2. G.R. No.

L-7859 Case Digest

Income Taxation (Ateneo de Davao University)

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Lutz v. Araneta, 98 Phil 148

G.R. No. L-7859 | December
22,1955 Justice Jose Benedicto
Luna Reyes

DOCTRINE: Taxation may be made as an implement of the police power to promote the general welfare.
FACTS: Commonwealth Act No. 567, as amended, otherwise known as the Sugar Adjustment Act, is designed to
obtain a readjustment of the benefits derive from the sugar industry and to stabilize it to prepare it for the
eventuality of the loss of its preferential position in the United States market and the imposition of the export
taxes.

Plaintiff, Walter Lutz, as a Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, appeals to
recover the amount of P14, 666.40 paid by the estate tax under Section 3 of the Act for the crop years 1948-1949
and 1949- 1950 from the collector of Internal Revenue. Lutz argued that the tax imposed by the law in question
was void and unconstitutional because such imposition was only levied for the purpose of aiding and supporting
the sugar industry, which in his opinion, is not a public purpose for which a tax may be constitutionally levied.

ISSUE: Whether or not the support of the sugar industry is a public purpose for which a tax can be levied
under the Constitution.
RULING: Yes, the support of the sugar industry is a public purpose for which a tax can be levied under the
Constitution.
The Court claims that Lutz’s assertion that the tax provided by Commonwealth Act No. 567 is a pure use of the
taxing power is the basic defect in his argument. The tax is imposed for regulatory purposes to provide a means
for the threatened sugar industry to be stabilized and rehabilitated. The enactment of the Act is primarily an
exercise of the police power. Since the production of sugar is one of the great industries in our country, it employs
thousands of laborers, contributes significantly to the state’s wealth, and is a significant source of the foreign
exchange needed by the government. Therefore, its promotion, protection, and advancement, have a significant
positive impact to the general welfare. Hence, it was competent for the legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the law-
making body could provide that the distribution of benefits therefrom be readjusted among its components to
enable it to resist the added strain of the increase in taxes that it had to sustain.

FALLO: The decision appealed from is affirmed, with costs against appellant.

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