COMMISSIONER OF INTERNAL REVENUE vs.

ALGUE and THE COURT OF

TAX APPEALS
G.R. No. L-28896 February 17, 1988

FACTS:
The Philippine Sugar Estate Development Company had earlier appointed
Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties.

For this sale, Algue received as agent a commission of P126,000.00, and it

was from this commission that the P75,000.00 promotional fees were paid
to the aforenamed individuals.

The petitioner contends that the claimed deduction of P75,000.00 was

properly disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees.

ISSUE: Whether or not the Collector of Internal Revenue correctly

disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns.

RULING:
The Supreme Court agrees with the respondent court that the amount of
the promotional fees was not excessive. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender
part of one's hard-earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power

SUMMARY OF PRINCIPLES:

1. As a rule, the collection of taxes should be made in

accordance with law.

Taxes are the lifeblood of the government and so

should be collected without unnecessary hindrance.
On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of
the common good, may be achieved.
2. An appeal from a decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals is
30 days from receipt thereof.

The chronology as shown in the case indicates that the

petition was filed seasonably. According to Rep. Act
No. 1125, the appeal may be made within thirty days
after receipt of the decision or ruling challenged.

3. As a general rule, the warrant of distraint and levy

is proof of the finality of the assessment. An
exception to this rule, however, is where there is a
letter of protest after receipt of notice of
assessment.

It is true that as a rule the warrant of distraint and levy

is "proof of the finality of the assessment" and
"renders hopeless a request for reconsideration,"
being "tantamount to an outright denial thereof and
makes the said request deemed rejected." But there is
a special circumstance in the case at bar that prevents
application of this accepted doctrine.

The proven fact is that four days after the private

respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant
of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a copy of the
protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant
was premature and could therefore not be served.
4. As the Court of Tax Appeals correctly noted, the
protest filed by private respondent was not pro
forma and was based on strong legal
considerations.

It thus had the effect of suspending on January 18,

1965, when it was filed, the reglementary period which
started on the date the assessment was received, viz.,
January 14, 1965. The period started running again
only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said
protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965,
only 20 days of the reglementary period had been
consumed.

5. The burden rests on the taxpayer to prove validity

of the claimed deduction successfully discharged.

In the present case, however, we find that the onus

has been discharged satisfactorily. The private
respondent has proved that the payment of the fees
was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.

6. What is the purpose or rationale of taxation?

It is said that taxes are what we pay for civilized

society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to
surrender part of one's hard-earned income to the
taxing authorities, every person who is able to must
contribute his share in the running of the government.

The government, for its part, is expected to respond in

the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their
moral and material values, This symbiotic relationship
is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
G.R. No. 122480 April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL
REVENUE, respondents.

PANGANIBAN, J.:

If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess payments. When it is undisputed that a
taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not
belonging to it. No one, not even the State, should enrich oneself at the expense of another.

The Case

Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of
Appeals1 (CA) in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision2 of the Court
of Tax Appeals (CTA). The CA disposed as follows:

WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of
merit.3

On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:

WHEREFORE, in [view of] all the foregoing, Petitioner's claim for refund is hereby DENIED
and this Petition for Review is DISMISSED for lack of merit.4

Also assailed is the November 8, 1995 CA Resolution5 denying reconsideration.

The Facts

The facts of this case were summarized by the CA in this wise:

This case involves a claim for tax refund in the amount of P112,491.00 representing
petitioner's tax withheld for the year 1989.

In its Corporate Annual Income Tax Return for the year 1989, the following items are
reflected:

Income P1,017,931,831.00

Deductions P1,026,218,791.00

Net Income (Loss) (P8,286,960.00)

Taxable Income (Loss) (P8,286,960.00)

Less:
 1988 Tax Credit P185,001.00

1989 Tax Credit P112,491.00

TOTAL AMOUNT P297,492.00

REFUNDABLE

It appears from the foregoing 1989 Income Tax Return that petitioner had a total
refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax
refund in the present case. However, petitioner declared in the same 1989 Income
Tax Return that the said total refundable amount of P297,492.00 will be applied
as tax credit to the succeeding taxable year.

On October 11, 1990, petitioner filed a written claim for refund in the amount of
P112,491.00 with the respondent Commissioner of Internal Revenue alleging that it
did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00) to
its 1990 Annual Income Tax Return or other tax liabilities due to the alleged business
losses it incurred for the same year.

Without waiting for respondent Commissioner of Internal Revenue to act on the claim
for refund, petitioner filed a petition for review with respondent Court of Tax Appeals,
seeking the refund of the amount of P112,491.00.

