TABLE OF CONTENTS

PART I. Cases under Atty. Dy’s Syllabus

A. General Principles and Inherent Limitations
1. CIR v. Algue, Inc. p. 2
2. PAL v. Edu p. 2
3. Esso Standard Eastern, Inc. v. CIR p. 3
4. In Re: Physical Therapy Org. of the Phils., Inc. v. Mun. Board of

3D Reviewer Series Manila

5. Republic v. Mambulao Lumber Co.
p. 4
p. 5
6. Francia v. IAC p. 6
7. Domingo v. Garlitos p. 6
Vol. I. Midterms 8. Davao Gulf Lumber Corp. v. CIR p. 7
9. Caltex Phils., Inc. v. COA p. 7
10. CIR v. CA p. 8
11. Pascual v. Sec. of Public Works and Communications p. 9
TAXATION LAW I 12. MCIAA v. Marcos p. 9
(Atty. Dy) B. Constitutional Limitations
1. Bagatsing v. Ramirez p. 10
2. Abakada Guro Party List v. Ermita p. 11
3. Eastern Theatrical Co., Inc. v. Alfonso p. 14
4. BAT v. Camacho p. 15
Prepared by: 3D (2018-2019) 4-A. BAT v. Camacho (Resolution) p. 17
AUREA, Charmaine Key C. C. Double Taxation and Tax Exemption
CABRAL. Alyanna Angelina M. 1. Exec. Sec. v. Southwing Heavy Industries, Inc. p. 17
CEA, Eric Winson F. 2. John Hay People’s Alternative Coalition v. Lim p. 19
CERERA, Florence Diane N. 3. Delpher Trades Corp. v. IAC p. 19
DELA CRUZ, Camille Victoria D. 4. CIR v. Lincoln Phil. Life Ins. Co., Inc. p. 20
GUMELA, Jimson Leandro V. 5. CIR v. Estate of Toda, Jr. p. 21
IBE, Gerald Lance T. 6. City of Iloilo v. Smart Communications, Inc. p. 21
KIONG, Shaira Kasey L. 7. NAPOCOR v. CBAA p. 22
LUPANGO, Vince Noel L. D. Real Property Taxation
MARQUEZ, Jones Harvey I. 1. Caltex (Phils.), Inc. v. CBAA p. 24
SANTIAGO, Anne Christelle A. 2. Lung Center of the Phils. v. Quezon City p. 24
TOLENTINO, Hannah C. 3. MIAA v. CA p. 25
UNARCE, Julia Antoinette S. 4. City Assessor of Cebu City v. Assoc. of Benevola de Cebu, Inc. p. 27
VELASCO, Erika Grace E. PART II. Doctrines in 2018 CTA Cases
A. General Principles p. 28
B. Constitutional Limitations p. 29
C. Inherent Limitations p. 30
D. Double Taxation p. 31
E. Tax Exemption p. 31
F. Real Property Taxation p. 32
Use at your own risk.
 PART I. CASES UNDER ATTY. DY’S SYLLABUS
GENERAL PRINCIPLES and INHERENT LIMITATIONS
1. CIR v. ALGUE, INC.
G.R. No. L-28896, February 17, 1988
FACTS:
• The Philippine Sugar Estate Development Company (PSEDC) had earlier appointed
Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith O'Farell, and Pablo Sanchez worked for the formation of the
Vegetable Oil Investment Corporation, inducing other persons to invest in it.
Ultimately, after its incorporation largely through the promotion of the said
persons, this new corporation purchased the PSEDC properties.
• For this sale, Algue received as agent a commission of ₱125,000.00, and it was from
this commission that the ₱75,000.00 promotional fees were paid to the aforenamed
individuals.
• 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 PSEDC.
• Private respondent received a letter from the petitioner assessing it in the total
amount of ₱83,183.85 as delinquency income taxes for the years 1958 and 1959.
Algue filed a letter of protest or request for reconsideration. Thereafter, Algue filed
a petition for review of the decision of the CIR with the CTA.
• CIR contends that the claimed deduction of ₱75,000.00 was properly disallowed
because it was not an ordinary, reasonable or necessary business expense.
• CTA agreed with Algue, and held that the said amount had been legitimately paid
by the private respondent for actual services rendered. The petitioner claims that
these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by involving an imaginary deduction.
ISSUE:
• W/N CIR correctly disallowed the ₱75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns
RULING: NO.
• The ₱75,000.00 deduction is not proper. The amount of the promotional fees was
not excessive.
• “SEC. 30. Deductions from gross income. — In computing net income there shall be
allowed as deduction — (a) Expenses:
(1) In general. — All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a
reasonable allowance for salaries or other compensation for personal services
actually rendered; . . .”
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• The test of deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows: “Any amount paid in
the form of compensation, but not in fact as the purchase price of services, is not
deductible. An ostensible salary paid by a corporation may be a distribution of a
dividend on stock.”
• The total commission paid by the Philippine Sugar Estate Development Co. to the
private respondent was ₱125,000.00. 21 After deducting the said fees, Algue still
had a balance of ₱50,000.00 as clear profit from the transaction. The amount of
₱75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties.
• It is said that 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. 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.
• 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.
2. PAL v. EDU
G.R. No. L-41383, August 15,1988
FACTS:
• PAL is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No.
4271, as amended by RA Nos. 2360 and 2667.
• Under Sec. 13 of its franchise, PAL is exempt from payment of taxes.
o “In consideration of the franchise and rights hereby granted, the grantee shall pay
to the National Government during the life of this franchise a tax of two per cent
of the gross revenue or gross earning derived by the grantee from its operations
under this franchise. Such tax shall be due and payable quarterly and shall be in
2
 lieu of all taxes of any kind, nature or description, levied, established or collected
by any municipal, provincial or national authority x x x”
• PAL has, since 1956, not been paying motor vehicle registration fees.
• In 1971, Commissioner Edu issued a regulation requiring all tax exempt entities to
may motor vehicle registration fees.
• Commissioner Edu refused to register the appellant’s motor vehicles unless the
amounts imposed under RA 4136 were paid.
• PAL paid, under protest, ₱19,529.75 as registration fees of its motor vehicles.
• PAL wrote a letter to Commissioner Edu demanding a refund of the amounts paid,
invoking the ruling in Calalang v. Lorenzo, where it held that motor vehicle
registration fees are in reality taxes from the payment of which PAL is exempt by
virtue of its legislative franchise.
• Commissioner Edu denied the request basing his action on the decision in Republic
v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle registration fees
are regulatory exactions and are not revenue measures and, therefore, did not come
within the exemption granted to PAL.
• PAL filed a complaint against Commissioner Edu and National Treasurer Carbonell
with the CFI of Rizal.
• Edu and Carbonell filed a motion to dismiss alleging that the complaint states no
cause of action and reiterated the ruling in Republic v. Philippine Rabbit Bus Lines,
Inc..
• Trial court rendered a decision dismissing PAL’s complaint.
• PAL appealed to the CA which certified the case to the SC.
ISSUES:
1. W/N the motor vehicle registration fees are taxes
2. W/N respondent administrative agency is required to refund the amounts stated in
the complaint of PAL
3. W/N PAL is exempt from the payment of motor vehicle registration fees
RULING:
1. YES.
• It appears from the provisions of Sec. 73 of CA 123 and Sec. 61 of the Land
Transportation and Traffic Code that the legislative intent and purpose behind the
law requiring owners of vehicles to pay for their registration is mainly to raise
funds for the construction and maintenance of highways and to a much lesser
degree, pay for the operating expenses of the administering agency.
• The Philippine Rabbit case mentions a presumption arising from the use of the term
“fees” which appears to have been favored by the legislature to distinguish fees
from other taxes such as those mentioned in Sec. 13 of RA 4136 referring to taxes
other than those imposed on the registration, operation or ownership of a motor
vehicle.
• Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation.
• Taxation may be made the implement of the state’s police power (Lutz v. Araneta).
• If the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax. Such is the case of
motor vehicle registration fees.
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• The motor vehicle registration fees as at presently exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues
of government even if 1/5 or less of the amount collected is set aside for the
operating expenses of the agency administering the program.
2. NO.
• The claim for refund is made for payments given in 1971. It is not clear from the
records as to what payments were made in succeeding years. We have ruled that
Sec. 24 of Rep. Act No. 5431, dated June 27, 1968, repealed all earlier tax
exemptions of corporate taxpayers found in legislative franchises similar to that
invoked by PAL in this case.
• Any registration fees collected between June 27, 1968 and April 9, 1979, were
correctly imposed because the tax exemption in the franchise of PAL was repealed
during the period.
3. YES.
• An amended franchise was given to PAL in 1979. PAL’s current franchise is clear
and specific. It has removed the ambiguity found in the earlier law.
• PAL is now exempt from the payment of any tax, fee, or other charge on the
registration and licensing of motor vehicles. Such payments are already included in
the basic tax or franchise tax provided in Subsections (a) and (b) of Sec. 13, PD 1590
and may no longer be exacted.
3. ESSO STANDARD EASTERN INC. v. CIR
G.R. No. L-29508-09, July 7, 1989
FACTS:
• In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as
part of its ordinary and necessary business expenses, the amount it had spent for
drilling and exploration of its petroleum concessions which was disallowed by the
CIR on the ground that the expenses should be capitalized and might be written off
as a loss only when a “dry hole’ should result.
• ESSO then filed an amended return where it asked for the refund of ₱323,279 by
reason of its abandonment as dry holes of several of its oil wells. Also claimed as
ordinary and necessary expenses in the same return was the amount of
₱340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office.
• On August 5, 1964, the CIR granted a tax credit of ₱221,033 only, disallowing the
claimed deduction for the margin fees paid.
• In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year
1960, in the amount of ₱367,994.00, plus 18% interest thereon of ₱66,238.92 for
the period from April 18,1961 to April 18, 1964, for a total of ₱434,232.92. The
deficiency arose from the disallowance of the margin fees of ₱l,226,647.72 paid by
ESSO to the Central Bank on its profit remittances to its New York head office.
• ESSO settled this deficiency assessment on August 10, 1964, by applying the tax
credit of P221,033.00 representing its overpayment on its income tax for 1959 and
paying under protest the additional amount of ₱213,201.92.
3
• On August 13, 1964, it claimed the refund of ₱39,787.94 as overpayment on the
interest on its deficiency income tax. It argued that the 18% interest should have
been imposed not on the total deficiency of ₱367,944.00 but only on the amount of
₱146,961.00, the difference between the total deficiency and its tax credit of
₱221,033.00.
• This claim was denied by the CIR, who insisted on charging the 18% interest on the
entire amount of the deficiency tax.
• CIR also denied the claims of ESSO for refund of the overpayment of its 1959 and
1960 income taxes, holding that the margin fees paid to the Central Bank could not
be considered taxes or allowed as deductible business expenses.
• ESSO appealed to the CTA and sought the refund of ₱102,246.00 for 1959,
contending that the margin fees were deductible from gross income either as a tax
or as an ordinary and necessary business expense. It also claimed an overpayment
of its tax by ₱434,232.92 in 1960, for the same reason.
• Additionally, ESSO argued that even if the amount paid as margin fees were not
legally deductible, there was still an overpayment by ₱39,787.94 for 1960,
representing excess interest.
• After trial, the CTA denied petitioner's claim for refund of ₱102,246.00 for 1959
and ₱434,234.92 for 1960 but sustained its claim for ₱39,787.94 as excess interest.
• This portion of the decision was appealed by the CIR but was affirmed by this Court
in CIR v. ESSO.
• ESSO for its part appealed the CTA decision denying its claims for the refund of the
margin fees ₱102,246.00 for 1959 and ₱434,234.92 for 1960.
• Petitioner maintains that margin fees are taxes and cites the background and
legislative history of the Margin Fee Law showing that R.A. 2609 was nothing less
than a revival of the 17% excise tax on foreign exchange imposed by R.A. 601.
• CTA on the other hand quoted: “The courts may take into consideration the facts
leading up to, coincident with, and in any way connected with, the passage of the
act, in order that they may properly interpret the legislative intent. But it is also
well-settled jurisprudence that only in extremely doubtful matters of
interpretation does the legislative history of an act of Congress become important.”
ISSUE:
• Whether R.A. 2009, “An Act to Authorize the Central Bank of the Philippines to
Establish a Margin Over Banks' Selling Rates of Foreign Exchange,” is a police
measure or a revenue measure?
RULING: IT IS A POLICE MEASURE.
• The Court concluded then that the margin fee was imposed by the State in the
exercise of its police power and not the power of taxation.
• A margin levy on foreign exchange is a form of exchange control or restriction
designed to discourage imports and encourage exports, and ultimately, 'curtail any
excessive demand upon the international reserve' in order to stabilize the currency.
Originally adopted to cope with balance of payment pressures, exchange
restrictions have come to serve various purposes, such as limiting non-essential
imports, protecting domestic industry and when combined with the use of multiple
currency rates providing a source of revenue to the government, and are in many
developing countries regarded as a more or less inevitable concomitant of their
economic development programs. The different measures of exchange control or
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restriction cover different phases of foreign exchange transactions, i.e., in
quantitative restriction, the control is on the amount of foreign exchange allowable.
In the case of the margin levy, the immediate impact is on the rate of foreign
exchange; in fact, its main function is to control the exchange rate without changing
the par value of the peso as fixed in the Bretton Woods Agreement Act. For a
member nation is not supposed to alter its exchange rate (at par value) to correct a
merely temporary disequilibrium in its balance of payments. By its nature, the
margin levy is part of the rate of exchange as fixed by the government (Caltex, Inc.
v. Acting Commissioner of Customs).
• As to the contention that the margin levy is a tax on the purchase of foreign
exchange and hence should not form part of the exchange rate, suffice it to state
that We have already held the contrary for the reason that a tax is levied to provide
revenue for government operations, while the proceeds of the margin fee are
applied to strengthen our country's international reserves.
• Neither do we find merit in the argument that the 20% retention of exporter's
foreign exchange constitutes an export tax. A tax is a levy for the purpose of
providing revenue for government operations, while the proceeds of the 20%
retention, as we have seen, are applied to strengthen the Central Bank's
international reserve (Chamber of Agriculture and Natural Resources of the Phils. v.
Central Bank).
4. IN RE: PHYSICAL THERAPY ORG. OF THE PHILS., INC. v. MUNICIPAL BOARD
OF CITY OF MANILA
G.R. No. L-10448, August 30, 1957
FACTS:
• The petitioner-appellant, an association of registered massagists and licensed
operators of massage clinics in the City of Manila and other parts of the country.
They filed an action questioning the validity of Municipal Ordinance No. 3659,
otherwise known as “An Ordinance Regulating the Operation of Massage Clinics in
the City of Manila and Providing Penalties for Violations Thereof.”
• Trial court ruled that the Ordinance in question has not restricted the practice of
massotherapy in massage clinics to hygienic and aesthetic massage, that the
Ordinance is valid as it does not regulate the practice of massage, that permit fee of
₱100.00 is moderate and not unreasonable.
ISSUE:
• W/N the City of Manila is without authority to regulate the operation of massagists
and the operation of massage clinics within its jurisdiction
RULING: NO.
• The item for the construction of Pasig feeder road terminals is not for a public
purpose.
• It would appear that the purpose of the Ordinance is not to regulate the practice of
massage, much less to restrict the practice of licensed and qualified massagists of
therapeutic massage in the Philippines. The end sought to be attained in the
Ordinance is to prevent the commission of immorality and the practice of
prostitution in an establishment masquerading as a massage clinic where the
4
 operators thereof offer to massage or manipulate superficial parts of the bodies of
customers for hygienic and aesthetic purposes.
• The City Board of Manila is authorized to enact ordinances to provide for the health
and safety, and promote the morality, peace and general welfare of its inhabitants.
This is generally referred to as the General Welfare Clause, a delegation in statutory
form of the police power, under which municipal corporations.
• As regards the permit fee of ₱100.00, it will be seen that said fee is made payable
not by the masseur or massagist, but by the operator of a massage clinic who may
not be a massagist himself. Compared to permit fees required in other operations,
₱100.00 may appear to be too large and rather unreasonable. However, much
discretion is given to municipal corporations in determining the amount of said fee
without considering it as a tax for revenue purposes.
• The amount of the fee or charge is properly considered in determining whether it
is a tax or an exercise of the police power. The amount may be so large as to itself
show that the purpose was to raise revenue and not to regulate, but in regard to
this matter there is a marked distinction between license fees imposed upon useful
and beneficial occupations which the sovereign wishes to regulate but not restrict,
and those which are inimical and dangerous to public health, morals or safety. In
the latter case the fee may be very large without necessarily being a tax.
5. REPUBLIC v. MAMBULAO LUMBER CO.
G.R. No. L-17725, February 28, 1962
FACTS:
• Under the first cause of action, for forest charges covering the period from
September 10, 1952 to May 24, 1953, defendants admitted that they have a liability
of ₱587.37, which liability is covered by a bond executed by defendant General
Insurance & Surety Corporation for Mambulao Lumber Co., jointly and severally in
character, on July 29, 1953, in favor of plaintiff
• Under the second cause of action, both defendants admitted a joint and several
liability in favor of plaintiff in the sum of ₱296.70, also covered by a bond dated
November 27, 1953; and
• Uunder the third cause of action, both defendants admitted a joint and several
liability in favor of plaintiff for ₱3,928.30, also covered by a bond dated July 20,
1954. These three liabilities aggregate to ₱4802.37.
• It appears from Exh. 3 that from July 31, 1948 to December 29, 1956, defendant
Mambulao Lumber Co. paid to the Republic of the Philippines ₱8,200.52 for
‘reforestation charges’ and for the period commencing from April 30, 1947 to June
24, 1948, said defendant paid ₱927.08 to the Republic of the Philippines for
‘reforestation charges.’ These reforestations were paid to the plaintiff in pursuance
of Sec. 1 of Republic Act 115 which provides that “there shall be collected, in
addition to the regular forest charges provided under Sec. 264 of Commonwealth
Act 466 known as the National Internal Revenue Code, the amount of ₱0.50 on each
cubic meter of timber xxx cut out and removed from any public forest for
commercial purposes.”
