Law on Taxation

Please read the following cases. Digests due on August 23,

2017. Prepare for a recitation and/or quiz.

1. Lutz v. Araneta GR No. L-7859 12/22/1955

2. Vera v. Fernandez GR No. L-31364 03/30/1979
3. Commissioner v. Algue, Inc. GR No. L-28896 02/17/1988
4. Pesi-Cola v. Municipality of Tanauan G.R. No. L-31156
02/27/1976
5. Sison v. Ancheta GR No. 59431 07/25/1984
6. Tio v. Videogram Regulatory Board GR No. 75697 06/19/1987
7. Luzon Stevoring Co. v. CTA GR No. L-30232 07/29/1988
8. Pascual v. Secretary of Public Works G.R. No. L-10405
12/29/1960
9. Gomez v. Palomar GR No. 23645 10/29/68
10. Pepsi-Cola v. City of Butuan GR No. L-22814 08/28/1968
11. LRTA v. CBAA GR No. 123316 10/12/2000
12. MIAA v. Court of Appeals GR No. 155650 07/20/2006
13. CIR v. MJ Lhuiller Pawnshop, Inc. G.R. No. 150947
07/15/2003
14. Villegas v. Hiu Chiong Tsai Pao Ho G.R. No. L-29646
11/10/1978
15. Ormoc Sugar Co., Inc. v. The Treasurer of Ormoc City GR
No. L-23794 02/17/1968
16. American Bible Society v. City of Manila G.R. No. L-9637
04/30/1957
17. City of Baguio v. De Leon G.R. No. L-24756 10/31/1968
18. Cagayan Electric v. CIR G.R. No. L-60126 09/25/1985
19. Casanovas v. Hord G.R. No. 3473 03/22/1907
20. RCPI v. Provincial Assessor G.R. No. 144486 04/13/2005

*** NOTHING FOLLOWS***

ATTY. ENRIQUE A. GALLARDO

 G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma,plaintiff-appellant, vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our
industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the
"eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to
obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to
stabilize the sugar industry so as 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."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise

a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land.

According to section 6 of the law

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as
the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or
to attain any or all of the following objectives, as may be provided by law.

First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of
the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding
the loss of that market and the consequent necessity of meeting competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the
mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might
continue profitably to engage therein;lawphi1.net

Third, to limit the production of sugar to areas more economically suited to the production thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions:
Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National
Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation
of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher
yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the
costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e)
to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are
suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which
would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in
sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of
the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise,
authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries,
wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void,
being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public
purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance,
the plaintifs appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is
a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will
show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar
occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and
factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by
our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly 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 lawmaking 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
(Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy
Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida

The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such
an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857).

Once it is conceded, as it must, that 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 fully play, subject only to the test of reasonableness;
and it is not contended that the means provided in section 6 of the law (above quoted) 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 (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297
U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, it is inherent in the power to tax that a 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" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed.
1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act,
now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the
Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S.
270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are
other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field,
need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied
problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any
part of such money being channeled directly to private persons, constitutes expenditure of tax money for private
purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.
 G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners, vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special Proceedings No.
7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance
of Claim and for an Order of Payment of Taxes by the Government of the Republic of the Philippines against the Estate
of the late Luis D. Tongoy, for deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount
of P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second, dated October 7,
1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3, 1969 in the
abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80
as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which
motion was attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion
solely on the ground that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to
Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim filed by herein petitioner, Regional Director of the Bureau of
Internal Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion
for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against the estate of Luis D. Tongoy
was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was already barred under Section 5,
Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule of Court, bars
claim of the government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332 of the
National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for Allowance of
Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied, whether the same be due,
not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and
judgment for money against the decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that the executor or administrator
may bring against the claimants. Where the executor or administrator commence an action, or prosecutes an action
already commenced by the deceased in his lifetime, the debtor may set forth may answer the claims he has against
the decedents, instead of presenting them independently to the court has herein provided, and mutual claims may
be set off against each other in such action; and in final judgment is rendered in favored of the decedent, the
amount to determined shall be considered the true balance against the estate, as though the claim has been
presented directly before the court in the administration proceedings. Claims not yet due, or contingent may be
approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation of the
decedent created by law, such as taxes which is entirely of different character from the claims expressly enumerated
therein, such as: "all claims for money against the decedent arising from contract, express or implied, whether the same
be due, not due or contingent, all claim for funeral expenses and expenses for the last sickness of the decedent and
judgment for money against the decedent." Under the familiar rule of statutory construction of expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute
enumerates the things upon which it is to operate, everything else must necessarily, and by implication be excluded
from its operation and effect (Crawford, Statutory Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081, December
30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the matter of prescription thereof
are governed by the provisions of the National Internal revenue Code, particularly Sections 331 and 332 thereof, and
not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of
Internal Revenue, G.R. No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of
Section 2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the Court as
not affecting the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes assessed against the
estate of a deceased person ... need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes
upon motion showing that the taxes have been assessed against the estate." The abolition of the Committee on Claims
does not alter the basic ruling laid down giving exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after the distribution of
the decedent's estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from
the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their
prompt and certain availability are imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734,
September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being that they take
good care of their personal affairs. This should not hold true to government officials with respect to matters not of their
own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation
of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No.
761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA
162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co.,
Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines,
Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26
SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs.
Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even
after the distribution of the estate of the decedent among his heirs (Government of the Philippines vs.
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of Internal Revenue,
G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of Section 315
of the Tax Code payment of income tax shall be a lien in favor of the Government of the Philippines from the time the
assessment was made by the Commissioner of Internal Revenue until paid with interests, penalties, etc. By virtue of
such lien, this court held that the property of the estate already in the hands of an heir or transferee may be subject to
the payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the unpaid taxes due the
decedent may be collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It
may truly be said that until the property of the estate of the decedent has vested in the heirs, the decedent, represented
by his estate, continues as if he were still alive, subject to the payment of such taxes as would be collectible from the
estate even after his death. Thus in the case above cited, the income taxes sought to be collected were due from the
estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of the
Rules of Court, the claim in question may be filed even after the expiration of the time originally fixed therein, as may
be gleaned from the italicized portion of the Rule herein cited which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section, the court shall
state the time for the filing of claims against the estate, which shall not be more than twelve (12) nor less than six
(6) months after the date of the first publication of the notice. However, at any time before an order of distribution
is entered, on application of a creditor who has failed to file his claim within the time previously limited the court
may, for cause shown and on such terms as are equitable, allow such claim to be flied within a time not exceeding
one (1) month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of Payment of
Taxes) which, though filed after the expiration of the time previously limited but before an order of the distribution is
entered, should have been granted by the respondent court, in the absence of any valid ground, as none was shown,
justifying denial of the motion, specially considering that it was for allowance Of claim for taxes due from the estate,
which in effect represents a claim of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents' contention, erroneously as has been
demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total amount of
P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final one and the respondent
estate's sole defense of prescription has been herein overruled, the Motion for Allowance of Claim is herein granted
and respondent estate is ordered to pay and discharge the same, subject only to the limitation of the interest collectible
thereon as provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.
 G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand,
such collection should be made in accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was
made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a
warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the
warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on April 23,
1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may
be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But
there is a special circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed,
such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of
the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was
premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was
based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started
running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of
the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20
days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with
Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of
the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal holding
company income 12 but later conformed to the decision of the respondent court rejecting this assertion.13 In fact, as the said
court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara,
Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00,
and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid
the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the evidence, that no
distribution of dividends was involved.18
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in
control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in
cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and
the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in
different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for personal services actually
rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for
personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a)
An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the
case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are
in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close
relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid
wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the
payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in
a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives
of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes
that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs. SO ORDERED.
 G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the
power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended,
June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of
taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte,
null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both
Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are
practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per
his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance
by the latter of the provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects
"from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall
submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft
drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the
person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a
monthly report of the total number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding
the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies
the power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in
local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to
invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact
measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over under the guise
of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1)
the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed
is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of
taxes notice and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a
private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial
taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather
than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to
be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner
in which it shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of
double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes
over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not
adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some
states of the Union.14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where one tax is
imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No. 23,
which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of
one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the bottle used. When it
was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax
of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for
every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words
to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance
No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte
sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even
the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962
clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied
under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same
comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in
cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume
of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to
enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not)
and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as
distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in
the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are
allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional policy of
according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive,
courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of
soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of
1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27.
Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27)
comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte,
series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs
against petitioner-appellant. SO ORDERED.
 G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner, vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR
E. A. VIRATA, Minister of Finance, respondents.

