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G.R. No. 109289

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RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC

G.R.No.109289October3,1994
RUFINOR.TAN,petitioner,
vs.
RAMONR.DELROSARIO,JR.,asSECRETARYOFFINANCE&JOSEU.ONG,asCOMMISSIONEROF
INTERNALREVENUE,respondents.
G.R.No.109446October3,1994
CARAG,CABALLES,JAMORAANDSOMERALAWOFFICES,CARLOA.CARAG,MANUELITOO.
CABALLES,ELPIDIOC.JAMORA,JR.andBENJAMINA.SOMERA,JR.,petitioners,
vs.
RAMONR.DELROSARIO,inhiscapacityasSECRETARYOFFINANCEandJOSEU.ONG,inhiscapacity
asCOMMISSIONEROFINTERNALREVENUE,respondents.
RufinoR.Tanforandinhisownbehalf.
Carag,Caballes,Jamora&ZomeraLawOfficesforpetitionersinG.R.109446.

VITUG,J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of
RepublicActNo.7496,alsocommonlyknownastheSimplifiedNetIncomeTaxationScheme("SNIT"),amending
certainprovisionsoftheNationalInternalRevenueCodeand,in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 293, promulgated by public respondents
pursuanttosaidlaw.
Petitionersclaimtobetaxpayersadverselyaffectedbythecontinuedimplementationoftheamendatorylegislation.
InG.R.No.109289,itisassertedthattheenactmentofRepublicAct
No.7496violatesthefollowingprovisionsoftheConstitution:
Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which
shallbeexpressedinthetitlethereof.
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall
evolveaprogressivesystemoftaxation.
ArticleIII,Section1Nopersonshallbedeprivedof...propertywithoutdueprocessoflaw,norshall
anypersonbedeniedtheequalprotectionofthelaws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 293, argue that public
respondentshaveexceededtheirrulemakingauthorityinapplyingSNITtogeneralprofessionalpartnerships.
TheSolicitorGeneralespousesthepositiontakenbypublicrespondents.
TheCourthasgivenduecoursetobothpetitions.Theparties,incompliancewiththeCourt'sdirective,havefiled
theirrespectivememoranda.
G.R.No.109289
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PetitionercontendsthatthetitleofHouseBillNo.34314,progenitorofRepublicActNo.7496,isamisnomeror,at
least,deficientforbeingmerelyentitled,"SimplifiedNetIncomeTaxationSchemefortheSelfEmployed
andProfessionalsEngagedinthePracticeoftheirProfession"(PetitioninG.R.No.109289).
Thefulltextofthetitleactuallyreads:
AnActAdoptingtheSimplifiedNetIncomeTaxationSchemeForTheSelfEmployedandProfessionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal
RevenueCode,asAmended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now
amended,provide:
Sec.21.Taxoncitizensorresidents.
xxxxxxxxx
(f) Simplified Net Income Tax for the SelfEmployed and/or Professionals Engaged in the Practice of
Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27
receivedduringeachtaxableyearfromallsources,otherthanincomecoveredbyparagraphs(b),(c),
(d)and(e)ofthissectionbyeveryindividualwhether
acitizenofthePhilippinesoranalienresidinginthePhilippineswhoisselfemployedorpracticeshis
professionherein,determinedinaccordancewiththefollowingschedule:
NotoverP10,0003%
OverP10,000P300+9%
butnotoverP30,000ofexcessoverP10,000
OverP30,000P2,100+15%
butnotoverP120,00ofexcessoverP30,000
OverP120,000P15,600+20%
butnotoverP350,000ofexcessoverP120,000
OverP350,000P61,600+30%
ofexcessoverP350,000
Sec.29.Deductionsfromgrossincome.IncomputingtaxableincomesubjecttotaxunderSections
21(a), 24(a), (b) and (c) and 25 (a)(1), there shall be allowed as deductions the items specified in
paragraphs(a)to(i)ofthissection:Provided,however, That in computing taxable income subject to
taxunderSection21(f)inthecaseofindividualsengagedinbusinessorpracticeofprofession,only
thefollowingdirectcostsshallbeallowedasdeductions:
(a)Rawmaterials,suppliesanddirectlabor
(b)Salariesofemployeesdirectlyengagedinactivitiesinthecourseoforpursuanttothebusinessor
practiceoftheirprofession
(c)Telecommunications,electricity,fuel,lightandwater
(d)Businessrentals
(e)Depreciation
(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of
calamitystrickenareasdeclaredbythePresidentand
(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial
institutionswhichmustbeproventohavebeenincurredinconnectionwiththeconductofataxpayer's
profession,tradeorbusiness.
Forindividualswhosecostofgoodssoldanddirectcostsaredifficulttodetermine,amaximumofforty
per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or
professionalexpensesasthecasemaybe.
Onthebasisoftheabovelanguageofthelaw,itwouldbedifficulttoacceptpetitioner'sviewthattheamendatory
lawshouldbeconsideredashavingnowadoptedagrossincome,insteadofashavingstillretainedthenetincome,
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taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the
questioned law in comparison with that which has prevailed prior to the amendment limiting, however, allowable
deductionsfromgrossincomeisneitherdiscordantwith,noropposedto,thenetincometaxconcept.Thefactofthe
matterisstillthatvariousdeductions,whicharebynomeansinconsequential,continuetobewellprovidedunder
thenewlaw.
ArticleVI,Section26(1),oftheConstitutionhasbeenenvisionedsoas(a)topreventlogrollinglegislationintended
tounitethemembersofthelegislaturewhofavoranyoneofunrelatedsubjectsinsupportofthewholeact,(b)to
avoidsurprisesorevenfrauduponthelegislature,and(c)tofairlyapprisethepeople,throughsuchpublicationsof
its proceedings as are usually made, of the subjects of legislation. 1 The above objectives of the fundamental law
appeartoustohavebeensufficientlymet.Anythingelsewouldbetorequireavirtualcompendiumofthelawwhichcouldnot
havebeentheintendmentoftheconstitutionalmandate.

Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be
uniformandequitable"inthatthelawwouldnowattempttotaxsingleproprietorshipsandprofessionalsdifferently
fromthemanneritimposesthetaxoncorporationsandpartnerships.Thecontentionclearlyforgets,however,that
suchasystemofincometaxationhaslongbeentheprevailingruleevenpriortoRepublicActNo.7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used
thereforaresubstantialandnotarbitrary,(2)thecategorizationisgermanetoachievethelegislativepurpose,(3)the
lawapplies,allthingsbeingequal,tobothpresentandfutureconditions,and(4)theclassificationappliesequally
welltoallthosebelongingtothesameclass(PepsiColavs.CityofButuan,24SCRA3Bascovs.PAGCOR,197
SCRA52).
Whatmayinsteadbeperceivedtobeapparentfromtheamendatorylawisthelegislativeintenttoincreasinglyshift
theincometaxsystemtowardstheschedularapproach2intheincometaxationofindividualtaxpayersandtomaintain,
by and large, the present global treatment 3 on taxable corporations. We certainly do not view this classification to be
arbitraryandinappropriate.

Petitionergivesafairlyextensivediscussiononthemeritsofthelaw,illustrating,intheprocess,whathebelievesto
beanimbalancebetweenthetaxliabilitiesofthosecoveredbytheamendatorylawandthosewhoarenot.Withthe
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects)andsitus(place)oftaxation.Thiscourtcannotfreelydelveintothosematterswhich,byconstitutionalfiat,
rightlyrestonlegislativejudgment.Ofcourse,whereataxmeasurebecomessounconscionableandunjustasto
amounttoconfiscationofproperty,courtswillnothesitatetostrikeitdown,for,despiteallitsplenitude,thepowerto
tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been
reachedwithinanyappreciabledistanceinthiscontroversybeforeus.
Havingarrivedatthisconclusion,thepleaofpetitionertohavethelawdeclaredunconstitutionalforbeingviolative
of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear
contraventionofinherentorconstitutionallimitationsintheexerciseofthetaxpower.Nosuchtransgressionisso
evidenttous.
G.R.No.109446
Theseveralpropositionsadvancedbypetitionersrevolvearoundthequestionofwhetherornotpublicrespondents
haveexceededtheirauthorityinpromulgatingSection6,RevenueRegulationsNo.293,tocarryoutRepublicAct
No.7496.
Thequestionedregulationreads:
Sec. 6. General Professional Partnership The general professional partnership (GPP) and the
partnerscomprisingtheGPParecoveredbyR.A.No.7496.Thus,indeterminingthenetprofitofthe
partnership,onlythedirectcostsmentionedinsaidlawaretobedeductedfrompartnershipincome.
Also, the expenses paid or incurred by partners in their individual capacities in the practice of their
professionwhicharenotreimbursedorpaidbythepartnershipbutarenotconsideredasdirectcost,
arenotdeductiblefromhisgrossincome.
The real objection of petitioners is focused on the administrative interpretation of public respondents that would
applySNITtopartnersingeneralprofessionalpartnerships.PetitionerscitethepertinentdeliberationsinCongress
during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor
leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned
implementingregulationofpublicrespondentsfollowingtheeffectivityofthelaw,thusly:

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MR.ALBANO,NowMr.Speaker,Iwouldliketogetthecorrectimpressionofthisbill.Do
we speak here of individuals who are earning, I mean, who earn through business
enterprisesandtherefore,shouldfileanincometaxreturn?
MR.PEREZ.Thatiscorrect,Mr.Speaker.Thisdoesnotapplytocorporations.Itapplies
onlytoindividuals.
(SeeDeliberationsonH.B.No.34314,August6,1991,6:15P.M.Emphasisours).
Otherdeliberationssupportthisposition,towit:
MR.ABAYA...Now,Mr.Speaker,didIheartheGentlemanfromBatangassaythatthis
bill is intended to increase collections as far as individuals are concerned and to make
collectionoftaxesequitable?
MR.PEREZ.Thatiscorrect,Mr.Speaker.
(Id.at6:40P.M.Emphasisours).
Infact,inthesponsorshipspeechofSenatorMamintalTamanoontheSenateversionoftheSNITS,it
iscategoricallystated,thus:
Thisbill,Mr.President,isnotapplicabletobusinesscorporationsortopartnershipsitis
onlywithrespecttoindividualsandprofessionals.(Emphasisours)
