Southern Luzon Drug Corporation vs DSWD

Facts:

A petition for certiorari was filed filed by Southern Luzon Drug Corporation (petitioner) against
the Department of1 Social Welfare and Development (DSWD), the National Council for the
Welfare of Disabled Persons (NCWDP) (now National Council on Disability Affairs or NCDA), the
Department of Finance (DOF) and the Bureau of: Internal Revenue (collectively, the
respondents), which sought to prohibit the implementation of Section 4(a) of Republic Act
(R.A.) No. 9257, otherwise known as the "Expanded Senior Citizens Act of 2003" and Section 32
of R.A. No. 9442, which amends the "Magna Carta for Disabled Persons," particularly the
granting of 20% discount on the purchase of medicines by senior citizens and persons with
disability (PWD),: respectively, and treating them as tax deduction, affecting the profitability in
their business.

The Southern Luzon Drug Corporation filed a Petition for Prohibition with Application for TRO
and/or Writ of Preliminary Injunction9 with the CA, seeking to declare as unconstitutional (a)
Section 4(a) of R.A. No. 9257, and (b) Section 32 of R.A. No. 9442 and Section 5.1 of its IRR,
insofar as these provisions only allow tax deduction on the gross income based on the net cost
of goods sold or services rendered as compensation to private establishments for the 20%
discount that they are required to grant to senior citizens and PWDs. Further, the petitioner
prayed that the respondents be permanently enjoined from implementing the assailed
provisions.

They invoke that it is violative of the equal protection clause in that it failed to distinguish
between those who have the capacity to pay and those who do not, in granting the 20%
discount.

CA ruled in favor of the DWSD as they said that it is for the exercise of police power.

Issue: W/N Section 4(a) of Republic Act No. 9257 and Section 32 of Republic Act No. 9442 are
CONSTITUTIONAL?

1.Police Power - with priority for the needs of the underprivileged sick, elderly, disabled, women,
and children. No to Eminent domain because There is also no ousting of the owner or deprivation of
ownership. Establishments are neither divested of ownership of any of their properties nor is
anything forcibly taken from them. They remain the owner of their goods and their profit or loss still
depends on the performance of their sales.

Valid Classification:

For a classification to be valid, (1) it must be based upon substantial distinctions, (2) it must be
germane to the purposes of the law, (3) it must not be limited to existing conditions only, and (4) it
must apply equally to all members of the same class.
To recognize all senior citizens as a group, without distinction as to income, is a valid classification.
The Constitution itself considered the elderly as a class of their own and deemed it a priority to
address their needs. When the Constitution declared its intention to prioritize the predicament of the
underprivileged sick, elderly, disabled, women, and children, 71 it did not make any reservation as to
income, race, religion or any other personal circumstances. It was a blanket privilege afforded the
group of citizens in the enumeration in view of the vulnerability of their class.

R.A. No. 9257 is an implementation of the avowed policy of the Constitution to enact measures that
protect and enhance the right of all the people to human dignity, reduce social, economic, and
political inequalities. 72 Specifically, it caters to the welfare of all senior citizens. The classification is
based on age and therefore qualifies all who have attained the age of 60. Senior citizens are a class
of their own, who are in need and should be entitled to government support, and the fact that they
may still be earning for their own sustenance should not disqualify them from the privilege.

Section 4(a) of Republic Act No. 9257 and Section 32 of Republic Act No. 9442 are hereby
declared CONSTITUTIONAL.

________________________________________________________________

DRUGSTORES ASSOCIATION OF THE PHILIPPINES vs NATIONAL COUNCIL ON DISABILITY

AFFAIRS

Facts:

On March 24, 1992, Republic Act (R.A.) No. 7277, entitled "An Act Providing for the
Rehabilitation, Self-Development and Self-Reliance of Disabled Persons and their
Integration into the Mainstream of Society and for Other Purposes," otherwise known as
the "Magna Carta for Disabled Persons," was passed into law.

On April 30, 2007, Republic Act No. 94427 was enacted amending R.A. No. 7277. The
Title of R.A. No. 7277 was amended to read as "Magna Carta for Persons with
Disability" and all references on the law to "disabled persons" were amended to read as
"persons with disability" (PWD).8 Specifically, R.A. No. 9442 granted the PWDs a twenty
(20) percent discount on the purchase of medicine, and a tax deduction scheme was
adopted wherein covered establishments may deduct the discount granted from gross
income based on the net cost of goods sold or services rendered.

CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with disability shall be
entitled to the following:
(d) At least twenty percent (20%) discount for the purchase of medicines in all
drugstores for the exclusive use or enjoyment of persons with disability;
The abovementioned privileges are available only to persons with disability who
are Filipino citizens upon submission of any of the following as proof of his/her
entitlement thereto:
ch an Rob lesvirt u alL awl ib rary
(i) An identification card issued by the city or municipal mayor or the
barangay captain of the place where the person with disability resides;

(ii) The passport of the person with disability concerned; or

(ii) Transportation discount fare Identification Card (ID) issued by the

National Council for the Welfare of Disabled Persons (NCWDP).

