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Oct 4, 1932 ʹ Lorenzo brought action to CFI for refund of
the inheritance tax he paid for the estate of Thomas











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Hanley and for the collection of interest thereon at 6%

from Sept. 1934 when he paid it under protest.
Recovery of CIR from LS P2,422.81 percentage tax from
the gross receipts of the business. LS paid under protest.
CFI judge, against CIR holding that LS is not a contractor.
Business was loading and unloading cargo from vessels
in port at certain rates of charge per unit cargo. Direct
supervision of officers of the ships and under instruction
by captain and officers of the ship.
Issue: WON LS is a contractor
Held: No.
Definition of lexicographers cannot always be adopted
as correct meaning for statutory words and phrases. The
intention and the object which it intended to attain
must be taken into consideration for the purpose of
determining the meaning of words and phrases.
Revenue laws imposing taxes on business must be
strictly construed in favor of the citizen.
If one rendering service submits himself to the direction
of the employer as to the details of the work, not merely
as to the result but also to the means by which that
result is to be attained=servant and is not a contractor in
respect to that work.
If engaged under a contract in an independent
operation, not subject to the direction and control of his
employer=contractor and contractee relationship.
If the question presented in the interpretation of a tariff
law is one of doubt, the doubt would be resolved in
favor of the importer, as duties are never imposed upon
citizens upon vague and doubtful interpretation.
True test of a contractor: He renders the service in the
course of an independent occupation, representing the
will of his employer only as to the result of his work, and
not as to the means by which it is accomplished.
Disposition: Plaintiff not a contractor in the sense that
that word is used in section 1462 of Act 2711 and
therefore tax paid under protest was illegally collected
and should be repaid.
May 27, 1922 ʹ Thomas Hanley died with will. No
disposal for 10 years. Given to nephew Matthew. CFI
considered it proper to appoint a trustee to administer
the real properties. PJM Moore, one of the two
executors was appointed trustee. Moore took oath of
office and gave bond on March 10, 1924 and resigned
on Feb 29, 1932, and this is when Lorenzo took his
stead.
CIR collected inheritance tax from July 1, 1931 to the
date o payment (Sept. 1934). CFI in favor of CIR.
Issue: WON real property passed to instituted heir from
the moment of death and thus, inheritance tax must be
paid from that date and not after 10 years as stated in
the will.
Held: The accrual of the inheritance tax is distinct from
the obligation to pay the same. The tax is upon
transmission or the transfer or devolution of property of
a decedent, made effective by his death. It is in reality
an exercise or privilege tax imposed on the right to
succeed to, receive, or take property by or under a will
or the intestacy law, or deed, grant of girt to become
operative at or after death. Art. 667, rights to the
succession of a person are transmitted from the
moment of his death.
The authentication of a will implies its due execution but
once probated and allowed the transmission is effective
as of death of the testator in accordance with Art. 657 of
the CC. Whatever may be the time when actual
transmission of the inheritance takes place, succession
takes place in any event at the moment of the
decedent͛s death.
Thomas died on May 27, 1922, inheritance tax accrued
as of that date. But it does not follow that the obligation
to pay the tax arose as of that date. Sec. 1543 of Act.
3031 and sec. 1544(b) shall apply. ͞In other cases, within
the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate
proceedings shall be instituted prior to the expiration of
the said period, the payment shall be made by the
executor or administrator before delivering to each
beneficiary his share.
If death is the generating source from which the power