TheCourt,firstofall,shouldliketocorrecttheapparentmisconceptionthatgeneralprofessionalpartnershipsare
subjecttothepaymentofincometaxorthatthereisadifferenceinthetaxtreatmentbetweenindividualsengaged
inbusinessorinthepracticeoftheirrespectiveprofessionsandpartnersingeneralprofessionalpartnerships.The
factofthematteristhatageneralprofessionalpartnership,unlikeanordinarybusinesspartnership(whichistreated
as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income
taxpayer.Theincometaxisimposednotontheprofessionalpartnership,whichistaxexempt,butonthepartners
themselvesintheirindividualcapacitycomputedontheirdistributivesharesofpartnershipprofits.Section23ofthe
TaxCode,whichhasnotbeenamendedatallbyRepublicAct7496,isexplicit:
Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a
commonprofessioningeneralpartnershipshallbeliableforincometaxonlyintheirindividualcapacity,
and the share in the net profits of the general professional partnership to which any taxable partner
would be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in
accordancewiththeprovisionsofthisTitle.
(b)Indetermininghisdistributiveshareinthenetincomeofthepartnership,eachpartner
(1) Shall take into account separately his distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this
Code,and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributiveshareofthegrossincomeundiminishedbyhisshareofthedeductions.
Thereis,thenandnow,nodistinctioninincometaxliabilitybetweenapersonwhopracticeshisprofessionaloneor
individually and one who does it through partnership (whether registered or not) with others in the exercise of a
commonprofession.Indeed,outsideofthegrosscompensationincometaxandthefinaltaxonpassiveinvestment
income, under the present income tax system all individuals deriving income from any source whatsoever are
treatedinalmostinvariablythesamemannerandunderacommonsetofrules.
WecanwellappreciatetheconcerntakenbypetitionersifperhapsweweretoconsiderRepublicActNo.7496as
an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic,
however,whenthelawisunderstood,asitshouldbe,asonlyformingpartof,andsubjectto,thewholeincometax
concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase
"incometaxpayers"isanallembracingtermusedintheTaxCode,anditpracticallycoversallpersonswhoderive
taxableincome.Thelaw,inlevyingthetax,adoptsthemostcomprehensivetaxsitusofnationalityandresidenceof
the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on
their income from all sources) and of the generally accepted and internationally recognized income taxable base
(that can subject nonresident aliens and foreign corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations,(3)EstatesunderJudicialSettlementand(4)IrrevocableTrusts(irrevocablebothastocorpusandas
toincome).
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Partnershipsare,undertheCode,either"taxablepartnerships"or"exemptpartnerships."Ordinarily,partnerships,
nomatterhowcreatedororganized,aresubjecttoincometax(andthusalludedtoas"taxablepartnerships")which,
for purposes of the above categorization, are by law assimilated to be within the context of, and so legally
contemplatedas,corporations.Exceptforfewvariances,suchasintheapplicationofthe"constructivereceiptrule"
in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not
intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the
paymentofincometax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as
independent taxable entities for income tax purposes. A general professional partnership is such an example. 4
Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for
administrationanddata]),areliableforthepaymentofincometaxintheirindividualcapacitycomputedontheirrespective
anddistributivesharesofprofits.Inthedeterminationofthetaxliability,apartnerdoessoasanindividual,andthereisno
choiceonthematter.Infine,undertheTaxCodeonincometaxation,thegeneralprofessionalpartnershipisdeemedtobe
nomorethanameremechanismoraflowthroughentityinthegenerationofincomeby,andtheultimatedistributionofsuch
incometo,respectively,eachoftheindividualpartners.

