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PHILIPPINE AIRLINES, INC. v. EDU G.R. No.

L-41383 August 15, 1988


Motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. It appears clear that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency.

FACTS:
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise. Under its franchise, PAL is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice PAL has, since 1956 has not been paying motor vehicle registration fees. However, sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees pursuant to Section 8, RA No. 4136 or the Land Transportation Traffic Code.virtual law library Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter to Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle registration fees are regulatory exceptional and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise. Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. The trial court rendered a decision dismissing the appellant's complaint. From this judgment, PAL appealed to the Court of Appeals which certified the case to SC.

ISSUE:
What is the nature of motor vehicle registration fees?

HELD:
Motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. It appears clear that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the term "fees," which appears to have been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which refers to taxes other than those imposed on the registration, operation or ownership of a motor vehicle.

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. Indeed, taxation may be made the implement of the state's police power. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593 in the Land Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-593 speaks of "taxes" or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593 of the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission. It is quite apparent that vehicle registration fees were originally simple exception intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes." The prayed for refund of registration fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

CASANOVAS v. HORD G.R. No. 3473 March 22, 1907 It seems very clear to the Court that the deed of mining concessions constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law thereby infringing the provision that no law impairing the obligation of contracts shall be enacted.

FACTS:
In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the plaintiff is now the owner. There were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act is as follows: SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and ninety-nine, there shall be levied and collected on after January first, nineteen hundred and five, the following taxes: 2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos; (b) and at the same rate proportionately on each claim containing an area in excess of, or less than, sixty thousand square meters. 3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such output. The defendant accordingly imposed upon these properties the tax in section 134, which tax, as has before been stated, plaintiff paid under protest. Plaintiff claims that it is void because it comes within the provision that no law impairing the obligation of contracts shall be enacted.

ISSUE:
Whether or not the ad valorem tax imposed under Section 134 is valid.

HELD:
The royal decree and regulation for its enforcement provided that the deeds granted by the Government should be in a particular form, which form was inserted in the regulations. It must be presumed that the deeds granted to the plaintiff were made as provided by law, and, in fact, one of such concessions was exhibited during the argument in this court, and was found to be in exact conformity with the form prescribed by law. It seems very clear to the Court that the deed of mining concessions constituted a contract between the Spanish Government and the plaintiff, the obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law thereby infringing the provision that no law impairing the obligation of contracts shall be enacted. But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also found the provision contained in article 81 which expressly declares that no other taxes shall be imposed upon these mines.

MATHAY, JR. v. MACALINCAG G.R. Nos. 97618, 97760 and 102319 December 16, 1993
Schedules of Market Values for real properties located in Quezon City, the Municipality of Pasig and the Municipality of Makati, respectively prepared solely by the City Assessor of Quezon City, and the Municipal Assessors of Pasig and Makati, failed to comply with the explicit requirements of Presidential Decree No. 921 in relation to the corresponding Administrative Regulations promulgated by the Department of Finance (No. 7-77) on July 25, 1977, and are on that account illegal and void.