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of the state to impose inheritance taxes takes its being
and if, upon the death of the decedent, succession takes
place and the right of the state to tax vests instantly, the
tax should be measured by the value of the estate as it
stood at the time of the decedent͛s death, regardless of
any subsequent contingency affecting value or any
subsequent increase/decrease in value.
A trustee is entitled to receive a fair compensation for
his services. But from this it does not follow that the
compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax.
There is no statute in the Phil which requires trustees͛
commissions to be deducted in determining the net
value of the estate subject to inheritance tax.
Inheritance taxation is governed by the statue in force at
the time of the death of the decedent. A statute should
be considered as prospective in its operation, whether it
enacts, amends, or repeals an inheritance tax, unless the
language of the statue clearly demands or expresses
that it shall have a retroactive effect.
Liability to pay tax may arise at a certain time and the
tax may be paid within another given time. The mere
failure to pay one͛s tax does not render one delinquent
until and unless the entire period has elapsed within
which the taxpayer is authorized by law to make such
payments without being subjected to the payment of
penalties for failure to pay his taxes within the
prescribed period.
The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of
our inheritance tax law or exempt it from the payment
of the inheritance tax. The corresponding inheritance
tax should have been paid on or before March 10, 1924,
to escape the penalties of the law. This is so for the
reason already stated that the delivery of the estate to
the trustee was in esse delivery of the same estate to
the cestui que trust, the beneficiary in this case.
On the case of Lim Co Chui vs Posadas, the fact that riots
prevented the plaintiffs from paying their internal
revenue tax on time does not authorize the CIR to
extend time prescribed for the payment and to accept
them without the additional penalty. Modes adopted to
enforce the taxes levied should be interfered with as
little as possible.
A
"#$$%&



Mandamus and prohibition. RA 7167: Adjusting the
basic personal and additional exemptions allowable to
individuals for income tax purposes to the poverty
threshold level. Act was approved and published by
President on Dec. 19, 1991 and published on Jan 14,
1992. On Dec 26, 1991, respondents promulgated IRR.
IRR states that right to claim the exemptions shall be
allowed with respect to compensation paid on or after
Jan. 1, 1992.
The petitions were filed both in Feb 1992 to compel the
CIR to implement the mandate of the law, adjusting the
personal and additional exemptions.
Issues: WON RA 7167 took effect on approval or after 15
days from publication and if after 15 days, WON covers
to compensation income earned or received during the
calendar year 1991.
Held: 15 days after publication or on Jan. 30, 1992. Yes
applies to compensation income earned in 1991.
Tanada vs Tuvera: Publication is indispensable in every
case but the legislature may in its discretion provide that
the usual 15 day period be shortened or extended.
1991: Sec. 29 (L) of No. 4 of the NIRC: Upon the
recommendation of the Sec of Finance, the President
shall automatically adjust not more often than once
every three years, the personal and additional
exemptions taking into account, among others, the
movement in consumer price indices, levels of minimum
wages, and bare subsistence levels.
It may have been adjusted in 1989 but the President did
not adjust.
But it may be observed that RA 7167, speaks of the
adjustments that it provides for, as adjustments ͞to the
poverty threshold level͟. This is certainly at the time RA
7167 was enacted by Congress and not poverty
threshold levels in future, at which time there may be
need of further adjustments in personal exemptions.
Congress cannot lose sight of the fact that these
exemptions are fixed amounts to which an individual
taxpayer is entitled. This is a social legislation to alleviate
in part the present economic plight of the lower income
taxpayers.
Since RA 7167 was effective on Jan 30, 1992, the

increased exemptions are literally available on or before

April 15, 1992( though not before January 30, 1992). But

these increased exemptions can be available on April 15,

1992 only in respect of compensation income earned or

received during the calendar year 1991.



As regards IRR which defers to 1993 the reduction of

governmental tax revenues which irresistibly follows

from the application of RA 7167. But the law-making

authority has spoken and the Court can not refuse to

apply the law-makers͛ words. Whether or not the

government can afford the drop in tax revenues

resulting from such increased exemptions was for

Congress (not this Court) to decide.


















































































































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Income tax, on the other hand, is a national tax imposed

