
ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA,
FACTS:
SISION questions Section I of BP. 135 alleging of its
constitutional infirmity. The provision amends the NIRC of
1977 and changes the tax rates of citizens or residents.
Petitioner as taxpayer alleges that by virtue thereof, "he would
be unduly discriminated against by the imposition of higher
rates of tax upon his income arising from the exercise of his
profession vis-à-vis those which are imposed upon fixed
income or salaried individual taxpayers. He characterizes the
above action as arbitrary amounting to class legislation,
oppressive and capricious in character. For petitioner, there is
a transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring
uniformity in taxation.
The answer by the respondents then affirmed that "Batas
Pambansa Big. 135 is a valid exercise of the State's power to
tax. The authorities and cases cited while correctly quoted or
paragraph do not support petitioner's stand." The prayer is for
the dismissal of the petition for lack of merit.
ISSUE:
W/N the imposition of a higher tax rate on taxable net
income derived from business or profession than on
compensation is constitutionally infirm.
HELD: No.
Since it was merely an allegation, it does not suffice. This is
merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is
a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail.
Due process may be invoked when the statute is so arbitrary
that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the
confiscation of property. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or
is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due
process grounds. Both are not present in this case.
23
Equal Protection means that the laws operate equally and
uniformly on all persons under similar circumstances or that
all persons must be treated in the same manner, the conditions
not being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security
shall be given to every person under circumstances which if
not Identical are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be
treated in the same fashion, whatever restrictions cast on some
in the group equally binding on the rest." It is inherent in the
power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities
which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.'"
Uniformity of taxation. "The rule of taxation shag be uniform
and equitable. It is uniform when the tax "operates with the
same force and effect in every place where the subject may be
found. The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly
attainable. "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.
Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same
time reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough that
the classification must rest upon substantial distinctions that
make real differences. In the case of the gross income taxation
embodied in BP 135, the, discernible basis of classification is
the susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates
to be applied to all of them.
Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense,
these taxpayers are not entitled to make deductions for income
tax purposes because they are in the same situation more or
less. On the other hand, in the case of professionals in the
practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their
income. It would not be just then to disregard the disparities
by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross
income. There is ample justification then for the BP 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.
TAXATION I | CASE DIGEST
34. Maceda vs. Macaraig Maiz
GR No 88291, May 31, 1991
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
granted NAPOCOR tax and duty exemption privileges. RA
6395 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 specified that
NAPOCOR’s exemption includes all taxes, etc. imposed
“directly or indirectly.” PD 938 dated May 27, 1976 further
amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.
Senator Ernesto Maceda sought to nullify certain decisions,
orders, rulings, and resolutions of respondents Executive
Secretary, Secretary of Finance, Commissioner of Internal
Revenue, Commissioner of Customs and the Fiscal Incentives
Review Board FIRB for exempting the National Power
Corporation (NPC) from indirect tax and duties. RA 358, RA
6395 and PD 380 expressly grant NPC exemptions from all
taxes whether direct or indirect. In 1984, however, PD 1931
and EO 93 withdrew all tax exemptions granted to all GOCCs
including the NPC but granted the President and/or the
Secretary of Finance by recommendation of the FIRB the
power to restore certain tax exemptions. Pursuant to the latter
law, FIRB issued a resolution restoring the tax and duty
exemption privileges of the NPC.
ISSUE:
What constitutional limitation on the taxing power is being
invoked in this case?
HELD:
The rule, therefore, that under the 1973 Constitution "no law
granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the
Batasang Pambansa" does not apply as said P.D. No. 1931
was not passed by the Interim Batasang Pambansa but by
then President Marcos under His Amendment No. 6
power.
Actually under said Amendment No. 6, then President Marcos
could issue decrees not only when the Interim Batasang
Pambansa failed or was unable to act adequately on any matter
for any reason that in his (Marcos') judgment required
immediate action, but also when there existed a grave
emergency or a threat or thereof.
P.D. No. 1931 was, therefore, validly issued by then President
Marcos under his Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were
again clipped by, this time, President Aquino. Its section 2
allowed the NPC to apply for the restoration of its tax
exemption privileges. The same was granted under FIRB
Resolution No. 17-87 dated June 24, 1987 which restored
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
NPC's tax exemption privileges effective, starting March 10,
1987, the date of effectivity of E.O. No. 93 (S'86).
In the case of the tax exemption restoration of NPC, there is
no other comparable entity — not even a single public or
private corporation — whose rights would be violated if
NPC's tax exemption privileges were to be restored. While
there might have been a MERALCO before Martial Law, it is
of public knowledge that the MERALCO generating plants
were sold to the NPC in line with the State policy that NPC
was to be the State implementing arm for the electrification of
the entire country. Besides, MERALCO was limited to Manila
and its environs. And as of 1984, there was no more
MERALCO — as a producer of electricity — which could
have objected to the restoration of NPC's tax exemption
privileges.
It should be noted that NPC was not asking to be granted
tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is
for these reasons that, at least in NPC's case, the
recommendation and approval of NPC's tax exemption
privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as
Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural
due process.
35. CIR vs. CTA Vosotros
COMMISSIONER OF CUSTOMS
vs. COURT OF TAX APPEALS and CAMPOS RUEDA
CORPORATION
G.R. No. 70648 July 31, 1987
NOTE: The topic in the syllabus is under constitutional
limitations of taxing power. No constitutional provision was
discussed in the entirety of the case. CIR vs CTA ang case sa
syllabus but upon typing the GR. No. Therein, ito lumabas. So
nilagay ko ang only topic nag gi discuss dito relating to tax.
Facts:
Campos Rueda Corporation (Respondent Company, for short),
ordered tungsol flashers from the United States. One shipment,
worth $10,812.20, arrived in Manila on November 1, 1973 for
which it filed the corresponding Import Entry.
Another shipment of the same article, worth $18,220.10,
arrived in Manila on February 12, 1974 with Respondent
Company again filing the necessary Import Entry.
The invoice and declared unit price was $0.66 for the two
importations. However, the Bureau of Customs re-appraised
the two shipments at the rate of $1.08 per piece based on an
"Alert Notice" sent by Finance Attaches abroad. Respondent
Company paid the increased taxes and duties amounting to
P18,591.00 and P52,226.00 for the respective shipments, but
filed Manila Protests Nos. 9274 and 9275 claiming a refund of
said amounts.
2) Respondent Company also ordered sealed beams from the
United States. The merchandise worth $18,964.54 arrived in
Manila on March 31, 1974 for which the corresponding Import
Entry was filed. The invoice price of the merchandise was
$0.908 per piece but the Collector of Customs of Manila re-
appraised it to $1.35 a piece based on an "Alert Notice"
received from Finance Attaches abroad. Again, Respondent
Company paid the increased duties and taxes amounting to
P67,525.00 but filed at the same time Manila Protest No. 9287
for refund of the excess paid.
24
From the denial of the Protests by the Collector of Customs,
Respondent Company appealed to the Commissioner of
Customs, which affirmed in toto the consolidated Decision
appealed from on the ground that "Alert Notices are sent by
Finance Attaches in their official capacity as such officials,
aware of their bounden duty to keep the Department of
Finance abreast with the current prices of commodities for the
imposition of correct amount of duties and taxes on taxable
importations.
Issue:
Whether or not the re-appraisal made by the Commissioner of
Customs was in accordance with Section 201 of the Tariff and
Customs Code of the Philippines (RA No. 1937), as amended
by PD Nos. 34 and 1464. (YES)
Held:
No. The re-appraisal made was not in accordance with Section
201 of the Tariff and Customs Code of the Philippines, since
the the “Alert Notice” document was not presented in court.
In the case at bar, it is worthy to state that the respondent's re-
appraisal of the subject shipments or articles imported were
based on the alleged piece of document known as "Alert
Notice" which was not even presented by respondent to the
Court. At any rate, assuming that there really is such a
document and the same was received by the Commissioner of
Customs, the fact is that the records do not show from what
data the alleged alerted value was taken, and how the
Commissioner of Customs ascertained and established the
home consumption value of the imported articles and/or
merchandise and when and where such alerted value was
published as required by law. Under these circumstances, the
re-appraisal made by respondent is clearly not in accordance
with the provisions of Section 201 of the Tariff and Customs
Code.
Section 201 of the Tariff and Customs Code reads:
Section 201. Basis of Dutiable Value. — The dutiable value of
an imported article subject to an ad valorem rate of duty shall
be based on the home consumption value or price (excluding
internal excise taxes) of same, like or similar articles, as
bought and sold or offered for sale freely in the usual
wholesale quantities in the ordinary course of trade, in the
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA

principal markets of the country from where exported on the

date of exportation to the Philippines, or where there is none
on such date, then on the home consumption value or price
nearest to the date of exportation including the value of all
containers, coverings and/or packings of any kind and all other
costs, charges and expenses incident to placing the article in a
condition ready for shipment to the Philippines, plus ten (10)
per cent of such home consumption value or price.

The home consumption value or price under this section shall

be the value or price declared in the consular, commercial,
trade or sales invoice. Where there exists a reasonable doubt
as to the value or price of the imported article declared in the
entry, the correct dutiable value of the article shall be
ascertained from the reports of the Revenue Attache or
Commercial Attache (Foreign Trade Promotion Attaches
pursuant to Republic Act Numbered Fifty-four hundred and
sixty-six or other Philippine diplomatic officers and from such
other information that may be available to the Bureau of
Customs.

From the data thus gathered, the Commissioner of Customs

shall ascertain and establish the home consumption values of
articles exported to the Philippines and shall publish such lists
of values from time to time.

When the dutiable value provided for in the preceding

paragraphs cannot be ascertained for failure of the importer to
produce the documents mentioned in the second paragraph, or
where there exists a reasonable doubt as to dutiable value of
the imported article declared in the entry, it shall be the
domestic wholesale selling price of such or similar article in
Manila or other principal markets in the Philippines on the
date the duty becomes payable on the article under
appraisement, in the usual wholesale quantities and in the
ordinary course of trade, minus —

(a) Twenty (20) per cent thereof for expenses and profits; and

(b) Duties and taxes paid thereon.

Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros 25
TAXATION I | CASE DIGEST
36. Manila Times Publishing Co. vs. CIR Anino
37. Ormoc Sugar vs. Treasurer of Ormoc City
Arevalo
ORMOC SUGAR COMPANY, INC.
vs. THE TREASURER OF ORMOC CITY, THE
MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City and
ORMOC CITY
G.R. No. L-23794 February 17, 1968
FACTS:
On January 29, 1964, the Municipal Board of Ormoc City
passed Ordinance No. 4, Series of 1964, imposing "on any and
all productions of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax equivalent to
one per centum (1%) per export sale to the United States of
America and other foreign countries."
Payments for a total of P12,087.50 were made, under protest,
by Ormoc Sugar Company, Inc.
Ormoc Sugar Company, Inc. filed before the Court of First
Instance of Leyte, with service of a copy upon the Solicitor
General, a complaint against the City of Ormoc as well as its
Treasurer, Municipal Board and Mayor, alleging that the
ordinance is unconstitutional for being violative of the equal
protection clause (Sec. 1[1], Art. III, Constitution) and the rule
of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution),
aside from being an export tax forbidden under Section 2287
of the Revised Administrative Code. It further alleged that the
tax is neither a production nor a license tax which Ormoc City
under Section 15-kk of its charter and under Section 2 of
Republic Act 2264, otherwise known as the Local Autonomy
Act, is authorized to impose; and that the tax amounts to a
customs duty, fee or charge in violation of paragraph 1 of
Section 2 of Republic Act 2264 because the tax is on both the
sale and export of sugar.
Defendants asserted that the tax ordinance was within
defendant city's power to enact under the Local Autonomy Act
and that the same did not violate the afore-cited constitutional
limitations. Court of First Instance Rendered a decision that
upheld the constitutionality of the ordinance and declared the
taxing power of defendant chartered city broadened by the
Local Autonomy Act to include all other forms of taxes,
licenses or fees not excluded in its charter.
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
ISSUE: whether constitutional limits on the power of taxation,
specifically the equal protection clause and rule of uniformity
of taxation, were infringed.
RULING:
YES. In Felwa vs. Salas,we ruled that the equal protection
clause applies only to persons or things identically situated
and does not bar a reasonable classification of the subject of
legislation, and a classification is reasonable where (1) it is
based on substantial distinctions which make real differences;
(2) these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but also to
future conditions which are substantially identical to those of
the present; (4) the classification applies only to those who
belong to the same class.
A perusal of the requisites instantly shows that the questioned
ordinance does not meet them, for it taxes only centrifugal
sugar produced and exported by the Ormoc Sugar Company,
Inc. and none other. At the time of the taxing ordinance's
enactment, Ormoc Sugar Company, Inc., it is true, was the
only sugar central in the city of Ormoc. Still, 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 plaintiff, for 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 Ormoc City Sugar
Company, Inc. as the entity to be levied upon.
38. Radio Communications of the Phils. Vs. CIR
Radio Communications of the Phils. V CTA
GR No 60547, July 11, 1985
Note: This is merely a digest taken from the internet. I
could not find the full text from the internet (lawphil / SC
Judiciary). Nor could I find the full text from the SCRA. If
you do find the full text, you may give it to me so that I
may digest it. Sorry and I hope you understand.
FACTS:
Under its original franchise, RA 2036 (1957), petitioner RCPI
was subject to both the franchise tax and income tax. In 1964,
petitioner’s franchise was amended by RA 4054 to the effect
that its franchise tax of 1 and1⁄2% of all gross receipts was
provided as in lieu of any and all taxes of any kind and nature.
In 1968, RA 4054 was repealed by RA 5431, which withdrew
the exemption and subjected RCPI to taxes upon their taxable
net income as imposed upon associations or corporations
engaged in a similar business or industry.
ISSUE:
Whether the exemption under RA 4054 was repealed by RA
5431
RULING:
Yes. An examination of Section 24 of the Tax Code as
amended shows clearly that the law intended all corporate
taxpayers to pay income tax as provided by the statute. There
can be no doubt as to the power of Congress to repeal the
earlier exemption it granted.
Article XIV, Section 5 of the 1973 Constitution expressly
provide that no franchise shall be granted to any individual,
firm or corporation except under the condition that it shall be
subject to amendment, alteration, or repeal by the legislature
when the public interest so requires.
There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is
clear and unambiguous. There is a listing of entities entitled to
tax exemption. The petitioner is not covered by the provision.
39. Tan vs. Del Rosario Maiz
(Constitutional Limitation on the Taxing Power)
Facts:
1. Two consolidated cases assail the validity of RA 7496 or
the Simplified Net Income Taxation Scheme ("SNIT"), which
amended certain provisions of the NIRC, as well as the Rules
and Regulations promulgated by public respondents pursuant
to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it
allegedly violates the following provisions of the Constitution:
-Article VI, Section 26(1) — Every bill passed by the
Congress shall embrace only one subject which shall be
expressed in the title thereof.
26
- Article VI, Section 28(1) — The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
3. Petitioners contended that public respondents exceeded
their rule-making authority in applying SNIT to general
professional partnerships. Petitioner contends that the title of
HB 34314, progenitor of RA 7496, is deficient for being
merely entitled, "Simplified Net Income Taxation Scheme for
the Self-Employed and Professionals Engaged in the Practice
of their Profession" (Petition in G.R. No. 109289) when the
full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation
Scheme For The Self-Employed and Professionals Engaged In
The Practice of Their Profession, Amending Sections 21 and
29 of the National Internal Revenue Code,' as amended.
Petitioners also contend it violated due process.
ISSUE: Whether or not the tax law is unconstitutional for
violating due process
NO. The due process clause may correctly be invoked only
when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No
such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal protection,
merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and
liabilities. Uniformity does not violate classification as long
as: (1) the standards that are used therefor are substantial and
not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal,
to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.
2. What is apparent from the amendatory law is the legislative
intent to increasingly shift the income tax system towards the
schedular approach in the income taxation of individual
taxpayers and to maintain, by and large, the present global
treatment on taxable corporations. The Court does not view
this classification to be arbitrary and inappropriate.
ISSUE 2: Whether or not public respondents exceeded their
authority in promulgating the RR
No. There is no evident intention of the law, either before or
after the amendatory legislation, to place in an unequal footing
TAXATION I | CASE DIGEST
or in significant variance the income tax treatment of
professionals who practice their respective professions
individually and of those who do it through a general
professional partnership.
40. CIR vs. CA Vosotros
COMMISSIONER OF INTERNAL REVENUE
vs. COURT OF APPEALS, THE COURT OF TAX
APPEALS and ATENEO DE MANILA UNIVERSITY
G.R. No. 115349 April 18, 1997
Facts:
Private respondent Ateneo De Manila University is a non-
stock, non-profit educational institution with auxiliary units
and branches all over the Philippines. One such auxiliary unit
is the Institute of Philippine Culture (IPC), which has no legal
personality separate and distinct from that of private
respondent. The IPC is a Philippine unit engaged in social
science studies of Philippine society and culture. Occasionally,
it accepts sponsorships for its research activities from
international organizations, private foundations and
government agencies.
On July 8, 1983, private respondent received from petitioner
Commissioner of Internal Revenue a demand letter dated June
3, 1983, assessing private respondent the sum of P174,043.97
for alleged deficiency contractor's tax, and an assessment
dated June 27, 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended March
31, 1978. Denying said tax liabilities, private respondent sent
petitioner a letter-protest and subsequently filed with the latter
a memorandum contesting the validity of the assessments.
On March 17, 1988, petitioner rendered a letter-decision
canceling the assessment for deficiency income tax but
modifying the assessment for deficiency contractor's tax by
increasing the amount due to P193,475.55. Unsatisfied, private
respondent requested for a reconsideration or reinvestigation
of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-
decision of the petitioner.
Petitioner CIR contends that the respondent court erred in
holding that private respondent Ateneo is not an "independent
contractor" within the purview of Section 205 of the Tax
Code. To petitioner, the term "independent contractor", as
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
defined by the Code, encompasses all kinds of services
rendered for a fee and that the only exceptions are the
following:
a. Persons, association and corporations under
contract for embroidery and apparel for export and gross
receipts of or from pioneer industry registered with the Board
of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of
the Local Tax Code (under the old Section 182 [b] of the Tax
Code); and
c. Regional or area headquarters established in the
Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive
income from the Philippines and which act as supervisory,
communication and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region (Section
205 of the Tax Code).
Petitioner thus submits that since private respondent falls
under the definition of an "independent contractor" and is not
among the aforementioned exceptions, private respondent is
therefore subject to the 3% contractor's tax imposed under the
same Code.
Issue:
Is Ateneo de Manila University, through its auxiliary unit or
branch — the Institute of Philippine Culture — performing the
work of an independent contractor and, thus, subject to the
three percent contractor's tax levied by then Section 205 of the
National Internal Revenue Code?
Held:
No. Ateneo de Manila University is not an independent
contractor under Section 205 of the National Internal Revenue
Code
and the provisions of a taxing act are not to be extended by
implication."
To fall under its coverage, Section 205 of the National Internal
Revenue Code requires that the independent contractor be
engaged in the business of selling its services. Hence, to
impose the three percent contractor's tax on Ateneo's Institute Parenthetically, in answering the question of who is subject to
of Philippine Culture, it should be sufficiently proven that the tax statutes, it is basic that "in case of doubt, such statutes are
private respondent is indeed selling its services for a fee in to be construed most strongly against the government and in
pursuit of an independent business. And it is only after private favor of the subjects or citizens because burdens are not to be
respondent has been found clearly to be subject to the imposed nor presumed to be imposed beyond what statutes
provisions of Sec. 205 that the question of exemption expressly and clearly import."
therefrom would arise.
Private respondent Ateneo de Davao University hardly fits
into the definition of an "independent contractor".
41. Abra Valley vs. Aquino Anino
For one, the established facts show that IPC, as a unit of the
private respondent, is not engaged in business. Undisputedly,
private respondent is mandated by law to undertake research G.R. No. L-39086 June 15, 1988
activities to maintain its university status. In fact, the research
activities being carried out by the IPC is focused not on ABRA VALLEY COLLEGE, INC., represented by
business or profit but on social sciences studies of Philippine PEDRO V. BORGONIA, petitioner,
society and culture. Since it can only finance a limited number
of IPC's research projects, private respondent occasionally vs.
accepts sponsorship for unfunded IPC research projects from
international organizations, private foundations and HON. JUAN P. AQUINO, Judge, Court of First Instance,
governmental agencies. However, such sponsorships are Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;
subject to private respondent's terms and conditions, among GASPAR V. BOSQUE, Municipal Treasurer, Bangued,
which are, that the research is confined to topics consistent Abra; HEIRS OF PATERNO MILLARE, respondents.
with the private respondent's academic agenda; that no
proprietary or commercial purpose research is done; and that
private respondent retains not only the absolute right to
publish but also the ownership of the results of the research FACTS:
conducted by the IPC. Quite clearly, the aforementioned terms
and conditions belie the allegation that private respondent is a
contractor or is engaged in business.
Abra Valley College is an educational corporation and
institution of higher learning in Bangued, Abra. In 1974, the
CFI ordered for the seizure and sale of the subject school
For another, it bears stressing that private respondent is a non- property for non-payment of real estate taxes and penalties.
