SECOND DIVISION 2 units Grindex Sub Type Pump 140,518.

35
6 units K/Worth C500 Truck Mixer 1,690,054.60
[G.R. No. 80276 : December 21, 1990.] 1 unit Putamesitor 201,863.77
6 units Sullair Air Comp. 588,940.53
2 units Well Air Driven Grout 20,582.40
192 SCRA 604
10 units Stancom VHF Radio Tran. 32,537.70
4 units Cummins 1,055,209.20
HYDRO RESOURCES CONTRACTORS CORPORATION, Petitioner, vs. THE COURT OF TAX APPEALS
and THE HON. DEPUTY MINISTER OF FINANCE, ALFREDO PIO DE RODA, Respondents.
By the terms of the contract (quoted earlier) NIA undertakes payment of all th e import duties and taxes
incident to the importations deductible from the proceeds of the contract price. HYDRO shall repay NIA in
This is a special civil action of Certiorari instituted by petitioner Hydro Resources Contractors Corporation full the value of the construction equipment o ut of the same proceeds before eventual transfer or taking
against respondents Court of Tax Appeals and Deputy Minister of Finance which seeks to set aside the ownership of subject construction equipment upon termination of the contract.
decisions of both public respondents holding petitioner liable for a 3% ad valorem duty in the amount of
P281,591.00.
NIA reneged and failed in the compliance of its tax obligations. In the meantime, HYDRO had fully repaid
the value of the construction equipment in the amount of P14,537,783.63 (US$1,991,477.21) so much so
It appears that the National Irrigation Administration (referred to hereinafter as NIA for brevity) a that on December 6, 1982 and March 24, 1983, NIA executed deeds of sale covering the same and
government owned and controlled corporation, entered into an agreement, sometime in August 1978, with transferring the ownership thereof in favor of petitioner.
petitioner Hydro Resources Contractors Corporation (Hydro for short), for the construction of the Magat
River Multipurpose Project in Isabela.
Upon the transfer of the ownership of the said equipment HYDRO was assessed by the Bureau of Customs
the corresponding customs duty and compensating tax, respectively, as follows:
Under the aforesaid contract, designated as Contract No. MPI-C-1, petitioner was allowed to procure new Customs Duty — P1,214,010.00
construction equipment, spare parts and tools from abroad, the payment for which was advanced by NIA
Compensating Tax — 1,089,368.63
under a financing plan embodied in the contract, as follows:
——————
a) Procurement — Petitioner is required to submit to NIA for approval a list of ne w construction
P2,303,378.63
equipment, spare parts and tools which it intends to acquire from abroad. Petitioner shall procure these
=========
items as an agent of NIA as all invoices shall be in the name of said government agency. NIA undertakes
to pay all import taxes, duties and all fees, imposts and other charges that may be due on said
This amount was paid by HYDRO to the Bureau of Customs.
importations.: nad
b) Ownership and delivery — The equipment and spare parts imported from abroad shall be owned by
NIA and delivered to its construction site in Isabela. In addition, HYDRO was assessed additional 3% ad valorem duty in the amount of P281,591.00 prescribed
c) Repayment — Petitioner shall repay NIA the costs of the above procurement and the manner of in Executive Order 860. HYDRO also paid this amount but this time under protest.:-cralaw
repayment shall be through deductions from each monthly or periodic progress payment due to The Collector of Customs acted favorably on petitioner's protest and ordered the refund of the amount
petitioner. paid for the ad valorem duty in the form of tax credit, ruling that —
d) Transfer of Ownership — Ownership shall be transferred to petitioner only upon complete payment "The foregoing scheme entered into between NIA and HYDRO had generated a cont ract and it will be
of the costs above mentioned. unfair to involve new proposal as in the imposition of 3% additional duty ad valorem which was not
obtaining at the time of the agreement nor at the time of a rrival and release of the shipment from the
piers. For one thing, the scheme may be viewed in the same light as sales of commodities to be
The equipment imported by NIA in 1978 and 1979 for Hydro's use are —
delivered at some future date, whose price or prices at the time of delivery may be way above or
below the sale price or prices. For another thing, HYDRO may not be deprived of rights vested befo re
DESCRIPTION OF EQUIPMENT NET BOOK VALUE the promulgation of Executive Order 860 prescribing 3% additional duty ad valorem." (p. 22, Rollo)
1 Tamrock Hyd. Jumbo Drill
Ser. #18153 P1,566,116.55
The Acting Commissioner of Customs affirmed the ruling of the Collector of Customs. In his 2nd
3 units Cat Drill Toyo TYPR 120 278,264.25
Indorsement dated June 25, 1984, (p. 25, Rollo) Acting Commissioner Ramon Farolan stated —
1 unit Tamrock Hyd. Drill
"This Office shares the view of the Collector of Customs to the effect that the various equipment and
16 units Air Leg Drills Toyo 1,493,834.29
parts in question which the National Irrigat ion Administration imported in 1978 and 1979 and
1 unit Toyo Reinforcing Bar 12,000.92
subsequently sold to Hydro Re sources Construction Corporation by virtue of a previous agreement, are
3 units Toyo TYCD 10 CY Cralwer 265,421.35
subject to duties and taxes but not the additional 3% ad valorem duty under Executive Order No. 860
2 units Scheele K-60 Pump 624,772.80
which took effect only on December 21, 1982. Moreover, the Deputy Minister of Financ e, in his 1st
2 units New Reed Gun Mdl. IAS 67,349.90
Indorsement to the Central Bank dated March 26, 1983, which was then reproduced by the Central Bank
1 unit Prota Tunnel Profile 43,340.26
Governor in a circular letter to all authorized agent banks, cla rified to all authorized agent banks, clarified
2 units Wild Theodolite Surveying Equipment 28,545.93
that —
1 unit Toyo Mud Sub Pump 201,108.01
2 units Aichi Skymaster Truck mounted Boom 93,622.78

1
 Letters of Credit opened prior to the effectivity of P.D. 1853 and E.O. 860 are not subject to the
provisions thereof even if they are amended after the effectivity thereof.
These findings of the Collector of Customs as well as the Acting Customs Commissioner were reversed by
the Deputy Minister of Finance.
Petitioner appealed to the Court of Tax Appeals but in its Decision dated May 22, 1987, the said court
(with a dissenting opinion) affirmed the ruling of the Deputy Minister of Finance denying petitioner's claim
for refund.
Hence, the present recourse, after petitioner's motion for reconsideration was denied.
In this petition, Hydro presents the following issues —
I. THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION IN REFUSING TO CONSIDER THE FACT THAT THE SALE OF THE NIA -
FINANCED EQUIPMENT TOOK PLACE IN 1978.
II. THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION IN APPLYING EXECUTIVE ORDER NO. 860 RETROACTIVELY.
III. THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OF IN EXCESS OF ITS JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION IN FAILING TO CONSIDER THAT THE IMPOSITION OF THE 3% AD
VALOREM TAX ON IMPORTATIONS MADE PRIOR TO ITS ISSUANCE IS VIOLATIVE OF THE
CONSTITUTION.
IV. THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OF IN EXCESS OF ITS JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION IN IMPOSING THE AD VALOREM TAX SANS STATUTORY AND LEGAL
BASIS.
The petition is meritorious.
Executive Order No. 860 which was the basis for the imposition of the 3% ad valorem duty upon the said
importations, took effect on December 21, 1982. The importations were effected in 1978 and 1979 by
NIA. Nonetheless, respondent Court of Tax Appeals denied petitioner's claim for refund becau se —
"When NIA transferred the equipment in question supposedly 'after its (HYDRO's) use for a number of
years', it cannot be doubted that these equipment were sold and trans ferred presumably 'several years'
after the equipment's importation in 1978 and 1979. It is obvious therefore that the sale or transfer of
the ownership of the equipment to petitioner HYDRO were unquestionably made after the effectivity of
PD 882 on January 20, 1976, undisputably said sale or transfer thereof was (sic) governed by Secti on 4
of PD 882 and was correctly applied by respondent. We take particular note of the fact that we cannot
pinpoint with definiteness or exactitude from the evidence, when or what years after the years 1978 and
1979 importations were the equipment sold or transferred by NIA to petitioner HYDRO so that we can
determine outright whether the sale or transfers are covered by the mandatory provision of Executive
Order 860 effective on December 21, 1982 imposing 3% additional ad valorem duty on such
importations. Such that if the sale or transfer of the ownership of the equipment were effected to
petitioner HYDRO after December 21, 1982, the effective date of Executive Order No. 860, the 3% ad
valorem duty is imposable as said Executive Order 860 was applied prosp ectively and rightly. If the sale
or transfer of the ownership of the equipment to HYDRO were (sic) prior to the effectivity of Executive
Order No. 860, then said Executive Order 860 is inapplicable, and petitioner is not liable to pay the 3%
ad valorem duty of P281,591.00 and is entitled to the refund thereof.
As a rule and principle, it was incumbent upon petitioner-taxpayer HYDRO to have shown that the sale or
transfer of said equipment to it were made before December 21, 1982, when the Executive Order N o. 860
2
was effective in order that it shall not be subject to the imposition of 3% additional ad valorem duty.
Failing thus, its claim for refund in the amount of P281,591.00 unquestionably fails." (pp. 37-38; Rollo).:-
The foregoing conclusion is erroneous. The subsequent executions of the Deeds of Sale of the equipment
in question on December 6, 1982 and March 24, 1983 are not relevant and material in the consideration
of the application of Executive Order No. 860 because said Deeds of Sale were mere form alities in the
implementation of Contract No. MPI-C-1 executed on August 1978, which should be reckoned and
construed as the actual date of sale. This must be so because the contract of purchase and sale of the
NIA-financed/owned equipment to Hydro took pl ace in 1978 when Contract No. MPI-C-1 was signed by
NIA and HYDRO wherein the contracting parties provided for their financing, procurement, delivery,
repayment, transfer of possession and ownership. The said scheme contemplated a Contract of Sale
within the purview of Art. 1458 of the Civil Code which provides —
"Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay thereafter a price certai n in
money or its equivalent.
"A contract of sale may be absolute or conditional." (p. 11, Rollo)
This view is shared by the Collector of Customs in his decision when he declared that there being a meeting
of the minds between NIA and HYDRO upon the object of the contract of sale and upon the price, the
contract of sale of the equipment between them was perfected in 1978. It is a perfected contract of sale
subject to a suspensive condition, the full payment by HYDRO of the consideration for the subject of t he
contract is the operative act to compel NIA to effect the transfer of absolute ownership thereof to HYDRO.
And under Art. 1187 of the Civil Code, the effectivity of said contract reverts back to the constitution of
the contract, in this case August 1978.
"ART. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obliga tion." (p. 12, Rollo)
It is a cardinal rule that laws shall have no retroactive effect, unless the contrary is provided. (Art. 4, Civil
Code) Except for a statement providing for its immediate execution, Executive Order No. 860 does not
provide for its retroactivity. Moreover, the Deputy Minister of Finance in his 1st Indorsement to the Central
Bank dated March 26, 1983 which was reproduced by the Central Bank Governor in a circular letter to all
authorized agent banks, clarified that letters of credit open ed prior to the effectivity of E.O. 860 are not
subject to the provisions thereof. Consequently, the importations in question which arrived in 1977 and
1978 are not subject to the 3% additional ad valorem duty, the same being imposed only on those whose
letter of credit were opened after the promulgation of Executive Order 860. In this regard Judge Alex
Reyes in his dissenting opinion correctly observed —
"Let it suffice that the procurement of the equipment, as earlier stated, was not on a tax exempt basis
as the import liabilities thereon have been secured to be paid under the terms of the financia l scheme
in the contract. The formality of vesting of title over the equipment was not an unwarranted expectation
but a matter of an implementation of a pre -existing agreement, hence, the imported articles can only
be subject to the rates of import duties/taxes prevailing at the time of entry or withdrawal from customs'
custody (Sec. 205, TCC) in 1978 and 1979, thus foreclosing any retroactive application of the 1 982
Executive Order.:-cralaw
"Taken in the above light, it would be unfair and incongruous to h old petitioner to an additional levy
sans any statutory basis. The majority could have fumbled into a precipitate action in taking an adverse
position on petitioner's right to a refund." (pp. 44-45, Rollo)
IN VIEW OF THE FOREGOING CONSIDERATIONS, the petit ion is GRANTED; the assailed Decisions of
respondents Court of Tax Appeals and Deputy Minister of Finance are SET ASIDE and another one rendered
ordering the refund of the amount of P281,591.00 representing 3% additional ad valorem duty to
petitioner Hydro Resources Contractors Corporation in the form of tax credit.
G.R. No. L-29485 November 21, 1980
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
AYALA SECURITIES CORPORATION and THE HONORABLE COURT OF TAX APPEALS, respondents.
TEEHANKEE, J.:
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration of the Court's
decision of April 8, 1976 wherein the Court affirmed in t oto the appealed decision of respondent Court of
Tax Appeals, the dispositive portion of which provid es as follows:
WHEREFORE, the decision of the respondent Commissioner of Internal Revenue assessing petitioner the
amount of P758,687.04 as 25% surtax and interest is reversed. Accordingly, said assessment of
respondent for 1955 is hereby cancelled and declared of no force and effect, Without pronouncement as
to costs.
This Court's decision under reconsideration held that the assessment made on February 21, 1961 by
petitioner against respondent corporation (and received by the latter on March 22, 1961) in t he sum of
P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending September 30, 1955 fell under the
five-year prescriptive period provided i n section 331 of the National Internal Revenue Code and that the
assessment had, therefore, been made after the expiration of the said five -year prescriptive period and
was of no binding force and effect .
Petitioner has urged that
A perusal of Sections 331 and 332(a) will reveal that they refer to a tax, the basis of which is required
by law to be reported in a return such as for example, income tax or sales tax. However, the surtax
imposed by Section 25 of the Tax Code is not one such tax. Accumulated surplus are never returned for
tax purposes, as there is no law requiring that such surplus be reported in a return for purposes of the
25% surtax. In fact, taxpayers resort to all means and devices to cover up the fact that they have
unreasonably accumulated surplus.
Petitioner, therefore, submits that
As there is no law requiring taxpayers to file returns of their accumulated surplus, it is obvious that
neither Section 33 nor Section 332(a) of the Tax Code applies in a case involving the 25% surtax imposed
by Section 25 of the Tax Code. ...
Petitioner cites the Court of Tax Appeals' ruling in the earlier ca se of United Equipment & Supply Company
vs. Commissioner of Internal Revenue (CTA Case No. 1795, October 30, 1971) which was appealed by
petitioner taxpayer to this Court in G. R. No. L-35653 bearing the same title, which appeal was denied by
this Court en banc for lack of merit as per its Resolution of October 25, 1972, In said case, the tax court
squarely ruled that the provisions of sections 331 and 332 o f the National Internal Revenue Code for
prescriptive periods of five 5 and ten (10) years after the filing of the return do not apply to the tax on
the taxpayer's unreasonably accumulated surplus under section 25 of the Tax Code since no return is
required to be filed by law or by regulation on such unduly ac cumulated surplus on earnings, reasoning
as follows:
In resisting the assessment amounting to P10,864.26 as accumulated earnings tax for 1957, petitioner
also invoked the defense of prescription against the right of respondent to assess the said tax. It is
contended that since its income tax return for 1957 was filed in 1958, and with the clarification by
respondent in his letter dated May 14, 1963, that the amount sought to be collected was petitioner's
surtax liability under Section 25 rather than deficiency corporate income tax under Section 24 of the
National Internal Revenue Code, the assessment has already prescribed under Section 331 of the same
Code.
Section 331 of the Revenue Code provides:
3
SEC. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collect ion of such taxes shall be begun after the
expiration of such period. For the purpose of this section a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day; Provided, That this limitation shall
not apply to cases already investigated prior to the approval of this Code.
Obviously, Section 331 applies to, assessment of National Internal Revenue Taxes which requires the
filing of returns. A return, the filing of which is necessary to start the running of tile five-year period for
making an assessment, must be one which is required for the particular tax. Consequently, it has been
held that the filing of an income tax return does not start the running of the statute of limitation for
assessment of the sales tax. (Butuan Sawmill, Inc. v. Court of Tax Appeals, G.R. No. L-20601, Feb. 28,
1966, 16 SCRA 277).
Although petitioner filed an income tax return, no return was filed covering its surplus profits which were
improperly accumulated. In fact, no return could have been filed, and the law could not possibly require,
for obvious reasons, the filing of a return covering unreasonable accumulation of corporate surplus
profits. A tax imposed upon unreasonable accumulation of surplus is in the nature of a penalty.
(Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law to co mpel a
corporation to report improper accumulation of surplus. Accordingly, Section 331 limiting the right to
assess internal revenue taxes within five yea rs from the date the return was filed or was due does not
apply.
Neither does Section 332 apply. Said Section provides:
SEC. 332 Exceptions as to period of limitation of assessment and collection of taxes .— (a) In the case
of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the falsity, fraud, or omission.
(b) Where before the expiration of the time prescribed in the preceding section for the assessment of
the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its
assessment after such time, the tax may be assessed at any time prior to the expiration of the period
agreed upon. The period so agreed upon may be extende d by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
(c) Where the assessment of any i nternal revenue tax has been made within the period of limitation
above-prescribed such tax may be collected by distraint or levy by a proceeding in court, but only if
begun (1) within five years after the assessment of the tax, or (2) prior to the expirat ion of any period
for collection agreed upon in writing by the Commissioner of Internal Revenue and the taxpayer before
the expiration of such five -year period. The period so agreed upon may be extended by subsequent
agreements in writing made before the e xpiration of the period previously agreed upon.
It will be noted that Section 332 has reference to national internal revenue taxes which require the filing
of returns. This is implied, from the provision that the ten -year period for assessment specified therein
treats of the filing of a false or fraudulent return or of a failure to file a return. There can be no failure
or omission to file a return where no return is required to be filed by law or by regulation. It is, therefore,
our opinion that the ten-year period for making in assessment under Section 332 does not apply to
internal revenue taxes which do not require the filing of a return.
It is well settled limitations upon the right of the government to assess and collect taxes will not be
presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond which
the government may recover unpaid taxes is purely dependent upon some express statutory provision,
(51 Am. Jur. 867; 10 Mertens Law of Federal Income Taxation, par. 57. 02.). It follows that in the
 absence of express statutory provision, the right of the government to assess unpaid t axes is
imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner of
Internal Revenue to assess the tax on unreasonable accumulation of surplus provided in Section 25 of
the Revenue Code, said tax may be assessed at any time. (Emphasis supplied)
Such ruling was in effect upheld by this Court en banc upon its dismissal of the taxpayer's appeal for lack
of merit as above stated.
The Court is persuaded by the fundamental principle invoked by petitioner that limitatio ns upon the right
of the government to assess and collect taxes will not be presumed in the absence of clear legislation to
the contrary and that where the government has not by express statutory provision provided a limitation
upon its right to assess unpaid taxes, such right is imprescriptible.
The Court, therefore, reconsiders its ruling in its decision under reconsideration that the ri ght to assess
and collect the assessment in question had prescribed after five years, and instead rules that there is no
such time limit on the right of the Commissioner of Internal Revenue to assess the 25% tax on
unreasonably accumulated surplus provided in section 25 of the Tax Code, since there is no express
statutory provision limiting such right or providing for its p rescription. The underlying purpose of the
additional tax in question on a corporation's improperly accumulated profits or surplus is as set forth in
the text of section 25 of the Tax Code itself 1 to avoid the situation where a corporation unduly retains its
surplus instead of declaring and paving dividends to its shareholders or members who would then have to
pay the income tax due on such dividends received by them. The record amply shows that respondent
corporation is a mere holding company of its shareholders through its mother company, a registe red co-
partnership then set up by the individual shareholders belonging to the same family and that the prima
facie evidence and presumption set up by the Tax Code, therefore applied without having been adequately
rebutted by the respondent corporation.
Thus, Mr. Lamberto J. Cabral, the accountant of the corporation, testified before the court as follows:
Atty. Garces: The investigation, Your Honor, shows that for the year 1955, the Ayala Securities
Corporation had 175,000 outstanding shares of stock and ou t of these shares of Ayala Securities
Corporation, the Ayala and Company owned 174,996 shares of stock.
Q. Is that right, Mr. Cabral?
Atty. Ong: Objection, Your Honor, on the materiality of the question.
Judge Alvarez: What is the materiality of the question?
Atty. Garces: We want to prove to this honorable Court that Ayala Securities Corporation is a holding or
investment company, the parent company being Ayala and Company.
Judge Alvarez: Witness may answer.
A. I think so; yes.
Q. And Ayala and Company's owned almost wholly by the Zobel Family and the Ayala Family?
Atty. Ong: If Your Honor please, objection again on the mat eriality. What would counsel for the
respondent prove on this point?
Atty. Garces: Same purpose, Your If Honor to prove that Ayala Securities corporation is a mere
investment or holding company
Atty. Ong: What is the materiality of the case if it is a mere investment company. In fact, we are here
in court to prove the reasonableness or unreasonableness of the accumulation of profit. I think counsel
for the respondent is trying to harp on presumption; but actually we will not be delving on presumption
but on actual facts proving the reasonableness of the accumulation based on actual evidence.
Judge Alvarez: In order to determine the re asonableness or unreasonableness, there must be a basis.
witness will have to answer the question.
A. Yes.
Q. As of September 30, 1955 when the Ayala Securities Corporation tiled its income tax return, were
the officers of the Ayala Securities Corporation and the Ayala and Company housed in the same building?
A. Yes, sir; they were.
4
Q. And also are the employees of the Ayala Securities corporation and the Ayala and Company the same
- meaning that the employees of the Ayala Securities Corporation are also the employees of the Ayala
and Company?
A. At the time, if I remember right, Ayala and Company was the operating company and the employees
were the employees of the Ayala and Company; (t.s.n., pp. 32-37).
Another witness, Mr. Salvador J. Lorayes the Secretary and head of the Legal Department of the
corporation, also testified that:
Judge Alvarez questions
Q. May we know from you whether Ayala Securities corporation is an affiliate of Ayala and Company?
A. Yes, Your honor.
Q. Do we understand from you that Ayala and Company is the mother corporation of this affiliate?
A. That is correct.
Q. And that the policy of Ayala Securities Corporation is practically governed by the officers or partners
of Ayala and company
A. They have a strong influence over the policy of Ayala Securities Corporation.
Q. So that whatever is decided by the partners of Ayala and Company for a certain investment or project
would also be followed by Ayala Securities Corporation?
A. If the project is assigned to Ayala Securities Corporation it will be followed by Ayala Securities
Corporation; if to another affiliate, no (t.s.n., pp. 149-150). ...
Respondent corporation was therefore fully shown to fall under Revenue Regulation No. 2 implementing
the provisions of the income tax law which provides on holding and investment companies that
SEC. 20. Holding and Investment Companies. — A corporation having practically no activities except
holding property, and collecting the income therefrom or investing therein, shall be considered a holding
company within the meaning of section 25.
Petitioner commissioner's plausible alternative contention is that even if the 25% surtax were to be
deemed subject to prescription, computed from the filing of the income tax return in 1955, t he intent to
evade payment of the surtax is an inherent quality of the violation and the return filed must necessarily
partake of a false and/or fraudule nt character which would make applicable the 10-year prescriptive period
provided in section 332(a) of the Tax Code and since the assessment was made in 1961 (the sixth year),
the assessment was clearly within the 10-year prescriptive period. The Court see s no necessity, however,
for ruling on this point in view of its adherence to the ruling in the earlier raise of United Equipment &
Supply Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive period.
ACCORDINGLY, the Court's decision of April 8, 1976 is set aside and in lieu thereof, judgment is hereby
rendered ordering respondent corporation to pay the assessment in the sum of P758,687.04 as 25% surtax
on its unreasonably accumulated surplus, plus the 5% surcharge and 1% mon thly interest thereon,
pursuant to section 51 (e) of the National Internal Revenue Code, as amended by R. A. 2343. With Costs.
G.R. No. L-26521 December 28, 1968
Rooming house of mixed materials P5.00 per door p.a.
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
III. Tenement house partly or wholly engaged in or dedicated to
CITY OF ILOILO, defendants-appellants.
business in the following streets: J.M. Basa, Iznart, Aldeguer,
Pelaez, Jalandoni and Jamir for plaintiff-appellees. Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.
Assistant City Fiscal Vicente P. Gengos for defendant -appellant.

CASTRO, J.: IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring
illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons
Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs- V. Tenement houses at the streets surrounding the super
appellees the sums of collected from them under the said ordinance. market as soon as said place is declared commercial P24.00 per door p.a.

