G.R. No.
211666               February 25, 2015 City Assessor,City Assessor’s Office, Valenzuela City; and (3) Engr.
REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT
OF PUBLIC WORKS AND HIGHWAYS,Petitioners,  submit a report as to the fair market value of the property to assist the
vs.
ARLENE R. SORIANO, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review under Rule 45 of the Rules of
Court assailing the Decision  dated November 15, 2013 and Order  dated
1 2
March 10, 2014 of the Regional Trial Court (RTC), Valenzuela City,
Branch 270, in Civil Case No. 140-V-10.
The antecedent facts are as follows:
On October 20, 2010, petitioner Republic of the Philippines, represented
by the Department of Public Works and Highways (DPWH), filed a
Complaint  for expropriation against respondent Arlene R. Soriano, the
3
registered owner of a parcel of land consisting of an area of 200 square
meters, situated at Gen. T De Leon, Valenzuela City, and covered by
Transfer Certificate of Title (TCT) No. V-13790.  In its Complaint,
4
petitioner averred that pursuant to Republic Act (RA) No. 8974, otherwise
known as "An Act to Facilitate the Acquisition of Right-Of-Way, Site or
Location for National Government Infrastructure Projects and for other
Purposes," the property sought to be expropriated shall be used in
implementing the construction of the North Luzon Expressway (NLEX)-
Harbor Link Project (Segment 9) from NLEX to MacArthur Highway,
Valenzuela City.5
Petitioner duly deposited to the Acting Branch Clerk of Court the amount
of ₱420,000.00 representing 100% of the zonal value of the subject
property. Consequently, in an Order  dated May 27, 2011, the RTC
6
ordered the issuance of a Writ of Possession and a Writ of Expropriation
for failure of respondent, or any of her representatives, to appear despite
notice during the hearing called for the purpose.
In another Order  dated June 21, 2011, the RTC appointed the following
7
members of the Board of Commissioners for the determination of just
compensation: (1) Ms. Eunice O. Josue, Officer-in-Charge, RTC, Branch
270, Valenzuela City; (2) Atty. Cecilynne R. Andrade, Acting Valenzuela
Restituto Bautista, of Brgy. Bisig,Valenzuela City. However, the trial court
subsequently revoked the appointment of the Board for their failure to
court in the determination of just compensation and directed the parties to
submit their respective position papers.  Thereafter, the case was set for
8
hearing giving the parties the opportunity to present and identify all
evidence in support of their arguments therein. According to the RTC, the
records of the case reveal that petitioner adduced evidence to show that
the total amount deposited is just, fair, and equitable. Specifically, in its
Position Paper, petitioner alleged that pursuant to a Certification issued
by the Bureau of Internal Revenue (BIR), Revenue Region No. 5, the
zonal value of the subject property in the amount of ₱2,100.00 per square
meter is reasonable, fair, and just to compensate the defendant for the
taking of her property in the total area of 200 square meters.  In fact, Tax
9
Declaration No. C-018-07994, dated November 13, 2009 submitted by
petitioner, shows that the value of the subject property is at a lower rate
of ₱400.00per square meter. Moreover, as testified to by Associate
Solicitor III Julie P. Mercurio, and as affirmed by the photographs
submitted, the subject property is poorly maintained, covered by shrubs
and weeds, and not concretely-paved. It is located far from commercial or
industrial developments in an area without a proper drainage system, can
only be accessed through a narrow dirt road, and is surrounded by
adjacent dwellings of sub-standard materials.
Accordingly, the RTC considered respondent to have waived her right to
adduce evidence and to object to the evidence submitted by petitioner for
her continued absence despite being given several notices to do so.
On November 15, 2013, the RTC rendered its Decision, the dispositive
portion of which reads: WHEREFORE, with the foregoing determination
of just compensation, judgment is hereby rendered:
1) Declaring plaintiff to have lawful right to acquire possession of
and title to 200 square meters of defendant Arlene R. Soriano’s
parcel of land covered by TCT V-13790 necessary for the
construction of the NLEX – Harbor Link Project(Segment 9) from
NLEX to MacArthur Highway Valenzuela City;
2) Condemning portion to the extent of 200 square meters of the
above-described parcel of land including improvements thereon,
if there be any, free from all liens and encumbrances;
 3) Ordering the plaintiff to pay defendant Arlene R. Soriano
Php2,100.00 per square meter or the sum of Four Hundred
Twenty Thousand Pesos (Php420,000.00) for the 200 square
meters as fair, equitable, and just compensation with legal
interest at 12% per annum from the taking of the possession of
the property, subject to the payment of all unpaid real property
taxes and other relevant taxes, if there be any;
4) Plaintiff is likewise ordered to pay the defendant consequential
damages which shall include the value of the transfer tax
necessary for the transfer of the subject property from the name
of the defendant to that of the plaintiff;
5) The Office of the Register of Deeds of Valenzuela City, Metro
Manila is directed to annotate this Decision in Transfer Certificate
of Title No. V-13790 registered under the name of Arlene R.
Soriano.
Let a certified true copy of this decision be recorded in the Registry of
Deeds of Valenzuela City.
Records of this case show that the Land Bank Manager’s Check Nos.
0000016913 dated January 21, 2011 in the amount of Php400,000.00
and 0000017263 dated April 28, 2011 in the amount of Php20,000.00
issued by the Department of Public Works and Highways (DPWH) are
already stale. Thus, the said Office is hereby directed to issue another
Manager’s Check in the total amount Php420,000.00 under the name of
the Office of the Clerk of Court, Regional Trial Court, Valenzuela City
earmarked for the instant case. 10
Petitioner filed a Motion for Reconsideration maintaining that pursuant to
Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013,
which took effect on July 1, 2013, the interest rate imposed by the RTC
on just compensation should be lowered to 6% for the instant case falls
under a loan or forbearance of money.  In its Order  dated March 10,
11 12
2014, the RTC reduced the interest rate to 6% per annum not on the
basis of the aforementioned Circular, but on Article 2209 of the Civil
Code, viz.:
However, the case of National Power Corporation v. Honorable Zain B.
Angas is instructive.
In the aforementioned case law, which is similar to the instant case, the
Supreme Court had the occasion to rule that it is well-settled that the
aforequoted provision of Bangko Sentral ng Pilipinas Circular applies only
to a loan or forbearance of money, goods or credits. However, the term
"judgments" as used in Section 1 of the Usury Law and the previous
Central Bank Circular No. 416, should be interpreted to mean only
judgments involving loan or forbearance of money, goods or credits,
following the principle of ejusdem generis. And applying said rule on
statutory construction, the general term "judgments" can refer only to
judgments in cases involving loans or forbearance of any money, goods,
or credits. Thus, the High Court held that, Art. 2209 of the Civil Code, and
not the Central Bank Circular, is the law applicable.
Art. 2009 of the Civil Code reads:
"If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum."
Further in that case, the Supreme Court explained that the transaction
involved is clearly not a loan or forbearance of money, goods or credits
but expropriation of certain parcels of land for a public purpose, the
payment of which is without stipulation regarding interest, and the interest
adjudged by the trial court is in the nature of indemnity for damages. The
legal interest required to be paid on the amount of just compensation for
the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. It ultimately held that Art.
2209 of the Civil Code shall apply. 13
On May 12, 2014, petitioner filed the instant petition invoking the
following arguments:
I.
RESPONDENT IS NOT ENTITLED TO THE LEGAL INTEREST
OF 6% PER ANNUM ON THE AMOUNT OF JUST
COMPENSATION OF THE SUBJECT PROPERTY AS THERE
WAS NO DELAY ON THE PART OF PETITIONER.
II.
 BASED ON THE NATIONAL INTERNAL REVENUE CODE OF
1997 AND THE LOCAL GOVERNMENT CODE, IT IS
RESPONDENT’S OBLIGATION TO PAY THE TRANSFER
TAXES.
Petitioner maintains that if property is taken for public use before
compensation is deposited with the court having jurisdiction over the
case, the final compensation must include interests on its just value
computed from the time the property is taken up to the time when
compensation is actually paid or deposited with the court.  Thus, legal
14
interest applies only when the property was taken prior to the deposit of
payment with the court and only to the extent that there is delay in
payment. In the instant case, petitioner posits that since it was able to
deposit with the court the amount representing the zonal value of the
property before its taking, it cannot be said to be in delay, and thus, there
can be no interest due on the payment of just compensation.  Moreover,
15
petitioner alleges that since the entire subject property was expropriated
and not merely a portion thereof, it did not suffer an impairment or
decrease in value, rendering the award of consequential damages
nugatory. Furthermore, petitioner claims that contrary to the RTC’s
instruction, transfer taxes, in the nature of Capital Gains Tax and
Documentary Stamp Tax, necessary for the transfer of the subject
property from the name of the respondent to that of the petitioner are
liabilities of respondent and not petitioner.
The petition is partly meritorious.
At the outset, it must be noted that the RTC’s reliance on National Power
Corporation v. Angasis misplaced for the same has already been
overturned by our more recent ruling in Republic v. Court of
Appeals,  wherein we held that the payment of just compensation for the
16
expropriated property amounts to an effective forbearance on the part of
the State, to wit:
Aside from this ruling, Republic notably overturned the Court’s previous
ruling in National Power Corporation v. Angas which held that just
compensation due for expropriated properties is not a loan or
forbearance of money but indemnity for damages for the delay in
payment; since the interest involved is in the nature of damages rather
than earnings from loans, then Art. 2209 of the Civil Code, which fixes
legal interest at 6%, shall apply.
In Republic, the Court recognized that the just compensation due to the
landowners for their expropriated property amounted to an effective
forbearance on the part of the State. Applying the Eastern Shipping Lines
ruling, the Court fixed the applicable interest rate at 12% per annum,
computed from the time the property was taken until the full amount of
just compensation was paid, in order to eliminate the issue of the
constant fluctuation and inflation of the value of the currency over time. In
the Court’s own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing
interest[s] on the zonal value of the property to be computed from the
time petitioner instituted condemnation proceedings and "took" the
property in September 1969. This allowance of interest on the amount
found to be the value of the property as of the time of the taking
computed, being an effective forbearance, at 12% per annum should help
eliminate the issue of the constant fluctuation and inflation of the value of
the currency over time.
We subsequently upheld Republic’s 12% per annum interest rate on the
unpaid expropriation compensation in the following cases: Reyes v.
National Housing Authority, Land Bank of the Philippines v. Wycoco,
Republic v. Court of Appeals, Land Bank of the Philippines v. Imperial,
Philippine Ports Authority v. Rosales-Bondoc, and Curata v. Philippine
Ports Authority.  Effectively, therefore, the debt incurred by the
17
government on account of the taking of the property subject of an
expropriation constitutes a forbearance  which runs contrary to the trial
18
court’s opinion that the same is in the nature of indemnity for damages
calling for the application of Article 2209 of the Civil Code. Nevertheless,
in line with the recent circular of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP-MB) No. 799, Series of 2013, effective July 1,
2013, the prevailing rate of interest for loans or forbearance of money is
six percent (6%) per annum, in the absence of an express contract as to
such rate of interest.
Notwithstanding the foregoing, We find that the imposition of interest in
this case is unwarranted in view of the fact that as evidenced by the
acknowledgment receipt  signed by the Branch Clerk of Court, petitioner
19
was able to deposit with the trial court the amount representing the zonal
value of the property before its taking. As often ruled by this Court, the
award of interest is imposed in the nature of damages for delay in
payment which, in effect, makes the obligation on the part of the
government one of forbearance to ensure prompt payment of the value of
the land and limit the opportunity loss of the owner.  However, when
20
there is no delay in the payment of just compensation, We have not
hesitated in deleting the imposition of interest thereon for the same is
justified only in cases where delay has been sufficiently established. 21
The records of this case reveal that petitioner did not delay in its payment
of just compensation as it had deposited the pertinent amount in full due
to respondent on January 24, 2011, or four (4) months before the taking
thereof, which was when the RTC ordered the issuance of a Writ of
Possession and a Writ of Expropriation on May 27, 2011. The amount
deposited was deemed by the trial court to be just, fair, and equitable,
taking into account the well-established factors in assessing the value of
land, such as its size, condition, location, tax declaration, and zonal
valuation as determined by the BIR. Considering, therefore, the prompt
payment by the petitioner of the full amount of just compensation as
determined by the RTC, We find that the imposition of interest thereon is
unjustified and should be deleted.
Similarly, the award of consequential damages should likewise be
deleted in view of the fact that the entire area of the subject property is
being expropriated, and not merely a portion thereof, wherein such
remaining portion suffers an impairment or decrease in value, as
enunciated in Republic of the Philippines v. Bank of the Philippine
Islands, thus:
22
x x x The general rule is that the just compensation to which the owner of
the condemned property is entitled to is the market value. Market value is
that sum of money which a person desirous but not compelled to buy,
and an owner willing but not compelled to sell, would agree on as a price
to be paid by the buyer and received by the seller. The general rule,
however, is modified where only a part of a certain property is
expropriated. In such a case, the owner is not restricted to compensation
for the portion actually taken, he is also entitled to recover the
consequential damage, if any, to the remaining part of the property.
xxxx
No actual taking of the building is necessary to grant consequential
damages. Consequential damages are awarded if as a result of the
expropriation, the remaining property of the owner suffers from an
impairment or decrease in value. The rules on expropriation clearly
provide a legal basis for the award of consequential damages. Section 6
of Rule 67 of the Rules of Court provides:
x x x The commissioners shall assess the consequential damages to the
property not taken and deduct from such consequential damages the
consequential benefits to be derived by the owner from the public use or
public purpose of the property taken, the operation of its franchise by the
corporation or the carrying on of the business of the corporation or
person taking the property. But in no case shall the consequential
benefits assessed exceed the consequential damages assessed, or the
owner be deprived of the actual value of his property so taken.
In B.H. Berkenkotter & Co. v. Court of Appeals, we held that:
To determine just compensation, the trial court should first ascertain the
market value of the property, to which should be added the consequential
damages after deducting therefrom the consequential benefits which may
arise from the expropriation. If the consequential benefits exceed the
consequential damages, these items should be disregarded altogether as
the basic value of the property should be paid in every case. 23
Considering that the subject property is being expropriated in its entirety,
there is no remaining portion which may suffer an impairment or
decrease in value as a result of the expropriation. Hence, the award of
consequential damages is improper.
Anent petitioner’s contention that it cannot be made to pay the value of
the transfer taxes in the nature of capital gains tax and documentary
stamp tax, which are necessary for the transfer of the subject property
from the name of the respondent to that of the petitioner, the same is
partly meritorious.
With respect to the capital gains tax, We find merit in petitioner’s posture
that pursuant to Sections 24(D) and 56(A)(3) of the 1997 National Internal
Revenue Code (NIRC), capital gains tax due on the sale of real property
is a liability for the account of the seller, to wit:
Section 24. Income Tax Rates–
xxxx
(D) Capital Gains from Sale of Real Property. –
(1) In General. – The provisions of Section 39(B) notwithstanding, a final
tax of six percent (6%) based on the gross selling price or current fair
market value as determined in accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon capital gains presumed to
have been realized from the sale, exchange, or other disposition of real
property located in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any, on
gains from sales or other disposition of real property to the government or
any of its political subdivisions or agencies or to government-owned or
controlled corporations shall be determined either under Section 24(A)or
under this Subsection, at the option of the taxpayer.
xxxx
Section 56. Payment and Assessment of Income Tax for Individuals and
Corporations. – (A) Payment of Tax –
xxxx
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)
(c) shall be paid on the date the return prescribed therefor is filed by the
person liable thereto: Provided, That if the seller submits proof of his
intention to avail himself of the benefit of exemption of capital gains under
existing special laws, no such payments shall be required : Provided,
further, That in case of failure to qualify for exemption under such special
laws and implementing rules and regulations, the tax due on the gains
realized from the original transaction shall immediately become due and
payable, subject to the penalties prescribed under applicable provisions
of this Code: Provided, finally, That if the seller, having paid the tax,
submits such proof of intent within six (6) months from the registration of
the document transferring the real property, he shall be entitled to a
refund of such tax upon verification of his compliance with the
requirements for such exemption.
Thus, it has been held that since capital gains is a tax on passive income,
it is the seller, not the buyer, who generally would shoulder the
tax.  Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated
24
December 18, 2013, constituted the DPWH as a withholding agent to
withhold the six percent (6%) final withholding tax in the expropriation of
real property for infrastructure projects. As far as the government is
concerned, therefore, the capital gains tax remains a liability of the seller
since it is a tax on the seller's gain from the sale of the real estate.
25
As to the documentary stamp tax, however, this Court finds inconsistent
petitioner’s denial of liability to the same. Petitioner cites Section 196 of
the 1997 NIRC as its basis in saying that the documentary stamp tax is
the liability of the seller, viz.:
SECTION 196. Stamp Tax on Deeds of Sale and Conveyances of Real
Property. - On all conveyances, deeds, instruments, or writings, other
than grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement or other realty sold shall be
granted, assigned, transferred or otherwise conveyed to the purchaser, or
purchasers, or to any other person or persons designated by such
purchaser or purchasers, there shall be collected a documentary stamp
tax, at the rates herein below prescribed, based on the consideration
contracted to be paid for such realty or on its fair market value
determined in accordance with Section 6(E) of this Code, whichever is
higher: Provided, That when one of the contracting parties is the
Government, the tax herein imposed shall be based on the actual
consideration: (a) When the consideration, or value received or
contracted to be paid for such realty, after making proper allowance of
any encumbrance, does not exceed One thousand pesos (₱1,000),
Fifteen pesos (₱15.00).
(b) For each additional One thousand pesos (₱1,000), or fractional part
thereof in excess of One thousand pesos (₱1,000) of such consideration
or value, Fifteen pesos (₱15.00).
When it appears that the amount of the documentary stamp tax payable
hereunder has been reduced by an incorrect statement of the
consideration in any conveyance, deed, instrument or writing subject to
such tax the Commissioner, provincial or city Treasurer, or other revenue
officer shall, from the assessment rolls or other reliable source of
information, assess the property of its true market value and collect the
proper tax thereon.
Yet, a perusal of the provision cited above does not explicitly impute the
obligation to pay the documentary stamp tax on the seller. In fact,
according to the BIR, all the parties to a transaction are primarily liable for
the documentary stamp tax, as provided by Section 2 of BIR Revenue
Regulations No. 9-2000, which reads: 26
SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for
the Tax. –
 (a) In General. - The documentary stamp taxes under Title VII of
the Code is a tax on certain transactions.  It is imposed against
1âwphi1
"the person making, signing, issuing, accepting, or transferring"
the document or facility evidencing the aforesaid transactions.
Thus, in general, it may be imposed on the transaction itself or
upon the document underlying such act. Any of the parties
thereto shall be liable for the full amount of the tax due: Provided,
however, that as between themselves, the said parties may agree
on who shall be liable or how they may share on the cost of the
tax.
dated November 15, 2013 and March 10, 2014, respectively, of the
Regional Trial Court, Valenzuela City, Branch 270, in Civil Case No. 140-
V-10 are hereby MODIFIED, in that the imposition of interest on the
payment of just compensation as well as the award of consequential
damages are deleted. In addition, respondent Arlene R. Soriano is
ORDERED to pay for the capital gains tax due on the transfer of the
expropriated property, while the documentary stamp tax, transfer tax, and
registration fee shall be for the account of petitioner.
SO ORDERED.

(b) Exception. - Whenever one of the parties to the taxable DIOSDADO M. PERALTA
transaction is exempt from the tax imposed under Title VII of the Associate Justice
Code, the other party thereto who is not exempt shall be the one
directly liable for the tax.
27

As a general rule, therefore, any of the parties to a transaction shall be

liable for the full amount of the documentary stamp tax due, unless they
agree among themselves on who shall be liable for the same.

In this case, there is no agreement as to the party liable for the

documentary stamp tax due on the sale of the land to be expropriated.
But while petitioner rejects any liability for the same, this Court must take
note of petitioner’s Citizen’s Charter,  which functions as a guide for the
28

procedure to be taken by the DPWH in acquiring real property through

expropriation under RA 8974. The Citizen’s Charter, issued by petitioner
DPWH itself on December 4,2013, explicitly provides that the
documentary stamp tax, transfer tax, and registration fee due on the
transfer of the title of land in the name of the Republic shall be
shouldered by the implementing agency of the DPWH, while the capital
gains tax shall be paid by the affected property owner.  Thus, while there
29

is no specific agreement between petitioner and respondent, petitioner's

issuance of the Citizen's Charter serves as its notice to the public as to
the procedure it shall generally take in cases of expropriation under RA
8974. Accordingly, it will be rather unjust for this Court to blindly accede
to petitioner's vague rejection of liability in the face of its issuance of the
Citizen's Charter, which contains a clear and unequivocal assumption of
accountability for the documentary stamp tax. Had petitioner provided this
Court with more convincing basis, apart from a mere citation of an
indefinite provision of the 1997 NIRC, showing that it should be
respondent-seller who shall be liable for the documentary stamp tax due
on the sale of the subject property, its rejection of the payment of the
same could have been sustained. WHEREFORE, premises considered,
the instant pet1t10n 1s PARTIALLY GRANTED. The Decision and Order,
G.R. No. 173425               September 4, 2012 government a portion of the Fort Bonifacio reservation, now known as the
Fort Bonifacio Global City (Global City). 7 

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, 

vs. On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT)
8 

COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT system by amending certain provisions of the old National Internal
OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, Revenue Code (NIRC). RA 7716 extended the coverage of VAT to real
BUREAU OF INTERNAL REVENUE, Respondents. properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business. 9 

DECISION
On September 19, 1996, petitioner submitted to the Bureau of Internal
DEL CASTILLO, J.: Revenue (BIR) Revenue District No. 44, Taguig and Pateros, an
inventory of all its real properties, the book value of which aggregated ₱
Courts cannot limit the application or coverage of a law, nor can it impose 71,227,503,200. Based on this value, petitioner claimed that it is entitled
10 

conditions not provided therein. To do so constitutes judicial legislation. to a transitional input tax credit of ₱ 5,698,200,256, pursuant to Section
11 

105 of the old NIRC.