FACTS:
On March 21, 1991, Ismael A. Mathay, Jr., a member of Congress, and registered owner of lands in Quezon City and resident of Metro Manila, instituted in the Court a special civil action of prohibition against Victor Macalincag, then the Undersecretary of Finance, the City Assessor and the City Treasurer of Quezon City. His petition sought the perpetual enjoinment, as unconstitutional and void, of "(a) the schedule of market values prepared by respondent City Assessor for all classes of real property situated in Quezon City, (b) the approval of said schedule by respondent Victor Macalincag, (c) the revised and/or increased assessments of the properties prepared by the City Assessor based on the illegal schedule of market values, and (d) the oppressive and excessive real estate tax increases being implemented by respondents City Assessor and City Treasurer pursuant to the illegal schedule of market values and unlawful approval, all in violation of the Constitution and laws. The essential foundation of the petitioner's thesis of the nullity of the schedule of market values is that it was prepared by the respondent City Assessor alone, independently of the other City Assessors within the Metropolitan Manila Area, this being in patent violation of the explicit requirement of Section 9 of Presidential decree No. 921. Six (6) days later, a similar action was initiated in this Court by Rufino S. Javier, Congressman of the Lone District of Pasig, Metro Manila against Victor C. Macalincag, as Undersecretary of Finance, and the Municipal Assessor and the Municipal Treasurer of Pasig. On the same legal theory as that espoused by petitioner Mathay in the first action, Javier's petition sought the permanent proscription of the enforcement of "the unreasonably burdensome, unjust and confiscatory increase" in the assessment of real estate in Pasig. A third special civil action of prohibition impugning the increase of real property assessment levels, this time in respect of land located in Makati, was instituted on November 4, 1991 by Consuelo Puyat-Reyes, as a registered owner of real estate property in the Municipality of Makati and the incumbent Congresswoman of the District in Makati, Metro Manila. In the first case, it rendered a Decision sustaining the theory of petitioner. The Board also rejected the respondents' argument that "the subsequent issuance of Executive Order No. 392, constituting the Metropolitan Manila Authority on January 9, 1989, has in effect abolished the Metro Manila Commission, and therefore has ceased to function." It ruled that Executive Order No. 392 could not repeal a legislative act like P.D. No. 921, and that even assuming that Executive Order did abolish the Commission, the former "did not in any manner affect the life of P.D. 921 nor the assessment districts and committee created therein under Section 9 thereof nor its provision regarding the preparation of schedule of market values for real properties within the Metropolitan Manila Area. In the second case, it ruled that the League has no authority to prepare the Schedule Market of Values, for not having been constituted in accordance with Section 9 of P.D. 921 which pertained only to the Districts created under Section 1 of P.D. 921. But even granting that the League has authority, the League did not extend any hand in the preparation of said schedule. In the third case, the decision states that in March, 1993, the Board allowed two (2) firms to make common cause with petitioner Puyat-Reyes as petitioners-in-intervention,

namely: Ayala Land, Inc. (ALI) and Makati Commercial Estate Association, Inc. (MACEA), "owners/lessees of real properties located within the Municipality of Makati;" and that compromise agreements were arrived at and submitted by Puyat-Reyes and the respondents, as well as by the latter and the intervenors. The Board declared the compromise agreements to have no legal basis and hence unacceptable.

ISSUE:
Whether or not the decision of the CBAA must be upheld.

HELD:
The Court has reviewed the records of all these three (3) cases and finds that the Central Board of Assessment Appeals has proceeded correctly as regards their hearing and determination. It also agrees with the Board's conclusion that the Schedules of Market Values for real properties located in Quezon City, the Municipality of Pasig and the Municipality of Makati, respectively prepared solely by the City Assessor of Quezon City, and the Municipal Assessors of Pasig and Makati, failed to comply with the explicit requirements of Presidential Decree No. 921 in relation to the corresponding Administrative Regulations promulgated by the Department of Finance (No. 7-77) on July 25, 1977, and are on that account illegal and void.

PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES v. COURT OF APPEALS G.R. Nos. 106949-50 and 106984-85 December 1, 1995
Interest payments on loans incurred by a taxpayer are allowed by the NIRC as deductions against the taxpayer's gross income. The general rule is that interest expenses are deductible against gross income and this certainly includes interest paid under loans incurred in connection with the carrying on of the business of the taxpayer. xxx xxx xxx The Court has already noted that our 1977 NIRC does not prohibit the deduction of interest on a loan incurred for acquiring machinery and equipment. Neither does our 1977 NIRC compel the capitalization of interest payments on such a loan. The 1977 Tax Code is simply silent on a taxpayer's right to elect one or the other tax treatment of such interest payments. Accordingly, the general rule that interest payments on a legally demandable loan are deductible from gross income must be applied.