On September 30, 1946 the municipal board of Iloil o City enacted Ordinance 86, imposing license tax fees
as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly
engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment;
(3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The
validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and
Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City
of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the
ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among
those clearly and expressly granted to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to
enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11,
series of 1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN T HE BUSINESS OF
OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No.
2264, otherwise known as the Autonomy Law of Local Government, that:
Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with the
schedule of payment herein provided.
Section 2. — Tenement house as contemplated in this ordinance shall mean any building or dwe lling
for renting space divided into separate apartment s or accessorias.
Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials P20.00 per door p.a.
(b) Apartment house made of mixed materials P10.00 per door p.a.
II Rooming house of strong materials P10.00 per door p.a.
Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. — Any person found violating this ordinance shal l be punished with a fine note exceeding
Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the
discretion of the Court.
Section 6 — This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S.
Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street
and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second
floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment b uildings
for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not
impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and
Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian
Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960 -1964, the sum of P1,317.00.
Eusebio Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of
1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to
enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving
said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund
the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds
that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is
"oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay
the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the r ule of uniformity
of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes ?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

5
1. The pertinent provisions of the Local Autonomy Act are hereunder quote d:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged
in any occupation or business, or exercising p rivileges in chartered cities, municipalities or municipal
districts by requiring them to secure licences at rates fixed by the municipal board or city council of the
city, the municipal council of the municipality, or the municipal district council of the municipal district;
to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate
and impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to levy for
public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon
nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National
Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription
and sale, and which is not published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light,
heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national government,
tonnage, and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance
companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall
provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend
the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion,
the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the
said Secretary exercises this authority the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal council or
municipal district council in the case of municipalities or municipal districts may appeal the decision of
the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered
as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad
taxing authority which extends to almost "everything, excepting those which are mentioned therein,"
provided that the tax so levied is "for public purposes, just and uniform," and does no t transgress any
constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax, levied under the
authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the
same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio
alterius, and exceptio firmat regulum in casibus non excepti .
6
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section
2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The
appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax on persons
engaged in any occupation or business or exercisi ng privileges," or a license tax, or a privilege tax, or an
excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons
engaged in the business of operating tenement houses," while section 1 thereof states that a
"municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which
the appellees base their contention that the tax involved is a real estate tax which, according to them,
makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax
allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment
Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City
Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements
thereon, not specially exempted,8 and is payable regardless of whether the property is used or not,
although the value may vary in accordance with such factor. 9 The tax is usually single or indivisible,
although the land and building or improvements erected thereon are assessed separately, except when
the land and building or improvements belong to separate owners. 10 It is a fixed proportion 11 of the
assessed value of the property taxed, and requires, therefore, the interven tion of assessors.12 It is
collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against
the property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question d oes not possess the aforestated attributes. It is not a tax
on the land on which the tenement houses are erected, although both land and tenement houses may
belong to the same owner. The tax is not a fixed prop ortion of the assessed value of the tenement houses,
and does not require the intervention of assessors or appraisers. It is not payable at a designated time or
date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore,
the tax in question is not a real e state tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks
less to its words and more to the context, subject -matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the letter thereof, while that which is in
the letter, although not within the spirit, is not within the ordinance." 15 It is within neither the letter nor
the spirit of the ordinance that an additional real estate tax i s being imposed, otherwise the subject-matter
would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance
that the intention is to impose a license tax on the operation of tenement houses, which is a form of
business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof,
designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction
on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a
privilege."16.
"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute
creating it, but such words must be taken in the connection in which they are use d and the true character
is to be deduced from the nature and essence of the subject."17 The subject-matter of the ordinance is
tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement
house as "any building or dwelling for renting space divided into separate apartments or accessorias."
The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house 18 as "any house or building, or portion thereof, which
is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families
or more living independently of each other and doing their cooking in the premises or by more than two
families upon any floor, so living and cooking, but having a common right in the halls, stairways, ya rds,
water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease
 by their very nature and essence, therefore constitute a distinct form of business or calling, similar to
the hotel or motel business, or the ope ration of lodging houses or boarding houses. This is precisely one
of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra,
declared Ordinance 86 ultra vires, because, although the municipal board of Il oilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants,
refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses,
pawnshops, theaters, cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the
aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one among those clearly
and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed
and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those
belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment
tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act.
On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business
of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provi des that
chartered cities have the authority to impose municipal license ta xes or fees upon persons engaged in any
occupation or business, or exercising privileges within their respective territories, and "otherwise to levy
for public purposes, just and uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of
the National Internal Revenue Code, besides the tenement tax under the said ordinanc e." Obviously, what
the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in
section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing
or renting property, whether on their account as principals or as owners of rental property or properties,"
20
are considered "real estate dealers" and are taxed according to the amount of their annual inc ome. .
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes
and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well -settled
rule that a license tax may be levied upon a business or occupation although the land or property used in
connection therewith is subject to property tax. The State may collect an ad valorem tax on property used
in a calling, and at the same time impose a li cense tax on that calling, the imposition of the latter kind of
tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same property must
be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the
same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or
character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the
ordinance, although imposed by the sametaxing authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against do uble taxation in the Philippines.24 It is
something not favored, but is permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform."25.
7
3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only
oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if
the owner or owners of the tenement buildings divided into apartments do not pay the t enement or
apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement
houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower
court apparently had in mind, when i t made the above ruling, the provision of the Constitution that "no
person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that "a
tax is not a debt in the sense of an obligation incurred by contract, express or i mplied, and therefore is
not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for
debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not,
in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed
amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without
regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question
is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed
a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each
offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of
the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising
various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its
violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and income taxes the
ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that
in the assessment of real estate tax all part s of the building or buildings are included so that the
corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or
owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will
violate the rule of uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity"
and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pa y taxes on
their tenement houses, while citizens of other cities, where their councils do not enact a similar tax
ordinance, are permitted to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court h as already ruled
that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform
and equal when imposed upon all property of the same class or character within the taxing
authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not
pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality
of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement
taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose
should be imposed in different territorial subdivisions at the same time. 32 So long as the burden of the tax
falls equally and impartially on all owners or operators of tenement houses similarly classified or situated,
equality and uniformity of taxation is accomplished. 33 The plaintiffs-appellees, as owners of tenement
houses in the City of Iloilo, have not shown that the tax burd en is not equally or uniformly distributed
among them, to overthrow the presumption that tax statutes are intended to operate uniformly and
equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a m ere
reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L -12695, supra,
as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case
or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no
identity of subject-matter in that case andthis case because the subject -matter in L-12695 was an
ordinance which dealt not only with tenement houses but also warehouses, and the said ord inance was
enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted
pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in
the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its
charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which
took effect on June 19, 1959, and therefore was not available for consideration in t he decision in L-12695
which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local
Autonomy Act, local governments may now tax any taxable subject -matter or object not included in the
enumeration of matters removed fro m the taxing power of local governments.Prior to the enactment of
the Local Autonomy Act the taxes that could be legally levied by local governments were only those
specifically authorized by law, and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint
is hereby dismissed. No pronouncement as to costs.
Footnotes
1
The record discloses that the delay caused in the lower court was due to the loss of t he original record
while the same was in the possession of the late Judge Perfecto Querubin. The record was later
reconstituted under Judge Ramon Blanco..
2
Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.: .
"Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance in question
comes under any of the foregoing exceptions. Hence, under th e rule - "expressio unius est exclusio
alterius", the ordinance should be deemed to come within the purview of the general rule. Indeed, the
sponsor of the bill, which upon its passage became Republic Act No. 2264, explicitly informed the House
of Representatives when he urged the same to approve it, that, under its provisions, local governm ents
would be "able to do everything, excepting those things which are mentioned therein." ..." .
C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per Castro, J.: .
"... Heretofore, we have announced the doctrine that t he grant of the power to tax to chartered cities
under section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those
which are mentioned therein," subject only to the limitation that the tax so levied is for "public purp oses,
just and uniform" (Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20,
1965). There is no showing, and we do not believe it is possi ble to show, that the tax levied, called by
any name - percentage tax or sales tax - comes under any of the specific exceptions listed in Section 2
of the Local Autonomy Act. Not being excepted, it must be regarded as coming within the purview of
the general rule. As the maxim goes, "Exceptio firmat regulum in casibus non excepti." Since its public
purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as
valid." (Re: Ordinance imposing a tax on sales or real e state property situated in the City of Iloilo, of
1/2% of 1% of the contract price or consideration.).
Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per Fernando, J.:
"In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963, to Hodges vs.
Mun. Board, L-18276, Jan. 12, 1967, such broad taxing authority has been implemented and vitalized
by this Court.
8
"... The question before this Court is one of power. From and after June 19, 1959, when t he Local
Autonomy Act was enacted, the sphere of autonomy of a chartered city in the en actment of taxing
measures has been considerably enlarged.
"... In the absence of a clear and specific showing that there was a transgression of a constitutional
provision or repugnancy to a controlling statute, an objection of such a generalized character deserves
but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the Local
Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer
suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing
tax on all productions of centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per picul,
etc.].
3
"Taxes on property are taxes assessed on all property or on all pro perty of a certain class located within
a certain territory on a specified date in proportion to its value, or in accordance with some other
reasonable method of apportionment, the obligation to pay which is absolute and unavoidable and it is not
based upon any voluntary action of the person assessed. A property tax is ordinarily measured by the
amount of property owned by the taxpayer on a given day, and not on the total amount owned by him
during the year. It is ordinarily assessed at stated periods deter mined in advance, and collected at
appointed times, and its payment is usually enforced by sale of the property taxed, and, occassionally, by
imprisonment of the person assessed." (51 Am. Jur. 57) .
"A "real estate tax" is a tax in rem against realty witho ut personal liability therefor on part of owner
thereof, and a judgment recovered in proceedings for enforcement of real estate tax is one in rem
against the realty without personal liability against the owner." (36 Words and Phrases, 286, citing Land
O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164, 171, 229 Minn. 263).
4
"The term "license tax" or "license fee" implies an imposition or exaction on the right to use or dispose
of a property, to pursue a business, occupation, or calling, or to exercise a privilege." (33 Am. Jur. 325-
v26) .
"The term "excise tax" is synonymous with "privilege tax", and the two are often used interchangeably,
and whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely
a choice of synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of
Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260 SW 144) .
"Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment
of a privilege, or the engaging in an occupation." (51 Am. Jur. 61) .
5
"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one per
centum on the assessed value of all real estate in the city subject to taxation shal l be levied by the city
treasurer..." .
6
Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the Assessment
Law. `.
`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied, assessed,
and collected an annual ad valorem tax on real property, including land, buildings, machinery and other
improvements not hereinafter specially exempted.".
9
51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property, and i s
payable regardless of whether the property is used or not, although of course the value may vary in
accordance with such factor." .
10
"Real estate, for purposes of taxation, includes all land within the district by which the tax is levied, and
all rights and interests in such land, and all buildings and other structures affixed to the land, even though
as between the landlord and the tenant they are the prop erty of the tenant and may be removed by him
at the termination of the lease." (51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When it shall appear
that there are separate owners of the land and the improvements thereon, a separate assessment of the
property of each shall be made." .
11
Sec. 38 of Com. Act 158 provides: "An annual tax of one per c entum on the assessed value of all real
estate in the city subject to taxation shall be levied by the city treasurer." .
13
Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and payable on
the first day of January and from this date such taxes together with all penalties accruing thereto shall
constitute a lien on the property subject to such taxation." .
14
Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or
incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the
possession of the delinquent or any subsequent owner, and can only be removed b y the payment of the
tax and penalty.".
20
National Internal Revenue Code: .
"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed taxes shall be
collected as follows, the amount stated being for the whole year, when not otherwise specified: .
"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers,
customs brokers, and immigration brokers, one hundred and fifty pesos: Provided, however, That in
the case of real estate dealers, the annual fixed tax to be collected shall be as follows: .
"One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or
renting property (whether on their own account as principals or as owners of rental property or
properties) is four thousand pesos or more but not exceeding ten thousand pesos; .
"Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty
thousand pesos; and .
"Five hundred pesos, if such annual income exceeds thirty thousand pesos."
21
Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per
Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila,
approved on July 25, 1950, imposing a municipal occupation tax on persons exercising various professions
(lawyers, medical practitioners, public accountants, dental surgeons, pharmacists, etc.), in the city and
penalizes non-payment of the tax by a fine of not more than P200.00 or by imprisonment of not more
than 6 months, or by both such fine and imprisonment in the discretion of the court, although section 201
[now sec. 182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation or
professional taxes. Said Justice Reyes: "The argument against double taxation may not be invoked where
one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p.
492), it being widely recognized that there is nothing obn oxious in the requirement thatlicense fees or
taxes be exacted with respect to the same occupation, calling or activity by both the state and the political
subdivision thereof. (51 Am. Jur., 341.)" .
A month after the promulgation of the above decision, Co ngress passed Rep. Act 1166, approved on
June 18, 1954, providing as follows: "Any provisions of existing la ws, city charters and ordinances,
executive orders and regulations, or parts thereof, to the contrary notwithstanding, every professional
legally authorized to practice his profession, who has paid the corresponding annual privilege tax on
professions required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the
9
profession for which he has been duly qualified under the law, in a ll parts of the Philippines without being
subject to any other tax, charge, license or fee for the practice of such profession; Provided, however,
That they have paid to the office concerned the registration fees required in their respective professions."
.
22
People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J.
Appeal from the decision of the CFI of Zambales. Defendants -appellees were convicted by the JP Court of
Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed by
a municipal ordinance on owners of fishponds on lands of private ownership. The Supreme Court, in
sustaining the validity of the ordinance, held:.
"The ground on which the trial court declared the municipal ordinance invalid would seem to be that,
since the land on which the fishpond is situated is already subject to land tax, it would be unfair and
discriminatory to levy another tax on the owner of the fishpond because that would amount to double
taxation. This view is erroneous because it is a well -settled rule that a license tax may be levied upon a
business or occupation although the land or property used therein is subject to property tax. It was also
held that "the state may collect an ad val orem tax on property used in a calling, and at the same time
impose a license tax on the pursuit of that cal ling." The imposition of this kind of tax is in no sense called
a double tax." .
Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil. 687, per Reyes,
J.B.L., J.
"Considering that appellant constructed her four-door "accessoria" purposely for rent or profit; that she
has been continuously leasing the same to third persons since its construction in 1947; that she manages
her property herself; and that said leased holding appears to be her main source of livelihood, she is
engaged in the leasing of real estate, and is a real estate dealer as defined in section 194(s) [now, Sec.
182(A)(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42.
"Appellant argues that she is already paying real estate taxes on her proper ty, as well as income tax on
the income derived therefrom, so that to further subject its rentals to the "real estate dealers" tax
amounts to double taxation. This argument has already been rejected by this Court in the case of People
vs. Mendaros et al., L-6975, promulgated May 27, 1955, wherein we held that it is a well -settled rule
that license tax may be levied upon a business or occupation althou gh the land or property used therein
is subject to property tax, and that"the state may collect an ad valore m tax on property used in a calling,
and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter
kind of tax being in no sense a double tax." ".
24
Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs. Interisland Gas
Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs. Hawaiian -Philippine Co., L-16315,
May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines vs. City of Butuan, et al., L-22814, Aug. 28, 1968.
Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .
"The second and last objections are manifestly devoid of merit. Indeed -- independently of whether or
not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress,
amounts to double taxation, on which we need not and do not express any opinion -- double taxation,
in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction
against double taxation found in the Constitution of the United States and some States of the Union.
Then, again, the general principle against delegation of legislative powers, in consequence of the theo ry
of separation of powers is subject to one well -established exception, namely; legislative powers may be
 delegated to local governments - to which said theory does not apply - in respect of matters of local
concern." .
25
84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of express or
implied constitutional prohibition.
"Double taxation should not be permitted unless the legislature has authority to impose it. However,
since the taxing power is exclusive ly a legislative function, and since, except as it is limited or restrained
by constitutional provisions, it is absolute and unlimited, it is generally held that there is nothing, in the
abscence of any express or implied constitutional prohibition against double taxation, to prevent the
imposition of more than one tax on property within the jurisdiction, as the power to tax twice is as ample
as the power to tax once. In such case whether or not there should be double taxation is a matter within
the discretion of the legislature.
"In some states where double taxation is not expressly prohibited, it is held that double taxatio n is
permissible, or not invalid or unconstitutional, or necessarily unlawful, provided some other
constitutional requirement is not thereby violated, as a requirement that taxes must be equal and
uniform." .
The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation shall be uniform."
27
51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v. State, 64
Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE 754, 40 ALR 73
(holding the provisions of an ordinance making the non-payment of an excise tax levied in pursuance of
such ordinance a misdemeanor punishable by fine not in violation of the constitutional prohibition against
the imprisonment of any person for "debt in a civil action, or mesne or final process"); Ex parte Mann, 39
Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep. 961.
26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the municipality to which
the tax is payable is not a cre ditor of the person assessed. A debt is a sum of money due by certain and
express agreement. It originates in, and is founded upon, con tract express or implied. Taxes, on the
other hand, do not rest upon contract, express or implied. They are obligations i mposed upon citizens
to pay the expenses of government. They are forced contributions, and in no way dependent upon the
will or contract, express or implied, of the persons taxed." .
28
51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or upon all
the persons of a certain class, resident within a specified territory, without regard to their propert y or the
occupations in which they may be engaged. Taxes of a specified amount upon each person performing a
certain act or engaging in a certain business or profession are not, however, poll taxes." .
29
Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section 21: "Except
as otherwise provided by law, and subject to the conditions and limi tations thereof, the Municipal Board
shall have the following legislative powers: .
"(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of two hundred
pesos or six months' imprisonment, or both such fine and impriso nment, for each offense." .
30
"To begin with the defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph
(kk) of the very section that authorizes the enactment of the ordinance (section 18 of the Manila Charter)
10
in express terms also empowers the Municipal Board to "fix penalties for the violation of ordinances which
not exceed to [sic] two hundred pesos fine or six months' imprisonment, or both such fine and
imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized by law is clearly without legal basis." .
31
51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and equal when
imposed upon all property of the same characte r within the taxing authority." Manila Race Horse Trainers
Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of Eastern Theatrical Co.,
Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there is equality
and uniformity in taxation if all articles or kinds of property of the same class are taxed at the sam e rate.
Thus, it was held in that case, that "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 equality and
uniformity of the tax imposition." Applying this criterion to the present case, there would be discrimination
if some boarding stables of the class used for the same number of horses were not taxed or were made
to pay less or more than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963,
per Reyes, J.B.L., J.: "The rule of uniform taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the particular class.".
32
Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. — One requirement with respect to
taxation imposed by provisions relating to equality and uniformity, which has been introduced into some
state constitutions in express language, is that taxation must be uniform throughout the political unit by
or with respect to which the tax is levied. This means, for example, that a tax for a state purpose must be
uniform and equal throughout the state, a tax for a county purpose must be uniform and equal throughout
the county, anda tax for a city, village, or township purpose must be un iform and equal throughout the
city, village, or township. It does not mean, however, that the taxes levied by or with re spect to the
various political subdivisions or taxing districts of the state must be at the same rate, or, as one court has
graphically put it, that a man in one county shall pay the same rate of taxation for all purposes that is paid
by a man in an adjoining county. Nor does the rule require that taxes for the same purposes shall be
imposed in different territorial subdivisions at the sa me time. It has also been said in this connection that
the omission to tax any particular individual who may be liable do es not render the whole tax illegal or
void."
33
84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls e qually and
impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W. 859,
66 N.D. 355], so that no higher rate or greater levy in proportion to value is imposed on one person or
species of property than on others similarly situated or of like character."
84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and character and
similarly situated, and a tax, in order to be uniform, must operate alike on all persons, things, or
property, similarly situated. So the requirement is complied with when the tax is levied equally and
uniformly on all subjects of the same class and kind and is violated if particular kinds, species or items
of property are selected to bear the whole burden of the ta x, while others, which should be equally
subjected to it, are left untaxed."
34
84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and equally
[Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a liberal construction
will be indulged in order to accomplish fair and equal taxation of all property withi n the state."
G.R. No. L-7521 October 18, 1955
VERONICA SANCHEZ, plaintiff-appell a nt,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee .
Benjamin C. Yatco for appellant.
Office of the Solicitor General Ambrocio Padilla and Solicitors Esmeraldo Umali and Roman Cansino, Jr. for
appellee.
REYES, J.B.L., J.:
Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at 181 Libertad
Street, Pasay City, which she constructed in 1947. The building has an assessed value of P21,540 and the
land is assessed at P7,980, or a total value of P29,540 (Exhibit 2). While appellan t lives in one of the
apartments, she is renting the rest to other persons. In 1949, she derived an income therefrom of P7,540
(Exhibit 1). Appellant also runs a small dry goods store in the Pasay market, from which she derives an
annual income of about P1,300 (also Exhibit 1).
In the early part of 1951, the Collector of Internal Revenue made demand upon appellant for the payment
of P163.51 as income tax for the year 1950, and P637 as real estate dealer's tax for the year 1946 to
1950, plus the sum of P50 as compromise (Exhibit 4). Appellant paid the taxes demanded under protest,
and on October 16, 1951 filed action in the Court of First Instance of Manila (C. C. No. 14957) against the
Collector of Internal Revenue for the refund of the taxes paid, claiming that she is not a real estate dealer.
The lower Court, after trial, found appellant to be such a dealer, as defined by section 194 (s) of the
National Internal Revenue Code, as amended by Republic Act Nos. 42 and 588, and declared the collection
of the taxes in question legal and in accordance with said provision. Wherefore, Veronica Sanchez appealed
to this Court.
At the outset, it should be noted that while appellant claims the refund of the amount of P825 allegedly
paid by her to the Collector of Internal Revenue as real estate dealer's tax, it appears that the sum of
P163.31 thereof corresponds to her income tax for the year 1949 (Exhi bit 4), so that the amount of tax
actually involved herein is only P687, paid by appellant as real estate dealer's tax for the year 1946 to
1950. We notice also that the lower Court, in deciding this case, applied the definition of "real estate
dealer" in section 194 (s) of the National Internal Revenue Code, as amended by Republic Acts Nos. 42
and 588. Republic Act No. 588 took effect only on September 22, 1950, while the tax in question was paid
by appellant for the year 1946 to 1950. Hence, the law appli cable to this case is section 194 (s) of the Tax
Code before it was amended by Republic Act No. 588, which defines real estate dealers as follows:
"Real estate dealers" includes all persons who for their own account are engaged in the sale of lands,
buildings or interests therein or in leasing real estate. (R. A. No. 42)
and his properties in Manila were administered and managed by a local real estate company. We held that
Argellies could not be considered as engaged in business of letting real estate, because he did not appear
to have reinvested the rents received by him from this country, nor to have taken part in the management
of his local holdings. In the case at bar, however, it was appellant who had the apartment in question
constructed, purposely for lease or profit, and she manages the property herself. While she run s a small
store in Pasay market, it is unlikely and the evidence does not show, that she devotes all her personal
time and labor to such store, considering its size and the fact that she derives little income therefrom. On
the other hand, the work of attending to her leased property and her tenants would not take much of her
time and attention, especially since she li ves in the premises herself. And the leasing of her apartment
appears to be her principal means of livelihood, for the income she derives ther efrom amounts to more
than five times that which she makes from her store.
Considering, therefore, that appellant constructed her four-door "accesoria" purposely for rent or profit;
that she has been continuously leasing the same to third persons since its construction in 1947; that she
manages her property herself; and that said leased holding appears to be her main source of livelihood,
we conclude that appellant is engaged in the leasing of real estate, and is a real estate dealer as defined
by section 194 (s) of the Internal Revenue Code, as amended by Republic Act No. 42.
Appellant argues that she is already paying real estate taxes on her property, as well as income tax on
the income derive therefrom, so that to further subject its rentals to the "real estate dealers' tax" amounts
to double taxation. This argument has already been rejected by this Court in the cas e of People vs.
Mendaros, et al., L-6975, promulgated May 27, 1955, wherein we held that "it is a well settled rule that
license tax may be levied upon a business or occupation although the land or property used there in is
subject to property tax", and that "the state may collect an ad valorem tax on property used in a calling,
and at the same time impose a license tax on the pursuit of that ca lling", the imposition of the latter kind
of tax being in no sense a double tax.
The evidence shows, however, that the apartment house in question was constructed only in 1947, while
the real estate dealer's tax demanded of and paid by appellant was for th e year 1946 to 1950 (see Exhibit
4). Wherefore, appellant is entitled to a refund of the tax paid for the year 194 6, amounting to P37.50.
With the modification that the appellee Collector of Internal Revenue is ordered to refund to appellant
Veronica Sanchez the amount of P37.50 paid as real estate dealer's tax for the year 1946, the decision
appealed from is, in all other respects, affirmed. Costs against appellants. So ordered.

Does appellant fall within the above definition? We are of the opinion that she does. The kind of nature of
the building constructed by her—which is a four-door "accessoria"—shows that it was from the beginning
intended for lease as a source of income or profit to the owner; and while appellant resides in one of the
apartments, it appears that she always rented the other apartments to other persons from the time the
building was constructed up to the time of the filing of this case.

The case of Argellies vs. Meer * G. R. No. L-3730, promulgated on April 25, 1952, cited by appellant in
support of her appeal, is not in point. In that case, Argellies had always resid d outside the Philippines,

11
G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants -appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers , a medical practitioner,
a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of
other professionals practising in the City o f Manila who may desire to join it." Object of the suit is the
annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter
authorizing it and the refund of taxes collected under the ordinance but paid under prote st.
The ordinance in question, which was approved by the municipal board of the City of Manila on July 25,
1950, imposes a municipal occupation tax on persons exercising various professions in the city and
penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of
not more than six months, or by both such fine and imprisonment in the discretion of the court." Among
the professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amende d by Republic Act No.
409), which empowers the Municipal Board of said city to impose a municipal occupation tax, not to exceed
P50 per annum, on persons engaged in the various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit for the purpose already stated. The lower court upheld th e
validity of the provision of law authorizing the enactment of the ordinance but declared the ordinance itself
illegal and void on the ground that the penalty there in provide d for non-payment of the tax was not legally
authorized. From this decision both parties appealed to this Court, and the only question they have
presented for our determination is whether this ruling is correct or not, for though the decision is silent on
the refund of taxes paid plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition
of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of
the very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in
express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances which
shall not exceed to(sic) two hundred pesos fine or six months" imprisonment, or both such fine and
imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized by l aw is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions
to which they respectively belong have been singled out for the imposition of this municipal occupation
tax; and in any event, the Legislature may, in its discretion, select what occupations shall be taxed, and
12
in the exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the
others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393 -3395.) Plaintiffs' complaint is that while
the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other
chartered cities, not to mention municipalities. We do not think it is for the courts to judge what particular
cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by
the National Government. That matter is peculiarly within the domain of the political departments and the
courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with
a population and volume of trade many times tha t of any other Philippine city or municipality, Manila, no
doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation tax than their brethren in the p rovinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within
a class in that while professionals with offices in Manila have to pay the tax, outsiders who have no offices
in the city but practice the ir profession therein are not subject to the tax. Plaintiffs make a distinction that
is not found in the ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing"
— in the City of Manila naturally — any one of the occupations named, but does not say that such person
must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter
of judicial determination. The argument against double taxation may not be invoked where one tax is
imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being
widely recognized that there is nothing inherently obnoxious in the requirem ent that license fees or taxes
be exacted with respect to the same occupation, calling or activity by both the state and the political
subdivisions thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as i t declares Ordinance No.
3398 of the City of Manila illegal and void and affirme d in so far as it holds the validity of the provision of
the Manila charter authorizing it. With costs against plaintiffs -appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
Separate Opinions
PARAS, C.J., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal Board of
Manila cannot outlaw what Congress of the Philippines has a lready authorized. The plaintiffs-appellants —
two lawyers, a physician, an accountant, a dentist and a pharmacist — had already paid the occupation
tax under section 201 of the National Internal Revenue Code and are thereby duly licensed to practice
their respective professions throughout the Philippines; and yet they had been requir ed to pay another
occupation tax under Ordinance No. 3398 for practising in the City of Manila. This is a glaring example of
contradiction — the license granted by the National Government is in effect withdrawn by the City in case
of non-payment of the tax under the ordinance. I fit be argued that the national occupation tax is collected
to allow the professional residing in Manila to pursue his calling in other places in the Ph ilippines, it should
then be exacted only from professionals practising simultan eously in and outside of Manila. At any rate,
we are confronted with the following situation: Whereas the professionals elsewhere pay only one
occupation tax, in the City of Ma nila they have to pay two, although all are on equal footing insofar as
opportunities for earning money out of their pursuits are concerned. The statement that practice in Manila
is more lucrative than in the provinces, may be true perhaps with reference o nly to a limited few, but
certainly not to the general mass of practitioners in any field. Again, provincial residents who have
occasional or isolated practice in Manila may have to pay the city tax. This obvious discrimination or lack
of uniformity cannot be brushed aside or justified by any trite pronouncement that double taxation i s
legitimate or that legislation may validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal Revenue G.R. No. 181845 August 4, 2009
Code should be allowed to practice in Manila even without paying the similar tax imp osed by Ordinance
No. 3398. The City cannot give what said professional already has. I would not say that this Ordinance,
THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and
enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the Revised Charter of Manila,
JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF
as amended by Republic Act No. 409, empowering the Board to impose a municipal occupation tax not to
MANILA, petitioners,
exceed P50 per annum, is invalid; but that only one tax, either under the Internal Revenue Code or under
vs.
Ordinance No. 3398, should be imposed upon a practitioner in Manila.
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.