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of
Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision
further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens
or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted
gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "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-visthose which are
imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting
to class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such
an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8The facts
as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on
the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The
answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and
cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of
the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by
retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to
be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase
a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all
the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in
appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize
that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web
of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The
power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory
provision as petitioner here alleges fails to abide by its command, then this Court must so declare and adjudge it
null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally infirm.

4, 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 or its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules
but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause 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.
That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted
to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also
been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or,
in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated
that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the
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. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every
person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges,
those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group
equally binding on the rest." 20 That same formulation applies as well to taxation measures. The equal protection clause
is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the
affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law.
There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the
laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter
of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any
rate, it is inherent in the power to tax that a 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.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation
shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco,25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may
be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until
nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" 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." 29 There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different
categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all deductible items for
all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers
are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On
the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all
of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There
is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

 G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA, respondents.

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry
(hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994
amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes
shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their
"survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs,
cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and
theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop
in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-
wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an
environment conducive to growth and development of all business industries, including the movie industry which has
an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial
condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the
heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present
danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to
support the rearing of the youth for civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices
which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the
national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of
paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER
and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due
process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by
Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title
thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a
statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2An act
having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of carrying out the general object." 3 The rule also
is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede
the power of legislation. 4 It should be given practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may
be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission.

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general
object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool
for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain
the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the
Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an
index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in
force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that
earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the
movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly
on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the
tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that "inequities which result from a singling out of one particular class for taxation or exemption infringe
no constitutional limitation". 12 Taxation has been made the implement of the state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President
... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or the
regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment
requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of
instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever the
reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of legislative
power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question
raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant
in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of
the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of authority or
discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its
execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed
and limited period" with the deputized agencies concerned being "subject to the direction and control of the BOARD." That
the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one
which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram
business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of
the Decree, whether the possession of such videogram be for private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption
of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting
what evidence shall be sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953]
at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts have been proved that they shall be prima facie evidence of the existence
of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one from proof of the others is not unreasonable and
arbitrary because of lack of connection between the two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact proved,
which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that
the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its
effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as
if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying
objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at
bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral
fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere
payment of Mayor's permit and municipal license fees are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated the
respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion
not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
 substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be courts of
justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal
norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear
violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional
and void.

WHEREFORE, the instant Petition is hereby dismissed. No costs.

SO ORDERED.
 G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitioner-appellant, vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL
REVENUE, respondents-appellees.

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484,
"Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the
various claims for tax refund; and the February 20, 1969 Resolution of the same court denying the motion for
reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine
parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax
refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-
18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be granted
the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969
(Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said decision reads:

WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient
legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.

On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the same was
denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.

This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-appellant
raised three (3) assignments of error, to wit:

I The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the work of
unloading and loading of a vessel in port, contrary to the evidence on record.
II The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part and
parcel of the shipping industry.
III The lower court erred in not allowing the refund sought by petitioner-appellant.

The instant petition is without merit.

The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term
"cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code,
as amended by Republic Act No. 3176.

Said law provides:

Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to
articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or
those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger
and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. ....

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption
provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal
contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading
of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment
imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel" because
they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly
employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in question are used in
carrying and transporting passengers or cargoes as a common carrier by water, either coastwise or oceangoing and,
therefore, not within the purview of Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for
Respondents-Appellees, pp. 45).