• The total amount of the reforestation charges paid by Mambulao Lumber Co. is
₱9,127.50, and it is the contention of the defendant Mambulao Lumber Co.that since
the Republic of the Philippines has not made use of those reforestation charges
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collected from it for reforesting the denuded area of the land covered by its license,
the Republic of the Philippines should refund said amount, or, if it cannot be
refunded, at least it should be compensated with what Mambulao Lumber Co. owed
the Republic of the Philippines for reforestation charges.
• In line with this thought, defendant Mambulao Lumber Co. wrote the director of
forestry, on February 21, 1957 letter Exh. 1, in paragraph 4 of which said defendant
requested “that our account with your bureau be credited with all the reforestation
charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting
to around “2,988.62.” This letter of defendant Mambulao Lumber Co. was answered
by the director of forestry on March 12, 1957, marked Exh. 2, in which the director
of forestry quoted an opinion of the secretary of justice, to the effect that he has no
discretion to extend the time for paying the reforestation charges and also
explained why not all denuded areas are being reforested.
ISSUE:
• W/N the sum of P9,127.50 paid by defendant-appellant company as reforestation
charges from 1947 to 1956 may be set off or applied to the payment of the sum of
P4,802.37 as forest charges due and owing from appellant to appellee
RULING: NO.
• We find appellant's claim devoid of any merit. Sec. 1 of Republic Act No. 115 was
applied.
• Note that there is nothing in the law which requires that the amount collected as
reforestation charges should be used exclusively for the reforestation of the area
covered by the license of a licensee or concessionaire, and that if not so used, the
same should be refunded to him.
• Observe too, that the licensee’s area may or may not be reforested at all, depending
on whether the investigation thereof by the Director of Forestry shows that said
area needs reforestation. The conclusion seems to be that the amount paid by a
licensee as reforestation charges is in the nature of a tax which forms a part of the
Reforestation Fund, payable by him irrespective of whether the area covered by his
license is reforested or not.
• Consequently, the law on compensation is inapplicable. On this point, the trial court
correctly observed:
Under Article 1278, NCC, compensation should take place when two persons in
their own right are creditors and debtors of each other. With respect to the
forest charges which the defendant Mambulao Lumber Co. has paid to the
government, they are in the coffers of the government as taxes collected, and
the government does not owe anything, crystal clear that the Republic of the
Philippines and the Mambulao Lumber Co. are not creditors and debtors of
each other, because compensation refers to mutual debts.
NOTES:
SECTION 1. There shall be collected, in addition to the regular forest charges provided
for under Section two hundred and sixty-four of Commonwealth Act Numbered
Four Hundred Sixty-six, known as the National Internal Revenue Code, the amount
of fifty centavos on each cubic meter of timber for the first and second groups and
forty centavos for the third and fourth groups cut out and removed from any public
forest for commercial purposes. The amount collected shall be expended by the
5
 Director of Forestry, with the approval of the Secretary of Agriculture and Natural
Resources (commerce), for reforestation and afforestation of watersheds, denuded
areas and cogon and open lands within forest reserves, communal forest, national
parks, timber lands, sand dunes, and other public forest lands, which upon
investigation, are found needing reforestation or afforestation, or needing to be
under forest cover for the growing of economic trees for timber, tanning, oils, gums,
and other minor forest products or medicinal plants, or for watersheds protection,
or for prevention of erosion and floods and preparation of necessary plans and
estimate of costs and for reconnaissance survey of public forest lands and for such
other expenses as may be deemed necessary for the proper carrying out of the
purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived
from plantations as herein provided shall constitute a fund to be known as
Reforestation Fund, to be expended exclusively in carrying out the purposes
provided for under this Act. All provincial or city treasurers and their deputies shall
act as agents of the Director of Forestry for the collection of the revenues or
incomes derived from the provisions of this Act.
6. FRANCIA v. IAC
G.R. No. 67649, June 28, 1988.
FACTS:
• Engracio Francia is the registered owner of a residential lot.
• On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of ₱4,116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
• Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer of
Pasay in order to satisfy a tax delinquency of ₱2,400.00.
• Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had
been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978.
• On March 20, 1979, Francia filed a complaint to annul the auction sale.
• Francia contends that his tax delinquency of ₱2,400.00 has been extinguished by
legal compensation. He claims that the government owed him ₱4,116.00 when a
portion of his land was expropriated on October 15, 1977. Hence, his tax obligation
had been set-off by operation of law as of October 15, 1977.
ISSUE:
• W/N Francia’s tax obligation had been set-off by operation of law
RULING: NO.
• The Supreme Court consistently ruled that there can be no off setting of taxes
against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government.
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• “A claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed uniformly, in the light
of public policy, to exclude the remedy in an action or any indebtedness of the state
or municipality to one who is liable to the state or municipality for taxes. Neither
are they a proper subject of recoupment since they do not arise out of the contract
or transaction sued on xxx (80 C.J.S., 73-74). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not
required xxx.”
• “xxx internal revenue taxes can not be the subject of compensation: Reason:
government and taxpayer ‘are not mutually creditors and debtors of each other’
under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.”
• There are other factors which compel us to rule against the petitioner. The tax was
due to the city government while the expropriation was effected by the national
government. Moreover, the amount of ₱4,116.00 paid by the national government
for the 125 square meter portion of his lot was deposited with the Philippine
National Bank long before the sale at public auction of his remaining property.
Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about
the ₱4,116.00 deposited with the bank but he did not withdraw it. It would have
been an easy matter to withdraw ₱2,400.00 from the deposit so that he could pay
the tax obligation thus aborting the sale at public auction.
7. DOMINGO v. GARLITOS
G.R. No. L-18994, June 29, 1963
FACTS:
• Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director
Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged
before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive
Secretary De Leon dated December 14, 1956. The note of Pres. Carlos P. Garcia to
Director Castrillo directing the latter to pay to Mrs. Price the sum of ₱368,140.00,
and an extract of page 765 of Republic Act No. 2700 appropriating the sum of
₱262,200.00 for the payment to the Leyte Cadastral Survey, Inc..
• Considering these facts, the Court orders that the payment of inheritance taxes in
the sum of ₱40,058.55 due the Collector of Internal Revenue as ordered paid by this
Court on July 5, 1960 in accordance with the order of the Supreme Court
promulgated July 30, 1960 in 106 Phil., 1138, be deducted from the amount of
₱262,200.00 due and payable to the administratrix Simeona K. Price, in this estate,
the balance to be paid by the Government to her without further delay.
• The Court has nothing further to add to its order dated August 20, 1960 and it
orders that the payment of the claim of the Collector of Internal Revenue be
deferred until the Government shall have paid its accounts to the administratrix
6
 herein amounting to ₱262,200.00. It may not be amiss to repeat that it is only fair
for the Government. as a debtor, to pay its accounts to its citizens-creditors before
it can insist in the prompt payment of the latter's account to it, specially taking into
consideration that the amount due the Government draws interests while the credit
due to the present estate does not accrue any interest.
• The Supreme Court declared in Domingo v. Hon. Judge Moscoso, as final and
executory the order of the Court of First Instance of Leyte for the payment of estate
and inheritance taxes, charges and penalties amounting to ₱40,058.55 by the Estate
of the late Walter Scott Price. The petition for execution filed by the fiscal, however,
was denied by the lower court. The Court held that the execution is unjustified as
the Government itself is indebted to the Estate for ₱262,200; and ordered the
amount of inheritance taxes be deducted from the Government’s indebtedness to
the Estate.
ISSUE:
• W/N a tax and a debt may be compensated
RULING: YES.
• The Supreme Court ruled that in the case at bar, the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the
Government has been appropriated for the purpose by a corresponding law (Rep
Act No. 2700) shows that both the claim of the Government for inheritance taxes
and the claim of the intestate for services rendered have already become overdue
and demandable as well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the Provisions of Articles 1279 and 1290 of
the Civil Code, and both debts are extinguished to the concurrent amount.
8. DAVAO GULF LUMBER CORP. v. CIR
G.R. No. 117359, July 23, 1998
FACTS:
• Petitioner is a licenses forest concessionaire possessing a Timber License
Agreement granted by the Ministry of Natural Resources (presently, DENR).
• From July 1, 1980 to January 31, 1982, petitioner purchased from various oil
companies, refined and manufactured mineral oils as well as motor and diesel fuels,
which it used exclusively for exploitation and operation of its forest concession.
• Said oil companies paid the specific taxes imposed under the NIRC. Being included
in the purchase price of the oil products, the specific taxes paid by the oil companies
were eventually passed on to the user, petitioner in this case.
• Petitioner filed before the Respondent Commissioner of Internal Revenue, a claim
for refund in the amount of P120k, representing the 25% of the specific taxes
actually paid by the above-mentioned fuels and oils that were used by the petition
in its operations as forest concessionaire.
• Under Sec. 5 of RA1435, taxes on manufactured oil used by miners and forest
concessionaires in their operations, shall be refunded by the CIR upon submission
of necessary proofs.
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• With this, petitioner submitted in its claim for refund, proof of actual use and the
affidavits of its general manager and three disinterested witnesses, all attesting to
the use of such oils.
• In 1983, the CTA granted a partial refund on the ground that the basis for
computation of the refund should be the rates deemed paid under RA 1435, and not
on the higher rates actually paid under the NIRC.
• The petitioner elevated the case to the CA which affirmed the same. Hence, this
petition.
ISSUE:
• W/N the petitioner is entitled to refund under the NIRC rate on the specific taxes it
actually paid.
RULING:
• The petitioner is entitled to a partial refund under RA1435. The law was enacted to
provide a means for increasing a highway special fund. The rationale for the grant
of partial refund of specific taxes paid on purchases of manufactured diesel and fuel
oils is that mining and forestry companies seldom use Philippine Highways.
• The tax refund gives the mining and logging companies a measure of relief, as they
do not directly benefit from the use of the Special Highway Fund.
• When the Highway Special Fund was abolished in 1985, the reason for the refund
likewise ceased to exist. Since the necessary proofs were given, they are entitled to
a refund.
• Petitioner claims that they are entitled to a refund based on the increase rates
under the NIRC, which is 25%. However, the said provision of the law makes
reference only for the purpose for prescribing a procedure for the refund. It cannot
be expanded to include the limitation of the period for refund.
• If the limitation of the period of refund of specific taxes paid on oils used in aviation
and agriculture is intended to cover similar taxes paid on oil used by miners and
forest concessionaires, then there would have no need for the dealing of the oils
used by the latter in a separate provision.
• A tax cannot be imposed unless it is supported by clear and express language of a
statute. On the other hand, once the tax is unquestionably imposed, a claim for
exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken.
• A claim for partial refund is in nature a tax exemption. It must be construed strictly
against the grantee.
• After scrutiny, there is no expression of a legislative will authorizing a refund based
on a higher rate claimed by the petitioner. When the law itself does not explicitly
provide that a refund under RA 1435 must be based on higher rates, the court
cannot presume otherwise.
9. CALTEX PHILS., INC. v. COA
G.R. No. 92585, May 8,1992
FACTS:
• Caltex questions COA for disallowing of its claims for reimbursement with its due
OPSF remittance.
7
• OPSF or Oil Price Stabilization Fund was created for purpose of minimizing
frequent price changes and will be used to reimburse the oil companies for cost
increase and possible cost under recovery incurred due to reduction of domestic
prices.
• COA sent a letter to Caltex directing the latter to remit to the OPSF for its collection.
COA contends that there is no offsetting of taxes against the claims that a taxpayer
may have against the government, as taxes do not arise from contracts or depend
upon the will of the taxpayer, but are imposed by law.
• Petitioner contends that denial of claim of reimbursement would be inequitable.
ISSUE:
• W/N Caltex is entitled to offsetting
RULING: NO.
• Taxation is no longer envisioned as a measure merely to raise revenue to support
the existence of government.
• Taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with
public interest so as to be within the police power of the State.
• Taxes cannot be subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other and a claim for taxes if not such a
debt, demand, contract or judgment as is allowed to be set-off.
10. CIR v. CA
G.R. No. 124043, October 14, 1998
FACTS:
• Private Respondent YMCA is a non-stock, non-profit institution, which conducts
various programs and activities that are beneficial to the public, especially the
young people, pursuant to its religious, educational and charitable objectives.
• In 1980, YMCA earned an income of ₱676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators and
₱44,259 from parking fees collected from non-members. On July 2, 1984, the CIR
issued an assessment to YMCA for deficiency taxes which included the income from
lease of YMCA’s real property. YMCA formally protested the assessment but the CIR
denied the claims of YMCA.
• On appeal, the CTA ruled in favor of YMCA and excluded income from lease to small
shop owners and parking fees. However, the CA reversed the CTA but affirmed the
CTA upon motion for reconsideration.
ISSUES:
1. Is the rental income of YMCA taxable?
2. Is the YMCA an educational institution within the purview of Article XIV, Section 4,
par.3 of the Constitution?
RULING:
1. YES.
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• YMCA submits that Article VI, Section 28 of par. 3 of the 1987 Constitution exempts
charitable institutions from the payment not only of property taxes but also of
income tax from any source. In support of its novel theory, it compares the use of
the words charitable institutions, actually and directly in the 1973 and the 1987
Constitutions, on the hand; and in Article VI Section 22, par. 3 of the 1935
Constitution, on the other hand.
• Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner,
who is now a member of this Court, stressed during the ConCom debates that “xxx
what is exempted is not the institution itself xxx; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and exclusively used
for religious, charitable or educational purposes.” Father Joaquin G. Bernas, an
eminent authority on the Constitution and also a member of the ConCom, adhered
to the same view that the exemption created by said provision pertained only to
property taxes.
• In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that “[t]he tax
exemption covers property taxes only.” Indeed, the income tax exemption claimed
by private respondent finds no basis in Article VI, Section 28, par. 3 of the
Constitution.
• Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter,
claiming that the YMCA is a non-stock, non-profit educational institution whose
revenues and assets are used actually, directly and exclusively for educational
purposes so it is exempt from taxes on its properties and income.
• The SC reiterated that private respondent is exempt from the payment of property
tax, but not income tax on the rentals from its property. The bare allegation alone
that it is a non-stock, non-profit educational institution is insufficient to justify its
exemption from the payment of income tax.
• As previously discussed, laws allowing tax exemption are construed strictissimi
juris. Hence, for the YMCA to be granted the exemption it claims under the
aforecited provision, it must prove with substantial evidence that (1) it falls under
the classification non-stock, non-profit educational institution; and (2) the income
it seeks to be exempted from taxation is used actually, directly, and exclusively for
educational purposes. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.
2. NO
• The term educational institution or institution of learning has acquired a well-
known technical meaning, of which the members of the Constitutional Commission
are deemed cognizant. Under the Education Act of 1982, such term refers to
schools. The school system is synonymous with formal education, which refers to
the hierarchically structured and chronological graded learnings organized and
provided by the formal school system and for which certification is required in
order for the learner to progress through the grades or move to the higher levels.
The Court has examined the Amended Articles of Incorporation and By-Laws of the
YMCA, but found nothing in them that even hints that it is a school or an educational
institution.
• Furthermore, under the Education Act of 1982, even non-formal education is
understood to be school-based and private auspices such as foundations and civic-
spirited organizations are ruled out. It is settled that the term educational
institution, when used in laws granting tax exemptions, refers to a “xxx school
8
 seminary, college or educational establishment xxx.” Therefore, the private
respondent cannot be deemed one of the educational institutions covered by the
constitutional provision under consideration.
11. PASCUAL v. SEC. OF PUBLIC WORKS AND COMMUNICATIONS
G.R. No. L-10405, December 29, 1960
FACTS:
• Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action
for declaratory relief, with injunction upon the ground that Republic Act No. 920,
entitled “An Act Appropriating Funds for Public Works” contained an item “for the
construction, reconstruction, repair, extension and improvement” of “Pasig feeder
road terminals.
• According to said petition, respondent Zulueta is the owner of several parcels of
residential land, situated in Pasig Rizal, and known as the Antonio Subdivision,
certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating ₱85,000.00 for the “construction,
reconstruction, repair, extension and improvement” of said roads, was passed by
Congress, as well as when it was approved by the President on June 20, 1953. The
petition further alleges that the construction of said feeder roads, to be undertaken
with the aforementioned appropriation of ₱85,000.00, would have the effect of
relieving respondent Zulueta of the burden of constructing its subdivision streets
or roads at his own expenses, and would greatly enhance or increase the value of
the subdivision of said respondent.
• The lower court held that under these circumstances, the appropriation in question
was “clearly for a private, not a public purpose.”
ISSUE:
• W/N the item for the construction of Pasig feeder road terminals is for a public
purpose
RULING: NO.
• The item for the construction of Pasig feeder road terminals is not for a public
purpose.
• “It is a general rule that the legislature is without power to appropriate public
revenues for anything but a public purpose. xxx It is the essential character of the
direct object of the expenditure which must determine its validity as justifying a tax
and not the magnitude of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental advantage to the public or to the state,
which results from the promotion of private interests, and the prosperity of private
enterprises or business, does not justify their aid by the use of public money.”