stock, non-profit educational corporation. The fact that it Private respondents stated that the college lot and building in
accepted sponsorship for IPC's unfunded projects is merely question are not only used for educational purposes of the
incidental. For, the main function of the IPC is to undertake college, but also as the permanent residence of the President
research projects under the academic agenda of the private and Director, Mr. Pedro V. Borgonia, and his family including
respondent. Moreover the records do not show that in his in-laws and grandchildren; while the ground floor of the
accepting sponsorship of research work, IPC realized profits college building is being used and rented by a commercial
from such work. On the contrary, the evidence shows that for establishment.
about 30 years, IPC had continuously operated at a loss, which
means that sponsored funds are less than actual expenses for
its research projects. That IPC has been operating at a loss
loudly bespeaks of the fact that education and not profit is the ISSUE:
motive for undertaking the research projects.
Whether or not the lot and building in question are used
The Court takes this occasion to reiterate the hornbook exclusively for educational purposes and thus exempted from
doctrine in the interpretation of tax laws that "(a) statute will paying taxes.
not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously . . . (A) tax cannot be imposed
without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in HELD:
construing statutes applies with peculiar strictness to tax laws
27
TAXATION I | CASE DIGEST
The 1935 Philippine Constitution, Art. VI, par. 3 Sec. 22,
expressly grants exemption from realty taxes for “Cemeteries,
churches and parsonages or convents appurtenant thereto, and
all lands, buildings, and improvements used exclusively for
religious, charitable or educational purposes….
Relative thereto, CA No. 470 as amended by RA No. 409, Sec.
54, paragraph c otherwise known as the Assessment Law,
provides:
The following are exempted from real property tax under the
Assessment Law:
(c) churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively
for religious, charitable, scientific or educational purposes.
Thus, the use of the second floor of the main building for
residential purposes of the Director and his family, may find
justification under the concept of incidental use, which is
complimentary to the main or primary purpose–educational.
The lease of the first floor, however, by a commercial
establishment cannot be considered incidental to the purpose
of education.
Under the 1935 Constitution, the trial court correctly arrived at
the conclusion that the school building as well as the lot where
it is built, should be taxed, not because the second floor of the
same is being used by the Director and his family for
residential purposes, but because the first floor thereof is being
used for commercial purposes.
In this regard petitioner argues that the primary use of the
school lot and building is the basic and controlling guide, norm
and standard to determine tax exemption, and not the mere
incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal
Revenue, 33 Phil. 217 [1916], this Court ruled that while it
may be true that the YMCA keeps a lodging and a boarding
house and maintains a restaurant for its members, still these do
not constitute business in the ordinary acceptance of the word,
but an institution used exclusively for religious, charitable and
educational purposes, and as such, it is entitled to be exempted
from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte, 51 Phil. 352 [1972], this Court included in the
exemption a vegetable garden in an adjacent lot and another
lot formerly used as a cemetery. It was clarified that the term
"used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building
but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial
purposes but serves solely as a sort of lodging place, also
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
qualifies for exemption because this constitutes incidental use
in religious functions.
The phrase "exclusively used for educational purposes" was
further clarified by this Court in the cases of Herrera vs.
Quezon City Board of assessment Appeals, 3 SCRA 186
[1961] and Commissioner of Internal Revenue vs. Bishop of
the Missionary District, 14 SCRA 991 [1965], thus —
Moreover, the exemption in favor of property used exclusively
for charitable or educational purposes is 'not limited to
property actually indispensable' therefor (Cooley on Taxation,
Vol. 2, p. 1430), but extends to facilities which are incidental
to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, "a school for
training nurses, a nurses' home, property use to provide
housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and
residents' (84 CJS 6621), such as "Athletic fields" including "a
firm used for the inmates of the institution. (Cooley on
Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property
for purposes mentioned in the Constitution (Apostolic Prefect
v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a
more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made that
exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main
purposes. Otherwise stated, the use of the school building or
lot for commercial purposes is neither contemplated by law,
nor by jurisprudence. Thus, while the use of the second floor
of the main building in the case at bar for residential purposes
of the Director and his family, may find justification under the
concept of incidental use, which is complimentary to the main
or primary purpose—educational, the lease of the first floor
thereof to the Northern Marketing Corporation cannot by any
stretch of the imagination be considered incidental to the
purpose of education.
42. Surigao Consolidated Mining Co. Inc. vs. CIR
Arevalo
SURIGAO CONSOLIDATED MINING CO., INC.,
petitioner, vs. COLLECTOR OF INTERNAL REVENUE
and COURT OF APPEALS, respondents.G.R. No. L-14878
December 26, 1963
FACTS: The record shows that before the outbreak of World
War II, the Surigao Consolidated Mining Company was
operating its mining concessions in Mainit, Surigao. Pursuant
to section 246 of the Internal Revenue Code, which prescribes
the time and manner of payment of royalties or ad valorem
taxes, it filed a bond and had been regularly filing its returns
for minerals removed from its mines during each calendar
quarter and paying ad valorem tax thereon within 20 days after
the close of every quarter. In each case, computation of the ad
valorem tax was based on the market value of the minerals set
forth in the returns, subject to adjustment upon the receipt of
the smelter showing the actual market value of the minerals to
the United States.
Due to the interruption of the communications outbreak of the
war, the principal office of Surigao Consolidated (in Iloilo)
lost contact with its mines and never received the production
reports for the fourth quarter of 1941. In order to avoid
incurring any tax penalty, said company deposited a check
amount of P27,000.00 payable to and "indorsed in favor of the
City Treasurer (of Iloilo) in payment of the ad valorem taxes.
After the termination of the war, Commonwealth Act No. 722
was enacted, which provided for the filing of returns for
minerals removed during the last quarter of 1941 up to
December 31, 1945 and the payment of ad valorem tax on said
minerals.
Surigao Consolidated filed a statement of adjustment allegedly
containing figures and data of the complete smelter returns for
minerals shipped to the United States. It claimed for a refund
of the previously paid ad valorem tax, for an amount of
amount of P17,051.14.
Breakdown: xxxx
CIR denied the request for refund on the ground that the
money already paid as ad valorem tax was legally due to the
Government.
CTA denied the claim for refund finding that the amount
sought to be refunded been lawfully collected.
ISSUE:
Whether or not Surigao Consolidated is entitled to the refund
of ad valorem tax
28
RULING:
No. It is a settled doctrine that in a suit for the recovery of the
payment of taxes or any portion thereof as having been
illegally or erroneously collected, the burden is upon the
taxpayer to establish the facts which show the illegality of
the tax or that the determination thereof is erroneous. In
this case, Surigao Consolidated failed to show that the
amount of taxes sought to be refunded have been
erroneously collected.
The first item in petitioner's claim for refund in the amount of
P1,191.46 represents the amount of ad
valorem tax paid on minerals removed from the mines but
alleged to have been lost in transit on account of the war.
The refund is sought under section 1 (d) of Republic Act No.
81, which provides as follows:
SECTION 1. Any provision of existing law to the contrary
notwithstanding: (d) All unpaid royalties, ad valorem or
specifictaxes on all minerals mined from mining claims or
concessions existing and in force on January 1, 1942, and
which minerals were lost by reason of the war or
circumstances arising therefrom, are hereby condoned:
Provided, That if said minerals had been or shall be recovered
by the miner or producer, such royalties, ad valorem or
specific taxes on the same shall be immediately due and
demandable.
The aforequoted section clearly refers to the condonation of
unpaid taxes only. The condonation of a tax liability is
equivalent and is in the nature of a tax exemption. Being so, it
should be sustained only when expressed in explicit terms, and
it can not be extended beyond the plain meaning of those
terms. It is the universal rule that he who claims an exemption
from his share of the common burden of taxation must justify
his claim by showing that the Legislature intended to exempt
him by words too plain to be mistaken. Surigao Consolidated
having failed to point to SC any portion of the law that
explicitly provides for a refund of those taxpayers who had
paid their taxes on the items and under circumstances
mentioned in the abovequoted provision, the SC is constrained
to hold that the benefits of said provision does not extend to it.
Under the second item, petitioner seeks to recover the amount
of P15,609.73 representing the ad valorem tax paid on
minerals extracted from its mines but alleged to have been
looted during the enemy occupation. In connection with the
alleged looting of the minerals, the Tax Court has this to say:
“We are again confronted with the case where
plaintiff has, to our mind, failed to present
adequate evidence to prove such loss. The
evidence, if at all, is merely limited to the
general and uncorroborated statements of
plaintiff's officers that the same were lost in the
mines”.
TAXATION I | CASE DIGEST
The Court finds no reason to disturb such findings.
One more item in petitioner's claim is the alleged overpayment
of ad valorem tax in the amount of P249.95 on the minerals
shipped to the United States. It is that an ad valorem tax in the
amount of P20,387.81 was originally paid on the minerals
shipped to the United States with a gross value of
P410,299.49; that the smelter returns from the United States
show that the actual market value of the minerals shipped to
the States was P416,895.28;
After deducting all allowable deductions amounting in all to
P1,828. 34, the true and correct amount of ad valorem tax on
said minerals was P20,137.86. Petitioner, therefore, claims
difference between the amount of P20,387.81 and P20,137.86
is an overpayment.
The best evidence of the actual market value minerals shipped
to the United States are the smelter returns themselves. These
returns are admittedly petitioner's possession, but for unknown
reasons, petitioner failed to produce them during the trial. As
there is no credible and satisfactory explanation for the non-
production of said returns, there arises the presumption that if
produced they would be adverse to petitioner. Under the
circumstances, the Court of Tax Appeals cannot be said to
have committed error, much less abused its discretion, in
refusing to give any probative value statements of adjustment.
It is a settled doctrine that in a suit for the recovery of the
payment of taxes or any portion thereof as having been
illegally or erroneously collected, the burden is upon the
taxpayer to establish the facts which show the illegality of the
tax or that the determination thereof is erroneous. In this case,
petitioner failed to show that the amount of taxes sought to be
refunded have been erroneously collected.
43. Phil Rural Electric vs. Secretary
PHILIPPINE RURAL ELECTRIC
COOPERATIVES ASSOCIATION, INC.
(PHILRECA); AGUSAN DEL NORTE
ELECTRIC COOPERATIVE, INC.
(ANECO); ILOILO I ELECTRIC
COOPERATIVE, INC. (ILECO I); and
ISABELA I ELECTRIC COOPERATIVE,
INC. (ISELCO I) vs THE SECRETARY,
DEPARTMENT OF INTERIOR AND
LOCAL GOVERNMENT, and THE
SECRETARY, DEPARTMENT OF
FINANCE
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Petitioners are electric cooperatives organized
under P.D. No. 269. Accordingly, Section 39 of
P.D. No. 269 provides that the cooperatives shall
be permanently exempt from paying income
taxes and shall be exempt from the payment of
all National Government, local government and
municipal taxes and fees, including franchise,
filing, recordation, license or permit fees or
taxes and any fees, charges, or costs involved in
any court or administrative proceeding in which
it may be a party, and of all duties or imposts on
foreign goods acquired for its operations.
The Philippine Government, acting through the
National Economic Council (now National
Economic Development Authority) and the
NEA, entered into 6 loan agreements with the
US with electric cooperatives, including
petitioners ANECO, ILECO I and ISELCO I, as
beneficiaries. The loan agreements contain
similarly worded provisions on the tax
application of the loan and any property or
commodity acquired through the proceeds of the
loan. The Loan Agreement provides that any
taxation or fees imposed under any laws or
decrees in effect within the Republic of the