on the net or the gross income realized in a taxable year.
1995-Solidbank filed Quarterly Percentage Tax Returns
reflecting gross receipts (pertaining to 5% GRT rate) in
the amount of P1.4B with corresponding gross receipts
tax payments of P 73M.
Solidbank alleges that the total gross receipts in the
amoung of 1.4B included the sum of P350M
representing gross receipts from passive income which
was already subjected to 20% final withholding tax.
CA rendered a decision in a CTA case Asia Bank Corp vs
CIR which held that 20% of the withholding tax on
bank͛s interest income should not form part of its
taxable gross receipts for purposes of computing gross
receipts tax.
1997, based on decision, SB filed request for a refund or
a tax credit for P3M representing alleged overpaid gross
receipts tax for 1995.
CTA rendered decision for refund but reduced to P1.5M.
Issue: WON the 20% WT on bank͛s interest income
forms part of the taxable gross receipts in computing the
5% gross receipts tax.
CIR claims it is part even if not actually received by the
CIR because it was remitted directly to the government.
SB maintains CA correctly ruled.
Held: Yes. The amount of interest income withheld in
payment of the 20% FWT forms part of gross receipts in
computing for the GRT on banks.
The WT and the GRT are two different taxes. The 5% is
imposed by Section 119 of the Tax Code under Title V.
Other Percentage Tax which is not subject to
withholding while the 20% FWT is governed by Section
24(e)(1) of Title II which is subject to withholding. It is a
tax on passive income, deducted and withheld at source
by the payor-corporation and/or person as withholding
agent. GRT=percentage tax FWT=income tax. Bank
covered by both taxes.
Percentage tax is a national tax measured by a certain
percentage of the gross selling price or gross value in
money of foods sold, bartered or imported; or of the
gross receipts or earning derived by any person engaged
in the sale of services. Not subject to withholding.
It is subject to withholding.
In a withholding tax system:
Payee=taxpayers, person on whom the tax is imposed
Payor=separate entity, acts as no more than an agent of
the government for the collection of the tax in order to
ensure its payment.
The amount used to settle tax liability is deemed
sourced from the proceeds constitutive of the tax base.
Proceeds are either actual or constructive. Bank no
actual receipt of the amount withheld.
Issue: WON there is constructive receipt since the
payee, and not the payor, is the real taxpayer.
Held: There is constructive receipt. CC Art. 531-532
applied by analogy for determination of actual and
constructive receipt.
CIR based interpretation on Sec 7 of RR 17-84 =͟if the
recipient of the above-mentioned items (interest paid or
accrued on bank deposits or deposit substitutes
declared for purpose of imposing the WT) of income are
financial institutions, the same shall be included as part
of the tax base upon which the receipts tax is imposed.
Solidbank based interpretation on Sec.4(e) of RR 12-80,
that the tax rates to be imposed on the gross receipts of
banks xxx shall be based on all items of income actually
received.
Art. 531: Possession is acquired by the material
occupation of a thing of the exercise of a right, or by the
fact that it is subject to the action of our will, or by the
proper acts and legal formalities established for
acquiring such right. (Underlined refers to juridical acts-
acquisition of possession by sufficient titleͶto which
the law gives the force of acts of possession).
Art. 532: Possession may be acquired by the same
person who is to enjoy it, by his legal representative, by
his agent, or by any person without any power
whatever; but in the last case, the possession shall not
be considered as acquired until the person in whose
name the act of possession was executed has ratified
the same, without prejudice to the juridical
consequences of negotiorum gestio in a proper case.
In our withholding tax system, possession is acquired by
the payor as the withholding agent of the government,
because the taxpayer ratifies the very act of possession
for the government. The process o bookkeeping and
accounting for interest on deposits and yield on deposit
substitutes that are subjected to FWT are indeedͶfor
legal purposesͶtantamount to delivery, receipt or
remittance.
RR 12-80 superseded by RR 17-84.
Pertinent to the title to which this case presently under
(Construction of Tax Laws):

