HILADO V.

CIR

Nature of Internal Revenue Law

Facts: Emilio Hilado claims P12,837.65 as a deductible item from his gross income as a loss due to his war damage
claim pursuant to General Circular No. V-123. Meanwhile, the Sec. of Finance issued G.C. No. V-139, revoking and
declaring void G.C. No. V-123. The CIR disallowed the deduction and demanded from him P3,546 as deficiency
income tax. The Court sustained the CIR and CTA ruling denying the deductions. Petitioner also argued that there
was no taxable year during the war.

Held: CIR and CTA are correct. The deductible being claimed by Hilado would be a proper deduction from his 1950
gross income, as the last installment he received from the War Damage Commission was in 1950. National internal
revenue laws continued during the war period, as Internal Revenue Laws are political in nature, and deemed to be
laws of the occupied territory and not the occupying enemy. The Court also held that the Sec. of Finance was vested
with powers to revoke, repeal or abrogate the acts or previous rulings, and that the petitioner did not obtain any
vested right from the previous Circular. Philippine Internal Revenue Laws are not political in nature and as such
were continued in force during the period of enemy occupation and in effect were actually enforced by the
occupation government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying
enemy.

SISON v ANCHETA

Facts: Antero Sison, in his capacity as a taxpayer, alleged that BP 135, Sec. 1 is arbitrary, oppressive and capricious
in character as it unduly discriminates between those earning a fixed income and those who are not. He argues that
the said provision violates the due process and equal protection clause of the Constitution as well as the rule
requiring uniformity in taxation. BP 135, was enacted, stating that the Section 1 of which amended Section 21 of the
National Internal Revenue Code of 1977 by imposing higher tax rates on net income (such as income arising from
the exercise of a profession) than on compensation income (fixed income or salaries).

Held: The petition is dismissed and the Court held upheld the validity of the tax statute. Antero Sison failed to show
how the classification made by the tax statute was arbitrary and unreasonable. The differences in deductible items in
income warrants the different classification between the two in terms of the tax rate to be imposed. Furthermore, the
Court opined that the power to tax “is an attribute of sovereignty and is the strongest of all the powers of the
government”. While the power to tax is not unconfined and is restricted by inherent and Constitutional limitations,
the power to tax is an inherent prerogative that has to be availed of to assure the performance of vital state functions.