DE CI SI ON

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure seeking
to review and reverse the Decision 1 dated 18 January 2008 and Resolution 2 dated 18 February 2008 of
the Court of Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en
banc dismissed the Petition for Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and
Joseph Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,3 8 June 2007,4 and 26 July
2007,5 of the CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of
petitioners in said case for being filed out of ti me. In its questioned Resolution, the CTA en banc denied
the Motion for Reconsideration of petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue
fees, and permit fees, through its officers, p etitioners Toledo and Santiago, in their capacities as City
Treasurer and Chief of the Licensing Division, respectively. On the other hand, respondent Coca -Cola
Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and sellin g beverages,
and which maintains a sales office in the City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under
Section 14 of Tax Ordinance No. 7794,6 being expressly exempted from the business tax under Section
21 of the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:
Section 14. – Tax on Manufacturers, Assemblers and Other Processors. – There is hereby imposed a
graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of
whatever kind or nature, in accordance with any of the following schedule:
x x xx

over ₱6,500,000.00 up to

₱25,000,000.00 - - - - - - - - - - - - - - - - - - - -- ₱36,000.00 plus 50% of 1%

in excess of ₱6,500,000.00

Section 21. – Tax on Businesses Subject to the Excise, Value -Added or Percentage Taxes under the NIRC.
– On any of the following businesses and articles of commerce subject to excise, value -added or
percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended,
a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or receipts of the
preceding calendar year is hereby imposed:
(A) On persons who sell goods and services in the course of trade or business; and those who import
goods whether for business or otherwise; as provided for in Sections 100 to 103 of the N IRC as

13
 administered and determined by the Bureau of Internal Revenue pursuant to the pertinent provisions of
the said Code.
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
(8) Coal and coke
(9) Fermented liquor, brewers’ wholesale price, excluding the ad valorem tax
PROVIDED, that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof.
Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ord inance No. 7988,7 amending
certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates
applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and
(2) Section 21, by deleting the proviso found therein, which stated "that all registered businesses in the
City of Manila that are already paying the aforementioned tax shall be exe mpted from payment thereof."
Petitioner City of Manila approved only after a year, on 22 February 2001, another tax ordin ance, Tax
Ordinance No. 8011, amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court nu ll and void in Coca-Cola Bottlers
Philippines, Inc. v. City of Manila 8 (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988
was enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its
implementing rules and regulations; and (2) T ax Ordinance No. 8011 could not cure the defects of Tax
Ordinance No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and
void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794,
as amended by the aforementioned tax ordinances, for deficiency local business ta xes, penalties, and
interest, in the total amount of ₱18,583,932.04, for the third and fourth quarters of the year 2000.
Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to
double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax Ordinance No. 7794,
as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did not respond to the protest
of respondent.
Consequently, respondent filed with the Regional Trial Court (RTC) o f Manila, Branch 47, an action for the
cancellation of the assessment against respondent for business taxes, which was do cketed as Civil Case
No. 03-107088.
On 14 July 2006, the RTC rendered a Decision 9 dismissing Civil Case No. 03-107088. The RTC ruled that
the business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988,
as amended, were not of the same kind or character; therefore, there was no double taxation. The RTC,
though, in an Order 10 dated 16 November 2006, granted the Motion for Reconsideration of respondent,
decreed the cancellation and withdrawal of the assessment against the latter, and barred petitioners from
further imposing/assessing local business taxes against respondent under Section 21 of Tax Ordinance
No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance No. 801 1. The 16 November 2006
Decision of the RTC was in conformity with the ruling of this Court in the Coca -Cola case, in which Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 were declared null and void. The Motion for
Reconsideration of petitioners was denied by the RTC in an Order 11 dated 4 April 2007. Petitioners received
a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November
2006 Order of the same court, on 20 April 2007.
14
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review,
praying for a 15-day extension or until 20 May 2007 within which to file their Petition. T he Motion for
Extension of petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First Division.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time
to File a Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to
file their Petition.
On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No. 31
for failure of petitioners to timely file their Petition for Review on 20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Re view
therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA First Division issued another
Resolution, reiterating the dismissal of the Petition for Review of petitioners.
Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June
2007, but their motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA
First Division reasoned that the Petition for Review of petitioners was not only filed out of time -- it also
failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised
Rules of the CTA.
Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307,
arguing that the CTA First Division erre d in dismissing their Petition for Review in C.T.A. AC No. 31 for
being filed out of time, without considering the merits of their Peti tion.
The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners
and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division.
The CTA en banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18
February 2008.
Hence, the present Petition, where petitioners raise the following issues:
I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE REGLEMENTARY PERIOD TO
TIMELY APPEAL THE CASE FOR REVIEW BEFORE THE [CTA DIVISION].
II. WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCA-COLA CASE] IS DOCTRIN AL
AND CONTROLLING IN THE INSTANT CASE.
III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS TAXES UNDER [SECTIONS] 14
AND 21 OF [TAX ORDINANCE NO. 7794, AS AMENDED].
IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS
AMENDED] CONSTITUTES DOUBLE TAXATION.
Petitioners assert that Section 1, Rule 7 12 of the Revised Rules of the CTA refers to certain provisions of
the Rules of Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Pet itioners
then cannot be faulted in relying on the provisions of Section 1, Rule 42 13 of the Rules of Court as regards
the period for filing a Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of Court
provides for a 15-day period, reckoned from receipt of the adverse decision of the trial court, within which
to file a Petition for Review with the Court of Appeals. The same rule allows an additional 15-day period
within which to file such a Petition; and, only for the most compelling reasons, another extension period
not to exceed 15 days. Petitioners received on 20 April 2007 a copy of the 4 April 2007 Order of the RTC,
denying their Motion for Reconsideration of the 16 No vember 2006 Order of the same court. On 4 May
2007, believing that they only had 15 days to file a Petition for Review with the CTA in division, petitioners
moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse
of their first extension period, or on 18 May 2007, petitioners again moved for a 10 -day extension, or until
30 May 2007, within which to file their Petition for Review. Thus, when petitioners filed their Petition for
Review with the CTA First Division on 30 May 2007, the same was filed well within the reglementary period
for doing so.
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8 14 of the Revised Rules of
the CTA governs the period for filing a Petition for Review with the CTA in division, still, their Petition for
Review was filed within the reglementary period. Petitioners call attention to the fact that prior to the lapse
of the 30-day period for filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the
CTA, they had already moved for a 10-day extension, or until 30 May 2007, within which to file their
Petition. Petitioners claim that there was sufficient justification in equity for the grant of the 10 -day
extension they requested, as the primordial consideration should be the substantive, and not the
procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of the Revised Rules of the CTA, is silent
as to whether the 30-day period for filing a Petition for Review with the CTA in division may be extended
or not.
Petitioners also contend that the Coca -Cola case is not determinative of the issues in the present case
because the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not the lis mota
herein. The Coca-Cola case is not doctrinal and cannot be considered as the law of the case.
Petitioners further insist that notwithstanding the dec laration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax
Ordinance No. 7988 and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local
business taxes upon respondent under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read
prior to their being amended by the foregoing null and void tax ordinances.
Petitioners finally maintain that imposing upon respondent local busines s taxes under both Sections 14
and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives
municipal, as well as city governments, the power to impose business taxes, to wit:
SECTION 143. Tax on Business. – The municipality may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of
whatever kind or nature, in accordance with the following schedule:
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in
accordance with the following schedule:
(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of essential commodities enumerated hereunder at a rate not exceeding one -half (1/2) of the
rates prescribed under subsections (a), (b) and (d) of this Section:
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under
Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos
(₱50,000.00) or less, in the case of cities, and Thirty thousand pesos (₱30,000) or less, i n the case of
municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent
(1%) on the gross receipts of the preceding calendar year derived from interest, commissions and
discounts from lending activities, income from financial leasing, dividends, rentals on property and
profit from exchange or sale of property, insurance premium.
15
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding
Fifty pesos (₱50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added
or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the preceding calendar year.
Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other
hand, the local business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling
goods and services in the course of trade or business, and those importing goods for business or otherwise,
who, pursuant to Section 143(h) of the LGC, are subject to excise tax, value -added tax (VAT), or
percentage tax under the National Internal Revenue Code (NIRC). Thus, there can be no double taxation
when respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the
first, it is being taxed as a manufacturer; while und er the second, it is being taxed a s a person selling
goods in the course of trade or business subject to excise, VAT, or percentage tax.
The Court first addresses the issue raised by petitioners concerning the period within which to file with the
CTA a Petition for Review from an adverse decision or ruling of the RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review is specifically
governed by Section 11 of Republic Act No. 9282,15 and Section 3(a), Rule 8 of the Revised Rules of the
CTA.
Section 11 of Republic Act No. 9282 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an Appeal wit h the CTA within thirty
(30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure an alogous to that provided for
under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the rece ipt
of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period
fixed by law to act thereon. x x x. (Emphasis supplied.)
Section 3(a), Rule 8 of the Revised Rules of the CTA states:
SEC 3. Who may appeal; period to file petition. – (a) A party adversely affected by a decision, ruling or
the inaction of the Commissioner of Internal Re venue on disputed assessments or claims for refund of
internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of
Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in
the exercise of its original jurisdiction may appeal to the Court by petition for review filed withi n thirty
days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed assessments. x x x. (Emphasis supplied.)
It is crystal clear from the afore -quoted provisions that to appeal an adverse decision or ruling of the RTC
to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days fro m receipt of said
adverse decision or ruling of the RTC.
It is also true that the same provisions are silent as to whether such 30-day period can be extended or
not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed
with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Proce dure. Section
1, Rule 42 16 of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse
judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day
period from receipt of the judgment or final order to be appealed; (2) an extended period of 15 days from
the lapse of the original period; and (3) only for the most compelling reasons, another extended period
not to exceed 15 days from the lapse of the first extended period.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period
for filing a Petition for Review with the CTA under Section 11 o f Republic Act No. 9282, as implemented
by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No
further extension shall be allowed thereafter, except only for the most compelling reasons, in which case
the extended period shall not exceed 15 days.
Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30 -day period within
which to file the Petition for Review with the CTA may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of fifteen (15)
days for the movant to file a Petition for Review, upon Motion, and payment of the full amount of the
docket fees. A further extension of fifteen (15) days may be granted on compelli ng reasons in accordance
17
with the provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure x x x.
In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for
Review in C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date pe titioners received a copy of the 4 April 2007 Order of the RTC, denying
their Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May
2007, within which to file their Petition for Review with the CTA. Hence, the M otion for Extension filed by
petitioners on 4 May 2007 – grounded on their belief that the reglementary period for filing their Petition
for Review with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of 15
days, or until 20 May 2007, to file said Petition – was unnecessary and superfluous. Even without said
Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it was still within
the 30-day reglementary period provided for under Section 11 of Republic Act No. 9282; and implemented
by Section 3(a), Rule 8 of the Revised Rules of the CTA.
The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30 -day
reglementary period on 20 May 2007, in which they prayed for another extended period of 10 days, or
until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of
petitioners. The CTA First Division should have granted the same, as it was sanctioned by the rules o f
procedure. In fact, petitioners were only praying for a 10-day extension, five days less than the 15-day
extended period allowed by the rules. Thus, when petitioners filed via registered mail their Petition for
Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with the reglementary period for
filing such a petition.
Nevertheless, there were other reasons for which the CTA First Division dismissed the Petition for Review
of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2
of Rule 6 of the Revised Rules of the CTA. The Court sustains the CTA First Division in this regard.
16
Section 4, Rule 5 of the Revised Rules of the CTA requires that:
SEC. 4. Number of copies. – The parties shall file eleven signed copies of every paper for cases before
the Court en banc and six signed copies for cases before a Division of the Court in addition to the signed
original copy, except as otherwise directed by the Court. Papers to be filed in more than one case shall
include one additional copy for each additional case. (Emphasis supplied.)
Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
SEC. 2. Petition for review; contents. – The petition for review shall contain allegations showing the
jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the
issues involved in the case, as well as the reasons relied upon for the review of the challenged decision.
The petition shall be verified and must contain a certification against forum shopping as provided in
Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate original or certified true copy of the
decision appealed from shall be attached to the petition. (Emphasis supplied.)
The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the
CTA, which provides:
SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals, exception. – The
procedure in the Court en banc or in Divisions in original or in appealed cases shall be the same as those
in petitions for review and appeals before the Court of Appeals pursuant to the applicable provisions of
Rules 42, 43, 44, and 46 of the Rules of Court, except as otherwise provide d for in these Rules.
(Emphasis supplied.)
As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by
petitioners via registered mail on 30 May 2007 consisted only of one copy and all the attachments thereto,
including the Decision dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4
April 2007 of the RTC in Civil Case No. 03-107088 were mere machine copies. Evidently, petitioners did
not comply at all with the requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the
Revised Rules of the CTA. Although the Revised Rules of the CTA do not provide for the consequence of
such non-compliance, Section 3, Rule 42 of the Rules of Court may be applied suppletorily, as allowed b y
Section 1, Rule 7 of the Revised Rules of the CTA. Section 3, Rule 42 of the Rules of Court read s:
SEC. 3. Effect of failure to comply with requirements. – The failure of the petitioner to comply with any
of the foregoing requirements regarding the payme nt of the docket and other lawful fees, the deposit
for costs, proof of service of the petition, a nd the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof. (Emphasis supplied.)
True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed
Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03 -107088, but a closer
examination of the stamp on said documents reveals that they were prepared and certified only on 14
August 2007, about two months and a half after the filing of the Petition for Review by petitioners.
Petitioners never offered an explanation for their non -compliance with Section 4 of Rule 5, and Section 2
of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed
the application of rules of procedure, it cannot do so in this case for lack of any justification.
Even assuming arguendo that the Petition for Review of petiti oners in C.T.A. AC No. 31 should have been
given due course by the CTA First Division, it is still dismissible for lack of merit.
Contrary to the assertions of petitioners, the Coca -Cola case is indeed applicable to the instant case. The
pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null
and void, which this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the
Secretary of the Department of Justice (DOJ) as null and void and without legal effect due to the failure
of herein petitioner City of Manila to satisfy the requirement under the law that said ordinance be published
for three consecutive days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary;
thus, it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance
No. 8011, amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way,
did not legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void
and without any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory
laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of
Tax Ordinance No. 7944 as they were originally read, without the ame ndment by the null and void tax
ordinances.
Emphasis must be given to the fact that pri or to the passage of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent only for the local
business tax under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This
was due to the clear and unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that
"all registered business in the City of Manila that a re already paying the aforementioned tax shall be
exempted from payment thereof." The "aforementioned tax" referred to in said proviso refers to local
business tax. Stated differently, Section 21 of Tax Ordinance No. 7794 exempts from the payment of the
local business tax imposed by said section, businesses that are already paying such tax u nder other
sections of the same tax ordinance. The said proviso, however, was deleted from Section 21 of Tax
Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began
assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as
amended.1avvphi1
Using the aforementioned test, the Court finds that there is indeed doub le taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being
imposed: (1) on the same subject matte r – the privilege of doing business in the City of Manila; (2) for
the same purpose – to make persons conducting business within the City of Manila contribute to city
revenues; (3) by the same taxing authority – petitioner City of Manila; (4) within the sa me taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or
receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance
No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of
municipalities and cities to impose a local business tax, and to which any local business tax imposed by
petitioner City of Manila must conform. It is apparent from a perusal thereof that when a municipality or
city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and a ny
other article of commerce, pursuant to Section 143(a) of the LGC, said municipality or city may no longer
subject the same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section
143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under
the NIRC, and that are "not otherwise specified in preceding paragraphs." In the same way, businesses
such as respondent’s, already subject to a local business tax under Section 14 of Tax Ordinance N o. 7794
[which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under
Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Re view on Certiorari is hereby DENIED. No
costs.

The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior
to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from th e local business
tax under Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the
exempting proviso in Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 before they assessed respondent for the local business tax under said section. Yet, with the
pronouncement by this Court in the Coca -Cola case that Tax Ordinance No. 7988 and Tax Ordinance No.
8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7 794, as it has
been previously worded, with its exempting proviso, is back in effect. Accordingly, respondent should not
have been subjected to the local business tax under Section 21 of Tax Ordinance No. 7794 for the third
and fourth quarters of 2000, given its exemption therefrom since it was already paying the local business
tax under Section 14 of the same ordinance.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is , "taxing
the same person twice by the same jurisdiction for the same thing." It is obn oxious when the taxpayer is
taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes
must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or
character.18