Philippines or any such taxes or fees so imposed
or payable shall be reimbursed by the Borrower
with funds other than those provided under the
Loan.
However, with the passage of the Local
Government Code, however, they allege that
their tax exemptions have been invalidly
withdrawn. Petitioners assail Sections 193 and
234 of the Local Government Code on the
ground that the said provisions discriminate
against them, in violation of the equal protection
clause. Further, they submit that the said
provisions are unconstitutional because they
impair the obligation of contracts between the
Philippine Government and the United States
Government.
ISSUE 1:
W/N it violates the equal protection clause.
HELD: No
. exemptions from local taxation enjoyed by
The equal protection clause under the
Constitution means that "no person or class of
persons shall be deprived of the same protection
of laws which is enjoyed by other persons or
other classes in the same place and in like
circumstances." Thus, the guaranty of the equal
protection of the laws is not violated by a law
based on reasonable classification.
Classification, to be reasonable, must (1) rest on
substantial distinctions; (2) be germane to the
purposes of the law; (3) not be limited to
existing conditions only; and (4) apply equally
to all members of the same class.
We hold that there is reasonable classification
under the Local Government Code to justify the
different tax treatment between electric
cooperatives covered by P.D. No. 269, as
amended, and electric cooperatives under R.A.
No. 6938.
The classification of tax-exempt entities in the
Local Government Code is germane to the
purpose of the law. The Constitutional mandate
that every local government unit shall enjoy
local autonomy, does not mean that the exercise
of power by local governments is beyond
regulation by Congress. Thus, while each
government unit is granted the power to create
its own sources of revenue, Congress, in light of
its broad power to tax, has the discretion to
determine the extent of the taxing powers of
local government units consistent with the policy
of local autonomy.
ISSUE 2:
Section 193 of the Local Government Code is
indicative of the legislative intent to vest broad
taxing powers upon local government units and
to limit exemptions from local taxation to
entities specifically provided therein. Section
193 provides:
Section 193. Withdrawal of Tax
Exemption Privileges.—Unless otherwise
provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including
government-owned and controlled corporations,
except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this
Code.
The above provision effectively withdraws
various entities and organizations upon
effectivity of the Local Government Code except
for a) local water districts; b) cooperatives duly
registered under R.A. No. 6938; and c) non-
stock and non-profit hospitals and educational
29
institutions. Further, with respect to real property
taxes, the Local Government Code again
specifically enumerates entities which are
exempt therefrom and withdraws exemptions
enjoyed by all other entities upon the effectivity
of the code.
While we understand petitioners’ predicament
brought about by the withdrawal of their local
tax exemption privileges under the Local
Government Code, it is not the province of this
Court to go into the wisdom of legislative
enactments. Courts can only interpret laws. The
principle of separation of powers prevents them
from re-inventing the laws.
Finally, Sections 193 and 234 of the Local
Government Code permit reasonable
classification as these exemptions are not limited
to existing conditions and apply equally to all
members of the same class. Exemptions from
local taxation, including real property tax, are
granted to all cooperatives covered by R.A. No.
6938 and such exemptions exist for as long as
the Local Government Code and the provisions
therein on local taxation remain good law.
W/N There is violation of the Non-
Impairment Clause. None.
It is ingrained in jurisprudence that the
constitutional prohibition on the impairment of
the obligation of contracts does not prohibit
every change in existing laws. To fall within the
prohibition, the change must not only impair the
obligation of the existing contract, but the
impairment must be substantial.
A substantial impairment changes the terms of a
legal contract between parties, either in the time
or mode of performance, or imposes new
conditions, or dispenses with those expressed, or
authorizes for its satisfaction something different
from that provided in its terms, is law which
impairs the obligation of a contract and is
therefore null and void.
TAXATION I | CASE DIGEST
Moreover, to constitute impairment, the law
must affect a change in the rights of the parties
with reference to each other and not with respect
to non-parties.
The provision in the agreement does not grant
any tax exemption in favor of the borrower or
the beneficiary either on the proceeds of the loan
itself or the properties acquired through the said
loan. It simply states that the loan proceeds and
the principal and interest of the loan, upon
repayment by the borrower, shall be without
deduction of any tax or fee that may be payable
under Philippine law as such tax or fee will be
absorbed by the borrower with funds other than
the loan proceeds. Further, the provision states
that with respect to any payment made by the
borrower to (1) any contractor or any personnel
of such contractor or any property transaction
and (2) any commodity transaction using the
proceeds of the loan, the tax to be paid, if any,
on such transactions shall be absorbed by the
borrower and/or beneficiary through funds other
than the loan proceeds.
The alleged provision of the impaired contract
does not purport to grant any tax exemption in
favor of any party to the contract, including the
beneficiaries thereof. The provisions simply shift
the tax burden, if any, on the transactions under
the loan agreements to the borrower and/or
beneficiary of the loan. Thus, the withdrawal by
the Local Government Code under Sections 193
and 234 of the tax exemptions previously
enjoyed by petitioners does not impair the
obligation of the borrower, the lender or the
beneficiary under the loan agreements as in fact,
no tax exemption is granted therein.
44. Greenfield vs. Meer Maiz
(Exemption from Taxation)
Facts:
Since the year 1933, the plaintiff has been
continuously engaged in the embroidery
business. In 1935, the plaintiff began engaging
in buying and selling mining stocks and
securities for his own exclusive account and not
for the account of others .The plaintiff has not
been a dealer in securities as defined in section
84 (t) of Commonwealth Act No. 466; he has no
established place of business for the purchase
and sale of mining stocks and securities; and he
was never a member of any stock exchange .The
plaintiff filed an income tax return where he
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
claims a deduction of P67,307.80 representing
the net loss sustained by him in mining stocks
securities during the year 1939. The defendant
disallowed said item of deduction on the ground
that said losses were sustained by the plaintiff
from the sale of mining stocks and securities
which are capital assets, and that the loss arising
from the sale of the same should be allowed only
to the extent of the gains from such sales, which
gains were already taken into consideration in
the computation of the alleged net loss of
P67,307.80.
Issue:
Whether the personal and additional exemptions
granted by section 23 of Commonwealth Act
No. 466 should be considered as a credit against
or be deducted from the net income, or whether
it is the tax on such exemptions that should be
deducted from the tax on the total net income.
Held:
Personal and additional exemptions claimed by
appellant should be credited against or deducted
from the net income. "Exception is an immunity
or privilege; it is freedom from a charge or
burden to which others are subjected." (If the
amounts of personal and additional exemptions
fixed in section23 are exempt from taxation,
they should not be included as part of the net
income, which is taxable. There is nothing in
said section 23 to justify the contention that the
tax on personal exemptions (which are exempt
from taxation) should first be fixed, and then
deducted from the tax on the net income.
45. Basco vs. PAGCOR Vosotros
ATTORNEYS HUMBERTO BASCO, EDILBERTO
BALCE, SOCRATES MARANAN AND LORENZO
SANCHEZ vs. PHILIPPINE AMUSEMENTS AND
GAMING CORPORATION (PAGCOR)
Facts:
A TV ad proudly announces:
"The new PAGCOR — responding through responsible
gaming."
But the petitioners Basco et.al. think otherwise, that is why,
they filed the instant petition seeking to annul the Philippine
Amusement and Gaming Corporation (PAGCOR) Charter —
PD 1869, because it is allegedly contrary to morals, public
policy and order, and because —
A. It constitutes a waiver of a right prejudicial to a
third person with a right recognized by law. It waived the
Manila City government's right to impose taxes and license
fees, which is recognized by law;
B. For the same reason stated in the immediately
preceding paragraph, the law has intruded into the local
government's right to impose local taxes and license fees.
This, in contravention of the constitutionally enshrined
principle of local autonomy;
C. It violates the equal protection clause of the
constitution in that it legalizes PAGCOR — conducted
gambling, while most other forms of gambling are outlawed,
together with prostitution, drug trafficking and other vices;
D. It violates the avowed trend of the Cory government away
from monopolistic and crony economy, and toward free
enterprise and privatization. (p. 2, Amended Petition; p. 7,
Rollo)
Petitioners Basco et.al. also claim that PD 1869 is contrary to
the declared national policy of the "new restored democracy"
and the people's will as expressed in the 1987 Constitution.
The decree is said to have a "gambling objective" and
therefore is contrary to Sections 11, 12 and 13 of Article II,
Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the
present Constitution (p. 3, Second Amended Petition; p. 21,
Rollo).
The Philippine Amusements and Gaming Corporation
(PAGCOR) was created by virtue of P.D. 1067-A dated
January 1, 1977 and was granted a franchise under P.D. 1067-
B also dated January 1, 1977 "to establish, operate and
maintain gambling casinos on land or water within the
territorial jurisdiction of the Philippines." Its operation was
originally conducted in the well known floating casino
"Philippine Tourist." The operation was considered a success
for it proved to be a potential source of revenue to fund
infrastructure and socio-economic projects, thus, P.D. 1399
was passed on June 2, 1978 for PAGCOR to fully attain this
objective.
Subsequently, on July 11, 1983, PAGCOR was created under
P.D. 1869 to enable the Government to regulate and centralize
30
all games of chance authorized by existing franchise or
permitted by law, under the following declared policy —
Sec. 1. Declaration of Policy. — It is hereby declared to
be the policy of the State to centralize and integrate all games
of chance not heretofore authorized by existing franchises or
permitted by law in order to attain the following objectives:
(a) To centralize and integrate the right and
authority to operate and conduct games of chance into one
corporate entity to be controlled, administered and supervised
by the Government.
(b) To establish and operate clubs and casinos, for
amusement and recreation, including sports gaming pools,
(basketball, football, lotteries, etc.) and such other forms of
amusement and recreation including games of chance, which
may be allowed by law within the territorial jurisdiction of the
Philippines and which will: (1) generate sources of additional
revenue to fund infrastructure and socio-civic projects, such as
flood control programs, beautification, sewerage and sewage
projects, Tulungan ng Bayan Centers, Nutritional Programs,
Population Control and such other essential public services;
(2) create recreation and integrated facilities which will
expand and improve the country's existing tourist attractions;
and (3) minimize, if not totally eradicate, all the evils,
malpractices and corruptions that are normally prevalent on
the conduct and operation of gambling clubs and casinos
without direct government involvement. (Section 1, P.D.
1869)
It is reported that PAGCOR is the third largest source of
government revenue, next to the Bureau of Internal Revenue
and the Bureau of Customs. In 1989 alone, PAGCOR earned
P3.43 Billion, and directly remitted to the National
Government a total of P2.5 Billion in form of franchise tax,
government's income share, the President's Social Fund and
Host Cities' share. In addition, PAGCOR sponsored other
socio-cultural and charitable projects on its own or in
cooperation with various governmental agencies, and other
private associations and organizations. In its 3 1/2 years of
operation under the present administration, PAGCOR remitted
to the government a total of P6.2 Billion.
Petitioners contend that P.D. 1869 constitutes a waiver of the
right of the City of Manila to impose taxes and legal fees; that
the exemption clause in P.D. 1869 is violative of the principle
of local autonomy. They must be referring to Section 13 par.
(2) of P.D. 1869 which exempts PAGCOR, as the franchise
holder from paying any "tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local."
TAXATION I | CASE DIGEST
(2) Income and other taxes. — a) Franchise Holder: No tax of
any kind or form, income or otherwise as well as fees, charges
or levies of whatever nature, whether National or Local, shall
be assessed and collected under this franchise from the
Corporation; nor shall any form or tax or charge attach in any
way to the earnings of the Corporation, except a franchise tax
of five (5%) percent of the gross revenues or earnings derived
by the Corporation from its operations under this franchise.
Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies,
fees or assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial or
national government authority (Section 13 [2]).
Issue:
Whether or not P.D. 1869 constitutes a waiver of the right of
the City of Manila to impose taxes and legal fees; that the
exemption clause in P.D. 1869 is violative of the principle of
local autonomy. (NO)
Held:
No. P.D. 1869 does not constitute a waiver of the City of
Manila to impose taxes and that the exemption clause is not
violative of the principle of local autonomy
The City of Manila, being a mere Municipal corporation has
no inherent right to impose taxes (Icard v. City of Baguio, 83
Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v.
Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or
statute must plainly show an intent to confer that power or the
municipality cannot assume it" (Medina v. City of Baguio, 12
SCRA 62). Its "power to tax" therefore must always yield to a
legislative act which is superior having been passed upon by
the state itself which has the "inherent power to tax" (Bernas,
the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p.
445).
(b) The Charter of the City of Manila is subject to
control by Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" (Unson v.
Lacson, G.R. No. 7909, January 18, 1957) which has the
power to "create and abolish municipal corporations" due to
its "general legislative powers" (Asuncion v. Yriantes, 28 Phil.
67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore,
has the power of control over Local governments (Hebron v.
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Reyes, G.R. No. 9124, July 2, 1950). And if Congress can
grant the City of Manila the power to tax certain matters, it
can also provide for exemptions or even take back the power.
(c) The City of Manila's power to impose license
fees on gambling, has long been revoked. As early as 1975,
the power of local governments to regulate gambling thru the
grant of "franchise, licenses or permits" was withdrawn by
P.D. No. 771 and was vested exclusively on the National
Government, thus:
Sec. 1. Any provision of law to the contrary
notwithstanding, the authority of chartered cities and other
local governments to issue license, permit or other form of
franchise to operate, maintain and establish horse and dog race
tracks, jai-alai and other forms of gambling is hereby revoked.
Sec. 2. Hereafter, all permits or franchises to operate,
maintain and establish, horse and dog race tracks, jai-alai and
other forms of gambling shall be issued by the national
government upon proper application and verification of the
qualification of the applicant . . .
Therefore, only the National Government has the power to
issue "licenses or permits" for the operation of gambling.
Necessarily, the power to demand or collect license fees which
is a consequence of the issuance of "licenses or permits" is no
longer vested in the City of Manila.
(d) Local governments have no power to tax
instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the
National Government. In addition to its corporate powers (Sec.
3, Title II, PD 1869) it also exercises regulatory powers thus:
Sec. 9. Regulatory Power. — The Corporation shall
maintain a Registry of the affiliated entities, and shall exercise
all the powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating
entities mentioned under the preceding section, including, but
not limited to amendments of Articles of Incorporation and
By-Laws, changes in corporate term, structure, capitalization
and other matters concerning the operation of the affiliated
entities, the provisions of the Corporation Code of the
Philippines to the contrary notwithstanding, except only with
respect to original incorporation.
PAGCOR has a dual role, to operate and to regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control
by a mere Local government.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC
Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it.
(e) Petitioners also argue that the Local Autonomy
Clause of the Constitution will be violated by P.D. 1869. This
is a pointless argument. Article X of the 1987 Constitution (on
Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power
to create its own source of revenue and to levy taxes, fees, and
other charges subject to such guidelines and limitation as the
congress may provide, consistent with the basic policy on
local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local government. (emphasis supplied)
The power of local government to "impose taxes and fees" is
always subject to "limitations" which Congress may provide
by law. Since PD 1869 remains an "operative" law until
"amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987
Constitution), its "exemption clause" remains as an exception
to the exercise of the power of local governments to impose
taxes and fees. It cannot therefore be violative but rather is
consistent with the principle of local autonomy.
Besides, the principle of local autonomy under the 1987
Constitution simply means "decentralization" (III Records of
the 1987 Constitutional Commission, pp. 435-436, as cited in
Bernas, The Constitution of the Republic of the Philippines,
Vol. II, First Ed., 1988, p. 374). It does not make local
governments sovereign within the state or an "imperium in
imperio."
Local Government has been described as a political
subdivision of a nation or state which is constituted by law and
has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine
Constitution, local governments can only be an intra sovereign
subdivision of one sovereign nation, it cannot be an imperium
31
in imperio. Local government in such a system can only mean
a measure of decentralization of the function of government.
(emphasis supplied)
46. CIR vs. Botelho Shipping Corp. Anino
COMMISSIONER OF INTERNAL REVENUE and
COMMISSIONER OF CUSTOMS, petitioners, vs.
BOTELHO SHIPPING CORPORATION and GENERAL
SHIPPING CO., INC., respondentsG.R. Nos. L-21633-34
June 29, 1967
FACTS:
Reparations Commission of the Philippines sold to Botelho the
vessel "M/S Maria Rosello" for the amount of P6,798,888.88.
The former likewise sold to General Shipping the vessel "M/S
General Lim" at the price of P6,951,666.66. Upon arrival at
the port of Manila, the Bureau of Customs placed the same
under custody and refused to give due course [to applications
for registration], unless the aforementioned sums of P483,433
and P494,824 be paid as compensating tax. The buyers
subsequently filed with the CTA their respective petitions for
review. Pending the case, Republic Act No. 3079 amended
Republic Act No. 1789 — the Original Reparations Act, under
which the aforementioned contracts with the Buyers had been
executed — by exempting buyers of reparations goods
acquired from the Commission, from liability for the
compensating tax.
Invoking [section 20 of the RA 3079], the Buyers applied, for
the renovation of their utilizations contracts with the
Commission, which granted the application, and, then, filed
with the Tax Court, their supplemental petitions for review.
The CTA ruled in favor of the buyers.
[On appeal, the CIR and COC maintain that such proviso
should not be applied retroactively], upon the ground that a tax
exemption must be clear and explicit; that there is no express
provision for the retroactivity of the exemption, established by
Republic Act No. 3079, from the compensating tax; that the
favorable provisions, which are referred to in section 20
thereof, cannot include the exemption from compensating tax;
and, that Congress could not have intended any retroactive
exemption, considering that the result thereof would be
prejudicial to the Government.
ISSUE:
Whether or not the tax exemption can be applied retroactively
TAXATION I | CASE DIGEST
RULING:
YES. The inherent weakness of the last ground becomes
manifest when we consider that, if true, there could be no tax
exemption of any kind whatsoever, even if Congress should
wish to create one, because every such exemption implies a
waiver of the right to collect what otherwise would be due to
the Government, and, in this sense, is prejudicial thereto. It
may not be amiss to add that no tax exemption — like any
other legal exemption or exception — is given without any
reason therefor. In much the same way as other statutory
commands, its avowed purpose is some public benefit or
interest, which the law-making body considers sufficient to
offset the monetary loss entitled in the grant of the exemption.
Indeed, section 20 of Republic Act No. 3079 exacts a valuable
consideration for the retroactivity of its favorable provisions,
namely, the voluntary assumption, by the end-user who bought
reparations goods prior to June 17, 1961 of "all the new
obligations provided for in" said Act.
Furthermore, Section 14 of the Law on Reparations, as
amended, exempts from the compensating tax, not particular
persons, but persons belonging to a particular class. Indeed,
appellants do not assail the constitutionality of said section 14,
insofar as it grants exemptions to end-users who, after the
approval of Republic Act No. 3079, on June 17, 1961,
purchased reparations goods procured by the Commission.
From the viewpoint of Constitutional Law, especially the
equal protection clause, there is no difference between the
grant of exemption to said end-users, and the extension of the
grant to those whose contracts of purchase and sale mere made
before said date, under Republic Act No. 1789.
47. CIR vs. CTA, GCL Retirement Plan
Arevalo
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.bTHE HON.
COURT OF APPEALS, THE COURT OF
TAX APPEALS, GCL RETIREMENT
PLAN, represented by its Trustee-Director,
respondents. G.R. No. 95022 March 23, 1992
Facts:
GCL Retirement Plan (GCL, for brevity) is an
employees' trust maintained by the employer,
GCL Inc., to provide retirement, pension,
disability and death benefits to its employees.
The Plan as submitted was approved and
qualified as exempt from income tax by
Petitioner Commissioner of Internal Revenue in
accordance with Rep. Act No. 4917.
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
In 1984, Respondent GCL made investsments
and earned therefrom interest income from
which was witheld the fifteen per centum (15%)
final witholding tax imposed by Pres. Decree
No. 1959 which took effect on 15 October 1984.
GCL filed for refund before the CIR (petitioner),
stating in both letters that it disagreed with the
collection of the 15% final withholding tax from
the interest income as it is an entity fully exempt
from income tax as provided under Rep. Act No.
4917 in relation to Section 56 (b) of the Tax
Code.
The refund requested having been denied,
Respondent GCL elevated the matter to
respondent Court of Tax Appeals (CTA). The
latter ruled in favor of GCL. Court of Appeals
upheld the CTA Decision.
Petitioner's position is that from 15 October
1984 when Pres. Decree No. 1959 was
promulgated, employees' trusts ceased to be
exempt and thereafter became subject to the
final withholding tax. Upon the other hand, GCL
contends that the tax exempt status of the
employees' trusts applies to all kinds of taxes,
including the final withholding tax on interest
income. That exemption, according to GCL, is
derived from Section 56(b) and not from Section
21 (d) or 24 (cc) of the Tax Code, as argued by
Petitioner.
ISSUE:
WON GCL is exempted from the final
withholding interest on interest income from
money placements and purchase of treasury bills
required by PD 1529.
RULING:
YES. It appears that under Rep. Act No. 1983,
which took effect on 22 June 1957, amending
Sec. 56 (b) of the National Internal Revenue
Code (Tax Code, for brevity), employees' trusts
were exempt from income tax. That law
provided:
Sec. 56 Imposition of tax. —(a) Application of
tax. — The taxes imposed by this Title upon
individuals shall apply to the income of
estates or of any kind of property held in trust,
including —
(b) Exception. — The tax imposed by this
Title shall not apply to employees' trust which
forms a part of a pension, stock bonus or
profit-sharing plan of an employer for the
benefit of some or all of his employees (1) if
contributions are made to trust by such
employer, or employees, or both, for the
purpose of distributing to such employees the
earnings and principal of the fund
accumulated by the trust in accordance with
such plan, . . .
Subsequently, however, on 15 October 1984,
Pres. Decree No. 1959 was issued, amending the
aforestated provisions, to subject:
1. interest from bank deposits and yield or any
other monetary benefit from deposit substitutes
and from trust fund and similar arrangements.;
2. Rates of tax on interest from deposits and
yield or any other monetary benefit from deposit
substitutes and from trust fund and similar
arrangements.
3. bank deposits or yield or any other monetary
benefit from deposit substitutes
to a 15% final tax.
It is significant to note that the GCL Plan was
qualified as exempt from income tax by the
Commissioner of Internal Revenue in
accordance with Rep. Act No. 4917 approved on
17 June 1967.
In so far as employees' trusts are concerned, the
foregoing provision should be taken in relation
to then Section 56(b) (now 53[b]) of the Tax
Code, as amended by Rep. Act No. 1983, supra,
which took effect on 22 June 1957. This
provision specifically exempted employee's
trusts from income tax.
The tax-exemption privilege of employees'
trusts, as distinguished from any other kind of
property held in trust, springs from the foregoing
provision. It is unambiguous. Manifest
therefrom is that the tax law has singled out
employees' trusts for tax exemption.
32
The deletion in Pres. Decree No. 1959 of the
provisos regarding tax exemption and
preferential tax rates under the old law,
therefore, can not be deemed to extent to
employees' trusts. Said Decree, being a general
law, can not repeal by implication a specific
provision, Section 56(b) now 53 [b]) in relation
to Rep. Act No. 4917 granting exemption from
income tax to employees' trusts. Rep. Act 1983,