Petitioners aver that Section 32 of R.A. No. 7277 as amended by R.A. No.
9442 is unconstitutional and void for violating the due process clause of
the Constitution since entitlement to the 20% discount is allegedly merely
based on any of the three documents mentioned in the provision.

Issue: W/N the due process clause of the Constitution since entitlement
to the 20% discount is allegedly merely based on any of the three
documents mentioned in the provision.

No.

The applicant must first secure a medical certificate issued by a licensed

private or government physician that will confirm his medical or disability
condition. If an applicant is an employee with apparent disability, a
"certificate of disability" issued by the head of the business establishment
or the head of the non-governmental organization is needed for him to
be issued a PWD-IDC. For a student with apparent disability, the "school
assessment" issued by the teacher and signed by the school principal
should be presented to avail of a PWD-ID.

Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for

the 20% discount in the purchase of all medicines for the exclusive use
of PWD.44 To avail of the discount, the PWD must not only present his
I.D. but also the doctor's prescription stating, among others, the generic
name of the medicine, the physician's address, contact number and
professional license number, professional tax receipt number and narcotic
license number, if applicable. A purchase booklet issued by the local
social/health office is also required in the purchase of over-the-counter
medicines. Likewise, any single dispensing of medicine must be in
accordance with the prescription issued by the physician and should not
exceed a one (1) month supply. Therefore, as correctly argued by the
respondents, Section 32 of R.A. No. 7277 as amended by R.A. No. 9442
complies with the standards of substantive due process.The petition
is DENIED.
____________________________________________________________________
Diaz vs. Secretary of Finance

Facts:

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
for declaratory relief 1 assailing the validity of the impending imposition of value-
added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have
an interest as regular users of tollways in stopping the BIR action. Additionally, Diaz
claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded
VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue
Code or the NIRC) at the House of Representatives. Timbol, on the other hand,
claims that she served as Assistant Secretary of the Department of Trade and
Industry and consultant of the Toll Regulatory Board (TRB) in the past
administration.

The government also argues that petitioners have no right to invoke the non-
impairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the State’s
sovereign taxing power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT. In any
event, it cannot be claimed that the rights of tollway operators to a reasonable rate
of return will be impaired by the VAT since this is imposed on top of the toll rate.
Further, the imposition of VAT on toll fees would have very minimal effect on
motorists using the tollways.

Issues:

1. Whether or not the government is unlawfully expanding VAT coverage by

including tollway operators and tollway operations in the terms "franchise
grantees" and "sale of services" under Section 108 of the Code; and

2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax

on tax and not a tax on services; b) will impair the tollway operators’ right to a
reasonable return of investment under their TOAs; and c) is not administratively
feasible and cannot be implemented.
Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction,
maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income. Although toll fees are charged for the use of public
facilities, therefore, they are not government exactions that can be properly treated
as a tax. Taxes may be imposed only by the government under its sovereign
authority, toll fees may be demanded by either the government or private
individuals or entities, as an attribute of ownership.

VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in
the course of trade or business, sells or renders services for a fee. In other words,
the seller of services, who in this case is the tollway operator, is the person liable
for VAT. The latter merely shifts the burden of VAT to the tollway user as part of
the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a "user’s tax." VAT is assessed against the tollway operator’s
gross receipts and not necessarily on the toll fees. Although the tollway operator
may shift the VAT burden to the tollway user, it will not make the latter directly
liable for the VAT. The shifted VAT burden simply becomes part of the toll fees
that one has to pay in order to use the tollways.

The Commissioner of Internal Revenue did not usurp legislative prerogative or

expand the VAT law’s coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services of all other
franchise grantees are subject to VAT, except as may be provided under Section
119 of the Code. Tollway operators are not among the franchise grantees subject
to franchise tax under the latter provision. Neither are their services among the
VAT-exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners
so strongly allege, then it would have been well for the law to clearly say so. Tax
exemptions must be justified by clear statutory grant and based on language in the
law too plain to be mistaken.37 But as the law is written, no such exemption obtains
for tollway operators. The Court is thus duty-bound to simply apply the law as it is
found.1avv phi1

WHEREFORE, the Court DENIES respondents Secretary of Finance and

Commissioner of Internal Revenue’s motion for reconsideration of its August 24,
2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F.
Timbol’s petition for lack of merit, and SETS ASIDE the Court’s temporary
restraining order dated August 13, 2010.

________________________________________________________________

Planters Products, Inc. vs. Fertiphil Corporation

Facts:
Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws.3 They are both engaged in the importation and
distribution of fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative

powers, issued LOI No. 1465 which provided, among others, for the imposition of
a capital recovery component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer

pricing formula a capital contribution component of not less than ₱10 per bag. This
capital contribution shall be collected until adequate capital is raised to make PPI
viable. Such capital contribution shall be applied by FPA to all domestic sales of
fertilizers in the Philippines.5 (Underscoring supplied)

Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted
the amount collected to the Far East Bank and Trust Company, the depositary
bank of PPI. Fertiphil paid ₱6,689,144 to FPA from July 8, 1985 to January 24,
1986.6

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the ₱10
levy. With the return of democracy, Fertiphil demanded from PPI a refund of the
amounts it paid under LOI No. 1465, but PPI refused to accede to the demand. 7

Fertiphil filed a complaint for collection and damages 8 against FPA and PPI with
the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being
unjust, unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process of law.9 Fertiphil alleged that the LOI solely
favored PPI, a privately owned corporation, which used the proceeds to maintain
its monopoly of the fertilizer industry.