This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the relinquishment
is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly
construed, and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S.
pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the tax statute should be
strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469
[1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).

As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt
from the compensating tax, it is indispensable that the requirements of the amendatory law be complied with, namely:
(1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the
said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484;
Rollo, p. 24).

As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption
from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo
vessel (Ibid., p. 25).

As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance
on vessel. (Webster New International Dictionary, 2nd Ed.)

A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for
towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18, p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo
vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the
need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be
done is to apply it in every case that falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-
27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).

And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes
are to be construed in the light of purposes to be achieved and the evils sought to be remedied (People v. Purisima etc.,
et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in amending Section 190 of the Tax Code
by Republic Act 3176, as appearing in the records, intended to provide incentives and inducements to bolster the
shipping industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat
(Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by
petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent
business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a stevedore, that
is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is a part of
petitioner's undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal business is
stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue Code as a contractor, and not an
entity which transports passengers or freight for hire which is taxed under Section 192 of the same Code as a common
carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the Court of
Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax
Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident
exercise of authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not present in the
instant case.

PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.

SO ORDERED.
 G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,
vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above
entitled case and dissolving the writ of preliminary injunction therein issued, without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds
for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for
the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas
Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)";
that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected
and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal"
(according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the
intersection between the latter and Highway 54), which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as the
lands on which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at
the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953,
respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder
roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of two of them"; that no
deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent
Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has
not made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at the
time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and,
therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made
to believe that the projected feeder roads in question were "public roads and not private streets of a private
subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned
appropriation", respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of the
Philippines, an alleged deed of donation copy of which is annexed to the petition of the four (4) parcels of land
constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged
deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous
condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of our
fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of
the projected feeder roads in question with public funds would greatly enhance or increase the value of the
aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then being
undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue
to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage,
detriment and prejudice not only to the petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged
deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of
injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau of
Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned
feeder roads project, and from making and securing any new and further releases on the aforementioned item of
Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits,
a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing
any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further payments out
of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the
petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal
of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised
Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of public
funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is
inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other respondents,
in turn, maintained that petitioner could not assail the appropriation in question because "there is no actual bona
fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that
he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct
injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953,
holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal
thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the disputed
item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything but a
public purpose", that the instructions and improvement of the feeder roads in question, if such roads where private
property, would not be a public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic of the Philippines
will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it
being expressly understood that should the Government of the Republic of the Philippines violate the condition
hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence
and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public
policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest are
not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case
dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss,
which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant
herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land situated in
Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were private property of said respondent when Republic Act No. 920,
appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was
passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition further alleges
that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have
the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent. The lower court
held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because Congress is the source
of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation
of public funds for the improvement of what we, in the meantime, may assume as private property . . . (Record
on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government
established under the Constitution of the Republic of the Philippines and the system of checks and balances underlying
our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed
violative of the Constitution or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling
Case Law, is this:

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. (25 R.L.C. pp.
398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed suprasec. 14, money raised by taxation can be expended only for public purposes and not for the
advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be used only for public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for
one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other
than for a public purpose.

xxx xxx xxx

 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. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a
necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of the
general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose
constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own
constitutional law.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that
petitioner may not contest the legality of the donation above referred to because the same does not affect him directly.
This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the
constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is
absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events
occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law,
removing, with retrospective operation, the constitutional limitation infringed by said statute. Referring to the
P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said
roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on
June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and
hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of
said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the
creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the
rights and actions of the latter, except only those which are inherent in his person, including therefore, his right to the
annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the manner
indicated in said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing
for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an officer of the State
for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be
enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers,
have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis
supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447),
insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal
Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under
the composite system of government existing in the U.S., the states of the Union are integral part of the Federation
from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the
limitations imposed by the Federal Constitution. In fact, the same was made by representatives of each state of the
Union, not of the people of the U.S., except insofar as the former represented the people of the respective States, and
the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of,
and, in this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the
relation between said people and the Federal Government of the U.S. is reflected in the election of its President, who is
chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal
Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of each state
and the government thereof, except that the authority of the Republic of the Philippines over the people of the
Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitary type of our
national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the
states of the Union, and those imposed upon the Federal Government in the interest of the Union. For this reason, the
rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public
funds which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater
application in the Philippines than that adopted with respect to acts of Congress of the United States appropriating
federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of
Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the
owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a
taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for
backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs.Commission
on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of
certain appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this Court to take
such position in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again,
like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of
Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision, 8and, the
taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in
contesting the appropriation and donation in question; that this action should not have been dismissed by the lower
court; and that the writ of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further
proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is
so ordered.
 G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee, vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity
as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.

This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631,2 which
provides as follows:

To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period
from August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five centavos
for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears
such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special
fund and be deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.

The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these administrative
orders were issued with the approval of the respondent Secretary of Public Works and Communications.

The pertinent portions of Adm. Order 3 read as follows:

Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957,
for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5"
centavos, will soon be released for use by the public on their mails to be posted during the same period starting
with the year 1958.

xxx xxx xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever
class, and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this
country or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing the
additional value of five centavos intended for the Philippine Tuberculosis Society.

In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage meters,
each piece of such mail shall bear at least one such semi-postal stamp if posted during the period above stated
starting with the year 1958, in addition to being charged the usual postage prescribed by existing regulations.
In the case of business reply envelopes and cards mailed during said period, such stamp should be collected
from the addressees at the time of delivery. Mails entitled to franking privilege like those from the office of the
President, members of Congress, and other offices to which such privilege has been granted, shall each also
bear one such semi-postal stamp if posted during the said period.

Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes
without the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the
affixing of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded
to the Dead Letter Office for proper disposition.

Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:

In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the manner hereinafter indicated:

1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos for
the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class mail
matter, and the total sum thus collected shall be entered in the same official receipt to be issued for the postage
at the second-class rate. In making such entry, the total number of pieces of second-class mail posted shall be
stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate
from the postage in both of the official receipt and the Record of Collections.