which excepted employees' trusts in its Section
56 (b) was effective on 22 June 1957 while Rep.
Act No. 4917 was enacted on 17 June 1967, long
before the issuance of Pres. Decree No. 1959 on
15 October 1984. A subsequent statute, general
in character as to its terms and application, is not
to be construed as repealing a special or specific
enactment, unless the legislative purpose to do
so is manifested.
48. CIR vs. Guerrero
Facts:
Antonio G. Guerrero was a dealer in logs, which he used to
sell to the Aparri Lumber Company.
The Collector of Internal Revenue made an assessment and
demanded Guerrero to pay the sum of P4,014.91, representing
fixed and percentage taxes and forest charges, as well as
surcharges and penalties, in connection with his business
transactions. with the company. Upon Guerrero's request, the
matter was submitted to the Conference Staff of the Bureau of
Internal Revenue, which, in due course, thereafter, or on
January 11, 1956, recommended that the assessment be
increased to P5,139.17.
In addition to the above amount, the sums of P20.00 and
P100.00 as compromise penalties in extrajudicial settlement of
his penal liabilities under sections 208 and 209 of the N.I.R.C.
should be reiterated. That another sum of P50.00 as
compromise penalty for his violation of the Bookkeeping
Regulations should be imposed against the taxpayer, he having
admitted during the hearing of this case that he did not keep
books of accounts for his timber business.
Guerrero maintains that, he is not liable therefor because he
bought the logs in question for the company, as agent thereof
and with money belonging thereto. However, before the
Conference Staff of the then Bureau of Internal Revenue,
Guerero had: claimed that he financed his business with his
own money and sold the logs to the company on a commission
basis. Moreover, he admitted having sold some lumber to
TAXATION I | CASE DIGEST
other enterprises in Manila, although he had previously
asserted that he dealt exclusively with the company.
Issue: W/N he is liable to pay the tax. Yes.
Held:
The auxiliary invoices presented before the BIR were either
spurious, or referred to logs other than those involved in the
disputed reassessment. The word "June" was superimposed
over the word "May" and, at the back of the corresponding
invoice, two similar alterations were made. Auxiliary invoices
submitted by Guerrero to the Conference Staff his name is
written (script), in ink, on the space opposite the word
consignee". However, in the copies of said auxiliary invoices,
taken from the company, the corresponding space is blank.
Again, the taxpayer's name on said invoice is handwritten with
a penmanship that is markedly different from that of Segundo
Agustin, the signatory of said invoices, who had supposedly
accomplished the same, thus indicating that said name could
not have been written by Segundo Agustin, and rendering the
authenticity of the documents highly doubtful. Furthermore,
said invoices, as well as the other invoices submitted by
Guerrero to the Conference Staff referred to logs other than
those involved in the questioned reassessment.
The foregoing circumstances clearly indicate that the logs
involved in said reassessment were obtained from illegal
sources, and that the forest charges due thereon had not been
paid. Since these charges "are liens on the products and
collectible from whomsoever is in possession" thereof, "unless
he can show that he has the required auxiliary and official
invoice and discharge permit— which Guerrero has not shown
— it follows that he is bound to pay the aforementioned forest
charges and surcharges, in the sum of P3,775.66.
Fixed and percentage taxes.
As regards to the fixed and percentage taxes and surcharges,
as producer of the logs involved in the reassessment, the Court
of Tax Appeals held that Guerrero is not liable therefor, upon
the theory that said logs were sold by the Government to the
one who had cut, and removed the products from the forest;
that the original sale of said logs was, therefore, made by the
Government, not by the concessionaire or cutter of the forest
products; and that, accordingly, Guerrero is not liable for the
payment of the corresponding fixed and percentage taxes
thereon.
Discussion about Section 1588 of Revised Administrative
Code and Section 31 of NIRC
At this juncture, it may not be amiss to advert to a problem of
semantics arising from the operation of Section 1588 of the
Revised Administrative Code, the counterpart of which is now
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Section 315 of the National Internal Revenue Code, pursuant
to which:
Every internal revenue tax on property or on any business or
occupation, and every tax on resources and receipts, and any
increment to any of them incident to delinquency, shall
constitute a lien superior to all other charges or liens not only
on the property itself upon which such tax may be imposed but
also upon the property used in any business or occupation
upon which the tax is imposed and upon all property rights
therein.
The enforcement of this lien by the Commissioner of Internal
Revenue, has often induced the parties adversely affected
thereby to raise the question whether a given charge is a tax or
not, on the theory that there would be no lien if said question
were decided in the negative. In connection therewith, said
parties had tended to distinguish between taxes, on the one
hand — as burdens imposed upon persons and/or properties,
by way of contributions to the support of the Government, in
consideration of general benefits derived from its operation —
and license fees — charged in the exercise of the regulatory
authority of the state, under its police power — and other
charges — for specific things or special or particular benefits
received from the Government — on the other hand.
It is high time to stress that the term "tax," as it appears in said
Section 1588 of the Revised Administrative Code and Section
315 of the National Internal Revenue Code, is used in these
provisions, not in the limited sense adverted to above, but, in a
broad sense encompassing all Government revenues
collectible by the Commissioner of Internal Revenue under
said Code, whether involving taxes, in the strict technical
sense thereof, or not.
The National Internal Revenue Code makes a distinction
between taxes, on the one hand, and fees or charges, on the
other; but as used in Title IX of said Code, the term "tax"
includes "any national internal revenue tax, fee or charge
imposed by" the Code. The Government does not sell forest
products, but merely collects charges on the privilege granted
by it "for the exploitation of forest concessions, i.e., charges
for the right to exercise the privilege granted by the
Government to the licensee of cutting timber from a public
forest or forest reserve". As a consequence, the original sale,
as contemplated in Section 186 of the Internal Revenue Code,
is made by the concessionaire or whoever cuts or removes
forest products from public forests or forest reserves — in the
case at bar, Guerrero, who is accordingly, bound to pay said
sum of P1,192.51.
While this case was being heard in the Court of Tax Appeals,
certain documents were discovered, tending to show that
Guerrero had evaded the payment of forest charges on certain
logs (other than those heretofore mentioned), which had been
shipped and sold by him to the company. Said documents,
which were found in the possession of the latter, covered logs
shipped and sold thereto as follows:
The aforementioned documents consist of auxiliary invoices
— purporting to have been issued by Concessionaire Segundo
Agustin to Guerrero as consignee of the logs therein
mentioned — which are not included in Agustin's certificate
(Exhibit 00, p. 32 BIR record) of the invoices covering logs
sold by him to Guerrero, thus showing that the said invoices
(Exhibits 8-I-2, 8-I-3, 8-BB-1 and 8-AA-1) are spurious; that
the logs therein described must have been obtained by
Guerrero from illegal sources; and that the forest charges and
the sale and percentage taxes thereon have not been paid.
Although these charges and taxes are not included in the
original and revised assessments made in this case, petitioner
herein maintains that Guerrero may nevertheless be held liable
therefor, inasmuch as:
Where plaintiffs themselves show facts upon which they
should not recover, whether defendant pleaded such fact as a
defense or not, their claim should be dismissed. Evidence
introduced without objection becomes property of the case and
all the parties are amenable to any favorable or unfavorable
effects resulting from the evidence. (Emphasis ours; Beam vs.
Yatco, 82 Phil. 30.)
Petitioner's contention is untenable. The foregoing doctrine
deals with plaintiff's right to recover, when his own evidence
proves the contrary. In short, it refers to a point in issue. In the
case at bar, the additional logs under consideration were not
included in the contested assessments. Since the jurisdiction of
the Court of Tax Appeals is purely appellate, said Court
correctly declined to make an award thereon, for lack of
jurisdiction over the same.
Issue: W/N he should pay the penalties charged. Yes.
With reference to the last two (2) items of P120.00 and
P50.00, the Court of Tax Appeals did not sentence Guerrero to
pay the same upon the ground that he had not entered into a
compromise agreement with the Government. The record
shows, however, that Guerrero had expressed his willingness
to pay "any compromise penalty which may be imposed by the
Honorable Court."
In short we find that the Court of Tax Appeals has erred in not
sentencing Antonio G. Guerrero to pay, besides the sum of
P3,775.66 awarded in the decision appealed from, the
aforementioned additional sums of P1,192.51, P120.00 and
P50.00. Thus modified, with the addition of these sums in the
award in favor of the Government and against Antonio G.
Guerrero, the decision appealed from is hereby affirmed,
33
therefore, in all other respect, with costs against the latter. It is
so ordered.
49. PLDT vs. Davao City Maiz
PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, INC. (PLDT) vs. CITY OF DAVAO and
ADELAIDA B. BARCELONA, in her capacity as City
Treasurer of Davao GR. No. 143867 March 25, 2003
Facts:
PLDT paid a franchise tax equal to three percent (3%) of its
gross receipts. The franchise tax was paid “in lieu of all taxes
on this franchise or earnings thereof” pursuant to RA 7082.
The exemption from “all taxes on this franchise or earnings
thereof” was subsequently withdrawn by RA 7160 (LGC),
which at the same time gave local government units the power
to tax businesses enjoying a franchise on the basis of income
received or earned by them within their territorial jurisdiction.
The LGC took effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992,
which in pertinent part provides: Notwithstanding any
exemption granted by law or other special laws, there is
hereby imposed a tax on businesses enjoying a franchise, a
rate of seventy-five percent (75%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on
the income receipts realized within the territorial jurisdiction
of Davao City.
Subsequently, Congress granted in favor of Globe Mackay
Cable and Radio Corporation (Globe) and Smart Information
Technologies, Inc. (Smart) franchises which contained “in leiu
of all taxes” provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication
Policy of the Philippines, Sec. 23 of which provides that any
advantage, favor, privilege, exemption, or immunity granted
under existing franchises, or may hereafter be granted, shall
ipso facto become part of previously granted
telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such
franchises. The law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to
operate its Davao Metro exchange, it was required to pay the
local franchise tax which then had amounted to P3,681,985.72.
PLDT challenged the power of the city government to collect
the local franchise tax and demanded a refund of what had
been paid as a local franchise tax for the year 1997 and for the
first to the third quarters of 1998.
Issue:
TAXATION I | CASE DIGEST
Whether or not by virtue of RA 7925, Sec. 23, PLDT is again
entitled to the exemption from payment of the local franchise
tax in view of the grant of tax exemption to Globe and Smart.
Held:
Petitioner contends that because their existing franchises
contain “in lieu of all taxes” clauses, the same grant of tax
exemption must be deemed to have become ipso facto part of
its previously granted telecommunications franchise. But the
rule is that tax exemptions should be granted only by a clear
and unequivocal provision of law “expressed in a language too
plain to be mistaken” and assuming for the nonce that the
charters of Globe and of Smart grant tax exemptions, then this
runabout way of granting tax exemption to PLDT is not a
direct, “clear and unequivocal” way of communicating the
legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean
tax exemption. The term refers to exemption from regulations
and requirements imposed by the National
Telecommunications Commission (NTC). For instance, RA
7925, Sec. 17 provides: The Commission shall exempt any
specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure
fair and reasonable rates of tariffs. Another exemption granted
by the law in line with its policy of deregulation is the
exemption from the requirement of securing permits from the
NTC every time a telecommunications company imports
equipment.
Tax exemptions should be granted only by clear and
unequivocal provision of law on the basis of language too
plain to be mistaken.
50. Nestle Phils. Vs. CA Vosotros
NESTLE PHILIPPINES, INC., (FORMERLY FILIPRO,
INC.)
vs. COURT OF APPEALS, COURT OF TAX APPEALS
and COMMISSIONER OF CUSTOMS
G.R. No. 134114. July 6, 2001
Facts:
Anino | Arevalo | Banuelos | Chiu | Dosdos | Dulay | Macatol | Maiz | Pacquiao | Tado | Vosotros
Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
Petitioner Nestle is a duly organized domestic corporation