or received, these are by law or regulation reserved or
General Rule: Rules and regulations issued by
administrative or executive officers pursuant to the
procedure or authority conferred by law upon the
administrative agency have the force and effect, or
patake the nature, of a statute. The reason is that
statues express the policies, purposes, objectives,
remedies and sanctions intended by the legislature in
general terms.
Details and manner of carrying them out=left to the
administrative agency entrusted with their enforcement.
Here it is the finance secretary who promulgates the
revenue regulations, upon the recomm of the BIR
Comm.
A revenue regulation is binding on the courts as long as
the procedure fixed for its promulgation is followed.
Regulation must be:
a) Germane to the object and purpose of the law
b) Not contradict, but conform to, the standards
the law prescribes;
c) Be issued for the sole purpose of carrying into
effect the general provisions of our tax laws.
Repeal=express or implied.
Express-declaration in a regulation, that another
identified regulation, is repealed.
Implied=all others.
Two categories of implied repeals:
a. In case the provisions are in irreconcilable
conflict, the later regulation, to the extent of the
conflict, constitutes an implied repeal of an
earlier one
b. If the later regulation covers the whole subject
of an earlier one and is clearly intended as a
substitute.
Where a part of an earlier regulation embracing the
same subject as a later one may not be enforced
without nullifying the pertinent provision of the latter,
the earlier regulation is deemed impliedly amended or
modified to the extent of the repugnancy.
Manila Jockey Club case inapplicable-earmarking is not
the same as withholding. Amounts earmarked do not
form part of gross receipts, because, although delivered
some person other than the taxpayer. On the contrary,
amounts withheld form part of gross receipts, because
these are in constructive possession and not subject to
any reservation, the withholding agent being merely a
conduit in the collection process.
It is ownership that determines whether interest income
forms part of taxable gross receipts. Being originally
owned by these financial institutions as part of their
interest income, the FWT should form part of their
taxable gross receipts. The amounts withheld are part of
an income tax liability which is different from a
percentage tax liability.
In the construction and interpretation of tax statutes
and of statues in general, the primary consideration is to
ascertain and give effect to the intention of the
legislature. We ought to impute to the lawmaking body
the intent to obey the constitutional mandate, as long as
its enactments fairly admit of such construction. In fact,
͞no tax can be levied without express authority of law,
but the statutes are to receive a reasonable construction
with a view to carrying out their purpose and intent.
Sec. 24(e) imposes income tax while Sec. 119 imposes
percentage tax. The legislature intended two different
taxes. FWT is on passive income, GRT is on business.
Withholding of one is not equivalent to the payment of
the other.
Taxing act will be construed and the intent and meaning
of the legislature ascertained, from its language. Its
clarity and implied intent must exist to uphold the taxes
as against a taxpayer in whose favor doubts will be
resolved. No process of interpretation or construction
need be resorted to where a provision or law
peremptorily calls for application. A literal application of
any part of a statute is to be rejected if it will operate
unjustly, lead to absurd results, or contradict the evident
meaning of the statue taken as a while.

Tax refunds are in the nature of tax exemptions. These
are strictly construed against the taxpayer. They must be
able to point to some positive provision, not merely a
vague implication, of the law creating that right.
Respondent has not been able to satisfactorily show that
its FWT on interest income is exempt from the GRT. No
exemptions are normally allowed when a GRT is
imposed. It is precisely designed to maintain simplicity in
the tax collection effort of the government and to assure
its steady source of revenue even during an economic
slump.
No Double Taxation. DT means taxing the same property
twice when it should be taxed only once i.e. taxing the
same person twice by the same jurisdiction for the same
thing .
Direct Duplicate Taxation = two taxes must be imposed
a. on the same subject matter
b. for the same purpose,
c. by the same taxing authority,
d. within the same jurisdiction,
e. during the same taxing period, and
f. they must be of the same kind or character.
Taxes imposed here are on two different subject matter.
FWT=passive income GRT=privilege of engaging in the
business of banking.
A tax based on receipts is a tax on business rather than
on the property; hence it is an excise rather than a
property tax.
 


In May 1954, CIR wrote demand letter to LT for payment
of specific taxes on alcohol lost by evaporation thu re-
rectification or re-distillation from June 1950 to Feb
1954. LT protested and CIR refused to reconsider the
assessment. LT appealed to the Conference Staff of the
BIR. It was ordered to comply with DOF 213 to deposit ½
of the amount in cash and the balance by a surety bond.
LT action to CTA. CTA ordered LT to pay P672.15 by way
of specific tax. The amount of P154K which corresponds
to the period after January 1951 and up to Feb. 1954,
pursuant to RA 592=LT is exempt from liability assessed
therefor.
CIR appealed to SC.
Issue: WON LT should pay the specific tax.
Held: No.
Sec. 133 of the Tax code states liability shall attach to
the susbstance as soon as it is in existence as such,
whether it be subsequently separated as pure or impure
spirits. However RA 592 took effect on Jan. 1, 1951
which amended 133 deleting the all embracing clause
which subjects to tax all kinds of alcoholic substances
but only distilled spirits as finished products. This is in
harmony with Sec. 129 of the Tax code which states that
only the finished product is subject.
August 1956, RA 1608 was passed restoring the same
clause which was eliminated. From Jan. 1951 to Aug.
1956, the tax on alcohol did not attach as soon as it was
in existence as such but on the finished product.
In every case of doubt, tax statues are construed most



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strongly against the government and in favor of the
citizens, because burdens are not to be imposed beyond
LT is engaged in the business of manufacturing wines what the statutes expressly and clearly import. The new
and liquor with a distillery in Manila. It purchases law should not be given retroactive effect.
alcohol from Negros Occidental and from Batangas and
has been removing this alcohol from the centrals to resp
distillery under joint bonds without prepayment of
specific taxes. Quantity of alcohol purchased and
received-entered into the BIR Official Register Books.