2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits issued
by this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended for
said society. The total extra charge thus received shall be entered in the same official receipt to be issued for
the postage collected, as in subparagraph 1.
 3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an
official receipt issued for the total sum thus received, in the manner indicated in subparagraph 1.

4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders of
business reply permits, the five-centavo charge intended for said society shall be collected in cash on each
reply card or envelope delivered, in addition to the required postage which may also be paid in cash. An
official receipt shall be issued for the total postage and total extra charge received, in the manner shown in
subparagraph 1.

5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash such extra charge intended for said society, instead of
affixing the semi-postal stamps to their mails, provided that such mails are presented at the post-office
window, where the five-centavo extra charge for said society shall be collected on each piece of such mail
matter. In such case, an official receipt shall be issued for the total sum thus collected, in the manner stated in
subparagraph 1.

Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed
with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the
same way as herein provided for other mails.

Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class of mail matter, including newspapers and magazines
admitted as second-class mail."

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong,
Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner.

In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of Pampanga,
to test the constitutionality of the statute, as well as the implementing administrative orders issued, contending that it
violates the equal protection clause of the Constitution as well as the rule of uniformity and equality of taxation. The
lower court declared the statute and the orders unconstitutional; hence this appeal by the respondent postal authorities.

For the reasons set out in this opinion, the judgment appealed from must be reversed.

I. Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory
relief is unavailing because this suit was filed after the petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of Republic
Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that under section 6 of
Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ... should
take place, the action may thereupon be converted into an ordinary action."

The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the
statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to treat
an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing of the
action but before the termination thereof.3

Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then indeed
the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary action.

Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of the
statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in terms provides
that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does not follow,
however, that only postal authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people who use the mails without
paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the law, so in the
matter of the anti-TB stamp the mere attempt to use the mails without the stamp constitutes a violation of the statute. It
is not required that the mail be accepted by postal authorities. That requirement is relevant only for the purpose of
fixing the liability of postal officials.

Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only with
respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that he might send in the
future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails without the semi-postal stamps
which he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as amended, as well as other
mails hereafter to be sent by or to other mailers which bear the required postage, without collection of additional charge of
five centavos prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly interested in
a ruling on the validity of the statute requiring the use of additional stamps.
II. We now consider the constitutional objections raised against the statute and the implementing orders.

1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim is
made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the
population and that even among postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices performing
governmental functions. .

The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.

To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is said that in the field
of taxation, more than in other areas, the legislature possesses the greatest freedom in classification.6 The reason for
this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden.7

That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship to the end sought to be attained, and that absent
such relationship the selection of mail users is constitutionally impermissible. This is altogether a different proposition.
As explained in Commonwealth v. Life Assurance Co.:8

While the principle that there must be a reasonable relationship between classification made by the legislation and
its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is to raise
revenue ... So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction, equal
protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S.
Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).

We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must be
sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to pay, let
alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden, Congress must
have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the mails.

The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of
law that "consideration of practical administrative convenience and cost in the administration of tax laws afford
adequate ground for imposing a tax on a well recognized and defined class."9 In the case of the anti-TB stamps,
undoubtedly, the single most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The small amount
of five centavos does not justify the great expense and inconvenience of collecting through the regular means of
collection. On the other hand, by placing the duty of collection on postal authorities the tax was made almost self-
enforcing, with as little cost and as little inconvenience as possible.

And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were already a
class by themselves even before the enactment of the statue and all that the legislature did was merely to select their
class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction that
exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard
[them] and concentrate on some abstract identities is lifeless logic."10

Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded as
a necessary corollary. Tax exemptions are too common in the law; they have never been thought of as raising issues
under the equal protection clause.

It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The application of
the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable in the light of
differences in status of mail users. The Constitution does not require this kind of equality.

As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster what
it conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the amendment introduced by
Republic Act 2631, are exempt from the payment of the additional stamp.

As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from taxation.
The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various offices and
instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-
known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection that all
evils of the same genus be eradicated or none at all.13 As this Court has had occasion to say, "if the law presumably hits
the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been
applied."14

2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as
no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in taxation.

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society,
established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of
taxes except as they are used to compensate for the burden on those who pay them and would involve the abandonment
of the most fundamental principle of government that it exists primarily to provide for the common good.15

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated
tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground for classification. The same
considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating
equally on all persons within the class regardless of the amount involved. 16 As Mr. Justice Holmes said in sustaining
the validity of a stamp act which imposed a flat rate of two cents on every $100 face value of stock transferred:

One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax, so
far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold in each
case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be considered.
As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective of income or earning
capacity, and many others, illustrate the necessity and practice of sometimes substituting count for weight ...17

According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General points
out, the Society is not really the beneficiary but only the agency through which the State acts in carrying out what is
essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.18

3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court invalidated
Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.

Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in cash
instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August 19 to
September 30 of each year in mail boxes without the stamp should be returned to the sender, if known, otherwise they
should be treated as nonmailable.

It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking. The
authority given to the Postmaster General to raise funds through the mails must be liberally construed, consistent with
the principle that where the end is required the appropriate means are given.19

The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but also
that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require mailers to affix
the anti-TB stamp on their cards would be to make them pay much more because the cards likewise bear the amount of
the regular postage.

It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp, but
a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamp" is a
declaration that such mail matter is nonmailable within the meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials and
employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the
Government exempt from the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to costs.
 G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-
appellees.

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint,
with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of
business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board
and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the City of Butuan hereinafter referred to
as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal
Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement
thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft
drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These
"Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff
for distribution and sale in the City of Butuan and all municipalities of Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended
by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and
Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24
bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December
31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under
protest and those that if may later on pay until the termination of this case on the ground that Ordinance No.
110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to
be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as
Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its
warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss
Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff
differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with
the findings of the representative of the undersigned City Attorney who verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92
which price is uniform throughout the Philippines. Said increase was made due to the increase in the
production cost of its manufacture.

8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No.
110, as amended of the City of Butuan in their respective memoranda.

xxx xxx x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof.
Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported
or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft
drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines
the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be
paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo
manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks
or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to
pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or
cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the
ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section
10 of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and
Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax;
(2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and
discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.