FACTS:
The Paper Industries Corporation of the Philippines ("Picop"), which is petitioner in G.R. Nos. 106949-50 and private respondent in G.R. Nos. 106984-85, is a Philippine corporation registered with the Board of Investments ("BOI") as a preferred pioneer enterprise with respect to its integrated pulp and paper mill, and as a preferred non-pioneer enterprise with respect to its integrated plywood and veneer mills. On 21 April 1983, Picop received from the CIR two (2) letters of assessment and demand both dated 31 March 1983: (a) one for deficiency transaction tax and for documentary and science stamp tax; and (b) the other for deficiency income tax for 1977, for an aggregate amount of P88,763,255.00. On 26 April 1983, Picop protested the assessment of deficiency transaction tax and documentary and science stamp taxes. Picop also protested on 21 May 1983 the deficiency income tax assessment for 1977. On 26 September 1984, the CIR issued a warrant of distraint on personal property and a warrant of levy on real property against Picop, to enforce collection of the contested assessments; in effect, the CIR denied Picop's protests. Thereupon, Picop went before the CTA appealing the assessments. After trial, the CTA rendered a decision modifying the findings of the CIR and holding Picop liable for the reduced aggregate amount of P20,133,762.33. On appeal to CA, it reduced the liability of Picop to P6,338,354.70. Picop now maintains that it is not liable at all to pay any of the assessments or any part thereof. It assails the propriety of the thirty-five percent (35%) deficiency transaction tax which the Court of Appeals held due from it in the amount of P3,578,543.51. Picop also questions the imposition by the Court of Appeals of the deficiency income tax of P1,481,579.15, resulting from disallowance of certain claimed financial guarantee expenses and claimed year-end adjustments of sales and cost of sales figures by Picop's external auditors.

ISSUE:
Whether or not PICOP is entitled to deductions against income of interest payments on loans for the purchase of machinery and equipment, net operating losses incurred by Rustan Pulp Paper Mills, Inc. and certain claimed financial guarantee expenses.

HELD:
The CIR disallowed this deduction upon the ground that, because the loans had been incurred for the purchase of machinery and equipment, the interest payments on those loans should have been capitalized instead and claimed as a depreciation deduction taking into account the adjusted basis of the machinery and equipment (original acquisition cost plus interest charges) over the useful life of such assets. Both the CTA and the Court of Appeals

sustained the position of Picop and held that the interest deduction claimed by Picop was proper and allowable. In the instant Petition, the CIR insists on its original position. Interest payments on loans incurred by a taxpayer are allowed by the NIRC as deductions against the taxpayer's gross income. The general rule is that interest expenses are deductible against gross income and this certainly includes interest paid under loans incurred in connection with the carrying on of the business of the taxpayer. In the instant case, the CIR does not dispute that the interest payments were made by Picop on loans incurred in connection with the carrying on of the registered operations of Picop. Neither does the CIR deny that such interest payments were legally due and demandable under the terms of such loans, and in fact paid by Picop during the tax year 1977. The CIR has been unable to point to any provision of the 1977 Tax Code or any other Statute that requires the disallowance of the interest payments made by Picop. The Court has already noted that our 1977 NIRC does not prohibit the deduction of interest on a loan incurred for acquiring machinery and equipment. Neither does our 1977 NIRC compel the capitalization of interest payments on such a loan. The 1977 Tax Code is simply silent on a taxpayer's right to elect one or the other tax treatment of such interest payments. Accordingly, the general rule that interest payments on a legally demandable loan are deductible from gross income must be applied. On 18 January 1977, Picop entered into a merger agreement with the Rustan Pulp and Paper Mills, Inc. ("RPPM") and Rustan Manufacturing Corporation ("RMC"). Under this agreement, the rights, properties, privileges, powers and franchises of RPPM and RMC were to be transferred, assigned and conveyed to Picop as the surviving corporation. Upon the other hand, even before the effective date of merger, on 30 August 1977, Picop sold all the outstanding shares of RMC stock to San Miguel Corporation for the sum of P38,900,000.00, and reported a gain of P9,294,849.00 from this transaction. In claiming such deduction, Picop relies on section 7 (c) of R.A. No. 5186. It is important to note at the outset that in our jurisdiction, the ordinary rule that is, the rule applicable in respect of corporations not registered with the BOI as a preferred pioneer enterprise is that net operating losses cannot be carried over. Under our Tax Code, both in 1977 and at present, losses may be deducted from gross income only if such losses were actually sustained in the same year that they are deducted or charged off. It is thus clear that under our law, and outside the special realm of BOI-registered enterprises, there is no such thing as a carry-over of net operating loss. To the contrary, losses must be deducted against current income in the taxable year when such losses were incurred. Moreover, such losses may be charged off only against income earned in the same taxable year when the losses were incurred. Thus it is that R.A. No. 5186 introduced the carry-over of net operating losses as a very special incentive to be granted only to registered pioneer enterprises and only with respect to their registered operations. The statutory purpose here may be seen to be the encouragement of the establishment and continued operation of pioneer industries by allowing the registered enterprise to accumulate its operating losses which may be expected during the early years of the enterprise and to permit the enterprise to offset such losses against income earned by it in later years after successful establishment and regular operations. To promote its economic development goals, the Republic foregoes or defers taxing the income of the pioneer enterprise until after that enterprise has recovered or offset its earlier losses. The statutory purpose can be served only if the accumulated operating losses are carried over and charged off against income subsequently earned and accumulated by the same enterprise engaged in the same registered operations. In the instant case, to allow the deduction claimed by Picop would be to permit one corporation or enterprise, Picop, to benefit from the operating losses accumulated by another corporation or enterprise, RPPM. RPPM far from benefiting from the tax incentive granted by the BOI statute, in fact gave up the struggle and went out of existence and its former stockholders joined the much larger group of Picop's stockholders. To grant Picop's claimed deduction would be to permit Picop to shelter its otherwise taxable income which had not been earned by the registered enterprise which had suffered the accumulated losses. In effect, to grant Picop's