12 

This Petition for Review on Certiorari under Rule 45 of the Rules of Court
assails the July 7, 2006 Decision of the Court of Appeals (CA) in CA-G.R.
1  In October 1996, petitioner started selling Global City lots to interested
SP No. 61436, the dispositive portion of which reads. buyers. 13 

WHEREFORE, the instant petition is hereby  DISMISSED. For the first quarter of 1997, petitioner generated a total amount of ₱
ACCORDINGLY, the Decision dated October 12, 2000 of the Court of 3,685,356,539.50 from its sales and lease of lots, on which the output
Tax Appeals in CTA Case No. 5735, denying petitioner’s claim for refund VAT payable was ₱ 368,535,653.95. Petitioner paid the output VAT by
14 

in the amount of Three Hundred Fifty-Nine Million Six Hundred Fifty-Two making cash payments to the BIR totalling ₱ 359,652,009.47 and
Thousand Nine Pesos and Forty-Seven Centavos (₱ 359,652,009.47), is crediting its unutilized input tax credit on purchases of goods and
hereby AFFIRMED. services of ₱ 8,883,644.48. 15 

SO ORDERED. 2  Realizing that its transitional input tax credit was not applied in computing
its output VAT for the first quarter of 1997, petitioner on November 17,
1998 filed with the BIR a claim for refund of the amount of ₱
Factual Antecedents
359,652,009.47 erroneously paid as output VAT for the said period. 16 

Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly

Ruling of the Court of Tax Appeals
registered domestic corporation engaged in the development and sale of
real property. The Bases Conversion Development Authority (BCDA), a
3 

wholly owned government corporation created under Republic Act (RA) On February 24, 1999, due to the inaction of the respondent
No. 7227, owns 45% of petitioner’s issued and outstanding capital stock;
4  Commissioner of Internal Revenue (CIR), petitioner elevated the matter
while the Bonifacio Land Corporation, a consortium of private domestic to the Court of Tax Appeals (CTA) via a Petition for Review. 17 

corporations, owns the remaining 55%. 5 

In opposing the claim for refund, respondents interposed the following

On February 8, 1995, by virtue of RA 7227 and Executive Order No. special and affirmative defenses:
40, dated December 8, 1992, petitioner purchased from the national
6 

xxxx
8. Under Revenue Regulations No. 7-95, implementing Section 105 of
the Tax Code as amended by E.O. 273, the basis of the presumptive
input tax, in the case of real estate dealers, is the improvements, such as
buildings, roads, drainage systems, and other similar structures,
constructed on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on
September 19, 1996, failed to comply with the aforesaid revenue
regulations mandating that for purposes of availing the presumptive input
tax credits under its Transitory Provisions, "an inventory as of December
31, 1995, of such goods or properties and improvements showing the
quantity, description, and amount should be filed with the RDO no later
than January 31, 1996. x x x" 18 
On October 12, 2000, the CTA denied petitioner’s claim for refund.
According to the CTA, "the benefit of transitional input tax credit comes
with the condition that business taxes should have been paid first." In
this case, since petitioner acquired the Global City property under a VAT-
free sale transaction, it cannot avail of the transitional input tax
credit. The CTA likewise pointed out that under Revenue Regulations
20 
No. (RR) 7-95, implementing Section 105 of the old NIRC, the 8%
transitional input tax credit should be based on the value of the
improvements on land such as buildings, roads, drainage system and
other similar structures, constructed on or after January 1, 1998, and not
on the book value of the real property. Thus, the CTA disposed of the
21 
case in this manner:
WHEREFORE, in view of all the foregoing, the claim for refund
representing alleged overpaid value-added tax covering the first quarter
of 1997 is hereby DENIED for lack of merit.
SO ORDERED. 22 
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review under Rule 43 of the
23 
Rules of Court before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed
that petitioner is not entitled to the 8% transitional input tax credit since it
did not pay any VAT when it purchased the Global City property. The CA24 
opined that transitional input tax credit is allowed only when business
taxes have been paid and passed-on as part of the purchase price. In
arriving at this conclusion, the CA relied heavily on the historical
background of transitional input tax credit. As to the validity of RR 7-95,
26 
which limited the 8% transitional input tax to the value of the
improvements on the land, the CA said that it is entitled to great weight
as it was issued pursuant to Section 245 of the old NIRC.
27  28 
Issues
Hence, the instant petition with the principal issue of whether petitioner is
entitled to a refund of ₱ 359,652,009.47 erroneously paid as output VAT
for the first quarter of 1997, the resolution of which depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or
repudiated Revenue Regulations No. 7-95 insofar as the latter limited the
transitional/presumptive input tax credit which may be claimed under
Section 105 of the National Internal Revenue Code to the
19 
"improvements" on real properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation
of Section 105 of the National Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the
Bureau of Internal Revenue, and declaration of validity of said
Regulations by the Court of Tax Appeals and Court of Appeals, were in
violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the
provisions of Section 105 of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax
by petitioner on its land before it may claim the input tax credit granted by
Section 105 of the National Internal Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely
speculated on the purpose of the transitional/presumptive input tax
provided for in Section 105 of the National Internal Revenue Code.
3.05.g. Whether the economic and social objectives in the acquisition of
the subject property by petitioner from the Government should be taken
into consideration.29 
Petitioner’s Arguments
25 
Petitioner claims that it is entitled to recover the amount of ₱
359,652,009.47 erroneously paid as output VAT for the first quarter of
1997 since its transitional input tax credit of ₱ 5,698,200,256 is more than
sufficient to cover its output VAT liability for the said period.
30 
Petitioner assails the pronouncement of the CA that prior payment of
taxes is required to avail of the 8% transitional input tax credit. Petitioner
31 
contends that there is nothing in Section 105 of the old NIRC to support
such conclusion. 32 
Petitioner further argues that RR 7-95, which limited the 8% transitional
input tax credit to the value of the improvements on the land, is invalid
because it goes against the express provision of Section 105 of the old
NIRC, in relation to Section 100 of the same Code, as amended by RA
33 
7716. 34 
Respondents’ Arguments
Respondents, on the other hand, maintain that petitioner is not entitled to
a transitional input tax credit because no taxes were paid in the
acquisition of the Global City property. Respondents assert that prior
35  inventory which, following the view of Justice Carpio, would have to
payment of taxes is inherent in the nature of a transitional input
tax. Regarding RR 7-95, respondents insist that it is valid because it was
36  Clearly, limiting the value of the beginning inventory only to goods,
issued by the Secretary of Finance, who is mandated by law to
promulgate all needful rules and regulations for the implementation of
Section 105 of the old NIRC. 37  beginning inventory excludes goods, materials, and supplies where no
Our Ruling
The petition is meritorious.
The issues before us are no longer new or novel as these have been
resolved in the related case of  Fort Bonifacio Development Corporation
v. Commissioner of Internal Revenue. 38 
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. – A person who becomes liable
to value-added tax or any person who elects to be a VAT-registered
person shall, subject to the filing of an inventory as prescribed by
regulations, be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent to 8% of the value of such inventory or
the actual value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax.
(Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the
above-quoted provision to indicate that prior payment of taxes is
necessary for the availment of the 8% transitional input tax credit.
Obviously, all that is required is for the taxpayer to file a beginning
inventory with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only
tantamount to judicial legislation but would also render nugatory the
provision in Section 105 of the old NIRC that the transitional input tax
credit shall be "8% of the value of [the beginning] inventory or the actual
[VAT] paid on such goods, materials and supplies, whichever is higher"
because the actual VAT (now 12%) paid on the goods, materials, and
supplies would always be higher than the 8% (now 2%) of the beginning
exclude all goods, materials, and supplies where no taxes were paid.
materials, and supplies, where prior taxes were paid, was not the
intention of the law. Otherwise, it would have specifically stated that the
taxes were paid. As retired Justice Consuelo Ynares-Santiago has
pointed out in her Concurring Opinion in the earlier case of Fort
Bonifacio:
If the intent of the law were to limit the input tax to cases where actual
VAT was paid, it could have simply said that the tax base shall be the
actual value-added tax paid. Instead, the law as framed contemplates a
situation where a transitional input tax credit is claimed even if there was
no actual payment of VAT in the underlying transaction. In such cases,
the tax base used shall be the value of the beginning inventory of goods,
materials and supplies. 39 
Moreover, prior payment of taxes is not required to avail of the
transitional input tax credit because it is not a tax refund per se but a tax
credit. Tax credit is not synonymous to tax refund. Tax refund is defined
as the money that a taxpayer overpaid and is thus returned by the taxing
authority. Tax credit, on the other hand, is an amount subtracted directly
40 
from one’s total tax liability. It is any amount given to a taxpayer as a
41 
subsidy, a refund, or an incentive to encourage investment. Thus, unlike
a tax refund, prior payment of taxes is not a prerequisite to avail of a tax
credit. In fact, in Commissioner of Internal Revenue v. Central Luzon
Drug Corp., we declared that prior payment of taxes is not required in
42 
order to avail of a tax credit. Pertinent portions of the Decision read:
43 
While a tax liability is essential to the availment or use of any tax credit,
prior tax payments are not. On the contrary, for the existence or grant
solely of such credit, neither a tax liability nor a prior tax payment is
needed. The Tax Code is in fact replete with provisions granting or
allowing tax credits, even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax
credit -- subject to certain limitations -- for estate taxes paid to a foreign
country. Also found in Section 101(C) is a similar provision for donor’s
taxes -- again when paid to a foreign country -- in computing for the
donor’s tax due. The tax credits in both instances allude to the prior
payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) - registered person
engaging in transactions -- whether or not subject to the VAT -- is also
allowed a tax credit that includes a ratable portion of any input tax not
directly attributable to either activity. This input tax may either be the VAT
on the purchase or importation of goods or services that is merely due
from -- not necessarily paid by -- such VAT-registered person in the
course of trade or business; or the transitional input tax determined in
accordance with Section 111(A). The latter type may in fact be an amount
equivalent to only eight percent of the value of a VAT-registered person’s
beginning inventory of goods, materials and supplies, when such amount
-- as computed -- is higher than the actual VAT paid on the said items.
Clearly from this provision, the tax credit refers to an input tax that is
either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the
availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely
presumptive is allowed. For the purchase of primary agricultural products
used as inputs -- either in the processing of sardines, mackerel and milk,
or in the manufacture of refined sugar and cooking oil -- and for the
contract price of public works contracts entered into with the government,
again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or
effectively zero-rated may, under Section 112(A), apply for the issuance
of a tax credit certificate for the amount of creditable input taxes merely
due -- again not necessarily paid to -- the government and attributable to
such sales, to the extent that the input taxes have not been applied
against output taxes. Where a taxpayer is engaged in zero-rated or
effectively zero-rated sales and also in taxable or exempt sales, the
amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately
allocated on the basis of the volume of sales. Indeed, in availing of such
tax credit for VAT purposes, this provision -- as well as the one earlier
mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another
illustration of a tax credit allowed, even though no prior tax payments are
not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a
nonresident foreign corporation from a domestic corporation is subjected
to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid.
Although true, this provision actually refers to the tax credit as a condition
only for the imposition of a lower tax rate, not as a deduction from the
corresponding tax liability. Besides, it is not our government but the
domiciliary country that credits against the income tax payable to the
latter by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b),
categorically allows as credits, against the income tax imposable under
Title II, the amount of income taxes merely incurred -- not necessarily
paid -- by a domestic corporation during a taxable year in any foreign
country. Moreover, Section 34(C)(5) provides that for such taxes incurred
but not paid, a tax credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as may be
required; and further conditioned upon payment by the taxpayer of any
tax found due, upon petitioner’s redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also
tax treaties and special laws that grant or allow tax credits, even though
no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to
avoid double taxation, income that is taxed in the state of source is also
taxable in the state of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter. Apparently,
payment is made to the state of source, not the state of residence. No
tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be
tax credit incentives. To illustrate, the incentives provided for in Article 48
of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa
Blg. (BP) 391, include tax credits equivalent to either five percent of the
net value earned, or five or ten percent of the net local content of export.
In order to avail of such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are
not indispensable to the availment of a tax credit. Thus, the CA correctly
held that the availment under RA 7432 did not require prior tax payments
by private establishments concerned. However, we do not agree with its
finding that the carry-over of tax credits under the said special law to
succeeding taxable periods, and even their application against internal
revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the
availment or use, not the existence or grant, of a tax credit. Regarding
this matter, a private establishment reporting a net loss in its financial
statements is no different from another that presents a net income. Both
are entitled to the tax credit provided for under RA 7432, since the law
itself accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax is due, will
be an improvident usance. 44 
In this case, when petitioner realized that its transitional input tax credit
was not applied in computing its output VAT for the 1st quarter of 1997, it
filed a claim for refund to recover the output VAT it erroneously or
excessively paid for the 1st quarter of 1997. In filing a claim for tax
refund, petitioner is simply applying its transitional input tax credit against
the output VAT it has paid. Hence, it is merely availing of the tax credit
incentive given by law to first time VAT taxpayers. As we have said in the
earlier case of Fort Bonifacio, the provision on transitional input tax credit
was enacted to benefit first time VAT taxpayers by mitigating the impact
of VAT on the taxpayer. Thus, contrary to the view of Justice Carpio, the
45 
granting of a transitional input tax credit in favor of petitioner, which would
be paid out of the general fund of the government, would be an
appropriation authorized by law, specifically Section 105 of the old NIRC.
The history of the transitional input tax credit likewise does not support
the ruling of the CTA and CA. In our Decision dated April 2, 2009, in the
related case of Fort Bonifacio, we explained that:
If indeed the transitional input tax credit is integrally related to previously
paid sales taxes, the purported causal link between those two would have
been nonetheless extinguished long ago. Yet Congress has reenacted
the transitional input tax credit several times; that fact simply belies the
absence of any relationship between such tax credit and the long-
abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not
confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its
possible meaning to the shift from the sales tax regime to the VAT
regime. Indeed, it could also allude to the transition one undergoes from
not being a VAT-registered person to becoming a VAT-registered person.
Such transition does not take place merely by operation of law, E.O. No.
273 or Rep. Act No. 7716 in particular. It could also occur when one
decides to start a business. Section 105 states that the transitional input
tax credits become available either to (1) a person who becomes liable to
VAT; or (2) any person who elects to be VAT-registered. The clear
language of the law entitles new trades or businesses to avail of the tax
credit once they become VAT-registered. The transitional input tax credit,
whether under the Old NIRC or the New NIRC, may be claimed by a
newly-VAT registered person such as when a business as it commences
operations. If we view the matter from the perspective of a starting
entrepreneur, greater clarity emerges on the continued utility of the
transitional input tax credit.
Following the theory of the CTA, the new enterprise should be able to
claim the transitional input tax credit because it has presumably paid
taxes, VAT in particular, in the purchase of the goods, materials and
supplies in its beginning inventory. Consequently, as the CTA held below,
if the new enterprise has not paid VAT in its purchases of such goods,
materials and supplies, then it should not be able to claim the tax credit.
However, it is not always true that the acquisition of such goods,
materials and supplies entail the payment of taxes on the part of the new
business. In fact, this could occur as a matter of course by virtue of the
operation of various provisions of the NIRC, and not only on account of a
specially legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or
properties are not acquired from a person in the course of trade or
business, the transaction would not be subject to VAT under Section 105.
The sale would be subject to capital gains taxes under Section 24 (D),
but since capital gains is a tax on passive income it is the seller, not the
buyer, who generally would shoulder the tax.
If the goods or properties are acquired through donation, the acquisition
would not be subject to VAT but to donor’s tax under Section 98 instead.
It is the donor who would be liable to pay the donor’s tax, and the
donation would be exempt if the donor’s total net gifts during the calendar
year does not exceed ₱ 100,000.00.
If the goods or properties are acquired through testate or intestate
succession, the transfer would not be subject to VAT but liable instead for
estate tax under Title III of the New NIRC. If the net estate does not
exceed ₱ 200,000.00, no estate tax would be assessed.
The interpretation proffered by the CTA would exclude goods and
properties which are acquired through sale not in the ordinary course of
trade or business, donation or through succession, from the beginning
inventory on which the transitional input tax credit is based. This prospect
all but highlights the ultimate absurdity of the respondents’ position.
Again, nothing in the Old NIRC (or even the New NIRC) speaks of such a
possibility or qualifies the previous payment of VAT or any other taxes on
the goods, materials and supplies as a pre-requisite for inclusion in the
beginning inventory.
It is apparent that the transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes
in the acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on
the taxpayer. At the very beginning, the VAT-registered taxpayer is
obliged to remit a significant portion of the income it derived from its sales
as output VAT. The transitional input tax credit mitigates this initial
diminution of the taxpayer's income by affording the opportunity to offset
the losses incurred through the remittance of the output VAT at a stage
when the person is yet unable to credit input VAT payments.
There is another point that weighs against the CTA’s interpretation.
Under Section 105 of the Old NIRC, the rate of the transitional input tax
credit is "8% of the value of such inventory or the actual value-added tax
paid on such goods, materials and supplies, whichever is higher." If
indeed the transitional input tax credit is premised on the previous
payment of VAT, then it does not make sense to afford the taxpayer the
benefit of such credit based on "8% of the value of such inventory" should
the same prove higher than the actual VAT paid. This intent that the CTA
alluded to could have been implemented with ease had the legislature
shared such intent by providing the actual VAT paid as the sole basis for
the rate of the transitional input tax credit.
46 
In view of the foregoing, we find petitioner entitled to the 8% transitional
input tax credit provided in Section 105 of the old NIRC. The fact that it
acquired the Global City property under a tax-free transaction makes no
difference as prior payment of taxes is not a pre-requisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional
47 
input tax credit to the value of the improvements on the land, the same
contravenes the provision of Section 105 of the old NIRC, in relation to
Section 100 of the same Code, as amended by RA 7716, which defines
"goods or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and
base of tax. – There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, a value-added tax
equivalent to 10% of the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business;
xxx
In fact, in our Resolution dated October 2, 2009, in the related case of
Fort Bonifacio, we ruled that Section 4.105-1 of RR 7-95, insofar as it
limits the transitional input tax credit to the value of the improvement of
the real properties, is a nullity. Pertinent portions of the Resolution read:
48 
As mandated by Article 7 of the Civil Code, an administrative rule or Corporation the amount of ₱ 359,652,009.47 paid as output VAT for the
regulation cannot contravene the law on which it is based. RR 7-95 is first quarter of 1997 in light of the transitional input tax credit available to
inconsistent with Section 105 insofar as the definition of the term "goods" petitioner for the said quarter, or in the alternative, to issue a tax credit
is concerned. This is a legislative act beyond the authority of the CIR and certificate corresponding to such amount.
the Secretary of Finance. The rules and regulations that administrative
agencies promulgate, which are the product of a delegated legislative SO ORDERED.
power to create new and additional legal provisions that have the effect of
law, should be within the scope of the statutory authority granted by the MARIANO C. DEL CASTILLO
legislature to the objects and purposes of the law, and should not be in Associate Justice
contradiction to, but in conformity with, the standards prescribed by law.

To be valid, an administrative rule or regulation must conform, not

contradict, the provisions of the enabling law.  An implementing rule or
1âwphi1

regulation cannot modify, expand, or subtract from the law it is intended

to implement. Any rule that is not consistent with the statute itself is null
and void.

While administrative agencies, such as the Bureau of Internal Revenue,

may issue regulations to implement statutes, they are without authority to
limit the scope of the statute to less than what it provides, or extend or
expand the statute beyond its terms, or in any way modify explicit
provisions of the law. Indeed, a quasi-judicial body or an administrative
agency for that matter cannot amend an act of Congress. Hence, in case
of a discrepancy between the basic law and an interpretative or
administrative ruling, the basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as

basis of transitional input tax credit under Section 105 is a nullity. 49 

As we see it then, the 8% transitional input tax credit should not be

limited to the value of the improvements on the real properties but should
include the value of the real properties as well.

In this case, since petitioner is entitled to a transitional input tax credit of

₱ 5,698,200,256, which is more than sufficient to cover its output VAT
liability for the first quarter of 1997, a refund of the amount of ₱
359,652,009.47 erroneously paid as output VAT for the said quarter is in
order.

WHEREFORE, the petition is hereby  GRANTED. The assailed Decision

dated July 7, 2006 of the Court of Appeals in CA-G.R. SP No. 61436
is REVERSED and SET ASIDE. Respondent Commissioner of Internal
Revenue is ordered to refund to petitioner Fort Bonifacio Development
G.R. No. 87479 June 4, 1990 as well as the Memorandum of Executive Secretary Catalino Macaraig,
which also states thus: 
NATIONAL POWER CORPORATION, petitioner, 
vs. Pursuant to Sections 1 (f) and 2 (e) of Executive Order
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. No. 93, series of 1986, FIRB Resolution No. 17-87, series
SALALIMA, and ALBAY PROVINCIAL TREASURER ABUNDIO M. of 1987, restoring, subject to certain conditions prescribed
NUÑEZ, respondents.  therein, the tax and duty exemption privileges of NPC as
provided under Commonwealth Act No. 120, as amended,
Romulo L. Ricafort and Jesus R. Cornago for respondents.  effective March 10, 1987, is hereby confirmed and
approved.  2

On March 10, 1989, the Court resolved to issue a temporary restraining

SARMIENTO, J.: order directing the Albay provincial government "to CEASE AND DESIST
from selling and disposing of the NAPOCOR properties subject matter of
The National Power Corporation (NAPOCOR) questions the power of the provincial government of this petition.   It appears, however, that "the temporary restraining order
3

Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, failed to reach respondents before the scheduled bidding at 10:00 a.m.
1984 up to March 10, 1987. 
on March 30, 1989 ... [h]ence, the respondents proceeded with the
bidding wherein the Province of Albay was the highest bidder.  4

It appears that on March 14 and 15, 1989, the respondents caused the
publication of a notice of auction sale involving the properties of
NAPOCOR and the Philippine Geothermal Inc. consisting of buildings,
machines, and similar improvements standing on their offices at Tiwi,
Albay. The amounts to be realized from this advertised auction sale are
supposed to be applied to the tax delinquencies claimed, as and for, as
we said, real property taxes. The back taxes NAPOCOR has supposedly
accumulated were computed at P214,845,184.76.  Section 13. Non-profit Character of the Corporation;
NAPOCOR opposed the sale, interposing in support of its non-liability
Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB),
which provides as follows: 
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That
the tax and duty exemption privileges of the National
Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum
products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power
Corporation, defining its powers, objectives and functions,
The Court gathers from the records that: 
(1) Under Section 13, of Republic Act No. 6395, amending
Commonwealth Act No. 120 (charter of NAPOCOR): 
Exemption from All Taxes, Duties, Fees, Imposts and
Other Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and
shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion,
To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective
implementation of the policy enunciated in Section One of
this Act, the Corporation, including its subsidiaries, is
hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas
bonds, in any court or administrative proceedings.  5

and for other purposes), as amended, are restored

effective March 10, 1987, subject to the following
(2) On August 24, 1975, Presidential Decree No. 776 was promulgated,
conditions:  1

creating the Fiscal Incentives Review Board (FIRB). Among other things,
the Board was tasked as follows: 
 Section 2. A Fiscal Incentives Review Board is hereby (7) On December 17, 1986, Executive Order No. 93 was promulgated by
created for the purpose of determining what subsidies President Corazon Aquino, providing, among other things, as follows: 
and tax exemptions should be modified, withdrawn,
revoked or suspended, which shall be composed of the SECTION 1. The provisions of any general or special law
following officials:  to the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby
Chairman - Secretary of Finance  withdrawn, except.  9

Members - Secretary of Industry

- Director General of the National Economic and and 
Development Authority 
- Commissioner of Internal Revenue SECTION 2. The Fiscal Incentives Review Board created
- Commissioner of Customs  under Presidential Decree No. 776, as amended, is
hereby authorized to: 
The Board may recommend to the President of the
Philippines and for reasons of compatibility with the a) restore tax and/or duty exemptions withdrawn
declared economic policy, the withdrawal, modification, hereunder in whole or in part; 
revocation or suspension of the enforceability of any of
the abovestated statutory subsidies or tax exemption
b) revise the scope and coverage of tax and/or duty
grants, except those granted by the Constitution. To attain
exemption that may be restored; 
its objectives, the Board may require the assistance of
any appropriate government agency or entity. The Board
shall meet once a month, or oftener at the call of the c) impose conditions for the restoration of tax and/or duty
Secretary of Finance.  6 exemption; 

(3) On June 11, 1984, Presidential Decree No. 1931 was d) prescribe the date or period of effectivity of the
promulgated, prescribing, among other things, that:  restoration of tax and/or duty exemption; 

Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the
payment of duties, taxes, fees, impost and other charges
heretofore granted in favor of government-owned or
controlled corporations including their subsidiaries are
hereby withdrawn.  7
(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring"
NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985; 
e) formulate and submit to the President for approval, a
complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential
treatment in taxation, indicating the source of funding
therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration
the international commitments of the Philippines and the
necessary precautions such that the grant of subsidies
does not become the basis for countervailing action.  10

(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax
(8) On October 5, 1987, the Office of the President issued the
exemption privileges to NAPOCOR from July 1, 1985 and indefinitely
Memorandum, confirming NAPOCOR's tax exemption aforesaid.  11

thereafter; 
The provincial government of Albay now defends the auction sale in
(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving
question on the theory that the various FIRB issuances constitute an
NAPOCOR tax exemption privileges effective until March 10, 1987;  8

undue delegation of the taxing Power and hence, null and void, under the
Constitution. It is also contended that, insofar as Executive Order No. 93 Does Executive Order No. 93 constitute an unlawful delegation of
authorizes the FIRB to grant tax exemptions, the same is of no force and legislative power? It is to be stressed that the provincial government of
effect under the constitutional provision allowing the legislature alone to Albay admits that as of March 10, 1987 (the date Resolution No. 17-87
accord tax exemption privileges.  was affirmed by the Memorandum of the Office of the President, dated
October 5, 1987), NAPOCOR's exemption had been validly restored.
It is to be pointed out that under Presidential Decree No. 776, the power What it questions is NAPOCOR's liability in the interregnum between
of the FIRB was merely to "recommend to the President of the Philippines June 11, 1984, the date its tax privileges were withdrawn, and March 10,
and for reasons of compatibility with the declared economic policy, the 1987, the date they were purportedly restored. To be sure, it objects to
withdrawal, modification, revocation or suspension of the enforceability of Executive Order No. 93 as alledgedly a delegation of legislative power,
any of the above-cited statutory subsidies or tax exemption grants, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987
except those granted by the Constitution." It has no authority to impose tax accumulation is concerned. We therefore leave the issue of
taxes or revoke existing ones, which, after all, under the Constitution, "delegation" to the future and its constitutionality when the proper case
only the legislature may accomplish.   The question therefore is whether
12 arises. For the nonce, we leave Executive Order No. 93 alone, and so
or not the various tax exemptions granted by virtue of FIRB Resolutions also, its validity as far as it grants tax exemptions (through the FIRB)
Nos. 10-85, 1-86, and 17-87 are valid and constitutional.  beginning December 17, 1986, the date of its promulgation. 