17
United States v. Dalm, 494 U.S. 596 (1990)
United States v. Dalm
No. 88-1951
Argued January 10, 1990
Decided March 20, 1990
494 U.S. 596
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Syllabus
In 1975, respondent Dalm was appointed administratrix of her deceased former employer's estate. In
1976 and 1977, she received payments from the decedent's brother, who wanted her to share in the
estate because of her years of service to the decedent. In December, 1976, a federal gift tax return was
filed, and the gift tax was paid, for that year's payment to Dal m. The Internal Revenue Service (IRS) then
assessed penalties and interest with respect to the 1976 transfer, which were paid in March, 1977. No gift
tax return was filed for the 1977 payment. After auditing Dalm's 1976 and 1977 income tax returns, the
IRS asserted deficiencies upon determining that she should have reported the payments from the brother
as income to her as administratrix. Arguing that the payments were gifts, she petitioned the Tax Court for
a redetermination of the deficiencies, but made no claim for a credit or recoupment of the gift tax paid.
The parties settled the case, agreeing to a stipulated decision that Dalm owed lesser income tax
deficiencies than those asserted for both tax years. In November, 1984, she filed an administrative claim
for refund of the gift tax, interest, and penalties paid with respect to the 1976 transfer, even though 26
U.S.C. § 6511(a) required that any refund claim be filed within three years of when the return was filed.
When the IRS failed to act on the claim, she filed a District Court action for a refund of "overpaid gift tax,"
alleging that the court had jurisdiction under 28 U.S.C. § 1346(a)(1). The court dismissed the suit for lack
of jurisdiction in light of § 6511(a), rejecting her contention that the s uit was timely under the doctrine of
equitable recoupment set forth in Bull v. United States, 295 U. S. 247. The Court of Appeals reversed,
finding that her claim satisfied all o f the doctrine's requirements.
Held: The District Court lacked jurisdicti on over Dalm's refund suit. Pp. 494 U. S. 601-611.
(a) Title 28 U.S.C. § 1346(a)(1)'s provision of broad district court jurisdiction over civil tax refund suits
must be read in conformity with other statutory provisions conditioning the right to bring such a suit,
including 26 U.S.C. § 7422(a), which requires the prior filing of an administrative refund claim, and §
6511(a), which provides the applicable statute of limita tions for filing such a claim. Since Dalm failed to
file her claim within the specified time limits, the District Court was barred from entertaining her suit.
Pp. 494 U. S. 601-602.
(b) The statute of limitations long since having run, the doctrine of equitable recoupment does not support
Dalm's suit. Bull must be distinguished on the ground that, there, equitable recoupment of estate tax was
sought in an action for refund of income tax, over which the court had undisputed jurisdiction, and the
only issue was whether the court, in the interests of equity, could adjust the income tax owed to take
account of an estate tax paid in error but which the petitioner could not recover in a separate, time -barred
refund action. Here, Dalm does not seek to invoke equitable recoupment in determining her income tax
liability; she has already litigated that liability in the Tax Court without raising an equitable recoupment
claim, and is foreclosed from litigating it now. She seeks to invoke equitable recoupment only in a separate
action for refund of gift tax, an action for which there is no statutory authorization by reason of the statute
of limitations bar. Bull and Stone v. White, 301 U. S. 532, stand only for the proposition that a party
litigating a tax claim in a timel y proceeding may, in that proceeding, seek recoupment of a related, and
18
inconsistent, but now time -barred tax claim relating to the same transaction. They do not allow equitable
recoupment to be the sole basis for jurisdiction. Pp. 494 U. S. 602-608.
(c) Since Dalm failed to comply with the applicable statute of limitations, the Government is immune from
suit under settled principles of sovereign immunity. See, e.g., United States v. Mottaz, 476 U. S. 834, 476
U. S. 841. Because Dalm's action does not come within any of the statutory exceptions to the limitations
period prescribed by §§ 7422 and 6511(a), allowing her to maintain this suit would effectively override
Congress' judgment as to when equity requires an exception. Both the IRS and a court which has
jurisdiction over a timely suit for refund may still consider an equitable recoupment claim for an earlier
tax paid under an inconsistent theory on the same transaction. Pp. 494 U. S. 608-610.
(d) The Court of Appeals' reasoning that recoupment should be permitted in this case because it effected,
with respect to a single transaction, the recovery of a tax based upon a theory inconsistent with the theory
upon which a later tax was paid mistakes the threshold requirement for such a suit. Although this Court's
precedents allowing recoupment pertain to cases where a single transaction is subject to inconsistent
taxation, the reason the statute of limitations is not a bar in thos e cases is that, unlike here, the court has
uncontested jurisdiction to adjudicate one of the taxes in question and, therefore, the equitable power to
examine and consider the entire transaction. See Rothensies v. Electric Storage Battery Co., 329 U. S.
296, 329 U. S. 299. Pp. 329 U. S. 610-611.
867 F.2d 305, reversed.
KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, BLACKMUN ,
O'CONNOR, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BRENNAN and
MARSHALL, JJ., joined, post, p. 494 U. S. 612.
JUSTICE KENNEDY delivered the opinion of the Court.
Single transactions, it is well known, may be susceptible to different , and inconsistent, theories of taxation.
In the case before us, the taxpayer treated moneys derived from her deceased employer's estate as a gift
and paid gift tax on the transfer. Some years later, the Government contended that the money the
taxpayer had received from the transaction was income. The taxpayer disagreed, and the Government's
assertion of an income tax deficiency was the subject of proceedings in the United States Tax Court. The
question presented is whether, the statute of limitations long since having run, the doctrine of equitable
recoupment supports a separate suit for refund of the earlier paid gift tax after the taxpayer settled the
Tax Court deficiency proceeding and agreed to pay income tax on the transaction. We hold that it does
not.
I
The taxpayer, Frances Dalm, is the respondent here. Dalm was appointed administratrix of the estate of
Harold Schrier in May, 1975, at the request of Schrier's surviving brother, Clarence. It appears Dalm had
been the decedent's loyal secretary for many years, and that Clarence wanted her to take charge of the
affairs of the estate and receive some of the moneys that otherwise would belong to him.
Dalm received fees from the estate, approved by the probate court, of $30,000 in 1976 and $7,000 in
1977. She also received from Clarence two payments, $180,000 in 1976 and $133,813 in 1977.
Clarence,and his wife filed a gift tax return in December, 1976, reporting the $180,000 payment as a gift
to Dalm, and in that same month Dalm paid the gift tax of $18,675. The Internal Revenue Service (IRS)
later assessed an additional $1,587 in penalties and interest with respect to the transfer. The Schriers paid
the penalties and interest in 1977, and were reimbursed by Dalm. But no gift tax return was filed with
respect to the 1977 payment of $133,813.
After auditing Dalm's 1976 and 1977 income tax returns, the IRS determined that the payments from
Clarence represented additional fees for Dalm's services as administratrix of the estate, and should have
been reported as income. The IRS asserted deficiencies in her income tax of $91,471 in 1976, and $70,639
in 1977, along with additions to the taxes under § 6653(a) of the Internal Revenue Code of 1954 (IRC) ,
26 U.S.C. § 6653(a) (1982 ed.). [Footnote 1]
Dalm petitioned the Tax Court for a redetermination of the asserted deficiencies, as was her right under §
6213(a). In her petition, she argued that the 1976 and 1977 payments from Clarence were gifts to carry
out the wish of the decedent that she share in the estate. After two days of trial, Dalm and the IRS settled
the case, with the parties agreeing to a stipulated decision that respondent owed income tax deficiencies
of $10,416 for 1976 and $70,639 for 1977. No claim for a credit or recoupment of the gift tax paid by
Dalm was raised in the Tax Court proceedings, although there is some dispute whether the gift tax was
one of the factors considered in arriving at the terms of the settlement. See n 2, infra.
Immediately after agreeing to the settlement, Dalm filed an administrative claim for refund of the $20,262
in gift tax, interest, and penalties paid with respect to the $18 0,000 transfer in 1976. The claim was filed
in November, 1984, even though the IRC required Dalm to file any claim for a refund of the gift tax by
December, 1979. See § 6511(a). When the IRS failed to act upon her claim within six months, Dalm filed
suit in the United States District Court for the Western District of Michigan, seeking what in her complaint
she denominated a refund of "overpaid gift tax." Her complaint alleged that the District Court had
jurisdiction under 28 U.S.C. § 1346(a)(1) (1982 ed.).
The Government moved to dismiss the suit for lack of jurisdiction and for summary judgment, arguing
that the suit was untimely under the applicable statute of limitations. The District Court granted the
Government's motions, rejecting Dalm's contention tha t her suit was timely under the doctrine of equitable
recoupment as set forth in our opinion in Bull v. United States, 295 U. S. 247 (1935), a case we shall
discuss. The court held that equitable recoupment did not authorize it to exercise jurisdiction over "an
independent lawsuit, such as this suit, . . . maintained for a refund for a year in which the statute of
limitations has expired." App. to Pet. for Cert.19a.
On appeal, the Court of Appeals for the Sixth Circuit reversed. 867 F.2d 305 (1989). The court found
Dalm's claim satisfied all of the requirements for equitable recoupment expressed in our cases. It rejected
the District Court's characterization of Dalm's action as an independent lawsuit barred by the statute of
limitations, reasoning that she could maintain an otherwise barred action for refund of gift tax because
the Government had made a timely claim of a deficiency in her income tax based upon an inconsistent
legal theory. Id. at 311-312 (citing Kolom v. United States, 791 F.2d 762 (CA9 1986)). [Footnote 2]
Because the approach taken by the Sixth and Ninth Circuits is in conflict with that a dopted by Seventh
Circuit, see O'Brien v. United States, 766 F.2d 1038 (1985), we granted certiorari, 493 U.S. 807 (1989),
and now reverse.
II
The ultimate question in the case is whether the District Court had jurisdiction over Dalm's suit seeking a
refund of the gift tax, interest, and penalties paid on the 1976 transfer. We hold that it did not.
In her complaint, Dalm invoked 28 U.S.C. § 1346(a)(1) (1982 ed.), under which a district court has
jurisdiction over a "civil action against the United States fo r the recovery of any internal-revenue tax
alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been
collected without authority or any sum alleged to have been excessive or in any manner wrongfully
collected under the internal-revenue laws."
Despite its spacious terms, § 1346(a)(1) must be read in conformity with other statutory provisions which
qualify a taxpayer's right to bring a refund suit upon compliance with certain conditions. The first is §
7422(a), which, tracking the language of § 1346(a)(1), limits a taxpayer's right to bring a refund suit by
providing that "[n]o suit or proceeding shall be maintained in any court for the recovery of any internal
19
revenue tax alleged to have been erroneously or illeg ally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary according to
the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof."
Second, § 6511(a) provides that, if a taxpayer is required to file a return with respect to a tax, such as
the gift tax, the taxpayer must file any claim for refund within three years from the time the return was
filed or two years from the time the tax was paid, whichever period expires later. Read together, the
import of these sections is clear: unless a claim for refund of a tax has be en filed within the time limits
imposed by § 6511(a), a suit for refund, regardless of whether the tax is alleged to have been
"erroneously," "illegally," or "wrongfully collected," §§ 1346(a)(1), 7422(a), may not be maintained in any
court. See United States v. Kales, 314 U. S. 186, 314 U. S. 193 (1941).
There is no doubt that Dalm failed to co mply with these statutory requirements. The Schriers filed their
gift tax return and Dalm paid the gift tax on the 1976 transfer in December, 1976. She paid the penalties
and interest on that tax in March, 1977. Dalm did not file her claim for refund of th e gift tax until November,
1984, long after the limitations period expired. Under the plain language of §§ 6511(a) and 7422(a), the
District Court was barred from entertaining her suit for a refund of the tax.
B
The Court of Appeals did not contest this analysis; indeed, it recognized that "[t]here is no statutory basis
for permitting the recovery of a tax overpayment after the statute of limitations has expired." 867 F.2d at
308. Despite the lack of a statutory basis for recovery, the court concluded that the doctrine of equi table
recoupment permits Dalm to maintain an action to recover the overpaid gift tax. We disagree.
The doctrine of equitable recoupment was first addressed by us in our opinion in Bull v. United States,
supra. There, the dispute centered on whether partnership distributions received by a decedent's estate
after his death were subject to estate tax or income tax. After an audit, the executor of the estate included
the sums in the estate tax return and paid the estate tax in 1920 and 1921. In 1925, the Commis sioner
of Internal Revenue notified the estate of a deficiency in the estate's income tax for the 1920 tax year,
contending that the same distributions upon which estate tax had been paid shou ld have been treated as
income. The Commissioner, however, did not give credit for the estate tax earlier paid on the value of the
distributions.
That same year, the estate petitioned to the Board of Tax Appeals for a redetermination of the deficiency.
[Footnote 3] After the Board sustained the Commissioner's deficiency determination, the estate paid the
additional income tax and filed a claim for refund of the income tax paid. The Commissioner rejected the
claim, and, in September, 1930, the e xecutor sued in the Court of Claims for a refund of the income tax.
[Footnote 4]
In his petition to the Court of Cl aims, the executor argued (1) that the amount taxed was not inco me, so
that the estate was entitled to a refund of the entire amount of income tax paid; and (2) alternatively, if
the amount taxed was income, the Government should credit against the income tax due the overpayment
of estate tax, plus interest, attributable to the inclusion of the amount in the taxable estate. The Court of
Claims rejected both arguments.
We reversed, holding that the executor was entitled to a credit against the income tax deficiency in the
amount of the overpayment of estate tax, with int erest. 295 U.S. at 295 U. S. 263. We began by
acknowledging that the executor had not filed a claim for refund of the estate tax within the limitations
period, and that any action for refund of the tax was now barred. Id. at 295 U. S. 259, 295 U. S. 260-261.
"If nothing further had occurred Congressional action would have been the sole avenue of redress.
" Id. at 295 U. S. 261.
What did occur, however, was that, afte r the limitations period on the estate tax had run, the Government
assessed a deficiency in the estate's income tax based upon the same taxable event, and the deficiency
became the subject of litigation between the estate and the Government. We reasoned th at a tax
assessment is in essence an assertion by the sovereign that the taxpayer owes a debt to it; but that,
because "taxes are the life-blood of government," it was necessary for the tax as sessed to be collected
prior to adjudication of whether the asse ssment was erroneous or unlawful. As a result, "the usual
procedure for the recovery of debts is reversed in the field of taxation. Payment precedes defense, and
the burden of proof, normally on the claimant, is shifted to the taxpayer. . . . But these reversals of the
normal process of collecting a claim cannot obscure the fact that, after all, what is being accomplished is
the recovery of a just debt owed the sovereign."
Id. at 295 U. S. 260. Under our reasoning, the proceeding between the executor and the Government was,
in substance, an attempt by the Government to recover a debt from the estate. The debt was the income
tax that was owed, even though, in fact, it alrea dy had been paid. Had the Government followed the "usual
procedure" of recovering debts by instituting an action at law for the income tax owed, the executor would
have been able to defend against the suit by "demanding recoupment of the amount mistakenly collected
as estate tax and wrongfully retained." Id. at 259 U. S. 261 (citing United States v. State Bank, 96 U. S.
30 (1878)).
"If the claim for income tax deficiency had been the subject of a suit, any counterdemand for recoupment
of the overpayment of estate tax could have been asserted by way of defense, and credit obtained
notwithstanding the statute of limitations had barred an independent suit against the Government therefor.
This is because recoupment is in the nature of a defense arising out of some feature of the tr ansaction
upon which the plaintiff's action is grounded. Such a defense i s never barred by the statute of limitations
so long as the main action itself is timely."
295 U.S. at 295 U. S. 262. We found it immaterial that, rather than the Govern ment having to sue to
collect the income tax, the executor was required first to pay it and then seek a refund.
"This procedural requirement does not obliterate his substantial right to rely on his cross-demand for credit
of the amount which, if the United States had sued him for income tax, he could have recouped against
his liability on that score."
Dalm contends that the only distinction between her case and Bull is the "meaningless procedural
distinction" that her claim of equitable recoupment is raised in a separate suit for refund of gift tax, after
she had litigated the income tax deficiency, while in Bull the claim of equitable recoupment of the estate
tax was litigated as part of a suit for refund of that tax alleged to be inconsistent with the esta te tax. A
distinction that has jurisdiction as its central concept is not meaningless. In Bull, the executor sought
equitable recoupment of the estate tax in an action for refund of i ncome tax, over which it was undisputed
that the Court of Claims had juri sdiction. See n 4, supra. All that was at issue was whether the Court of
Claims, in the interests of equity, could adjust the income tax owed to the Government to take account of
an estate tax paid in error but which the executor could not recover in a separate refund action. Here,
Dalm does not seek to invoke equitable recoupment in determining her income tax liability; she has already
litigated that liability without raising a cl aim of equitable recoupment and is foreclosed from relitigating it
now. See § 6512(a). She seeks to invoke equitable recoupment only in a separate action for refund of gift
tax, an action for which there is no statutory authorization by reason of the bar o f the limitations statute.
It is instructive to consider what the facts in Bull would have to be if Dalm's contention is correct that her
case is identical to Bull in all material respects. The executor in Bull would have litigated the income tax
liability, without raising a claim of equitable recoupment, in the Board of Tax Appeals and/or in the Court
of Claims, with the Government winning in each forum. Then, having exhausted his ave nues of litigating
the income tax liability and paid the tax, the executo r would have filed a claim for refund of the estate tax
with the Commissioner, asserting equitable recoupment as the basis for the refund, with the Commissioner
rejecting it as untimely. At that point, the executor would have brought suit for refund of the estate tax in
20
the Court of Claims after the statute of limitations had run. Had the case come to us with those facts, we
would have faced the issue presented here: whether the court in which the taxpayer was seeking a refund
was barred from entertaining the suit. We can say with assurance that we were not presented with this
issue in Bull, and did not consider it. Even had the issue been raised, Bull itself suggests that we would
have rejected Dalm's argument out of hand. See Bull, 295 U.S. at 295 U. S. 259 ("The fact that the
petitioner relied on the Commissioner's assessment for estate tax, and bel ieved the inconsistent claim of
deficiency of income tax was of no force cannot avail to toll the statute of limitations, which forbade the
bringing of any action in 1930 for refund of estate tax payments made in 1921").
The only other decision in which we have upheld a claim or defense premised upon the doctrine of equitable
recoupment is consistent with our analysis today. In Stone v. White, 301 U. S. 532 (1937), a trust had
paid the income it received from the corpus to its sole beneficiary and also paid the tax due on the income.
After the statute of limitations governing the Government's right to collect the income tax from the
beneficiary had run, the trust filed a timely sui t seeking a refund of the income tax paid on the theory that
the beneficiary, not the trust, was liable for the tax. We held that, given the identity of interest between
the beneficiary and the trust, the Government could invoke equitable recoupment to ass ert its now-barred
claim against the beneficiary as a defense to the trus t's timely claim for a refund. Id. at 301 U. S. 537-
539. As in Bull, there was no dispute that the court in which we allowed the doctrine of equitable
recoupment to be raised had jurisdiction over the underlying action: the trust's timely action for a refund
of income tax.
In sum, our decisions in Bull and Stone stand only for the proposition that a party litigating a tax claim in
a timely proceeding may, in that proceedi ng, seek recoupment of a related, and inconsistent, but now
time-barred tax claim relating to the same transaction. In both cases, there was no question but that the
courts in which the refund actions were brought had jurisdiction. To date, we have not all owed equitable
recoupment to be the sole basis for jurisdiction.
C
Under settled principles of sovereign immunity, "the United States, as sovereign, 'is immune from suit,
save as it consents to be sued . . . and the terms of its consent to be sued in any c ourt define that court's
jurisdiction to entertain the suit.'"
United States v. Testan, 424 U. S. 392, 424 U. S. 399 (1976) (quoting United States v. Sherwood, 312 U.
S. 584, 312 U. S. 586 (1941)). A statute of limitations requiring that a suit against the Government be
brought within a certain time period is one of those terms. See United States v. Mottaz, 476 U. S. 834, 476
U. S. 841 (1986); Block v. North Dakota ex rel. Bd. of Univ. and School Lands, 461 U. S. 273, 461 U. S.
287 (1983).
"[A]lthough we should not construe such a time -bar provision unduly restrictively, we must be careful not
to interpret it in a manner that would 'extend the waiver beyond that which Congress intended.'"
Ibid. (quoting United States v. Kubrick, 444 U. S. 111, 444 U. S. 117-118 (1979)); Library of Congress v.
Shaw, 478 U. S. 310, 478 U. S. 318 (1986); United States v. King, 395 U. S. 1, 395 U. S. 4 (1969)
(waivers of sovereign immunity by Congress "cannot be implied but must be unequivocally expressed").
As we have determined, our previous equitable recoupment cases have not suspended rules of jurisdiction,
and so have not deviated from these principles. We likewise refuse Dalm's invitation to do so here. She
seeks a refund not of income tax but of gift tax on which the return was filed and the tax paid in December,
1976. For the District Court to have jurisdiction over her suit for refund, Dalm was requi red to file a claim
for refund of the tax within three years of the time the gift tax return was filed or two years of the time
the tax was paid, whichever period expires later. See §§ 6511 (a), 7422(a). [Footnote 6] There is no
question but that she failed to do so. [Footnote 7] Having failed to comply with the statutory requirements
for seeking a refund, she asks us to go beyond the authority Congress has given us in permitting suits
against the Government. If any principle is central to our understanding of sovereign immunity, it is that
the power to consent to such suits is reserved to Congress.
Our conclusion is reinforced by the fact that Congress has legislated a set of exceptions to the limitations
period prescribed by §§ 7422 and 6511(a). In 1938, Congress adopted what are known as the mitigation
provisions, now codified at §§ 1311-1314. These statutes, in specified circumstances, permit a taxpayer
who has been required to pay inconsistent taxes to seek a refund of a tax the recovery of which is otherwise
barred by §§ 7422(a) and 6511(a). It is undisputed that Dalm's action does not come within these
provisions; were we to allow her to maintain a suit for refund on the basis of equitable recoupment, we
would be doing little more than overriding Congress' judgment as to when equity requires that there be
an exception to the limitations bar.
Our holding today does not leave taxpayers in Dalm's position powerless to invoke the doctrine of equitable
recoupment. Both the Secretary, at the administrative level, see Rev.Rul. 71-56, 1971-1 Cum.Bull. 404
(revoking Rev.Rul. 55-226, 1955-1 Cum.Bull. 469), and a court which has jurisdiction over a timely suit
for refund may consider an equitable recoupment claim for an earlier tax paid under an inconsistent theory
on the same transaction.
III
The Court of Appeals reasoned that recoupment should be permit ted because it effected, with respect to
a single transaction, the recovery of a tax based upon a theory inconsistent with the theory upon which a
later tax was paid. But to permit an independent action for recoupment because there is but one
transaction is to mistake the threshold requirement for its rationale. It is true that our precedents allowing
recoupment pertain to cases where a single transaction is subjected to inconsistent taxation, but the
reason the statute of limitations is not a bar in those cases is that the court has uncontested jurisdiction
to adjudicate one of the taxes in question. In such cases, a court has the equitable power to examine and
consider the entire transaction:
"The essence of the doctrine of recoupment is stated in the Bull case:" "recoupment is in the nature of a
defense arising out of some feature of the transaction upon which the plaintiff's action is grounded."
"295 U.S. 247, 295 U. S. 262. It has never been thought to allow one transaction to be offset against
another, but only to permit a transaction which is made the subject of suit by plaintiff to be examined in
all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole."
Here the Government asserted an income tax deficiency on a theory inconsistent with the theory upon
which Dalm relied in paying gift tax. She chose to litigate the d eficiency in the Tax Court, where she did
not attempt to raise a recoupment claim. [Footnote 8] She cannot choose this avenue to adjudicate the
income tax consequences of the transaction, and then seek to reopen the matter and override the statute
of limitations for the sole purpose of seeking recoupment. The controlling jurisdictional statutes do not
permit her to do so.
The judgment of the Court of Appeals is therefore reversed.
It is so ordered.
[Footnote 1]
Unless otherwise noted, all statutory references are to the Internal Revenue Code of 1954 (26 U.S.C.), as
amended.
[Footnote 2]
In its opinion granting summary judgment to the Government, the District Court had suggested that an
alternative ground for decision was that the only plausible explan ation for the allocation of the agreed
income tax liability between 1976 and 1977 in the Tax Court settlement was that the allocation reflected
21
the previously paid gift tax on the 1976 transfer. The Sixth Circuit held that the District Court had erred
in granting summary judgment on this issue, giving the taxpayer an opportunity to show the parties' intent
in effecting the settlement. Accordingly, it remanded the case for further proceedings on this issue. 867
F.2d at 312.
[Footnote 3]
The Board of Tax Appeals, the forerunner to the United States Tax Court, was established by the Revenue
Act of 1924 as "an independent agency in the executive branch of the Government." Revenue Act of 1924,
Pub.L. 176, § 900(k), 43 Stat. 338. Under the Act, a taxpayer was permitted to challenge an income tax
deficiency asserted by the Commissioner, prior to paying the deficiency, by way of a petition to the
Board. See id. §§ 274, 900; Old Colony Trust Co. v. Commissioner, 279 U. S. 716, 279 U. S. 721 (1929).
[Footnote 4]
Before the enactment of the Revenue Act of 1926, there was no direct review of Board of Tax Appeals
decisions. As a result, a taxpayer who lost in proceedings before the Board was permitted to sue in district
court or the Court of Claims for a refund after payment of the deficiency. In effect, the refund suit, although
nominally a separate proceeding, was a mechanism by which taxpayers could obtain review of Board
decisions. See Old Colony Trust Co., supra, at 279 U. S. 721-722; Ferguson, Jurisdictional Problems in
Federal Tax Controversies, 48 Iowa L.Rev. 312, 350-351 (1963). The Revenue Act of 1926 put an end to
this circuitous process. First, it provided for direct judicial review of Board decisions in the courts of
appeals. Revenue Act of 1926, ch. 27, § 1001(a), 44 Stat. 109. Second, the Act provided that, once a
taxpayer had filed a timely petition with the Board, the taxpayer generally could not institute a new suit
in another court for refund of the same tax. Id., § 284(d), 44 Stat. 67. Under our decision in Old Colony
Trust Co., supra, at 279 U. S. 725-728, the Act did not apply to cases where, as in Bull, the taxpayer filed
his or her petition with the Board and the Board had not issued a decision prior to the enactment of the
Act in 1926. See generally Andrews, Modern-Day Equitable Recoupment and the "Two Tax Effect :"
Avoidance of the Statutes of Limitation in Federal Tax Controversies, 28 Ariz.L.Rev. 595, 599, n. 20 (1986).
[Footnote 5]
Since Bull, we have emphasized that a claim of equitable recoupment will lie only where the Government
has taxed a single transaction, item, or taxable event under two inconsistent theories. See Rothensies v.
Electric Storage Battery Co., 329 U. S. 296, 329 U. S. 299-300 (1946); cf. Stone v. White, 301 U. S.
532 (1937) (permitting the Government to invoke equitable recoupment as a defense against a claim for
refund of income tax paid by a trust where there was a complete identity of interest between the trust and
the beneficiary who had received the income, and a claim aga inst the beneficiary for the income tax was
then barred).
[Footnote 6]
JUSTICE STEVENS calls it a fiction to cast Dalm's action as a suit for refund. He creates instead a distinction
between refund actions and suits for funds wrongfully retained. See post at 494 U. S. 620-622. Neither
the IRC nor our authorities support the distinction. Section 6 511(a) applies to claims for refund of a tax
"overpayment." The common sense interpretation is that a tax is over paid when a taxpayer pays more
than is owed, for whatever reason or no reason at all. Even in Bull, the case upon which the dissent relies
to assert that retention of the gift tax is unjust or fraudulent, we described the inconsistent tax as being
an "overpayment." See, e.g., 295 U.S. at 295 U. S. 258, 295 U. S. 262, 295 U. S. 263. The word
encompasses "erroneously," "illegally," or "wrongfully" collected taxes, as those terms are used in 28
U.S.C. § 1346(a)(1) (1982 ed.) and § 7422(a).
There is a further statutory point. By its express language, § 7422(a) conditions a district court's authority
to hear a refund suit, regardless of whether the tax is alleged to have been erroneously, illegally, or
wrongfully collected, upon the filing of a claim for refund. If, as even JUSTICE STEVENS appears to
concede, see post at 494 U. S. 620, the term "overpayment" as used in § 6511(a) encompasses erroneous
or illegal collection, there is no reason to conclude that it does not also encompass wrongful collection.
As a final matter, we note that both Dalm and the Court of Appeals must have been misled by what
JUSTICE STEVENS now thinks a fiction. Dalm's complaint sought a "refund" of "overpaid gift taxes," and
the Court of Appeals treated the claim as one for "recovery of a tax overpayment." See Complaint, 2-3;
867 F.2d 305, 308 (CA6 1989). We have no doubt that these characterizations were correct.
[Footnote 7]
In a final attempt to bring her refund suit within the statute, Dalm contends that her s uit was timely. She
argues that the gift tax was not paid for the purposes of § 6511(a) until 1984, when it was determined
that she owed income tax on the same transaction under an inconsistent theory. So, she asserts, her
cause of action for refund of gift tax did not arise until that time. We disagree. The most sensible
interpretation of § 6511(a) is that a tax is paid when the taxpayer tenders payment of the tax to the IRS,
not when the taxpayer discovers that the payment was erroneous. The very purpose of statutes of
limitations in the tax context is to bar the assertion of a refund claim after a certa in period of time has
passed, without regard to whether the claim would otherwise be meritorious. That a taxpayer does not
learn until after the limitations period has run that a tax was paid in error, and that he or she has a ground
upon which to claim a refund, does not operate to lift the statutory bar.
[Footnote 8]
We have no occasion to pass upon the question whether Dalm could have raised a recoupment claim in
the Tax Court.
JUSTICE STEVENS, with whom JUSTICE BRENNAN and JUSTICE MARSHALL join, dissenting.
This is not a decision that will be much celebrated or often cited. Few c ases are affected, and not a single
brief amicus curiae was filed. The Court reserves in a footnote a n issue that would render obsolete its
holding. The case casts a shadow on the Executive -- and on this Court -- but otherwise has no apparent
importance.
Indeed, the Court's opinion is remarkable not at all for what it says, but rather for what it leaves unsaid.
The majority's parsing of sovereign immunity and jurisdiction masks what is the ultimate question before
us: whether a statute of limitations otherwise barring a refund of federal income tax is tolled by
Government conduct that this Court has censured as "immoral" and tantamount to "a fraud on the
taxpayer's rights." See Bull v. United States, 295 U. S. 247, 295 U. S. 261 (1935). The Court today offers
a jurisdictional apology when it could -- and should -- follow the just rule of the Bull case.
I from the posture of this case -- as respondent's counsel represented to the Court -- that respondent's
This case is remarkably similar to its 55-year-old precursor. The Bull case involved an attempt by the
Government to collect income tax on partnership distributions received by the estate of a deceased
partner. The Commissioner of Internal Revenue had already collected an estate tax on the distributions
on the assumption that they constituted part of the estate corpus. The Commissioner contended, first,
that the same transactions could constitute both corpus and income, and thus be subject to both an estate
tax and an income tax, and, second, that, in any event, the statute of limitations barred a recovery of the
estate tax. This Court rejected the Commissioner's first argument, and characterized as follows his claim
that the Government could retain the estate tax while collecting a second tax on the same transaction
pursuant to an inconsistent the ory:
"The United States, we have held, cannot, as against the claim of an innocent party, hold his money which
has gone into its treasury by means of the fraud of its agent. United States v. State Bank, 96 U. S. 30.
While here the money was taken through mistake without any element of fraud, the unjust retention is
immoral and amounts in law to a fraud on the taxpayer's rights."
This case involves an equally unjust retention of a previously paid tax. The Government has collected an
income tax on a transfer of $180,000 to respondent while retaining the gift tax previously paid on the
22
same transfer. The Court's decision assumes, as the summary judgment record requires, that, when the
Government compromised its claim for an income tax deficiency, it allowed respondent no credit for the
gift tax that had previously been paid. Thus, the critical fact tha t made the Government's position
in Bull immoral is present here: a single taxable event has been subjected to two taxes on mutually
inconsistent theories. [Footnote 2/1]
II
Even with the parallel between Bull and this case clearly in mind, most readers of the majority's opinion
must wonder how this case ever came before our Court, and why the majority must recite so much law to
decide it. According to the majority, respondent chose to litigate in the Tax Court the deficiency assessed
against her, and, having made this choice, cannot "then seek to reopen the matter and override the statute
of limitations for the sole purpose of seeking recoupment." Ante at 494 U. S. 611. This may seem fair
enough, but also plain enough: a legal claim that might have been settled in an earlier proceeding is
usually barred by rules of claim preclusion. If the claim is not barred by the settlement agreement in this
case, then surely the Government can -- without any help from this Court -- avoid such problems in the
future by drafting its settlement agreements more carefully. There is accordingly no justification for the
Court's exercise of certiorari jurisdiction in this case, a discretionary act wh ich has done nothing more
useful than deprive the twice -taxed respondent in this case of a remedy for a wrong done by the
Government. [Footnote 2/2]
Two facts explain why the Government does not rely on principles of claim preclusion as a defense in this
case. The first is this: it is undisputed by the parties to this case that the Tax Court lacked jurisdiction to
consider recoupment of the gift tax payment against the income tax deficiency. [Footnote 2/3] According
to the Government, respondent cannot, and for that rea son did not, raise her equitable recoupment claim
in the Tax Court: "respondent's cho ice of the Tax Court forum precluded her from claiming equitable
recoupment against the income tax deficiency." Reply Brief for United States 6. The Government
acknowledges that respondent may have had a sound claim for recoupment, but insists that to purs ue this
claim she should have "paid the 1976 and 1977 income tax deficiencies and then brought a timely refund
suit in district court or the Claims Court." Id. at 3-4.
The second fact is this: an affluent taxpayer, but not a less fortunate one, can pay a d eficiency assessment
and file suit for a refund. It is undisputed that, if respondent had the means to do so, she could have
recovered the gift tax that had been paid in 1976 by a refund action filed after she received the notice of
income tax deficiency in 1983, even though the statute of limitations had long since run. One might infer
limited means foreclosed this avenue of relief for her. She therefore challenged the deficiency in the Tax
Court.
These two facts explain what the majority does not: why we are not addressing a simple case of res
judicata. It is clear that the basis for respondent's equitable recoupment claim did not exist until it was
determined that the payment made in 1976 was taxable as income. Thus, respondent could apparently
obtain a forum to hear her equitable recoupment claim only by seeking a refund of the previously paid gift
tax -- an action which all agree was barred by limitations when respondent received the notice of deficiency
in 1983.
When that determination was made -- that is to say, when the income tax case was settled -- respondent
promptly asserted her recoupment claim in the only forum available. Indeed, she filed her claim for a gift
tax refund even before the settlement agreement was consummated. In view of the fact that the character
of the 1976 transaction remained in dispute until t he claim was filed, none of the policy reasons that
normally support the applica tion of a statute of limitations is implicated by this case.
III
The Court nevertheless denies respondent the relief devised by the Bull Court. Ignoring both the policies
underlying the statute of limitations and the principles of just conduct underlying Bull, the Court confronts
respondent with the majestic voices of "jurisdiction" and "sovereign immunity" -- voices that seem to have
a haunting charm for this Court's current ma jority.
The Court that decided the Bull case reasoned not in obeisance to these siren-like voices, but rather under
the reliable guidance of a bright star in our jurisprudence: the presumption that for every right there
should be a remedy. See Marbury v. Madison, 1 Cranch 137, 5 U. S. 162-163 (1803). Without any sacrifice
of technical propriety, the Bull Court could have found that the lapse of time had divested the Court of
Claims of jurisdiction to allow the taxpayer credit for the previously paid estate tax. It easily avoided that
unjust result, however, by relying on the special features of the t ax collection procedures that impose
burdens on the taxpayer unlike those imposed on ordinary litigants. The net effect of its analysis was to
hold that in a refund action based on the multiple and inconsistent taxation of a single transaction, the
taxpayer is to be treated as though she were the defendant even though she is actually the plaintiff.
[Footnote 2/4]
I would adopt the same course in this case. By initiating a proceed ing to recover income tax based on the
1976 payment, the Government waived the time bar that would otherwise have precluded a claim for
refund of the gift tax. Had respondent paid the deficiency and asserted the claim for a gift tax refund as a
second count in one action, even this Court would agree that the claim was time ly. If we adopt the Court's
reasoning in Bull, it is proper to treat the second count of the refund action as timely even when the
income tax issues are litigated before the Tax Court, because the deficiency assessment was sufficient to
put in issue the right to recoupment and to justify treating the taxpayer as a defendant, rather than a
plaintiff. If it was not too late for the Government to litigate the tax consequences of the 1976 payme nt,
it should not be too late for the taxpayer to do so. "A differen t result here [is] a reproach to our
jurisprudence." United States v. State Bank, 96 U. S. 30, 96 U. S. 36 (1878).
IV
It may reasonably be said that the disposition in Bull involved an unusually flexible treatment of legal
categories. The rights of a plaintiff are construed by reference to t he status of a defendant so as to permit,