The second and last objections are manifestly devoid of merit. Indeed independently of whether or not the tax in
question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on
which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental
law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the
United States and of some States of the Union.1 Then, again, the general principle against delegation of legislative
powers, in consequence of the theory of separation of powers2 is subject to one well-established exception, namely:
legislative powers may be delegated to local governments to which said theory does not apply3 in respect of
matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated
drinks in the production and sale of which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too
small to be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the
tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in
selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said
merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee
of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks."
And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:

... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent shall
mean any person, association, partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless
they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in
business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000
cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based
and computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received"
by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into
the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import
duty, which is beyond defendant's authority to impose by express provision of law.4

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid,
as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only
sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or
on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said
agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the
disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality
under all circumstances, or negate the authority to classify the objects of taxation. 5 The classification made in the
exercise of this authority, to be valid, must, however, be reasonable6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of
the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who belong to the same
class.7

These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents
or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance
No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the
amounts collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the
promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.
 [G.R. No. 127316. October 12, 2000]
LIGHT RAIL TRANSIT AUTHORITY, petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS,
BOARD OF ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR OF MANILA, respondents.
The Light Rail Transit Authority and the Metro Transit Organization function as service-oriented business entities,
which provide valuable transportation facilities to the paying public. In the absence, however, of any express grant of
exemption in their favor, they are subject to the payment of real property taxes.

The Case

In the Petition for Review before us, the Light Rail Transit Authority (LRTA) challenges the November 15, 1996
Decision[1] of the Court of Appeals (CA) in CA-GR SP No. 38137, which disposed as follows:

"WHEREFORE, premises considered, the appealed decision (dated October 15, 1994) of the Central Board of
Assessment Appeals is hereby AFFIRMED, with costs against the petitioner."[2]

The affirmed ruling of the Central Board of Assessment Appeals (CBAA) upheld the June 26, 1992 Resolution of
the Board of Assessment Appeals of Manila, which had declared petitioner's carriageways and passenger terminals as
improvements subject to real property taxes.
The Facts
The undisputed facts are quoted by the Court of Appeals (CA) from the CBAA ruling, as follows:[3]

"1. The LRTA is a government-owned and controlled corporation created and organized under Executive Order No.
603, dated July 12, 1980 'x x x primarily responsible for the construction, operation, maintenance and/or lease of light
rail transit system in the Philippines, giving due regard to the [reasonable requirements] of the public transportation of
the country' (LRTA vs. The Hon. Commission on Audit, GR No. No. 88365);

"2. x x x [B]y reason of x x x Executive Order 603, LRTA acquired real properties x x x constructed structural
improvements, such as buildings, carriageways, passenger terminal stations, and installed various kinds of machinery
and equipment and facilities for the purpose of its operations;

"3. x x x [F]or x x x an effective maintenance, operation and management, it entered into a Contract of Management
with the Meralco Transit Organization (METRO) in which the latter undertook to manage, operate and maintain the
Light Rail Transit System owned by the LRTA subject to the specific stipulations contained in said agreement,
including payments of a management fee and real property taxes (Add'l Exhibit "I", Records)

"4. That it commenced its operations in 1984, and that sometime that year, Respondent-Appellee City Assessor of
Manila assessed the real properties of [petitioner], consisting of lands, buildings, carriageways and passenger terminal
stations, machinery and equipment which he considered real propert[y] under the Real Property Tax Code, to
commence with the year 1985;

"5. That [petitioner] paid its real property taxes on all its real property holdings, except the carriageways and passenger
terminal stations including the land where it is constructed on the ground that the same are not real properties under the
Real Property Tax Code, and if the same are real propert[y], these x x x are for public use/purpose, therefore, exempt
from realty taxation, which claim was denied by the Respondent-Appellee City Assessor of Manila; and

"6. x x x [Petitioner], aggrieved by the action of the Respondent-Appellee City Assessor, filed an appeal with the Local
Board of Assessment Appeals of Manila x x x. Appellee, herein, after due hearing, in its resolution dated June 26,
1992, denied [petitioner's] appeal, and declared that carriageways and passenger terminal stations are improvements,
therefore, are real propert[y] under the Code, and not exempt from the payment of real property tax.

"A motion for reconsideration filed by [petitioner] was likewise denied."

The CA Ruling
The Court of Appeals held that petitioner's carriageways and passenger terminal stations constituted real property
or improvements thereon and, as such, were taxable under the Real Property Tax Code. The appellate court emphasized
that such pieces of property did not fall under any of the exemptions listed in Section 40 of the aforementioned
law. The reason was that they were not owned by the government or any government-owned corporation which, as
such, was exempt from the payment of real property taxes. True, the government owned the real property upon which
the carriageways and terminal stations were built. However, they were still taxable, because beneficial use had been
transferred to petitioner, a taxable entity.
The CA debunked the argument of petitioner that carriageways and terminals were intended for public use. The
former agreed, instead, with the CBAA. The CBAA had concluded that since petitioner was not engaged in purely
governmental or public service, the latter's endeavors were proprietary. Indeed, petitioner was deemed as a profit-
oriented endeavor, serving as it did, only the paying public.
 Hence, this Petition.[4]
The Issues
In its Memorandum,[5] petitioner urges the Court to resolve the following matters:
"I The Honorable Court of Appeals erred in not holding that the carriageways and terminal stations of petitioner
are not improvements for purposes of the Real Property Tax Code.
"II The Honorable Court of Appeals erred in not holding that being attached to national roads owned by the
national government, subject carriageways and terminal stations should be considered property of the national
government.
"III The Honorable Court of Appeals erred in not holding that payment of charges or fares in the operation of the
light rail transit system does not alter the nature of the subject carriageways and terminal stations as devoted for public
use.
"IV The Honorable Court of Appeals erred in failing to consider the view advanced by the Department of Finance,
which takes charge of the overall collection of taxes, that subject carriageways and terminal stations are not subject to
realty taxes.
"V The Honorable Court of Appeals erred in failing to consider that payment of the realty taxes assessed is not
warranted and should the legality of the questioned assessment be upheld, the amount of the realty taxes assessed
would far exceed the annual earnings of petitioner, a government corporation."
The foregoing all point to one main issue: whether petitioner's carriageways and passenger terminal stations are
subject to real property taxes.
The Court's Ruling
The Petition has no merit.