In the manufacture of Manila Rum, LR uses as basic

materials low test alcohol, purchased in crude form from
the suppliers which it re-rectifies or subjects to further
rectification or distillation==from this process, losses
through evaporation incurs, for which CIR had given resp
allowance of not exceeding 7% for said losses.
^ /

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the building inspected and assessed for tax at P3,000.

Plaintiffs paid under protest on June 30, 1915. Plaintiffs








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filed in CFI to recover with interest.


Ormoc City issued an ordinace imposing a tax of P5 for
every 1,000 board feet of lumber SOLD in Ormoc city.
Treasurer of Ormoc City levied on and collected from
Serafica Sawmill P1,837.84 for the lumber sold during
1964. Lower court upheld validity of ordinance.
Issue:
a. WON Charter of Ormoc authorizes itself only to
regulate and not tax.
b. WON it is double taxation = business + sale
c. WON tax is unfair, unjust, arbitrary
unreasonable, and oppressive
d. WON public was not heard.
Held:
a. No. Local Autonomy is broad and sufficiently
plenary.
b. Regulation and taxation are different.
Regulation part of police power. Taxation is not.
Double taxation is not prohibited in the country.
c. Imposition of tax is regardless of the class of
lumber sold. No means to ascertain accuracy of
conclusion since pet did not present proof that
they must have different prices.
d. ͞In the enactment of tax ordinances under Local
Autonomy, where practicable, public hearing be
held wherein the views of the public MAY be
heard.
This is just a mere suggestion, not obligatory,
such that failure can not and does not affect
validity of the tax ordinance.
Taxes are imposed on the sale and not on the
lumber or the business.




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protection of the citizen and to prevent a sacrifice of his

property, and by a disregard of which his right might be,
Plaintiffs own a parcel of land in Escolta Manila. In 1913,
the improvements on this land were demolished and the
construction of a concrete building was begun. No taxes
on the improvements were levied or paid in 1914 as
adjudged by the CFI since the improvements were not
finished. It was finished in all respects on Feb. 15, 1915.
City assessor and collector of Manila, on Dec. 1, 1914,
sent notice to declare the improvements for assessment
for 1915. In Nov 1914, the assessor and collector had
Issue: WON the improvement is subject to tax.
The charter of Manila provides that within a period of
sixty days next succeeding the completion of such
acquisition, construction or addition, a sworn
declaration setting forth the value of the real estate
acquired or the improvement constructed and
containing a description to enable the city assessor and
collector to readily identify the same.
Plaintifs were under obligation to present within 60 days
from completion, or before April 15, 1915. Under an
attempted assessment in Novemeber and December,
they could have had no opportunity to comply with the
same.
Charter provides also that ͞city assessor and collecter,
shall, during the first 15 days of December of each year,
add to his list of taxable real estate in the city the value
of improvements placed upon such property during the
preceding year. Bet December 1 to Dec. 15, the assessor
and collector was under obligation of adding the
improvements on the Roxas property and not between
Dec 1 to Dec 15 1914.
Common sense construction would be that the phrase
includes December of the previous year and the current
year up to December. The assessor and collector
perforce could not in 1914 levy a tax on incomplete
improvements made during the current year.
Charter provides that notice by publication is to be
made. Further, city has to notify in writing by delivering
or mailing such notification to person sometime in
November.
When the regulations prescribed are intended for the
and generally would be injuriously affected, they are not
directory but mandatory.
Sometimes statues requiring the assessor to notify the
taxpayer have been held to be merely directory. But in
the majority of the jurisdiction this requirement is held
to be mandatory, so that the assessor cannot make a
valid assessment unless he has given proper notice.
 


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. !