In its Answer,10 FPA, through the Solicitor General, countered that the issuance of
LOI No. 1465 was a valid exercise of the police power of the State in ensuring the
stability of the fertilizer industry in the country. It also averred that Fertiphil did not
sustain any damage from the LOI because the burden imposed by the levy fell on
the ultimate consumer, not the seller.

Issue:

Whether the puRPOSE OF ASSURING THE FERTILIZER SUPPLY AND

DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION
CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR
STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION
PURSUANT TO THE EXERCISE OF TAXATION AND POLICE POWER FOR
PUBLIC PURPOSES.
The purpose of a law is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the levy imposed under
LOI No. 1465 was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private
company. The purpose is explicit from Clause 3 of the law, thus:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer

pricing formula a capital contribution component of not less than ₱10 per bag. This
capital contribution shall be collected until adequate capital is raised to make PPI
viable. Such capital contribution shall be applied by FPA to all domestic sales of
fertilizers in the Philippines.

We cannot agree with PPI that the levy was imposed to ensure the stability of the
fertilizer industry in the country. The letter of understanding and the plain text of
the LOI clearly indicate that the levy was exacted for the benefit of a private
corporation.

The LOI is still unconstitutional even if enacted under the police power; it did not
promote public interest. , LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. e
method by which LOI 1465 sought to achieve this is by no means a measure that
will promote the public welfare. The government’s commitment to support the
successful rehabilitation and continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s impartiality. There is no way to
treat the self-interest of a favored entity, like PPI, as identical with the general
interest of the country’s farmers or even the Filipino people in general. Well to
stress, substantive due process exacts fairness and equal protection disallows
distinction where none is needed. When a statute’s public purpose is spoiled by
private interest, the use of police power becomes a travesty which must be struck
down for being an arbitrary exercise of government power. To rule in favor of
appellant would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private
individuals.

The doctrine is applicable when a declaration of unconstitutionality will impose an

undue burden on those who have relied on the invalid law. Thus, it was applied to
a criminal case when a declaration of unconstitutionality would put the accused in
double jeopardy57 or would put in limbo the acts done by a municipality in reliance
upon a law creating it.58

Here, We do not find anything iniquitous in ordering PPI to refund the amounts
paid by Fertiphil under LOI No. 1465.

Article 22 of the Civil Code explicitly provides that "every person who, through an
act of performance by another comes into possession of something at the expense
of the latter without just or legal ground shall return the same to him." We cannot
allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI
must refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated

November 28, 2003 is AFFIRMED.

_____________________________________________________________

Abakada vs

Facts:

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
3555 and 3705, and Senate Bill No. 1950.

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al.,
filed a petition for prohibition on May 27, 2005. They question the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and
use or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary
of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been satisfied, to wit:

. . . That 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:

(i) 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

(ii) National government deficit as a percentage of GDP of the previous year

exceeds one and one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by

Congress of its exclusive authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.

Sen. Pimentel also filed a petition and contended that the increase in the VAT rate
to 12% contingent on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the Constitution, as it imposes
an unfair and additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the original
10% if the conditions are no longer satisfied; 2) the rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to
year; and (3) the increase in the VAT rate, which is supposed to be an incentive to
the President to raise the VAT collection to at least 2 /5 of the GDP of the previous
year, should only be based on fiscal adequacy.

Escudero also filed a petition..

Settle the differences between the disagreeing provisions in the House bill and the
Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize." 25 To
reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill or
Senate bill, (b) decide that neither provisions in the House bill or the provisions in
the Senate bill would

Issues:

1. R.A. No. 9337 Violates Article VI, Section 26(2) of the Constitution on the
"No-Amendment Rule" (Procedural Issue)
2. W/N there was a Delegation of Legislative Power
3. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
4. Whether 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 following provisions of the Constitution:
5. Uniformity and Equitability of Taxation

Held:

1. No. 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. To reiterate,
the sections introduced by the Senate are germane to the subject matter
and purposes of the house bills, which is to supplement our country’s fiscal
 deficit, among others. Thus, the Senate acted within its power to propose
those amendments.
2.

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
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.

No discretion would be exercised by the President. Highlighting the absence of

discretion is the fact that the word shall is used in the common proviso. The use of
the word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion. Where the law
is clear and unambiguous, it must be taken to mean exactly what it says, and
courts have no choice but to see to it that the mandate is obeyed.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the law specifically uses
the word shall, the exercise of discretion by the President does not come into play.
It is a clear directive to impose the 12% VAT rate when the specified conditions
are present. The time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA GURO Party
List, et al. that the law effectively nullified the President’s power of control over the
Secretary of Finance by mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance. The Court cannot also subscribe
to the position of petitioners