Main Issue: May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code,[6] the law in force at the time of the assailed assessment in 1984, mandated that
"there shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real
property such as lands, buildings, machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted."[7]
Petitioner does not dispute that its subject carriageways and stations may be considered real property under Article
415 of the Civil Code. However, it resolutely argues that the same are improvements, not of its properties, but of the
government-owned national roads to which they are immovably attached. They are thus not taxable as improvements
under the Real Property Tax Code. In essence, it contends that to impose a tax on the carriageways and terminal
stations would be to impose taxes on public roads.
The argument does not persuade. We quote with approval the solicitor general's astute comment on this matter:

"There is no point in clarifying the concept of industrial accession to determine the nature of the property when what is
fundamentally important for purposes of tax classification is to determine the character of the property subject [to] tax.
The character of tax as a property tax must be determined by its incidents, and form the natural and legal effect thereof.
It is irrelevant to associate the carriageways and/or the passenger terminals as accessory improvements when the view
of taxability is focused on the character of the property. The latter situation is not a novel issue as it has already been
resolved by this Honorable Court in the case of City of Manila vs. IAC (GR No. 71159, November 15, 1989) wherein it
was held:

'The New Civil Code divides the properties into property for public and patrimonial property (Art. 423), and further
enumerates the property for public use as provincial road, city streets, municipal streets, squares, fountains, public
waters, public works for public service paid for by said [provinces], cities or municipalities; all other property is
patrimonial without prejudice to provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga,
22 SCRA 1334 [1968])

xxx

'...while the following are corporate or proprietary property in character, viz: 'municipal water works, slaughter houses,
markets, stables, bathing establishments, wharves, ferries and fisheries.' Maintenance of parks, golf courses, cemeteries
and airports, among others, are also recognized as municipal or city activities of a proprietary character (Dept. of
Treasury v. City of Evansville; 60 NE 2nd 952)'

"The foregoing enumeration in law does not specify or include carriageway or passenger terminals as inclusive of
properties strictly for public use to exempt petitioner's properties from taxes. Precisely, the properties of petitioner are
not exclusively considered as public roads being improvements placed upon the public road, and this separability
nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or
passenger terminals are elevated structures which are not freely accessible to the public, viz-a-viz roads which are
public improvements openly utilized by the public, the former are entirely different from the latter.
"The character of petitioner's property, be it an improvements as otherwise distinguished by petitioner, needs no further
classification when the law already classified it as patrimonial property that can be subject to tax. This is in line with
the old ruling that if the public works is not for such free public service, it is not within the purview of the first
paragraph of Art. 424 if the New Civil Code."[8]

Though the creation of the LRTA was impelled by public service -- to provide mass transportation to alleviate the
traffic and transportation situation in Metro Manila -- its operation undeniably partakes of ordinary business. Petitioner
is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. [9] Indeed, it
operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a
service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax,
notwithstanding its claim of being a government-owned or controlled corporation.
True, petitioner's carriageways and terminal stations are anchored, at certain points, on public roads. However, it
must be emphasized that these structures do not form part of such roads, since the former have been
constructed over the latter in such a way that the flow of vehicular traffic would not be impeded. These carriageways
and terminal stations serve a function different from that of the public roads. The former are part and parcel of the light
rail transit (LRT) system which, unlike the latter, are not open to use by the general public. The carriageways are
accessible only to the LRT trains, while the terminal stations have been built for the convenience of LRTA itself and its
customers who pay the required fare.
Basis of Assessment Is Actual Use of Real Property
Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual
[10]
use, which is defined as "the purpose for which the property is principally or predominantly utilized by the person in
possession of the property."[11]
Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the
carriageways and terminal stations are the commuting public. It adds that the public-use character of the LRT is not
negated by the fact that revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those
who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT
carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and
earns money therefrom.
Petitioner Not Exempt from Payment of Real Property Taxes
In any event, there is another legal justification for upholding the assailed CA Decision. Under the Real Property
Tax Code, real property "owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned or controlled corporation so exempt by its charter, provided, however, that this exemption shall not
apply to real property of the abovenamed entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person."[12]
Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax exemption in its
favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection with the importation of
equipment not locally available, as the following provision shows:

"ARTICLE 4

TAX AND DUTY EXEMPTIONS

Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. - The importation of equipment,
machineries, spare parts, accessories and other materials, including supplies and services, used directly in the
operations of the Light Rails Transit System, not obtainable locally on favorable terms, out of any funds of the
authority including, as stated in Section 7 above, proceeds from foreign loans credits or indebtedness, shall likewise be
exempted from all direct and indirect taxes, customs duties, fees, imposts, tariff duties, compensating taxes, wharfage
fees and other charges and restrictions, the provisions of existing laws to the contrary notwithstanding."

Even granting that the national government indeed owns the carriageways and terminal stations, the exemption
would not apply because their beneficial use has been granted to petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against the
claimant.[13] LRTA has not shown its eligibility for exemption; hence, it is subject to the tax.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against the petitioner.
SO ORDERED.
 G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF
PARAAQUE, respondents.

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and
buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless
specifically approved by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the
taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands
and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC
Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption.
The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque
from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The
petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and
supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of
the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues of
the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public
auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative
Session Hall Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City
Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and
Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received
the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three
hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing,
MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public
use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are
thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate
tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because
the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that
the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its
taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus,
respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the
Local Government Code has withdrawn the exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped
from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all proceedings
taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate
tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter"
in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating
the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is

not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9 provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be increased
from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable
and immovable[,] which may be contributed by the National Government or transferred by it from any of its
agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and
the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation
and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of
the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided
for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the
Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more
"financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled corporations in the strict sense
as understood under the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesand
local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation
as one of the powers of local governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that
has to be handled by government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in
the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can
regulate a federal instrumentality in such a way as to prevent it from consummating its federal
 responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or
for the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service,
shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the
road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of
MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public including those who never use the particular public
facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution.21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has
ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already
ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works
of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which
it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court
of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because
they are by their very nature outside of commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to
the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when
the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see
to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject
of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the
auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe
Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which
"remains to this day the existing general law governing the classification and disposition of lands of the public domain
other than timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President
may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires
it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems,
communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's
village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation of the President.