engaged in the importations of milk and milk products for
processing, distribution and sale in the Philippines.
Between July and November 1984, petitioner transacted
sixteen (16) separate importations of milk and milk products
from different countries. Petitioner was assessed customs
duties and advance sales taxes by the Collector of Customs of
Manila for each of these separate importations on the basis of
the published Home Consumption Value (HCV) indicated in
the Bureau of Customs Revision Orders.
Petitioner paid the same but seasonably filed the
corresponding protests before the said Collector of Customs
from October 25 to December 5, 1984, uniformly alleging
therein that the latter erroneously applied higher home
consumption values in determining the dutiable value for each
of these separate importations. In the said protests, petitioner
claims for refund of both the alleged overpaid import duties
amounting to Five Million Eight Thousand and Twenty-Nine
Pesos (P5,008,029.00) and advance sales taxes aggregating to
Four Million Five Hundred Sixty-Four Thousand One
Hundred Seventy-Nine Pesos and Thirty Centavos
(P4,564,179.30).
Nestle formally filed a claim for refund of allegedly overpaid
advance sales taxes with the Bureau of Internal Revenue (BIR)
amounting to Four Million Five Hundred Sixty-Four
Thousand One Hundred Seventy-Nine Pesos and Thirty
Centavos (P4,564,179.30) covering the same sixteen (16)
importations of milk and milk products from different
countries.
Not long after, within the two-year prescriptive period
provided for under the National Internal Revenue Code
(NIRC) for claiming a tax refund, petitioner filed the
corresponding petition for review with the Court of Tax
Appeals (CTA).
The tax court ruled in favor of petitioner Nestle and forthwith
ordered the BIR to refund to the petitioner the sum of Four
Million Four Hundred Eighty-Nine Thousand Six Hundred
Sixty-One Pesos and Ninety-Four Centavos (P4,489,661.94)
representing the overpaid Advance Sales Taxes on the
aforesaid importations.
On the other hand, the sixteen (16) protest cases for refund of
alleged overpaid customs duties amounting to Five Million
Eight Thousand Twenty-Nine Pesos (P5,008,029.00) were left
with the Collector of Customs of Manila. However, the said
Collector of Customs failed to render his decision thereon
after almost six (6) years since petitioner paid under protest
the customs duties on the said sixteen (16) importations of
milk and milk products and filed the corresponding protests.
Consequently, in order to prevent these claims from becoming
stale on the ground of prescription, petitioner immediately
filed a petition for review with the Court of Tax Appeals.
Issue:
Whether or not the resolution on the overpaid advance sales
taxes based on the wrong application of the higher home
consumption values should also warrant the granting of the
refund of the overpayments in custom duties. (NO)
Held:
No. The refund of the alleged overpayment of customs duties
which petitioners contend that may be deemed established
from the findings of the tax court in C.T.A. Case on the
Advance Sales Tax is not necessarily correct in the light of
the Tariff and Customs Code.
The right to claim for refund of customs duties is specifically
governed by Section 1708 of the Tariff and Customs Code,
which provides that -
Sec. 1708. Claim for Refund of Duties and Taxes and Mode of
Payment. All claims for refund of duties shall be made in
writing and forwarded to the Collector to whom such duties
are paid, who upon receipt of such claim, shall verify the same
by the records of his Office, and if found to be correct and in
accordance with law, shall certify the same to the
Commissioner with his recommendation together with all
necessary papers and documents. Upon receipt by the
Commissioner of such certified claim he shall cause the same
to be paid if found correct.
It is clear from the foregoing provision of the Tariff and
Customs Code that in all claims for refund of customs duties,
the Collector to whom such customs duties are paid and upon
receipt of such claim is mandated to verify the same by the
records of his Office. If such claim is found correct and in
accordance with law, the Collector shall certify the same to the
Commissioner with his recommendation together with all the
necessary papers and documents.
34
This is precisely one of the reasons why the Court of Appeals
upheld the dismissal of the case on the ground that the CTAs
jurisdiction under the Tariff and Customs Code is not
concurrent with that of the respondent Commissioner of
Customs due to the absence of any certification from the
Collector of Customs of Manila. Accordingly, petitioners
contention that its claims for refund of alleged overpayment of
customs duties may be deemed established from the findings
of the tax court in C.T.A. Case No. 4114 on the Advance Sales
Tax is not necessarily correct in the light of the above-cited
provision of the Tariff and Customs Code.
Customs duties is the name given to taxes on the importation
and exportation of commodities, the tariff or tax assessed upon
merchandise imported from, or exported to, a foreign country.
Any claim for refund of customs duties, therefore, take the
nature of tax exemptions that must be construed strictissimi
juris against the claimants and liberally in favor of the taxing
authority. This power of taxation being a high prerogative of
sovereignty, its relinquishment is never presumed. Any
reduction or diminution thereof with respect to its mode or its
rate must be strictly construed, and the same must be couched
in clear and unmistakable terms in order that it may be
applied.
Thus, any outright award for the refund of allegedly overpaid
customs duties in favor of petitioner on its subject sixteen (16)
importations is not favored in this jurisdiction unless there is a
direct and clear finding thereon. The fact alone that the tax
court, in C.T.A. Case No. 4114, has awarded in favor of the
petitioner the refund of overpaid Advance Sales Tax involving
the same sixteen (16) importations does not in any way excuse
the petitioner from proving its claims for refund of alleged
overpayment of customs duties.
51.
Coconut Oil Refiners vs. Torres Anino
(G.R. No. 132527. July 29, 2005)
COCONUT OIL REFINERS ASSOCIATION, INC. vs
RUBEN TORRES
FACTS:
This is a Petition to enjoin and prohibit the public respondent
Ruben Torres in his capacity as Executive Secretary from
allowing other private respondents to continue with the
operation of tax and duty-free shops located at the Subic
Special Economic Zone (SSEZ) and the Clark Special
Economic Zone (CSEZ). The petitioner seeks to declare
TAXATION I | CASE DIGEST
Republic Act No. 7227 as unconstitutional on the ground that
it allowed only tax-free (and duty-free) importation of raw
materials, capital and equipment. It reads:
The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations of raw
materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs
and Tariff Code and other relevant tax laws of the Philippines
[RA 7227, Sec 12 (b)].
Petitioners contend that the wording of Republic Act No. 7227
clearly limits the grant of tax incentives to the importation of
raw materials, capital and equipment only thereby violating
the equal protection clause of the Constitution.
He also assailed the constitutionality of Executive Order No.
97-A for being violative of their right to equal protection.
They asserted that private respondents operating inside the
SSEZ are not different from the retail establishments located
outside.
ISSUE:
Whether or not Republic Act No. 7227 is valid on the ground
that it violates the equal protection clause.
RULING:
The SC ruled in the negative. The phrase ‘tax and duty-free
importations of raw materials, capital and equipment was
merely cited as an example of incentives that may be given to
entities operating within the zone. Public respondent SBMA
correctly argued that the maxim expressio unius est exclusio
alterius, on which petitioners impliedly rely to support their
restrictive interpretation, does not apply when words are
mentioned by way of example.
The petition with respect to declaration of unconstitutionality
of Executive Order No. 97-A cannot be, likewise, sustained.
The guaranty of the equal protection of the laws is not violated
by a legislation based which was based on reasonable
classification. A classification, to be valid, must (1) rest on
substantial distinction, (2) be germane to the purpose of the
law, (3) not be limited to existing conditions only, and (4)
apply equally to all members of the same class. Applying the
foregoing test to the present case, this Court finds no violation
of the right to equal protection of the laws. There is a
substantial distinctions lying between the establishments
inside and outside the zone. There are substantial differences
in a sense that, investors will be lured to establish and operate
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Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA
their industries in the so-called ‘secured area and the present
business operators outside the area. There is, then, hardly any
reasonable basis to extend to them the benefits and incentives
accorded in R.A. 7227.
51. Maceda v Macaraig (TAX
EXEMPTION)
GR No 88291, May 31, 1991
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
granted NAPOCOR tax and duty exemption privileges. RA
6395 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 specified that
NAPOCOR’s exemption includes all taxes, etc. imposed
“directly or indirectly.” PD 938 dated May 27, 1976 further
amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.
ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty
exemption with the enactment of PD 938 on May 27, 1976
which amended PD 380 issued on January 11, 1974
RULING:
No, it is still exempt.
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
indebtedness 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 interpreted liberally so as to
enhance the tax exempt status of NAPOCOR.
It is recognized 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.”
52. Maceda vs. Macaraig 223 SCRA 217
Arevalo
ERNESTO M. MACEDA, petitioner, vs. HON.
CATALINO MACARAIG, JR., in his capacity as
Executive Secretary, Office of the President, HON.
VICENTE JAYME, ETC., ET AL., respondents.G.R. No.
88291 June 8, 1993
FACTS:
On November 3, 1936, Commonwealth Act No. 120 was
enacted creating the National Power Corporation, a public
corporation, mainly to develop hydraulic power from all water
sources in the Philippines. The main source of funds for the
NPC was the flotation of bonds in the capital markets and
these bonds shall be exempt from the payment of all taxes.
On June 4, 1949, R.A. No. 358 was enacted expressly
authorizing the NPC, for the first time, to incur other types of
indebtedness, aside from indebtedness incurred by flotation of
bonds. To facilitate payment of its indebtedness, it was still
exempted from all taxes & duties.
On June 2, 1954, R.A. No. 987 was enacted specifically to
withdraw NPC's tax exemption for real estate taxes. This
exemption was however restored by RA 6395 (no date of
effectivity/promulgation in full text).
Section 13, R.A. No. 6395, was very comprehensive in its
enumeration of the tax exemptions allowed NPC.
Section 13, R.A. No. 6395, provided for tax exemptions for
the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its
operations and projects;
13(d) : petroleum products used in generation of
electric power.
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c)
and (d) into one very simple paragraph as follows:
The Corporation shall be non-profit and shall
devote all its returns from its capital investment
as well as excess revenues from its operation,
for expansion. To enable the Corporation to pay
its indebtedness and obligations and in
furtherance and effective implementation of the
policy enunciated in Section one of this Act,
35
the Corporation, including its subsidiaries, is
hereby declared exempt from the payment of
ALL FORMS OF taxes, duties, fees, imposts
as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any
court or administrative proceedings.
From 1955-1974, many laws were enacted relating to NPC
but the tax exemption provisions was neither amended or
deleted.
On January 30, 1976, P.D. No. 882 was issued withdrawing
the tax exemption of NPC with regard to imports.
On July 30, 1977, P.D. 1177 was issued and it decreed that:
“All units of government, including government-
owned or controlled corporations, shall pay income taxes,
customs duties and other taxes and fees are imposed under
revenues laws: provided, that organizations otherwise
exempted by law from the payment of such taxes/duties may
ask for a subsidy from the General Fund in the exact amount
of taxes/duties due: provided, further, that a procedure shall be
established by the Secretary of Finance and the Commissioner
of the Budget, whereby such subsidies shall automatically be
considered as both revenue and expenditure of the General
Fund”.
[A]ll laws, decrees, executive orders, rules and
regulations or parts thereof which are inconsistent with the
provisions of the Decree are hereby repealed and/or modified
accordingly.
On July 11, 1984 P.D. No. 1931 was issued to reiterate that
“all exemptions from the payment of duties,
taxes, fees, imposts and other charges
heretofore granted in favor of government-
owned or controlled corporations including
their subsidiaries, are hereby withdrawn”.
On December 17, 1986, E.O. No. 93 was issued authorizing
the FIRB to restore tax and/or duty exemptions withdrawn
hereunder in whole or in part
The NPC tax privileges withdrawn by Section 1. P.D. No.
1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to pay. It
could, however, under P.D. No. 1931, ask for a total
restoration of its tax exemption privileges, which, it did, and
the same were granted under FIRB Resolutions Nos. 10-85
and 1-86 as approved by the Minister of Finance.
TAXATION I | CASE DIGEST Based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA

FIRB Resolutions Nos. 10-85 and 1-86 were both legally NPC statutes from C.A. No.
and validly issued by the FIRB pursuant to P.D. No. 1931. 120 up to its latest
FIRB did not created NPC's tax exemption status but merely amendments AND came up
restored it. with a very simple Section
13, R.A. No. 6395, as
amended by P.D. No. 938.
One common theme in all
Petitioner contends that: these laws is that the NPC
must be enable to pay its
1. P.D. No. 938 repealed the indebtedness which, as of
indirect tax exemption of P.D. No. 938, was P12
NPC as the phrase "all Billion in total domestic
forms of taxes etc.," in its indebtedness. The NPC
section 10, amending must be and has to be
Section 13, R.A. No. 6395, exempt from all forms of
as amended by P.D. No. taxes if this goal is to be
380, does not expressly achieved.
include "indirect taxes."

2. Due process was violated

wen FIRB Resolutions 10- 2. Upon deeper analysis, the
85 & 1-86 were approved question arises as to
by the Minister of Finance whether one can talk about
when the same was "due process" being
recommended by him in his violated when FIRB
capacity as Chairman of the Resolutions Nos. 10-85 and
FIRB. 1-86 were approved by the
Minister of Finance when
the same were
recommended by him in his
capacity as Chairman of the
Fiscal Incentives Review
Board.

ISSUE: In the case of the tax exemption restoration of NPC, there is

no other comparable entity — not even a single public or
private corporation — whose rights would be violated if
Whether or not NPC is exempt from paying taxes including
indirect taxes. NPC's tax exemption privileges were to be restored.

Whether or not there was violation of due process in restoring It should be noted that NPC was not asking to be granted tax
NPC’s tax exemption. exemption privileges for the first time. It was just asking that
its tax exemption privileges be restored. It is for these
reasons that, at least in NPC's case, the recommendation
and approval of NPC's tax exemption privileges under
FIRB Resolution Nos. 10-85 and 1-86, done by the same
RULING:
person acting in his dual capacities as Chairman of the
Fiscal Incentives Review Board and Minister of Finance,
1. Yes. A chronological review respectively, do not violate procedural due process.
of the NPC laws will show
that it has been the
lawmaker's intention that
the NPC was to be
------ END OF 1ST EXAM -----
completely tax exempt from
all forms of taxes — direct
and indirect. the only
conclusion one can arrive at
if he has read all the NPC
laws in the order of
enactment or issuance as
narrated above in part I
hereof. President Marcos
must have considered all the

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