• Generally, under the express or implied provisions of the constitution, public funds
may be used only for a public purpose. The right of the legislature to appropriate
public funds is correlative with its right to tax, and, under constitutional provisions
against taxation except for public purposes and prohibiting the collection of a tax
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for one purpose and the devotion thereof to another purpose, no appropriate of
state funds can be made for other than a public purpose.
• The test of the constitutionality of a statute requiring the use of public funds is
whether the statute is designed to promote the public interests, as opposed to the
furtherance of the advantage of individuals, although such advantage to individuals
might incidentally serve the public.
• Where the land on which projected feeder roads are to be constructed belongs to a
private person, an appropriation made by Congress for that purpose is null and
void, and a donation to the Government, made over five (5) months after the
approval and effectivity of the Act for the purpose of giving a “semblance of legality”
to the appropriation, does not cure the basic defect. Consequently, a judicial
nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
• The relation between the people of the Philippines and its taxpayers, on the one
hand, and the Republic of the Philippines, on the other, is not identical to that
obtaining between the people and taxpayers of the U.S. and its Federal Government.
It is closer, from a domestic viewpoint, to that existing between the people and
taxpayers of each state and the government thereof, except that the authority of the
Republic of the Philippines over the people of the Philippines is more fully direct
than that of the states of the Union, insofar as the simple and unitary type of our
national government is not subject to limitations analogous to those imposed by
the Federal Constitution upon the states of the Union, and those imposed upon the
Federal Government in the interest of the states of the Union. For this reason, the
rule recognizing the right of taxpayers to assailed the constitutionality of a
legislation appropriating local or state public funds - which has been upheld by the
Federal Supreme Court (Crampton v. Zabriskie, 101 U.S. 601) - has greater
application in the Philippines than that adopted with respect to acts of Congress of
the United States appropriating federal funds.
12. MCIAA v. MARCOS
G.R. No. 120082, September 11, 1996
FACTS:
• MCIAA was created by virtue of RA 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, . . . and such other airports as may be established in the Province of Cebu.”
• Since the time of its creation, MCIAA enjoyed the privilege of tax exemption from
payment of realty taxes in accordance with Sec. 14 of its Charter.
• On October 11, 1994, Cesa, OIC of the Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land belonging to the
petitioner, in the total amount of ₱2,229,078.79.
• MCIAA objected to such demand for payment as baseless and unjustified, claiming
in its favor Sec. 14 of RA 6958 which exempts it from payment of realty taxes. It also
asserted that it is an instrumentality of the government performing governmental
function, citing Sec. 133 of the LGC of 1991 which puts limitation on the taxing
powers of LGUs
9
• City of Cebu refused to cancel and set aside MCIAA’s realty tax account, insisting
that MCIAA is a GOCC whose tax exemption privilege has been withdrawn by virtue
of Sec 193 and 234 of the LGC that took effect on January 1, 1992.
• Trial court dismissed the petition for declaratory relief.
ISSUE:
• W/N MCIAA is liable to pay real property taxes to the City of Cebu
RULING: YES.
• Power of Taxation
o As a general rule, the power to tax is an incident of sovereignty and is unlimited
in its range, acknowledging in its very nature no limits, so that security against
its abuse is to be found only in the responsibility of the legislature which imposes
the tax on the constituency who are to pay it. Nevertheless, effective limitations
thereon may be imposed by the people through their Constitutions.
o Tax statutes must be construed strictly against the government and liberally in
favor of the taxpayer. But since taxes are what we pay for civilized society, or are
the lifeblood of the nation, the law frowns against exemptions from taxations and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of exemption from
tax payments must be clearly shown and based on language in the law too plain
to be mistaken.
o However, if the grantee is a political subdivision or instrumentality, the rigid rule
of construction does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled by the government.
o The power to tax is primarily vested in the Congress; however, in our jurisdiction,
it may be exercised by local legislative bodies, no longer merely by virtue of a
valid delegation as before, but pursuant to direct authority conferred by Section
5, Article X of the Constitution.
• MCIAA is not exempt from payment of real property taxes
o There can be no question that under Section 14 of R.A. No. 6958 the petitioner is
exempt from the payment of realty taxes imposed by the National Government
or any of its political subdivisions, agencies, and instrumentalities.
o Nevertheless, since taxation is the rule and exemption therefrom the exception,
the exemption may thus be withdrawn at the pleasure of the taxing authority. The
only exception to this rule is where the exemption was granted to private parties
based on material consideration of a mutual nature, which then becomes
contractual and is thus covered by the non-impairment claim of the Constitution.
o Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has
been withdrawn. Any claim to the contrary can only be justified if the petitioner
can seek refuge under any of the exceptions provided in Section 234, but not
under Section 133, as it now asserts, since, as shown above, the said section is
qualified by Sections 232 and 234.
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o It must show that the parcels of land in question, which are real property, are any
one of those enumerated in Section 234, either by virtue of ownership, character,
or use of the property. Most likely, it could only be the first, but not under any
explicit provision of the said section, for none exists.
o If Section 234(a) intended to extend the exception therein to the withdrawal of
the exemption from payment of real property taxes under the last sentence of the
said section to the agencies and instrumentalities of the National Government
mentioned in Section 133(o), then it should have restated the wording of the
latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope
of the exemption in Section 234(a) to include real property owned by other
instrumentalities or agencies of the government including government-owned
and controlled corporations is further borne out by the fact that the source of this
exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property
Tax Code.
o Note that as reproduced in Section 234(a), the phrase “and any government-
owned or controlled corporation so exempt by its charter” was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of the general provision
on withdrawal of tax exemption privileges in Section 193 and the special
provision on withdrawal of exemption from payment of real property taxes in the
last paragraph of Section 234.
o 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.
o 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 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.
CONSTITUTIONAL LIMITATIONS
1. BAGATSING v. RAMIREZ
G.R. No. L-41631, December 17, 1976
FACTS:
• June 12, 1974 – The Municipal Board of Manila enacted Ordinance No. 7522,
entitled “An Ordinance Regulating the Operation of Public Markets and Prescribing
Rentals of Stalls and Providing Penalties for Violation Thereof and for Other
Purposes.”
• June 15, 1974 – City Mayor Ramon Bagatsing approved the ordinance.
• February 17, 1975 – Respondent Federation of Manila Market Vendors, Inc.
commenced a civil case before the CFI of Manila, presided over by Hon. Pedro
Ramirez, seeking the nullity of the ordinance.
• The following were assailed by the Federation:
a. The publication requirement under the Revised Charter of the City of Manila has
not been complied with;
10
 b. The Market Committee was not given any participation in the enactment of the
ordinance, as envisioned by Republic Act 6039;
c. Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and
d. The ordinance would violate Presidential Decree No. 7 of September 30, 1972
prescribing the collection of fees and charges on livestock and animal products.
• Respondent Judge Ramirez rendered its decision, declaring the nullity of Ordinance
No. 7522 on the primary ground of non-compliance with the requirement of
publication under the Revised City Charter.
• Petitioners moved for reconsideration of the adverse decision, stressing that (a)
only a post-publication is required by the Local Tax Code; and (b) private
respondent failed to exhaust all administrative remedies before instituting an
action in court.
• The MR was denied by Judge Ramirez. Hence, the case was brought to the SC
through a petition for review on certiorari.
ISSUES:
1. What law should govern the publication of Ordinance No. 7522
2. W/N Ordinance No. 7522 should be considered as a tax ordinance
3. W/N the ordinance should be invalid due to non-participation of the Market
Committee
RULING:
1. THE LOCAL TAX CODE, WHICH DEMANDS PUBLICATION AFTER APPROVAL
SHOULD GOVERN THE PUBLICATION OF ORDINANCE NO. 7522.
• There is no question that the Revised Charter of the City of Manila is a special act
since it relates only to the City of Manila, whereas the Local Tax Code is a general
law because it applies universally to all local governments.
• Blackstone defines general law as a universal rule affecting the entire community
and special law as one relating to particular persons or things of a class. And the
rule commonly said is that a prior special law is not ordinarily repealed by a
subsequent general law. The fact that one is special and the other general creates a
presumption that the special is to be considered as remaining an exception of the
general, one as a general law of the land, the other as the law of a particular case.
• However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular.
• The exactly is the circumstance obtaining in the case at bar. Section 17 of the
Revised Charter of the City of Manila speaks of “ordinance” in general, i.e.,
irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax
Code relates to “ordinances levying or imposing taxes, fees or other charges” in
particular.
• In regard, therefore, to ordinances in general, the Revised Charter of the City of
Manila is doubtless dominant, but, that dominant force loses its continuity when it
approaches the realm of “ordinances levying or imposing taxes, fees or other
charges” in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. Special provision governs. This
is especially true where the law containing the particular provision was enacted
later than the one containing the general provision.
• The City Charter of Manila was promulgated on June 18, 1949 as against the Local
Tax Code which was decreed on June 1, 1973. The law-making power cannot be
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said to have intended the establishment of conflicting and hostile systems upon the
same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render
legislation a useless and idle ceremony, and subject the law to the reproach of
uncertainty and unintelligibility.
2. YES. ORDINANCE NO. 7522 IS A TAX ORDINANCE.
• Private respondent’s contention: The subject ordinance is not a “tax ordinance,”
because the imposition of rentals, permit fees, tolls and other fees is not strictly a
taxing power but a revenue-raising function, so that the procedure for publication
under the Local Tax Code finds no application.
• The pretense bears its own marks of fallacy. The Court does not agree with the
Private Respondent. Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New Constitution, “Each local
government unit shall have the power to create its own sources of revenue and to
levy taxes, subject to such provisions as may be provided by law.”
• And one of those sources of revenue is what the Local Tax Code points to in
particular: “Local governments may collect fees or rentals for the occupancy or use
of public markets and premises . . .” They can provide for and regulate market
stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can
license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or
marketing privileges.
3. NO. THE ORDINANCE SHOULD NOT BE INVALID BECAUSE OF THE NON-
PARTICIPATION OF THE MARKET COMMITTEE.
• The non-participation of the Market Committee in the enactment of Ordinance No.
7522 supposedly in accordance with Republic Act No. 6039, an amendment to the
City Charter of Manila, providing that "the market committee shall formulate,
recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or amending
existing provisions of the market code" does not infect the ordinance with any germ
of invalidity.
• The function of the committee is purely recommendatory as the underscored
phrase suggests, its recommendation is without binding effect on the Municipal
Board and the City Mayor. Its prior acquiescence of an intended or proposed city
ordinance is not a condition sine qua non before the Municipal Board could enact
such ordinance.
• The native power of the Municipal Board to legislate remains undisturbed even in
the slightest degree. It can move in its own initiative and the Market Committee
cannot demur. At most, the Market Committee may serve as a legislative aide of the
Municipal Board in the enactment of city ordinances affecting the city markets or,
in plain words, in the gathering of the necessary data, studies and the collection of
consensus for the proposal of ordinances regarding city markets.
• Much less could it be said that Republic Act 6039 intended to delegate to the Market
Committee the adoption of regulatory measures for the operation and
administration of the city markets. Potestas delegata non delegare potest.
2. ABAKADA GURO PARTY LIST v. ERMITA
11
 G.R. No. 168056, September 1, 2005
FACTS:
• R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
3555 and 3705, and Senate Bill No. 1950.
• House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of
the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the introduction by the
Senate of provisions not dealing directly with the value- added tax, which is the only
kind of tax being amended in the House bills?
• In settling the issues, Bicameral Conference Committee convened. However, the
new version of the bill approved by the Bicameral Conference Committee included
a standby authority in favor of the president and inserting the provision imposing
a 70% limit on the amount of input tax to be credited against the output tax not
present in both in House and Senate Bill, and deleting no pass-on provision found
both in House and Senate Bill. Such report was approved both the Senate and the
House of Representatives. The enrolled bill was consolidated and was transmitted
to the president who signed the same into law.
ISSUES:
1. W/N the Bicameral Conference Committee exceeded its authority by inserting a
standby authority in favor of the president, deleting no pass-on provision found
both in House and Senate Bill, and including amendments only introduced in the
senate bill that is not present in the house bill; may the Court then delve into the
details of how Congress complies with its internal rules or how it conducts its
business of passing legislation
2. W/N Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of
the NIRC, violate the Constitution
3. W/N Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
NIRC, and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
the Constitution
RULING:
1. NO
• The Bicameral Conference Committee
o Court En Banc, unanimously reiterated and emphasized its adherence to the
“enrolled bill doctrine,” thus, declining therein petitioners’ plea for the Court to
go behind the enrolled copy of the bill. Under the “enrolled bill doctrine,” the
signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress that it was passed is
conclusive of its due enactment. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged by the petitioners
mostly involved the internal rules of Congress. The Court is not the proper forum
for the enforcement of these internal rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their observance the courts
have no concern. They may be waived or disregarded by the legislative body.
Consequently, mere failure to conform to parliamentary usage will not invalidate
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the action (taken by a deliberative body) when the requisite number of members
have agreed to a particular measure.
o One of the most basic and inherent power of the legislature is the power to
formulate rules for its proceedings and the discipline of its members. Congress is
the best judge of how it should conduct its own business expeditiously and in the
most orderly manner. It is also the sole concern of Congress to instill discipline
among the members of its conference committee if it believes that said members
violated any of its rules of proceedings. Even the expanded jurisdiction of this
Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of
a co-equal branch of government.
• R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the
“No-Amendment Rule”
o Art. VI. Sec 26 (2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the conference
committee report.
o The Court reiterates here that the “no-amendment rule” refers only to the
procedure to be followed by each house of Congress with regard to bills initiated
in each of said respective houses, before said bill is transmitted to the other house
for its concurrence or amendment. Verily, to construe said provision in a way as
to proscribe any further changes to a bill after one house has voted on it would
lead to absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said bill.
Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.
• R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
o In the present cases, it was indeed House Bill Nos. 3555 and 3705 that initiated
the move for amending provisions of the NIRC dealing mainly with the value-
added tax. Upon transmittal of said House bills to the Senate, the Senate came out
with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on
the value-added tax but also amendments to NIRC provisions on other kinds of
taxes. Is the introduction by the Senate of provisions not dealing directly with the
value- added tax, which is the only kind of tax being amended in the House bills,
still within the purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated from the
House?
o To begin with, it is not the law – but the revenue bill – which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo
such extensive changes in the Senate that the result may be a rewriting of the
whole. . . . At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute – and not
only the bill which initiated the legislative process culminating in the enactment
of the law – must substantially be the same as the House bill would be to deny the
12
 Senate’s power not only to “concur with amendments” but also to “propose
amendments.” It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
o As the Court has said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of corporations are
germane to the purpose of the house bills which is to raise revenues for the
government.
2. NO.
• No Undue Delegation of Legislative Power
o Petitioners contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the legislative power to
tax.
o The general rule barring delegation of legislative powers is subject to the
following recognized limitations or exceptions:
a. Delegation of tariff powers to the President under Section 28 (2) of Article VI
of the Constitution;
b. Delegation of emergency powers to the President under Section 23 (2) of
Article VI of the Constitution;
c. Delegation to the people at large;
d. Delegation to local governments; and
e. Delegation to administrative bodies
o In every case of permissible delegation, there must be a showing that the
delegation itself is valid. It is valid only if the law (a) is complete in itself, setting
forth therein the policy to be executed, carried out, or implemented by the
delegate; and (b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must conform in the
performance of his functions. A sufficient standard is one which defines
legislative policy, marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances under which the
legislative command is to be effected. Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative.
o In testing whether a statute constitutes an undue delegation of legislative power
or not, it is usual to inquire whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature
o In the present case the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
a. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
b. National government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 ½%).
o The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration
of the increase rate under the law is contingent. The legislature has made the
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operation of the 12% rate effective January 1, 2006, contingent upon a specified
fact or condition. It leaves the entire operation or non-operation of the 12% rate
upon factual matters outside of the control of the executive.
• The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
o Petitioners argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people
o The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the state’s economic
dilemma is not for the Court to judge. The Court in this case will not dawdle on
the purpose of Congress or the executive policy, given that it is not for the
judiciary to "pass upon questions of wisdom, justice or expediency of legislation.
3. NO.
• Due Process and Equal Protection Clauses
o Petitioner argue that Section 8 of R.A. No. 9337, are arbitrary, oppressive,
excessive and confiscatory. Their argument is premised on the constitutional
right against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution. Petitioners also contend that
these provisions violate the constitutional guarantee of equal protection of the
law.
o The doctrine is that where 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 proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
o Petitioners also argue that the input tax partakes the nature of a property that
may not be confiscated, appropriated, or limited without due process of law.
o The input tax is not a property or a property right within the constitutional
purview of the due process clause. A VAT-registered person’s entitlement to the
creditable input tax is a mere statutory privilege.
o The distinction between statutory privileges and vested rights must be borne in
mind for persons have no vested rights in statutory privileges. The state may
change or take away rights, which were created by the law of the state, although
it may not take away property, which was vested by virtue of such rights.
o Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part
of the cost, which is deductible from the gross revenue.
o When the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997
(R.A. No. 8424) were adopted, it was then that the crediting of the input tax paid
on purchase or importation of goods and services by VAT-registered persons
against the output tax was introduced. The right to credit input tax as against the
output tax is clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
o 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.”
13
 o The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject
of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the State’s power is
entitled to presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.
o The equal protection clause does not require the universal application of the laws
on all persons or things without distinction. This might in fact sometimes result
in unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the
grouping of persons or things similar to each other in certain particulars and
different from all others in these same particulars.