We shall deal with FIRB No. 17-87 later, but with respect to FIRB NAPOCOR must then be held liable for the intervening years aforesaid.
Resolutions Nos. 10- 85 and 1-86, we sustain the provincial government So it has been held: 
of Albay. 
xxx xxx xxx
As we said, the FIRB, under its charter, Presidential Decree No. 776, had
been empowered merely to "recommend" tax exemptions. By itself, it The last issue to be resolved is whether or not the private-
could not have validly prescribed exemptions or restore taxability. Hence, respondent is liable for the fixed and deficiency
as of June 11, 1984 (promulgation of Presidential Decree No. 1931), percentage taxes in the amount of P3,025.96 (i.e. for the
NAPOCOR had ceased to enjoy tax exemption privileges.  period from January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As aforestated,
The fact that under Executive Order No. 93, the FIRB has been given the the franchises were approved by the President only on
prerogative to "restore tax and/or duty exemptions withdrawn hereunder February 24,1948. Therefore, before the said date, the
in whole or in part,"   and "impose conditions for ... tax and/or duty
13 private respondent was liable for the payment of
exemption"  is of no moment. These provisions are prospective in
14 percentage and fixed taxes as seller of light, heat, and
character and can not affect the Board's past acts.  power which, as the petitioner claims, amounted to
P3,025.96. The legislative franchise (R.A. No. 3843)
The Court is aware that in its preamble, Executive Order No. 93 states:  exempted the grantee from all kinds of taxes other than
the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the
WHEREAS, a number of affected entities, government and private were
period before the franchise was granted, i.e. before
able to get back their tax and duty exemption privileges through the
February 24, 1948. ... 
16

review mechanism implemented by the Fiscal Incentives Review Board

(FIRB);  but by no means can we say that it has "ratified" the acts of
15

FIRB. It is to misinterpret the scope of FIRB's powers under Presidential Actually, the State has no reason to decry the taxation of NAPOCOR's
Decree No. 776 to say that it has. Apart from that, Section 2 of the properties, as and by way of real property taxes. Real property taxes,
Executive Order was clearly intended to amend Presidential Decree No. after all, form part and parcel of the financing apparatus of the
776, which means, mutatis mutandis, that FIRB did not have the right, in Government in development and nation-building, particularly in the local
the first place, to grant tax exemptions or withdraw existing ones.  government level, Thus: 
 SEC. 86. Distribution of proceeds. — (a) The proceeds of
the real property tax, except as otherwise provided in this
Code, shall accrue to the province, city or municipality
where the property subject to the tax is situated and shall
be applied by the respective local government unit for its
own use and benefit. 
(b) Barrio shares in real property tax collections. — The
annual shares of the barrios in real property tax
collections shall be as follows:  exclusively for stabilizing the special education fund in
(1) Five per cent of the real property tax collections of the
province and another five percent of the collections of the
municipality shall accrue to the barrio where the property
subject to the tax is situated.  provinces, cities and municipalities from
(2) In the case of the city, ten per cent of the collections of
the tax shag likewise accrue to the barrio where the
property is situated.  what has been actually realized during the
Thirty per cent of the barrio shares herein referred to may be spent for
salaries or per diems of the barrio officials and other administrative
expenses, while the remaining seventy per cent shall be utilized for
development projects approved by the Secretary of Local Government
and Community Development or by such committee created, or
representatives designated, by him.  may, however, at his discretion, increase
SEC. 87. Application of proceeds. — (a) The proceeds of
the real property tax pertaining to the city and to the
municipality shall accrue entirely to their respective
general funds. In the case of the province, one-fourth
thereof shall accrue to its road and bridge fund and the
remaining three-fourths, to its general fund.  disposition of real property acquired by the province or
(b) The entire proceeds of the additional one per cent real
property tax levied for the Special Education Fund created
under R.A. No. 5447 collected in the province or city on
real property situated in their respective territorial
jurisdictions shall be distributed as follows: 
(1) Collections in the provinces: Fifty per cent shall accrue
to the municipality where the property subject to the tax is
situated; twenty per cent shall accrue to the province; and
thirty per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for stabilizing the
Special Education Fund in municipalities, cities and
provinces in accordance with the provisions of Section
seven of R.A. No. 5447. 
(2) Collections in the cities: Sixty per cent shall be
retained by the city; and forty per cent shall be remitted to
the Treasurer of the Philippines to be expended
municipalities, cities and provinces as provided under
Section 7 of R.A. No. 5447. 
However, any increase in the shares of
said additional tax accruing to their
respective local school boards
commencing with fiscal year 1973-74 over
fiscal year 1971-72 which, for purposes of
this Code, shall remain as the based year,
shall be divided equally between the
general fund and the special education
fund of the local government units
concerned. The Secretary of Finance
to not more than seventy-five per cent the
amount that shall accrue annually to the
local general fund. 
(c) The proceeds of all delinquent taxes and penalties, as
well as the income realized from the use, lease or other
city at a public auction in accordance with the provisions
of this Code, and the proceeds of the sale of the
delinquent real property or, of the redemption thereof
shall accrue to the province, city or municipality in the
same manner and proportion as if the tax or taxes had
been paid in regular course. 
(d) The proceeds of the additional real property tax on
Idle private lands shall accrue to the respective general
funds of the province, city and municipality where the land
subject to the tax is situated. 
17
To all intents and purposes, real property taxes are funds taken by the
State with one hand and given to the other. In no measure can the
Government be said to have lost anything. 

As a rule finally, claims of tax exemption are construed strongly against

the claimant.   They must also be shown to exist clearly and
18

categorically, and supported by clear legal provisions. 

19

Taxes are the lifeblood of the nation.   Their primary purpose is to

20

generate funds for the State to finance the needs of the citizenry and to
advance the common weal. 

WHEREFORE, the petition is DENIED. No costs. The auction sale of the

petitioner's properties to answer for real estate taxes accumulated
between June 11, 1984 through March 10, 1987 is hereby declared
valid. 

SO ORDERED. 

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras,

Padilla, Bidin, Cortes and Medialdea, JJ., concur. 

Feliciano, J., concurs in the result. 

Regalado, J., took no part.

Gancayco and Griño-Aquino, JJ., are on leave. 

G.R. No. 162015             March 6, 2006
THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY
TREASURER OF QUEZON CITY, DR. VICTOR B.
ENRIGA, Petitioners,  Government Code of 1991" (LGC), took effect. Section 232 of the Code
vs.
BAYAN TELECOMMUNICATIONS, INC., Respondent.
DECISION
GARCIA,J.:
Before the Court, on pure questions of law, is this petition for review on
certiorari under Rule 45 of the Rules of Court to nullify and set aside the
following issuances of the Regional Trial Court (RTC) of Quezon City,
Branch 227, in its Civil Case No. Q-02-47292, to wit:
1) Decision1 dated June 6, 2003, declaring respondent Bayan
Telecommunications, Inc. exempt from real estate taxation on its real
properties located in Quezon City; and
2) Order2 dated December 30, 2003, denying petitioners’ motion for
reconsideration.
The facts:
Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative
franchise holder under Republic Act (Rep. Act) No. 32594 to establish and
operate radio stations for domestic telecommunications, radiophone,
broadcasting and telecasting.
Of relevance to this controversy is the tax provision of Rep. Act No. 3259,
embodied in Section 14 thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its
real estate, buildings and personal property, exclusive of the franchise, as
other persons or corporations are now or hereafter may be required by
law to pay. (b) The grantee shall further pay to the Treasurer of the
Philippines each year, within ten days after the audit and approval of the
accounts as prescribed in this Act, one and one-half per centum of all
gross receipts from the business transacted under this franchise by the
said grantee (Emphasis supplied). 
On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local
grants local government units within the Metro Manila Area the power to
levy tax on real properties, thus:
SEC. 232. – Power to Levy Real Property Tax. – A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery and other
improvements not hereinafter specifically exempted.
Complementing the aforequoted provision is the second paragraph of
Section 234 of the same Code which withdrew any exemption from realty
tax heretofore granted to or enjoyed by all persons, natural or juridical, to
wit:
SEC. 234 - Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax: 
xxx xxx xxx
Except as provided herein, any exemption from payment of real property
tax previously granted to, or enjoyed by, all persons, whether natural or
juridical, including government-owned-or-controlled corporations is
hereby withdrawn upon effectivity of this Code (Emphasis supplied).
On July 20, 1992, barely few months after the LGC took effect, Congress
enacted Rep. Act No. 7633, amending Bayantel’s original franchise. The
amendatory law (Rep. Act No. 7633) contained the following tax
provision:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings and personal property,
exclusive of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay. In addition thereto, the grantee,
its successors or assigns shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise by the
grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof. Provided, That the
grantee, its successors or assigns shall continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code ….
xxx. [Emphasis supplied]
It is undisputed that within the territorial boundary of Quezon City,
Bayantel owned several real properties on which it maintained various
telecommunications facilities. These real properties, as hereunder
described, are covered by the following tax declarations:  Bayantel’s real properties in Quezon City were issued by the City
(a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-
04072 and D-096-04073 pertaining to Bayantel’s Head Office and
Operations Center in Roosevelt St., San Francisco del Monte,
Quezon City allegedly the nerve center of petitioner’s
telecommunications franchise operations, said Operation Center
housing mainly petitioner’s Network Operations Group and
switching, transmission and related equipment;
(b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-
00920 and D-124-00941 covering Bayantel’s land, building and
equipment in Maginhawa St., Barangay East Teacher’s Village,
Quezon City which houses telecommunications facilities; and
(c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-
10811, and D-011-11540 referring to Bayantel’s Exchange Center
located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City
which houses the Network Operations Group and cover
switching, transmission and other related equipment.  On January 7, 1999, Bayantel wrote the office of the City Assessor
In 1993, the government of Quezon City, pursuant to the taxing power
vested on local government units by Section 5, Article X of the 1987
Constitution, infra, in relation to Section 232 of the LGC, supra, enacted
City Ordinance No. SP-91, S-93, otherwise known as the Quezon City
Revenue Code (QCRC),5 imposing, under Section 5 thereof, a real
property tax on all real properties in Quezon City, and, reiterating in its
Section 6, the withdrawal of exemption from real property tax under
Section 234 of the LGC, supra. Furthermore, much like the LGC, the
QCRC, under its Section 230, withdrew tax exemption privileges in
general, as follows:
SEC. 230. Withdrawal of Tax Exemption Privileges. – Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government owned or controlled corporations, except local water districts,
cooperatives duly registered under RA 6938, non-stock and non-profit
hospitals and educational institutions, business enterprises certified by
the Board of Investments (BOI) as pioneer or non-pioneer for a period of
six (6) and four (4) years, respectively, … are hereby withdrawn effective
upon approval of this Code (Emphasis supplied). 
Conformably with the City’s Revenue Code, new tax declarations for
Assessor and were received by Bayantel on August 13, 1998, except one
(Tax Declaration No. 124-01013) which was received on July 14, 1999.
Meanwhile, on March 16, 1995, Rep. Act No. 7925,6 otherwise known as
the "Public Telecommunications Policy Act of the Philippines," envisaged
to level the playing field among telecommunications companies, took
effect. Section 23 of the Act provides:
SEC. 23. Equality of Treatment in the Telecommunications Industry. –
Any advantage, favor, privilege, exemption, or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchises and shall be
accorded immediately and unconditionally to the grantees of such
franchises: Provided, however, That the foregoing shall neither apply to
nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life span of the franchise, or the
type of service authorized by the franchise. 
seeking the exclusion of its real properties in the city from the roll of
taxable real properties. With its request having been denied, Bayantel
interposed an appeal with the Local Board of Assessment Appeals
(LBAA). And, evidently on its firm belief of its exempt status, Bayantel did
not pay the real property taxes assessed against it by the Quezon City
government. 
On account thereof, the Quezon City Treasurer sent out notices of
delinquency for the total amount of P43,878,208.18, followed by the
issuance of several warrants of levy against Bayantel’s properties
preparatory to their sale at a public auction set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel immediately
withdrew its appeal with the LBAA and instead filed with the RTC of
Quezon City a petition for prohibition with an urgent application for a
temporary restraining order (TRO) and/or writ of preliminary injunction,
thereat docketed as Civil Case No. Q-02-47292, which was raffled to
Branch 227 of the court.
On July 29, 2002, or in the eve of the public auction scheduled the
following day, the lower court issued a TRO, followed, after due hearing,
by a writ of preliminary injunction via its order of August 20, 2002.
And, having heard the parties on the merits, the same court came out
with its challenged Decision of June 6, 2003, the dispositive portion of
which reads:
The preliminary prohibitory injunction issued in the August 20, 2002
Order of this Court is hereby made permanent. Since this is a resolution
of a purely legal issue, there is no pronouncement as to costs.
SO ORDERED.
Their motion for reconsideration having been denied by the court in its
Order dated December 30, 2003, petitioners elevated the case directly to
this Court on pure questions of law, ascribing to the lower court the
following errors:

WHEREFORE, premises considered, pursuant to the enabling franchise
under Section 11 of Republic Act No. 7633, the real estate properties and
buildings of petitioner [now, respondent Bayantel] which have been
admitted to be used in the operation of petitioner’s franchise described in
the following tax declarations are hereby DECLARED exempt from real
estate taxation:
(1) Tax Declaration No. D-096-04071 –
I. [I]n declaring the real properties of respondent exempt from real
property taxes notwithstanding the fact that the tax exemption granted to
Bayantel in its original franchise had been withdrawn by the [LGC] and
that the said exemption was not restored by the enactment of RA 7633.
II. [In] declaring the real properties of respondent exempt from real
property taxes notwithstanding the enactment of the [QCRC] which
withdrew the tax exemption which may have been granted by RA 7633.

(2) Tax Declaration No. D-096-04074 – III. [In] declaring the real properties of respondent exempt from real
property taxes notwithstanding the vague and ambiguous grant of tax
(3) Tax Declaration No. D-124-01013 – exemption provided under Section 11 of RA 7633.

(4) Tax Declaration No. D-011-10810 –
(5) Tax Declaration No. D-011-10811 –
(6) Tax Declaration No. D-011-10809 –
(7) Tax Declaration No. D-124-00941 –
(8) Tax Declaration No. D-124-00940 –
(9) Tax Declaration No. D-124-00939 –
(10) Tax Declaration No. D-096-04072 –
IV. [In] declaring the real properties of respondent exempt from real
property taxes notwithstanding the fact that [it] had failed to exhaust
administrative remedies in its claim for real property tax exemption.
(Words in bracket added.)
As we see it, the errors assigned may ultimately be reduced to two (2)
basic issues, namely:
1. Whether or not Bayantel’s real properties in Quezon City are
exempt from real property taxes under its legislative franchise;
and
2. Whether or not Bayantel is required to exhaust administrative
remedies before seeking judicial relief with the trial court.

(11) Tax Declaration No. D-096-04073 – We shall first address the second issue, the same being procedural in
nature.
(12) Tax Declaration No. D-011-11540 –
Petitioners argue that Bayantel had failed to avail itself of the
administrative remedies provided for under the LGC, adding that the trial
court erred in giving due course to Bayantel’s petition for prohibition. To
petitioners, the appeal mechanics under the LGC constitute Bayantel’s
plain and speedy remedy in this case.
The Court does not agree.
Petitions for prohibition are governed by the following provision of Rule
65 of the Rules of Court:
SEC. 2. Petition for prohibition. – When the proceedings of any tribunal,
… are without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any other plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying that
judgment be rendered commanding the respondent to desist from further
proceedings in the action or matter specified therein, or otherwise,
granting such incidental reliefs as law and justice may require.
With the reality that Bayantel’s real properties were already levied upon
on account of its nonpayment of real estate taxes thereon, the Court
agrees with Bayantel that an appeal to the LBAA is not a speedy and
adequate remedy within the context of the aforequoted Section 2 of Rule
65. This is not to mention of the auction sale of said properties already
scheduled on July 30, 2002. 
Moreover, one of the recognized exceptions to the exhaustion- of-
administrative remedies rule is when, as here, only legal issues are to be
resolved. In fact, the Court, cognizant of the nature of the questions
presently involved, gave due course to the instant petition. As the Court
has said in Ty vs. Trampe:7
xxx. Although as a rule, administrative remedies must first be exhausted
before resort to judicial action can prosper, there is a well-settled
exception in cases where the controversy does not involve questions of
fact but only of law. xxx.  works to grant or delegate to local governments of Congress’ inherent
Lest it be overlooked, an appeal to the LBAA, to be properly considered,
required prior payment under protest of the amount of P43,878,208.18, a
figure which, in the light of the then prevailing Asian financial crisis, may
have been difficult to raise up. Given this reality, an appeal to the LBAA
may not be considered as a plain, speedy and adequate remedy. It is
thus understandable why Bayantel opted to withdraw its earlier appeal
with the LBAA and, instead, filed its petition for prohibition with urgent
application for injunctive relief in Civil Case No. Q-02-47292. The remedy
availed of by Bayantel under Section 2, Rule 65 of the Rules of Court
must be upheld.
This brings the Court to the more weighty question of whether or not
Bayantel’s real properties in Quezon City are, under its franchise, exempt
from real property tax.
The lower court resolved the issue in the affirmative, basically owing to
the phrase "exclusive of this franchise" found in Section 11 of Bayantel’s
amended franchise, Rep. Act No. 7633. To petitioners, however, the
language of Section 11 of Rep. Act No. 7633 is neither clear nor
unequivocal. The elaborate and extensive discussion devoted by the trial
court on the meaning and import of said phrase, they add, suggests as
much. It is petitioners’ thesis that Bayantel was in no time given any
express exemption from the payment of real property tax under its
amendatory franchise.
There seems to be no issue as to Bayantel’s exemption from real estate
taxes by virtue of the term "exclusive of the franchise" qualifying the
phrase "same taxes on its real estate, buildings and personal property,"
found in Section 14, supra, of its franchise, Rep. Act No. 3259, as
originally granted.
The legislative intent expressed in the phrase "exclusive of this franchise"
cannot be construed other than distinguishing between two (2) sets of
properties, be they real or personal, owned by the franchisee, namely, (a)
those actually, directly and exclusively used in its radio or
telecommunications business, and (b) those properties which are not so
used. It is worthy to note that the properties subject of the present
controversy are only those which are admittedly falling under the first
category.
To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively
power to tax the franchisee’s properties belonging to the second group of
properties indicated above, that is, all properties which, "exclusive of this
franchise," are not actually and directly used in the pursuit of its
franchise. As may be recalled, the taxing power of local governments
under both the 1935 and the 1973 Constitutions solely depended upon an
enabling law. Absent such enabling law, local government units were
without authority to impose and collect taxes on real properties within
their respective territorial jurisdictions. While Section 14 of Rep. Act No.
3259 may be validly viewed as an implied delegation of power to tax, the
delegation under that provision, as couched, is limited to impositions over
properties of the franchisee which are not actually, directly and
exclusively used in the pursuit of its franchise. Necessarily, other
properties of Bayantel directly used in the pursuit of its business are
beyond the pale of the delegated taxing power of local governments. In a
very real sense, therefore, real properties of Bayantel, save those
exclusive of its franchise, are subject to realty taxes. Ultimately, therefore,
the inevitable result was that all realties which are actually, directly and
exclusively used in the operation of its franchise are "exempted" from any
property tax.
Bayantel’s franchise being national in character, the "exemption" thus
granted under Section 14 of Rep. Act No. 3259 applies to all its real or
personal properties found anywhere within the Philippine archipelago.  merely be virtue of a valid delegation as before, but pursuant to direct
However, with the LGC’s taking effect on January 1, 1992, Bayantel’s
"exemption" from real estate taxes for properties of whatever kind located
within the Metro Manila area was, by force of Section 234 of the Code,
supra, expressly withdrawn. But, not long thereafter, however, or on July
20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s
original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633
is a virtual reenacment of the tax provision, i.e., Section 14, supra, of
Bayantel’s original franchise under Rep. Act No. 3259. Stated otherwise,
Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed
by Section 234 of the LGC was expressly revived under Section 14 of
Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore
enjoyed by Bayantel under its original franchise, but subsequently
withdrawn by force of Section 234 of the LGC, has been restored by
Section 14 of Rep. Act No. 7633. 
The Court has taken stock of the fact that by virtue of Section 5, Article X
of the 1987 Constitution,8 local governments are empowered to levy
taxes. And pursuant to this constitutional empowerment, juxtaposed with
Section 2329 of the LGC, the Quezon City government enacted in 1993
its local Revenue Code, imposing real property tax on all real properties
found within its territorial jurisdiction. And as earlier stated, the City’s
Revenue Code, just like the LGC, expressly withdrew, under Section 230
thereof, supra, all tax exemption privileges in general. 
This thus raises the question of whether or not the City’s Revenue Code
pursuant to which the city treasurer of Quezon City levied real property
taxes against Bayantel’s real properties located within the City effectively
withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is
only "liable to pay the same taxes, as any other persons or corporations
on all its real or personal properties, exclusive of its franchise." 
Bayantel’s posture is well-taken. While the system of local government
taxation has changed with the onset of the 1987 Constitution, the power
of local government units to tax is still limited. As we explained in Mactan
Cebu International Airport Authority:10
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer
authority conferred by Section 5, Article X of the Constitution. Under the
latter, the exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy. (at p. 680; Emphasis
supplied.)
Clearly then, while a new slant on the subject of local taxation now
prevails in the sense that the former doctrine of local government units’
delegated power to tax had been effectively modified with Article X,
Section 5 of the 1987 Constitution now in place, .the basic doctrine on
local taxation remains essentially the same. For as the Court stressed in
Mactan, "the power to tax is [still] primarily vested in the Congress." 
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J.,
himself a Commissioner of the 1986 Constitutional Commission which
crafted the 1987 Constitution, thus: 
What is the effect of Section 5 on the fiscal position of municipal
corporations? Section 5 does not change the doctrine that municipal
corporations do not possess inherent powers of taxation. What it does is
to confer municipal corporations a general power to levy taxes and
otherwise create sources of revenue. They no longer have to wait for a
statutory grant of these powers. The power of the legislative authority
relative to the fiscal powers of local governments has been reduced to
the authority to impose limitations on municipal powers. Moreover, these
limitations must be "consistent with the basic policy of local autonomy."
The important legal effect of Section 5 is thus to reverse the principle that
doubts are resolved against municipal corporations. Henceforth, in
interpreting statutory provisions on municipal fiscal powers, doubts will be
resolved in favor of municipal corporations. It is understood, however,
that taxes imposed by local government must be for a public purpose,
uniform within a locality, must not be confiscatory, and must be within the
jurisdiction of the local unit to pass.11 (Emphasis supplied).
In net effect, the controversy presently before the Court involves, at
bottom, a clash between the inherent taxing power of the legislature,
which necessarily includes the power to exempt, and the local
government’s delegated power to tax under the aegis of the 1987
Constitution.  Act No. 7633 states that "the grantee, its successors or assigns shall be
Now to go back to the Quezon City Revenue Code which imposed real
estate taxes on all real properties within the city’s territory and removed
exemptions theretofore "previously granted to, or presently enjoyed by all
persons, whether natural or juridical ….,"12 there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section
232 of the LGC which expressly provides that "a province or city or
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted." Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from
the taxing power of local government units. An interpretation denying
Congress such power to exempt would reduce the phrase "not
hereinafter specifically exempted" as a pure jargon, without meaning
whatsoever. Needless to state, such absurd situation is unacceptable. 
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT)
vs. City of Davao,13 this Court has upheld the power of Congress to grant
exemptions over the power of local government units to impose taxes.
There, the Court wrote:
As we see it, then, the issue in this case no longer dwells on whether
Congress has the power to exempt Bayantel’s properties from realty
taxes by its enactment of Rep. Act No. 7633 which amended Bayantel’s
original franchise. The more decisive question turns on whether
Congress actually did exempt Bayantel’s properties at all by virtue of
Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC.
Perfectly aware that the LGC has already withdrawn Bayantel’s former
exemption from realty taxes, Congress opted to pass Rep. Act No. 7633
using, under Section 11 thereof, exactly the same defining phrase
"exclusive of this franchise" which was the basis for Bayantel’s exemption
from realty taxes prior to the LGC. In plain language, Section 11 of Rep.
liable to pay the same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or corporations are
now or hereafter may be required by law to pay." The Court views this
subsequent piece of legislation as an express and real intention on the
part of Congress to once again remove from the LGC’s delegated taxing
power, all of the franchisee’s (Bayantel’s) properties that are actually,
directly and exclusively used in the pursuit of its franchise. 
WHEREFORE, the petition is DENIED. 
No pronouncement as to costs.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice

Indeed, the grant of taxing powers to local government units under the
Constitution and the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared national policy.
The legal effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.
(Emphasis supplied.)
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner, 
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,  VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO
DE OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-
CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,  G.R. No. 115852 October 30, 1995
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.;
KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,  HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of
Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary; and HON. ROBERTO B. DE
OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,  HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON.
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME
CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM
TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE
TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAÑADA, petitioners, 
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.
PHILIPPINE AIRLINES, INC., petitioner, 
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner, 
vs.
Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary, and HON. ROBERTO B. DE
OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and
ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners, 
vs.
LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue;
and HON. GUILLERMO PARAYNO, JR., in his capacity as the The contention has no merit.
Commissioner of Customs, respondents.
The enactment of S. No. 1630 is not the only instance in which the
RESOLUTION Senate proposed an amendment to a House revenue bill by enacting its
own version of a revenue bill. On at least two occasions during the Eighth
Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills.
These were:
MENDOZA, J.:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS
These are motions seeking reconsideration of our decision dismissing the
CODE OF 1987 BY EXTENDING FROM FIVE (5) YEARS TO TEN
petitions filed in these cases for the declaration of unconstitutionality of
YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX
R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law.
CREDIT ON CAPITAL EQUIPMENT) which was approved by the
The motions, of which there are 10 in all, have been filed by the several
President on April 10, 1992. This Act is actually a consolidation of H. No.
petitioners in these cases, with the exception of the Philippine
34254, which was approved by the House on January 29, 1992, and S.
Educational Publishers Association, Inc. and the Association of Philippine
No. 1920, which was approved by the Senate on February 3, 1992.
Booksellers, petitioners in G.R. No. 115931.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER
The Solicitor General, representing the respondents, filed a consolidated
SHALL GIVE REWARD TO ANY FILIPINO ATHLETE WINNING A
comment, to which the Philippine Airlines, Inc., petitioner in G.R. No.
MEDAL IN OLYMPIC GAMES) which was approved by the President on
115852, and the Philippine Press Institute, Inc., petitioner in G.R. No.
May 22, 1992. This Act is a consolidation of H. No. 22232, which was
115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a
approved by the House of Representatives on August 2, 1989, and S.
reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the
No. 807, which was approved by the Senate on October 21, 1991.
PPI's reply.
On the other hand, the Ninth Congress passed revenue laws which were
On June 27, 1995 the matter was submitted for resolution.
also the result of the consolidation of House and Senate bills. These are
the following, with indications of the dates on which the laws were
I. Power of the Senate to propose amendments to revenue bills. Some of approved by the President and dates the separate bills of the two
the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), chambers of Congress were respectively passed:
Roco, and Chamber of Real Estate and Builders Association (CREBA))
reiterate previous claims made by them that R.A. No. 7716 did not
1. R.A. NO. 7642
"originate exclusively" in the House of Representatives as required by
Art. VI, §24 of the Constitution. Although they admit that H. No. 11197
was filed in the House of Representatives where it passed three readings AN ACT INCREASING THE PENALTIES FOR TAX
and that afterward it was sent to the Senate where after first reading it EVASION, AMENDING FOR THIS PURPOSE THE
was referred to the Senate Ways and Means Committee, they complain PERTINENT SECTIONS OF THE NATIONAL INTERNAL
that the Senate did not pass it on second and third readings. Instead REVENUE CODE (December 28, 1992).
what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the House Bill No. 2165, October 5, 1992
Senate committee should have done was to amend H. No. 11197 by
striking out the text of the bill and substituting it with the text of S. No. Senate Bill No. 32, December 7, 1992
1630. That way, it is said, "the bill remains a House bill and the Senate
version just becomes the text (only the text) of the House bill." 2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF
INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF
INTERNAL REVENUE TO PRESCRIBE THE PLACE
FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF
ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES
OR AGENCIES INCLUDING GOVERNMENT-OWNED
OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX
DUE AT THE RATE OF THREE PERCENT (3%) ON
GROSS PAYMENT FOR THE PURCHASE OF GOODS
AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE
AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING
FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE
OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING
CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the
Senate, in the exercise of its power to propose amendments to bills
required to originate in the House, passed its own version of a House
revenue measure. It is noteworthy that, in the particular case of S. No.
1630, petitioners Tolentino and Roco, as members of the Senate, voted
to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by
petitioner Tolentino, concerns a mere matter of form. Petitioner has not
shown what substantial difference it would make if, as the Senate actually
did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original
amendment shall be considered.
No amendment by substitution shall be entertained
unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote
is taken thereon.
§69. No amendment which seeks the inclusion of a
legislative provision foreign to the subject matter of a bill
(rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by
substituting it with another which covers a subject distinct
from that proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue
bills, the Philippine Senate possesses less power than the U.S. Senate
because of textual differences between constitutional provisions giving
them the power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur
with amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur
with amendments.
The addition of the word "exclusively" in the Philippine Constitution and
the decision to drop the phrase "as on other Bills" in the American
version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose amendments to
revenue bills. Petitioner Tolentino contends that the word "exclusively"
was inserted to modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were not to be like
other bills but must be treated as a special kind."
The history of this provision does not support this contention. The
supposed indicia of constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of the Senate. It will be recalled
that the 1935 Constitution originally provided for a unicameral National
Assembly. When it was decided in 1939 to change to a bicameral
legislature, it became necessary to provide for the procedure for
lawmaking by the Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by the National
Assembly, acting as a constituent assembly, some of whose members,
jealous of preserving the Assembly's lawmaking powers, sought to curtail
the powers of the proposed Senate. Accordingly they proposed the
following provision:
All bills appropriating public funds, revenue or tariff bills,
bills of local application, and private bills shall originate
 exclusively in the Assembly, but the Senate may propose
or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted
and may be submitted to the President for corresponding
action. In the event that the Senate should fail to finally
act on any such bills, the Assembly may, after thirty days
from the opening of the next regular session of the same
legislative term, reapprove the same with a vote of two-
thirds of all the members of the Assembly. And upon such
reapproval, the bill shall be deemed enacted and may be
submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National
Assembly vetoed the proposal. It deleted everything after the first
sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66
(1950)). The proposed amendment was submitted to the people and
ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which
Art. VI, §24 of the present Constitution was derived. It explains why the
word "exclusively" was added to the American text from which the
framers of the Philippine Constitution borrowed and why the phrase "as
on other Bills" was not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be understood to be
full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without such bills.
After a revenue bill is passed and sent over to it by the House, however,
the Senate certainly can pass its own version on the same subject
matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the
Senate's power to concur is clear from the following commentaries:
The power of the Senate to propose or concur with
amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House
and leave only a trace of the original bill. For example, a
general revenue bill passed by the lower house of the
United States Congress contained provisions for the
imposition of an inheritance tax . This was changed by the
Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme
Court to be sufficiently broad to enable it to make the
alteration. [Flint v. Stone Tracy Company, 220 U.S. 107,
55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF
THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by
the House of Representatives because it is more
numerous in membership and therefore also more
representative of the people. Moreover, its members are
presumed to be more familiar with the needs of the
country in regard to the enactment of the legislation
involved.
The Senate is, however, allowed much leeway in the
exercise of its power to propose or concur with
amendments to the bills initiated by the House of
Representatives. Thus, in one case, a bill introduced in
the U.S. House of Representatives was changed by the
Senate to make a proposed inheritance tax a corporation
tax. It is also accepted practice for the Senate to introduce
what is known as an amendment by substitution, which
may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff
bills, bills authorizing increase of the public debt, bills of local application,
and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur
with amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As petitioner
Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without changes; (2) to make
changes in the bill omitting or adding sections or altering
 its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as
a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required
to originate in the House by prescribing that the number of the House bill
and its other parts up to the enacting clause must be preserved although
the text of the Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At any rate there
is no rule prescribing this form. S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No. 11197 as any which the
Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic
error is that they assume that S. No. 1630 is an independent and distinct
bill. Hence their repeated references to its certification that it was passed
by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there
is something substantially different between the reference to S. No. 1129
and the reference to H. No. 11197. From this premise, they conclude that
R.A. No. 7716 originated both in the House and in the Senate and that it
is the product of two "half-baked bills because neither H. No. 11197 nor
S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly
appear to be mere amendments of the corresponding provisions of H.
No. 11197. The very tabular comparison of the provisions of H. No.
11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at
the same time indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630.
Because the Senate bill was a mere amendment of the House bill, H. No.
11197 in its original form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on first reading it
was referred to the Senate Committee on Ways and Means. Neither was
it required that S. No. 1630 be passed by the House of Representatives
before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No.
11197 and S. No. 1630. When the House bill and Senate bill, which
became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits),
were referred to a conference committee, the question was raised
whether the two bills could be the subject of such conference,
considering that the bill from one house had not been passed by the
other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as
to procedure: If a House bill is passed by the House but
not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the
House, can the two bills be the subject of a conference,
and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance
does not refer to investments in government securities,
whereas the bill in the House, which was introduced by
the Speaker, covers two subject matters: not only
investigation of deposits in banks but also investigation of
investments in government securities. Now, since the two
bills differ in their subject matter, I believe that no law can
be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.)
said:
THE SPEAKER. The report of the conference committee
is in order. It is precisely in cases like this where a
conference should be had. If the House bill had been
approved by the Senate, there would have been no need
of a conference; but precisely because the
Senate passed another bill on the same subject matter,
the conference committee had to be created, and we are
now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42
(emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197
and S. No. 1630 are distinct and unrelated measures also accounts for
the petitioners' (Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the immediate enactment of
these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill
which at the moment was being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President to certify as
many bills as are presented in a house of Congress even though the bills
are merely versions of the bill he has already certified. It is enough that
he certifies the bill which, at the time he makes the certification, is under
consideration. Since on March 22, 1994 the Senate was considering S.
No. 1630, it was that bill which had to be certified. For that matter on
June 1, 1993 the President had earlier certified H. No. 9210 for
immediate enactment because it was the one which at that time was
being considered by the House. This bill was later substituted, together
with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already
explained in the main decision that the phrase "except when the
President certifies to the necessity of its immediate enactment, etc." in
Art. VI, §26 (2) qualifies not only the requirement that "printed copies [of a
bill] in its final form [must be] distributed to the members three days
before its passage" but also the requirement that before a bill can
become a law it must have passed "three readings on separate days."
There is not only textual support for such construction but historical basis
as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall
have been printed and copies thereof in its final form
furnished its Members at least three calendar days prior
to its passage, except when the President shall have
certified to the necessity of its immediate enactment.
Upon the last reading of a bill, no amendment thereof
shall be allowed and the question upon its passage shall
be taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19
(2):
(2) No bill shall become a law unless it has passed three
readings on separate days, and printed copies thereof in
its final form have been distributed to the Members three
days before its passage, except when the Prime Minister
certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was
adopted in Art. VI, §26 (2) of the present Constitution, thus:
(2) No bill passed by either House shall become a law
unless it has passed three readings on separate days,
and printed copies thereof in its final form have been
distributed to its Members three days before its passage,
except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases
three readings on separate days are required and a bill has to be printed
in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity
which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an
emergency, especially in a country like the Philippines where budget
deficit is a chronic condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No. 7716 any less urgent
or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners
in these cases) believed that there was an urgent need for consideration
of S. No. 1630, because they responded to the call of the President by
voting on the bill on second and third readings on the same day. While
the judicial department is not bound by the Senate's acceptance of the
President's certification, the respect due coequal departments of the
government in matters committed to them by the Constitution and the
absence of a clear showing of grave abuse of discretion caution a stay of
the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough
consideration in the Senate where it was discussed for six days. Only its
distribution in advance in its final printed form was actually dispensed
with by holding the voting on second and third readings on the same day
(March 24, 1994). Otherwise, sufficient time between the submission of
the bill on February 8, 1994 on second reading and its approval on March
24, 1994 elapsed before it was finally voted on by the Senate on third
reading.
The purpose for which three readings on separate days is required is said
to be two-fold: (1) to inform the members of Congress of what they must
vote on and (2) to give them notice that a measure is progressing through
the enacting process, thus enabling them and others interested in the
measure to prepare their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION
§10.04, p. 282 (1972)). These purposes were substantially achieved in
the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by
Kilosbayan, Inc. and the Movement of Attorneys for Brotherhood, Integrity
and Nationalism, Inc. (MABINI)) that in violation of the constitutional
policy of full public disclosure and the people's right to know (Art. II, §28
and Art. III, §7) the Conference Committee met for two days in executive
session with only the conferees present.
As pointed out in our main decision, even in the United States it was
customary to hold such sessions with only the conferees and their staffs
in attendance and it was only in 1975 when a new rule was adopted
requiring open sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United States, before the adoption of
the rule in 1975, at least staff members were present. These were staff
members of the Senators and Congressmen, however, who may be
presumed to be their confidential men, not stenographers as in this case
who on the last two days of the conference were excluded. There is no
showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that
even in secret diplomatic negotiations involving state interests, conferees
keep notes of their meetings. Above all, the public's right to know was
fully served because the Conference Committee in this case submitted a
report showing the changes made on the differing versions of the House
and the Senate.
Petitioners cite the rules of both houses which provide that conference
committee reports must contain "a detailed, sufficiently explicit statement
of the changes in or other amendments." These changes are shown in
the bill attached to the Conference Committee Report. The members of
both houses could thus ascertain what changes had been made in the
original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which
became R.A. No. 1400 (Land Reform Act of 1955) was reported by the
Conference Committee. Congressman Bengzon raised a point of order.
He said:
MR. BENGZON. My point of order is that it is out of order
to consider the report of the conference committee
regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which
provides specifically that the conference report must be
accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference
committee report is not accompanied by that detailed
statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a
few words in connection with the point of order raised by
the gentleman from Pangasinan.
There is no question about the provision of the Rule cited
by the gentleman from Pangasinan, but this provision
applies to those cases where only portions of the bill have
been amended. In this case before us an entire bill is
presented; therefore, it can be easily seen from the
reading of the bill what the provisions are. Besides, this
procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have
to look into the reason for the provisions of the Rules, and
the reason for the requirement in the provision cited by
the gentleman from Pangasinan is when there are only
 certain words or phrases inserted in or deleted from the
provisions of the bill included in the conference report,
and we cannot understand what those words and phrases
mean and their relation to the bill. In that case, it is
necessary to make a detailed statement on how those
words and phrases will affect the bill as a whole; but
when the entire bill itself is copied verbatim in the
conference report, that is not necessary. So when the
reason for the Rule does not exist, the Rule does not
exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows
that when the ruling was appealed, it was upheld by viva voce and when
a division of the House was called, it was sustained by a vote of 48 to 5.
(Id.,  to determine. One congressman known for his idealism
p. 4058)
Nor is there any doubt about the power of a conference committee to
insert new provisions as long as these are germane to the subject of the
conference. As this Court held in Philippine Judges Association v. Prado,
227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving
differences between the Senate and the House. It may propose an
entirely new provision. What is important is that its report is subsequently
approved by the respective houses of Congress. This Court ruled that it
would not entertain allegations that, because new provisions had been
added by the conference committee, there was thereby a violation of the
constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the
petitioners' charges that an amendment was made upon
the last reading of the bill that eventually became R.A. No.
7354 and that copies thereof in its final form were not
distributed among the members of each House. Both the
enrolled bill and the legislative journals certify that the
measure was duly enacted i.e., in accordance with Article
VI, Sec. 26 (2) of the Constitution. We are bound by such
official assurances from a coordinate department of the
government, to which we owe, at the very least, a
becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees
in the Philippines in a 1979 study:
Conference committees may be of two types: free or
instructed. These committees may be given instructions
by their parent bodies or they may be left without
instructions. Normally the conference committees are
without instructions, and this is why they are often
critically referred to as "the little legislatures." Once bills
have been sent to them, the conferees have almost
unlimited authority to change the clauses of the bills and
in fact sometimes introduce new measures that were not
in the original legislation. No minutes are kept, and
members' activities on conference committees are difficult
put it this way: "I killed a bill on export incentives for my
interest group [copra] in the conference committee but I
could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it
is accepted. If the report is not accepted, then the
committee is discharged and new members are
appointed.
(R. Jackson, Committees in the Philippine Congress, in
COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference
committees. We cite it only to say that conference committees here are
no different from their counterparts in the United States whose vast
powers we noted in Philippine Judges Association v. Prado, supra. At all
events, under Art. VI, §16(3) each house has the power "to determine the
rules of its proceedings," including those of its committees. Any
meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A.
No. 7716 violates Art. VI, §26 (1) of the Constitution which provides that
"Every bill passed by Congress shall embrace only one subject which
shall be expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its exemption from the
VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its
gross revenue "in lieu of all other taxes, duties, royalties, registration,
license and other fees and charges of any kind, nature, or description,
imposed, levied, established, assessed or collected by any municipal,
city, provincial or national authority or government agency, now or in the
future."
PAL was exempted from the payment of the VAT along with other entities
by §103 of the National Internal Revenue Code, which provides as
follows:
§103. Exempt transactions. — The following shall be
exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that
granted to PAL, by amending §103, as follows:
§103. Exempt transactions. — The following shall be
exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws,
except those granted under Presidential Decree Nos. 66,
529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which
reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-
ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR
OTHER PURPOSES," Congress thereby clearly expresses its intention to
amend any provision of the NIRC which stands in the way of
accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the
title of the law by specific reference to P.D. No. 1590. It is unnecessary to
do this in order to comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is §103(q), in order to widen the
base of the VAT. Actually, it is the bill which becomes a law that is
required to express in its title the subject of legislation. The titles of H. No.
11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as
among the provisions sought to be amended. We are satisfied that
sufficient notice had been given of the pendency of these bills in
Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as
that now made by PAL was rejected. R.A. No. 7354 is entitled AN ACT
CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS
POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all
franking privileges. It was contended that the withdrawal of franking
privileges was not expressed in the title of the law. In holding that there
was sufficient description of the subject of the law in its title, including the
repeal of franking privileges, this Court held:
To require every end and means necessary for the
accomplishment of the general objectives of the statute to
be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been
correctly explained:
 The details of a legislative act need not be
specifically stated in its title, but matter
germane to the subject as expressed in
the title, and adopted to the
accomplishment of the object in view, may
properly be included in the act. Thus, it is
proper to create in the same act the
machinery by which the act is to be
enforced, to prescribe the penalties for its
infraction, and to remove obstacles in the
way of its execution. If such matters are
properly connected with the subject as
expressed in the title, it is unnecessary
that they should also have special mention
in the title. (Southern Pac. Co. v. Bartine,
170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a
general proposition, the press is not exempt from the taxing power of the
State and that what the constitutional guarantee of free press prohibits
are laws which single out the press or target a group belonging to the
press for special treatment or which in any way discriminate against the
press on the basis of the content of the publication, and R.A. No. 7716 is
none of these.
Now it is contended by the PPI that by removing the exemption of the
press from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would suffice to say that since the
law granted the press a privilege, the law could take back the privilege
anytime without offense to the Constitution. The reason is simple: by
granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press
to the same tax burden to which other businesses have long ago been
subject. It is thus different from the tax involved in the cases invoked by
the PPI. The license tax in Grosjean v. American Press Co., 297 U.S.
233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was
laid on the gross advertising receipts only of newspapers whose weekly
circulation was over 20,000, with the result that the tax applied only to 13
out of 124 publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature which enacted
the license tax. The censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota
Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was
found to be discriminatory because although it could have been made
liable for the sales tax or, in lieu thereof, for the use tax on the privilege of
using, storing or consuming tangible goods, the press was not. Instead,
the press was exempted from both taxes. It was, however, later made to
pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of
goods to be sold at retail." The U.S. Supreme Court held that the
differential treatment of the press "suggests that the goal of regulation is
not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors
the press is constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273
are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other
exemptions from the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally
withdrawn, in addition to exemptions which are partially withdrawn, in an
effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted
by the fact that transactions, which are profit oriented, continue to enjoy
exemption under R.A. No. 7716. An enumeration of some of these
transactions will suffice to show that by and large this is not so and that
the exemptions are granted for a purpose. As the Solicitor General says,
such exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user
rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their
original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture
 (milling of palay, corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the
manufacture of feeds).
(b) Goods used for personal consumption or use
(household and personal effects of citizens returning to
the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum
products or to be used for manufacture of petroleum
products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not
discriminate against the press because "even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is
immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly
does not acquire constitutional validity because it
classifies the privileges protected by the First Amendment
along with the wares and merchandise of hucksters and
peddlers and treats them all alike. Such equality in
treatment does not save the ordinance. Freedom of press,
freedom of speech, freedom of religion are in preferred
position.
The Court was speaking in that case of a license tax, which, unlike an
ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its
right. Hence, although its application to others, such those selling goods,
is valid, its application to the press or to religious groups, such as the
Jehovah's Witnesses, in connection with the latter's sale of religious
books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It
is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City
of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance
requiring a business license fee on those engaged in the sale of general
merchandise. It was held that the tax could not be imposed on the sale of
bibles by the American Bible Society without restraining the free exercise
of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the
exercise of a privilege, much less a constitutional right. It is imposed on
the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the
exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells
bibles, the proceeds derived from the sales are used to subsidize the cost
of printing copies which are given free to those who cannot afford to pay
so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the
right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would
be to lay an impermissible burden on the right of the preacher to make a
sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of
the NIRC, as amended by §7 of R.A. No. 7716, although fixed in amount,
is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of the NIRC. That
the PBS distributes free bibles and therefore is not liable to pay the VAT
does not excuse it from the payment of this fee because it also sells
some copies. At any rate whether the PBS is liable for the VAT must be
decided in concrete cases, in the event it is assessed this tax by the
Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract
clauses and the rule on taxation. CREBA asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2) classifies transactions as covered
or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a
progressive system of taxation."
With respect to the first contention, it is claimed that the application of the
tax to existing contracts of the sale of real property by installment or on
deferred payment basis would result in substantial increases in the
monthly amortizations to be paid because of the 10% VAT. The additional
amount, it is pointed out, is something that the buyer did not anticipate at
the time he entered into the contract.
The short answer to this is the one given by this Court in an early case:
"Authorities from numerous sources are cited by the plaintiffs, but none of
them show that a lawful tax on a new subject, or an increased tax on an
old one, interferes with a contract or impairs its obligation, within the
meaning of the Constitution. Even though such taxation may affect
particular contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon one class
and release the burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it impairs the
obligation of any existing contract in its true legal sense." (La Insular v.
Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the
legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been
made in reference to the possible exercise of the rightful authority of the
government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such
transactions as the sale of agricultural products, food items, petroleum,
and medical and veterinary services, it grants no exemption on the sale
of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA
claims that real estate transactions of "the less poor," i.e., the middle
class, who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc.,
which are essential goods and services was already exempt under §103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No. 7716 granted exemption to
these transactions, while subjecting those of petitioner to the payment of
the VAT. Moreover, there is a difference between the "homeless poor"
and the "homeless less poor" in the example given by petitioner, because
the second group or middle class can afford to rent houses in the
meantime that they cannot yet buy their own homes. The two social
classes are thus differently situated in life. "It is inherent in the power to
tax that the 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.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of
Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130
SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa Pamahalaan
ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716
also violates Art. VI, §28(1) which provides that "The rule of taxation shall
be uniform and equitable. The Congress shall evolve a progressive
system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds
of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v. De Leon, supra;
Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A.
No. 7716 was enacted. R.A. No. 7716 merely expands the base of the
tax. The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383
(1988) on grounds similar to those made in these cases, namely, that the
law was "oppressive, discriminatory, unjust and regressive in violation of
Art. VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the
law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements
of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engaged in
business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the
VAT, are expected to be relatively lower and within the
reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by
the Cooperative Union of the Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law contravenes the mandate of Congress
to provide for a progressive system of taxation because the law imposes
a flat rate of 10% and thus places the tax burden on all taxpayers without
regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect
taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1)
was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT,
the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, §3, amending §102
(b) of the NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and
services are exempted from the VAT:
(a) Goods for consumption or use which are in their
original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture
(milling of palay, corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for the
manufacture of feeds).
(b) Goods used for personal consumption or use
(household and personal effects of citizens returning to
the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum
products or to be used for manufacture of petroleum
products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
 (h) Goods or services with gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are
those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held
primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other
similar property or right, the right or privilege to use industrial, commercial
or scientific equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time, hotels,
restaurants and similar places, securities, lending investments, taxicabs,
utility cars for rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of
constitutional violations by tendering issues not at retail but at wholesale
and in the abstract. There is no fully developed record which can impart
to adjudication the impact of actuality. There is no factual foundation to
show in the concrete the application of the law to actual contracts and
exemplify its effect on property rights. For the fact is that petitioner's
members have not even been assessed the VAT. Petitioner's case is not
made concrete by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he
has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and
equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there
is a need for proof of such persuasive character as would
lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a
concrete case. It may be that postponement of adjudication would result
in a multiplicity of suits. This need not be the case, however. Enforcement
of the law may give rise to such a case. A test case, provided it is an
actual case and not an abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an adequate justification for
adjudicating abstract issues. Otherwise, adjudication would be no
different from the giving of advisory opinion that does not really settle
legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a
claim is made that "there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government." This duty can only arise if an actual
case or controversy is before us. Under Art . VIII, §5 our jurisdiction is
defined in terms of "cases" and all that Art. VIII, §1, ¶2 can plausibly
mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch
or instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power,"
which is "the power of a court to hear and decide cases pending between
parties who have the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly
appropriated until it is apportioned among several courts either by the
Constitution, as in the case of Art. VIII, §5, or by statute, as in the case of
the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization
Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the
court's "jurisdiction," defined as "the power conferred by law upon a court
or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming
within its jurisdiction, this Court cannot inquire into any allegation of grave
abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand,
the Cooperative Union of the Philippines (CUP), after briefly surveying
the course of legislation, argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives to the VAT
would therefore be to infringe a constitutional policy. Petitioner claims that
in 1973, P.D. No. 175 was promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984, because of the
crisis which menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes until December 31,
1991, but, in the same year, E.O. No. 93 revoked the exemption; and that
finally in 1987 the framers of the Constitution "repudiated the previous
actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions," by providing the
following in Art. XII:
§1. The goals of the national economy are a more
equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the
people; and an expanding productivity as the key to
raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full
employment based on sound agricultural development
and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets.
However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy
and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base
of their ownership.
§15. The Congress shall create an agency to promote the
viability and growth of cooperatives as instruments for
social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that
P.D. No. 1955 singled out cooperatives by withdrawing their exemption
from income and sales taxes under P.D. No. 175, §5. What P.D. No.
1955, §1 did was to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in general, in view of
the economic crisis which then beset the nation. It is true that after P.D.
No. 2008, §2 had restored the tax exemptions of cooperatives in 1986,
the exemption was again repealed by E.O. No. 93, §1, but then again
cooperatives were not the only ones whose exemptions were
withdrawn. The withdrawal of tax incentives applied to all, including
government and private entities. In the second place, the Constitution
does not really require that cooperatives be granted tax exemptions in
order to promote their growth and viability. Hence, there is no basis for
petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was
concerned, and that it was to put an end to this indecision that the
constitutional provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to
the discretion of Congress. If Congress does not grant exemption and
there is no discrimination to cooperatives, no violation of any
constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution
cooperatives are exempt from taxation. Such theory is contrary to the
Constitution under which only the following are exempt from taxation:
charitable institutions, churches and parsonages, by reason of Art. VI,
§28 (3), and non-stock, non-profit educational institutions by reason of
Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that
it denies cooperatives the equal protection of the law because electric
cooperatives are exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a
congressional determination that there is greater need to provide cheaper
electric power to as many people as possible, especially those living in
the rural areas, than there is to provide them with other necessities in life.
We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the
constitutional validity of R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers
from none of the infirmities attributed to it by petitioners and that its
enactment by the other branches of the government does not constitute a
grave abuse of discretion. Any question as to its necessity, desirability or
expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said,
"legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is
not right, as petitioner in G.R. No. 115543 does in arguing that we should
enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust
to the courts the burden of reviewing measures in the flush of enactment.
This Court does not sit as a third branch of the legislature, much less
exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality

and the temporary restraining order previously issued is hereby lifted.

SO ORDERED.

Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima,

Jr., JJ., concur.

Padilla and Vitug, JJ., maintained their separate opinion.

Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their
dissenting opinion.

Panganiban, J., took no part.

G.R. No. 166134               June 29, 2010
ANGELES CITY, Petitioner,  day of the month following the end of each calendar quarter or month as
vs.
ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL
COURT BRANCH 57, ANGELES CITY,Respondents.
DECISION
DEL CASTILLO, J.:
The prohibition on the issuance of a writ of injunction to enjoin the
collection of taxes applies only to national internal revenue taxes, and not
to local taxes.
This Petition1 for Certiorari under Rule 65 of the Rules of Court seeks to
set aside the Writ of Preliminary Injunction issued by the Regional Trial
Court (RTC) of Angeles City, Branch 57, in Civil Case No. 11401,
enjoining Angeles City and its City Treasurer from levying, seizing,
disposing and selling at public auction the properties owned by Angeles
Electric Corporation (AEC).
Factual Antecedents
On June 18, 1964, AEC was granted a legislative franchise under
Republic Act No. (RA) 40792 to construct, maintain and operate an
electric light, heat, and power system for the purpose of generating and
distributing electric light, heat and power for sale in Angeles City,
Pampanga. Pursuant to Section 3-A thereof,3 AEC’s payment of franchise
tax for gross earnings from electric current sold was in lieu of all taxes,
fees and assessments.  with the provisions of the LGC, and to make a report on the action taken
On September 11, 1974, Presidential Decree No. (PD) 551 reduced the
franchise tax of electric franchise holders. Section 1 of PD 551 provided
that:
SECTION 1. Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchises to
generate, distribute and sell electric current for light, heat and power shall
be two percent (2%) of their gross receipts received from the sale of
electric current and from transactions incident to the generation,
distribution and sale of electric current. 
Such franchise tax shall be payable to the Commissioner of Internal
Revenue or his duly authorized representative on or before the twentieth
may be provided in the respective franchise or pertinent municipal
regulation and shall, any provision of the Local Tax Code or any other law
to the contrary notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on earnings,
receipts, income and privilege of generation, distribution and sale of
electric current. 
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of
1991 was passed into law, conferring upon provinces and cities the
power, among others, to impose tax on businesses enjoying franchise.4 In
accordance with the LGC, the Sangguniang Panlungsod of Angeles City
enacted on December 23, 1993 Tax Ordinance No. 33, S-93, otherwise
known as the Revised Revenue Code of Angeles City (RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and
a review of the provisions of the RRCAC was filed with
the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce
and Industry Inc. (MACCI) of which AEC is a member. There being no
action taken by the Sangguniang Panlungsod on the matter, MACCI
elevated the petition5 to the Department of Finance, which referred the
same to the Bureau of Local Government Finance (BLGF). In the petition,
MACCI alleged that the RRCAC is oppressive, excessive, unjust and
confiscatory; that it was published only once, simultaneously on January
22, 1994; and that no public hearings were conducted prior to its
enactment. Acting on the petition, the BLGF issued a First
Indorsement6 to the City Treasurer of Angeles City, instructing the latter
to make representations with the Sangguniang Panlungsod for the
appropriate amendment of the RRCAC in order to ensure compliance
within five days. 
Thereafter, starting July 1995, AEC has been paying the local franchise
tax to the Office of the City Treasurer on a quarterly basis, in addition to
the national franchise tax it pays every quarter to the Bureau of Internal
Revenue (BIR).
Proceedings before the City Treasurer
On January 22, 2004, the City Treasurer issued a Notice of
Assessment7 to AEC for payment of business tax, license fee and other
charges for the period 1993 to 2004 in the total amount of
₱94,861,194.10. Within the period prescribed by law, AEC protested the
assessment claiming that:
(a) pursuant to RA 4079, it is exempt from paying local business
tax;
(b) since it is already paying franchise tax on business, the
payment of business tax would result in double taxation;
(c) the period to assess had prescribed because under the LGC,
taxes and fees can only be assessed and collected within five (5)
years from the date they become due; and
(d) the assessment and collection of taxes under the RRCAC
cannot be made retroactive to 1993 or prior to its effectivity.8
On February 17, 2004, the City Treasurer denied the protest for lack of
merit and requested AEC to settle its tax liabilities.9
Proceedings before the RTC
Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles
City via a Petition for Declaratory Relief,10docketed as Civil Case No.
11401. 
On April 5, 2004, the City Treasurer levied on the real properties of
AEC.11 A Notice of Auction Sale12 was published and posted announcing
that a public auction of the levied properties of AEC would be held on
May 7, 2004.
This prompted AEC to file with the RTC, where the petition for declaratory
relief was pending, an Urgent Motion for Issuance of Temporary
Restraining Order and/or Writ of Preliminary Injunction13 to enjoin Angeles
City and its City Treasurer from levying, annotating the levy, seizing,
confiscating, garnishing, selling and disposing at public auction the
properties of AEC.
Meanwhile, in response to the petition for declaratory relief filed by AEC,
Angeles City and its City Treasurer filed an Answer with Counterclaim14 to
which AEC filed a Reply.15
After due notice and hearing, the RTC issued a Temporary Restraining
Order (TRO)16 on May 4, 2004, followed by an Order17 dated May 24,
2004 granting the issuance of a Writ of Preliminary Injunction,
conditioned upon the filing of a bond in the amount of ₱10,000,000.00.
Upon AEC’s posting of the required bond, the RTC issued a Writ of
Preliminary Injunction on May 28, 2004,18 which was amended on May
31, 2004 due to some clerical errors.19
On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for
Dissolution of Preliminary Injunction and Motion for Reconsideration of
the Order dated May 24, 2004,"20 which was opposed by AEC.21
Finding no compelling reason to disturb and reconsider its previous
findings, the RTC denied the joint motion on October 14, 2004.22
Issue
Being a special civil action for certiorari, the issue in the instant case is
limited to the determination of whether the RTC gravely abused its
discretion in issuing the writ of preliminary injunction enjoining Angeles
City and its City Treasurer from levying, selling, and disposing the
properties of AEC. All other matters pertaining to the validity of the tax
assessment and AEC’s tax exemption must therefore be left for the
determination of the RTC where the main case is pending decision. 
Petitioner’s Arguments
Petitioner’s main argument is that the collection of taxes cannot be
enjoined by the RTC, citing Valley Trading Co., Inc. v. Court of First
Instance of Isabela, Branch II,23 wherein the lower court’s denial of a
motion for the issuance of a writ of preliminary injunction to enjoin the
collection of a local tax was upheld. Petitioner further reasons that since
the levy and auction of the properties of a delinquent taxpayer are proper
and lawful acts specifically allowed by the LGC, these cannot be the
subject of an injunctive writ. Petitioner likewise insists that AEC must first
pay the tax before it can protest the assessment. Finally, petitioner
contends that the tax exemption claimed by AEC has no legal basis
because RA 4079 has been expressly repealed by the LGC.
Private respondent’s Arguments
Private respondent AEC on the other hand asserts that there was no
grave abuse of discretion on the part of the RTC in issuing the writ of
preliminary injunction because it was issued after due notice and hearing,
and was necessary to prevent the petition from becoming moot. In
addition, AEC claims that the issuance of the writ of injunction was proper
since the tax assessment issued by the City Treasurer is not yet final,
having been seasonably appealed pursuant to Section 19524 of the LGC.
AEC likewise points out that following the case of Pantoja v.
David,25 proceedings to invalidate a warrant of distraint and levy to
restrain the collection of taxes do not violate the prohibition against
injunction to restrain the collection of taxes because the proceedings are
directed at the right of the City Treasurer to collect the tax by distraint or
levy. As to its tax liability, AEC maintains that it is exempt from paying
local business tax. In any case, AEC counters that the issue of whether it
is liable to pay the assessed local business tax is a factual issue that
should be determined by the RTC and not by the Supreme Court via a
petition for certiorari under Rule 65 of the Rules of Court.  issuing such injunctions.
Our Ruling
We find the petition bereft of merit.
The LGC does not specifically prohibit an injunction enjoining the
collection of taxes
A principle deeply embedded in our jurisprudence is that taxes being the
lifeblood of the government should be collected promptly,26 without
unnecessary hindrance27 or delay.28 In line with this principle, the National
Internal Revenue Code of 1997 (NIRC) expressly provides that no court
shall have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge imposed by the
code.29 An exception to this rule obtains only when in the opinion of the
Court of Tax Appeals (CTA) the collection thereof may jeopardize the
interest of the government and/or the taxpayer.30
The situation, however, is different in the case of the collection of local
taxes as there is no express provision in the LGC prohibiting courts from
issuing an injunction to restrain local governments from collecting taxes.
Thus, in the case of Valley Trading Co., Inc. v. Court of First Instance of
Isabela, Branch II, cited by the petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax Code31 does
not contain any specific provision prohibiting courts from enjoining the
collection of local taxes. Such statutory lapse or intent, however it may be
viewed, may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural rules and requirements under
Rule 58.32
In light of the foregoing, petitioner’s reliance on the above-cited case to
support its view that the collection of taxes cannot be enjoined is
misplaced. The lower court’s denial of the motion for the issuance of a
writ of preliminary injunction to enjoin the collection of the local tax was
upheld in that case, not because courts are prohibited from granting such
injunction, but because the circumstances required for the issuance of
writ of injunction were not present.
Nevertheless, it must be emphasized that although there is no express
prohibition in the LGC, injunctions enjoining the collection of local taxes
are frowned upon. Courts therefore should exercise extreme caution in
 
No grave abuse of discretion was committed by the RTC
Section 3, Rule 58, of the Rules of Court lays down the requirements for
the issuance of a writ of preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the
whole or part of such relief consists in restraining the commission
or continuance of the acts complained of, or in the performance of
an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the
act or acts complained of during the litigation would probably
work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing,
threatening, or attempting to do, or is procuring or suffering to be
done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual. 
Two requisites must exist to warrant the issuance of a writ of preliminary
injunction, namely: (1) the existence of a clear and unmistakable right
that must be protected; and (2) an urgent and paramount necessity for
the writ to prevent serious damage.33
In issuing the injunction, the RTC ratiocinated that: 
It is very evident on record that petitioner34 resorted and filed an urgent
motion for issuance of a temporary restraining order and preliminary
injunction to stop the scheduled auction sale only when a warrant of levy
was issued and published in the newspaper setting the auction sale of
petitioner’s property by the City Treasurer, merely few weeks after the
petition for declaratory relief has been filed, because if the respondent will
not be restrained, it will render this petition moot and academic. To the
mind of the Court, since there is no other plain, speedy and adequate
remedy available to the petitioner in the ordinary course of law except this
application for a temporary restraining order and/or writ of preliminary
injunction to stop the auction sale and/or to enjoin and/or restrain
respondents from levying, annotating the levy, seizing, confiscating,
garnishing, selling and disposing at public auction the properties of
petitioner, or otherwise exercising other administrative remedies against
the petitioner and its properties, this alone justifies the move of the
petitioner in seeking the injunctive reliefs sought for.
Petitioner in its petition is questioning the assessment or the ruling of the
City Treasurer on the business tax and fees, and not the local ordinance
concerned. This being the case, the Court opines that notice is not
required to the Solicitor General since what is involved is just a violation
of a private right involving the right of ownership and possession of
petitioner’s properties. Petitioner, therefore, need not comply with Section
4, Rule 63 requiring such notice to the Office of the Solicitor General.
The Court is fully aware of the Supreme Court pronouncement that
injunction is not proper to restrain the collection of taxes. The issue here
as of the moment is the restraining of the respondent from pursuing its
auction sale of the petitioner’s properties. The right of ownership and
possession of the petitioner over the properties subject of the auction
sale is at stake.
Respondents assert that not one of the witnesses presented by the
petitioner have proven what kind of right has been violated by the
respondent, but merely mentioned of an injury which is only a scenario
based on speculation because of petitioner’s claim that electric power
may be disrupted.
Engr. Abordo’s testimony reveals and even his Affidavit Exhibit "S"
showed that if the auction sale will push thru, petitioner will not only lose
control and operation of its facility, but its employees will also be denied
access to equipments vital to petitioner’s operations, and since only the
petitioner has the capability to operate Petersville sub station, there will
be a massive power failure or blackout which will adversely affect
business and economy, if not lives and properties in Angeles City and
surrounding communities.
Petitioner, thru its witnesses, in the hearing of the temporary restraining
order, presented sufficient and convincing evidence proving irreparable
damages and injury which were already elaborated in the temporary
restraining order although the same may be realized only if the auction
sale will proceed. And unless prevented, restrained, and enjoined, grave
and irreparable damage will be suffered not only by the petitioner but all
its electric consumers in Angeles, Clark, Dau and Bacolor, Pampanga.
The purpose of injunction is to prevent injury and damage from being
incurred, otherwise, it will render any judgment in this case ineffectual.
"As an extraordinary remedy, injunction is calculated to preserve or
maintain the status quo of things and is generally availed of to prevent
actual or threatened acts, until the merits of the case can be heard"
(Cagayan de Oro City Landless Res. Assn. Inc. vs. CA, 254 SCRA 220)
It appearing that the two essential requisites of an injunction have been
satisfied, as there exists a right on the part of the petitioner to be
protected, its right[s] of ownership and possession of the properties
subject of the auction sale, and that the acts (conducting an auction sale)
against which the injunction is to be directed, are violative of the said
rights of the petitioner, the Court has no other recourse but to grant the
prayer for the issuance of a writ of preliminary injunction considering that
if the respondent will not be restrained from doing the acts complained of,
it will preempt the Court from properly adjudicating on the merits the
various issues between the parties, and will render moot and academic
the proceedings before this court.35
As a rule, the issuance of a preliminary injunction rests entirely within the
discretion of the court taking cognizance of the case and will not be
interfered with, except where there is grave abuse of discretion
committed by the court.36For grave abuse of discretion to prosper as a
ground for certiorari, it must be demonstrated that the lower court or
tribunal has exercised its power in an arbitrary and despotic manner, by
reason of passion or personal hostility, and it must be patent and gross
as would amount to an evasion or to a unilateral refusal to perform the
duty enjoined or to act in contemplation of law.37 In other words, mere
abuse of discretion is not enough.38 1avvph!1
Guided by the foregoing, we find no grave abuse of discretion on the part
of the RTC in issuing the writ of injunction. Petitioner, who has the burden
to prove grave abuse of discretion,39 failed to show that the RTC acted
arbitrarily and capriciously in granting the injunction. Neither was
petitioner able to prove that the injunction was issued without any factual
or legal justification. In assailing the injunction, petitioner primarily relied
on the prohibition on the issuance of a writ of injunction to restrain the
collection of taxes. But as we have already said, there is no such
prohibition in the case of local taxes. Records also show that before
issuing the injunction, the RTC conducted a hearing where both parties
were given the opportunity to present their arguments. During the
hearing, AEC was able to show that it had a clear and unmistakable legal
right over the properties to be levied and that it would sustain serious
damage if these properties, which are vital to its operations, would be
sold at public auction. As we see it then, the writ of injunction was
properly issued.