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of
the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by
the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the
following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless
the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive
head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such
deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau
of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately
six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the area transferred within one year from
the promulgation of this Executive Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation
and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a
division under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of airport accommodation and service comparable
with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet
the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
 WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President
of the Philippines is given continuing authority to reorganize the National Government, which authority
includes the creation of new entities, agencies and instrumentalities of the Government[.]

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims
any ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines." This only means that
the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the
Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands
and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who
can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic
of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments
from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x
x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption
only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if
we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does
not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore
such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government
Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the
Code. Section 193 provides:

SEC. 193. 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 R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax.
Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit
proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion
of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all.

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation
from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and
local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government,
its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government,
its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section
133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would
be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193.

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to
tax by local governments since the national government is not included in the enumeration of exempt entities in
Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the
national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested
by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine

Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and
Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the law does
not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities,
with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not
whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of
the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code."
This means that unless the Local Government Code grants an express authorization, local governments have no power
to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power
to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax
the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes
the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable
entity. Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to
real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a
taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section
133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law.

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and
234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument
that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an
egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By
its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the
exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on
certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power
simply cannot exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133
limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax.
Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the
national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the
"common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local
governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can
impose any kind of tax on the national government, its agencies and instrumentalities a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless
otherwise provided in this Code." This exception which is an exception to the exemption of the Republic from real
estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the exemption in
Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
 xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean
that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different
meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in
the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned
or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the
governing law defining the status and relationship of government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government
unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by
special charters. The minority sees no reason why government corporations with special charters should have a capital
stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code
refer to those corporations owned by the government or its instrumentalities which are created not by
legislative enactment, but formed and organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose
full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare
dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It
will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The
special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which
shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to
be divided into Fifty Million common shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall
be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine
Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National
Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are subject to real estate tax on real properties
owned by them. To rule that they are not government-owned or controlled corporations because they are not registered
with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local
Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned
or controlled corporation must be established for the common good. The second condition is that the government-
owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through
special charters only if these entities are required to meet the twin conditions of common good and economic viability.
In other words, Congress has no power to create government-owned or controlled corporations with special charters
unless they are made to comply with the two conditions of common good and economic viability. The test of economic
viability applies only to government-owned or controlled corporations that perform economic or commercial activities
and need to compete in the market place. Being essentially economic vehicles of the State for the common good
meaning for economic development purposes these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for the
common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are not
the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through special charters corporations
that perform economic or commercial activities, such entities known as "government-owned or controlled
corporations" must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation
of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers'
money through new equity infusions from the government and what is always invoked is the common good. That
is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will
go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which
could have been relocated to agrarian reform, to social services like health and education, to augment the salaries
of grossly underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes
the ideas that they must show capacity to function efficiently in business and that they should not go into activities
which the private sector can do better. Moreover, economic viability is more than financial viability but also
includes capability to make profit and generate benefits not quantifiable in financial terms.46
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations,
along with government-owned or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because there is no competing international airport operated
by the private sector. MIAA performs an essential public service as the primary domestic and international airport of
the Philippines. The operation of an international airport requires the presence of personnel from the following
government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out
those without visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape
of criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or
leave Philippine airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel,
passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of
the Administrative Code, which provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10)
of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public
services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions
for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a
"government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA
a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is
not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate
powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments
under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply
to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:
 Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or
public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a)
of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes,
fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a
"taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property
leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public
dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the
Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5
October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of
the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by
the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.

No costs.

SO ORDERED.
 [G.R. No. 150947. July 15, 2003]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MICHEL J. LHUILLIER PAWNSHOP, INC., respondent.
Are pawnshops included in the term lending investors for the purpose of imposing the 5% percentage tax under
then Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended by Executive Order No. 273?
Petitioner Commissioner of Internal Revenue (CIR) filed the instant petition for review to set aside the
decision[1] of 20 November 2001 of the Court of Appeals in CA G.R. SP No. 62463, which affirmed the decision of 13
December 2000 of the Court of Tax Appeals (CTA) in CTA Case No. 5690 cancelling the assessment issued against
respondent Michel J. Lhuillier Pawnshop, Inc. (hereafter Lhuillier) in the amount of P3,360,335.11 as deficiency
percentage tax for 1994, inclusive of interest and surcharges.
The facts are as follows:
On 11 March 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91 imposing a 5%
lending investors tax on pawnshops; thus:

A restudy of P.D. [No.] 114 shows that the principal activity of pawnshops is lending money at interest and
incidentally accepting a pawn of personal property delivered by the pawner to the pawnee as security for the loan.(Sec.
3, Ibid). Clearly, this makes pawnshop business akin to lending investors business activity which is broad enough to
encompass the business of lending money at interest by any person whether natural or juridical. Such being the case,
pawnshops shall be subject to the 5% lending investors tax based on their gross income pursuant to Section 116 of the
Tax Code, as amended.

This RMO was clarified by Revenue Memorandum Circular (RMC) No. 43-91 on 27 May 1991, which reads:

1. RM[O] 15-91 dated March 11, 1991.

This Circular subjects to the 5% lending investors tax the gross income of pawnshops pursuant to Section 116 of the
Tax Code, and it thus revokes BIR Ruling No[]. 6-90, and VAT Ruling Nos. 22-90 and 67-90. In order to have a
uniform cut-off date, avoid unfairness on the part of tax- payers if they are required to pay the tax on past transactions,
and so as to give meaning to the express provisions of Section 246 of the Tax Code, pawnshop owners or operators
shall become liable to the lending investors tax on their gross income beginning January 1, 1991. Since the deadline for
the filing of percentage tax return (BIR Form No. 2529A-0) and the payment of the tax on lending investors covering
the first calendar quarter of 1991 has already lapsed, taxpayers are given up to June 30, 1991 within which to pay the
said tax without penalty. If the tax is paid after June 30, 1991, the corresponding penalties shall be assessed and
computed from April 21, 1991.