• Uniformity and Equitability of Taxation
o Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times.
o In this case, the tax law is uniform as it provides a standard rate of 0% or 10%
(or 12%) on all goods and services.
o Neither does the law make any distinction as to the type of industry or trade that
will bear the 70% limitation on the creditable input tax, 5-year amortization of
input tax paid on purchase of capital goods or the 5% final withholding tax by the
government.
o The disputed sales tax is also equitable.
o It is imposed only on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from
the tax are sales of farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT, are expected
to be relatively lower and within the reach of the general public.
o It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law,
imposed a 3% percentage tax on VAT-exempt persons. This acts as a equalizer
because in effect, bigger businesses that qualify for VAT coverage and VAT-
exempt taxpayers stand on equal-footing
• Progressivity of Taxation
o Petitioners contend that the limitation on the creditable input tax is anything but
regressive. It is the smaller business with higher input tax-output tax ratio that
will suffer the consequences.
o Taxation is progressive when its rate goes up depending on the resources of the
person affected. The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively enjoy under
the protection of the state.
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o The VAT is an antithesis of progressive taxation. By its very nature, it is
regressive. VAT paid eats the same portion of an income, whether big or small.
The disparity lies in the income earned by a person or profit margin marked by a
business, such that the higher the income or profit margin, the smaller the
portion of the income or profit that is eaten by VAT. A converso, the lower the
income or profit margin, the bigger the part that the VAT eats away. At the end of
the day, it is really the lower income group or businesses with low-profit margins
that is always hardest hit.
o Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall “evolve a
progressive system of taxation.”
o The Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall “evolve
a progressive system of taxation.” The constitutional provision has been
interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much
as possible, indirect taxes should be minimized.’ Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have been prohibited.
o Resort to indirect taxes should be minimized but not avoided entirely because it
is difficult, if not impossible, to avoid them by imposing such taxes according to
the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting
exemptions to other transactions (R.A. No. 7716, §4 amending §103 of the NIRC).
3. EASTERN SHIPPING THEATRICAL CO. v. ALFONSO
G.R. No. L-1104, May 31, 1949
FACTS:
• Twelve corporation engaged in motion picture business have initiated these
proceeding through a complaint dated May 5, 1946, to impugn the validity of
Ordinance No. 2958 of the City of Manila which was enacted by the municipal Board
of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took
effect on May 1, 1946 said ordinance reading as follows: “AN ORDINANCE
IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY
CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL SHOWS
AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES.”
• Plaintiffs, operator of theaters in Manila And distributor of local or imported films
allege that they are interested in the provision of section 1,2 and 4 of said ordinance
which they impugn as null and void upon the following grounds:
a. For violation the Constitution more particular the provision regarding the
uniformity and equality of taxation and thee equal protection of the laws;
b. Because the Municipal Board of Manila exceeded and over-stepped the power
granted it the Charter of the City of Manila;
c. Because it contravenes violates and is inconsistent with, existing national
legislation more particularly revenue and tax laws; and
14
 d. Because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is
contrary to and violation our basic and recognizes principles of taxation and
licensing laws.
• Defendants allege as affirmative defenses the following:
a. That the ordinance was passed by the Municipal Board of Manila by virtue of its
express legislative power to tax fix the license fee and regulate the business of
theaters, cinematographs and further to fix the location of and to tax, fix the
license fee for and regulate the business of theatrical performances public
exhibition circus and other performances and places of amusement;
b. That the graduated tax required by said ordinance being applied to all
cinematographs, theaters, vaudeville companies theatrical show and boxing
exhibitions similarly situated and as a class without distinction or exception the
same does not violate the prohibition against uniformity and equality of taxation;
c. That the graduated tax on admission tickets to theaters and other places of
amusement imposed by the National Internal Revenue Code (Commonwealth Act
No. 466) is collected by and for the purposes of the National Government,
whereas, Ordinance No.2958 imposes and requires the collection of a similar tax
by and for the purposes of the Government of the City of Manila, and there is no
case of double taxation,
d. That said ordinance having been enacted under the express power of the
Municipal Board to tax for revenue as distinguished from its power to license for
purely police purposes, the fact that the amount collected thereunder are higher
than what are needed for police regulation and supervision does not render said
ordinance unfair unjust capricious unreasonable and oppressive; and
e. That consideration the nature of the business of the plaintiffs and the enormous
volume of business they handle the graduated tax fixed by the ordinance is not
unreasonable.
• On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila
rendered a decision upholding the validity of Ordinance No. 2958.
• Appellants contend that the lower court erred in holding that under section 2444
(m) of the Revised administrative Code the Municipal Board of the City of Manila
had the power to enact Ordinance No. 2958.
• By virtue of the specific power granted in the above quoted provision of the Revised
Administration Code Ordinance No. 2958 was enacted.
• On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466,
known as the National Internal Revenue Code.
ISSUE:
• W/N the Ordinance is violative of the provision regarding the uniformity and
equality of taxation and thee equal protection of the laws
RULING:
• The whole argument of the plaintiffs hinges, therefore, on the assumption that the
power granted to the City of Manila by section 2444(m) of the Revised
Administrative Code is limited to the authority to impose a tax on business, with
exclusion of the power to impose a tax amusement; but, the assumption is based on
an arbitrary labeling of the kind of tax authorized by said section 2444(m). The
distinction made by plaintiffs as to the power to tax on business and the power to
tax on amusement has no ground under the provisions of section 2444(m) of the
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Revised Administrative Code. The tax therein authorized cannot be defined as tax
on business and cannot be restricted within a smaller scope than what is authorized
by the words used, to the extent of excluding what plaintiffs describe as tax on
amusement.
• The very fact that section 2444 (m) of the Revised Administrative Code includes
theaters, cinematographs, public billiard tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circuses and other similar places, race
tracks, horse races, theatrical performances, public exhibition, circus and other
performances and places of amusements, will show conclusively that the power to
tax amusement is expressly included within the power granted by section 2444(m)
of the Revised Administrative Code.
• plaintiffs aver that the Charter of the City of Manila, containing section 2444(m) of
the Revised Administrative Code, was enacted on December 8, 1929. On April 25,
1940, the National Assembly enacted Commonwealth Act No. 466, including
provisions on amusement tax, covering the whole field on taxation and provided
for more than what the ordinance in question has provided. As a result, there are
two taxing powers seeking to occupy exactly the same field of legislation, and so the
apparent conflict must be resolved with the conclusion that, with the enactment of
Commonwealth Act No. 466, as later amended by Republic Act No. 39, section
2444(m) of the Revised Administrative Code has been impliedly repealed and the
power therein delegated to the City of Manila withdrawn.
• We see absolutely no force in plaintiffs' contention. The conflict pointed out by
them is imaginary. Both provisions of law may stand together and be enforced at
the same time without any incompatibility among themselves.
• plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958
violated the principle of equality and uniformity of taxation enjoined by the
Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the Philippines).
• To support this contention, appellants point out to the fact that the ordinance in
question does not tax “many more kinds of amusements” than those therein
specified, such as “race tracks, cockpits, cabarets, concert halls, circuses, and other
places of amusement.” The argument has absolutely no merit. The fact that some
places of amusement are not taxed while others, such as cinematographs, theaters,
vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is no argument at all against the
equality and uniformity of the tax imposition. Equality and uniformity of the tax
imposition. Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of
taxation; and the appellants cannot point out what places of amusement taxed by
the ordinance do not constitute a class by themselves and which can be confused
with those not included in the ordinance.
4. BRITISH AMERICAN TOBACCO v. CAMACHO
G.R. No. 163583, August 20, 2008
FACTS:
• This petition for review assails the validity of: (1) Section 145 of the National
Internal Revenue Code (NIRC), as recodifed by Republic Act (RA) 8424; (2) RA
15
 9334, which further amended Section 145 of the NIRC on January 1, 2005; (3)
Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue
Memorandum Order No. 6-2003.
• Petitioner argues that the said provisions are violative of the equal protection and
uniformity clauses of the Constitution.
• Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net
retail price per pack of cigarettes.
• To determine the applicable tax rates of existing cigarette brands, a survey of the
net retail prices per pack of cigarettes was conducted as of October 1, 1996, the
results of which were embodied in Annex “D” of the NIRC as the duly registered,
existing or active brands of cigarettes.
• As such, new brands of cigarettes shall be taxed according to their current net retail
price while existing or “old” brands shall be taxed based on their net retail price as
of October 1, 1996.
• To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue
Regulations No. 1-97, which classified the existing brands of cigarettes as those duly
registered or active brands prior to January 1, 1997. New brands, or those
registered after January 1, 1997, shall be initially assessed at their suggested retail
price until such time that the appropriate survey to determine their current net
retail price is conducted.
• Due to this legislative classification scheme, it is possible that over time the net
retail price of a previously classified brand, whether it be a brand under Annex “D”
or a new brand classified after the effectivity of RA 8240 on January 1, 1997, would
increase (due to inflation, increase of production costs, manufacturer's decision to
increase its prices, etc.) to a point that its net retail price pierces the tax bracket to
which it was previously classified. Consequently, even if its present-day net retail
price would make it fall under a higher tax bracket, the previously classified brand
would continue to be subject to the excise tax rate under the lower tax bracket by
virtue of the legislative classification freeze.
• The evidence presented by the petitioner merely showed that in 2004, Marlboro
and Philip Morris, on the one hand, and Lucky Strike, on the other, would have been
taxed at the same rate had the classification freeze provision been not in place. But
due to the operation of the classification freeze provision, Lucky Strike was taxed
higher. From here, petitioner generalizes that this differential tax treatment arising
from the classification freeze provision adversely impacts the fairness of the
playing field in the industry, particularly, between older and newer brands. Thus, it
is virtually impossible for new brands to enter the market.
ISSUE:
• W/N the assailed statutes violate the equal protection and uniformity clauses of the
Constitution
RULING: NO.
• The Supreme Court have held that “in our jurisdiction, the standard and analysis of
equal protection challenges in the main have followed the ‘rational basis’ test,
coupled with a deferential attitude to legislative classifications and a reluctance to
invalidate a law unless there is a showing of a clear and unequivocal breach of the
Constitution.” Within the present context of tax legislation on sin products which
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neither contains a suspect classification nor impinges on a fundamental right, the
rational-basis test thus finds application.
• Under this test, a legislative classification, to survive an equal protection challenge,
must be shown to rationally further a legitimate state interest. The classifications
must be reasonable and rest upon some ground of difference having a fair and
substantial relation to the object of the legislation. Since every law has in its favor
the presumption of constitutionality, the burden of proof is on the one attacking the
constitutionality of the law to prove beyond reasonable doubt that the legislative
classification is without rational basis. The presumption of constitutionality can be
overcome only by the most explicit demonstration that a classification is a hostile
and oppressive discrimination against particular persons and classes, and that
there is no conceivable basis which might support it.
• A legislative classification that is reasonable does not offend the constitutional
guaranty of the equal protection of the laws. The classification is considered valid
and reasonable provided that:
a. It rests on substantial distinctions;
b. It is germane to the purpose of the law;
c. It applies, all things being equal, to both present and future conditions; and
d. It applies equally to all those belonging to the same class.
• The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency. That
is, since a new brand was not yet in existence at the time of the passage of RA 8240,
then Congress needed a uniform mechanism to fix the tax bracket of a new brand.
The current net retail price, similar to what was used to classify the brands under
Annex “D” as of October 1, 1996, was thus the logical and practical choice.
• Further, with the amendments introduced by RA 9334, the freezing of the tax
classifications now expressly applies not just to Annex “D” brands but to newer
brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new
brand that will be introduced in the future.
• It has not been shown that the net retail prices of other older brands previously
classified under this classification system have already pierced their tax brackets,
and, if so, how this has affected the overall competition in the market. Further, it
does not necessarily follow that newer brands cannot compete against older brands
because price is not the only factor in the market as there are other factors like
consumer preference, brand loyalty, etc.
• In other words, even if the newer brands are priced higher due to the differential
tax treatment, it does not mean that they cannot compete in the market especially
since cigarettes contain addictive ingredients so that a consumer may be willing to
pay a higher price for a particular brand solely due to its unique formulation.
• It may also be noted that in 2003, the BIR surveyed 29 new brands that were
introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus
negating the sweeping generalization of petitioner that the classification freeze
provision has become an insurmountable barrier to the entry of new brands.
• Verily, where there is a claim of breach of the due process and equal protection
clauses, considering that they are not fixed rules but rather broad standards, there
is a need for proof of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail.
• Absent a clear showing of breach of constitutional limitations, Congress, owing to
its vast experience and expertise in the field of taxation, must be given sufficient
16
 leeway to formulate and experiment with different tax systems to address the
complex issues and problems related to tax administration. Whatever
imperfections that may occur, the same should be addressed to the democratic
process to refine and evolve a taxation system which ideally will achieve most, if
not all, of the state’s objectives.
• In fine, petitioner may have valid reasons to disagree with the policy decision of
Congress and the method by which the latter sought to achieve the same. But its
remedy is with Congress and not this Court.
4-A. BRITISH AMERICAN TOBACCO v. CAMACHO
G.R. No. 163583, April 15, 2009
FACTS:
• In its Motion for Reconsideration, petitioner insists that the assailed provisions:
a. Violate the equal protection and uniformity of taxation clauses of the
Constitution;
o Petitioner argues that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because Annex “D” brands are
taxed based on their 1996 net retail prices while new brands are taxed based
on their present-day net retail prices.
b. Contravene Section 19, Article XII of the Constitution on unfair competition; and
c. Infringe the constitutional provisions on regressive and inequitable taxation.
o Petitioner argues that the classification freeze provision is a form of regressive
and inequitable tax system which is proscribed under Article VI, Section 28 (1)
of the Constitution. It claims that people in equal positions should be treated
alike. The use of different tax bases for brands under Annex “D” vis-à-vis new
brands is discriminatory, and thus, iniquitous. Petitioner further posits that the
classification freeze provision is regressive in character. It asserts that the
harmonization of revenue flow projections and ease of tax administration
cannot override this constitutional command.
• Petitioner further argues that assuming the assailed provisions are constitutional,
petitioner is entitled to a downward reclassification of Lucky Strike from the
premium-priced to the high-priced tax bracket.
ISSUES:
1. W/N the assailed provisions violate the equal protection and uniformity of taxation
clauses of the Constitution
2. W/N the assailed provisions contravene Section 19, Article XII of the Constitution
on unfair competition
3. W/N the assailed provisions infringe the constitutional provisions on regressive
and inequitable taxation.
RULING:
1. NO.
• The rational basis test was properly applied to gauge the constitutionality of the
assailed law in the face of an equal protection challenge. It has been held that “in
the areas of social and economic policy, a statutory classification that neither
proceeds along suspect lines nor infringes constitutional rights must be upheld
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against equal protection challenge if there is any reasonably conceivable state of
facts that could provide a rational basis for the classification.” Under the rational
basis test, it is sufficient that the legislative classification is rationally related to
achieving some legitimate State interest.
• Moreover, petitioner's contention that the assailed provisions violate the
uniformity of taxation clause is similarly unavailing. In Churchill v. Concepcion, the
SC explained that a tax “is uniform when it operates with the same force and effect
in every place where the subject of it is found.” It does not signify an intrinsic but
simply a geographical uniformity. A levy of tax is not unconstitutional because it is
not intrinsically equal and uniform in its operation. The uniformity rule does not
prohibit classification for purposes of taxation.
• Uniformity of taxation, like the kindred 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 forfend 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.
• In the instant case, there is no question that the classification freeze provision
meets the geographical uniformity requirement because the assailed law applies to
all cigarette brands in the Philippines.
2. NO.
• Petitioner failed to convincingly prove that there is a substantial barrier to the entry
of new brands in the cigarette market due to the classification freeze provision. We
further observed that several new brands were introduced in the market after the
assailed law went into effect thus negating petitioner's sweeping claim that the
classification freeze provision is an insurmountable barrier to the entry of new
brands. We also noted that price is not the only factor affecting competition in the
market for there are other factors such as taste, brand loyalty, etc.
3. NO.
• Anent the issue of regressivity, it may be conceded that the assailed law imposes an
excise tax on cigarettes which is a form of indirect tax, and thus, regressive in
character. While there was an attempt to make the imposition of the excise tax more
equitable by creating a four-tiered taxation system where higher priced cigarettes
are taxed at a higher rate, still, every consumer, whether rich or poor, of a cigarette
brand within a specific tax bracket pays the same tax rate. To this extent, the tax
does not take into account the person's ability to pay. Nevertheless, this does not
mean that the assailed law may be declared unconstitutional for being regressive
in character because the Constitution does not prohibit the imposition of indirect
taxes but merely provides that Congress shall evolve a progressive system of
taxation.
DOUBLE TAXATION and TAX EXEMPTION
1. EXEC. SEC. v. SOUTHWING HEAVY INDUSTRIES, INC.
G.R. No. 164171, February 20, 2006
17
FACTS:
• On December 12, 2002, President Gloria Macapagal Arroyo issued Executive Order
156 entitled “Providing for a Comprehensive Industrial Policy and Directions for
the Motor Vehicle Development Program and Its Implementing Guidelines.”