Pimentel, et al. that the word shall should be interpreted to mean may in view of
the phrase "upon the recommendation of the Secretary of Finance." Neither does
the Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the President, it
simply means that as head of the Department of Finance he is the assistant and
agent of the Chief Executive. The multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive
departments, and the acts of the secretaries of such departments, such as the
Department of Finance, performed and promulgated in the regular course of
business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as such,
occupies a political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, "should be of the President's bosom confidence"
and, in the language of Attorney-General Cushing, is "subject to the direction of
the President."55

In the present case, in making his recommendation to the President on the

existence of either of the two conditions, the Secretary of Finance is not acting as
the alter ego of the President or even her subordinate. In such instance, he is not
subject to the power of control and direction of the President. He is acting as the
agent of the legislative department, to determine and declare the event upon
which its expressed will is to take effect. The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and
has a much broader perspective to properly evaluate them. His function is to
gather and collate statistical data and other pertinent information and verify if any
of the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or nullify,
or set aside the findings of the Secretary of Finance and to substitute the judgment
of the former for that of the latter.

There is no undue delegation of legislative power but only of the discretion

as to the execution of a law. This is constitutionally permissible. Congress
does not abdicate its functions or unduly delegate power when it describes what
job must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process
can go forward. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12%
came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law.

3.

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes
an unfair and additional tax burden on the people. Petitioners also argue that the
12% increase, dependent on any of the 2 conditions set forth in the contested
provisions, is ambiguous because it does not state if the VAT rate would be
returned to the original 10% if the rates are no longer satisfied. Petitioners also
argue that such rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.

The law is clear there is no need for interpretation.

The principle of fiscal adequacy as a characteristic of a sound tax system was

originally stated by Adam Smith in his Canons of Taxation (1776), as:

IV. Every tax ought to be so contrived as both to take out and to keep out of the
pockets of the people as little as possible over and above what it brings into the
public treasury of the stateIt simply means that sources of revenues must be
adequate to meet government expenditures and their variations
4. Whether 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 following provisions of the Constitution:

Petitioners point out that the limitation on the creditable input tax if the entity has a
high ratio of input tax, or invests in capital equipment, or has several transactions
with the government, is not based on real and substantial differences to meet a
valid classification.

The argument is pedantic, if not outright baseless. The law does not make any
classification in 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.
Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results
depending on one’s profit margin and value-added, the Court cannot go beyond
what the legislature has laid down and interfere with the affairs of business.

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.85

Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038
by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks
to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed
legislations. Until Congress amends the law, and absent any unequivocal basis for
its unconstitutionality, the 70% limitation stays.

______________________________________________________________

ROMEO P. GEROCHI, KATULONG NG BAYAN vs DOE

Facts:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist

Consumers Network, Inc. (ECN) (petitioners), come before this Court in this
original action praying that Section 34 of Republic Act (RA) 9136, otherwise known
as the "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the
Universal Charge,1 and Rule 18 of the Rules and Regulations (IRR) 2 which seeks
to implement the said imposition, be declared unconstitutional. Petitioners also
pray that the Universal Charge imposed upon the consumers be refunded and that
a preliminary injunction and/or temporary restraining order (TRO) be issued
directing the respondents to refrain from implementing, charging, and collecting
the said charge.

Issue:
The ultimate issues in the case at bar are:

1) Whether or not, the Universal Charge imposed under Sec. 34 of the

EPIRA is a tax; and

2) Whether or not there is undue delegation of legislative power to tax on

the part of the ERC.

HELD:

1.

In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the
State's police power, particularly its regulatory dimension, is invoked. Such can be
deduced from Sec. 34 which enumerates the purposes for which the Universal
Charge is imposed37 and which can be amply discerned as regulatory in character.
The EPIRA resonates such regulatory purposes, thus:

SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;

(b) To ensure the quality, reliability, security and affordability of the supply
of electric power;

(c) To ensure transparent and reasonable prices of electricity in a regime

of free and fair competition and full public accountability to achieve greater
operational and economic efficiency and enhance the competitiveness of
Philippine products in the global market;

(d) To enhance the inflow of private capital and broaden the ownership
base of the power generation, transmission and distribution sectors;

(e) To ensure fair and non-discriminatory treatment of public and private

sector entities in the process of restructuring the electric power industry;

(f) To protect the public interest as it is affected by the rates and services
of electric utilities and other providers of electric power;
 (g) To assure socially and environmentally compatible energy sources and
infrastructure;

(h) To promote the utilization of indigenous and new and renewable

energy resources in power generation in order to reduce dependence on
imported energy;

(i) To provide for an orderly and transparent privatization of the assets and
liabilities of the National Power Corporation (NPC);

(j) To establish a strong and purely independent regulatory body and

system to ensure consumer protection and enhance the competitive
operation of the electricity market; and

(k) To encourage the efficient use of energy and other modalities of

demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal
Charge is not a tax, but an exaction in the exercise of the State's police power.
Public welfare is surely promoted.

2.

_________________________________________________________________

PAGOR vs BIR

Facts:
Philippine Amusement and Gaming Corporation (PAGCOR), seeking the
declaration of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as it
amends Section 27 (c) of the National Internal Revenue Code of 1997, by
excluding petitioner from exemption from corporate income tax for being
repugnant to Sections 1 and 10 of Article III of the Constitution. Petitioner further
seeks to prohibit the implementation of Bureau of Internal Revenue (BIR) Revenue
Regulations No. 16-2005 for being contrary to law.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on
January 1, 1977. Simultaneous to its creation, P.D. No. 1067-B3 (supplementing
P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any type
of tax, except a franchise tax of five percent (5%) of the gross
revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the
scope of PAGCOR's exemption.