The respondent Court of Tax Appeals dismissed petitioner's petition on the ground
that petitioner failed to present as evidence its corporate Annual Income Tax Return
for 1990 to establish the fact that petitioner had not yet credited the amount of
P297,492.00 (inclusive of the amount P112,491.00 which is the subject of the
present controversy) to its 1990 income tax liability.

Petitioner filed a motion for reconsideration, however, the same was denied by
respondent court in its Resolution dated May 6, 1994.6

As earlier noted, the CA affirmed the CTA. Hence, this Petition.7

Ruling of the Court of Appeals

In affirming the CTA, the Court of Appeals ruled as follows:

It is incumbent upon the petitioner to show proof that it has not credited to its 1990
Annual income Tax Return, the amount of P297,492.00 (including P112,491.00), so
as to refute its previous declaration in the 1989 Income Tax Return that the said
amount will be applied as a tax credit in the succeeding year of 1990. Having failed
to submit such requirement, there is no basis to grant the claim for refund. . . .

Tax refunds are in the nature of tax exemptions. As such, they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. In other words, the burden of proof rests
upon the taxpayer to establish by sufficient and competent evidence its entitlement to
the claim for refund.8
 Issue

In their Memorandum, respondents identify the issue in this wise:

The sole issue to be resolved is whether or not petitioner is entitled to the refund of
P112,491.90, representing excess creditable withholding tax paid for the taxable year 1989.9

The Court's Ruling

The Petition is meritorious.

Main Issue:

Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled
to a refund amounting to P112,491. Pursuant to Section 69 10 of the 1986 Tax Code which states that
a corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount
for the succeeding taxable year, petitioner indicated in its 1989 Income Tax Return that it would
apply the said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner
informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund,
instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed
its claim with the Court of Tax Appeals.

The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989
Income Tax Return that it would apply the excess withholding tax as a tax credit for the following
year, the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled
that petitioner failed to overcome this presumption because it did not present its 1990 Return, which
would have shown that the amount in dispute was not applied as a tax credit. Hence, the CA
concluded that petitioner was not entitled to a tax refund.

We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are
binding on this Court. This rule, however, does not apply where, inter alia, the judgment is premised
on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts
which if considered would justify a different conclusion. 11 This case is one such exception.

In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as
a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioner's
accounting department, testified to this fact. It likewise presented its claim for refund and a
certification issued by Mr. Gil Lopez, petitioner's vice-president, stating that the amount of P112,491
"has not been and/or will not be automatically credited/offset against any succeeding quarters'
income tax liabilities for the rest of the calendar year ending December 31, 1990." Also presented
were the quarterly returns for the first two quarters of 1990.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it
presented no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR
could have easily disproved petitioner's claim. To repeat, it did not do so.

More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion
for Reconsideration filed before the CTA. 12 A final adjustment return shows whether a corporation
incurred a loss or gained a profit during the taxable year. In this case, that Return clearly showed
that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the
amount in dispute as a tax credit.

Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to
petitioner's Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for
Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not pass
upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial. The1âw phi 1

law creating the Court of Tax Appeals, however, specifically provides that proceedings before it
"shall not be governed strictly by the technical rules of evidence." 13 The paramount consideration
remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an
absolute. It should not bar courts from considering undisputed facts to arrive at a just determination
of a controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly showed that
petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could
not have applied the amount as a tax credit. In failing to consider the said Return, as well as the
other documentary evidence presented during the trial, the appellate court committed a reversible
error.

It should be stressed that the rationale of the rules of procedure is to secure a just determination of
every action. They are tools designed to facilitate the attainment of justice. 14 But there can be no just
determination of the present action if we ignore, on grounds of strict technicality, the Return
submitted before the CTA and even before this Court. 15 To repeat, the undisputed fact is that
petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit
could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax
refund which rightfully belongs to the petitioner.

Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was
not the final adjustment Return, but petitioner's first two quarterly returns for 1990. 16 This allegation is
wrong. An examination of the records shows that the 1990 Final Adjustment Return was attached to
the Motion for Reconsideration. On the other hand, the two quarterly returns for 1990 mentioned by
respondent were in fact attached to the Petition for Review filed before the CTA. Indeed, to rebut
respondents' specific contention, petitioner submitted before us its Surrejoinder, to which was
attached the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment Return for
1990. 17

CTA Case No. 4897

Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision
rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year 1990. In
that case, the Tax Court held that "petitioner suffered a net loss for the taxable year
1990 . . . ." 18 Respondent, however, urges this Court not to take judicial notice of the said case. 19

As a rule, "courts are not authorized to take judicial notice of the contents of the records of other
cases, even when such cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are actually pending before the
same judge." 20

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought
to be known to judges because of their judicial functions. In this case, the Court notes that a copy of
the Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this Court.
Significantly, respondents do not claim at all that the said Decision was fraudulent or nonexistent.
Indeed, they do not even dispute the contents of the said Decision, claiming merely that the Court
cannot take judicial notice thereof.