• The said provision prohibits the importation of all types of used motor vehicles in
the country including the Subic Bay Freeport, or the Freeport Zone, subject to a few
exceptions, such as:
o A vehicle that is owned and for the personal use of a returning resident or
immigrant and covered by an authority to import issued under the No-dollar
Importation Program, such vehicle cannot be resold for at least 3 years
o A vehicle for the use of an official of the Diplomatic Corps and authorized to be
imported by the Department of Foreign Affairs
o Trucks, excluding pickups
o Buses
o Special purpose vehicles (e.g. fire trucks)
• Consequently, three separate actions for declaratory relief were filed by Southwing
Heavy Industries Inc., Subic Integrated Macro Ventures Corp., and Motor Vehicle
Importers Association of Subic Bay Freeport Inc. (all locators inside the Subic Bay
Freeport, who are all exporters of used, motor vehicles and spare parts, except used
cars) praying that judgment be rendered declaring Article 2, Section3.1 of the EO
156 unconstitutional and illegal.
• The RTC rendered a summary judgment declaring that Article 2, Section 3.1 of EO
156 constitutes an unlawful usurpation of legislative power vested by the
Constitution with Congress and that the proviso is contrary to the mandate of
Republic Act 7227 or the Bases Conversion and Development Act of 1992 which
allows the free flow of goods and capital within the Freeport.
Issue/s:
ISSUES:
1. W/N the Private Respondents have the legal standing in questioning the said law
2. W/N the Executive Order banning the importation of used vehicles through the
Free Trade Zone is valid
3. W/N Article2, Section 3.1 of EO 156 is a valid exercise of the President’s quasi-
legislative power
RULING:
1. YES.
• The Supreme Court explained that Petitioners contention that respondents will not
be affected by the importation ban considering that their certificate of registration
and tax exemption do not authorize them to engage in the importation and/or
trading of used cars is bereft of merit.
• The established rule that the constitutionality of a law or administrative issuance
can be challenged by one who will sustain a direct injury as a result of its
enforcement has been satisfied in the instant case. The broad subject of the
prohibited importation is “all types of used motor vehicles.”
• Hence, Respondents would definitely suffer a direct injury from the
implementation of EO 156 because their certificate of registration and tax
exemption authorize them to trade and/or import new and used motor vehicles
and spare parts, except “used cars.” Other types of motor vehicles imported and/or
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traded by respondents and not falling within the category of used cars would thus
be subjected to the ban to the prejudice of their business. Undoubtedly,
respondents have the legal standing to assail the validity of EO 156.
2. NO.
• The Supreme court ruled that EO 156, exceeded the scope of its application by
extending the prohibition on the importation of used cars to the Freeport, which
RA 7227, considers to some extent, a foreign territory. The domestic industry which
the EO seeks to protect is actually the “customs territory” which is defined under
the Rules and Regulations Implementing RA 7227 which states: "the portion of the
Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of
the Philippines and other national tariff and customs laws are in force and effect.
3. IT DEPENDS
• Art. 2, Sec. 3.1 of EO 156 is VALID provided that said provision applies to the
Philippine territory outside the presently fenced-in former Subic Naval Base area,
however, it is VOID with respect to its application to the secured fenced-in former
Subic Naval Base area.
• The Supreme Court explained that Police power is inherent in a government to
enact laws, within constitutional limits, to promote the order, safety, health, morals,
and general welfare of society. It is lodged primarily with the legislature. By virtue
of a valid delegation of legislative power, it may also be exercised by the President
and administrative boards, as well as the lawmaking bodies on all municipal levels,
including the barangay. Such delegation confers upon the President quasi-
legislative power which may be defined as the authority delegated by the law-
making body to the administrative body to adopt rules and regulations intended to
carry out the provisions of the law and implement legislative policy provided that
it must comply with the following requisites:
a. Its promulgation must be authorized by the legislature;
b. It must be promulgated in accordance with the prescribed procedure;
c. It must be within the scope of the authority given by the legislature; and
d. It must be reasonable.
• The Court discussed whether or not EO 156 complies with the abovementioned
requisites:
a. The first requisite was satisfied since EO 156 has both constitutional and
statutory bases.
b. Anent the second requisite, that the order must be issued or promulgated in
accordance with the prescribed procedure, the presumption is that the said
executive issuance duly complied with the procedures and limitations imposed
by law since the respondents never questioned the procedure that paved way for
the issuance of EO 156 but instead, what they challenged was the absence of
substantive due process in the issuance of the EO.
c. In the third requisite, the Court held that the importation ban runs afoul with the
third requisite as administrative issuances must not be ultra vires or beyond the
limits of the authority conferred. In the instant case, the subject matter of the laws
authorizing the President to regulate or forbid importation of used motor
vehicles, is the domestic industry. EO 156, however, exceeded the scope of its
application by extending the prohibition on the importation of used cars to the
Freeport, which RA 7227, considers to some extent, a foreign territory. The
18
 domestic industry which the EO seeks to protect is actually the “customs
territory” which is defined under the Rules and Regulations Implementing RA
7227 which states: “the portion of the Philippines outside the Subic Bay Freeport
where the Tariff and Customs Code of the Philippines and other national tariff
and customs laws are in force and effect.”
d. Regarding the fourth requisite, the Court finds that the issuance of EO is
unreasonable. Since the nature of EO 156 is to protect the domestic industry from
the deterioration of the local motor manufacturing firms, the Court however,
finds no logic in all the encompassing application of the assailed provision to the
Freeport Zone which is outside the customs territory of the Philippines. As long
as the used motor vehicles do not enter the customs territory, the injury or harm
sought to be prevented or remedied will not arise.
• The Court finds that Article 2, Section 3.1 of EO 156 is VOID insofar as it is made
applicable within the secured fenced-in former Subic Naval Base area but is
declared VALID insofar as it applies to the customs territory or the Philippine
territory outside the presently secured fenced-in former Subic Naval Base area as
stated in Section 1.1 of EO 97-A (an EO executed by Pres. Fidel V. Ramos in 1993
providing the Tax and Duty Free Privilege within the Subic Freeport Zone). Hence,
used motor vehicles that come into the Philippine territory via the secured fenced-
in former Subic Naval Base area may be stored, used or traded therein, or exported
out of the Philippine territory, but they cannot be imported into the Philippine
territory outside of the secured fenced-in former Subic Naval Base area.
2. JOHN HAY PEOPLE’S ALTERNATIVE COALITION v. LIM
G.R. No. 119775, October 24, 2003
FACTS:
• RA 7727, known as the Bases Conversion and Development Act of 1992, was
enacted in 1992 to set out the policy of the government to accelerate the sound and
balanced conversion into alternative productive uses the former military bases
under the 1947 PH0US Military Bases Agreement. This includes the Clark and Subic
military reservations as well as the John Hay Station in Baguio.
• RA 7727 created public respondent Bases Conversion and Development Authority
(BCDA) to carry out the objective of utilizing the base areas in accordance with the
declared government policy.
• The same law likewise created the Subic Special Economic Zone. It granted the
Subic EEZ incentives ranging from tax and duty-free importations, exemption of
businesses from local and national taxes.
• It also gave the authority to the president, through executive proclamation, subject
to the concurrence of the LGUs affected, other SEZ in the areas covered by the Clark
military reservation, Air Station in La Union and Camp John Hay.
• BCDA entered into a Memorandum of Agreement and Escrow Agreement with
private respondents Tuntex and Asia World Internationale Group, corporations
registered under the laws of the British Virgin Islands, preparatory to the formation
of joint venture for the development of Camp John Hay as tourist destinations.
• They later on executed a Joint Venture Agreement to put up a company known as
Baguio International Development and Management Corporation which would
lease areas within CJH for the purpose of turning them into tourist spots.
AUREA • CABRAL • CEA • CERERA • DELA CRUZ • GUMELA • IBE • KIONG • LUPANGO • MARQUEZ • SANTIAGO • TOLENTINO • UNARCE • VELASCO
• By resolution, the Sangguiniang Panglungsod of Baguio City requested the Mayor
of Baguio City to determine realty taxes which may be collected from real
properties in CJH. However, it later supported the issuance of President Ramos of a
presidential proclamation declaring the area of the camp as SEZ in accordance with
the provisions of RA 7727.
• Proclamation 420 declared CJH as SEZ, subject to the same incentives as that
granted to Subic Bay Economic Zone.
• The issuance of said proclamation spawned the present petition for prohibition,
mandamus and declaratory relief, challenging the constitutionality or validity as
well as the legality of the memorandum and JVA between BCDA and Tuntex.
• It assailed that the said proclamation grants tax exemptions as invalid and illegal,
for the reason that the same was exercised by the president contrary to the rule
that it is a legislative power.
ISSUE:
• W/N Proclamation 420 is constitutional
RULING:
• It is clear that under Sec. 12 of RA 7727, it is only the SEZ which was granted by the
Congress with tax exemption, investment incentives and the like. There is no
express extension of the benefits to other SEZs still to be created at the time of the
proclamation.
• The incentives under RA 7727 are exclusive only to Subic SEZ, hence, the extension
of the same to the CJH SEZ finds no support therein, nor in other laws.
• It is the legislature, unless limited by a provision of the constitution, that has full
power to exempt any person or corporation or class of property from taxation.
• Other than the congress, the constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from
local taxes.
• The challenged grant of tax exemption would circumvent the constitution imposing
that tax exemptions must have the concurrence of a majority of all the members of
the congress.
• It follows that the privileges extended to CJH is for the Congress to legislate upon.
• The claimed statutory exemption of the CJH should be manifest and unmistakable
from the language of the law on which it is based. If it were the intent of the
legislature to grant CJH the same tax exemption and incentives granted to Subic
SEZs, it would have expressly provided so in RA 7727.
3. DELPHER TRADES CORP. v. IAC
G.R. No. 69259, January 26, 1988
FACTS:
• Petitioner Delfin and his sister, Pelagia Pacheco, were owners of real estate which
they leased it to Constructions Components. They agreed that should the
lessors/co-owners decide to sell it, they shall first offer it to the lessee.
• The lessee assigned their rights under the contract in favor of herein private
respondent Hydro Pipes with the consent of lessors. These were all annotated at
the back of the title.
19
• Later, a deed of exchange was executed between lessors and Delpher Trades with
regard to the lessors’ land in exchange for 2,500 shares of Delpher stocks.
• Hydro Pipes filed an amended complaint for reconveyance in the lot in its favor
under conditions to those whereby Delpher acquired the property from lessors.
• CFI: Ruled in favor of Hydro pipes
• IAC: Affirmed on appeal
• Son-in-law of Pelagia testified that Delpher trades is a family corporation organized
to perpetuate their control over the property through the corporation and avoid
taxes.
• Private respondent argues that Delpher is a corporate entity separate and distinct
from the Pachecos and there was actual transfer of ownership from Pacheco to
Delpher by virtue of deed of exchange.
ISSUE:
• W/N tax exemption was validly made by Pachecos
RULING: YES.
• The “estate planning” scheme resorted to is valid.
• The legal right of a taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them by means which the law permits cannot be doubted.
• What they really did was to invest their properties and change the nature of their
ownership from unincorporated to incorporated from by organizing Delpher
Trades to take control of their properties and at the same time save on inheritance
taxes.
• Also, deed of exchange is not a contract of sale. There was no transfer of actual
ownership to a third party. Hence, private respondent has no basis for its claim of
a right of first refusal under the lease contract.
4. CIR v. LINCOLN PHIL. LIFE INS. CO., INC.
G.R. No. 119176, March 19, 2002
FACTS:
• Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA
Life Insurance Company, Inc.) is a domestic corporation registered with the
Securities and Exchange Commission and engaged in life insurance business. In the
years prior to 1984, private respondent issued a special kind of life insurance policy
known as the Junior Estate Builder Policy, the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage
upon attainment of a certain age by the insured without the need of issuing a new
policy. The clause was to take effect in the year 1984. Documentary stamp taxes due
on the policy were paid by petitioner only on the initial sum assured.
• In 1984, private respondent also issued 50,000 shares of stock dividends with a par
value of ₱100.00 per share or a total par value of ₱5,000,000.00. The actual value
of said shares, represented by its book value, was ₱19,307,500.00. Documentary
stamp taxes were paid based only on the par value of ₱5,000,000.00 and not on the
book value.
• Subsequently, petitioner CIR issued deficiency documentary stamps tax
assessment for the year 1984 in the amounts of (a) ₱464,898.75, corresponding to
AUREA • CABRAL • CEA • CERERA • DELA CRUZ • GUMELA • IBE • KIONG • LUPANGO • MARQUEZ • SANTIAGO • TOLENTINO • UNARCE • VELASCO
the amount of automatic increase of the sum assured on the policy issued by
respondent, and (b) ₱78,991.25 corresponding to the book value in excess of the
par value of the stock dividends
• Private respondent questioned the deficiency assessments and sought their
cancellation in a petition filed in the Court of Tax Appeals.
• The Court of Tax Appeals found no valid basis for the deficiency tax assessment on
the stock dividends, as well as on the insurance policy. On Appeal, the Court of
Appeals promulgated a decision affirming the CTAs decision insofar as it nullified
the deficiency assessment on the insurance policy, but reversing the same with
regard to the deficiency assessment on the stock dividends. The CTA ruled that the
correct basis of the documentary stamp tax due on the stock dividends is the actual
value or book value represented by the shares.
ISSUE:
• Is the Insurance Company liable to pay a deficiency documentary stamps tax
assessment
RULING: NO.
• It is clear from Section 173 that the payment of documentary stamp taxes is done
at the time the act is done or transaction had and the tax base for the computation
of documentary stamp taxes on life insurance policies under Section 183 is the
amount fixed in policy, unless the interest of a person insured is susceptible of exact
pecuniary measurement. What then is the amount fixed in the policy? Logically, we
believe that the amount fixed in the policy is the figure written on its face and
whatever increases will take effect in the future by reason of the automatic increase
clause embodied in the policy without the need of another contract.
• Here, although the automatic increase in the amount of life insurance coverage was
to take effect later on, the date of its effectivity, as well as the amount of the increase,
was already definite at the time of the issuance of the policy. Thus, the amount
insured by the policy at the time of its issuance necessarily included the additional
sum covered by the automatic increase clause because it was already determinable
at the time the transaction was entered into and formed part of the policy.
• The automatic increase clause in the policy is in the nature of a conditional
obligation under Article 1181, by which the increase of the insurance coverage shall
depend upon the happening of the event which constitutes the obligation. In the
instant case, the additional insurance that took effect in 1984 was an obligation
subject to a suspensive obligation but still a part of the insurance sold to which
private respondent was liable for the payment of the documentary stamp tax.
• The deficiency of documentary stamp tax imposed on private respondent is
definitely not on the amount of the original insurance coverage, but on the increase
of the amount insured upon the effectivity of the Junior Estate Builder Policy.
• Finally, it should be emphasized that while tax avoidance schemes and
arrangements are not prohibited, tax laws cannot be circumvented in order to
evade the payment of just taxes. In the case at bar, to claim that the increase in the
amount insured (by virtue of the automatic increase clause incorporated into the
policy at the time of issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear evasion of the law
requiring that the tax be computed on the basis of the amount insured by the policy.
20
• The decision of the Court of Appeals is SET ASIDE insofar as it affirmed the decision
of the Court of Tax Appeals nullifying the deficiency stamp tax assessment
petitioner imposed on private respondent in the amount of ₱464,898.75
corresponding to the increase in 1984 of the sum under the policy issued by
respondent.
5. CIR v. ESTATE OF TODA, JR.
G.R. No. 147188, September 14, 2004
FACTS:
• Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its capital stock, to sell the Cibeles Building and the two
parcels of land on which the building stands.
• Toda purportedly sold the property for ₱100 million to Rafael A. Altonaga, who, in
turn, sold the same property on the same day to Royal Match Inc. (RMI) for ₱200
million. These two transactions were evidenced by Deeds of Absolute Sale
notarized on the same day by the same notary public.
• Toda died.
• Estate of Benigno P. Toda, Jr received a Notice of Assessment from CIR for
deficiency income tax for the year 1989. Estate thereafter filed a letter of protest.
• CIR dismissed the protest stating that a fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and controlled by Toda by covering up the
additional gain of ₱100 million (the difference between the second simulated sale
for ₱200 million and the first simulated sale for ₱100 million) to an individual
capital gains of Altonaga, thus evading the higher corporate income tax rate of 35%.
• CTA held that the Commissioner failed to prove that CIC committed fraud to deprive
the government of the taxes due it. It ruled that even assuming that a pre-conceived
scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion.
• Court of Appeals affirmed the decision of the CTA.
ISSUE:
• W/N the tax planning scheme adopted by a corporation constitutes tax evasion that
would justify an assessment of deficiency income tax
RULING: YES.
• Tax avoidance and tax evasion are the two most common ways used by taxpayers
in escaping from taxation. Tax avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the taxpayer in good faith and at
arm’s length. Tax evasion, on the other hand, is a scheme used outside of those
lawful means and when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
• Tax evasion connotes the integration of three factors: (1) the end to be achieved,
i.e., the payment of less than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due; (2) an accompanying state
of mind which is described as being “evil,” in “bad faith,” “willful,” or “deliberate and
not accidental”; and (3) a course of action or failure of action which is unlawful.
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• All these factors are present in the instant case. It is significant to note that prior to
the purported sale of the Cibeles property by CIC to Altonaga, CIC received P40
million from RMI, 25 and not from Altonaga. Here, it is obvious that the objective of
the sale to Altonaga was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only 5% individual
capital gains tax, and not the 35% corporate income tax. Altonaga's sole purpose of
acquiring and transferring title of the subject properties on the same day was to
create a tax shelter. Altonaga never controlled the property and did not enjoy the
normal benefits and burdens of ownership. The sale to him was merely a tax ploy,
a sham, and without business purpose and economic substance. Doubtless, the
execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
• In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate business
purposes constitutes one of tax evasion.
