REYES v.

ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as
dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the
Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses
were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of
Manila re-classified and reassessed the value of the subject properties based on the schedule of market
values, which entailed an increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used in determining the land values
instead of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very
least discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties.

Antero Sison Jr. vs Acting BIR Commissioner Ruben Ancheta et al

Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer,
alleges that "he would be unduly discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers. He characterizes said provision as arbitrary amounting to class legislation,
oppressive and capricious in character. It therefore violates both the equal protection and due process
clauses of the Constitution as well asof the rule requiring uniformity in taxation.

Issue: Whether or not the assailed provision violates the equal protection and due process clauses of the
Constitution while also violating the rule that taxes must be uniform and equitable.

Held: The petition is without merit.
On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does
not suffice and there must be a factual foundation of such unconstitutional taint.
On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar
circumstances, both in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the
tax operates with the same force and effect in every place where the subject may be found." Also, :the
rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly
unattainable." When the problem of classification became of issue, the Court said: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed
the same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation..." As provided by this Court, where "the differentation" complained of "conforms to
the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform."
LUTZ v. ARANETA
GR No. L-7859, December 22, 1955
98 PHIL 148

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio
Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided
for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being
levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus
making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an
imminent threat of loss and needed to be stabilized by imposition of emergency measures.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the
purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar
industry?

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

Chavez vs. Ongpin
Facts: Chavez, owner of some number of parcels of land challenges the constitutionality of EO 73, which
increased the assessment for real property taxes. Intervenor Realty Owners Association of the Phil
(ROAP) also challenged the constitutionality of EO 73 and EO 464, the latter order having been the basis
for the enactment of EO 73.
Issue: Whether EO 73 imposes unreasonable increase in real property taxes, thus, should be declared
unconstitutional.
Held: Negative.
The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a
continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential
Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise
any objection against said decree. It was ROAP, the intervenor, which questioned the constitutionality
thereof.
To continue collecting real property taxes based on valuations arrived at several years ago, in disregard
of the increases in the value of real properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires
that sources of revenues must be adequate to meet government expenditures and their variations.
ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT, ET AL.
G.R. No. L-67649. June 28, 1988

Facts:

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic
of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed
value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,
his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of
P2,400.00.

Issue:

May compensation take place?

Ruling:

There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an
action or any indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes.

Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the
Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off.
Progressive vs QC
Facts: The City Council of QC passed an ordinance known as the Market Code of QC, which imposed a
5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC.

In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the City
shall revoke the permit of the privately-owned market to operate.

Progressive Development Corp, owner and operator of Farmers Market, filed a petition for prohibition
against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which
the municipal corporation was prohibited by law to impose.

Issue: Whether or not the supervision fee is an income tax or a license fee.

Held: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for
purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising
revenues.

If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained does not
make the imposition a tax.

To be considered a license fee, the imposition must relate to an occupation or activity that so engages the
public interest in health, morals, safety, and development as to require regulation for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of direct regulation but also its incidental
consequences.

In this case, the Farmers Market is a privately-owned market established for the rendition of service to
the general public. It warrants close supervision and control by the City for the protection of the health of
the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying public,
etc.

Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a license
fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license
tax does not, by itself, convert the license tax into a prohibited tax on income.

Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of
Progressives kind of business, since ordinarily, the higher the amount of rentals, the higher the volume of
items sold.

The higher the volume of goods sold, the greater the extent and frequency of supervision and inspection
may be required in the interest of the buying public.

PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such
expenditure, is merely incidental in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction,
upon the ground that RA No. 920, which apropriates funds for public works particularly for the
construction and improvement of Pasig feeder road terminals. Some of the feeder roads, however, as
alleged and as contained in the tracings attached to the petition, were nothing but projected and planned
subdivision roads, not yet constructed within the Antonio Subdivision, belonging to private respondent
Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not connect any government
property or any important premises to the main highway. The respondents' contention is that there is
public purpose because people living in the subdivision will directly be benefitted from the construction of
the roads, and the government also gains from the donation of the land supposed to be occupied by the
streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying
an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure which
must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental to the public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or business, does not justify their aid by the use
public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public.

PBC vs CIR

FACTS:


Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of
1985, reported profits, and paid the total income tax of P5,016,954.00 by applying PBCom's tax credit
memos for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered net
loss of P25,317,228.00, thereby showing no income tax liability in its Annual Income Tax Returns for the
year-ended December 31, 1985. For the succeeding year, ending December 31, 1986, the petitioner
likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld
and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax
credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.


Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a
Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of
Internal Revenue."
The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as the same was
filed beyond the two-year reglementary period. A motion for Reconsideration was denied and the appeal
to Court of Appeals was likewise denied. Thus, this appeal to Supreme Court.

Issues:

a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from two (2) years
to ten (10) years is valid.
b) Whether or not the petition for tax refund had already prescribed.

Ruling:


RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive period is invalid.

Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in
case of inconsistency, the law prevails over them. Administrative agencies have no legislative power.

When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so
doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the
sense of more specific and less general interpretations of tax laws) which are issued from time to time by
the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute
by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts.
Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Thus, courts will not countenance administrative issuances that override, instead of remaining consistent
and in harmony with, the law they seek to apply and implement.

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by
the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony
with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his
interpretation could not be given weight for to do so would, in effect, amend the statute.


By implication of the above, claim for refund had already prescribed.

Since the petition had been filed beyond the prescriptive period, the same has already prescribed. The
fact that the final adjusted return show an excess tax credit does not automatically entitle taxpayer claim
for refund without any express intent.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.

Ormoc vs treasurer of ormoc city
Facts: The Municipal Board of Ormoc City passed Ordinance No. 4 imposing on any and all productions
of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to
one per centum (1%) per export sale to USA and other foreign countries. Payments for said tax were
made, under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court
of First Instance of Leyte a complaint against the City of Ormoc as well as its Treasurer, Municipal Board
and Mayor alleging that the ordinance is unconstitutional for being violative of the equal protection clause
and the rule of uniformity of taxation. The court rendered a decision that upheld the constitutionality of the
ordinance. Hence, this appeal.

Issue: Whether or not constitutional limits on the power of taxation, specifically the equal protection
clause and rule of uniformity of taxation, were infringed?

Held: Yes. Equal protection clause applies only to persons or things identically situated and does not bar
a reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is
based upon substantial distinctions; 2) these are germane to the purpose of the law; 3) the classification
applies not only to present conditions, but also to future conditions substantially identical to those present;
and 4) the classification applies only to those who belong to the same class. A perusal of the requisites
shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and
exported by the Ormoc Sugar Company, Inc. and none other. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently established sugar central for the coverage of the
tax.