in effect, the equitable tolling of a limitations period. A doctrinal innovation that appears imaginative may,
however, be nothing more than the necessary expression of an exception to a generally appropriate
definition. This particular exception deserves the status of a legal rule by virtue of our decision
in Bull. There is no reason to retreat from the direction of that precedent today.
There is, moreover, nothing especially sober or unflinching about the majority's disposition of this case.
Quite the contrary is true. The majority's approach depends upon showing that this Court is constrained
by tightly drawn jurisdictional boundaries, but, as the majority concedes, the relevant jurisdictional statute
speaks in "spacious terms." Ante at 494 U. S. 601. Indeed, the statute confers jurisdiction not only over
any "civil action against the United States for the recovery of any interna l-revenue tax alleged to have
been erroneously or illegally assessed or collected," but also over any such action to recover "any sum
alleged to have been excessive or in any manner wrongfully collected under the internal revenue laws."
28 U.S.C. § 1346(a)(1) (1982 ed.). [Footnote 2/5]
The majority correctly recognizes that this blanket waiver of immunity can be converted into a jurisdictional
straitjacket only by recourse to limitations spelled out elsewhere. The majority would find t hese limitations
in § 7422 and § 6511(a) of the Internal Revenue Code. The first of these provisions stipulates that no tax
refund suit "shall be maintained . . . until a claim for refund or credit h as been duly filed with the Secretary,
according to the provisions of law in that regard, and the regulations of the Secretary established in
pursuance thereof."
26 U.S.C. § 7422(a) (1982 ed.). [Footnote 2/6] The second provision establishes a statute of limitations
applicable to actions for refund of taxes paid by filing a return or by means of a stamp. 26 U.S.C. § 6511(a)
23
(1982 ed.). [Footnote 2/7] It is the latter of these two provisions which gives the majority the shackles it
seeks: the statute of limitations in § 6511(a) is a provision of law that, under § 7422(a), restricts the
capacity of taxpayers to maintain suits. Denominating respondent's suit an action for refund of overpaid
gift tax, the majority declares there can be "no doubt" that the combined operation of § 7422(a) and §
6511(a) strips the federal courts of the jurisdiction otherwise ac corded by 28 U.S.C. § 1346(a)(1) (1982
ed.) over the recoupment suit.
I have no doubt that § 6511 prescribes the statute of limitations applicable to actions for the refund of
overpaid gift tax, and that, if this were such an action, the section would at l east support the majority's
argument. This suit is not, however, technically a suit for the refund of overpaid gift tax within the meaning
of § 6511(a). The gravamen of respondent's claim is not that the gift tax was overpaid, but that it was
unjustly retained. According to the Bull Court, "[w]hile here the money was taken through mistake,
without any element of fraud, the unjust retention is immoral, and amounts in law to a fraud on the
taxpayer's rights."
295 U.S. at 295 U. S. 261. In my opinion, a sum fraudulently retained under the internal revenue laws is
an amount included within § 1346(a)(1)'s provision for recovery of "any sum . . . in any manner wrongfully
collected under the internal-revenue laws." The jurisdictional grant expressly distinguishes such wrongfully
collected sums from those sums which are simply "excessive," and from taxes "erroneously or illegally
assessed or collected." These latter phrases would a ppear to cover actions for refund of an overpaid gift
tax, but the payment fraudulently retained in this case is better characterized as a "sum . . . wrongfully
collected." Likewise, § 6511(a), by its express terms, appl ies only to actions for refund of an "overpayment
of any tax" paid by means of a return or a stamp. It is odd to speak of the overpayment of a fraud, and
one is not ordinarily required to file a return in order to be defrauded -- even when the sovereign is the
malefactor. I conclude that, te chnically speaking, this action is one for the recoupment of tax wrongfully
collected because fraudulently retained, and not for the refund of tax overpaid. The plain language of §
1346(a)(1) accords jurisdiction over respondent's suit, and the terms of § 6511(a) do not divest it.
[Footnote 2/8] The majority's affection for plain language seems to end where its devotion to sovereign
immunity begins. [Footnote 2/9]
The majority is able to complete its argument only by inventing a small, but blatant, fiction: that
respondent is bringing a suit for the refund of overpaid gift tax within the meaning of 26 U.S.C. § 6511(a)
(1982 ed.). This minor fiction is then conscripted by the majority's strategy to serve the vainest of all legal
fictions, the doctrine of sovereign immunity. The doctrine has its origin in the ancient myt h that the "[K]ing
can do no wrong." See 1 W. Blackstone, Commentaries *238. Whatever might be said in favor of this
polite falsehood in English law, the doctrine is an anomalous import within our own. See Nevada v.
Hall, 440 U. S. 410, 440 U. S. 414-415 (1979); see also Will v. Michigan Dept. of State Police, 491 U. S.
58, 491 U. S. 87 (1989) (STEVENS, J., dissenting). Its persistence cannot be denied, but ought not to be
celebrated. Nor should its fictive origin ever be forgotten. There is no cause to expand the doctrine, and
we do better to interpret § 1346(a)(1) by the light of equity and with due regard for the practicalities of
revenue collection discussed in Bull.
To be useful, legal concepts must accommodate most di sputes without the dissonance accompanying
blended categories, but must also permit such flexibility when judgment demands it. It is not surprising
that our concepts should be stressed when the Government taxes a citizen twice upon inconsistent theories
and then subjects the citizen to a choice among competing fora, each of which provides only half a remedy.
It is equally unsurprising, and in fact encouraging, that such problems occur so rarely that Congress has
not made any explicit provision for them. [Footnote 2/10]
What is surprising is that this Court believes the equitable decision of the Court of Appeals in need of
correction. The Court today has taken discretionary jurisdiction over a case of no broad import, and has
undone equity by rendering an opinion true to neither the spirit nor the letter of American law. The Court
takes its stand upon the grave declaration that a "distinction tha t has jurisdiction as its central co ncept is
not meaningless." Ante at 494 U. S. 606. I am not sure what this solemn truism means, but I do know
that it does not decide this case.
Because I am unable to discover any just reason for distinguishing this case from Bull, I respectfully
dissent.
[Footnote 2/1]
Arguably, the Government's position in this case is even more outrageous than the position it took
in Bull, because its income tax assessment in that case was perfectly sound. In this case, however, its
income tax claim was based on the remarkable theory that payments aggregating $3 13,813 constituted
compensation for respondent's services as administratrix of her former employer's estate when the
probate court had approved a total of $37,000 as compensation for those services. I do not, however,
place any reliance on this aspect of the case, just as the Court correctly abstains from suggesting that the
harshness of its holding is mitigated by the unresolved factual dispute about whether the Tax Court
settlement took into account the prior gift tax payment. See ante at 494 U. S. 600-601, n. 2.
[Footnote 2/2]
The majority states that certiorari was granted in this case to re solve a conflict among the Courts of
Appeals. If there were such a conflict, it would not be of sufficient importance to merit our attention, but
in fact no relevant conflict exists. The majority correctly observes that the decision of the Court of Appeals
for the Sixth Circuit in this case agrees with that of the Court of Appeals for the Ninth Circuit in Kolom v.
United States, 791 F.2d 762 (1986). The Court erroneously suggests that these decisions are contrary
to O'Brien v. United States, 766 F.2d 1038 (CA7 1985). O'Brien was not a case in which a taxpayer sought
to litigate an equitable recoupment claim in District Court after litigating in the Tax Court the assessment
that generated the recoupment claim. In O'Brien, the beneficiary of an estate sought to litigate a
recoupment claim after a deficiency was assessed against, and litigated in the Tax Court by, the estate
itself. The Court of Appeals for the Seventh Circuit held that only the estate, not the beneficiary, could
assert any available recoupment claim. 766 F.2d at 1050-1051. I do not believe the Court of Appeals for
the Seventh Circuit spoke to the question at issue here, see 766 F.2d at 1050, n. 15, but to the extent it
did so, its remarks were obviously dicta. The Court thus today endorses a rul e that no Court of Appeals
has ever adopted.
[Footnote 2/3]
See Rev.Rul. 71-56, 1971-1 Cum.Bull. 404, 405 ("[T]he Tax Court lacks jurisdiction to consider a plea of
equitable recoupment"); see also Estate of Schneider v. Commissioner, 93 T.C. 568 (1989). In Rothensies
v. Electric Storage Battery Co., 329 U. S. 296, 329 U. S. 303 (1946), we cited Commissioner v. Gooch
Milling & Elevator Co., 320 U. S. 418 (1943), for the proposition that the Tax Court has no jurisdiction to
consider recoupment. A careful reading of the Gooch Milling opinion, and of the relevant statute, however,
will show that it actually considered only the question of recoupment based on an overpayment in a year
other than the year in dispute. I therefore commend the Court for its careful reservation of this issue, see
ante at 494 U. S. 611, n. 8. It is nevertheless appropriate to assume for purposes of deciding the
jurisdictional issue in this case that respondent's counsel correctly believed that no recoupment could be
had in the Tax Court.
Of course, if this Court were eventually to decide the reserved issue by holding that the Tax Court has
jurisdiction to hear an equitable recoupment claim, today's decision would become a complete dead letter.
No taxpayer would have any reason to litigate the deficiency and the recoupment issues separately, and
in any event, a judgment upon the former would bar a subsequent suit upon the latter under t he doctrine
of res judicata.
[Footnote 2/4]
"The ordinary defendant stands in judgment only after a hearing. The taxpayer often is afforded his hearing
after judgment and after payment, and his only redress for unjust administrative action is the right to
claim restitution. But these reversals of the normal process of collecting a claim cannot obscure the fact
24
that, after all, what is being accomplished is the recovery of a just debt owed the sovereign. If that which
the sovereign retains was unjustly taken in violation of its own statute, the withholding is wrongful.
Restitution is owed the taxpayer. Nevertheless he may be wi thout a remedy. But we think this is not true
here."
"In a proceeding for the collection of estate tax, the United States, through a palpable mistake, took more
than it was entitled to. Retention of the money was against morality and conscience. But claim for refund
or credit was not presented or action instit uted for restitution within the period fixed by the statute of
limitations. If nothing further had occurred, Congressional action would have been the sole avenue of
redress."
"To the objection that the sovereign is not liable to respond to the petitioner t he answer is that it has given
him a right of credit or refund, which, though he could not assert it in an action brought by him in 1930,
had accrued and was available to him, since it was actionable a nd not barred in 1925 when the Government
proceeded against him for the collection of income tax."
"The pleading was sufficient to put in issue the right to recoupment."
Bull v. United States, 295 U. S. 247, 295 U. S. 260-261, 295 U. S. 263 (1935).
[Footnote 2/5]
The provision reads: "The district courts shall have original jurisdiction, concurrent with the United States
Claims Court, of: (1) Any civil action against the United States for the recovery of any internal-revenue
tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have
been collected without authority or any sum alleged to have been excessive or in any manner wrongfully
collected under the internal-revenue laws."
[Footnote 2/6]
The majority quotes this provision in its entirety. See ante at 494 U. S. 601-602.
[Footnote 2/7]
The provision reads: "Claim for credit or refund of an overpayment of any tax imposed by this title in
respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years
from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods
expires the later, or if no return was file d by the taxpayer, within 2 years from the time the tax was paid.
Claim for credit or refund of an overpayment of any tax imposed by this title which is required to be paid
by means of a stamp shall be filed by the taxpayer within 3 years from the time the tax was paid."
[Footnote 2/8]
The income tax deficiency was assessed against respondent in June, 1983. In November, 1984, respondent
filed an administrative claim seeking relief from the inconsistent tax treatment of the transaction. This suit
followed in September, 1985. The suit would thus be timely even if the 2 -year limitations period from §
6511(a) were borrowed and applied to claims arising out of a "wrongful collection" r esulting from
inconsistent taxation.
[Footnote 2/9]
Respondent's complaint identifies this action as one for "recovery of Internal Revenue taxes and interest
erroneously collected from" respondent, and alleges that "overpaid gift taxes" are due and owing to
respondent. Respondent filed with the Internal Revenue Service claims for refund of overpaid gift tax. I
do not, however, understand the majority to rely upon these details of the pleadings. Nor could it
reasonably do so. As the Government's handling of this case makes clear, it understood the basis for
respondent's cause of action. That basis is, moreover, evident from the face of the complaint, which alleges
that:
"4. It is inequitable for Defendant to collect taxes on the same fund on the mu tually exclusive theories of
said amount of money being both income and a gift."
"5. Accordingly, timely Claims for Refund was [sic] filed on November 1, 1984. . . ."
"* * * *"
"7. The action of the Defendant, through its agents, in assessing and collectin g the amounts referred to in
Paragraph 2 [alleging the payment of gift taxes in 1976 and 1977] hereof was improper, illegal and
erroneous."
Nowhere does the complaint allege that the gift tax was collected as the result of erroneous calculations,
mistaken facts, or misinterpreted provisions of law. The sole reason given for recognizing the gift tax as
an "overpayment" is that its retention would be "inequitable."
If indeed the premise for the majority's holding is an especially strict rule of pleading, then the majority's
holding becomes not simply trivial, but absurd. The pleading rule imposed certainly does not have
"jurisdiction as its central concept," and thus would, even by the majorit y's logic, be a "meaningless
procedural distinction.'" See ante at 494 U. S. 606. Cf. United States v. Kales, 314 U. S. 186, 314 U. S.
194 (1941) ("This Court . . . has often held that a notice fairly advising the Commissioner of the nature of
the taxpayer's claim, which the Commissioner could reject because too general or bec ause it does not
comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim,
where formal defects and lack of specificity have been remedied by amendment filed after the lapse of the
statutory period").
[Footnote 2/10]
The majority supposes that its "conclusion is reinforced by the fact that Congress has legislated a set of
exceptions to the limitations period" which "permit a taxpaye r who has been required to pay inconsistent
taxes to seek a refund of a tax the recovery of which is otherwise barred." See ante at 494 U. S. 610. The
exceptions were enacted two years after Bull was decided. It is undisputed that these exceptions do not
apply in this case. Unlike the majority, I am not persuaded that, because Congress took special steps to
ensure that twice-taxed citizens were treated equitably under some circumstances, Congress must have
intended to gut judicially created doctrines which ensured equitable treatment for twice -taxed citizens
under other circumstances. The contrary inference seems more plausible. See Andrews, Modern-Day
Equitable Recoupment and the "Two Tax Effect:" Avoidance of the Statutes of Limitation in Federal Tax
Controversies, 28 Ariz.L.Rev. 595, 619-623 (1986).
25
G.R. No. 188550 August 19, 2013
DEUTSCHE BANK AG MANILA BRANCH, PETITIONE R,
vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DE CI SI ON
SERENO, CJ.:
This is a Petition for Review1 filed by Deutsche Bank AG Manila Branch (petitioner) under Rule 45 of the
1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc (CTA En Banc) Decision 2 dated
29 May 2009 and Resolution 3 dated 1 July 2009 in C.T.A. EB No. 456.
THE FACTS
In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of 1997, petitioner
withheld and remitted to respondent on 21 October 2003 the amount of PHP 67,688,553.51, which
represented the fifteen percent (15%) bra nch profit remittance tax (BPRT) on its regular banking unit
(RBU) net income remitted to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years. 5
Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large T axpayers
Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or issuance
of its tax credit certificate in the total amount of PHP 22,562,851.17. On the same date, petitioner
requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the
preferential tax rate of 10% under the RP-Germany Tax Treaty.6
Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for Review7 with the
CTA on 18 October 2005. Petitioner reiterated its claim for the refund or issuance of its tax c redit certificate
for the amount of PHP 22,562,851.17 representing the alleged excess BPRT paid on branch profits
remittance to DB Germany.
THE CTA SECOND DIVISION RULING8
After trial on the merits, the CTA Second Division found that petitioner indeed paid the total amount of
PHP 67,688,553.51 representing the 15% BPRT on its RBU profits amounting to PHP 451,257,023.29 for
2002 and prior taxable years. Records also d isclose that for the year 2003, petitioner remitted to DB
Germany the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1
EURO), which is net of the 15% BPRT.
However, the claim of petitioner for a refund was denied on t he ground that the application for a tax treaty
relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its
branch profits to DB Germany, or prior to its availment of the preferential rate of ten percent (10%) under
the RP-Germany Tax Treaty provision. The court a quo held that petitioner violated the fifteen (15) day
period mandated under Section III paragraph (2) of Revenue Me morandum Order (RMO) No. 1-2000.
Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation (formerly Southern
Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal Revenue 9 (Mirant) where the
CTA En Banc ruled that before the benefits of the tax treaty may be extended to a foreign corporation
wishing to avail itself thereof, the latter should first invoke the provisions of the tax treaty and prove th at
they indeed apply to the corporation.
THE CTA EN BANC RULING10
The CTA En Banc affirmed the CTA Second Division’s Decision dated 29 August 2008 and Resolution d ated
14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from the ITAD of the BIR must be
secured prior to the availment of a preferential tax rate under a tax treaty. Applying the principle of stare
decisis et non quieta movere, the CTA En Banc took into consideration that this Court had de nied the
Petition in G.R. No. 168531 filed by Mirant for failure to sufficiently show any reversible error in the assailed
judgment.11 The CTA En Banc ruled that once a case has been decided in one way, any other case involving
exactly the same point at issue should be decided in the same manner.
The court likewise ruled that the 15-day rule for tax treaty relief application under RMO No. 1-2000 cannot
be relaxed for petitioner, unlike in CBK Power Company Limited v. Commissioner of Internal Revenue. 12 In
that case, the rule was relaxed and the claim for refund of excess fina l withholding taxes was partially
granted. While it issued a ruling to CBK Power Company Limited after the payment of withholding taxes,
the ITAD did not issue any ruling to petitioner even if it filed a request for confirmation on 4 October 2005
that the remittance of branch profits to DB Germany is subject to a preferential tax rate of 10% pursuant
to Article 10 of the RP-Germany Tax Treaty.
ISSUE
This Court is now confronted with the issue of whether the failure to strictly comply with RMO No. 1-2000
will deprive persons or corporations of the benefit of a tax treaty.
THE COURT’S RULING
The Petition is meritorious.
Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of 15%
based on the total profits applied for or earmarked for remittance without any deduction of the tax
component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which
provides that where a resident of the Fe deral Republic of Germany has a branch in the Repub lic of the
Philippines, this branch may be subjected to the branch profits remittance tax withheld at source in
accordance with Philippine law but shall not exceed 10% of the gross amount of the profits re mitted by
that branch to the head office.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines, remitting
to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.
On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax treaty
relief must be preceded by an application with ITAD at least 15 days before the transaction. The Order
was issued to streamline the processing of the application of tax trea ty relief in order to improve efficiency
and service to the taxpayers. Further, it also aims to prevent the consequences of an erroneous
interpretation and/or application of the treaty provisions (i.e., filing a claim for a tax refund/credit for the
overpayment of taxes or for deficiency tax liabilities fo r underpayment).13
26
The crux of the controversy lies in the implementation of RMO No. 1 -2000.
Petitioner argues that, considering that it has met all the conditions under Article 10 of the RP-Germany
Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1 -2000. The filing of a tax
treaty relief application is not a condition precedent to the a vailment of a preferential tax rate. Further,
petitioner posits that, contrary to the ruling of the CTA, Mirant is not a binding judicial precedent to deny
a claim for refund solely on the basis of noncompliance with RMO No. 1 -2000.
Respondent counters that the requirement of prior application under RMO No . 1-2000 is mandatory in
character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of the Secretary of Finance
to promulgate rules and regulations for the effective implementation of the NIRC. Thus, courts cannot
ignore administrative issuances which partakes the nature of a statute and have in their favor a
presumption of legality.
The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with this
prerequisite is fatal to the taxpayer’s availment of the preferential tax rate.
We disagree.
A minute resolution is not a binding precedent
At the outset, this Court’s minute resolution on Mirant is not a binding precedent. The Court has clarified
this matter in Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue 14 as follows:
It is true that, although contained in a minute resolution, our dismissa l of the petition was a disposition of
the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in that case has already become final. When a minute resolution denies
or dismisses a petition for failure to comply with formal and substantive requirements, the challenged
decision, together with its findings of fact and legal conclusions, are deemed sustained. But what is its
effect on other cases?
With respect to the same subject matter and the same issues concerning the same parti es, it constitutes
res judicata. However, if other parties or another subject matter (even with the same parties and issues)
is involved, the minute resolution is not binding precedent. Thus, in CIR v. Bai er-Nickel, the Court noted
that a previous case, CIR v. Baier-Nickel involving the same parties and the same issues, was previously
disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA.
Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter case because the two
cases involved different subject matters as they were concerned with the taxable income of different
taxable years.
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a deci sion.
The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that
the facts and the law on which the judgment is based must be expressed clearly and distin ctly applies only
to decisions, not to minute resol utions. A minute resolution is signed only by the clerk of court by authority
of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike
decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section
4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court lays down doctrines or principles of
law which constitute binding precedent in a decision duly signed by the members of the Court and certified
by the Chief Justice. (Emphasis supplied)
Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind this Court
in cases of a similar nature. There are differences in parties, taxes, taxable periods, and treaties invo lved;
more importantly, the disposition of that case was made only through a minute resolution.
Tax Treaty vs. RMO No. 1-2000
Our Constitution provides for adherence to the general principles of internatio nal law as part of the law of
the land.15 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 ag reement. Every treaty in
force is binding upon the parties, and obligations under the treaty must be performed by them in good
faith.16 More importantly, treaties have the force and effect of law in this jurisdiction. 17
Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties an d, in
turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions." 18 CIR v. S.C. Johnson
and Son, Inc. further clarifies that "tax convent ions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as the imposition of comparable taxe s in two or
more states on the same taxpayer in respect of the same subject matter and for identical perio ds. The
apparent rationale for doing away with double taxation is to encourage the free flow of goods and services
and the movement of capital, techno logy and persons between countries, conditions deemed vital in
creating robust and dynamic economies. Fore ign 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."19
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.
"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."20 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 pre-requisite for the availment of the benefits under sa id agreement.
Likewise, it must be stressed that there is nothing in RMO No. 1 -2000 which would indicate a deprivation
of entitlement to a tax treaty relief for failure to comply with the 15 -day period. We recognize the clear
intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief
for failure to strictly comply with the prescribed period is not in harmony with the objectives of the
contracting state to ensure that the benefits granted under tax treaties are enjoyed by dul y entitled
persons or corporations.
Bearing in mind the rationale of tax treaties, the perio d of application for the availment of tax treaty relief
as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute
a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment
of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative
issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the
BIR should merely operate to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1 -
2000.1âwphi1 Logically, noncompliance with tax treaties has negative implications on international
27
relations, and unduly discourages foreign investors. While the consequences sought to be prevented by
RMO No. 1-2000 involve an administrative procedure, these may be remedied through other system
management processes, e.g., the imposition of a fine or penal ty. But we cannot totally deprive those who
are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring
prior application for tax treaty relief.
Prior Application vs. Claim for Refund
Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or application of
the treaty provisions. The objective of the BIR is to forestall assessments against corporations who
erroneously availed themselves of the benefits of the tax treaty but are n ot legally entitled thereto, as well
as to save such investors from the tedious process of claims for a refund due to an inaccurate application
of the tax treaty provisions. However, as earlier discussed, noncompliance with the 15 -day period for prior
application should not operate to automatically divest entitlement to the tax treaty relief especially in
claims for refund.
The underlying principle of prior applicati on with the BIR becomes moot in refund cases, such as the
present case, where the very basis of the claim is erroneous or there is excessive payment arising from
non-availment of a tax treaty relief at the first instance. In this case, petitioner should no t be faulted for
not complying with RMO No. 1-2000 prior to the transaction. It could not ha ve applied for a tax treaty
relief within the period prescribed, or 15 days prior to the payment of its BPRT, precisely because it
erroneously paid the BPRT not on the basis of the preferential tax rate under
the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior application
requirement becomes illogical. Therefore, the fact that petitioner invoked the provisions of the RP-
Germany Tax Treaty when it requested for a confirmation from the ITAD before filing an administr ative
claim for a refund should be deemed substantial compliance with RMO No. 1 -2000.
Corollary thereto, Section 229 21 of the NIRC provides the taxpayer a remedy for tax recovery when there
has been an erroneous payment of tax.1âwphi1 The outright denial of petitioner’s claim for a refund, on
the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT, would defeat
the purpose of Section 229.
Petitioner is entitled to a refund
It is significant to emphasize that petitioner applied – though belatedly – for a tax treaty relief, in
substantial compliance with RMO No. 1-2000. A ruling by the BIR would have confirmed whether petitioner
was entitled to the lower rate of 10% BPRT pursuant to the RP-Germany Tax Treaty.
Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:
Based on the evidence presented, both documentary and testimonial, petitioner was able to es tablish the
following facts:
a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a corporation organized and
existing under the laws of the Federal Republic of Germany;
b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income Taxes Withheld under
BIR Form No. 1601-F and remitted the amount of ₱67,688,553.51 as branch profits remittance tax with
the BIR; and
 c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance, petitioner
remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or ₱330,175,961.88 at 63.804
Peso/Euro) representing its 2002 profits remittance. 22
The amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its RBU net income,
due for remittance to DB Germany amounting to PHP 451,257,023.29 for 2002 and p rior taxable years.23
Likewise, both the administrative and the judicial actions were filed within the two -year prescriptive period
pursuant to Section 229 of the NIRC.24
Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT in
accordance with the RP-Germany Tax Treaty.
Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting to PHP
451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper to grant
petitioner a refund ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP 45,125,702.34
(10% BPRT) or a total of PHP 22,562,851.17.
WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax Appeals
En Banc Decision dated 29 May 2009 and Resolution dated 1 July 200 9 are REVERSED and SET ASIDE. A
new one is hereby entered ordering respondent Commissioner o f Internal Revenue to refund or issue a
tax credit certificate in favor of petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO
MILLION FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN
CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the erroneously paid BPRT for 2002
and prior taxable years.
28
G.R. Nos. L-18169, L-18262 & L-21434 July 31, 1964
COMMISSIONER OF INTERNAL REVENUES, petitioner,
vs.
V.E. LEDNICKY and MARIA VALERO LEDNICKY, respondents.
REYES, J.B.L., J.:
The above-captioned cases were elevated to this Court under separate petitions by the Commissioner for
review of the corresponding decisions of the Court of Tax Appeals. Since these cases involve the same
parties and issues akin to each case presented, the y are herein decided jointly.
The respondents, V. E. Lednicky and Maria Valero Lednicky, are husband and wife, respectively, both
American citizens residing in the Philippines, and have derived all their income from Philippine sources for
the taxable years in question.
In compliance with local law, the aforesaid respondents, on 27 March 1957, filed their income tax return
for 1956, reporting therein a gross income of P1,017,287. 65 and a net income of P733,809.44 on which
the amount of P317,395.4 was assessed after deducting P4,805.59 a s withholding tax. Pursuant to the
petitioner's assessment notice, the respondents paid the total amount of P326,247.41, inclusive of the
withheld taxes, on 15 April 1957.
On 17 March 1959, the respondents Lednickys filed an amended income tax return for 1 956. The
amendment consists in a claimed deduction of P205,939.24 paid in 1956 to the United States government
as federal income tax for 1956. Simultaneously with the filing of the amen ded return, the respondents
requested the refund of P112,437.90.
When the petitioner Commissioner of Internal Revenue failed to answer the claim for refund, the
respondents filed their petition with the Tax Court on 11 April 1959 as CTA Case No. 646, which is now G.
R. No. L-18286 in the Supreme Court.
G. R. No. L-18169 (formerly CTA Case No. 570) is also a claim for refund in the amount of P150,269.00,
as alleged overpaid income tax for 1955, the facts of which are as follows:
On 28 February 1956, the same respondents-spouses filed their domestic income tax return for 1955,
reporting a gross income of P1,771,124.63 and a net income of P1,052,550.67. On 19 April 1956, they
filed an amended income tax return, the amendment upon the original being a lesser net income of
P1,012,554.51, and, on the basis of this amended return, the y paid P570,252.00, inclusive of withholding
taxes. After audit, the petitioner determined a deficiency of P16,116.00, which amount, the respondents
paid on 5 December 1956.
Back in 1955, however, the Lednickys filed with the U.S. Internal Revenue Agent in Manila their federal
income tax return for the years 1947, 1951, 1952, 1953, and 1954 on income from Philippine sources on
a cash basis. Payment of these federal income taxes, includin g penalties and delinquency interest in the
amount of P264,588.82, were made in 1955 to the U.S. Director of Internal Revenue, Baltimore, Maryland,
through the National City Bank of New York, Manila Branch. Exchange and bank charges in remitting
payment totaled P4,143.91.
Wherefore, the parties respectfully pray that the fore going stipulation of facts be admitted and approved
by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët
On 11 August 1958, the said respondents amended their Philippine income tax return for 1955 to include
the following deductions:
U.S. Federal income taxes P471,867.32
Interest accrued up to May 15, 1955 40,333.92
Exchange and bank charges 4,143.91
Total P516,345.15
and therewith filed a claim for refund of the sum of P166,384.00, which was later reduced to P150,269.00.
The respondents Lednicky brought suit in the Tax Court, which was docketed therein as CTA Case No. 570.
In G. R. No. 21434 (CTA Case No. 783), the facts are similar, but refer to respondents Lednickys' income
tax return for 1957, filed on 28 February 1958, and for which respondents paid a total sum of P196,799.65.
In 1959, they filed an amended return for 1957, claiming deduction of P190,755.80, represe nting taxes
paid to the U.S. Government on income derived wholly from Philippine sources. On the strength thereof,
respondents seek refund of P90 520.75 as overpayment. The Tax Court again decided for respondents.
The common issue in all three cases, and o ne that is of first impression in this jurisdiction, is whether a
citizen of the United States residing in the Philippines, who derives income wholly from sources within the
Republic of the Philippines, may deduct from his gross income the income taxes he has paid to the United
States government for the taxable year on the strength of section 30 (C-1) of the Philippine Internal
Revenue Code, reading as follows:
SEC. 30. Deduction from gross income. — In computing net income there shall be allowed as deductions
— Had the law intended that foreign income taxes could be deducted from gross income in any
(a) ...
(b) ...
(c) Taxes:
(1) In general. — Taxes paid or accrued within the taxable year, except —
(A) The income tax provided for under this Title;
(B) Income, war-profits, and excess profits taxes impose d by the authority of any foreign
country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his
return his desire to have to any extent the benefits of paragraph (3) of this subsection (relating
to credit for foreign countries);
(C) Estate, inheritance and gift taxes; and
(D) Taxes assessed against local benefits of a kind tending to increase the value of the property
assessed. (Emphasis supplied)
The Tax Court held that they may be deducted because of the undenied fact that the respondent spouses
did not "signify" in their income tax return a desire to avail themselves of the benefits of paragraph 3 (B)
of the subsection, which reads:
29
Par. (c) (3) Credits against tax for taxes of foreign countries. — If the taxpayer signifies in his return his
desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with —
(A) ...;
(B) Alien resident of the Philippines. — In the case of an alien resident of the Philippines, the amount
of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country
of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to
citizens of the Philippines residing in such country;
It is well to note that the tax credit so authorized is limited under paragraph 4 (A and B) of the same
subsection, in the following terms:
Par. (c) (4) Limitation on credit. — The amount of the credit taken under this section shall be subject to
each of the following limitations:
(A) The amount of the credit in respect to the tax paid or accrued to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the taxpayer's net income from
sources within such country taxable under this Title bears to his entire net income for the same taxable
year; and
(B) The total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the taxpayer's net income from sources without the Philippines taxable under
this Title bears to his entire net income for the same taxable year.
We agree with appellant Commissioner that the Construction and wording of Section 30 (c) (1) (B) of the
Internal Revenue Act shows the law's intent that the righ t to deduct income taxes paid to foreign
government from the taxpayer's gross income is given only as an alternative or substitute to his right to
claim a tax credit for such foreign income taxes unde r section 30 (c) (3) and (4); so that unless the alien
resident has a right to claim such tax credit if he so chooses, he is precluded from deducting the foreign
income taxes from his gross income. For it is obvious that in prescribing that such deduction shall be
allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the
benefits of paragraph (3) (relating to credits for taxes paid to foreign countries), the statute assumes that
the taxpayer in question also may signify his desire to claim a tax credit and waive the deduction;
otherwise, the foreign taxes would always be deductible, and their mention in the list of non -deductible
items in Section 30(c) might as well have been omitted, or at least expressly limi ted to taxes on income
from sources outside the Philippi ne Islands.
event, regardless of the taxpayer's right to claim a tax credit , it is the latter right that should be conditioned
upon the taxpayer's waiving the deducti on; in which Case the right to reduction under subsection (c -1-B)
would have been made absolute or unconditional (by omitting foreign taxes from the enumeration of non -
deductions), while the right to a tax credit under subsection (c-3) would have been expressly conditioned
upon the taxpayer's not claiming any deduction under subsection (c -1). In other words, if the law had
been intended to operate as contended by the respondent taxpayers and by the Cou rt of Tax Appeals
section 30 (subsection (c-1) instead of providing as at present:
SEC. 30. Deduction from gross income. — In computing net income there shall be allowed as deductions
—
(a) ...
(b) ...
(c) Taxes:
(1) In general. — Taxes paid or accrued within the taxable year, except —
(A) The income tax provided for under this Title;
(B) Income, war-profits, and excess profits taxes imposed by the authority of any foreign country;
but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his
 desire to have to any extent the benefits of paragraph (3) of this subsection (relating to credit for domestic sources of income in an equal, if not in a better, position than one who has both domestic and
taxes of foreign countries); foreign sources of income, a situation which is manifestly unfair and short of logic.
(C) Estate, inheritance and gift taxes; and
(D) Taxes assessed against local benefits of a kind tending to increase the value of the property
Finally, to allow an alien resident to deduct from his gross income whatever taxes he pays to his own
assessed.
government amounts to conferring on the latter the power to reduce the tax income of the Philippine
government simply by increasing the tax rates on the alien resident. Everytime the rate of taxation
would have merely provided: imposed upon an alien resident is increased by his own government, hi s deduction from Philippine taxes
SEC. 30. Decision from grow income. — In computing net income there shall be allowed as deductions: would correspondingly increase, and the proceeds for the Philippines diminished, thereby subordinating
(a) ... our own taxes to those levied by a foreign government. Such a result is incompatible with the status of
(b) ... the Philippines as an independent and sovereign state.
(c) Taxes paid or accrued within the taxable year, EXCEPT —
(A) The income tax provided for in this Title;
IN VIEW OF THE FOREGOING, the decisions of the Court of Tax Appeals are reversed, and, the disallowance
(B) Omitted or else worded as follows:
of the refunds claimed by the respondents Lednicky is affirmed, with costs against said respondents-
Income, war profits and excess profits taxes imposed by authority of any foreign country on income
appellees.
earned within the Philippines if the taxpayer does not claim the benefits under paragraph 3 of this
subsection;
(C) Estate, inheritance or gift taxes;
(D) Taxes assessed against local benefits of a kind tending to increase the value of the property
assessed.