• Generally, a sale or exchange of assets will have an income tax incidence only when
it is consummated. The incidence of taxation depends upon the substance of a
transaction. The tax consequences arising from gains from a sale of property are
not finally to be determined solely by the means employed to transfer legal title.
Rather, the transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is relevant. A sale
by one person cannot be transformed for tax purposes into a sale by another by
using the latter as a conduit through which to pass title. To permit the true nature
of the transaction to be disguised by mere formalisms, which exist solely to alter
tax liabilities, would seriously impair the effective administration of the tax policies
of Congress.
• To allow a taxpayer to deny tax liability on the ground that the sale was made
through another and distinct entity when it is proved that the latter was merely a
conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga
should be disregarded for income tax purposes. The two sale transactions should
be treated as a single direct sale by CIC to RMI.
• CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989.
Hence, the assessment for the deficiency income tax issued by the BIR must be
upheld.
6. CITY OF ILOILO v. SMART COMMUNICATIONS, INC.
G.R. No. 167260, February 27, 2009
FACTS:
• SMART received a letter of assessment from petitioner requiring it to pay deficiency
local franchise and business taxes.
• SMART protested the assessment by sending a letter to the City Treasurer.
• It claimed exemption from payment of local franchise and business taxes based on
Sec. 9 of its legislative franchise. Under SMART’s franchise, it was required to pay a
franchise tax equivalent to 3% of all gross receipts, which amount shall be in lieu of
all taxes. SMART contends that the “in lieu of all taxes” clause covers local franchise
and business taxes.
21
• SMART similarly invoked R.A. No. 7925 or the Public Telecommunications Policy
Act (Public Telecoms Act) whose Section 23 declares that any existing privilege,
incentive, advantage, or exemption granted under existing franchises shall ipso
facto become part of previously granted-telecommunications franchise. SMART
contends that by virtue of Section 23, tax exemptions granted by the legislature to
other holders of telecommunications franchise may be extended to and availed of
by SMART.
• Petitioner denied SMART's protest, citing the failure of SMART to comply with
Section 252 of R.A. No. 7160 or the Local Government Code (LGC) before filing the
protest against the assessment. Section 252 of the LGC requires payment of the tax
before any protest against the tax assessment can be made.
• SMART objected to the petitioner's denial of its protest by instituting a case against
petitioner before the RTC of Iloilo City.
• Trial court ruled in favor of SMART and declared the telecommunications firm
exempt from the payment of local franchise and business taxes; it agreed with
SMART's claim of exemption under Section 9 of its franchise and Section 23 of the
Public Telecoms Act.
• Petitioner filed petition for review on certiorari.
ISSUE:
• W/N SMART is exempt from the payment of local franchise and business taxes
RULING: NO.
• 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 beyond doubt or mistake (Government of the Philippine Islands vs.
Monte de Piedad).
• The burden therefore is on SMART to prove that, based on its franchise and the
Public Telecoms Act, it is entitled to exemption from the local franchise and
business taxes being collected by the petitioner.
• Claim for Exemption under SMART’s franchise
o The withdrawal of exemptions, whether under Section 193 or 137 of the LGC,
pertains only to those already existing when the LGC was enacted. The intention
of the legislature was to remove all tax exemptions or incentives granted prior to
the LGC. As SMART's franchise was made effective on March 27, 1992 — after the
effectivity of the LGC — Section 193 will therefore not apply in this case.
o But while Section 193 of the LGC will not affect the claimed tax exemption under
SMART's franchise, we fail to find a categorical and encompassing grant of tax
exemption to SMART covering exemption from both national and local taxes
o Franchise taxes on telecommunications companies, however, have been
abolished by R.A. No. 7716 or the Expanded Value-Added Tax Law (E-VAT Law),
which was enacted by Congress on January 1, 1996. To replace the franchise tax,
the E-VAT Law imposed a 10% value-added tax on telecommunications
companies under Section 108 of the National Internal Revenue Code. The “in lieu
of all taxes” clause in the legislative franchise of SMART has thus become functus
officio, made inoperative for lack of a franchise tax
• Claim for Exemption Under Public Telecoms Act
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o The term “exemption” in Section 23 of the Public Telecoms Act does not mean tax
exemption; rather, it refers to exemption from certain regulatory or reporting
requirements imposed by government agencies such as the National
Telecommunications Commission
o The thrust of the Public Telecoms Act is to promote the gradual deregulation of
entry, pricing, and operations of all public telecommunications entities, and thus
to level the playing field in the telecommunications industry.
o The language of Section 23 and the proceedings of both Houses of Congress are
bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities.
7. NAPOCOR v. CBAA
G.R. No. 171470, January 30, 2009
FACTS:
• January 11, 1993 – First Private Power Corporation (FPPC) entered into a Build-
Operate-Transfer agreement with NAPOCOR for the construction of the 215
Megawatt Bauang Diesel Power Plant in Payocpoc, Buang, La Union.
• Through an Accession Undertaking, the BOT Agreement created the Bauang Private
Power Corporation (BPPC). BPPC will own, manage and operate the power
plant/station and assume and perform FPPC’s obligation under the the Agreement.
Also, BPPC will convert NAPOCOR’s supplied diesel fuel into electricity and delivery
the product to NAPOCOR, for a fee.
• The Officer-in-Charge of the Municipal Assessor’s Office of Bauang, La Union
initially issued Declaration of Real Property Nos. 25016 and 25022 to 25029
declaring BPPC’s machineries and equipment as tax-exempt.
• However, through the initiative of the Bauang Vice Mayor, the municipality
questioned the declared tax-exemption. This was later elevated to the Deputy
Executive Director and Officer-in-Charge of the BLGF, Department of Finance, who
ruled that BPCC’s machineries and equipment are subject to real property tax and
directed the Assessor’s Office to take appropriate action. The earlier declaration
was therefore cancelled.
• The Municipal Assessor of Bauang then issued a Notice of Assessment and Tax Bill
to BPPC assessing/taxing the machineries and equipment in the total sum of
₱288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on
the unpaid amounts. BPPC's Vice-President and Plant Manager received the Notice
of Assessment and Tax Bill on August 7, 1998.
• NAPOCOR then filed a petition with the Local Board of Assessment Appeals. The
petition asked that, retroactive to 1995, the machineries covered by the tax
declaration be exempt from real property tax under Section 234(c) of the Local
Government Code.
Section 234. Exemptions from Real Property Tax. — The following are
exempted from the payment of real property tax:
Xxx
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled
22
 corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
• The Petition was denied. It ruled that the exemption provided by Section 234 (c) of
the LGC applies only when a government-owned or controlled corporation like
NAPOCOR owns and/or actually uses machineries and equipment for the
generation and transmission of electric power; in this case, NAPOCOR does not own
and does not even actually and directly use the machineries. It is the BPPC, a non-
government entity, which owns, maintains, and operates the machineries and
equipment; using these, it generates electricity and then sells this to NAPOCOR.
• NAPOCOR appealed to the Central Board of Assessment Appeals, while BPPC
moved to intervene in the case. The appeal was denied.
• On appeal to the CTA, it declared that NAPOCOR is not the registered owner of the
machineries and equipment. These are registered in BPPC's name as further
confirmed by Section 2.08 of the BOT Agreement. Thus, the CTA declared that until
the transfer date of the power station, NAPOCOR does not own any of the
machineries and equipment, and therefore has no legal right, title, or interest over
these properties. Thus, the CTA concluded that NAPOCOR has no cause of action
and no legal personality to question the assessment. As the respondent local
government units claim, NAPOCOR is an interloper in the issue of BPPC's real estate
tax liabilities.
ISSUE:
• W/N the aforementioned machineries and equipment of the BPPC are tax exempt?
RULING: NO. THE AFOREMENTIONED MACHINERIES AND EQUIPMENT OF THE
BPPC ARE NOT TAX EXEMPT.
• The records show that NAPOCOR, no less, admits BPPC's ownership of the
machineries and equipment in the power plant. Likewise, the provisions of the BOT
agreement cited above clearly show BPPC's ownership. Thus, ownership is not a
disputed issue.
• Rather than ownership, NAPOCOR's use of the machineries and equipment is the
critical issue, since its claim under Sec. 234 (c) of the LGC is premised on actual,
direct and exclusive use. To support this claim, NAPOCOR characterizes the BOT
Agreement as a mere financing agreement where BPPC is the financier, while it
(NAPOCOR) is the actual user of the properties. As in the fact of ownership,
NAPOCOR's assertion is belied by the documented arrangements between the
contracting parties, viewed particularly from the prism of the BOT law.
• Under the Build-operate-and-transfer concept, it is the project proponent who
constructs the project at its own cost and subsequently operates and manages it.
The proponent secures the return on its investments from those using the project's
facilities through appropriate tolls, fees, rentals, and charges not exceeding those
proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the
project proponent transfers the ownership of the facility to the government agency.
Thus, the government is able to put up projects and provide immediate services
without the burden of the heavy expenditures that a project start-up requires. EH
• A reading of the provisions of the parties' BOT Agreement shows that it fully
conforms to this concept. By its express terms, BPPC has complete ownership —
both legal and beneficial — of the project, including the machineries and equipment
used, subject only to the transfer of these properties without cost to NAPOCOR after
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the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for
the construction of the power plant, including the machineries and equipment
needed for power generation; thereafter, it actually operated and still operates the
power plant, uses its machineries and equipment, and receives payment for these
activities and the electricity generated under a defined compensation scheme.
Notably, BPPC — as owner-user — is responsible for any defect in the machineries
and equipment.
• Consistent with the BOT concept and as implemented, BPPC — the owner-
manager-operator of the project — is the actual user of its machineries and
equipment. BPPC's ownership and use of the machineries and equipment are
actual, direct, and immediate, while NAPOCOR's is contingent and, at this stage of
the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the
CTA committed no reversible error in denying NAPOCOR's claim for tax exemption.
• For these same reasons, we reject NAPOCOR's argument that the machineries and
equipment must be subjected to a lower assessment level. NAPOCOR cites as
support Section 216 of the LGC which provides:
Section 216. Special Classes of Real Property. — All lands, buildings, and other
improvements thereon actually, directly and exclusively used for hospitals,
cultural, or scientific purposes, and those owned and used by local water
districts, and government-owned or controlled corporations rendering
essential public services in the supply and distribution of water and/or
generation and transmission of electric power shall be classified as special.
• It has related Section 218 (d) of the LGC which provides the Assessment Levels to
said Section 216. Since the basis for the application of the claimed differential
treatment or assessment level is the same as the claimed tax exemption, the lower
tribunals correctly found that there is no basis to apply the lower assessment level
of 10%.
• Significantly, local government real property taxation also has constitutional
underpinnings, based on Section 5 of Article X of the Constitution, that we cannot
simply ignore. In FELS Energy, Inc. v. The Province of Batangas, earlier cited, we
said:
o The power to tax is an incident of sovereignty and is unlimited in its magnitude,
acknowledging in its very nature no perimeter so that security against its abuse
is to be found only in the responsibility of the legislature which imposes the tax
on the constituency who are to pay for it. The right of local government units to
collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the autonomy of
local governments and the objective of the Local Government Code that they
enjoy genuine and meaningful local autonomy to empower them to achieve their
fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.
o In conclusion, the Court reiterates that the power to tax is the most potent
instrument to raise the needed revenues to finance and support myriad activities
of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people.
REAL PROPERTY TAXATION
23
 1. CALTEX (PHILS.), INC. v. CBAA
G.R. No. L-50466, May 31, 1982
FACTS:
• The machines and equipment consist of underground tanks, elevated tank, elevated
water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car
washer, car hoists, truck hoists, air compressors and tireflators. The said machines
and equipment are loaned by Caltex to gas station operators under an appropriate
lease agreement or receipt. It is stipulated in the lease contract that the operators,
upon demand, shall return to Caltex the machines and equipment in good condition
as when received, ordinary wear and tear excepted. The lessor of the land, where
the gas station is located, does not become the owner of the machines and
equipment installed therein. Caltex retains the ownership thereof during the term
of the lease.
• The city assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. The city board of tax appeals ruled that
they are personalty. The assessor appealed to the Central Board of Assessment
Appeals. The Board held in its decision that the said machines and equipment are
real property within the meaning of Sections 3(k) & (m) and 38 of the Real Property
Tax Code, Presidential Decree No. 464 and that the definitions of real property and
personal property in Articles 415 and 416 of the Civil Code are not applicable to
this case. Caltex's motion for reconsideration was denied. Hence, this petition for
certiorari praying to set aside the Board's decision and for a declaration that the
said machines and equipment are personal property subject to realty tax.
ISSUE:
• W/N the questioned property are real property to be subject to realty tax
RULING: YES.
• Section 2 of the Assessment Law provides that the realty tax is due “on real
property, including land, buildings, machinery, and other improvements” not
specifically exempted in section 3 thereof. This provision is reproduced with some
modification in the Real Property Tax Code which provides:
“SEC. 38. Incidence of Real Property Tax. — There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on
real property, such as land, buildings, machinery and other improvements
affixed or attached to real property not hereinafter specifically exempted.”
• The Code contains the following definitions in its section 3:
“k) Improvements — is a valuable addition made to property or an
amelioration in its condition, amounting to more than mere repairs or
replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
m) Machinery — shall embrace machines, mechanical contrivances,
instruments, appliances and apparatus attached to the real estate. It includes
the physical facilities available for production, as well as the installations and
appurtenant service facilities, together with all other equipment designed for
or essential to its manufacturing, industrial or agricultural purposes (See sec.
3[f], Assessment Law).”
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2. LUNG CENTER OF THE PHILS. v. QUEZON CITY
G.R. No. 144104, June 29, 2004
FACTS:
• The petitioner Lung Center of the Philippines is a non-stock and nonprofit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823. It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-
B-1, SWO-04- 000495, located at Quezon Avenue corner Elliptical Road, Central
District, Quezon City. Erected in the middle of the aforesaid lot is a hospital known
as the Lung Center of the Philippines. A big space at the ground floor is being leased
to private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
• On June 7, 1993, both the land and the hospital building of the petitioner were
assessed for real property taxes in the amount of P4,554,860 by the City Assessor
of Quezon City. On August 25, 1993, the petitioner filed a Claim for Exemption from
real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioner’s request was denied, and a petition was,
thereafter, filed before the Local Board of Assessment Appeals of Quezon City for
the reversal of the resolution of the City Assessor. The petitioner alleged that under
Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real
property taxes. It averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its hospital
operation is to serve charity patients. The petitioner contends that it is a charitable
institution and, as such, is exempt from real property taxes.
ISSUES:
1. W/N the petitioner is a charitable institution within the context of Presidential
Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160
2. W/N the portions of the land of the petitioner leased to private entities as well as
those parts of the hospital leased to private individuals are exempt from real
property taxes
RULING:
1. YES.
• On the first issue, we hold that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an enterprise is
a charitable institution/entity or not, the elements which should be considered
include the statute creating the enterprise, its corporate purposes, its constitution
and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties. As a general principle,
a charitable institution does not lose its character as such and its exemption from
24
 taxes simply because it derives income from paying patients, whether out-patient,
or confined in the hospital, or receives subsidies from the government, so long as
the money received is devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution.
2. NO.
• Even as we find that the petitioner is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private
entities are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes.
• The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for exemption from tax
payments must be clearly shown and based on language in the law too plain to be
mistaken.
• Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
“Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and “exclusively” is defined, “in a manner to
exclude; as enjoying a privilege exclusively.” If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxation. The words “dominant use” or “principal use” cannot be
substituted for the words “used exclusively” without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively. What is meant by
actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the use of the income from
the real property that is determinative of whether the property is used for tax-
exempt purposes. The petitioner failed to discharge its burden to prove that the
entirety of its real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether paying or non-paying, other
portions thereof are being leased to private individuals for their clinics and a
canteen. Further, a portion of the land is being leased to a private individual for her
business enterprise under the business name “Elliptical Orchids and Garden
Center.”
• Accordingly, we hold that the portions of the land leased to private entities as well
as those parts of the hospital leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.
3. MIAA v. CA
G.R. No. 155650, July 20, 2006
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FACTS:
• MIAA operates the NAIA Complex in Parañaque City EO No. 903, otherwise known
as the Revised Charter of the MIAA (MIAA Charter). This was subsequently
amended by EO Nos. 909 and 298.
• As operator of the international airport, MIAA administers the land, improvements
and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600hec of land, including the runways and buildings then under the
Bureau of Air Transportation.
• The Charter further provides that no portion of the land transferred to MIAA shall
be disposed of through sale or any other mode unless especially approved by the
President of the Philippines.
• Then, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
061where it opined that the LGC of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated
with respondent City of Parañaque to pay the real estate tax imposed by the City.
MIAA then paid some of the real estate tax already due.
• The City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. Its mayor threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency.
• MIAA thus sought a clarification of OGCC Opinion No. 061.
• OGCC pointed out that Section 206 of the LGC requires persons exempt from real
estate tax to show proof of exemption; and said that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.
• MIAA filed with CA an original petition for prohibition and injunction, with prayer
for preliminary injunction or TRO.
• Court of Appeals however dismissed the petition because MIAA filed it beyond the
60-day reglementary period; petitioner’s MR had the same faith.
• Meanwhile, the City of Parañaque posted notices of auction which announced the
public auction sale of the Airport Lands and Buildings to the highest bidder on 7
February 2003, 10:00 a.m., at the Legislative Session Hall Bldg. of Parañaque City.
• A day before the public auction, MIAA led before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a TRO which was subsequently issued by the
same court to be effective immediately. However, respondents received the TRO
only at 1:25 p.m. or three hours after the conclusion of the public auction.