ISSUE:

The main issue is whether or not PAGCOR is still exempt from corporate income
tax and VAT with the enactment of R.A. No. 9337.

HELD:

Taxation is the rule and exemption is the exception.23 The burden of proof rests upon
the party claiming exemption to prove that it is, in fact, covered by the exemption so
claimed.24 As a rule, tax exemptions are construed strongly against the
claimant.25 Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provision.

In this case, PAGCOR failed to prove that it is still exempt from the payment of
corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section
27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the
exemption. The legislative intent, as shown by the discussions in the Bicameral
Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the
omission or removal of PAGCOR from exemption from the payment of corporate
income tax. It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.27 Thus, the express mention of the
GOCCs exempted from payment of corporate income tax excludes all others. Not
being excepted, petitioner PAGCOR must be regarded as coming within the purview of
the general rule that GOCCs shall pay corporate income tax, expressed in the maxim:
exceptio firmat regulam in casibus non exceptis.28

PAGCOR cannot find support in the equal protection clause of the Constitution, as the
legislative records of the Bicameral Conference Meeting dated October 27, 1997, of
the Committee on Ways and Means, show that PAGCOR’s exemption from payment
of corporate income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National
Internal Revenue Code of 1997, was not made pursuant to a valid classification based
on substantial distinctions and the other requirements of a reasonable classification by
legislative bodies, so that the law may operate only on some, and not all, without
violating the equal protection clause. The legislative records show that the basis of the
grant of exemption to PAGCOR from corporate income tax was PAGCOR’s own
request to be exempted.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite,
the latter is not liable for the payment of it as it is exempt in this particular transaction
by operation of law to pay the indirect tax. Such exemption falls within the former
Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A.
8424), which provides:

Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There
shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT registered persons shall be
subject to 0%.

Although the basis of the exemption of PAGCOR and Acesite from VAT in the
case of The Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which
section was retained as Section 108 (B) (3) in R.A. No. 8424, 41 it is still applicable
to this case, since the provision relied upon has been retained in R.A. No. 9337. 42 1avv phi1

It is settled rule that in case of discrepancy between the basic law and a rule or
regulation issued to implement said law, the basic law prevails, because the said
rule or regulation cannot go beyond the terms and provisions of the basic
law.43 RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No.
9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR
exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005;
hence, the said regulatory provision is hereby nullified.

WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No.

9337, amending Section 27 (c) of the National Internal Revenue Code of 1997, by
excluding petitioner Philippine Amusement and Gaming Corporation from the
enumeration of government-owned and controlled corporations exempted from
corporate income tax is valid and constitutional, while BIR Revenue Regulations
No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being
contrary to the National Internal Revenue Code of 1997, as amended by Republic
Act No. 9337.

_____________________________________________________________

TOLENTINO VS Sec. of Finance

Facts:

These are motions seeking reconsideration of our decision dismissing the petitions
filed in these cases for the declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law. The motions, of which
there are 10 in all, have been filed by the several petitioners in these cases, with
the exception of the Philippine Educational Publishers Association, Inc. and the
Association of Philippine Booksellers, petitioners in G.R. No. 115931.

Alleged violations of the due process, equal protection and contract clauses and
the rule on taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations
of contracts, (2) classifies transactions as covered or exempt without reasonable
basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation."

HELD:

We have carefully read the various arguments raised against the constitutional
validity of R.A. No. 7716. We have in fact taken the extraordinary step of enjoining
its enforcement pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities attributed to it by
petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, "legislators
are the ultimate guardians of the liberties and welfare of the people in quite as
great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No.
115543 does in arguing that we should enforce the public accountability of
legislators, that those who took part in passing the law in question by voting for it
in Congress should later thrust to the courts the burden of reviewing measures in
the flush of enactment. This Court does not sit as a third branch of the legislature,
much less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the
temporary restraining order previously issued is hereby lifted.

_____________________________________________________________

CIR vs YOUNG MEN'S CHRISTIAN ASSOCIATION

Is the income derived from rentals of real property owned by the Young Men's
Christian Association of the Philippines, Inc. (YMCA) — established as "a welfare,
educational and charitable non-profit corporation" — subject to income tax under
the National Internal Revenue Code (NIRC) and the Constitution?

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 affirming the conclusion of Respondent Court of Tax Appeals that the income of
private respondent from rentals of small shops and parking fees [is] exempt from
taxation.
 Held:

The last paragraph of Section 27, the YMCA argues, should be "subject to the
qualification that the income from the properties must arise from activities
'conducted for profit' before it may be considered taxable." 23 This argument is
erroneous. As previously stated, a reading of said paragraph ineludibly shows that
the income from any property of exempt organizations, as well as that arising from
any activity it conducts for profit, is taxable. The phrase "any of their activities
conducted for profit" does not qualify the word "properties." This makes from the
property of the organization taxable, regardless of how that income is used —
whether for profit or for lofty non-profit purposes.

Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed by
YMCA on income it derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for profit but is merely
incidental to its operation. The law does not make a distinction. The rental income
is taxable regardless of whence such income is derived and how it is used or
disposed of. Where the law does not distinguish, neither should we.

Private respondent also invokes Article XIV, Section 4, par. 3 of the

Character, 36 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." 37 We reiterate 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.

__________________________________________

CIR VS De La Salle
Facts:

In 2004, the Bureau of Internal Revenue (BIR) issued a letter authorizing it’s revenue
officers to examine the book of accounts of and records for the year 2003 De La Salle
University (DLSU) and later on issued a demand letter to demand payment of tax
deficiencies for:

1. Income tax on rental earnings from restaurants/canteens and bookstores operating

within the campus;
2. Value-added tax (VAT) on business income; and
3. Documentary stamp tax (DST) on loans and lease contracts for the years 2001,2002,
and 2003, amounting to P17,303,001.12.

DLSU protested the assessment that was however not acted upon, and later on filed a
petition for review with the Court of Tax Appeals(CTA). DLSU argues that as a non-
stock, non-profit educational institution, it is exempt from paying taxes according to
Article XIV, Section 4 (3) of the Constitution (All revenues and assets of non-stock,
non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties.)

The CTA only granted the removal of assessment on the load transactions. Both CIR
and DLSU moved for reconsideration, the motion of the CIR was denied. The CIR
appealed to the CTA en banc arguing that DLSU’s use of its revenues and assets for
non-educational or commercial purposes removed these items from the exemption,
that a tax-exempt organization like DLSU is exempt only from property tax but not from
income tax on the rentals earned from property. Thus, DLSU’s income from the leases
of its real properties is not exempt from taxation even if the income would be used for
educational purposes.
DLSU on the other hand offered supplemental pieces of documentary evidence to
prove that its rental income was used actually, directly and exclusively for educational
purposes and no objection was made by the CIR.

Thereafter, DLSU filed a separate petition for review with the CTA En Banc on the
following grounds:

1. The entire assessment should have been cancelled because it was based on an
invalid LOA;
2. Assuming the LOA was valid, the CTA Division should still have cancelled
the entire assessment because DLSU submitted evidence similar to those submitted
by Ateneo De Manila University (Ateneo) in a separate case where the CTA cancelled
Ateneo’s tax assessment; and
3. The CTA Division erred in finding that a portion of DLSU’s rental income was not
proved to have been used actually, directly and exclusively for educational purposes.
4. That under RMO No.43-90, LOA should cover only 1 year, the LOA issued by CIR is
invalid for covering the years 2001-2003

The CTA en banc ruled that the case of Ateneo is not applicable because it involved
different parties, factual settings, bases of assessments, sets of evidence, and
defenses, it however further reduced the liability of DLSU to P2,554,825.47

CIR argued that the rental income is taxable regardless of how such income is derived,
used or disposed of. DLSU’s operations of canteens and bookstores within its campus
even though exclusively serving the university community do not negate income tax
liability. Article XIV, Section 4 (3) of the Constitution must be harmonized with Section
30 (H) of the Tax Code, which states among others, that the income of whatever kind
and character of [a non-stock and non-profit educational institution] from any of [its]
 properties, real or personal, or from any of (its] activities conducted for
profit regardless of the disposition made of such income, shall be subject to tax
imposed by this Code.
that a tax-exempt organization like DLSU is exempt only from property tax but not from
income tax on the rentals earned from property. Thus, DLSU’s income from the leases
of its real properties is not exempt from taxation even if the income would be used for
educational purposes.

DLSU argued that Article XIV, Section 4 (3) of the Constitution is clear that all assets
and revenues of non-stock, non-profit educational institutions used actually, directly
and exclusively for educational purposes are exempt from taxes and duties. Under the
doctrine of constitutional supremacy, which renders any subsequent law that is
contrary to the Constitution void and without any force and effect. Section 30 (H) of the
1997 Tax Code insofar as it subjects to tax the income of whatever kind and character
of a non-stock and non-profit educational institution from any of its properties, real or
personal, or from any of its activities conducted for profit regardless of the disposition
made of such income, should be declared without force and effect in view of the
constitutionally granted tax exemption on “all revenues and assets of non-stock, non-
profit educational institutions used actually, directly, and exclusively for educational
purposes.“
that it complied with the requirements for the application of Article XIV, Section 4 (3) of
the Constitution.