while subsection (c-3) would have been made conditional in the following or equivalent terms:
(3) Credits against tax for taxes of foreign countries. — If the taxpayer has not deducted such taxes
from his gross income but signifies in his return his desire to have the benefits of this paragraph, the
tax imposed by Title shall be credited with ... (etc.).

Petitioners admit in their brief that the purpose of the law is to prevent the taxpayer from claiming twice
the benefits of his payment of foreign taxes, by deduction from gross income (subs. c -1) and by tax credit
(subs. c-3). This danger of double credit certainly can not exist if the taxpayer can not claim benefit under
either of these headings at his option, so that he must be entitled to a tax credit (respondent taxpayers
admittedly are not so entitled because all their income is derived from Philippine sources), or the option
to deduct from gross income disappears altogether.

Much stress is laid on the thesis that if the respondent taxpayers are not allowed to deduct the income
taxes they are required to pay to the government of the United States in their return for Philippi ne income
tax, they would be subjected to double taxation. What respondents fail to observe is that double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental
entity (cf. Manila vs. Interisland Gas Service, 52 Off. Gaz. 6579; Manuf. Life Ins. Co. vs. Meer, 89 Phil.
357). In the present case, while the taxpayers would have to pay two taxes on the same income, the
Philippine government only receives the proceeds of one tax. As between the Philippines, whe re the income
was earned and where the taxpayer is domiciled, and the United States, where that income was not earned
and where the taxpayer did not reside, it is indisputable that justice and equity demand that the tax on
the income should accrue to the benefit of the Philippines. Any relief from the alleged double taxation
should come from the United States, and not from the Philippines, since the former's right to burden the
taxpayer is solely predicated on his citizenship, without contributing to the pr oduction of the wealth that
is being taxed.

Aside from not conforming to the fundamental doctrine of income taxation that the right of a government
to tax income emanates from its partnership in the production of income, by providing the protection,
resources, incentive, and prope r climate for such production, the interpretation given by the respondents
to the revenue law provision in question operates, in its application, to place a resident alien with only

30
G.R. No. 191667 April 17, 2013 Felizardo Villanueva, and Gerard Mamuyac (Implicated Officers), expressing the growing public clamor
against the conversion of the Agoo Plaza into a commercial center. He then requested the foregoing officers
to furnish him certified copies of various documents related to the aforementioned conversion i ncluding,
LAND BANK OF THE PHILIPPINES, Petitioner,
among others, the resolutions approving the Redevelopment Plan as well as the loan agreements for the
vs.
sake of public information and transparency.
EDUARDO M. CACAYURAN, Respondent.

Unable to get any response, Cacayuran, i nvoking his right as a taxpayer, filed a Complaint 16 against the
PERLAS-BERNABE, J.:
Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans on t he
ground that the Plaza Lot used as collateral thereof is property of public dominion and therefore, beyond
Assailed in this Petition for Review on Certiorari 1 is the March 26, 2010 Decision 2 of the Court of Appeals the commerce of man.17
(CA) in CA-G.R. CV. No. 89732 which affirmed with modification the April 10, 2007 Decision 3 of the
Regional Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the nullity of the loan
Upon denial of the Motion to Di smiss dated December 27, 2006,18 the Implicated Officers and Land Bank
agreements entered into by petitioner Land Bank of the Philippines (Land Bank) and the Municipality of
filed their respective Answers.
Agoo, La Union (Municipality).

For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying the Agoo
The Facts
Plaza. It further asserted that Cacayuran did not have a cause of action against it since he was not privy
to any of the Subject Loans.19
From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to implement
a multi-phased plan (Redevelopment Plan) to redeve lop the Agoo Public Plaza (Agoo Plaza) where the
During the pendency of the proceedi ngs, the construction of the commercial center was completed and
Imelda Garden and Jose Rizal Monument were situated.
the said structure later became known as the Agoo’s People Center (APC).

4
To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-2005 on April 19, 2005,
On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring the area where the APC
authorizing then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank and incidental
thereto, mortgage a 2,323.75 square meter lot situated at the southeastern portion of the Agoo Plaza stood as patrimonial property of the Municipality.
(Plaza Lot) as collateral. To serve as additional security, it further authorized the assignment of a portion
of its internal revenue allotment (IRA) and the monthly income from the proposed project in favor of Land The Ruling of the RTC
Bank.5 The foregoing terms were confirmed, approved and ratified on October 4, 2005 through Resolution
No. 139-2005.6 Consequently, on November 21, 2005, Land Bank extended a ₱4,000,000.00 loan in favor
In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity of the
of the Municipality (First Loan),7 the proceeds of which were used to construct ten (10) kiosks at the
Subject Loans.22 It found that the resolutions approving the said loans we re passed in a highly irregular
northern and southern portions of the Imelda Garden. After completion, these kiosks were rented out. 8 manner and thus, ultra vires; as such, the Municipality is not bound by the same. 23 Moreover, it found
that the Plaza Lot is proscribed from collateralization given its nature as property for public use. 24
On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the construction of a commercial
center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the project, Mayor
Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the other hand, the Implicated
Eriguel was again authorized to obtain a loan from Land Bank, posting as well the same securities as that
Officers’ appeal was deemed abandoned and dismissed for their failure to file an appellan ts’ brief despite
of the First Loan. All previous representations and warranties of Mayor Eriguel related to the negotiation
due notice.26 In this regard, only Land Bank’s appeal was given due course by the CA.
and obtention of the new loan 10 were ratified on September 5, 2006 through Resolution No. 128 -2006.11 In
consequence, Land Bank granted a second loan in favor of the Municipality on October 20, 2006 in the
principal amount of ₱28,000,000.00 (Second Loan).12 Ruling of the CA

Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo Plaza
was vehemently objected to by some residents of the Municipality. Led by resp ondent Eduardo Cacayuran
(Cacayuran), these residents claimed that the conversion of the Agoo Plaza into a commercial center, as
funded by the proceeds from the First and Second Loans (Subject Loans), were "highly irregular, violative
of the law, and detrimental to public interests, and will result to wanton desecration of the said historical
and public park."13 The foregoing was embodied in a Manifesto,14 launched through a signature campaign
conducted by the residents and Cacayuran.
In addition, Cacayuran wrote a letter 15 dated December 8, 2006 addressed to Mayor Eriguel, Vice Mayor
Antonio Eslao (Vice Mayor Eslao), and the members of the SB namely, Violeta Laroya -Balbin, Jaime Boado,
Jr., Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo Fronda, Josephus Komiya, Erwin a Eriguel,
In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling, excluding Vice
Mayor Eslao from any personal liability arising from the Subject Loans. 28
It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that (a) he
was born, raised and a bona fide resident of the Municipality; and (b) the issue at hand involved public
interest of transcendental importa nce;29 (2) Resolution Nos. 68-2005, 139-2005, 58-2006, 128-2006 and
all other related resolutions (Subject Resolutions) were invalidly passed due to the SB’s non -compliance
with certain sections of Republic Act No. 7160, otherwise known as the "Local Government Code of 1991"
(LGC); (3) the Plaza Lot, which served as collateral for the Subject Loans, is property of public dominion
and thus, cannot be appropriated either by the State or by private persons; 30 and (4) the Subject Loans

31
are ultra vires because they were transacted without proper authority and their collateralizati on constituted
improper disbursement of public funds.
Dissatisfied, Land Bank filed the instant peti tion.
Issues Before the Court
The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has standing to
sue; (2) whether the Subject Resolutions were validly passed; and (3) whether the Subject Loans are ultra
vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have any standing to contest the construction of the APC as it
was funded through the proceeds coming from the Subject Loans and not from public funds. Besides,
Cacayuran was not even a party to any of the Subject Lo ans and is thus, precluded from questioning the
same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds are
illegally disbursed, or that public money is being deflected to any imp roper purpose, or that there is
wastage of public funds through the enforcement of an invalid or unconstitutional law. A person suing as
a taxpayer, however, must show that the act complained of directly involves the illegal disbursement of
public funds derived from taxation. In other words, for a taxpayer’s suit to prosper, two requisites must
be met namely, (1) public funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregula rity is committed; and (2) the petitioner
is directly affected by the alleged act.31
Records reveal that the foregoing requisites are present in the instant case.
First, although the construction of the APC would be primarily sourced from the proceeds of the Subject
Loans, which Land Bank insists are not taxpayer’s money, there is no denying that public funds derived
from taxation are bound to be expended as the Municipality assigned a portion of its IRA as a security for
the foregoing loans. Needless to state, the Municipality’s IRA, which serves as the local government unit’s
just share in the national taxes,32 is in the nature of public funds derived from taxa tion. The Court believes,
however, that although these funds may be posted as a security, its collateralization should only be
deemed effective during the incumbency o f the public officers who approved the same, else those who
succeed them be effectively deprived of its use.
In any event, it is observed that the proceeds from the Subject Loans had already been converted into
public funds by the Municipality’s receipt thereof. Funds coming from private sources become impressed
with the characteristics of public funds when they are under official custody.33
32
Accordingly, the first requisite has been clearly met.
Second, as a resident-taxpayer of the Municipality, Cacayuran is directly affected by the conversion of the
Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well -settled that public plazas
are properties for public use 34 and therefore, belongs to the public dominion.35 As such, it can be used by
anybody and no one can exercise over it the rights of a private owner.36 In this light, Cacayuran had a
direct interest in ensuring that the Agoo Plaza would not be exploited for commercial purposes through
the APC’s construction. Moreover, Cacayuran need not be privy to the Subject Loans in order to proffer
his objections thereto. In Mamba v. Lara, it has been held that a taxpayer need not be a party to the
contract to challenge its validity; as long as taxes are involved, peop le have a right to question contracts
entered into by the government.37
Therefore, as the above-stated requisites obtain in this case, Cacayuran has standing to fi le the instant
suit.
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions provided ample authority for Mayor Eriguel to contract the
Subject Loans. It posits that Section 444(b)(1)(vi) of the LGC merely requires that the muni cipal mayor
be authorized by the SB concerned and that such authorization need not be embodied in an ordinance. 38
A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the authorization of the municipal
mayor need not be in the form of an ordinance, the obligation which the said local executive is authorized
to enter into must be made pursuant to a law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation. -
(b) For efficient, effective and economical governance the purpose of which is the general welfare of
the municipality and its inhabitants pursuant to Section 16 of this Code, the municipal mayor shall:
(vi) Upon authorization by the sangguniang bayan, represent the municipality in all its business
transactions and sign on its behalf all bonds, contracts, and obligations, and such other documents
made pursuant to law or ordinance; (Emphasis and underscoring s upplied)
In the present case, while Mayor Eriguel’s authorization to contract the Subject Loans was not contained
– as it need not be contained – in the form of an ordinance, the said loans and even the Redevelopment
Plan itself were not approved pursuant to any law or ordinance but through mere resolutions. The
distinction between ordinances and resolutions is well -perceived. While ordinances are laws a nd possess
a general and permanent character, resolutions are merely declarations of the sentiment or opi nion of a
lawmaking body on a specific matter and are temporary in nature. 39 As opposed to ordinances, "no rights
can be conferred by and be inferred from a resolution."40 In this accord, it cannot be denied that the SB
violated Section 444(b)(1)(vi) of the LGC altogether.
Noticeably, the passage of the Subject Resolutions was also tainted with other irregularities, such as (1)
the SB’s failure to submit the Subject Resolutions to the Sangguniang Panlalawigan of La Union f or its
review contrary to Section 56 of the LGC; 41 and (2) the lack of publication and posting in contravention of
Section 59 of the LGC.42
In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate the Subject Loans.
C. Ultra vires nature of the Subject Loans
Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the officers who Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the officers who
approved the same. authorized the passage of the Subject Resolutions are personally lia ble. Case law states that public offi cials
can be held personally accountable for acts claimed to have been performed in connection with official

Generally, an ultra vires act is one committed outside the object for which a corporation is created as duties where they have acted ultra vires,55 as in this case.
43
defined by the law of its organization and therefore beyond the powers c onferred upon it by law. There
are two (2) types of ultra vires acts. As held in Middletown Policemen's Benevolent Association v. Township WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court of Appeals in
of Middletown:44 CA-G.R. CV. No. 89732 is hereby AFFIRMED.
There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the
irregular exercise of a basic power under the legislative grant in matters not in themselves jurisdictional.
The former are ultra vires in the primary sense and void; t he latter, ultra vires only in a secondary sense
which does not preclude ratification or the application of the doctrine of estoppel in the interest of equity
and essential justice. (Emphasis and underscoring supplied)

In other words, an act which is outsi de of the municipality’s jurisdiction is considered as a void ultra vires
act, while an act attended only by an irregularity but remains within the municipality’s power is considered
as an ultra vires act subject to ratification and/or validation. To the former belongs municipal contracts
which (a) are entered into beyond the express, implied or inherent powers of the local government unit;
and (b) do not comply with the substantive requirements of law e.g., when expendi ture of public funds is
to be made, there must be an actual appropriation and certificate of availability of funds; while to the
latter belongs those which (a) are entered into by the improper department, board, officer of agent; and
(b)do not comply with the formal requirements of a written contract e.g., the Statute of Frauds.45

Applying these principles to the case at bar, it is clear that the Subject Loans belon g to the first class of
ultra vires acts deemed as void.

Records disclose that the said loans were executed by the Municipality for the purpose of funding the
conversion of the Agoo Plaza into a commercial center pursuant to the Redevelopment Plan. However , the
conversion of the said plaza is beyond the Municipality’s jurisdiction considering the property’s nature as
one for public use and thereby, forming part of the public dominion. Accordingly, it cannot be the object
of appropriation either by the State or by private persons.46 Nor can it be the subject of lease or any other
contractual undertaking.47 In Villanueva v. Castañeda, Jr.,48 citing Espiritu v. Municipal Council of
Pozorrubio,49 the Court pronounced that:

x x x Town plazas are properties of public dominion, to be devoted to public use and to be made available
to the public in general. They are outside the commerce of man and cannot be disposed of or even leased
by the municipality to private parties.1âwphi1

In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to
law, morals, good customs, public order or public policy is considered void 50 and as such, creates no rights
or obligations or any juridical relations.51 Consequently, given the unlawful purpose behind the Subject
Loans which is to fund the commercialization of the Agoo Plaza pursuant to the Redevelopment Plan, they
are considered as ultra vires in the primary sense thus, rendering them void and in effect, non-binding on
the Municipality.

At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot be
converted into patrimonial property – as the SB tried to when it passed Municipal Ordinance No. 02 -
2007 52 – absent any express grant by the national government. 53 As public land used for public use, the
foregoing lot rightfully belongs to and is subject to the administration and control of the Republic of the
Philippines.54 Hence, without the said grant, the Municipality has no right to claim it as patrimonial
property.

33
G.R. No. 192935 December 7, 2010 The genesis of the foregoing cases can be traced to the events prior to the historic May 2010 elections,
when then Senator Benigno Simeon Aquino III declared his staunch condemnation of graft and corruption
with his slogan, "Kung walang corrupt, walang mahirap." The Filipino people, convinced of his sincerity
LOUIS "BAROK" C. BIRAOGO, Petitioner,
vs. and of his ability to carry out this noble objective, catapulted the good senator to the presidency.

THE PHILIPPINE TRUTH COMMISSION OF 2010, Respondent.

To transform his campaign slo gan into reality, President Aquino found a need for a special body to
investigate reported cases of graft and corruption allegedly committed during the previous administration.
x - - - - - - - - - - - - - - - - - - - - - - -x

Thus, at the dawn of his administration, the President on July 30, 2010, signed Executive Order No. 1
G.R. No. 193036
establishing the Philippine Truth Commission of 2010 (Truth Commission). Pertinent provisions of said
executive order read:
REP. EDCEL C. LAGMAN, REP. RODOLFO B. ALBANO, JR., REP. SIMEON A.
DATUMANONG, and REP. ORLANDO B. FUA, SR., Petitioners,
EXECUTIVE ORDER NO. 1: CREATING THE PHILIPPINE TRUTH COMMISSION OF 2010
vs.
EXECUTIVE SECRETARY PAQUITO N. OCHOA, JR. and DEPARTMENT OF BUDGET AND
MANAGEMENT SECRETARY FLORENCIO B. ABAD, Respondents. WHEREAS, Article XI, Section 1 of the 1987 Constitution of the Philippines solemnly enshrines the
principle that a public office is a public trust and mandates that public officers and employees, who are
servants of the people, must at all times be accountable to the latter, serve them with utmost
DE CI SI ON
responsibility, integrity, loyalty and efficiency, act with patriotism and justice, and lead modest lives;

MENDOZA, J.:
WHEREAS, corruption is among the most despicable acts of defiance of this principle and notorious
violation of this mandate;
When the judiciary mediates to allocate constitutional boundaries, it does not assert any superiority over
the other departments; it does not in reality nullify or invalidate an act of the legislature, but only asserts
WHEREAS, corruption is an evil and scourge which seriously affects the political, economic, and social life
the solemn and sacred obligation assigned to it by the Constitution to determine conflicting claims of
of a nation; in a very special way it inflicts untold misfortune and misery on the poor, the marginalized
authority under the Constitution and to establish for the parties in an actual controversy the rights which
that instrument secures and guarantees to them. and underprivileged sector of society;
1
--- Justice Jose P. Laurel
WHEREAS, corruption in the Philippines has reached very alarming levels, and undermined the people’s
trust and confidence in the Government and its institutions;
The role of the Constitution cannot be overl ooked. It is through the Constitution that the fundamental
powers of government are established, limited and defined, and by which these powers are distributed
among the several departments.2 The Constitution is the basic and paramount law to which all other laws WHEREAS, there is an urgent call for the determination of the truth regarding certain reports of large
must conform and to which all persons, including the highest officials of the land, must scale graft and corruption in the government and to put a closure to them by the filing of the appropriate
defer.3 Constitutional doctrines must remain steadfast no matter what may be the tides of time. It cannot cases against those involved, if warranted, and to deter others from committing the evil, restore the
be simply made to sway and accommodate the call of situations and muc h more tailor itself to the whims people’s faith and confidence in the Government and in their public servants;
and caprices of government and the people who run it.4

WHEREAS, the President’s battlecry during his campaign for the Presidency in the last elections "kung
For consideration before the Court are two consolidated cases 5 both of which essentially assail the validity walang corrupt, walang mahirap" expresses a solemn pledge that if elected, he would end corruption and
and constitutionality of Executive Order No. 1, dated July 30, 2010, entitled "Creating the Philippine Truth the evil it breeds;
Commission of 2010."

The first case is G.R. No. 192935, a special civil actio n for prohibition instituted by petitioner Louis Biraogo
(Biraogo) in his capacity as a citizen and taxpayer. Biraogo assails Executive Order No. 1 for being violative
of the legislative power of Congress under Section 1, Article VI of the Constitution 6 as it usurps the
constitutional authority of the legislature to create a public office and to appropriate fund s therefor.7
The second case, G.R. No. 193036, is a special civil action for certiorari and prohibition filed by petitioners
Edcel C. Lagman, Rodolfo B. Albano Jr., Simeon A. Datumanong, and Orlando B. Fua, Sr. (petitioners-
legislators) as incumbent members of the House of Representatives.
WHEREAS, there is a need for a separate body dedicated solely to investigating and finding out the truth
concerning the reported cases of graft and corruption during the previous administration, and which will
recommend the prosecution of the offenders and secure justice for all;
WHEREAS, Book III, Chapter 10, Section 31 of Executive Order No. 292, otherwise known as the Revised
Administrative Code of the Philippines, gives the President the continuing authority to reorganize the Office
of the President.
NOW, THEREFORE, I, BENIGNO SIMEON AQUINO III, President of the Republic of the Philippines, by
virtue of the powers vested in me by law, do hereby order:

34
SECTION 1. Creation of a Commission. – There is hereby created the PHILIPPINE TRUTH
COMMISSION, hereinafter referred to as the "COMMISSION," which shall primarily seek and find the
truth on, and toward this end, investigate reports of graft and corruption of such scale and magnitude that
shock and offend the moral and ethical sensibilities of the people, committed by public officers and
employees, their co-principals, accomplices and accessories from the private sector, if any, during the
previous administration; and thereafter recommend the appropriate action or measure to be taken thereon
to ensure that the full measure of justice shall be served without fear or favor.
The Commission shall be composed of a Chairman and four (4) members who will act as an independent
collegial body.
SECTION 2. Powers and Functions. – The Commission, which shall have all the powers of an
investigative body under Section 37, Chapter 9, Book I of the Administrative Code of 1987, is primarily
tasked to conduct a thorough fact-finding investigation of reported cases of graft and corruption referred
to in Section 1, involving third level public officers and higher, their co-principals, accomplices and
accessories from the private sector, if any, during the previous administration and thereafter submit its
finding and recommendations to the President, Congress and th e Ombudsman.
In particular, it shall:
a) Identify and determine the reported cases of such graft and corruption which it will investigate;
b) Collect, receive, review and evaluate evidence related to or regarding the cases of large scale
corruption which it has chosen to investigate, and to this end require any agency, official or employee
of the Executive Branch, including government -owned or controlled corporations, to produce documents,
books, records and other papers;
c) Upon proper request or representation, obtain information and documents from the Senate and the
House of Representatives records of investigations conducted by committees thereof relating to matters
or subjects being investigated by the Commission;
d) Upon proper request and representati on, obtain information from the courts, including the
Sandiganbayan and the Office of the Court Administrator, information or documents in respect to
corruption cases filed with the Sandiganbayan or the regular courts, as the case may be;
e) Invite or subpoena witnesses and take their testimonies and for that purpose, administer oaths or
affirmations as the case may be;
f) Recommend, in cases where there is a need to utilize any person as a state witness to ensure that
the ends of justice be fully served, that such person who qualifies as a state witness under the Revised
Rules of Court of the Philippines be admitted for that purpose;
g) Turn over from time to time, for expeditious prosecution, to the appropriate prosecutorial authorities,
by means of a special or interim report and recommendation, all evidence on corruption of public officers
and employees and their private sector co -principals, accomplices or accessories, if any, when in the
course of its investigation the Commission finds that there is rea sonable ground to believe that they are
liable for graft and corruption under pertinent applicable laws;
35
h) Call upon any government investigative or prosecutorial agency such as the Department of Justice or
any of the agencies under it, and the Presidenti al Anti-Graft Commission, for such assistance and
cooperation as it may require in the discharge of its functions and duties;
i) Engage or contract the services of resource persons, professionals and other personnel determined by
it as necessary to carry out its mandate;
j) Promulgate its rules and regulations or rules of procedure it deems necessary to effectively and
efficiently carry out the objectives of this Executive Order and to ensure the orderly conduct of its
investigations, proceedings and hearings, including the presentation of evidence;
k) Exercise such other acts incident to or are appropriate and necessary in connection with the objectives
and purposes of this Order.
SECTION 3. Staffing Requirements. – x x x.
SECTION 4. Detail of Employees. – x x x.
SECTION 5. Engagement of Experts. – x x x
SECTION 6. Conduct of Proceedings. – x x x.
SECTION 7. Right to Counsel of Witnesses/Resource Persons. – x x x.
SECTION 8. Protection of Witnesses/Resource Persons. – x x x.
SECTION 9. Refusal to Obey Subpoena, Take Oath or Give Testimony. – Any government official or
personnel who, without lawful excuse, fails to appear upon subpoena issued by the Commission or who,
appearing before the Commission refuses to take oath or affirmation, give testimony or produce
documents for inspection, when required, shall be subject to administrative disciplinary action. Any private
person who does the same may be dealt with in accordance with law.
SECTION 10. Duty to Extend Assistance to the Commission. – x x x.
SECTION 11. Budget for the Commission. – The Office of the President shall provide the necessary
funds for the Commission to ensure that it can exercise its powers, execute its functions, and perform its
duties and responsibilities as effectively, efficiently, and expeditiously as possible.
SECTION 12. Office. – x x x.
SECTION 13. Furniture/Equipme nt. – x x x.
SECTION 14. Term of the Commission. – The Commission shall accomplish its mission on or before
December 31, 2012.
SECTION 15. Publication of Final Report. – x x x.
SECTION 16. Transfer of Records and Facilities of the Commission. – x x x.
SECTION 17. Special Provision Concerning Mandate. If and when in the judgment of the President
there is a need to expand the mandate of the Commission as defined in Section 1 hereof to include the
investigation of cases and instances of graft and corruption during the prior administrations, such mandate
may be so extended accordingly by way of a supplemental Executive Order.
SECTION 18. Separability Clause. If any provision of this Order is declared unconstitutional, the same
shall not affect the validity and effectivity of the other provisions hereof.
SECTION 19. Effectivity. – This Executive Order shall take effect immediately. South Africa, the principal function of which was to heal the wounds of past violence and to prevent future
conflict by providing a cathartic experience for victims.

DONE in the City of Manila, Philippines, this 30th day of July 2010.
The PTC is a far cry from South Africa’s model. The latter placed more emphasis on reconciliation than on
judicial retribution, while the marching o rder of the PTC is the identification and punishment of
(SGD.) BENIGNO S. AQUINO III
perpetrators. As one writer 12 puts it:
By the President:

The order ruled out reconciliation. It translated the Draconian code spelled out by Aquino in his inaugural
(SGD.) PAQUITO N. OCHOA, JR.
speech: "To those who talk about reconciliation, if they mean that they would like us to simply forge t
Executive Secretary
about the wrongs that they have committed in the past, we have this to say: There can be no reconciliation
without justice. When we allow crimes to go unpunished, we give consent to their occurring over and over
Nature of the Truth Commission again."