Pecson filed complaint to annul sale at a public auction
of petitioner͛s property for non-payment of real estate
taxes alleging sale was made without prior notice to
him. Sale was made without proper notice to him. He
further alleged that he was not notified of his right to
redeem the property.
Issue: Validity of public auction of his property for non-
payment of taxes on the ground that the notices to him
were sent to the wrong postal address.
Held: Valid sale.
Notices were sent to 79 Paquita St. Manila. Final Notice
to exercise right of redemption also sent to the same
address. He admits he no longer reside in Manila and
presently resides in QC but his contention is that the
notices should have been sent to 1009 Paquita and not
to 79. If the notices were sent to 1009 Paquita, the new
owners of the house would send him the letters as they
always have.
Court: You maggot. As property owner and school
teacher at that, you hould know that if an owner fails to
pay the real estate taxes on a property, the said
property shall be sold at public auction to recover the
delinquent taxes.
In the records of the Office of the City Treasurer of QC,
below 1009 was the number 79. One can deduce that
the taxpayer had transferred his residence to 79. Worse,
pet introduced improvements without reporting the
same for tax purposes.
Issue on the compliance with the posting of the notices
and announcement of the sale, is a question of fact,
which this Court will not inquire into and review the
evidence relied upon the lower courts to support their
finding.
 33

+



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Foreign Tobacco- engaged in the manufacture of
different brands of cirgarettes. In a letter in Jan 1987,
then CIR to PCGG, its initial position was to classify
Champion, Hope, More as foreign brands.
On June 10, 1993, RA 7654 was enacted which imposed
excise taxes on cigarettes.
About a month after the enactment and two days
before the effectivity, BIR issued RMC 37-93 which
reclassified certain cigarettes subject to excise tax
reclassifying Hope, More, Champion as foreign brands
for purposes of determining the ad valorem tax.
On July 2, 1993, BIR Deputy Comm sent via fax a copy of
the RMC but it was not addressed to no one in
particular. On July 15,l 1993, FT received by ordinary
mail a certified Xerox copy of the RMC.
FT appealed to the appellate division of the BIR but
denied. On July 30, it was assessed for ad valorem tax
which amounted to P9M.
FT petition for review with the CTA. CTA upheld position
of FT, ad valorem is invalid, defective, and
unenforceable.
Issue: WON RMC 37-93 is discriminatory since it applies
not to all locally manufactured cigarettes similarly
situated.
Held: Discriminatory.
Petitioner opines that RMC is merely an interpretative
ruling of the BIR which can thys becme effective without
any prior need for notice and hearing nor publication
and that its issuance is not discriminatory since it would
apply under similar circumstances to all locally
manufactured cigarettes.






Legislative rule vs Interpretative rule

Legislative rule: in the nature of subordinate legislation


% Laws shall take effect after fifteen days following designed to implement a primary legislation by
the completion of their publication in the Official providing the details thereof. It is generally required that
Gazette, unless it is otherwise provided. This Code shall before a legislative rule is adopted there must be
take effect one year after such publication. (1a) hearing. In fixing of rate, no rule or final order shall be
valid unless the proposed rates shall have been

published in a newspaper of general circulation.




Interpretative rules: designed to provide guidelines to

the law which the administrative agency is in charge o

enforcing.



When an administrative rule is merely interpretative in

nature, its applicability needs nothing further than its

bare issuance for it gives no real consequence more

than what the law itself has already prescribed. When

the administrative rule goes beyond merely providing

for the means that can facilitate or render least

cumbersome the implementation of the law but

substantially adds to or increases the burden of those

governed, it behooves the agency to accord at least to

those directly affected a chance to be heard, and

thereafter to be duly informed, before that new

issuance is give the force and effect of law.



The cigarettes in the case at the time of the effectivity of

the law were not classified as foreign brands and were

subject to 45% ad valorem tax. Without the RMC, there

will be no new tax rate consequence on private resp

products.



BIR did not simply interpret the law. It legislated under

its quasi-legislative authority.



Art. VI, Sec. 28 of the Consti mandates taxation to be

uniform and equitable. Uniformity requires that all

subjects or objects of taxation, similarly situated, are to

be treated alike or put on equal footing both in

privileges and liabilities. All taxable articles or kinds of

property of the same class must be taxed at the same

rate, and the tax must operate with the same force and

effect in every place where the subject may be found.



RMC was hastily promulgated and has fallen short of a

valid and effective administrative issuance.
















































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