Issue:

1. Whether DLSU is taxable as a non-stock, non-profit educational institution whose

income have been used actually, directly and exclusively for educational purposes.
2. Whether the entire assessment should be void because of the defective LOA

Held:

1. First issue:
1. A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have also been sourced from educational
activities or activities related to the purposes of an educational institution. The
phrase all revenues is unqualified by any reference to the source of revenues. Thus,
so long as the revenues and income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall be exempt from taxes and
duties.
2. Revenues consist of the amounts earned by a person or entity from the conduct of
business operations. It may refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the tax base in income tax, VAT,
and local business tax (LBT). Assets, on the other hand, are the tangible and
intangible properties owned by a person or entity. It may refer to real estate, cash
deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any
property from which the person or entity may derive income or use to generate the
same. In Philippine taxation, the fair market value of real property is a component of
the tax base in real property tax (RPT). Also, the landed cost of imported goods is a
 component of the tax base in VAT on importation and tariff duties. Thus, when a non-
stock, non-profit educational institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it shall be exempted from income
tax, VAT, and LBT. On the other hand, when it also shows that it uses its assets in the
form of real property for educational purposes, it shall be exempted from RPT.
3. The last paragraph of Section 30 of the Tax Code without force and effect for being
contrary to the Constitution insofar as it subjects to tax the income and revenues of
non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purpose. We make this declaration in the exercise of and consistent with
our duty to uphold the primacy of the Constitution.
2. Second Issue:
1. No.“A Letter of Authority LOA should cover a taxable period not exceeding one taxable
year. The practice of issuing LOAs covering audit of unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable period, the
other periods or years shall be specifically indicated in the LOA.”
2. The requirement to specify the taxable period covered by the LOA is simply to inform
the taxpayer of the extent of the audit and the scope of the revenue officer’s authority.
Without this rule, a revenue officer can unduly burden the taxpayer by demanding
random accounting records from random unverified years, which may include
documents from as far back as ten years in cases of fraud audit.
3. The assessment for taxable year 2003 is valid because this taxable period is specified
in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003.
While the assessments for taxable years 2001 and 2002 are void for having
been unspecified on separate LOAs as required under RMO No. 43-90.

_______________________________________________________________

La Sallian Eduational Innovators Foundation vs.

CIR
Facts:
La Sallian Educational Innovators Foundation (foundation) is a non-stock, non-
profit educational institution. The BIR issued assessment notices with demand
letter for deficiency income tax in the amount of P122,414,521.70 and
deficiency Value Added Tax in the amount of P2,752,228.54. The BIR invoked
the last paragraph of Section 30 of the Tax Code and the ruling of the
Supreme Court in the case of Commissioner of Internal Revenue vs. Court of
Appeals, et.al., GR No. 124043, October 14, 1998 to support the assessment
of deficiency taxes against the foundation. It argued that the rental income on
its properties such as income on ICC hotel, dormitory, parking lot, lockers,
photocopy machines and bookstores are subject to income tax. It further
argued that cafeterias or canteens inside the petitioner’s school premises are
operated and owned concessionaire; thus, the rental income earned by the
foundation from concessionaire shall be subject to income tax as per
Department Order No. 137-87. Moreover, the BIR cited the case of Xavier
School, Inc, vs. CIR, CTA Case No. 1682, October 8, 1969 where the court
ruled that a private educational institution which deviates from its purely
educational purposes and activities shall be treated like any private domestic
corporation engaged in business for profit with respect to income derived
therefrom. The protective mantle of income tax benefit or exemption cannot be
extended to a private educational institution which chooses to descend from its
high pedestal of tax preference or immunity to the level of an ordinary private
corporation engaged in profitable undertaking or business. The CTA upheld
the tax exemption of the foundation and cited the decision of the Supreme
Court in CIR vs. ISSUE:

CA where there are two requirements that must be proved before applying the
exemptions of educational institutions under Section 4, Article XIV of the 1987
Constitution as decided by the Supreme Court in the case of CIR vs. CA. The
requirements are: (1) the educational institution 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. The records of the case showed that the foundation’s
operation is not for profit, but in pursuit of its primary purpose which is “to
establish a school xxx the primary intention being to form the whole man
through the integration of a liberal Christian education with professional
competence for participation in Philippine development.”

HELD:

The tax exemption expressly granted by the 1987 Constitution, the supreme law of
the land, cannot be set aside by any statute, especially by a mere technicality in
procedure. While payment of docket fee and other legal fees within the thirty (30)-
day reglementary period to appeal a tax assessment to the CTA is mandatory and
jurisdictional, this Court will not hesitate to exercise its equity jurisdiction and allow
a liberal interpretation of the rules of procedure if a rigid application will defeat
substantial justice.

This Court has ruled in the past that if a rigid application of the rules of procedure
will tend to obstruct rather than serve the broader interests of justice and
depending on the prevailing circumstances of the case, such as where strong
considerations of substantive justice are manifest ill the petition, the Court may
relax the strict application of the rules of procedure in the exercise of its equity
jurisdiction.

Evidently, petitioner Foundation, being a non-stock, non-profit educational

institution, is not liable to the payment of VAT deficiency assessment, and the
CTA En Banc erred in finding otherwise and in reversing the CTA Division.

WHEREFORE, premises considered, the petition is GRANTED. The assailed

Decision dated April 19, 2012 and Resolution promulgated on July 17, 2012 of
the Court of Tax Appeals En Banc in C.T.A. EB Case No. 703
are ANULLED and SET ASIDE. Assessment Notice No. 33-FY 05-31-02 for
fiscal year ending May 31, 2002 against petitioner La Sallian Educational
Innovators Foundation (De La Salle University-College of St. Benilde), Inc. for
deficiency income tax in the amount of ONE HUNDRED TWENTY-TWO
MILLION FOUR HUNDRED FOURTEEN THOUSAND FIVE HUNDRED
TENTY-ONE PESOS & 70/100 (P122,414,521.70) is hereby CANCELLED.