As can be gleaned from the above -quoted provisions, the Philippine Truth Commission (PTC) is a mere ad The Thrusts of the Petitions
hoc body formed under the Office of the President with the primary task to investigate reports of graft and
corruption committed by third-level public officers and employees, their co-principals, accomplices and
Barely a month after the issuance of Executive Order No. 1, the petitioners asked the Court to declare it
accessories during the previous administration, and thereafter to submit its findin g and recommendations
unconstitutional and to enjoin the PTC from performing its functions. A perusal of the arguments of the
to the President, Congress and the Ombudsman. Though it has been described as an "independen t collegial
petitioners in both cases shows that they are essentially the same. The petitioners-legislators summarized
body," it is essentially an entity within the Office of the President Proper and subject to his control.
them in the following manner:
Doubtless, it constitutes a public office, as an ad hoc body is one.8

(a) E.O. No. 1 violates the separation of powers as it arrogates the power of the Congress to create a
To accomplish its task, the PTC shall have all the powers of an investigative body under Section 37, Chapter
9, Book I of the Administrative Code of 1987. It is not, however, a quasi -judicial body as it cannot public office and appropriate funds for its operation.
adjudicate, arbitrate, resolve, settle, or render awards in disputes between contending parties. All it can
do is gather, collect and assess evidence of graft and co rruption and make recommendations. It may have (b) The provision of Book III, Chapter 10, Section 31 of the Administrative Code of 1987 cannot
subpoena powers but it has no power to cite people in contempt, muc h less order their arrest. Although it legitimize E.O. No. 1 because the delegated authority of the President to structurally reorganize the
is a fact-finding body, it cannot determine from such facts if probable cause exists as to warrant the filing Office of the President to achieve economy, simplicity and efficiency does not include the power to create
of an information in our courts of law. Needless to state, it cannot impose criminal, civil or administrative an entirely new public office which was hitherto inexistent like the "Truth Co mmission."
penalties or sanctions.
(c) E.O. No. 1 illegally amended the Constitution and pertinent statutes when it vested the "Truth
The PTC is different from the truth commissions in other countries which have been created as official, Commission" with quasi-judicial powers duplicating, if not superseding, those of the Office of the
transitory and non-judicial fact-finding bodies "to establish the facts and context of serious violations of Ombudsman created under the 1987 Constitution a nd the Department of Justice created under the
human rights or of international humanitarian law in a country’s past." 9 They are usually established by Administrative Code of 1987.
states emerging from periods of internal unrest, civil strife or authoritarianism to serve as mechanisms for
transitional justice. (d) E.O. No. 1 violates the equal protection clause as it selecti vely targets for investigation and
prosecution officials and personnel of the previous administration as if corrupt ion is their peculiar species
Truth commissions have been described as bodies that share the following characteristi cs: (1) they even as it excludes those of the other administrations, past and present, who may be indictable.
examine only past events; (2) they investigate patterns of abuse committed over a period of time, as
opposed to a particular event; (3) they are temporary bodies that finish their work with the submission of
(e) The creation of the "Philippine Truth Commission of 2010" violates the consistent and general
a report containing conclusions and recommendations; and (4) they are officially sanctioned, authorized
international practice of four decades wherein States constitute truth commissions to exclusively
or empowered by the State.10 "Commission’s members are usually empowered to conduct research,
investigate human rights violations, which customary practice forms part o f the generally accepted
support victims, and propose policy recommendations to prevent recurrence of crimes. Through their
principles of international law which the Philippines is mandated to adhere to pursuant to the Declaration
investigations, the commissions may aim to discover and learn more about past abuses, or formally
of Principles enshrined in the Constitution.
acknowledge them. They may aim to prepare the way for prose cutions and recommend institutional
11
reforms."
(f) The creation of the "Truth Commission" is an exercise in futility, an adven ture in partisan hostility, a
launching pad for trial/conviction by publicity and a mere populist propaganda to mis takenly impress
Thus, their main goals range from retribution to reconciliation. The Nuremburg and Tokyo war crime
the people that widespread poverty will altogether vanish if corruption is eliminated without even
tribunals are examples of a retributory or vindicatory body set up to try and punish those responsible for
addressing the other major causes of poverty.
crimes against humanity. A form of a reconciliatory tribunal is the Truth and Reconciliation Commission of

36
 (g) The mere fact that previous commissions were not constitutionally challenged is of no moment Among all these limitations, only the legal standing of the petiti oners has been put at issue.
because neither laches nor estoppel can bar an eventual question on the constitutionality and validity of
an executive issuance or even a statute."13
Legal Standing of the Petitioners

In their Consolidated Comment,14 the respondents, through the Office of the Solicitor
The OSG attacks the legal personality of the petitioners-legislators to file their petition for failure to
General (OSG), essentially questioned the legal standing of petitioners and defended the assailed
demonstrate their personal stake in the outcome of the case. It argues that the petitioners have not shown
executive order with the following arguments:
that they have sustained or are in danger of sustaining any pe rsonal injury attributable to the creation of
1] E.O. No. 1 does not arrogate the powers of Congress to create a public office beca use the President’s
the PTC. Not claiming to be the subject of the commission’s investigations, petitioners will not sustain
executive power and power of control necessarily include the inherent power to conduct investig ations
injury in its creation or as a result of its proceedings.20
to ensure that laws are faithfully executed and that, in any event, the Constitution, Revised
Administrative Code of 1987 (E.O. No. 292), 15 Presidential Decree (P.D.) No. 1416 16 (as amended by
P.D. No. 1772), R.A. No. 9970,17 and settled jurisprudence that authorize the President to create or form The Court disagrees with the OSG in questioning the legal standing of the petitioners -legislators to assail
such bodies. Executive Order No. 1. Evidently, their petition primarily invokes usurpation of the power of the Co ngress
2] E.O. No. 1 does not usurp the power of Congress to appropriate funds because there is no as a body to which they belong as members. This certainly justifies their resolve to take the cudgels for
appropriation but a mere allocation of funds already appropriated by Congress . Congress as an institution and present the complaints on the usurpation of their power and rights as
3] The Truth Commission does not duplicate or supersede the functions of the Office of the Ombudsman members of the legislature before the Court. As held in Philippine Constitution Association v. Enriquez, 21
(Ombudsman) and the Department of Justice (DOJ), because it is a fact-finding body and not a quasi-
judicial body and its functions do not duplicate, supp lant or erode the latter’s jurisdiction. To the extent the powers of Congress are impaired, so is the power of each member thereof, since h is
4] The Truth Commission does not violate the equal protection clause because it was validly created for
office confers a right to participate in the exercise of the powers of that institution.
laudable purposes.

The OSG then points to the continued existence and validity of other executive orders and pr esidential
issuances creating similar bodies to justify the creation of the PTC such as Presidential Complaint and
Action Commission (PCAC) by President Ramon B. Magsaysay, Presidential Committee on Administrative
Performance Efficiency (PCAPE) by President Carlos P. Garcia and Presidential Agency on Reform and
Government Operations (PARGO) by President Ferdinand E. Marcos.18
From the petitions, pleadings, transcripts, and memoranda, the following are the principal issues to be
resolved:
1. Whether or not the petitioners have the legal standing to file their respective petitions and question
Executive Order No. 1;
2. Whether or not Executive Order No. 1 violates the principle of separation of powers by usurping the
powers of Congress to create and to appropriate funds for public offices, agencies and commissions;
3. Whether or not Executive Order No. 1 supplants the powers of th e Ombudsman and the DOJ;
4. Whether or not Executive Order No. 1 violates the equal protection clause; and
5. Whether or not petitioners are entitled to injunctive relief.
Essential requisites for judicial review
Before proceeding to resolve the issue of the constitutionality of Executive Order No. 1, the Court needs
to ascertain whether the requisites for a valid exercise of its power of judicial review are present.
Like almost all powers conferred by the Constitution, the power of judicial review is subject to limitations,
to wit: (1) there must be an actual case or controversy calling for the exercise of judicial power; (2) the
person challenging the act must have the standing to question the validity of the subject act or issuance;
otherwise stated, he must have a personal and substantial inte rest in the case such that he has sustained,
or will sustain, direct injury as a result of its enforcement; (3) the question of constitutionality must be
raised at the earliest opportunity; and (4) the issue of constitutionality must be the very lis mota of the
case.19
An act of the Executive which injures the institution of Congress causes a deriva tive but nonetheless
substantial injury, which can be questioned by a member of Con gress. In such a case, any member of
Congress can have a resort to the courts.
Indeed, legislators have a legal standing to see to it that the prerogative, powers and privil eges vested by
the Constitution in their office remain inviolate. Thus, they are al lowed to question the validity of any
official action which, to their mind, infringes on their prerogatives as legislators. 22
With regard to Biraogo, the OSG argue s that, as a taxpayer, he has no standing to question the creation
of the PTC and the budget for its operations.23 It emphasizes that the funds to be used for the creation
and operation of the commission are to be taken from those funds already appropriated by Congress.
Thus, the allocation and disbursement of funds for the commission will not entail congressional action but
will simply be an exercise of the Preside nt’s power over contingent funds.
As correctly pointed out by the OSG, Biraogo has not shown that he sustained, or is in danger of sustaining,
any personal and direct injury attributable to the implementation of Executive Order No. 1. Nowhere in his
petition is an assertion of a clear right that may justify his clamor for the Court to exercise judicial power
and to wield the axe over presidential issuances in defense of the Constitution. The case of David v.
Arroyo 24 explained the deep-seated rules on locus standi. Thus:
Locus standi is defined as "a right of appearance in a court of justice on a given question." In private suits,
standing is governed by the "real -parties-in interest" rule as contained in Section 2, Rule 3 of the 1997
Rules of Civil Procedure, as amended. It provides that "every action must be prosecuted or defende d
in the name of the real party in interest." Accordingly, the "real-party-in interest" is "the party who
stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."
Succinctly put, the plaintiff’s standing is based on his own right to the relief sought.
The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a "public
right" in assailing an allegedly illegal official action, does so as a representative of the general public. He

37
may be a person who is affected no differently from any other person. He could be suing as a "stranger,"
or in the category of a "citizen," or ‘taxpayer." In either case, he has to adequately show that he is entitled
to seek judicial protection. In other words, he has to make out a sufficient interest in the vindication of
the public order and the securing of relief as a "citizen" or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. The
distinction was first laid down in Beauchamp v. Silk, where it was held that the plaintiff in a taxpayer’s suit
is in a different category from the plaintiff in a citizen’s suit. In the former, the plaintiff is affected by the
expenditure of public funds, while in the latter, he is but the mere instrument of the public concern. As
held by the New York Supreme Court in People ex rel Case v. Collins: "In matter of mere public right,
however…the people are the real parties…It is at least the right, if not the duty, of every citizen to interfere
and see that a public offence be properly pursued and punished, and that a public grievance be remedied."
With respect to taxpayer’s suits, Terr v. Jordan held that "the right of a citizen and a taxpayer to maintain
an action in courts to restrain the unlawful use of public funds to his injury cannot be denied."
However, to prevent just about any person from seeking judicial interference in any official policy or act
with which he disagreed with, and thus hinders the act ivities of governmental agencies engaged in public
service, the United State Supreme Court laid down the more stringent "direct injury" test in Ex Parte
Levitt, later reaffirmed in Tileston v. Ullman. The same Court ruled that for a private individual to invoke
the judicial power to determine the validity of an executive or legislative a ction, he must show that he
has sustained a direct injury as a result of that action, and it is not sufficient that he has a
general interest common to all members of the public.
This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera, it held that the person
who impugns the validity of a statute must have "a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury as a result." The Vera doctrine was upheld
in a litany of cases, such as, Custodio v. President of the Senate, Manila Race Horse Trainers’ Association
v. De la Fuente, Pascual v. Secretary of Public Works and Anti-Chinese League of the Philippines v.
Felix. [Emphases included. Citations omitted]
Notwithstanding, the Court le ans on the doctrine that "the rule on standing is a matter of procedure,
hence, can be relaxed for nontraditional plai ntiffs like ordinary citizens, taxpayers, and legislators when
the public interest so requires, such as when the matter is of transcendent al importance, of overreaching
significance to society, or of paramount public interest." 25
Thus, in Coconut Oil Refiners Association, Inc. v. Torres, 26 the Court held that in cases of paramount
importance where serious constitutional questions are involved, the standing requirements may be relaxed
and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right
of judicial review. In the first Emergency Powers Cases,27 ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders although they had only an indirect and general
interest shared in common with the public.
The OSG claims that the determinants of transcendental importance 28 laid down in CREBA v. ERC and
Meralco 29 are non-existent in this case. The Court, however, finds reason in Biraogo’s assertion that the
petition covers matters of transcendental importance to justify the exercise of jurisdiction by the Court.
There are constitutional issues in the petition which deserve the attention of this Court in view of their
seriousness, novelty and weight as precedents. Where the issues are of transcendental and paramount
importance not only to the public but also to the Bench and the Bar, they should be resolved for the
guidance of all.30 Undoubtedly, the Filipino people are more than interested to know the status of the
President’s first effort to bring about a promised change to the country. The Court takes cognizance of th e
38
petition not due to overwhelming political undertones that clothe the issue in the eyes of the public, but
because the Court stands firm in its oath to perform its constitutional duty to settle legal controversies
with overreaching significance to society.
Power of the President to Create the Truth Commission
In his memorandum in G.R. No. 192935, Biraogo asserts that the Truth Commission is a public office and
not merely an adjunct body of the Office of the President. 31 Thus, in order that the President may create
a public office he must be empowered by the Constitution, a statute or an authorization vested in him by
law. According to petitioner, such power cannot be presumed 32 since there is no provision in the
Constitution or any specific law that authorizes the President to create a truth commission. 33 He adds that
Section 31 of the Administrative Code of 1987, granting the President the continuing authority to
reorganize his office, cannot serve as basis for the creation of a trut h commission considering the aforesaid
provision merely uses verbs such as "reorganize," "transfer," "consolidate," "merge," and
"abolish."34 Insofar as it vests in the President the plenary power to reorganize the Office of the President
to the extent of creating a public office, Section 31 is inconsistent with the principle of separation of powers
enshrined in the Constitution and must be deemed repealed upon the effectivity thereof.35
Similarly, in G.R. No. 193036, petitioners-legislators argue that the creation of a public office lies within
the province of Congress and not with the executive branch of government. They maintain that the
delegated authority of the President to reorganize under Section 31 of the Revised Administrative Code:
1) does not permit the President to create a public office, much less a truth commiss ion; 2) is limited to
the reorganization of the administrative structure of the Office of the President; 3) is limited to the
restructuring of the internal organs of the Office of the President Proper, transfer of functions and transfer
of agencies; and 4) only to achieve simplicity, economy and efficiency.36 Such continuing authority of the
President to reorganize his office is limited, and by issuing Executive Ord er No. 1, the President
overstepped the limits of this de legated authority.
The OSG counters that there is nothing exclusively legislative about the creation by the President of a fact -
finding body such as a truth commission. Pointing to numerous offices c reated by past presidents, it argues
that the authority of the President to create public offices within the Office of the President Proper has
long been recognized.37 According to the OSG, the Executive, just like the o ther two branches of
government, possesses the inherent authority to create fact -finding committees to assist it in the
performance of its constitutionally mandated functions and in the exercise of i ts administrative
functions.38 This power, as the OSG explains it, is but an adjunct of the plenary powers wielded by the
President under Section 1 and his power o f control under Section 17, both of Article VII of the
Constitution.39
It contends that the President is necessarily vested with the power to conduct fact -finding investigations,
pursuant to his duty to ensure that all l aws are enforced by public officials and employees of his department
and in the exercise of his authority to assume directly the functions of the executive department, bureau
and office, or interfere with the discretion of his officials.40 The power of the President to investigate is not
limited to the exercise of his power of control over his subordinates in the executive branch, but extends
further in the exercise of his other powers, such as his power to discipline subordinates, 41 his power for
rule making, adjudication and licensing purposes 42 and in order to be informed on matters which he is
entitled to know.43
The OSG also cites the rece nt case of Banda v. Ermita,44 where it was held that the President has the
power to reorganize the offices and agencies in the executive department in line with hi s constitutionally
granted power of control and by virtue of a valid delegation of the legislative power to reorganize executive
offices under existing statutes.
Thus, the OSG concludes that the powe r of control necessarily includes the power to create offices. For
the OSG, the President may create the PTC in order to, among others, put a closure to the reported large
scale graft and corruption in the government.45
The question, therefore, before the Court is this: Does the creation of the PTC fall within the ambit of the
power to reorganize as expressed in Section 31 of the Revised Administrative Code? Section 31
contemplates "reorganization" as limited by the fo llowing functional and structural lines: (1) restructuring
the internal organization of the Office of the President Proper by abolishing, consolidating or merging units
thereof or transferring functions from one unit to another; (2) transferring any functi on under the Office
of the President to any other Department/Agency or vice versa; or (3) transferring any agency under the
Office of the President to any other Department/Agency or vice versa. Clearly, the provision refers to
reduction of personnel, consolidation of offices, or abolition thereof by reason of economy or redundancy
of functions. These point to situations where a body or an office is already existent but a modification or
alteration thereof has to be effected. The creation of an office is nowhere mentioned, much less envisioned
in said provision. Accordingly, the answer to the question is in the negative.
To say that the PTC is borne out of a restructuring of the Office of the President und er Section 31 is a
misplaced supposition, even in the plainest meaning attributable to the term "restructure"– an "alteration
of an existing structure." Evidently, the PT C was not part of the structure of the Office of the President
prior to the enactment of Executive Order No. 1. As held in Buklod ng Kawaning EIIB v. Hon. Executive
Secretary,46
But of course, the list of legal basis authorizing the President to reo rganize any department or agency
in the executive branch does not have to end here. We must not lose sight of the very source of the
power – that which constitutes an express grant of power. Under Section 31, Book III of Executive Order
No. 292 (otherwise known as the Administrative Code of 1987), "the President, subject to the policy in
the Executive Office and in order to achieve simplicity, economy and efficiency, shall have the continuing
authority to reorganize the administrative structure of the Offic e of the President." For this purpose, he
may transfer the functions of other Departments or Agencies to the Office of the President. In Canonizado
v. Aguirre [323 SCRA 312 (2000)], we ruled that reorganization "involves the reduction of personnel,
consolidation of offices, or abolition thereof by reason of economy or redundancy of functions." It takes
place when there is an alteration of the existing structure of governme nt offices or units therein,
including the lines of control, authority and responsibil ity between them. The EIIB is a bureau attached
to the Department of Finance. It falls under the Office of the President. Hence, it is subject to the
President’s continuing authority to reorganize. [Emphasis Supplied]
In the same vein, the creation of the PTC is not justified by the President’s power of control. Control is
essentially the power to alter or modify or nullify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former with tha t of the latter.47 Clearly,
the power of control is entirely different from t he power to create public offices. The former is inherent in
the Executive, while the latter finds basis from either a valid delegation from Congress, or his inherent
duty to faithfully execute the laws.
The question is this, is there a valid delegation of power from Congress, empowering the President to
create a public office?
According to the OSG, the power to create a truth commission pursuant to the above provision finds
statutory basis under P.D. 1416, as amended by P.D. No. 1772. 48 The said law granted the President the
39
continuing authority to reorganize the national government, including the power to group, consolidate
bureaus and agencies, to abolish offices, to transfer functions, to create and classify functions, services
and activities, transfer appropriations, and to standardize salaries and materials. This decree, in relation
to Section 20, Title I, Book III of E.O. 292 has been invoked in several cases s uch as Larin v. Executive
Secretary.49
The Court, however, declines to recognize P.D. No. 1416 as a justification for the President to create a
public office. Said decree is already stale, anachronistic and inoperable. P.D. No. 1416 was a delegation
to then President Marcos of the authority to reorganize the administrative structure of the national
government including the power to create offices and transfer approp riations pursuant to one of the
purposes of the decree, embodied in its last "Whereas" clause:
WHEREAS, the transition towards the parliamentary form of government will necessitate flexibility in the
organization of the national government.
Clearly, as it was only for the purpose of providing manageability and resiliency during the interim, P.D.
No. 1416, as amended by P.D. No. 1772, became functus oficio upon the convening of the First Congress,
as expressly provided in Section 6, Article XVIII of the 1987 Constitution. In fact, even the Solicitor General
agrees with this view. Thus:
ASSOCIATE JUSTICE CARPIO: Because P.D. 1416 was enacted was the last whereas clause of P.D. 1416
says "it was enacted to prepare the transition from presidential to parliamenta ry. Now, in a parliamentary
form of government, the legislative and executive powers a re fused, correct?
SOLICITOR GENERAL CADIZ: Yes, Your Honor.
ASSOCIATE JUSTICE CARPIO: That is why, that P.D. 1416 was issued. Now would you agree with me
that P.D. 1416 should not be considered effective anymore upon the promulgation, adoption, ratification
of the 1987 Constitution.
SOLICITOR GENERAL CADIZ: Not the whole of P.D. [No.] 1416, Your Honor.
ASSOCIATE JUSTICE CARPIO: The power of the President to reorganize the entire National Government
is deemed repealed, at least, upon the adoption of the 198 7 Constitution, correct.
SOLICITOR GENERAL CADIZ: Yes, Your Honor.50
While the power to create a truth commission cannot pass muster on the basis of P.D. No. 1416 as
amended by P.D. No. 1772, the creation of the PTC finds justification under Section 17, Article VII of the
Constitution, imposing upon the President the duty to ensure that the laws are faithfully executed. Section
17 reads:
Section 17. The President shall have control of all the executive departments, bureaus, and offices. He
shall ensure that the laws be faithfully executed. (Emphasis supplied).
As correctly pointed out by the respondents, the allocation of power in the three principal branches of
government is a grant of all powers inherent in them. The President’s power to conduct investigations to
aid him in ensuring the faithful execution of laws – in this case, fundamental laws on public accountability
and transparency – is inherent in the President’s powers as the Chief Executive. That the authority of the
President to conduct investigations and to create bodies to execute this power is not explicitly mentioned
in the Constitution or in statutes does not mean that he is bereft of such authority. 51 As explained in the
landmark case of Marcos v. Manglapus: 52
x x x. The 1987 Constitution, however, brought back the presidential system of government and restored
the separation of legislative, executive and judicial powers by their actual distribution among three
distinct branches of government with provision for checks and balances.
 It would not be accurate, however, to state that "executive power" is the power to enforce the laws, for
the President is head of state as well as head of gove rnment and whatever powers inhere in such
positions pertain to the office unless the Constitution itself withholds it. Furthermore, the Constitution
itself provides that the execution of the laws is only one of the powers of the President. It also grants
the President other powers that do not involve the execution of any provision of law, e.g., his power
over the country's foreign relations.
On these premises, we hold the view that although the 1987 Constitution imposes limitations on the
exercise of specific powers of the President, it maintains intact what is traditionally considered as wi thin
the scope of "executive power." Corollarily, the powers of the President cannot be said to be limited only
to the specific powers enumerated in the Constitution. In other words, executive power is more than the
sum of specific powers so enumerated.
It has been advanced that whatever power inherent in the government that is neither legislative nor
judicial has to be executive. x x x.
Indeed, the Executive is given much leeway in ensuring that our laws are faithfully executed. As stated
above, the powers of the President are not limited to those specific powers under the Constitution. 53 One
of the recognized powers of the President granted pursuant to this constit utionally-mandated duty is the
power to create ad hoc committees. This flows from the obvious need to ascertain facts and determine if
laws have been faithfully executed. Thus, in Department of Health v. Camposano,54 the authority of the
President to issue Administrative Order No. 298, creating an investigative committee to look into the
administrative charges filed against the employees of the Department of Health for the anomalous
purchase of medicines was upheld. In said case, it was ruled:
The Chief Executive’s power to create the Ad hoc Investigating Committee cannot be doubte d .
Having been constitutionally granted full control of the Executive Department, to wh ich respondents
belong, the President has the obligati on to ensure that all executive officials and employees faithfully
comply with the law. With AO 298 as mandate, the legality of the investigation is sustained. Such validity
is not affected by the fact that the investigating team and the PCAGC had the same composition, or that
the former used the offices and facilities of the latter in conducting the inquiry. [Emphasis supplied]
It should be stressed that the purpose of allowing ad hoc investigating bodi es to exist is to allow an inquiry
into matters which the President is entitled to know so that he can be properly advised and guided in the
performance of his duties relative to the execution and enforcement of the laws of the land. And if history
is to be revisited, this was also the objective of the invest igative bodies created in the past like the PCAC,
PCAPE, PARGO, the Feliciano Commission, the Melo Commission and the Zenarosa Commission. There
being no changes in the government structure, the Court i s not inclined to declare such executive power
as non-existent just because the direction of the political winds have changed.
On the charge that Executive Order No. 1 transgresses the power of Congress to appropriate funds for the
operation of a public office, suffice it to say that there will be no appropri ation but only an allotment or
allocations of existing funds already appropriated. Accordingly, there is no usurpation on the part of the
Executive of the power of Congress to appropriate funds. Further, there is no need to specify the amount
to be earmarked for the operation of the commission because, in the words of the Solicitor General,
"whatever funds the Congress has provided for the Office of the President will be the very source of the
funds for the commission."55 Moreover, since the amount that would be allocated to the PTC shall be
subject to existing auditing rules and regulations, there is no improprie ty in the funding.
Power of the Truth Commission to Investigate
40
The President’s power to conduct investigations to ensure that laws are faithfully executed is well
recognized. It flows from the faithful -execution clause of the Constitution under Article VII, Section 17
thereof.56 As the Chief Executive, the president represents the government as a whole and sees to it that
all laws are enforced by the officials and employees of his department. He has the authority to d irectly
assume the functions of the executive department.57
Invoking this authority, the President constitute d the PTC to primarily investigate reports of graft and
corruption and to recommend the appropriate action. As previously stated, no quasi -judicial powers have
been vested in the said body as it cannot adjudicate rights of persons who come before it. It ha s been said
that "Quasi-judicial powers involve the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by law i tself in
enforcing and administering the same law."58 In simpler terms, judicial discretion is involved in the exercise
of these quasi-judicial power, such that it is exclusively vested in the judiciary and must be clearly
authorized by the legislature in the case of administrative agencies.
The distinction between the power to investigate and the power to adjudicate was delineated by the Court
in Cariño v. Commission on Human Rights.59 Thus:
"Investigate," commonly understood, means to examine, explore, inquire or delve or probe into, research
on, study. The dictionary definition of "investigate" is "to observe or study cl osely: inquire into
systematically: "to search or inquire into: x x to subject to an official probe x x: to conduct an official
inquiry." The purpose of investigation, of course, is to discover, to find out, to learn, obtain information.
Nowhere included or intimated is the notion of settling, deciding or resolving a controversy involved in the
facts inquired into by application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up st ep by step by patient inquiry
or observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to
find out by careful inquisition; examination; the taking of evidence; a legal inquiry;" "to inquire; to make
an investigation," "investigation" being in turn described as "(a)n administrative function, the exercise of
which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; x x an inquiry, judicial or otherwise,
for the discovery and collection of facts concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine,
resolve, rule on, settle. The dictionary defines the term as "to settl e finally (the rights and duties of the
parties to a court case) on the merits of issues raised: x x to pass judgment on: settle judicially: x x act
as judge." And "adjudge" means "to decide or rule upon as a judge or with judicial or quasi -judicial powers:
x x to award or grant judicially in a case of controversy x x."
In the legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide,
settle or decree, or to sentence or condemn. x x. Implies a judicial determination of a fact, and the entry
of a judgment." [Italics included. Citations Omitted]
Fact-finding is not adjudication and it cannot be likened to the ju dicial function of a court of justice, or
even a quasi-judicial agency or office. The function of receiving evidence and ascertaining therefrom the
facts of a controversy is not a judicial function. To be considered as such, the act of receiving evidence
and arriving at factual conclusions in a controversy must be accompanied by the authority of applying the
law to the factual conclusions to the end that the controversy may be decided or resolved authoritatively,
finally and definitively, subject to appeals or modes of review as may be provided by law.60 Even
respondents themselves admit that the commission is bereft of any quasi -judicial power.61
Contrary to petitioners’ apprehension, the PTC will not supplant the Ombudsman or the DOJ or erode their
respective powers. If at all, the investigative function of the commission wi ll complement those of the two
offices. As pointed out by the Solicitor General, the recommendation to prosecute is but a consequence of
the overall task of the commission to conduct a fact -finding investigation."62 The actual prosecution of
suspected offenders, much less adjudication on the merits of the charges against them, 63 is certainly not
a function given to the commission. The phrase, "when in the course of its investigation," under Section
2(g), highlights this fact and gives credence to a contrary interpretation from that of the petitioners. The
function of determining probable cause for the filing of the appropri ate complaints before the courts
remains to be with the DOJ and the Ombudsman.64
At any rate, the Ombudsman’s power to investigate under R.A. No. 6770 is not exclusive but is shared
with other similarly authorized government agencies. Thus, in the case of Ombudsman v. Galicia, 65 it was
written:
This power of investigation granted to the Ombudsman by the 1987 Constitution and The Ombudsman
Act is not exclusive but is shared with other similarly authorized government agencies such as the PCGG
and judges of municipal trial courts and municipal circuit trial courts. The power to conduct preliminary
investigation on charges against public employees and officials is likewise concurrently shared with the
Department of Justice. Despite the passage of the Local Government Code in 1991, the Ombudsman
retains concurrent jurisdiction with the Office of the President and the local Sanggunians to investigate
complaints against local elective officials. [Emphasis supplied].
Also, Executive Order No. 1 cannot contravene the power of the Ombudsm an to investigate criminal cases
under Section 15 (1) of R.A. No. 6770, which states:
(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any
public officer or employee, office or agency, when such act or omission appears to be illegal, unjust,
improper or inefficient. It has primary jurisdiction over cases cognizable by the Sandiganbayan and, in
the exercise of its primary jurisdiction, it may take over, at any stage, from any investigatory agency of
government, the investigation of such cases. [Emphases supplied ]
The act of investigation by the Ombudsman as enunciated above contemplates the conduct of a preliminary
investigation or the determination of the existence of probable cause. This is categorically out of the PTC’s
sphere of functions. Its power to investigate is limited to obtaining facts so that it can advise and guide
the President in the performance of his duties relative to the execution and enforcement of the laws of the
land. In this regard, the PTC commits no act of usurpation of the Ombudsman’s primordial duties.
The same holds true with respect to the DOJ. Its authority under Section 3 (2), Chapter 1, Title III, Book
IV in the Revised Administrative Code is by no means exclusive and, thus, can be s hared with a body
likewise tasked to investigate the commission of crimes.
Finally, nowhere in Executive Order No. 1 can it be inferred that the findings of the PTC are to be accorded
conclusiveness. Much like its predecessors, the Davide Commission, the Feliciano Commission and the
Zenarosa Commission, its findings would, at best, be recommendatory in nature. And being so, the
Ombudsman and the DOJ have a wider degree of latitude to decide whether or not to reject the
recommendation. These offices, therefo re, are not deprived of their mandated duties but will instead be
aided by the reports of the PTC for possible indictments for violations of graft laws.
Violation of the Equal Protection Clause
Although the purpose of the Truth Commission falls within the investigative power of the President, the
Court finds difficulty in upholding the constitutionality of Executive Order No. 1 in view of its apparent
41
transgression of the equal protection clause enshrined in Section 1, Article III (Bill of Rights) of the 19 87
Constitution. Section 1 reads:
Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws.
The petitioners assail Executive Order No. 1 because it is violative of this constitutional safeguard. They
contend that it does not apply equally to all members of the same class such that the intent of singling
out the "previous administration" as its sole object makes the PTC an "adventure in partisan
hostility."66 Thus, in order to be accorded with validity, the commission must also cover reports of graft
and corruption in virtually all administrations previous to that o f former President Arroyo.67
The petitioners argue that the search for truth behind the reported cases of graft and corruption must
encompass acts committed not only during the administration of former President Arroyo but also during
prior administrations where the "same magnitude of controversies and anomalies" 68 were reported to have
been committed against the Filipino people. They assail the classification formulated by the respondents
as it does not fall under the recognized exceptions because first, "there is no substantial distinction
between the group of officials targeted for investigation by Executive Order No. 1 a nd other groups or
persons who abused their public office for personal gain; and second, the selective classification is not
germane to the purpose of Executive Order No. 1 to end corruption." 69 In order to attain constitutional
permission, the petitioners advocate that the commission should deal with "graft and grafters prior and
subsequent to the Arroyo administration with the strong arm of the law with equal force."70
Position of respondents
According to respondents, while Executive Order No. 1 identifies the "previous administration" as the initial
subject of the investigation, following Section 17 thereof, the PTC will not confine itself to cases of large
scale graft and corruption solely during the said administration. 71 Assuming arguendo that the commission
would confine its proceedings to officials of the previous administration, the petitioners argue that no
offense is committed against the equal protection clause for "the segre gation of the transactions of public
officers during the previous administration as possible subjects of investigation is a valid classification
based on substantial distinctions and is germane to the evils which the Executive Order seeks to
correct."72 To distinguish the Arroyo administration from past administrations, it recited the following:
First. E.O. No. 1 was issued in view of widespread reports of large scale graft and corruption in the previous
administration which have eroded public confidence in public institutions. There is, therefore, an urgent
call for the determination of the truth regarding certain reports of large scal e graft and corruption in the
government and to put a closure to them by the fili ng of the appropriate cases against those involved, if
warranted, and to deter others from committing the evil, restore the people’s faith and confidence in the
Government and in their public servants.
Second. The segregation of the preceding administratio n as the object of fact-finding is warranted by the
reality that unlike with administrations long gone, the current administration will most likely bear the
immediate consequence of the policies of the previous administration.
Third. The classification of the previous administration as a separate class for investigation lies in the
reality that the evidence of possible criminal activity, the evidence that could lead to recovery of public
monies illegally dissipated, the policy lessons to be learned to ensure that anti-corruption laws are faithfully
executed, are more easily established in the regime that immediately precede the current administration.
Fourth. Many administrations subject the transactions of their predecessors to investigations to provide
closure to issues that are pivotal to national life or even as a routine measure of due diligence and good
housekeeping by a nascent administration like the Presidential Commissi on on Good Government (PCGG),
created by the late President Corazon C. Aquino und er Executive Order No. 1 to pursue the recovery of ill -
gotten wealth of her predecessor former President Ferdinand Marcos and his cronies, and the Saguisag
Commission created by former President Joseph Estrada under Administrative Order No, 53, to form an
ad-hoc and independent citizens’ committee to investigate all the facts and circumstances surrounding
"Philippine Centennial projects" of his predecessor, former President Fid el V. Ramos.
Concept of the Equal Protection Clause
One of the basic principles on which this government was founded is that of the equality of right which is
embodied in Section 1, Article III of the 1987 Constitution. Th e equal protection of the laws is embraced
in the concept of due process, as every unfair discrimination offends the requirements of justice and fair
play. It has been embodied in a separate clause, however, to provide for a more specific guaranty against
any form of undue favoritism or hostility from the government. Arbitrariness in genera l may be challenged
on the basis of the due process clause. But if the particular act assailed partakes of an unwarranted
partiality or prejudice, the sharper weapon to cut it down is the equal protection clause.74
"According to a long line of decisions, equal protection simply requires that all persons or things similarly
situated should be treated alike, both as to rights conferred and responsibilities imposed." 75 It "requires
public bodies and institutions to treat similarly situated indi viduals in a similar manner."76 "The purpose of
the equal protection clause is to secure every person within a state’s jurisdiction against intentional and
arbitrary discrimination, whether occasioned by the express terms of a statue or by its impro per execution
through the state’s duly constituted authorities." 77 "In other words, the concept of equal justice under the
law requires the state to govern imparti ally, and it may not draw distinctions between individuals solely
on differences that are irrelevant to a legitimate governmental objective." 78
The equal protection clause is aimed at all official state actions, not just those of the legislature. 79 Its
inhibitions cover all the departments of the government including the pol itical and executive departments,
and extend to all actions of a state denying equal protection of the laws, through whatever agency or
80
whatever guise is taken.
It, however, does not require the universal application of the laws to all persons or things without
distinction. What it simply requires is equality among equals as det ermined according to a valid
classification. Indeed, the equal protection clause permi ts classification. Such classification, however, to
be valid must pass the test of reasonableness. The test has four requisites: (1) The classification rests
on substantial distinctions; (2) It is germane to the purpose of the law; (3) It is not limited to existing
conditions only; and (4) It applies equally to all members of the same class. 81 "Superficial differences do
not make for a valid classification."82
For a classification to meet the requirements of constitutionality, it must includ e or embrace all persons
who naturally belong to the class.83 "The classification will be regarded as invalid if all the members of the
class are not similarly tre ated, both as to rights conferred and obligations imposed. It is not necessary
that the classification be made with absolute symmetry, in the sense that the members of the class should
possess the same characteristics in equal degree. Substantial similarit y will suffice; and as long as this is
achieved, all those covered by the classification are to be treated equally. The mere fact that an individual
belonging to a class differs from the other members, as long as that class is substantially distinguishable
from all others, does not justify the non-application of the law to him."84
42
The classification must not be based on existing circumstances only, or so constituted as to preclude
addition to the number included in the class. It must be of such a nature as to embrace all those who may
thereafter be in similar circumstances and conditions. It must not leave out or "underinclude" those that
should otherwise fall into a certain classification. As elucidated in Victoriano v. Elizalde Rope Workers'
Union 85 and reiterated in a long line of cases,86
The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws
upon all citizens of the state. It is not, therefore, a requirement, in order to avoid the constitutional
prohibition against inequality, that every man, woman and child should be affected alike by a statute.
Equality of operation of statutes does not mean indiscriminate operation on persons merely as such, but
on persons according to the circumstances surrounding them. It guarantees equality, not identity of
rights. The Constitution does not require that things which are different in fact be treated in law as
though they were the same. The equal protection clause does not forbid discrimination a s to things that
are different. It does not prohibit legislation which is limited either in the object to which it is directed
or by the territory within which it is to operate.
The equal protection of the laws clause of the Constitution allows classificat ion. Classification in law, as in
the other departments of knowledge or practice, is the grouping of things in speculation or practice because
they agree with one another in certain particulars. A law is not invalid because of simple inequality. The
very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality
in no manner determines the matter of constitutionality. All that is required of a valid classification is that
it be reasonable, which means that the classification should be based on substantial distinctions which
make for real differences, that it must be germane to the purpose of the law; that it must not be limited
to existing conditions only; and that it must apply equally to each member of the class. This Court has
held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or
rational basis and is not palpably arbitrary. [Citations omitted]
Applying these precepts to this case, Executive Order No. 1 should be struck down as violative of the equal
protection clause. The clear mandate of the envisioned truth commission is to investigate and find out the
truth "concerning the reported cases of graft and corruption during the previous administration" 87 only.
The intent to single out the previous administration is plain, patent and manifest. Mention of it has been
made in at least three portions of the questioned executive order. Specifically, these are:
WHEREAS, there is a need for a separate body dedicated solely to investigating and finding out the truth
concerning the reported cases of graft and corruption during the previous administration, and which will
recommend the prosecution of the offenders and secure justice for all;
SECTION 1. Creation of a Commission. – There is hereby created the PHILIPPINE TRUTH
COMMISSION, hereinafter referred to as the "COMMISSION," which shall primarily seek and find the
truth on, and toward this end, investigate reports of graft and corruption of such scale and magnitude that
shock and offend the moral and ethical sensibilities of the people, committed by public officers and
employees, their co-principals, accomplices and acce ssories from the private sector, if any, during the
previous administration; and thereafter recommend the appropriate action or measure to be taken thereon
to ensure that the full measure of justice shall be served without fear or favor.
SECTION 2. Powers and Functions. – The Commission, which shall have all the powers of an
investigative body under Section 37, Chapter 9, Book I of the Administrative Code of 1987, is primarily
tasked to conduct a thorough fact-finding investigation of reported cases of graft and corruption referred
to in Section 1, involving third level public officers and higher, their co -principals, accomplices and
accessories from the private sector, if any, during the previous administration and thereafter submit its
finding and recommendations to the President, Congress and the Ombudsman. [Emphases supplied]
In this regard, it must be borne in mind that the Arroyo administration is but just a member of a class,
that is, a class of past administrations. It is not a class of its own. Not t o include past administrations
similarly situated constitutes arbitrariness which the equal protection clause cannot sanction. Such
discriminating differentiation clearly reverberates to label the commission as a vehicle for vindictiveness
and selective retribution.
Though the OSG enumerates several differences between the Arroyo administration and other past
administrations, these distinctions are not substantial enough to merit the restriction of the investigation
to the "previous administration" only. The reports of widespread corruption in the Arroyo administration
cannot be taken as basis for distinguishing said administration from earlier administrations which were
also blemished by similar widespread reports of impropriety. They are not inherent in, a nd do not inure
solely to, the Arroyo administration. As Justice Isagani Cruz put it, "Superficial differences do not make
for a valid classification."88
The public needs to be enlightened why Executive Order No. 1 chooses to limit the scope of the intended
investigation to the previous administration only. The OSG ventures to opine that "to include other past
administrations, at this point, may unnecessarily overbu rden the commission and lead it to lose its
effectiveness."89 The reason given is specious. It is without doubt irrelevant to the legitimate and noble
objective of the PTC to stamp out or "end corruption and the evil it breeds." 90
The probability that there would be difficulty in unearthing evidence or that the earlier repor ts involving
the earlier administrations were already inquired into is beside the point. Obviously, deceased presidents
and cases which have already prescribed can no longer be the subjects of inquiry by the PTC. Neither is
the PTC expected to conduct simultaneous investigations of previous administrations, given the body’s
limited time and resources. "The law does not require the impossible" (Lex non cogit ad impossibilia).91
Given the foregoing physical and legal impossibility, the Court logically recognizes the unfeasibility of
investigating almost a century’s worth of graft cases. However, the fact remains that Executive Order No.
1 suffers from arbitrary classification. The PTC, to be true to its mandate of searching for the truth, must
not exclude the other past administrations. The PTC must, at least, have the authority to investigate all
past administrations. While reasonable prioritization is permitted, it should not be arbitrary lest it be
struck down for being unconstitutional. In the often quoted language of Yick Wo v. Hopkins, 92
Though the law itself be fair on its face and impartial in appearance, yet, if applied and administered by
public authority with an evil eye and an unequal hand, so as practically to make unjust and illegal
discriminations between persons in similar circumstances, material to their rights, t he denial of equal
justice is still within the prohibition of the constitution. [Emphasis supplied]
It could be argued that considering that the PTC is an ad hoc body, its scope is limited. The Court, however,
is of the considered view that although its fo cus is restricted, the constitutional guarantee of equal
protection under the laws should not in any way be circumvented. The Constitution is the fundamental
and paramount law of the nation to which all other laws must conform and in accordance with which all
private rights determined and all public authority administered. 93 Laws that do not conform to the
Constitution should be stricken down for being unconstitutio nal.94 While the thrust of the PTC is specific,
that is, for investigation of acts of graft and corruption, Executive Order No. 1, to survive, must be read
together with the provisions of the Constitution. To exclude the earlier administrations in the guise of
"substantial distinctions" would only confirm the petitioners’ lament that the subject executive order is
only an "adventure in partisan hostility." In the ca se of US v. Cyprian,95 it was written: "A rather limited
number of such classifications have routinely been held or assumed to be arbitrary; those include: race,
43
national origin, gender, political activity or membership in a political party, union activity or membership
in a labor union, or more generally the exercise of first amendment rights."
To reiterate, in order for a classification to meet the requirements of constitutionality, it must include or
embrace all persons who naturally belong to the class. 96 "Such a classification must not be based on
existing circumstances only, or so constituted as to preclude additions to the number included within a
class, but must be of such a nature as to embrace all those who may thereafter be in similar circumstances
and conditions. Furthermore, all who are in situations and circumsta nces which are relative to the
discriminatory legislation and which are indistinguishable from those of the members of the class must be
brought under the influence of the law and treated by it in the same way as are the members of the
class."97
The Court is not unaware that "mere underinclusiveness is not fatal to the validity of a law under the equal
protection clause."98 "Legislation is not unconstitutional merely because it is not all -embracing and does
not include all the evils within its reach." 99 It has been written that a regulation challenged under the equal
protection clause is not devoid of a rational predicate simply because it happens to be incomplete. 100 In
several instances, the underinclusiveness was not considered a valid reason to strike down a law or
regulation where the purpose can be attained in future legislations or regulations. These cases refer to the
"step by step" process.101 "With regard to equal protection claims, a legislature does not run the risk of
losing the entire remedial scheme simply because it fails, through inadve rtence or otherwise, to cover
every evil that might conceivably have been attacked." 102
In Executive Order No. 1, however, there is no inadvertence. That the previous administration was picked
out was deliberate and intentional as can be gleaned from the fact that it was underscored at least three
times in the assailed executive order. It must be noted that Executive Order No. 1 does not even mention
any particular act, event or report to be focused on unlike the investigative commissions created in the
past. "The equal protection clause is violated by purposeful and intentional discrimination ."103
To disprove petitioners’ contention that there is deliberate discrimination, the OSG clarifies that the
commission does not only confine itself to cases of large scale graft and corruption committed during the
previous administration.104 The OSG points to Section 17 of Executive Order No. 1, which provides:
SECTION 17. Special Provision Concerning Mandate. If and when in the judgment of th e President there
is a need to expand the mandate of the Commission as defined in Section 1 hereof to include the
investigation of cases and instances of graft and corruption during the prior administrations, such
mandate may be so extended accordingly by way of a supplemental Executive Order.
The Court is not convinced. Although Section 17 allows the President the discretion to expand the scope
of investigations of the PTC so as to i nclude the acts of graft and corruption committed in other past
administrations, it does not guarantee that they would be covered in the future. Such expanded mandate
of the commission will still depend on the whim and caprice of the President. If he would decide not to
include them, the section would then be meaningless. This will only fortify the fears of the petitioners that
the Executive Order No. 1 was "crafted to tailor-fit the prosecution of officials and personalities of the
Arroyo administration."105
The Court tried to seek guidance from the pronouncement in the case of Virata v. Sandiganbayan,106 that
the "PCGG Charter (composed of Executive Orders Nos. 1, 2 and 14) does not violate the equal protection
clause." The decision, however, was devoid of any discussion on how such conclusory statement was
arrived at, the principal issue in said case being only the sufficiency of a cause of act ion.
A final word
The issue that seems to take center stage at present is - whether or not the Supreme Court, in the exercise emphasized that the se arch for the truth must be within constitutional bounds for "ours is still a
of its constitutionally mandated power of Judicial Review with respect to recent initiatives of the legislature government of laws and not of men."110
and the executive department, is exercising undue interference. Is the Highest Tribunal, which is expected
to be the protector of the Constitution, itself guilty of violating fundamental tenets like the doctrine of
WHEREFORE, the petitions are GRANTED. Executive Order No. 1 is hereby declared UNCONSTITUTIONAL
separation of powers? Time and again, this issue has been a ddressed by the Court, but it seems that the
insofar as it is violative of the equal protection clause of the Constitution.
present political situation calls for it to once again explain the legal basis of its action lest it continually be
accused of being a hindrance to the nation’s thrust to progress.
As also prayed for, the respondents are hereby ordered to cease and desist from carrying out the provisions
of Executive Order No. 1.
The Philippine Supreme Court, according to Article VIII, Section 1 of the 1987 Constitution, is vested with
Judicial Power that "includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whe ther or not there has been a grave
of abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government."