A final note. While we are mindful that the damage to a taxpayer’s

property rights generally takes a back seat to the paramount need of the
State for funds to sustain governmental functions,40 this rule finds no
application in the instant case where the disputed tax assessment is not
yet due and demandable. Considering that AEC was able to appeal the
denial of its protest within the period prescribed under Section 195 of the
LGC, the collection of business taxes41 through levy at this time is, to our
mind, hasty, if not premature.42 The issues of tax exemption, double
taxation, prescription and the alleged retroactive application of the
RRCAC, raised in the protest of AEC now pending with the RTC, must
first be resolved before the properties of AEC can be levied. In the
meantime, AEC’s rights of ownership and possession must be
respected. 

WHEREFORE, the petition is hereby DISMISSED. 

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
G.R. No. L-66838 December 2, 1991
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
PROCTER & GAMBLE PHILIPPINE MANUFACTURING
CORPORATION and THE COURT OF TAX APPEALS,respondents.
T.A. Tejada & C.N. Lim for private respondent.
 
RESOLUTION
FELICIANO, J.:
For the taxable year 1974 ending on 30 June 1974, and the taxable year
1975 ending 30 June 1975, private respondent Procter and Gamble
Philippine Manufacturing Corporation ("P&G-Phil.") declared dividends
payable to its parent company and sole stockholder, Procter and Gamble
Co., Inc. (USA) ("P&G-USA"), amounting to P24,164,946.30, from which
dividends the amount of P8,457,731.21 representing the thirty-five
percent (35%) withholding tax at source was deducted.
On 5 January 1977, private respondent P&G-Phil. filed with petitioner
Commissioner of Internal Revenue a claim for refund or tax credit in the
amount of P4,832,989.26 claiming, among other things, that pursuant to
Section 24 (b) (1) of the National Internal Revenue Code ("NITC"),   as
1 in the proceedings before this Court on the Petition for Review filed by
amended by Presidential Decree No. 369, the applicable rate of
withholding tax on the dividends remitted was only fifteen percent (15%)
(and not thirty-five percent [35%]) of the dividends.
There being no responsive action on the part of the Commissioner, P&G-
Phil., on 13 July 1977, filed a petition for review with public respondent
Court of Tax Appeals ("CTA") docketed as CTA Case No. 2883. On 31
January 1984, the CTA rendered a decision ordering petitioner
Commissioner to refund or grant the tax credit in the amount of
P4,832,989.00.
On appeal by the Commissioner, the Court through its Second Division
reversed the decision of the CTA and held that:
(a) P&G-USA, and not private respondent P&G-Phil., was the
proper party to claim the refund or tax credit here involved;
(b) there is nothing in Section 902 or other provisions of the US
Tax Code that allows a credit against the US tax due from P&G-
USA of taxes deemed to have been paid in the Philippines
equivalent to twenty percent (20%) which represents the
difference between the regular tax of thirty-five percent (35%) on
corporations and the tax of fifteen percent (15%) on dividends;
and
(c) private respondent P&G-Phil. failed to meet certain conditions
necessary in order that "the dividends received by its non-
resident parent company in the US (P&G-USA) may be subject to
the preferential tax rate of 15% instead of 35%."
These holdings were questioned in P&G-Phil.'s Motion for Re-
consideration and we will deal with them seriatim in this Resolution
resolving that Motion.
I
1. There are certain preliminary aspects of the question of the capacity of
P&G-Phil. to bring the present claim for refund or tax credit, which need
to be examined. This question was raised for the first time on appeal, i.e.,
the Commissioner of Internal Revenue. The question was not raised by
the Commissioner on the administrative level, and neither was it raised
by him before the CTA.
We believe that the Bureau of Internal Revenue ("BIR") should not be
allowed to defeat an otherwise valid claim for refund by raising this
question of alleged incapacity for the first time on appeal before this
Court. This is clearly a matter of procedure. Petitioner does not pretend
that P&G-Phil., should it succeed in the claim for refund, is likely to run
away, as it were, with the refund instead of transmitting such refund or
tax credit to its parent and sole stockholder. It is commonplace that in the
absence of explicit statutory provisions to the contrary, the government
must follow the same rules of procedure which bind private parties. It is,
for instance, clear that the government is held to compliance with the
provisions of Circular No. 1-88 of this Court in exactly the same way that
private litigants are held to such compliance, save only in respect of the
matter of filing fees from which the Republic of the Philippines is exempt
by the Rules of Court.
More importantly, there arises here a question of fairness should the BIR,
unlike any other litigant, be allowed to raise for the first time on appeal
questions which had not been litigated either in the lower court or on the
administrative level. For, if petitioner had at the earliest possible
opportunity, i.e., at the administrative level, demanded that P&G-Phil.
produce an express authorization from its parent corporation to bring the
claim for refund, then P&G-Phil. would have been able forthwith to secure
and produce such authorization before filing the action in the instant
case. The action here was commenced just before expiration of the two
(2)-year prescriptive period.
2. The question of the capacity of P&G-Phil. to bring the claim for refund
has substantive dimensions as well which, as will be seen below, also
ultimately relate to fairness.
Under Section 306 of the NIRC, a claim for refund or tax credit filed with
the Commissioner of Internal Revenue is essential for maintenance of a
suit for recovery of taxes allegedly erroneously or illegally assessed or
collected:
Sec. 306. Recovery of tax erroneously or illegally collected. — No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally 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 Commissioner of Internal Revenue; but such
suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress. In any
case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: . . . (Emphasis supplied)
Section 309 (3) of the NIRC, in turn, provides:
Sec. 309. Authority of Commissioner to Take Compromises and
to Refund Taxes.—The Commissioner may:
x x x           x x x          x x x
(3) credit or refund taxes erroneously or illegally received, . . . No credit
or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty. (As amended by P.D. No.
69) (Emphasis supplied)
Since the claim for refund was filed by P&G-Phil., the question which
arises is: is P&G-Phil. a "taxpayer" under Section 309 (3) of the NIRC?
The term "taxpayer" is defined in our NIRC as referring to "any person
subject to taximposed by the Title [on Tax on Income]."   It thus becomes
2
important to note that under Section 53 (c) of the NIRC, the withholding
agent who is "required to deduct and withhold any tax" is made
" personally liable for such tax" and indeed is indemnified against any
claims and demands which the stockholder might wish to make in
questioning the amount of payments effected by the withholding agent in
accordance with the provisions of the NIRC. The withholding agent, P&G-
Phil., is directly and independently liable   for the correct amount of the
3
tax that should be withheld from the dividend remittances. The
withholding agent is, moreover, subject to and liable for deficiency
assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should have
been withheld under law.
A "person liable for tax" has been held to be a "person subject to tax" and
properly considered a "taxpayer."   The terms liable for tax" and "subject
4
to tax" both connote legal obligation or duty to pay a tax. It is very difficult,
indeed conceptually impossible, to consider a person who is statutorily
made "liable for tax" as not "subject to tax." By any reasonable standard,
such a person should be regarded as a party in interest, or as a person
having sufficient legal interest, to bring a suit for refund of taxes he
believes were illegally collected from him.
In Philippine Guaranty Company, Inc. v. Commissioner of Internal
Revenue,   this Court pointed out that a withholding agent is in fact the
5
agent both of the government and of the taxpayer, and that the
withholding agent is not an ordinary government agent:
 (1) Non-resident corporation. — A foreign corporation not engaged in trade and business in the Philippines, . . .,
The law sets no condition for the personal liability of the
shall pay a tax equal to 35% of the gross income receipt during its taxable year from all sources within the
withholding agent to attach. The reason is to compel the
Philippines, as . . . dividends . . . Provided, still further, that on dividends received from a domestic corporation
withholding agent to withhold the tax under all circumstances. In
liable to tax under this Chapter, the tax shall be 15% of the dividends, which shall be collected and paid as
effect, the responsibility for the collection of the tax as well as the
provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign
payment thereof is concentrated upon the person over whom the
corporation, is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes
Government has jurisdiction. Thus, the withholding agent is
deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the
constituted the agent of both the Government and the taxpayer.
regular tax (35%) on corporations and the tax (15%) on dividends as provided in this Section . . .
With respect to the collection and/or withholding of the tax, he is
the Government's agent. In regard to the filing of the necessary
income tax return and the payment of the tax to the Government, The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of a

he is the agent of the taxpayer. The withholding agent, therefore, Philippine corporation, goes down to fifteen percent (15%) if the country of domicile of the foreign stockholder corporation "shall

is no ordinary government agent especially because under allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable against the tax payable to the

Section 53 (c) he is held personally liable for the tax he is duty domiciliary country by the foreign stockholder corporation. In other words, in the instant case, the reduced fifteen percent (15%)

bound to withhold; whereas the Commissioner and his deputies dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed paid in the Philippines"

are not made liable by law.  6 (Emphasis supplied) applicable against the US taxes of P&G-USA. The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines"
must, as a minimum, reach an amount equivalent to twenty (20) percentage points which represents the difference between the
regular thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax rate.

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with It is important to note that Section 24 (b) (1), NIRC, does not require that the US must give a "deemed paid" tax credit for the

respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred divided tax rate of fifteen

authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such percent (15%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have paid the

claim. This implied authority is especially warranted where, is in the instant case, the withholding agent is the wholly owned twenty (20) percentage points of dividend tax waived by the Philippines. The NIRC only requires that the US "shall allow" P&G-

subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines.

circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to
commence an action for such refund. 2. The question arises: Did the US law comply with the above requirement? The relevant provisions of the US Intemal Revenue
Code ("Tax Code") are the following:

We believe that, even now, there is nothing to preclude the BIR from requiring P&G-Phil. to show some written or telexed
confirmation by P&G-USA of the subsidiary's authority to claim the refund or tax credit and to remit the proceeds of the refund., Sec. 901 — Taxes of foreign countries and possessions of United States.

or to apply the tax credit to some Philippine tax obligation of, P&G-USA, before actual payment of the refund or issuance of a
tax credit certificate. What appears to be vitiated by basic unfairness is petitioner's position that, although P&G-Phil. is directly
and personally liable to the Government for the taxes and any deficiency assessments to be collected, the Government is not
legally liable for a refund simply because it did not demand a written confirmation of P&G-Phil.'s implied authority from the very
beginning. A sovereign government should act honorably and fairly at all times, even vis-a-vis taxpayers.
(a) Allowance of credit. — If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this
chapter shall, subject to the applicable limitation of section 904, be credited with the amounts provided in the
We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the
applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid
meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim.
under sections 902 and 960. Such choice for any taxable year may be made or changed at any time before the
expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for
II
such taxable year. The credit shall not be allowed against the tax imposed by section 531 (relating to the tax on
accumulated earnings), against the additional tax imposed for the taxable year under section 1333 (relating to war
1. We turn to the principal substantive question before us: the applicability to the dividend remittances by P&G-Phil. to P&G- loss recoveries) or under section 1351 (relating to recoveries of foreign expropriation losses), or against the
USA of the fifteen percent (15%) tax rate provided for in the following portion of Section 24 (b) (1) of the NIRC: personal holding company tax imposed by section 541.

(b) Tax on foreign corporations.—

(b) Amount allowed. — Subject to the applicable limitation of section 904, the following amounts shall be allowed as having been paid from the accumulated profits of the preceding year or years (unless to his
as the credit under subsection (a): satisfaction shows otherwise), and in other respects treating dividends as having been paid from the
most recently accumulated gains, profits, or earning. . . . (Emphasis supplied)

(a) Citizens and domestic corporations. — In the case of a citizen of the United States and of a
domestic corporation, the amount of any income, war profits, and excess profits  taxes paid or
accrued during the taxable year to any foreign country or to any possession of the United States; and

Close examination of the above quoted provisions of the US Tax Code 7

 shows the following:
x x x           x x x          x x x

a. US law (Section 901, Tax Code) grants P&G-USA a

Sec. 902. — Credit for corporate stockholders in foreign corporation.
tax credit for the amount of the dividend tax actually paid
(i.e., withheld) from the dividend remittances to P&G-
(A) Treatment of Taxes Paid by Foreign Corporation. — For purposes of this subject, a domestic
USA;
corporation which owns at least 10 percent of the voting stock of a foreign corporation from which
itreceives dividends in any taxable year shall —
b. US law (Section 902, US Tax Code) grants to P&G-
USA a "deemed paid' tax credit  8  for a proportionate part of the corporate income tax actually

x x x           x x x          x x x paid to the Philippines by P&G-Phil.

(2) to the extent such dividends are paid by such foreign corporation out of accumulated profits [as
defined in subsection (c) (1) (b)] of a year for which such foreign corporation is a less developed
country corporation, be deemed to have paid the same proportion of any income, war profits, or
excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or
to any possession of the United States on or with respect to such accumulated profits, which the
amount of such dividends bears to the amount of such accumulated profits.
The parent-corporation P&G-USA is "deemed to have paid" a portion of the Philippine corporate income
taxalthough that tax was actually paid by its Philippine subsidiary, P&G-Phil., not by P&G-USA. This "deemed
paid" concept merely reflects economic reality, since the Philippine corporate income tax was in fact paid and
deducted from revenues earned in the Philippines, thus reducing the amount remittable as dividends to P&G-USA.
In other words, US tax law treats the Philippine corporate income tax as if it came out of the pocket, as it were, of

x x x           x x x          x x x P&G-USA as a part of the economic cost of carrying on business operations in the Philippines through the
medium of P&G-Phil. and here earning profits. What is, under US law, deemed paid by P&G- USA are not

(c) Applicable Rules "phantom taxes" but instead  Philippine corporate income taxes actually paid here by P&G-Phil., which are very
real indeed.

(1) Accumulated profits defined. — For purposes of this section, the term "accumulated profits"
means with respect to any foreign corporation,

(A) for purposes of subsections (a) (1) and (b) (1), the amount of its gains, profits, or It is also useful to note that both (i) the tax credit for the Philippine dividend tax actually withheld, and (ii) the tax credit for the Philippine corporate income tax actually paid
by P&G Phil. but "deemed paid" by P&G-USA, are tax credits available or applicable against the US corporate income tax of P&G-USA. These tax credits are allowed
income computed without reduction by the amount of the income, war profits, and because of the US congressional desire to avoid or reduce double taxation of the same income stream. 9

excess profits taxes imposed on or with respect to such profits or income by any
foreign country. . . .; and

(B) for purposes of subsections (a) (2) and (b) (2), the amount of its gains, profits,
In order to determine whether US tax law complies with the requirements for applicability of the reduced or
or income in excess of the income, war profits, and excess profits taxes imposed on or
preferential fifteen percent (15%) dividend tax rate under Section 24 (b) (1), NIRC, it is necessary:
with respect to suchprofits or income.

a. to determine the amount of the 20 percentage points dividend tax waived by the Philippine
The Secretary or his delegate shall have full power to determine from the accumulated profits of
government under Section 24 (b) (1), NIRC, and which hence goes to P&G-USA;
what year or years such dividends were paid, treating dividends paid in the first 20 days of any year
 b. to determine the amount of the "deemed paid" tax credit which US tax law must allow to P&G-
USA; and

c. to ascertain that the amount of the "deemed paid" tax credit allowed by US law is at least equal to
P65.00 — Dividends remittable to P&G-USA
the amount of the dividend tax waived by the Philippine Government.
- 9.75 — Dividend tax withheld at the reduced (15%) rate
———
Amount (a), i.e., the amount of the dividend tax waived by the Philippine government is arithmetically determined
P55.25 — Dividends actually remitted to P&G-USA
in the following manner:

P35.00 — Philippine corporate income tax paid by P&G-Phil.

P100.00 — Pretax net corporate income earned by P&G-Phil.
to the BIR
x 35% — Regular Philippine corporate income tax rate
———
P35.00 — Paid to the BIR by P&G-Phil. as Philippine
corporate income tax.
Dividends actually
remitted by P&G-Phil.
to P&G-USA P55.25
P100.00
——————— = ——— x P35.00 = P29.75 10
-35.00 Amount of accumulated P65.00 ======
profits earned by
———
P&G-Phil. in excess
P65.00 — Available for remittance as dividends to P&G-USA of income tax

P65.00 — Dividends remittable to P&G-USA

x 35% — Regular Philippine dividend tax rate under Section 24
——— (b) (1), NIRC
Thus,  for every P55.25 of dividends actually remitted (after withholding at the rate of 15%) by P&G-Phil. to its US
P22.75 — Regular dividend tax
parent P&G-USA, a tax credit of P29.75 is allowed by Section 902 US Tax Code for Philippine corporate income
tax "deemed paid" by the parent but actually paid by the wholly-owned subsidiary.
P65.00 — Dividends remittable to P&G-USA
x 15% — Reduced dividend tax rate under Section 24 (b) (1), NIRC
Since P29.75 is much higher than P13.00 (the amount of dividend tax waived by the Philippine government),
———
Section 902, US Tax Code, specifically and clearly complies with the requirements of Section 24 (b) (1), NIRC.
P9.75 — Reduced dividend tax

3. It is important to note also that the foregoing reading of Sections 901 and 902 of the US Tax Code is identical
P22.75 — Regular dividend tax under Section 24 (b) (1), NIRC
with the reading of the BIR of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of
-9.75 — Reduced dividend tax under Section 24 (b) (1), NIRC
Sections 901 and 902 as shown by administrative rulings issued by the BIR.
———
P13.00 — Amount of dividend tax waived by Philippine
The first Ruling was issued in 1976, i.e., BIR Ruling No. 76004, rendered by then Acting Commissioner of Intemal
===== government under Section 24 (b) (1), NIRC.
Revenue Efren I. Plana, later Associate Justice of this Court, the relevant portion of which stated:

Thus, amount (a) above is P13.00 for every P100.00 of pre-tax net income earned by P&G-Phil. Amount (a) is
However, after a restudy of the decision in the American Chicle Company case and the provisions of
also the minimum amount of the "deemed paid" tax credit that US tax law shall allow if P&G-USA is to qualify for
Section 901 and 902 of the U.S. Internal Revenue Code, we find merit in your contention that our
the reduced or preferential dividend tax rate under Section 24 (b) (1), NIRC.
computation of the credit which the U.S. tax law allows in such cases is erroneous as the amount of
tax "deemed paid" to the Philippine government for purposes of credit against the U.S. tax by the
Amount (b) above, i.e., the amount of the "deemed paid" tax credit which US tax law allows under Section 902,
recipient of dividends includes a portion of the amount of income tax paid by the corporation
Tax Code, may be computed arithmetically as follows:
declaring the dividend in addition to the tax withheld from the dividend remitted. In other words, the
 U.S. government will allow a credit to the U.S. corporation or recipient of the dividend, in addition to Section 30 (c) (3) and (8), NIRC, provides:
the amount of tax actually withheld, a portion of the income tax paid by the corporation declaring the
dividend. Thus, if a Philippine corporation wholly owned by a U.S. corporation has a net income of (d) Sec. 30. Deductions from Gross Income.—In computing net income, there shall be allowed as
P100,000, it will pay P25,000 Philippine income tax thereon in accordance with Section 24(a) of the deductions — . . .
Tax Code. The net income, after income tax, which is P75,000, will then be declared as dividend to
the U.S. corporation at 15% tax, or P11,250, will be withheld therefrom. Under the aforementioned
(c) Taxes. — . . .
sections of the U.S. Internal Revenue Code, U.S. corporation receiving the dividend can utilize as
credit against its U.S. tax payable on said dividends the amount of P30,000 composed of:
x x x           x x x          x x x

(1) The tax "deemed paid" or indirectly paid on the dividend arrived at as follows:
(3) Credits against tax for taxes of foreign countries. — If the taxpayer signifies in his return his
desire to have the benefits of this paragraphs, the tax imposed by this Title shall be credited with . . .
P75,000 x P25,000 = P18,750
———
(a) Citizen and Domestic Corporation. — In the case of a citizen of the Philippines and of domestic
100,000 **
corporation, the amount of net income, war profits or excess profits, taxes paid or accrued during the
taxable year to any foreign country. (Emphasis supplied)
(2) The amount of 15% of
P75,000 withheld = 11,250
Under Section 30 (c) (3) (a), NIRC, above, the BIR must give a tax credit to a Philippine corporation for taxes
———
actually paid by it to the US government—e.g., for taxes collected by the US government on dividend remittances
P30,000
to the Philippine corporation. This Section of the NIRC is the equivalent of Section 901 of the US Tax Code.