ABRA VALLEY COLLEGE vs Aquino

Facts:

Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the
“Notice of Seizure’ and the “Notice of Sale” of its lot and building located at Bangued, Abra, for
non-payment of real estate taxes and penalties amounting to P5,140.31. Said “Notice of Seizure”
by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for
the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. The trial court ruled for the government, holding that the second floor of the
building is being used by the director for residential purposes and that the ground floor used and
rented by Northern Marketing Corporation, a commercial establishment, and thus the property is
not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner
availed of the instant petition for review on certiorari with prayer for preliminary injunction before
the Supreme Court, by filing said petition on 17 August 1974.

Issue:

Whether or not the lot and building in question are used exclusively for educational
purposes.

Held:

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants
exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or
educational purposes.ﾝ Reasonable emphasis has always been made that the exemption extends
to facilities which are incidental to and reasonably necessary for the accomplishment of the main
purposes. The use of the school building or lot for commercial purposes is neither contemplated
by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the
Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental
to the purpose of education. The test of exemption from taxation is the use of the property for
purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact that the
ground floor is being used for commercial purposes (leased) and the second floor being used as
incidental to education (residence of the director).

Lung Center of the Philippines vs. QC

Facts:

Lung Center of the Philippines is a non-stock and non-profit hospital. 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.
The petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the government.
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. The QC-
LBAA rendered judgment dismissing the petition and holding the petitioner liable for
real property taxes.

ISSUE:

Whether 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; and (b) whether the real properties of the petitioner are
exempt from real property taxes.

HELD:

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.

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 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.45 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. PARTIALLY GRANTED
MANDANAS Et Al vs EXECUTIVE SECRETARY

Facts:

G.R. No. 199802 (Mandanas, et al.) is a special civil action for certiorari, prohibition
and mandamus assailing the manner the General Appropriations Act (GAA) for FY
2012 computed the IRA for the LGUs.

The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA),
has been regularly released to the LGUs. According to the implementing rules and
regulations of the LGC, the IRA is determined on the basis of the actual collections
of the National Internal Revenue Taxes (NIRTs) as certified by the Bureau of Internal
Revenue (BIR). Fiscal autonomy means that local governments have the power to
create their own sources of revenue in addition to their equitable share in the
national taxes released by the National Government, as well as the power to allocate
their resources in accordance with their own priorities. 1 Such autonomy is as
indispensable to the viability of the policy of decentralization as the other.

Issue:

Whether or not the local government has the right for the automatic release of just
share from the national taxes is constitutional.

Held:

The foregoing constitutional provisions share two aspects. The first relates to the
grant of fiscal autonomy, and the second concerns the automatic release of
funds. 78 The common denominator of the provisions is that the automatic release
of the appropriated amounts is predicated on the approval of the annual
appropriations of the offices or agencies concerned.

Directly contrasting with the foregoing provisions is Section 6, Article X of the 1987
Constitution because the latter provision forthrightly ordains that the "(l)ocal
government units shall have a just share, as determined by law, in the national
taxes which shall be automatically released to them." Section 6 does not
mention of appropriation as a condition for the automatic release of the just share
to the LGUs. This is because Congress not only already determined the just
share through the LGC's fixing the percentage of the collections of the NIRTs to
constitute such fair share subject to the power of the President to adjust the same
in order to manage public sector deficits subject to limitations on the adjustments,
but also explicitly authorized such just share to be "automatically released" to the
LGUs in the proportions and regularity set under Section 28579 of the LGC without
need of annual appropriation. To operationalize the automatic release without
need of appropriation, Section 286 of the LGC clearly provides that the automatic
release of the just share directly to the provincial, city, municipal or barangay
treasurer, as the case may be, shall be "without need of any further action," viz.:

Section 286. Automatic Release of Shares. - (a) The share of each local
government unit shall be released, without need of any further action;
directly to the provincial, city, municipal or barangay treasurer, as the case
may be, on a quarterly basis within five (5) days after the end of each
quarter, and which shall not be subject to any lien or holdback that may be
imposed by the National Government for whatever purpose. x x x (Bold
emphasis supplied)

The 1987 Constitution is forthright and unequivocal in ordering that the just
share of the LGUs in the national taxes shall be automatically released to them.
With Congress having established the just share through the LGC, it seems to be
beyond debate that the inclusion of the just share of the LGUs in the annual GAAs
is unnecessary, if not superfluous. Hence, the just share of the LGUs in the
national taxes shall be released to them without need of yearly appropriation.

COMMANDS the AUTOMATIC RELEASE WITHOUT NEED OF FURTHER

ACTION of the just shares of the Local Government Units in the national taxes,
through their respective provincial, city, municipal, or barangay treasurers, as the
case may be, on a quarterly basis but not beyond five (5) days from the end of each
quarter, as directed in Section 6, Article X of the 1987 Constitution and Section 286
of Republic Act No. 7160 (Local Government Code), and operationalized by Article
383 of the Implementing Rules and Regulations of RA 7160.