Furthermore, in Section 4(2) thereof, it is vested with the power of judicial review whic h is the power to
declare a treaty, international or executive agreement, law, presidential decree, proclamation, order,
instruction, ordinance, or regulation unconstitutional. This power also includes the duty to rule on the
constitutionality of the application, or operation of presidential decrees, proclamations, orders,
instructions, ordinances, and other regulations. These provisions, however, have been fertile grounds of
conflict between the Supreme Court, on one hand, and the two co -equal bodies of government, on the
other. Many times the Court has been accused of asserting superiority over the other departments.

To answer this accusation, the words of Justice Laurel would be a good source of enlightenment, to wit:
"And when the judiciary mediates to a llocate constitutional boundaries, it does not assert any superiority
over the other departments; it does not in reality nullify or invalidate an act of the legislature, but only
asserts the solemn and sacred obligation assigned to it by the Constitution t o determine conflicting claims
of authority under the Constitution and to establish for the parties in an actual controversy the rights
which that instrument secures and guarantees to them." 107

Thus, the Court, in exercising its power of judicial review, is not imposing its own will upon a co -equal
body but rather simply making sure that any act of government is done in consonance with the authorities
and rights allocated to it by the Constitution. And, if after said review, the Court finds no constitutional
violations of any sort, then, it has no more authority of proscribing the actions under review. Otherwise,
the Court will not be deterred to pronounce said act as void and uncons titutional.

It cannot be denied that most government actions are inspired with noble intentions, all geared towards
the betterment of the nation and its people. But then again, it is important to remember this ethical
principle: "The end does not justify the means." No matter how noble and worthy of admiration the purpose
of an act, but if the means to be employed in accomplishing it is simply irreconcilable with constitutional
parameters, then it cannot still be allowed.108 The Court cannot just turn a blind eye and simply let it pass.
It will continue to uphold the Constitution and its enshrined principles.

"The Constitution must ever remain supreme. All must bow to the mandate of this law. Expediency must
not be allowed to sap its strength nor greed for power debase its rectitude." 109

Lest it be misunderstood, this is not the death knell for a truth commission as nobly envisioned by the
present administration. Perhaps a revision of the executive issuance so as to include the earlier past
administrations would allow it to pass the test of reasonableness and not be an affron t to the Constitution.
Of all the branches of the government, it is the judiciary which is the most interested in knowing the truth
and so it will not allow itself to be a hindrance or obstacle to its attainment. It must, however, be

44
G.R. No. 187883 June 16, 2009 presumption of constitutionality to legislative enactments, not only because the legislature is presumed to
abide by the Constitution but also because the judiciary in the determination of actual cases and
controversies must reflect the wisdom and justice of the people as expressed through their representatives
ATTY. OLIVER O. LOZANO and ATTY. EVANGELINE J. LOZANO-ENDRIANO, Petitioners,
vs. in the executive and legislative departments of the government.

SPEAKER PROSPERO C. NOGRALES, Representative, Majority, House of

Representatives, Respondent. An aspect of the "case-or-controversy" requirement is the requisite of "ripeness." In the United States,
courts are centrally concerned with whether a case involves uncertain contingent future events that may
not occur as anticipated, or indeed may not occur at all. 8 Another approach is the evaluation of the twofold
x - - - - - - - - - - - - - - - - - - - - - - -x
aspect of ripeness: first, the fitness of the issues for judicial decision; and second, the hardship to the
parties entailed by withholding court consideration. 9 In our jurisdiction, the issue of ripeness is generally
G.R. No. 187910 June 16, 2009 treated in terms of actual injury to the plaintiff. Hence, a question is ripe for adjudication when the act
being challenged has had a direct adverse effect on the individual challenging it. 10 An alternative road to
LOUIS "BAROK" C. BIRAOGO, Petitioner, review similarly taken would be to determine whether an action has already been accomplished or
vs. performed by a branch of government before the courts may step in. 11
SPEAKER PROSPERO C. NOGRALES, Speaker of the House of Representatives, Congress of the
Philippines, Respondent. In the present case, the fitness of petitioners’ case for the exercise of judicial review is grossly lacking. In
the first place, petitioners have not sufficiently proven any adverse injury or hardship from the act
complained of. In the second place, House Resolution No. 1109 only resolved that the House of
PUNO, C.J.:
Representatives shall convene at a future time for the purpose of proposing amendments or revisions to
the Constitution. No actual convention has yet transpired and no rules of p rocedure have yet been adopted.
This Court, so long as the fundamentals of republicanism continue to guide it, shall not shirk its bounden More importantly, no proposal has yet been made, and hence, no usurpation of power or gross abuse of
duty to wield its judicial power to settle "actual controversies involving rights which are legally demandable discretion has yet taken place. In short, House Resolution No. 1109 involves a quintessential example of
and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting an uncertain contingent future event that may not occur as anticipated, or indeed may not occur at all.
to a lack or excess of jurisdiction on the part of any branch or instrumentality of the government." 1 Be The House has not yet performed a positive act that would warrant an intervention from this
that as it may, no amount of exigency can make this Court exercise a power where it is not proper. Court.1avvphi1

The two petitions, filed by their respective petitioners in their capacities as concerned citizens and
taxpayers, prayed for the nullification of House Resolution No. 1109 entitled "A Resolution Calling upon
the Members of Congress to Convene for the Purpose of Co nsidering Proposals to Amend or Revise the
Constitution, Upon a Three -fourths Vote of All the Members of Congress." In essence, both petitions seek
to trigger a justiciable controversy that would warrant a definitive interpretation by this Court of Section
1, Article XVII, which provides for the procedure for amending or revising the Constitution. Unfortunately,
this Court cannot indulge petitioners’ supplications. While some may interpret petitioners’ moves as
vigilance in preserving the rule of law, a careful perusal of their petitions would reveal that they cannot
hurdle the bar of justiciability set by this Court before it will assume jurisdiction over cases involving
Tan v. Macapagal presents a similar factual milieu. In said cas e, petitioners filed a petition assailing the
validity of the Laurel-Langley resolution, which dealt with the range of authority of the 1971 Constitutional
Convention. The court resolved the issue thus:
More specifically, as long as any proposed amendment is still unacted on by it, there is no room for the
interposition of judicial oversight. Only after it has made concrete what it intends to submit for ratification
may the appropriate case be instituted. Until then, the courts are devoid of jurisdiction. T hat is the
command of the Constitution as interpreted by this Court. Unless and until such a doctrine loses force by

constitutional disputes. being overruled or a new precedent being announced, it is controlling. It is implicit in the rule of law. 12

It is well settled that it is the duty of the judiciary to say what the law is.2 The determination of the nature,
scope and extent of the powers of government is the exclusive province of the judiciary, such that any
mediation on the part of the latter for the allocation of constitutional boundaries would amount, not to its
supremacy, but to its mere fulfillment of its "solemn and sacred obligation" under the Constitution. 3 This
Court’s power of review may be awesome, but it is limited to actual cases and controversies dealing with
parties having adversely legal claims, to be exercised after full opportunity of argument by the parties,
and limited further to the constitutional question raised or the very lis mota presented.4 The "case-or-
controversy" requirement bans this court from deciding "abstra ct, hypothetical or contingent
questions,"5 lest the court give opinions in the nature of advice concerning legislative or executive
Yet another requisite rooted in the very nature of judicial power is locus standi or standing to sue. Thus,
generally, a party will be allowed to litigate only when he can demonstrate that (1) he has personally
suffered some actual or threatened injury because of the allegedly illegal conduct of the government; (2)
the injury is fairly traceable to the challenged action; and (3) the injury is likely to be redressed by the
remedy being sought.13 In the cases at bar, petitioners have not shown the elemental injury in fact that
would endow them with the standing to sue. Locus standi requires a personal stake in the outcome of a
controversy for significant reasons. It assures adverseness and sharpens the presentation of issues for the
illumination of the Court in resolving difficult constitutional questions. 14 The lack of petitioners’ personal
stake in this case is no more evident than in Lozano’s three -page petition that is devoid of any legal or

action.6 In the illuminating words of the learned Justice Laurel in Angara v. Electoral Commission 7 : jurisprudential basis.

Any attempt at abstraction could only lead to dialectics and barren legal questions and to sterile Neither can the lack of locus standi be cured by the claim of petitioners that they are instituting the cases
conclusions unrelated to actualities. Narrowed as its function is in this manner, the judiciary does not pass at bar as taxpayers and concerned citizens. A taxpayer’s suit requires that the act complained of directly
upon questions of wisdom, justice or expediency of legislation. More than that, courts accord the involves the illegal disbursement of public funds derived from taxation. 15 It is undisputed that there has

45
been no allocation or disbursement of public funds in this case as of yet. To be sure, standing as a citizen
has been upheld by this Court in cases where a petitioner is able to craft an issue of transcendental
importance or when paramount public interest is involved. 16 While the Court recognizes the potential far-
reaching implications of the issue at hand, the possibl e consequence of House Resolution No. 1109 is yet
unrealized and does not infuse petitioners with locus standi under the "transcendental importance"
doctrine.

The rule on locus standi is not a plain procedural rule but a constitutional requirement derived from Section
1, Article VIII of the Constitution, which mandates courts of justice to settle only "actual controversies
involving rights which are legally demandable and enforceable." As stated in Kilosbayan, Incorporated v.
Guingona, Jr.,17 viz.:
x x x [C]ourts are neither free to decide all kinds of cases dumped into their laps nor are they free to
open their doors to all parties or entities claiming a grievance. The rationale for this constitutional
requirement of locus standi is by no means trifle. It is intended "to assure a vigorous adversary
presentation of the case, and, perhaps more importantly to warrant the judiciary's overruling the
determination of a coordinate, democratically elected organ of government." It thus goes to the very
essence of representative democracies.

A lesser but not insignificant reason for screening the standing of persons who desire to litigate
constitutional issues is economic in character. Given the sparseness of our resources, the capacity of courts
to render efficient judicial service to our people is severely limited. For courts to indiscriminately open
their doors to all types of suits and suitors is for them to unduly o verburden their dockets, and ultimately
render themselves ineffective dispensers of justice. To be sure, this is an evil that clearly confronts our
judiciary today.

Moreover, while the Court has taken an increasingly liberal approach to the rule of locus s tandi, evolving
from the stringent requirements of "personal injury" to the broader "transcendental importance" doctrine,
such liberality is not to be abused. It is not an open invitation for the ignorant and the ignoble to file
petitions that prove nothing but their cerebral deficit.

In the final scheme, judicial review is effective largely because it is not available simply at the behest of a
partisan faction, but is exercised only to remedy a particular, concrete injury. 18 When warranted by the
presence of indispensible minimums for judicial review, this Court shall not shun the duty to resolve the
constitutional challenge that may confront it.

IN VIEW WHEREOF, the petitions are dismissed.

46