The amount of P18,750 deemed paid and to be credited against the U.S. tax on the dividends
Section 30 (c) (8), NIRC, is practically identical with Section 902 of the US Tax Code, and provides as follows:
received by the U.S. corporation from a Philippine subsidiary  is clearly more than 20% requirement
ofPresidential Decree No. 369 as 20% of P75,000.00 the dividends to be remitted under the above
example, amounts to P15,000.00 only.
In the light of the foregoing, BIR Ruling No. 75-005 dated September 10, 1975 is hereby amended in
the sense that the dividends to be remitted by your client to its parent company shall be subject to
the withholding tax at the rate of 15% only.
This ruling shall have force and effect only for as long as the present pertinent provisions of the U.S.
Federal Tax Code, which are the bases of the ruling, are not revoked, amended and modified, the
effect of which will reduce the percentage of tax deemed paid and creditable against the U.S. tax on
dividends remitted by a foreign corporation to a U.S. corporation. (Emphasis supplied)
The 1976 Ruling was reiterated in, e.g., BIR Ruling dated 22 July 1981 addressed to Basic Foods Corporation and
BIR Ruling dated 20 October 1987 addressed to Castillo, Laman, Tan and Associates. In other words, the 1976
Ruling of Hon. Efren I. Plana was reiterated by the BIR even as the case at bar was pending before the CTA and
this Court.
4. We should not overlook the fact that the concept of "deemed paid" tax credit, which is embodied in Section 902,
US Tax Code, is exactly the same "deemed paid" tax credit found in our NIRC and which Philippine tax law allows
to Philippine corporations which have operations abroad (say, in the United States) and which, therefore, pay
income taxes to the US government.
(8) Taxes of foreign subsidiary. — For the purposes of this subsection a domestic corporation which
owns a majority of the voting stock of a foreign corporation from which it receives dividends in any
taxable year shall be deemed to have paid the same proportion of any income, war-profits, or
excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to
the accumulated profits of such foreign corporation from which such dividends were paid, which the
amount of such dividends bears to the amount of such accumulated profits: Provided, That the
amount of tax deemed to have been paid under this subsection shall in no case exceed the same
proportion of the tax against which credit is taken which the amount of such dividends bears to the
amount of the entire net income of the domestic corporation in which such dividends are
included. The term"accumulated profits" when used in this subsection reference to a foreign
corporation, means the amount of its gains, profits, or income in excess of the income, war-profits,
and excess-profits taxes imposed upon or with respect to such profits or income; and the
Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of
what year or years such dividends were paid; treating dividends paid in the first sixty days of any
year as having been paid from the accumulated profits of the preceding year or years (unless to his
satisfaction shown otherwise), and in other respects treating dividends as having been paid from the
most recently accumulated gains, profits, or earnings. In the case of a foreign corporation, the
income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting
period of less than one year, the word "year" as used in this subsection shall be construed to mean
such accounting period. (Emphasis supplied)
 Under the above quoted Section 30 (c) (8), NIRC, the BIR must give a tax credit to a Philippine parent corporation
foreign jurisdictions (e.g., Republic of
for taxes "deemed paid" by it, that is, e.g., for taxes paid to the US by the US subsidiary of a Philippine-parent
Vanuatu  Hongkong,   Denmark,   etc.) comply with the requirements set
12 13 14

corporation. The Philippine parent or corporate stockholder is "deemed" under our NIRC to have paid a
out in Section 24 (b) (1), NIRC, for applicability of the fifteen percent
proportionate part of the US corporate income tax paid by its US subsidiary, although such US tax was actually
(15%) tax rate. Once such a ruling is rendered, the Philippine subsidiary
paid by the subsidiary and not by the Philippine parent.
begins to withhold at the reduced dividend tax rate.

A requirement relating to administrative implementation is not properly

imposed as a condition for the applicability, as a matter of law, of a
particular tax rate. Upon the other hand, upon the determination or
Clearly, the "deemed paid" tax credit which, under Section 24 (b) (1), NIRC, must be allowed by US law to P&G-USA, is the recognition of the applicability of the reduced tax rate, there is nothing to
same "deemed paid" tax credit that Philippine law allows to a Philippine corporation with a wholly- or majority-owned subsidiary prevent the BIR from issuing implementing regulations that would require
in (for instance) the US. The "deemed paid" tax credit allowed in Section 902, US Tax Code, is no more a credit for "phantom P&G Phil., or any Philippine corporation similarly situated, to certify to the
taxes" than is the "deemed paid" tax credit granted in Section 30 (c) (8), NIRC. BIR the amount of the "deemed paid" tax credit actually subsequently
granted by the US tax authorities to P&G-USA or a US parent corporation
III
for the taxable year involved. Since the US tax laws can and do change,
such implementing regulations could also provide that failure of P&G-Phil.
to submit such certification within a certain period of time, would result in
1. The Second Division of the Court, in holding that the applicable dividend tax rate in the instant case was the regular thirty-five
the imposition of a deficiency assessment for the twenty (20) percentage
percent (35%) rate rather than the reduced rate of fifteen percent (15%), held that P&G-Phil. had failed to prove that its parent,
points differential. The task of this Court is to settle which tax rate is
P&G-USA, had in fact been given by the US tax authorities a "deemed paid" tax credit in the amount required by Section 24 (b)
applicable, considering the state of US law at a given time. We should
(1), NIRC.
leave details relating to administrative implementation where they
properly belong — with the BIR.
We believe, in the first place, that we must distinguish between the legal question before this Court from questions of
administrative implementation arising after the legal question has been answered. The basic legal issue is of course, this: which
2. An interpretation of a tax statute that produces a revenue flow for the
is the applicable dividend tax rate in the instant case: the regular thirty-five percent (35%) rate or the reduced fifteen percent
government is not, for that reason alone, necessarily the correct reading
(15%) rate? The question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid" tax credit in the
of the statute. There are many tax statutes or provisions which are
required amount, relates to the administrative implementation of the applicable reduced tax rate.
designed, not to trigger off an instant surge of revenues, but rather to
achieve longer-term and broader-gauge fiscal and economic objectives.
In the second place, Section 24 (b) (1), NIRC, does not in fact require that the "deemed paid" tax credit shall have actually been
The task of our Court is to give effect to the legislative design and
granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). As noted
objectives as they are written into the statute even if, as in the case at
several times earlier, Section 24 (b) (1), NIRC, merely requires, in the case at bar, that the USA "shall allow a credit against the 
bar, some revenues have to be foregone in that process.
tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . . ." There is neither statutory provision nor
revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the US
The economic objectives sought to be achieved by the Philippine
Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable. Section
Government by reducing the thirty-five percent (35%) dividend rate to
24 (b) (1), NIRC, does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies when a
fifteen percent (15%) are set out in the preambular clauses of P.D. No.
particular (reduced) tax rate is legally applicable.
369 which amended Section 24 (b) (1), NIRC, into its present form:

WHEREAS, it is imperative to adopt measures responsive to

the requirements of a developing economyforemost of which is
In the third place, the position originally taken by the Second Division results in a severe practical problem of administrative circularity. The Second Division in effect held that the reduced
dividend tax rate is not applicable until the US tax credit for "deemed paid" taxes is actually given in the required minimum amount by the US Internal Revenue Service to P&G-USA. But, the
the financing of economic development programs;
US "deemed paid" tax credit cannot be given by the US tax authorities unless dividends have actually been remitted to the US, which means that the Philippine dividend tax, at the rate here

 It is this practical or operating circularity that is in fact

applicable, was actually imposed and collected. 11

avoided by our BIR when it issues rulings that the tax laws of particular
 WHEREAS, nonresident foreign corporations with investments in
the Philippines are taxed on their earnings from dividends at the
rate of 35%;
WHEREAS, in order to encourage more capital investment for
large projects an appropriate tax need be imposed on dividends
received by non-resident foreign corporations in the same
manner as the tax imposed on interest on foreign loans;
x x x           x x x          x x x
(Emphasis supplied)
More simply put, Section 24 (b) (1), NIRC, seeks to promote the in-flow of
foreign equity investment in the Philippines by reducing the tax cost of
earning profits here and thereby increasing the net dividends remittable
to the investor. The foreign investor, however, would not benefit from the
reduction of the Philippine dividend tax rate unless its home country gives
it some relief from double taxation (i.e., second-tier taxation) (the home
country would simply have more "post-R.P. tax" income to subject to its
own taxing power) by allowing the investor additional tax credits which
would be applicable against the tax payable to such home country.
Accordingly, Section 24 (b) (1), NIRC, requires the home or domiciliary
country to give the investor corporation a "deemed paid" tax credit at
least equal in amount to the twenty (20) percentage points of dividend tax
foregone by the Philippines, in the assumption that a positive incentive
effect would thereby be felt by the investor.
The net effect upon the foreign investor may be shown arithmetically in
the following manner:
P65.00 — Dividends remittable to P&G-USA (please
see page 392 above
- 9.75 — Reduced R.P. dividend tax withheld by P&G-Phil.
———
P55.25 — Dividends actually remitted to P&G-USA
P55.25
x 46% — Maximum US corporate income tax rate
———
P25.415—US corporate tax payable by P&G-USA
without tax credits
P25.415
- 9.75 — US tax credit for RP dividend tax withheld by P&G-Phil.
at 15% (Section 901, US Tax Code)
———
P15.66 — US corporate income tax payable after Section 901
——— tax credit.
P55.25
- 15.66
———
P39.59 — Amount received by P&G-USA net of R.P. and U.S.
===== taxes without "deemed paid" tax credit.
P25.415
- 29.75 — "Deemed paid" tax credit under Section 902 US
——— Tax Code (please see page 18 above)
- 0 - — US corporate income tax payable on dividends
====== remitted by P&G-Phil. to P&G-USA after 
Section 902 tax credit.
P55.25 — Amount received by P&G-USA net of RP and US
====== taxes after Section 902 tax credit.
It will be seen that the "deemed paid" tax credit allowed by Section 902,
US Tax Code, could offset the US corporate income tax payable on the
dividends remitted by P&G-Phil. The result, in fine, could be that P&G-
USA would after US tax credits, still wind up with P55.25, the full amount
of the dividends remitted to P&G-USA net of Philippine taxes. In the
calculation of the Philippine Government, this should encourage
additional investment or re-investment in the Philippines by P&G-USA.
3. It remains only to note that under the Philippines-United States
Convention "With Respect to Taxes on Income,"  the Philippines, by a
15
treaty commitment, reduced the regular rate of dividend tax to a
maximum of twenty percent (20%) of the gross amount of dividends paid
to US parent corporations:
Art 11. — Dividends
x x x           x x x          x x x
 (2) The rate of tax imposed by one of the Contracting States on
dividends derived from sources within that Contracting State by a
resident of the other Contracting State shall not exceed —
(a) 25 percent of the gross amount of the dividend; or
(b) When the recipient is a corporation, 20 percent of the gross
amount of the dividend if during the part of the paying
corporation's taxable year which precedes the date of payment of
the dividend and during the whole of its prior taxable year (if
any), at least 10 percent of the outstanding shares of the voting
stock of the paying corporation was owned by the recipient
corporation.
x x x           x x x          x x x
(Emphasis supplied)
The Tax Convention, at the same time, established a treaty obligation on
the part of the United States that it "shall allow" to a US parent
corporation receiving dividends from its Philippine subsidiary "a [tax]
credit for the appropriate amount of taxes paid or accrued to the
Philippines by the Philippine [subsidiary] —.   This is, of course, precisely
16
the "deemed paid" tax credit provided for in Section 902, US Tax Code,
discussed above. Clearly, there is here on the part of the Philippines a
deliberate undertaking to reduce the regular dividend tax rate of twenty
percent (20%) is a maximum rate, there is still a differential or additional
reduction of five (5) percentage points which compliance of US law
(Section 902) with the requirements of Section 24 (b) (1), NIRC, makes
available in respect of dividends from a Philippine subsidiary.
We conclude that private respondent P&G-Phil, is entitled to the tax
refund or tax credit which it seeks.
WHEREFORE, for all the foregoing, the Court Resolved to GRANT
private respondent's Motion for Reconsideration dated 11 May 1988, to
SET ASIDE the Decision of the and Division of the Court promulgated on
15 April 1988, and in lieu thereof, to REINSTATE and AFFIRM the
Decision of the Court of Tax Appeals in CTA Case No. 2883 dated 31
January 1984 and to DENY the Petition for Review for lack of merit. No
pronouncement as to costs.
Narvasa, Gutierrez, Jr., Griño-Aquino, Medialdea and Romero, JJ.,
concur.
Fernan, C.J., is on leave.
 
 
Separate Opinions
 
CRUZ, J., concurring:
I join Mr. Justice Feliciano in his excellent analysis of the difficult issues
we are now asked to resolve.
As I understand it, the intention of Section 24 (b) of our Tax Code is to
attract foreign investors to this country by reducing their 35% dividend tax
rate to 15% if their own state allows them a deemed paid tax credit at
least equal in amount to the 20% waived by the Philippines. This tax
credit would offset the tax payable by them on their profits to their home
state. In effect, both the Philippines and the home state of the foreign
investors reduce their respective tax "take" of those profits and the
investors wind up with more left in their pockets. Under this arrangement,
the total taxes to be paid by the foreign investors may be confined to the
35% corporate income tax and 15% dividend tax only, both payable to
the Philippines, with the US tax liability being offset wholly or substantially
by the US "deemed paid" tax credits.
Without this arrangement, the foreign investors will have to pay to the
local state (in addition to the 35% corporate income tax) a 35% dividend
tax and another 35% or more to their home state or a total of 70% or
more on the same amount of dividends. In this circumstance, it is not
likely that many such foreign investors, given the onerous burden of the
two-tier system, i.e., local state plus home state, will be encouraged to do
business in the local state.
It is conceded that the law will "not trigger off an instant surge of
revenue," as indeed the tax collectible by the Republic from the foreign
investor is considerably reduced. This may appear unacceptable to the
superficial viewer. But this reduction is in fact the price we have to offer to
persuade the foreign company to invest in our country and contribute to
our economic development. The benefit to us may not be immediately
available in instant revenues but it will be realized later, and in greater
measure, in terms of a more stable and robust economy.
 
BIDIN, J., concurring:
I agree with the opinion of my esteemed brother, Mr. Justice Florentino P.
Feliciano. However, I wish to add some observations of my own, since I
happen to be the ponente in Commissioner of Internal Revenue v.
Wander Philippines, Inc. (160 SCRA 573 [1988]), a case which reached a
conclusion that is diametrically opposite to that sought to be reached in
the instant Motion for Reconsideration.
1. In page 5 of his dissenting opinion, Mr. Justice Edgardo L. Paras
argues that the failure of petitioner Commissioner of Internal Revenue to
raise before the Court of Tax Appeals the issue of who should be the real
party in interest in claiming a refund cannot prejudice the government, as
such failure is merely a procedural defect; and that moreover, the
government can never be in estoppel, especially in matters involving
taxes. In a word, the dissenting opinion insists that errors of its agents
should not jeopardize the government's position.
The above rule should not be taken absolutely and literally; if it were, the
government would never lose any litigation which is clearly not true. The
issue involved here is not merely one of procedure; it is also one of
fairness: whether the government should be subject to the same stringent
conditions applicable to an ordinary litigant. As the Court had declared in
Wander:
. . . To allow a litigant to assume a different posture when he
comes before the court and challenge the position he had
accepted at the administrative level, would be to sanction a
procedure whereby the 
Court — which is supposed to review administrative
determinations — would not review, but determine and decide for
the first time, a question not raised at the administrative
forum. . . . (160 SCRA at 566-577)
Had petitioner been forthright earlier and required from private
respondent proof of authority from its parent corporation, Procter and
Gamble USA, to prosecute the claim for refund, private respondent would
doubtless have been able to show proof of such authority. By any
account, it would be rank injustice not at this stage to require petitioner to
submit such proof.
2. In page 8 of his dissenting opinion, Paras, J., stressed that private
respondent had failed: (1) to show the actual amount credited by the US
government against the income tax due from P & G USA on the
dividends received from private respondent; (2) to present the 1975
income tax return of P & G USA when the dividends were received; and
(3) to submit any duly authenticated document showing that the US
government credited the 20% tax deemed paid in the Philippines.
I agree with the main opinion of my colleague, Feliciano J., specifically in
page 23 et seq. thereof, which, as I understand it, explains that the US
tax authorities are unable to determine the amount of the "deemed paid"
credit to be given P & G USA so long as the numerator of the
fraction, i.e., dividends actually remitted by P & G-Phil. to P & G USA, is
still unknown. Stated in other words, until dividends have actually been
remitted to the US (which presupposes an actual imposition and
collection of the applicable Philippine dividend tax rate), the US tax
authorities cannot determine the "deemed paid" portion of the tax credit
sought by P & G USA. To require private respondent to show
documentary proof of its parent corporation having actually received the
"deemed paid" tax credit from the proper tax authorities, would be like
putting the cart before the horse. The only way of cutting through this
(what Feliciano, J., termed) "circularity" is for our BIR to issue rulings (as
they have been doing) to the effect that the tax laws of particular foreign
jurisdictions, e.g., USA, comply with the requirements in our tax code for
applicability of the reduced 15% dividend tax rate. Thereafter, the
taxpayer can be required to submit, within a reasonable period, proof of
the amount of "deemed paid" tax credit actually granted by the foreign tax
authority. Imposing such a resolutory condition should resolve the knotty
problem of circularity.
3. Page 8 of the dissenting opinion of Paras, J., further declares that tax
refunds, being in the nature of tax exemptions, are to be
construed strictissimi juris against the person or entity claiming the
exemption; and that refunds cannot be permitted to exist upon "vague
implications."
Notwithstanding the foregoing canon of construction, the fundamental
rule is still that a judge must ascertain and give effect to the legislative
intent embodied in a particular provision of law. If a statute (including a
tax statute reducing a certain tax rate) is clear, plain and free from
ambiguity, it must be given its ordinary meaning and applied without
interpretation. In the instant case, the dissenting opinion of Paras, J.,
itself concedes that the basic purpose of Pres. Decree No. 369, when it
was promulgated in 1975 to amend Section 24(b), [11 of the National
Internal Revenue Code, was "to decrease the tax liability" of the foreign
capital investor and thereby to promote more inward foreign investment.
The same dissenting opinion hastens to add, however, that the granting
of a reduced dividend tax rate "is premised on reciprocity."
4. Nowhere in the provisions of P.D. No. 369 or in the National Internal
Revenue Code itself would one find reciprocity specified as a condition
for the granting of the reduced dividend tax rate in Section 24 (b), [1],
NIRC. Upon the other hand, where the law-making authority intended to
impose a requirement of reciprocity as a condition for grant of a privilege,
the legislature does so expressly and clearly. For example, the gross
estate of non-citizens and non-residents of the Philippines normally
includes intangible personal property situated in the Philippines, for
purposes of application of the estate tax and donor's tax. However, under
Section 98 of the NIRC (as amended by P.D. 1457), no taxes will be
collected by the Philippines in respect of such intangible personal
property if the law or the foreign country of which the decedent was a
citizen and resident at the time of his death allows a similar exemption
from transfer or death taxes in respect of intangible personal property
located in such foreign country and owned by Philippine citizens not
residing in that foreign country.
There is no statutory requirement of reciprocity imposed as a condition
for grant of the reduced dividend tax rate of 15% Moreover, for the Court
to impose such a requirement of reciprocity would be to contradict the
basic policy underlying P.D. 369 which amended Section 24(b), [1],
NIRC, P.D. 369 was promulgated in the effort to promote the inflow of
foreign investment capital into the Philippines. A requirement of
reciprocity, i.e., a requirement that the U.S. grant a similar reduction of
U.S. dividend taxes on remittances by the U.S. subsidiaries of Philippine
corporations, would assume a desire on the part of the U.S. and of the
Philippines to attract the flow of Philippine capital into the U.S.. But the
Philippines precisely is a capital importing, and not a capital exporting
country. If the Philippines had surplus capital to export, it would not need
to import foreign capital into the Philippines. In other words, to require
dividend tax reciprocity from a foreign jurisdiction would be to actively
encourage Philippine corporations to invest outside the Philippines, which
would be inconsistent with the notion of attracting foreign capital into the
Philippines in the first place.
5. Finally, in page 15 of his dissenting opinion, Paras, J., brings up the
fact that:
Wander cited as authority a BIR ruling dated May 19, 1977, which
requires a remittance tax of only 15%. The mere fact that in this
Procter and Gamble case, the BIR desires to charge 35%
indicates that the BIR ruling cited in Wander has been obviously
discarded today by the BIR. Clearly, there has been a change of
mind on the part of the BIR.
As pointed out by Feliciano, J., in his main opinion, even while the instant
case was pending before the Court of Tax Appeals and this Court, the
administrative rulings issued by the BIR from 1976 until as late as 1987,
recognized the "deemed paid" credit referred to in Section 902 of the U.S.
Tax Code. To date, no contrary ruling has been issued by the BIR.
For all the foregoing reasons, private respondent's Motion for
Reconsideration should be granted and I vote accordingly.
PARAS, J., dissenting:
I dissent.
The decision of the Second Division of this Court in the case of
"Commissioner of Internal Revenue vs. Procter & Gamble Philippine
Manufacturing Corporation, et al.," G.R. No. 66838, promulgated on April
15, 1988 is sought to be reviewed in the Motion for Reconsideration filed
by private respondent. Procter & Gamble Philippines (PMC-Phils., for
brevity) assails the Court's findings that:
(a) private respondent (PMC-Phils.) is not a proper party to claim
the refund/tax credit;
(b) there is nothing in Section 902 or other provision of the US
Tax Code that allows a credit against the U.S. tax due from PMC-
U.S.A. of taxes deemed to have been paid in the Phils. equivalent
to 20% which represents the difference between the regular tax of
35% on corporations and the tax of 15% on dividends;
(c) private respondent failed to meet certain conditions necessary
in order that the dividends received by the non-resident parent
 company in the U.S. may be subject to the preferential 15% tax
instead of 35%. (pp. 200-201, Motion for Reconsideration)
Private respondent's position is based principally on the decision
rendered by the Third Division of this Court in the case of "Commissioner
of Internal Revenue vs. Wander Philippines, Inc. and the Court of Tax
Appeals," G.R. No. 68375, promulgated likewise on April 15, 1988 which
bears the same issues as in the case at bar, but held an apparent
contrary view. Private respondent advances the theory that since the
Wander decision had already become final and executory it should be a
precedent in deciding similar issues as in this case at hand.
Yet, it must be noted that the Wander decision had become final and
executory only by reason of the failure of the petitioner therein to file its
motion for reconsideration in due time. Petitioner received the notice of
judgment on April 22, 1988 but filed a Motion for Reconsideration only on
June 6, 1988, or after the decision had already become final and
executory on May 9, 1988. Considering that entry of final judgment had
already been made on May 9, 1988, the Third Division resolved to note
without action the said Motion. Apparently therefore, the merits of the
motion for reconsideration were not passed upon by the Court.
The 1987 Constitution provides that a doctrine or principle of law
previously laid down either en banc or in Division may be modified or
reversed by the court en banc. The case is now before this Court en
banc and the decision that will be handed down will put to rest the
present controversy.
It is true that private respondent, as withholding agent, is obliged by law
to withhold and to pay over to the Philippine government the tax on the
income of the taxpayer, PMC-U.S.A. (parent company). However, such
fact does not necessarily connote that private respondent is the real party
in interest to claim reimbursement of the tax alleged to have been
overpaid. Payment of tax is an obligation physically passed off by law on
the withholding agent, if any, but the act of claiming tax refund is a right
that, in a strict sense, belongs to the taxpayer which is private
respondent's parent company. The role or function of PMC-Phils., as the
remitter or payor of the dividend income, is merely to insure the collection
of the dividend income taxes due to the Philippine government from the
taxpayer, "PMC-U.S.A.," the non-resident foreign corporation not
engaged in trade or business in the Philippines, as "PMC-U.S.A." is
subject to tax equivalent to thirty five percent (35%) of the gross income
received from "PMC-Phils." in the Philippines "as . . . dividends . . ." (Sec.
24 [b], Phil. Tax Code). Being a mere withholding agent of the
government and the real party in interest being the parent company in the
United States, private respondent cannot claim refund of the alleged
overpaid taxes. Such right properly belongs to PMC-U.S.A. It is therefore
clear that as held by the Supreme Court in a series of cases, the action in
the Court of Tax Appeals as well as in this Court should have been
brought in the name of the parent company as petitioner and not in the
name of the withholding agent. This is because the action should be
brought under the name of the real party in interest. (See Salonga v.
Warner Barnes, & Co., Ltd., 88 Phil. 125; Sutherland, Code Pleading,
Practice, & Forms, p. 11; Ngo The Hua v. Chung Kiat Hua, L-17091,
Sept. 30, 1963, 9 SCRA 113; Gabutas v. Castellanes, L-17323, June 23,
1965, 14 SCRA 376; Rep. v. PNB, L-16485, January 30, 1945).
Rule 3, Sec. 2 of the Rules of Court provides:
Sec. 2. Parties in interest. — Every action must be prosecuted
and defended in the name of the real party in interest. All persons
having an interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs. All persons who
claim an interest in the controversy or the subject thereof adverse
to the plaintiff, or who are necessary to a complete determination
or settlement of the questions involved therein shall be joined as
defendants.
It is true that under the Internal Revenue Code the withholding agent may
be sued by itself if no remittance tax is paid, or if what was paid is less
than what is due. From this, Justice Feliciano claims that in case of
an overpayment(or claim for refund) the agent must be given the right to
sue the Commissioner by itself (that is, the agent here is also a real party
in interest). He further claims that to deny this right would be unfair. This
is not so. While payment of the tax due is an OBLIGATION of the agent
the obtaining of a refund is a RIGHT. While every obligation has a
corresponding right (and vice-versa), the obligation to pay the complete
tax has the corresponding right of the government to demand the
deficiency; and the right of the agent to demand a refund corresponds to
the government's duty to refund. Certainly, the obligation of the
withholding agent to pay in full does not correspond to its right to claim for
the refund. It is evident therefore that the real party in interest in this claim
for reimbursement is the principal (the mother corporation) and NOT the
agent.
This suit therefore for refund must be DISMSSED.
In like manner, petitioner Commissioner of Internal Revenue's failure to
raise before the Court of Tax Appeals the issue relating to the real party
in interest to claim the refund cannot, and should not, prejudice the
government. Such is merely a procedural defect. It is axiomatic that the
government can never be in estoppel, particularly in matters involving
taxes. Thus, for example, the payment by the tax-payer of income taxes,
pursuant to a BIR assessment does not preclude the government from
making further assessments. The errors or omissions of certain
administrative officers should never be allowed to jeopardize the
government's financial position. (See: Phil. Long Distance Tel. Co. v.
Coll. of Internal Revenue, 90 Phil. 674; Lewin v. Galang, L-15253, Oct.
31, 1960; Coll. of Internal Revenue v. Ellen Wood McGrath, L-12710, L-
12721, Feb. 28, 1961; Perez v. Perez, L-14874, Sept, 30, 1960; Republic
v. Caballero, 79 SCRA 179; Favis v. Municipality of Sabongan, L-26522,
Feb. 27, 1963).
As regards the issue of whether PMC-U.S.A. is entitled under the U.S.
Tax Code to a United States Foreign Tax Credit equivalent to at least 20
percentage paid portion spared or waived as otherwise deemed waived
by the government, We reiterate our ruling that while apparently, a tax-
credit is given, there is actually nothing in Section 902 of the U.S. Internal
Revenue Code, as amended by Public Law-87-834 that would justify tax
return of the disputed 15% to the private respondent. This is because the
amount of tax credit purportedly being allowed is not fixed or ascertained,
hence we do not know whether or not the tax credit contemplated is
within the limits set forth in the law. While the mathematical computations
in Justice Feliciano's separate opinion appear to be correct, the
computations suffer from a basic defect, that is we have no way of
knowing or checking the figure used as premises. In view of the
ambiguity of Sec. 902 itself, we can conclude that no real tax credit was
really intended. In the interpretation of tax statutes, it is axiomatic that as
between the interest of multinational corporations and the interest of
our own government, it would be far better, in the absence of definitive
guidelines, to favor the national interest. As correctly pointed out by the
Solicitor General:
. . . the tax-sparing credit operates on dummy, fictional or
phantom taxes, being considered as if paid by the foreign taxing
authority, the host country.
In the context of the case at bar, therefore, the thirty five (35%)
percent on the dividend income of PMC-U.S.A. would be reduced
to fifteen (15%) percent if & only if reciprocally PMC-U.S.A's
home country, the United States, not only would allow against
PMC-U.SA.'s U.S. income tax liability a foreign tax credit for the
fifteen (15%) percentage-point portion of the thirty five (35%)
percent Phil. dividend tax actually paid or accrued but also would
allow a foreign tax "sparing" credit for the twenty (20%)'
percentage-point portion spared, waived, forgiven or otherwise
deemed as if paid by the Phil. govt. by virtue of the "tax credit
sparing" proviso of Sec. 24(b), Phil. Tax Code." (Reply Brief, pp.
23-24; Rollo, pp. 239-240).
Evidently, the U.S. foreign tax credit system operates only on foreign
taxes actually paid by U.S. corporate taxpayers, whether directly or
indirectly. Nowhere under a statute or under a tax treaty, does the U.S.
government recognize much less permit any foreign tax credit for spared
or ghost taxes, as in reality the U.S. foreign-tax credit mechanism under
Sections 901-905 of the U.S. Intemal Revenue Code does not apply to
phantom dividend taxes in the form of dividend taxes waived, spared or
otherwise considered "as if" paid by any foreign taxing authority, including
that of the Philippine government.
Beyond, that, the private respondent failed: (1) to show the actual amount
credited by the U.S. government against the income tax due from PMC-
U.S.A. on the dividends received from private respondent; (2) to present
the income tax return of its parent company for 1975 when the dividends
were received; and (3) to submit any duly authenticated document
showing that the U.S. government credited the 20% tax deemed paid in
the Philippines.
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. The burden of proof is upon him who claims the exemption in
his favor and he must be able to justify his claim by the clearest grant of
organic or statute law . . . and cannot be permitted to exist upon vague
implications. (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil
Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Rogan v.
Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v.
Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co.
Inc. v. Commissioner of Custom, 44 SCRA 122). Thus, when tax
exemption is claimed, it must be shown indubitably to exist, for every
presumption is against it, and a well founded doubt is fatal to the claim
(Farrington v. Tennessee & Country Shelby, 95 U.S. 679, 686; Manila
Electric Co. v. Vera, L-29987, Oct. 22, 1975; Manila Electric Co. v.
Tabios, L-23847, Oct. 22, 1975, 67 SCRA 451).
It will be remembered that the tax credit appertaining to remittances
abroad of dividend earned here in the Philippines was amplified in
Presidential Decree No. 369 promulgated in 1975, the purpose of which
was to "encourage more capital investment for large projects." And its
ultimate purpose is to decrease the tax liability of the corporation
concerned. But this granting of a preferential right is premised on
reciprocity, without which there is clearly a derogation of our country's
financial sovereignty. No such reciprocity has been proved, nor does it
actually exist. At this juncture, it would be useful to bear in mind the
following observations:
The continuing and ever-increasing transnational movement of goods
and services, the emergence of multinational corporations and the rise in
foreign investments has brought about tremendous pressures on the tax
system to strengthen its competence and capability to deal effectively
with issues arising from the foregoing phenomena.
International taxation refers to the operationalization of the tax system on
an international level. As it is, international taxation deals with the tax
treatment of goods and services transferred on a global basis,
multinational corporations and foreign investments.
Since the guiding philosophy behind international trade is free flow of
goods and services, it goes without saying that the principal objective
of international taxation is to see through this ideal by way of feasible
taxation arrangements which recognize each country's sovereignty in the
matter of taxation, the need for revenue and the attainment of certain
policy objectives.
The institution of feasible taxation arrangements, however, is hard to
come by. To begin with, international tax subjects are obviously more
complicated than their domestic counter-parts. Hence, the devise of
taxation arrangements to deal with such complications requires a welter
of information and data build-up which generally are not readily
obtainable and available. Also, caution must be exercised so that
whatever taxation arrangements are set up, the same do not get in the
way of free flow of goods and services, exchange of technology,
movement of capital and investment initiatives.
A cardinal principle adhered to in international taxation is the avoidance
of double taxation. The phenomenon of double taxation (i.e., taxing an
item more than once) arises because of global movement of goods and
services. Double taxation also occurs because of overlaps in tax
jurisdictions resulting in the taxation of taxable items by the country of
source or location (source or situs rule) and the taxation of the same
items by the country of residence or nationality of the taxpayer
(domiciliary or nationality principle).
An item may, therefore, be taxed in full in the country of source because
it originated there, and in another country because the recipient is a
resident or citizen of that country. If the taxes in both countries are
substantial and no tax relief is offered, the resulting double taxation would
serve as a discouragement to the activity that gives rise to the taxable
item.
As a way out of double taxation, countries enter into tax treaties. A tax
treaty   is a bilateral convention (but may be made multilateral) entered
1
into between sovereign states for purposes of eliminating double taxation
on income and capital, preventing fiscal evasion, promoting mutual trade
and investment, and according fair and equitable tax treatment to foreign
residents or nationals.  2
A more general way of mitigating the impact of double taxation is to recognize the foreign tax either as a tax credit or an item of
deduction.
Whether the recipient resorts to tax credit or deduction is dependent on the tax advantage or savings that would be derived
therefrom.
A principal defect of the tax credit system is when low tax rates or special tax concessions are granted in a country for the
obvious reason of encouraging foreign investments. For instance, if the usual tax rate is 35 percent but a concession rate
accrues to the country of the investor rather than to the investor himself To obviate this, a tax sparing provision may be
stipulated. With tax sparing, taxes exempted or reduced are considered as having been fully paid.
To illustrate:
"X" Foreign Corporation income 100
Tax rate (35%) 35
RP income 100
Tax rate (general, 35% 
concession rate, 15%) 15
1. "X" Foreign Corp. Tax Liability without Tax Sparing
"X" Foreign Corporation income 100
RP income 100
 Total Income 200 6) In the instant case, the amount of the tax credit deductible and other pertinent financial data have not been presented, and
"X" tax payable 70 therefore even were we inclined to grant the tax credit claimed, we find ourselves unable to compute the proper amount thereof.
Less: RP tax 15 7) And finally, as stated at the very outset, Procter & Gamble Philippines or P.M.C. (Phils.) is not the proper party to bring up the
Net "X" tax payable 55 case.
ACCORDINGLY, the decision of the Court of Tax Appeals should be REVERSED and the motion for reconsideration of our own