• MIAA admits that the MIAA Charter has placed the title to the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out that it cannot claim
ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the
ownership of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by local
governments.
• MIAA also points out that the reason for tax exemption of public property is that its
taxation would not inure to any public advantage, since in such a case the tax debtor
is also the tax creditor.
25
• On the other hand, respondents invoke Section 193 of the LGC, which expressly
withdrew the tax exemption privileges of "GOCCs" upon the effectivity of the LGC.
Respondents also argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all others. An international
airport is not among the exceptions mentioned in Section 193 of the LGC. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings
are exempt from real estate tax.
• Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos where we held that the LGC has withdrawn the exemption from real estate
tax granted to international airports. Respondents further argue that since MIAA
has already paid some of the real estate tax assessments, it is now estopped from
claiming that the Airport Lands and Buildings are exempt from real estate tax.
ISSUE:
• W/N the Airport Lands and Buildings of MIAA are exempt from real estate tax
RULING: YES.
• MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by
local governments. Firstly, because MIAA is not a GOCC but an instrumentality of
the National Government and thus exempt from local taxation. Secondly, the real
properties of MIAA are owned by the Republic of the Philippines and thus exempt
from real estate tax.
NOTES:
1. RE: MIAA not being a GOCC, instead a government instrumentality
• A GOCC must be “organized as a stock or non-stock corporation.” MIAA is not
organized as a stock or non-stock corporation.
• MIAA is not a stock corporation because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares. Section 3 of the Corporation Code
defines a stock corporation as one whose “capital stock is divided into shares and .
. . authorized to distribute to the holders of such shares dividends . . ..” MIAA has
capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.
• MIAA is also not a non-stock corporation because it has no members. Section 87 of
the Corporation Code denes a non-stock corporation as “one where no part of its
income is distributable as dividends to its members, trustees or officers.” A non-
stock corporation must have members. Even if we assume that the Government is
considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury. This prevents MIAA from
qualifying as a non-stock corporation.
• MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.
• When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate
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powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA exercises “all
the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order.”
• Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a “separate and autonomous
body” will make its operation more “financially viable.”
2. RE: Subject Airport Lands and Buildings are Owned by the Republic
• The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. No one can dispute
that properties of public dominion mentioned in Article 420 of the Civil Code, like
“roads, canals, rivers, torrents, ports and bridges constructed by the State,” are
owned by the State. The term “ports” includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a “port” constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties
of public dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used
by the public for international and domestic travel and transportation. The fact that
the MIAA collects terminal fees and other charges from the public does not remove
the character of the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the character of the road
as one for public use. Someone must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and equitable manner of taxing
the public for the maintenance of public roads.
• As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. Thus, unless the President issues a proclamation withdrawing
the Airport Lands and Buildings from public use, these properties remain
properties of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the
State or the Republic of the Philippines. There is no question, therefore, that unless
the Airport Lands and Buildings are withdrawn by law or presidential proclamation
from public use, they are properties of public dominion, owned by the Republic and
outside the commerce of man.
• MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the Republic.
• The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of these
assets from the Republic to MIAA. The purpose was merely to reorganize a division
in the Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA
itself is owned solely by the Republic. No party claims any ownership rights over
26
 MIAA's assets adverse to the Republic. The MIAA Charter expressly provides that
the Airport Lands and Buildings “shall not be disposed through sale or through any
other mode unless specially approved by the President of the Philippines.” This
only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the “owner
has the right to . . . dispose of a thing.” Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
• Section 234(a) of the Local Government Code exempts from real estate tax any “real
property owned by the Republic of the Philippines." This exemption should be read
in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities . . ..” The real properties owned by
the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned
by the Republic and continue to be exempt from real estate tax.
4. CITY ASSESSOR OF CEBU CITY v. ASSOCIATION OF BENEVOLA DE CEBU, INC.
G.R. No. 152904, June 8, 2007
FACTS:
• Respondent is a non-stock, non-profit organization organized under the laws of the
Republic of the Philippines and is the owner of Chong Hua Hospital (CHH) in Cebu
City. In the late 1990's, respondent constructed the CHH Medical Arts Center
(CHHMAC). Thereafter, a Certificate of Occupancy was issued to the center with a
classification of “Commercial [Clinic].”
• Petitioner assessed the CHHMAC building under Tax Declaration (TD) No. 97 GR-
04-024-02529 as “commercial” with a market value of ₱28,060,520 and an
assessed value of PhP9,821,180 at the assessment level of 35% for commercial
buildings, and not at the 10% special assessment currently imposed for CHH and
its other separate buildings — the CHH's Dietary and Records Departments.
• Thus, respondent filed a letter-petition with the Cebu City LBAA for
reconsideration, asserting that CHHMAC is part of CHH and ought to be imposed
the same special assessment level of 10% with that of CHH.
• The LBAA directed petitioner to conduct an ocular inspection of the subject
property and to submit a report on the scheduled date of hearing. There, the parties
were required to submit their respective position papers.
• Petitioner argued that CHHMAC is a newly constructed 5-storey building situated
about 100 meters away from CHH and, based on actual inspection, was ascertained
that it is not a part of the CHH building but a separate building which is actually
used as commercial clinic/room spaces for renting out to physicians and thus,
classified as “commercial.” Petitioner contended that in turn the medical specialists
in CHHMAC charge consultation fees for patients who consult for diagnosis and
relief of bodily ailment together with the ancillary (or support) services.
• On the other hand, respondent contended in its position paper that CHHMAC
building is actually, directly, and exclusively part of CHH and should have a special
assessment level of 10% as provided under City Tax Ordinance LXX. Respondent
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asserted that the CHHMAC building is similarly situated as the buildings of CHH,
housing its Dietary and Records Departments, are completely separate from the
main CHH building and are imposed the 10% special assessment level. In fine,
respondent argued that the CHHMAC, though not actually indispensable, is
nonetheless incidental and reasonably necessary to CHH's operations.
• LBAA Ruling: Ruled in favor of the respondents. The LBAA pointed to the fact that
respondent's Dietary and Records Departments which are housed in separate
buildings were similarly imposed with CHH the special assessment level of 10%,
ratiocinating in turn that there is no reason therefore why a higher level would be
imposed for CHHMAC as it is similarly situated with the Dietary and Records
Departments of the CHH.
• CBAA Ruling: Affirmed LBAA’s decision in toto. It agreed with the above
disquisition of the LBAA that it is a matter of public knowledge that hospitals lease
out spaces to its accredited medical practitioners, and in particular it is of public
knowledge that before the CHHMAC was constructed, the accredited doctors of
CHH were housed in the main hospital building of CHH.
• CA Ruling: Agreed with CBAA. It held that the facilities and utilities of CHHMAC are
undoubtedly necessary and indispensable for the CHH to achieve its ultimate
purpose. The CA likewise ruled that the fact that rentals are paid by CHH accredited
doctors and medical specialists for spaces in CHHMAC has no bearing on its
classification as a hospital since CHHMAC serves also as a place for medical check-
up, diagnosis, treatment, and care for its patients as well as a specialized out-patient
department of CHH where treatment and diagnosis are done by accredited medical
specialists in their respective fields of anesthesia, radiology, pathology, and more.
It also applied Secs. 215 and 216 of the LGC which classify lands, buildings, and
improvements actually, directly, and exclusively used for hospitals as special cases
of real property and not as commercial.
ISSUE:
• W/N petitioner’s imposition of 35% assessment level on CHHMAC is correct
RULING: NO.
• A careful review of the records compels us to arm the assailed CA Decision as we
find no reversible error for us to reverse or alter it.
• Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital
o It is undisputed that the doctors and medical specialists holding clinics in
CHHMAC are those duly accredited by CHH, that is, they are consultants of the
hospital and the ones who can treat CHH's patients conned in it. This fact alone
takes away CHHMAC from being categorized as “commercial” since a tertiary
hospital like CHH is required by law to have a pool of physicians who comprises
the required medical departments in various medical fields.
o These accredited physicians normally hold offices within the premises of the
hospital; in which case there is no question as to the conduct of their business in
the ambit of diagnosis, treatment and/or confinement of patients. This was the
case before 1998 and before CHHMAC was built. Verily, their transfer to a more
spacious and, perhaps convenient place and location for the benefit of the
hospital's patients does not remove them from being an integral part of the
overall operation of the hospital.
27
 o Conversely, it would have been different if CHHMAC was also open for non-
accredited physicians, that is, any medical practitioner, for then respondent
would be running a commercial building for lease only to doctors which would
indeed subject the CHHMAC to the commercial level of 35% assessment.
o Moreover, the CHHMAC, being hundred meters away from the CHH main
building, does not denigrate from its being an integral part of the latter.
• The CHHMAC facility is definitely incidental to and reasonably necessary for the
operations of Chong Hua Hospital
o For one, as found by the appellate court, the CHHMAC facility is primarily used
by the hospital's accredited physicians to perform medical check-up, diagnosis,
treatment, and care of patients. For another, it also serves as a specialized
outpatient department of the hospital.
o Indubitably, the operation of the hospital is not only for confinement and surgical
operations where hospital beds and operating theaters are required. Generally,
confinement is required in emergency cases and where a patient necessitates
close monitoring. The usual course is that patients have to be diagnosed, and then
treatment and follow-up consultations follow or are required. Other cases may
necessitate surgical operations or other medical intervention and confinement.
Thus, the more the patients, the more important task of diagnosis, treatment, and
care that may or may not require eventual confinement or medical operation in
the CHHMAC.
o Thus, the importance of CHHMAC in the operation of CHH cannot be over-
emphasized nor disputed. Clearly, it plays a key role and provides critical support
to hospital operations.
• Charging rentals for the offices used by its accredited physicians cannot b equated
to a commercial venture
o Respondent's explanation on this point is well taken. First, CHHMAC is only for
its consultants or accredited doctors and medical specialists. Second, the
charging of rentals is a practical necessity: (1) to recoup the investment cost of
the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3) to
maintain the CHHMAC building and its facilities. Third, as correctly pointed out
by respondent, it pays the proper taxes for its rental income. And, fourth, if there
is indeed any net income from the lease income of CHHMAC, such does not inure
to any private or individual person as it will be used for respondent's other
charitable projects.
o Given the foregoing arguments, we fail to see any reason why the CHHMAC
building should be classified as “commercial” and be imposed the commercial
level of 35% as it is not operated primarily for profit but as an integral part of
CHH. The CHHMAC, with operations being devoted for the benefit of the CHH's
patients, should be accorded the 10% special assessment.
o In this regard, we point with approbation the appellate court's application of Sec.
216 in relation with Sec. 215 of the Local Government Code on the proper
classification of the subject CHHMAC building as “special” and not “commercial.”
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PART II. DOCTRINES IN CTA CASES
GENERAL PRINCIPLES
1. As a general rule, the power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay it (NFA v. City Gov't of Tagum [CTA AC No.
180]).
2. 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 (Lapanday Holdings
Corp. v. CIR [CTA Case No. 8932]).
JURISDICTION
3. The Court of Tax Appeals has no power to make an assessment at the first instance.
On matters such as tax collection, tax refund, and others related to the national
internal revenue taxes, the Court of Tax Appeals' jurisdiction is appellate in nature.
Thus, the BIR first has to make an assessment of the taxpayer's liabilities. When
the BIR makes the assessment, the taxpayer is allowed to dispute that assessment
before the BIR. If the BIR issues a decision that is unfavorable to the taxpayer or if
the BIR fails to act on a dispute brought by the taxpayer, the BIR's decision or
inaction may be brought on appeal to the Court of Tax Appeals. The Court of Tax
Appeals then acquires jurisdiction over the case (CIR v. Sutherland Global Services
Phils., Inc. [CTA EB No. 1596]).
4. In order for the CTA En Banc to take cognizance of an appeal via a petition for
review, a timely motion for reconsideration or new trial must first be filed with
the CTA Division that issued the assailed decision or resolution. Failure to do so is
a ground for the dismissal of the appeal as the word 'must' indicates that the filing
of a prior motion is mandatory. and not merely directory (Perception Gaming, Inc
v. CIR [CTA EB Nos. 1315 & 1316]).
JUDICIAL DECISIONS
5. Article 8 of the Civil Code provides that judicial decisions applying or interpreting
the law shall form part of the legal system of the Philippines and shall have the
force of law. The interpretation placed upon a law by a competent court
establishes the contemporaneous legislative intent of the law. Thus, such
interpretation constitutes a part of the law as of the date the statute is enacted. It
is only when a prior ruling of the Court is overruled, and a different view adopted,
that the new doctrine may have to be applied prospectively in favor of parties who
have relied on the old doctrine and have acted in good faith. In the Filinvest case,
28
 what was interpreted by the High Court is Section 180 of the NIRC. Said Section
180 was inserted in the NIRC, through the enactment of RA No. 7660 on December
23, 1994; and it is still in our statute books up to this time. NIRC of 1997, as
amended by said RA No. 9243. Thus, the said interpretation in the Filinvest case
constituted as part of the NIRC as of said date, i.e., December 23, 1994, up to the
present time. Considering that the interpretation of Section 180 of the NIRC (now
Section 179 of the NIRC of 1997) in the Filinvest case was deemed constituted as
part of the NIRC as of December 23, 1994 up to the present time, the same may
therefore be applied to this case without violating the principle of non-
retroactivity of laws and rulings (South Premiere Power Corp. v. CIR [CTA Case No.
9337]).
PROSPECTIVE APPLICATION OF LAWS
6. While it can be argued that RMC No. 31-13 is a mere interpretation of existing law
and should thus be applied even to the compensation income of petitioners for
calendar year 2012, the Court holds that it should be applied prospectively in the
interest of justice and equity. Consequently, the income of resident citizens
employed by foreign governments and/or international organizations should only
be subjected to income tax beginning calendar year 2013, the year RMC No. 31-13
took effect (Casaclang v. CIR [CTA Case No. 9091]).
CRIMINAL TAX CASES
7. The doctrine of inordinate delay was applied to a criminal case filed before, and
within the jurisdiction of, the CTA. In determining whether the accused has been
denied of his/her right to a speedy disposition of his/her case, the following
factors may be considered and balanced: (1) the length of delay; (2) the reasons
for the delay; (3) the assertion or failure to assert such right by the accused; and
(4) the prejudice caused by the delay. In this case, more than five years had lapsed
from the time the Joint Complaint Affidavit of Chief Revenue Officer Cordero and
Revenue Officer Demadura was referred by Commissioner Henares to DOJ on
October 13, 2011, before the latter found probable cause against the accused on
July 24, 2017 (People v. Maestro [CTA Crim. Case No. O-661]).
INHERENT LIMITATIONS
INTERNATIONAL COMITY and TAX TREATIES
1. Under the doctrine of incorporation, as applied in most countries [including ours],
“rules of international law are given a standing equal, not superior, to national
legislative enactments” (Calderon v. CIR [CTA Case No. 9090]).
2. Our Constitution provides for adherence to the general principles of international
law as part of the law of the land. The time-honored international principle of
pacta sunt servanda demands the performance in good faith of treaty obligations
on the part of the states that enter into the agreement. Every treaty in force is
binding upon the parties, and the obligations under the treaty must be performed
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by them in good faith. More importantly, treaties have the force and effect of law
in this jurisdiction (CIR v. Coral Bay Nickel Corp. [CTA EB No. 1652]).
3. “A state that has contracted valid international obligations is bound to make in its
legislations those modifications that may be necessary to ensure the fulfillment of
the obligations undertaken.” Thus, laws and issuances must ensure that the reliefs
granted under tax treaties are accorded to the parties entitled thereto. The BIR
must not impose additional requirements that would negate the availment of the
reliefs provided for under international agreements. More so, when the RP-
Germany Tax Treaty does not provide for any prerequisite for the availment of the
benefits under said agreement (CIR v. Coral Bay Nickel Corp. [CTA EB No. 1652]).
4. The Supreme Court also reiterated that the BIR should not impose additional
requirements that would negate the availment of the reliefs provided for under
international agreements, especially since said tax treaties do not provide for any
prerequisite at all for the availment of the benefits under said agreements (CIR v.
Coral Bay Nickel Corp. [CTA EB No. 1652]).
5. A prior application for tax treaty relief is not mandatory before a taxpayer may
enjoy the reliefs provided under Philippine tax treaties. As ruled by the Supreme
Court, the application for a tax treaty relief from the BIR should merely operate to
confirm the entitlement of the taxpayer to the relief, and not for the granting of the
relief being sought. Moreover, the Philippines-Japan Tax Treaty does not provide
for any prerequisites for the availment of the benefits provided therein (CIR v.
Coral Bay Nickel Corp. [CTA EB No. 1652]).
6. In signing the ADB Headquarters Agreements in 1956, the Philippine government
accorded tax exemption privileges to the ADB and its staff but held on to the State's
inherent power to tax, and thus made a clear limitation in so far as its right to tax
its nationals. Pacta sunt servanda and international comity dictates that the
Philippines should honor its international agreements in good faith. The
Philippines has arguably complied with these principles of international law by
according the proper concessions and tax breaks to ADB activities. This duty ends
where the concern is a domestic matter involving the taxability of the income of
its citizens. The ADB Charter was never amended by subsequent Philippine tax
laws, because Philippine tax laws before and after the creation of ADB imposed
taxes on income of Filipinos from within and without the Philippines (Casaclang v.
CIR [CTA Case No. 9091]).