claimed deduction would be to permit Picop to purchase a tax deduction and RPPM to peddle its accumulated operating losses. The CTA and the Court of Appeals allowed the offsetting of RPPM's accumulated operating losses against Picop's 1977 gross income, basically because towards the end of the taxable year 1977, upon the arrival of the effective date of merger, only one (1) corporation, Picop, remained. The losses suffered by RPPM's registered operations and the gross income generated by Picop's own registered operations now came under one and the same corporate roof. In granting the extraordinary privilege and incentive of a net operating loss carry-over to BOI-registered pioneer enterprises, the legislature could not have intended to require the Republic to forego tax revenues in order to benefit a corporation which had run no risks and suffered no losses, but had merely purchased another's losses. In its Income Tax Return for 1977, Picop also claimed a deduction in the amount of P1,237,421.00 as financial guarantee expenses.This deduction is said to relate to chattel and real estate mortgages required from Picop by the Philippine National Bank ("PNB") and DBP as guarantors of loans incurred by Picop from foreign creditors. However, the claimed deduction was not adequately shown and that the said deduction must be disallowed.

COMPANIA GENERAL DE TABACOS DE FILIPINAS v. CIR CTA Case Nos. 4141 and 4451 August 23, 1993 and November 17, 1993
What should apply as the taxable base in computing the 15% branch profit remittance tax is the amount applied for with the Central Bank as profit to be remitted abroad and not the total amount of branch profits.

FACTS:
Compania General, a foreign corporation duly licensed by the Philippine laws to engage in business through a branch office, paid 15% branch profit remittance tax for 1985 and 1986. It filed a claim for refund with the Commissioner in the amount of P539,948.61 for alleged overpaid branch profit remittance tax should be based on the profits actually remitted abroad, citing Section 24 (b)(2)(ii) of the NIRC whereas the Commissioner opined that the 15% branch profit remittance tax is imposed and collected at source. Hence, the tax base should be the amount actually applied for by the branch in pursuance to Revenue Memorandum No. 8-82.

ISSUE:
Whether or not the branch profits tax are computed based on the profits actually remitted abroad or on the total branch profits out of which the remittance was made.

HELD:
In view of the fact that the Companias branch profit remittance tax for 1985 to 1986 were paid on May 3, 1988 after the effectivity of Revenue Memorandum Circular No. 8-82, what should apply as the taxable base in computing the 15% branch profit remittance tax is the amount applied for with the Central Bank as profit to be remitted abroad and not the total amount of branch profits. The case in question Is readily distinguishable from the Burroghs Limited case, where the Supreme Court upheld the application of BIR Ruling of January 1980 because the branch profit remittance tax was paid on March 14, 1979. The High added that Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the NIRC.