2. "X" Foreign Corp. Tax Liability with Tax Sparing decision should be DENIED.

"X" Foreign Corp. income 100 Melencio-Herrera, Padilla, Regalado and Davide, Jr., JJ., concur.

RP income 100
Total income 200  
"X" Foreign Corp. tax payable 70
Less: RP tax (35% of 100, the  
difference of 20% between 35% and 15%,
deemed paid to RP)
Net "X" Foreign Corp.
tax payable 35

By way of resume, We may say that the Wander decision of the Third Division cannot, and should not result in the reversal of
the Procter & Gamble decision for the following reasons:
1) The Wander decision cannot serve as a precedent under the doctrine of stare decisis. It was promulgated on the same day
the decision of the Second Division was promulgated, and while Wander has attained finality this is simply because no motion
for reconsideration thereof was filed within a reasonable period. Thus, said Motion for Reconsideration was theoretically never
taken into account by said Third Division.
2) Assuming that  stare decisis can apply, We reiterate what a former noted jurist Mr. Justice Sabino Padilla aptly said: "More
pregnant than anything else is that the court shall be right." We hereby cite settled doctrines from a treatise on Civil Law:
We adhere in our country to the doctrine of stare decisis (let it stand, et non quieta movere) for reasons of stability
in the law. The doctrine, which is really "adherence to precedents," states that once a case has been decided one
way, then another case, involving exactly the same point at issue, should be decided in the same manner.
Of course, when a case has been decided erroneously such an error must not be perpetuated by blind obedience
to the doctrine of stare decisis. No matter how sound a doctrine may be, and no matter how long it has been
followed thru the years, still if found to be contrary to law, it must be abandoned. The principle of stare
decisis does not and should not apply when there is a conflict between the precedent and the law (Tan Chong v.
Sec. of Labor, 79 Phil. 249).
While stability in the law is eminently to be desired, idolatrous reverence for precedent, simply, as precedent, no
longer rules. More pregnant than anything else is that the court shall be right (Phil. Trust Co. v. Mitchell, 59 Phil.
30).
3) Wander deals with tax relations between the Philippines and Switzerland, a country with which we have a pending tax treaty;
our Procter & Gamble case deals with relations between the Philippines and the United States, a country with which we had no
tax treaty, at the time the taxes herein were collected.
4) Wander cited as authority a BIR Ruling dated May 19, 1977, which requires a remittance tax of only 15%. The mere fact that
in this Procter and Gamble case the B.I.R. desires to charge 35% indicates that the B.I.R. Ruling cited in Wander has been
obviously discarded today by the B.I.R. Clearly, there has been a change of mind on the part of the B.I.R.
5) Wander imposes a tax of 15% without stating whether or not reciprocity on the part of Switzerland exists. It is evident that
without reciprocity the desired consequences of the tax credit under P.D. No. 369 would be rendered unattainable.
 the private respondent requested for a reinvestigation of the case on the
.R. No. L-23771 August 4, 1988 ground that instead of incurring a deficiency liability, it made an
overpayment of the franchise tax. On April 30, 1957, the BIR through its
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,  regional director, denied the private respondent's request for
vs. reinvestigation and reiterated the demand for payment of the same. In its
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF letters dated July 2, and August 9, 1958 to the petitioner Commissioner,
TAX APPEALS, respondents.  the private respondent protested the said assessment and requested for
a conference with a view to settling the liability amicably. In his letters
dated July 25 and August 28, 1958, the Commissioner denied the
Angel Sanchez for Lingayen Electric Power Co., Inc. 
request of the private respondent. Thus, the appeal to the respondent
Court of Tax Appeals on September 19, 1958, docketed as C.T.A. Case
No. 581. 

SARMIENTO, J.: In a letter dated August 21, 1962, the Commissioner demanded from the
private respondent the payment of P3,616.86 representing deficiency
This is an appeal from the decision * of the Court of Tax Appeals (C.T.A., for brevity) franchise tax and surcharges for the years 1959 to 1961 again applying
dated September 15, 1964 in C.T.A. Cases Nos. 581 and 1302, which were jointly heard upon
agreement of the parties, absolving the respondent taxpayer from liability for the deficiency the franchise tax rate of 5% on gross receipts as prescribed in Section
percentage, franchise, and fixed taxes and surcharge assessed against it in the sums of P19,293.41 259 of the National Internal Revenue Code. In a letter dated October 5,
and P3,616.86 for the years 1946 to 1954 and 1959 to 1961, respectively.  1962, the private respondent protested the assessment and requested
reconsideration thereof The same was denied on November 9, 1962.
The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., Thus, the appeal to the respondent Court of Appeals on November 29,
operates an electric power plant serving the adjoining municipalities of 1962, docketed as C.T.A. No. 1302. 
Lingayen and Binmaley, both in the province of Pangasinan, pursuant to
the municipal franchise granted it by their respective municipal councils, Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was
under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, passed on June 22, 1 963, granting to the private respondent a legislative
respectively. Section 10 of these franchises provide that:  franchise for the operation of the electric light, heat, and power system in
the same municipalities of Pangasinan. Section 4 thereof provides that: 
...The said grantee in consideration of the franchise hereby granted, shall
pay quarterly into the Provincial Treasury of Pangasinan, one per centum In consideration of the franchise and rights hereby granted, the grantee
of the gross earnings obtained thru this privilege during the first twenty shall pay into the Internal Revenue office of each Municipality in which it
years and two per centum during the remaining fifteen years of the life of is supplying electric current to the public under this franchise, a tax equal
said franchise.  to two per centum of the gross receipts from electric current sold or
supplied under this franchise. Said tax shall be due and payable quarterly
On February 24, 1948, the President of the Philippines approved the and shall be in lieu of any and all taxes and/or licenses of any kind,
franchises granted to the private respondent.  nature or description levied, established, or collected by any authority
whatsoever, municipal, provincial or national, now or in the future, on its
On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed poles, wires, insulator ... and on its franchise, rights, privileges, receipts,
against and demanded from the private respondent the total amount of revenues and profits, from which taxes and/or licenses, the grantee is
P19,293.41 representing deficiency franchise taxes and surcharges for hereby expressly exempted and effective further upon the date the
the years 1946 to 1954 applying the franchise tax rate of 5% on gross original franchise was granted, no other tax and/or licenses other than the
receipts from March 1, 1948 to December 31, 1954 as prescribed in franchise tax of two per centum on the gross receipts as provided for in
Section 259 of the National Internal Revenue Code, instead of the lower the original franchise shall be collected, any provision of law to the
rates as provided in the municipal franchises. On September 29, 1956, contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the provisions of
R.A. No. 3843 should apply and accordingly dismissed the claim of the
Commissioner of Internal Revenue. The said ruling is now the subject of
the petition at bar.
The issues raised for resolution are: 
1. Whether or not the 5% franchise tax prescribed in Section 259 of the
National Internal Revenue Code assessed against the private respondent
on its gross receipts realized before the effectivity of R.A- No. 3843 is
collectible.
2. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being
violative of the "uniformity and equality of taxation" clause of the
Constitution.  granted, no other tax and/or licenses other than the franchise tax of two
3. If the abovementioned Section 4 of R.A. No. 3843 is valid, whether or
not it could be given retroactive effect so as to render uncollectible the
taxes in question which were assessed before its enactment. 
4. Whether or not the respondent taxpayer is liable for the fixed and
deficiency percentage taxes in the amount of P3,025.96 for the period
from January 1, 1946 to February 29, 1948, the period before the
approval of its municipal franchises. 
The first issue raised by the petitioner before us is whether or not the five
percent (5%) franchise tax prescribed in Section 259 of the National
Internal Revenue Code (Commonwealth Act No. 466 as amended by
R.A. No. 39) assessed against the private respondent on its gross
receipts realized before the effectivity of R.A- No. 3843 is collectible. It is
the contention of the petitioner Commissioner of Internal Revenue that
the private respondent should have been held liable for the 5% franchise
tax on gross receipts prescribed in Section 259 of the Tax Code, instead
of the lower franchise tax rates provided in the municipal franchises (1%
of gross earnings for the first twenty years and 2% for the remaining
fifteen years of the life of the franchises) because Section 259 of the Tax
Code, as amended by RA No. 39 of October 1, 1946, applied to existing
and future franchises. The franchises of the private respondent were
already in existence at the time of the adoption of the said amendment,
since the franchises were accepted on March 1, 1948 after approval by
the President of the Philippines on February 24, 1948. The private
respondent's original franchises did not contain the proviso that the tax
provided therein "shall be in lieu of all taxes;" moreover, the franchises
contained a reservation clause that they shag be subject to amendment,
alteration, or repeal, but even in the absence of such cause, the power of
the Legislature to alter, amend, or repeal any franchise is always deemed
reserved. The franchise of the private respondent have been modified or
amended by Section 259 of the Tax Code, the petitioner submits. 
We find no merit in petitioner's contention. R.A. No. 3843 granted the
private respondent a legislative franchise in June, 1963, amending,
altering, or even repealing the original municipal franchises, and
providing that the private respondent should pay only a 2% franchise tax
on its gross receipts, "in lieu of any and all taxes and/or licenses of any
kind, nature or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national, now or in the
future ... and effective further upon the date the original franchise was
per centum on the gross receipts ... shall be collected, any provision of
law to the contrary notwithstanding." Thus, by virtue of R.A- No. 3843, the
private respondent was liable to pay only the 2% franchise tax, effective
from the date the original municipal franchise was granted. 
On the question as to whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and equality of
taxation" clause of the Constitution, and, if adjudged valid, whether or not
it should be given retroactive effect, the petitioner submits that the said
law is unconstitutional insofar as it provides for the payment by the
private respondent of a franchise tax of 2% of its gross receipts, while
other taxpayers similarly situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code, thereby discriminatory and
violative of the rule on uniformity and equality of taxation. 
A tax is uniform when it operates with the same force and effect in every
place where the subject of it is found. Uniformity means that all property
belonging to the same class shall be taxed alike The Legislature has the
inherent power not only to select the subjects of taxation but to grant
exemptions. Tax exemptions have never been deemed violative of the
equal protection clause.   It is true that the private respondents municipal
1
franchises were obtained under Act No. 667   of the Philippine
2
Commission, but these original franchises have been replaced by a new
legislative franchise, i.e. R.A. No. 3843. As correctly held by the
respondent court, the latter was granted subject to the terms and
conditions established in Act No. 3636,   as amended by C.A. No. 132.
3
These conditions Identify the private respondent's power plant as falling
within that class of power plants created by Act No. 3636, as amended.
The benefits of the tax reduction provided by law (Act No. 3636 as
amended by C.A. No. 132 and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within this class. R.A-No. 3843
merely transferred the petitioner's power plant from that class provided
for in Act No. 667, as amended, to which it belonged until the approval of
R.A- No. 3843, and placed it within the class falling under Act No. 3636,
as amended. Thus, it only effected the transfer of a taxable property from
one class to another.  The exemption, therefore, did not cover the period before the franchise
We do not have the authority to inquire into the wisdom of such act.
Furthermore, the 5% franchise tax rate provided in Section 259 of the Tax
Code was never intended to have a universal application.   We note that
4 private respondent paid the amount of P34,184.36, which was very much
the said Section 259 of the Tax Code expressly allows the payment of
taxes at rates lower than 5% when the charter granting the franchise of a
grantee, like the one granted to the private respondent under Section 4 of
R.A. No. 3843, precludes the imposition of a higher tax. R.A. No. 3843
did not only fix and specify a franchise tax of 2% on its gross receipts, but
made it "in lieu of any and all taxes, all laws to the contrary
notwithstanding," thus, leaving no room for doubt regarding the legislative
intent. "Charters or special laws granted and enacted by the Legislature
are in the nature of private contracts. They do not constitute a part of the
machinery of the general government. They are usually adopted after
careful consideration of the private rights in relation with resultant benefits
to the State ... in passing a special charter the attention of the Legislature
is directed to the facts and circumstances which the act or charter is
intended to meet. The Legislature consider (sic) and make (sic) provision
for all the circumstances of a particular case."   In view of the foregoing,
5
franchises were approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was liable for the
payment of percentage and fixed taxes as seller of light, heat, and power
— which as the petitioner claims, amounted to P3,025.96. The legislative
franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes
other than the 2% tax from the date the original franchise was granted.
was granted, i.e. before February 24, 1948. However, as pointed out by
the respondent court in its findings, during the period covered by the
instant case, that is from January 1, 1946 to December 31, 1961, the
more than the amount rightfully due from it. Hence, the private
respondent should no longer be made to pay for the deficiency tax in the
amount of P3,025.98 for the period from January 1, 1946 to February 29,
1948. 
WHEREFORE, the appealed decision of the respondent Court of Tax
Appeals is hereby AFFIRMED. No pronouncement as to costs. SO
ORDERED. 
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras,
Feliciano, Gancayco, Padilla, Bidin, Cortes, Griño-Aquino and Medialdea,
JJ., concur.

we find no reason to disturb the respondent court's ruling upholding the

constitutionality of the law in question. 

Given its validity, should the said law be applied retroactively so as to

render uncollectible the taxes in question which were assessed before its
enactment? The question of whether a statute operates retrospectively or
only prospectively depends on the legislative intent. In the instant case,
Act No. 3843 provides that "effective ... upon the date the original
franchise was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts ... shall be
collected, any provision to the contrary notwithstanding." Republic Act
No. 3843 therefore specifically provided for the retroactive effect of the
law. 

The last issue to be resolved is whether or not the private respondent is

liable for the fixed and deficiency percentage taxes in the amount of
P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948)
before the approval of its municipal franchises. As aforestated, the