Section6ofRevenueRegulationNo.293didnotalter,butmerelyconfirmed,theabovestandingruleasnowso
modifiedbyRepublicAct
No.7496onbasicallytheextentofallowabledeductionsapplicabletoallindividualincometaxpayersontheirnon
compensationincome.Thereisnoevidentintentionofthelaw,eitherbeforeoraftertheamendatorylegislation,to
place in an unequal footing or in significant variance the income tax treatment of professionals who practice their
respectiveprofessionsindividuallyandofthosewhodoitthroughageneralprofessionalpartnership.
WHEREFORE,thepetitionsareDISMISSED.Nospecialpronouncementoncosts.
SOORDERED.
Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and
Mendoza,JJ.,concur.
PadillaandBidin,JJ.,areonleave.

#Footnotes
1JusticeIsaganiA.CruzonPhilippinePoliticalLaw1993edition,pp.146147,citingwithapproval
CooleyonConstitutionalLimitations.
2Asystememployedwheretheincometaxtreatmentvariesandmadetodependonthekindor
categoryoftaxableincomeofthetaxpayer.
3Asystemwherethetaxtreatmentviewsindifferentlythetaxbaseandgenerallytreatsincommonall
categoriesoftaxableincomeofthetaxpayer.
4Ageneralprofessionalpartnership,inthiscontext,mustbeformedforthesolepurposeofexercising
acommonprofession,nopartoftheincomeofwhichisderivedfromitsengaginginanytrade
businessotherwise,itissubjecttotaxasanordinarybusinesspartnershipor,whichistosay,asa
corporationandtherebysubjecttothecorporateincometax.Theonlyotherexemptpartnershipisa
jointventureforundertakingconstructionprojectsorengaginginpetroleumoperationspursuanttoan
operatingagreementunderaservicecontractwiththegovernment(seeSections20,23and24,
NationalInternalRevenueCode).
TheLawphilProjectArellanoLawFoundation

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