7. Tax treaties are entered into “to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in
two different jurisdictions.” CIR v. S.C. Johnson and Son, Inc. further clarifies that
“tax conventions are drafted with a view towards the elimination of international
juridical double taxation, which is defined as the imposition of comparable taxes
in two or more states on the same taxpayer in respect of the same subject matter
and for identical periods.” The apparent rationale for doing away with double
taxation is to encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed vital in
creating robust and dynamic economies. Foreign investments will only thrive in a
29
 fairly predictable and reasonable international investment climate and the
protection against double taxation is crucial in creating such a climate. Simply put,
tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as
double tax treaty or double tax agreements (DGA Ilijan B.V. v. CIR [CTA Case No.
8911]).
8. Nonresident foreign corporations are subject to CGT on their net capital gains
realized during the taxable year from the sale or other disposition of shares of
stock in a domestic corporation made outside the stock exchange; and any gain
derived from such dealings in property shall form part of gross income, except that
income exempt under any treaty obligation binding on the Government of the
Philippines shall be excluded from gross income and exempt from income tax
(Dole Food Co., Inc. v. CIR [CTA Case No. 9011]).
SITUS
9. This Court agrees with petitioner that its sales to PEZA registered entities are
deemed zero-rated. Among the measures adopted by the government, to
implement the policy of promoting preferential use of Filipino labor, domestic
materials, and locally produced goods, and to help make them internationally
competitive, is the establishment of special economic zones or freeports. In
pursuit of these social and economic objectives, enterprises registered and
authorized to conduct business operations in designated economic zones enjoy
fiscal incentives, among which is relief or exemption from payment of national and
local taxes, in lieu of which they pay a flat rate on gross income. Although an
ecozone is undeniably a sovereign geographical territory of the Philippines,
treating the zone as a special customs territory is necessary to give meaningful
effect to the objectives expressed in the special law creating a particular economic
zone. In effect, what is created is a fiction of a foreign territory. The entity that
manages this fiction of foreign territory is the PEZA. In the context of the fiction of
foreign territory, the destination principle (as a basis for jurisdiction of the
Philippines to impose VAT) as well as the situs of the transaction, as criteria for
determining the place where the transaction occurred as the taxable event, will
apply. As a result of the destination principle, RMC No. 74-99 provides that any
sale of goods and services made by a VAT-registered supplier in the customs
territory to any registered enterprise operating in the economic zone, regardless
of the class or type of the latter's PEZA registration, is actually qualified and thus
legally entitled to zero percent 0%) VAT (Pilipinas Total Gas, Inc. v. CIR [CTA Case
No. 7863]).
10. In explaining the “cross border principle,” the Supreme Court ruled that Under the
cross-border principle of the VAT system being enforced by the Bureau of Internal
Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined
for consumption outside of the territorial border of the taxing authority. If exports
of goods and services from the Philippines to a foreign country are free of the VAT,
then the same rule holds for such exports from the national territory–except
specifically declared areas–to an Ecozone, or in this case, a Freeport Zone (Clark
Water Corp. v. CIR [CTA Case No. 9286]).
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CONSTITUTIONAL LIMITATIONS
DUE PROCESS
1. That taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. 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 obtaining in this case, that the law
has not been observed (CIR v. Carmona [CTA EB No. 1324]).
2. There must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so
authorized must not go beyond the authority given. In the absence of such an
authority, the assessment or examination is a nullity (Fontejon v. CIR [CTA Case
No. 9314]).
POWER TO TAX OF LGUs
3. The taxing power of provinces, cities, municipalities and barangays, is limited.
They have no inherent power of taxation. If granted, the power is to be construed
in strictissimi juris, any doubt or ambiguity arising out of the term used in granting
that power must be resolved against the province, city or municipality (City of
Davao v. AP Holdings, Inc. [CTA EB No. 1634]).
4. While this Court is ever-mindful that the local government unit's power to tax is
the most effective instrument to finance and support the myriad activities of local
government units for the delivery of basic services essential to the promotion of
the general welfare and enhancement of peace, progress, and prosperity of the
people; still, adherence to the Local Government Code is needed being the enabling
law for the local legislative body. As the maxim goes, intentio inservire debet
legibus, non leges intentioni (intentions ought to be subservient to the laws, not the
laws to the intention) (NFA v. City Gov't of Tagum [CTA AC No. 180]).
5. While Section 143(f) in relation to Section 151 both of the LGC of 1991,
empowered local government units to levy taxes, fees and charges on banks and
other financial institutions, it nonetheless, expressly subjected such power to
some common limitations, such as those enumerated under Section 133 of the LGC
of 1991 (City of Davao v. Valhalla Properties Ltd., Inc. [CTA EB No. 1639]).
6. Since the taxing power of provinces, cities, municipalities and barangays is to be
construed in strictissimi juris, any doubt or ambiguity arising out of the term used
in granting that power must be resolved against the City of Davao. Thus, a holding
company is neither covered under the definition of “non-banking financial
intermediaries” under Section 4101Q.1 of Manual of Regulations for Non-Bank
Financial Institutions issued by the BSP nor in the definition of “banks and other
30
 financial institutions” as contemplated by Section 131(e) of the LGC for purposes
of exemption on the levy of income tax under Section 133 (a) of the LGC (City of
Davao v. AP Holdings, Inc. [CTA EB No. 1634]).
DOUBLE TAXATION
1.Tax treaties are entered into “to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in
two different jurisdictions.” CIR v. S.C. Johnson and Son, Inc. further clarifies that “tax
conventions are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or
more states on the same taxpayer in respect of the same subject matter and for
identical periods.” The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital,
technology and persons between countries, conditions deemed vital in creating
robust and dynamic economies. Foreign investments will only thrive in a fairly
predictable and reasonable international investment climate and the protection
against double taxation is crucial in creating such a climate. Simply put, tax treaties
are entered into to minimize, if not eliminate the harshness of international juridical
double taxation, which is why they are also known as double tax treaty or double tax
agreements (DGA Ilijan B.V. v. CIR [CTA Case No. 8911]).
TAX EXEMPTION
DUE PROCESS
1. But since taxes are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting the
exemptions are thus construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. A claim of exemption from tax payment must be
clearly shown and based on language in the law too plain to be mistaken (NFA v.
City Gov't of Tagum [CTA AC No. 180]).
2. Since it is not disputed that petitioner is entitled to tax exemption, it should not be
precluded from presenting evidence to substantiate the amount of refund it is
claiming on mere technicality especially in this case, where the failure to present
invoices at the first instance was adequately explained by petitioner (FCF Minerals
Corp. v. Comm. of Customs [CTA EB No. 1620]).
3. While the NIRC exempts governmental educational institutions from income tax,
the law does not exempt from income tax their income of whatever kind and
character from any of their properties, real or personal, or from any of their
activities conducted for profit regardless of the disposition made such income (UP
System Admin v. CIR [CTA Case No. 8397]).
TAX REFUND/TAX CREDIT
4. At the outset, it bears stressing that tax refunds are in derogation of State's taxing
power. Such being the case, tax refunds, like tax exemptions, are strictly construed
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against the taxpayer and liberally in favor of the State. Consequently, the taxpayer
is charged with the heavy burden of proving clearly the factual basis of its claim.
The taxpayer must show that it has strictly complied with all the statutory and
administrative requirements for the grant of the tax refund. Failure to present
sufficient evidence to justify the claim for refund is fatal. Any doubt as to whether
a tax exemption exists is resolved against the taxpayer (Phil. Gold Processing &
Refining Corp. v. CIR [CTA EB No. 1599]).
5. Tax refunds, which are in the nature of tax exemptions, are construed in
strictissimi juris against the taxpayer and liberally in favor of the government.
Accordingly, it is a claimant's heavy burden to prove the factual and statutory basis
to be entitled to a claim for refund or tax credit. As resident citizens, they are
taxable on all income derived from sources within and without the Philippines.
Under Section 24(C) of the NIRC, as amended, the passive income of resident
citizens from the sale, barter, exchange or other disposition of shares of stock in a
domestic corporation is subject to CGT (CIR v. Co [CTA EB No. 1522]).
6. As tax exemptions must be clear and unequivocal, taxpayer claiming tax
exemption must point to a specific provision of law conferring on the taxpayer, in
clear and plain terms, exemption from a common burden. Any doubt whether a
tax exemption exists is resolved against the taxpayer. Tax exemptions cannot arise
by mere implications, much less by an implied re-enactment of a repealed tax
exemption clause (Davao City Water District v. CIR [CTA Case No. 8979]).
7. It is axiomatic that a claimant has the burden of proof to establish the factual basis
of his or her claim for tax credit or refund. Tax refunds, like tax exemptions are
construed strictly against the taxpayer. Hence, an applicant for a claim for tax
refund or tax credit must not only prove his entitlement to the claim but also
compliance with all the documentary and evidentiary requirements (WNS Global
Services Phils., Inc. v. CIR [CTA Case No. 8574]).
8. Bearing in mind that the burden to prove entitlement to a tax refund is on the
taxpayer, it is presumed that in order to discharge its burden, petitioner had
attached complete supporting documents necessary to prove its entitlement to a
refund in its application, absent any evidence to the contrary (CIR v. Lepanto
Consolidated Mining Corp. [CTA EB No. 1584]).
9. Actions for tax refund are in the nature of a claim for exemption and the law is not
only construed in strictissimi juris against the taxpayer, but also the pieces of
evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized
and must be duly proven; thus, every claim for refund elevated to the CTA passes
through an intense scrutiny and evaluation of the evidence presented by both
parties (MacQuarie Offshore Services Pty. Ltd. - Phil. Branch v. CIR [CTA Crim. Case
Nos. 8936, 8994, & 9040]).
10. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2) years
after the payment of the tax or penalty: Provided, however, that a return filed
showing an overpayment shall be considered as a written claim for credit or
31
 refund. Settled is the rule that both the administrative claim for refund with the
BIR and the subsequent appeal to the Court of Tax Appeals must be filed within
the two-year period from the date of payment of the tax (Dole Food Co., Inc. v. CIR
[CTA Case No. 9011]).
11. A tax refund may be subject of legal interest. Under the Internal Revenue Act of
1914, the Collector of Internal Revenue was held liable for such interests in the
absence of any exempting provision in the law, and on the strength of American
authorities to the effect that the State's exemption from paying interest on its
obligations was never applied to subordinate governmental agencies.
Subsequently, Section 1579 of the Administrative Code of 1917 (Act 2711)
expressly authorized suits against the Collector of Internal Revenue “for the
recovery ‘without interest’ of the sum alleged to have been illegally collected.” But
in 1939, the National Internal Revenue Code came into effect and its Section 306
authorized recovery of taxes erroneously or illegally collected but omitting the
expression “without interest” employed in Section 1579 of the 1917
Administrative Code that it superseded. Considering the repeated holdings of this
Court that in the absence of words of exemption the Collector was liable for
interest on taxes improperly collected, the legislature’s failure to reenact the
words “without interest” of the Administrative Code of 1917 imparted a desire to
return to the rule in force before 1917 and under the Internal Revenue Act of 1914
(First Meridian Dev., Inc. v. City of Davao [CTA EB No. 1607]).
12. The remedies of tax refund and input tax carry-over are alternative and the choice
of one precludes the other. A claim for refund is construed strictly against the
claimant and should not be allowed unless proven explicitly and categorically.
That tax refunds are in the nature of tax exemptions, and claimants bear the
burden of proving the factual basis or bases of their claims, and showing that the
legislature intended to exempt them (Colt Commercial, Inc. v. CIR [CTA Case No.
9205]).
TAX EVASION
13. Section 222 of the NIRC specifically states that in cases where a false or fraudulent
return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Section 205 of the same Code clearly mandates that the civil and criminal aspects
of the case may be pursued simultaneously (People v. Mahusay [CTA Crim. Case No.
O-424]).
14. An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to evade and
defeat the tax. The perpetration of the crime is grounded upon knowledge on the
part of the taxpayer that he has made an inaccurate return, and the government's
failure to discover the error and promptly to assess has no connections with the
commission of the crime (People v. Mahusay [CTA Crim. Case No. O-424]).
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15. Any person required under this Code or by rules and regulations promulgated
there under to pay any tax, make a return, keep any record, or supply correct and
accurate information, who willfully fails to pay such tax, make such return, keep
such record, or supply such correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on compensation, at the time or
times required by law or rules and regulations (People v. Baluyot [CTA Crim. Case
Nos. 0445-0448]).
16. Protests could not stop or suspend the criminal action which was independent of
the resolution of the protest in the CTA. This was because the Commissioner of
Internal Revenue had, in such tax evasion cases, discretion on whether to issue an
assessment or to file a criminal case against the taxpayer or to do both (People v.
Mahusay [CTA Crim. Case No. O-424]).
17. Under Section 254 of the NIRC of 1997, as amended, in order to sustain a
conviction for attempt to evade or defeat tax the following elements must be
established: (a) An attempt in any manner to evade or defeat any tax imposed
under the NIRC or the payment thereof; and (b) Such attempt to evade or defeat
tax or the payment thereof is willful (People v. Mahusay [CTA Crim. Case No. O-
424]).
18. The crime of failure to pay tax under Section 255 is defined by the element of
“willfulness” of not paying the tax, which in turn, requires the showing of
“knowledge” and “voluntariness.” Simply stated, the offender is aware or knows
the existence of, and obligation to pay, a tax liability but voluntarily and
intentionally failed to pay it (People v. Mahusay [CTA Crim. Case No. O-424]).
19. Tax evasion connotes the integration of three factors: (1) the ends to be achieved,
i.e., the payment of less than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due; (2) an accompanying state
of mind which is described as being in bad faith, willful and deliberate; and (3)
course of action or failure of action which is unlawful (People v. Kingsam Express,
Inc. [CTA Crim. Case No. O-522]).
20. The submission of falsified documents, the deliberate non-recognition of
acquisition of assets in financial statements and the loan incurred as liabilities and
the intentional hiding of the actual transaction of such acquisitions from the
authorities, are overt acts concurring to constitute tax evasion (People v. Kingsam
Express, Inc. [CTA Crim. Case No. O-522]).
REAL PROPERTY TAXATION
1. Liability for taxes generally rest on the owner of the real property at the time the
tax accrues. This is a necessary consequence that proceeds from the fact of
ownership. However, personal liability for realty taxes may also expressly rest on
the entity with the beneficial use of the real property, such as the tax on property
owned by the government but leased to private persons or entities, or when the
tax assessment is made on the basis of the actual use of the property. In either case,
the unpaid realty tax attaches to the property but is directly chargeable against the
32
 taxable person who has actual and beneficial use and possession of the property
regardless of whether or not that person is the owner. Sec. 234(a) of the LGC of
1991 provides that “real property owned by the Republic of the Philippines or any
of its political subdivisions is exempted from payment of the real property tax
except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person. in real estate taxation, the unpaid tax attaches to
the property and is chargeable against the taxable person who has actual or
beneficial use and possession thereof irrespective of who owns it” (BSP v. CBAA
[CTA EB No. 1438]).
2. It has been settled that a claim for exemption from the payment of real property
taxes does not actually question the assessor’s authority to assess and collect such
taxes but pertains to the reasonableness or correctness of the assessment. Thus,
the requirement of “payment under protest” is a condition sine qua non before its
protest may be entertained. Said issue involves question of fact which should be
resolved at the first instance by the LBAA and if not satisfied, the same may be
elevated to the CBAA (Digitel Mobile Phils., Inc. v. City Gov't of Cotabato City [CTA
AC No. 164]).
6. Even if under the parties’ agreement, it is NAPOCOR which assumes the payment
of taxes, the LGU is not concerned with such agreement, considering that said tax
is against, and attaches to, the real property assessed (NAPOCOR v. Luzon Hydro
Corp. [CTA EB No. 1020]).
7. A taxpayer who wishes to protest an RPT assessment, may do so in either of the
following ways: (1) file a protest which questions or challenges the
reasonableness or correctness of the assessment; or (2) file a protest which
questions the legality or validity of the assessment. If a taxpayer's protest
questions the correctness or reasonableness of an assessment. Section 252 of the
LGC of 1991 mandates that such protest must be preceded by payment of the
assessed RPT (NGCP v. CBAA [CTA EB No. 1459]).

3. The restriction upon the power of courts to impeach tax assessment without a
prior payment, under protest, of the taxes assessed is consistent with the doctrine
that taxes are the lifeblood of the nation and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in this case, the
local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled. The right of local government units to
collect taxes due must always be upheld to avoid severe erosion. This
consideration is consistent with the State policy to guarantee the autonomy of
local governments and the objective of RA 7160 or the LGC of 1991 that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals (Digitel Mobile Phils., Inc. v. City Gov't of Cotabato City
[CTA AC No. 164]).

4. Where a hydroelectric plant constructed, operated, and maintained pursuant to a

BOT scheme between a GOCC and a private corporation is actually, directly, and
exclusively used by the latter, the exemption from real property tax under Sec.
234(c) of the LGC cannot be availed of, even if the power generated by such
machinery is exclusively bought and used by said GOCC (NAPOCOR v. Luzon Hydro
Corp. [CTA EB No. 1020]).

5. In order for the real properties of NAPOCOR, as a GOCC engaged in the generation
and transmission of electric power, to qualify as part of the “Special Classes” under
Sec. 216 of the LGC, said properties must be “owned and used” by NAPOCOR. In
this case, neither ownership nor use is lodged with NAPOCOR. Under the BOT
Agreement between NAPOCOR and LHC, the latter has complete ownership over
the properties, subject only to the transfer of these properties after the lapse of
the period agreed upon (NAPOCOR v. Luzon Hydro Corp. [CTA EB No. 1020]).

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