To our mind, respondents' reasoning underscores the weakness of their case. For if they had really
believed that petitioner is not entitled to a tax refund, they could have easily proved that it did not
suffer any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the fact
appearing therein — that petitioner suffered a net loss in 1990 — in the same way that it refused to
controvert the same fact established by petitioner's other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case. It is
merely one more bit of information showing the stark truth: petitioner did not use its 1989 refund to
pay its taxes for 1990.

Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner
has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it
may have even been negligent. These circumstances, however, should not compel the Court to
disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not
have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms,
however exalted, should not be misused by the government to keep money not belonging to it and
thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, so must it apply the same standard against itself
in refunding excess payments of such taxes. Indeed, the State must lead by its own example of
honor, dignity and uprightness.

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the
Court of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to
refund to petitioner the amount of P112,491 as excess creditable taxes paid in 1989. No costs. 1âwphi1.nêt

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., abroad on official business.
Facts: Petitioner bank’s annual corporate income tax return for 1989 showed
that it suffered a loss of P8,286,960, and that it had a total refundable amount
of P297,492 inclusive of P112,491 being claimed as tax refund in the present
case. However, petitioner declared in its 1989 income tax return as a tax credit
in the succeeding taxable year.

On October 11, 1991, petitioner bank filed a written claim for refund of
P112,491 with the BIR alleging that it did not apply the 1989 refundable
amount of P297,492 as tax credit to its 1990 annual corporate income tax
return or either tax liabilities due to business losses it incurred for the same
year. Without waiting for respondent CIR’s action in its claim for refund,
petitioner filed a petition for review with the CTA.

CTA dismissed the petition on the ground that petitioner bank failed to present
as evidence its 1990 annual income tax return to prove that it had not yet
credited the amount of P297,422, inclusive of P112,491 which is the subject of
the present controversy to its 1990 tax liability. Since petitioner declared in its
1989 income tax return that it would apply the excess withholding tax as tax
credit for the following year, the tax court presumed that it did so. Petitioner
failed to overcome this presumption because it did not present its 1990 tax
return which would have shown that the amount was not applied as a tax credit.
Hence, it was concluded that petition was not entitled to a tax refund. The CA
affirmed said decision of the CTA.

Issue: Whether or not petitioner is entitled to a tax refund of P112,491

representing creditable withholding tax paid for 1989.
G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise —

a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.

According to section 6 of the law —

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid
out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.

First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field — so that all might continue profitably to engage
therein;lawphi1.net
 Third, to limit the production of sugar to areas more economically suited to the production
thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment
of the next regular session of the National Assembly, make the necessary disbursements
from the fund herein created (1) for the establishment and operation of sugar experiment
station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the
buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize the industry, and (2) for
the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary
amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —

The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the population
 of the State is affected to such an extent by public interests as to be within the police power
of the sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.
S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed.
1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or
none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the
law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of
tax money to experimental stations to seek increase of efficiency in sugar production, utilization of
by-products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.
LUTZ v ARANETA DIGEST CASE - CONSTITUTIONAL LAW

FACTS:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of
the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment
Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due
to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in
the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements thereof" and "to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its preferential position in the United
States market and the imposition of the export taxes."

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949
and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for
which a tax may be constitutionally levied. The action having been dismissed by the Court of First
Instance, the plaintiff appealed the case directly to the SC.

ISSUE:

WON the tax provided for in CA No. 567 a valid exercise of police power.

RULING:

YES. The Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products. It gives
employment to thousands of laborers in fields and factories. It is a great source of the state's
wealth, is one of the important sources of foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted among its components to enable
it to resist the added strain of the increase in taxes that it had to sustain.

The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign.

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter
of public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must
be allowed fully play, subject only to the test of reasonableness; and it is not contended that the
means provided in section 6 of the law (above quoted) bear no relation to the objective pursued
or are oppressive in character. If objective and methods are alike constitutionally valid, no reason
is seen why the state may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power.