Since pawnshops are considered as lending investors effective January 1, 1991, they also become subject to
documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No. 325-88 dated July 13, 1988 is
hereby revoked.

On 11 September 1997, pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued Assessment
Notice No. 81-PT-13-94-97-9-118 against Lhuillier demanding payment of deficiency percentage tax in the sum
of P3,360,335.11 for 1994 inclusive of interest and surcharges.
On 3 October 1997, Lhuillier filed an administrative protest with the Office of the Revenue Regional Director
contending that (1) neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross income
of pawnshops; (2) pawnshops are different from lending investors, which are subject to the 5% percentage tax under
the specific provision of the Tax Code; (3) RMO No. 15-91 is not implementing any provision of the Internal Revenue
laws but is a new and additional tax measure on pawnshops, which only Congress could enact; (4) RMO No. 15-91
impliedly amends the Tax Code and is therefore taxation by implication, which is proscribed by law; and (5) RMO No.
15-91 is a class legislation because it singles out pawnshops among other lending and financial operations.
On 12 October 1998, Deputy BIR Commissioner Romeo S. Panganiban issued Warrant of Distraint and/or Levy
No. 81-043-98 against Lhuilliers property for the enforcement and payment of the assessed percentage tax.
Its protest having been unacted upon, Lhuillier, in a letter dated 3 March 1998, elevated the matter to the
CIR. Still, the protest was not acted upon by the CIR. Thus, on 11 November 1998, Lhuillier filed a Notice and
Memorandum on Appeal with the Court of Tax Appeals invoking Section 228 of Republic Act No. 8424, otherwise
known as the Tax Reform Act of 1997, which provides:

Section 228. Protesting of Assessment.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission
of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.

The case was docketed as CTA Case No. 5690.

On 19 November 1998, the CIR filed with the CTA a motion to dismiss Lhuilliers petition on the ground that it
did not state a cause of action, as there was no action yet on the protest.
 Lhuillier opposed the motion to dismiss and moved for the issuance of a writ of preliminary injunction praying
that the BIR be enjoined from enforcing the warrant of distraint and levy.
For Lhuilliers failure to appear on the scheduled date of hearing, the CTA denied the motion for the issuance of a
writ of preliminary injunction. However, on Lhuilliers motion for reconsideration, said denial was set aside and a
hearing on the motion for the issuance of a writ of preliminary injunction was set.
On 30 June 1999, after due hearing, the CTA denied the CIRs motion to dismiss and granted Lhuilliers motion for
the issuance of a writ of preliminary injunction.
On 13 December 2000, the CTA rendered a decision declaring (1) RMO No. 15-91 and RMC No. 43-91 null and
void insofar as they classify pawnshops as lending investors subject to 5% percentage tax; and (2) Assessment Notice
No. 81-PT-13-94-97-9-118 as cancelled, withdrawn, and with no force and effect.[2]
Dissatisfied, the CIR filed a petition for review with the Court of Appeals praying that the aforesaid decision be
reversed and set aside and another one be rendered ordering Lhuillier to pay the 5% lending investors tax for 1994 with
interests and surcharges.
Upon due consideration of the issues presented by the parties in their respective memoranda, the Court of Appeals
affirmed the CTA decision on 20 November 2001.
The CIR is now before this Court via this petition for review on certiorari, alleging that the Court of Appeals
erred in holding that pawnshops are not subject to the 5% lending investors tax. He invokes then Section 116 of the
Tax Code, which imposed a 5% percentage tax on lending investors. He argues that the legal definition of lending
investors provided in Section 157 (u) of the Tax Code is broad enough to include pawnshop operators. Section 3 of
Presidential Decree No. 114 states that the principal business activity of a pawnshop is lending money; thus, a
pawnshop easily falls under the legal definition of lending investors. RMO No. 15-91 and RMC No. 43-91, which
subject pawnshops to the 5% lending investors tax based on their gross income, are valid. Being mere interpretations of
the NIRC, they need not be published. Lastly, the CIR invokes the case of Commissioner of Internal Revenue vs.
Agencia Exquisite of Bohol, Inc.,[3] where the Court of Appeals Special Fourteenth Division ruled that a pawnshop is
subject to the 5% lending investors tax.[4]
Lhuillier, on the other hand, maintains that before and after the amendment of the Tax Code by E.O. No. 273,
which took effect on 1 January 1988, pawnshops and lending investors were subjected to different tax
treatments. Pawnshops were required to pay an annual fixed tax of only P1,000, while lending investors were subject to
a 5% percentage tax on their gross income in addition to their fixed annual taxes. Accordingly, during the period from
April 1982 up to December 1990, the CIR consistently ruled that a pawnshop is not a lending investor and should not
therefore be required to pay percentage tax on its gross income.
Lhuillier likewise asserts that RMO No. 15-91 and RMC No. 43-91 are not implementing rules but are new and
additional tax measures, which only Congress is empowered to enact.Besides, they are invalid because they have never
been published in the Official Gazette or any newspaper of general circulation.
Lhuillier further points out that pawnshops are strictly regulated by the Central Bank pursuant to P.D. No. 114,
otherwise known as The Pawnshop Regulation Act. On the other hand, there is no special law governing lending
investors. Due to the wide differences between the two, pawnshops had never been considered as lending investors for
tax purposes. In fact, in 1994, Congress passed House Bill No. 11197,[5] which attempted to amend Section 116 of the
NIRC, as amended, to include owners of pawnshops as among those subject to percentage tax. However, the Senate
Bill and the subsequent Bicameral Committee version, which eventually became the E-VAT Law, did not incorporate
such proposed amendment.
Lastly, Lhuillier argues that following the maxim in statutory construction expressio unius est exclusio alterius, it
was not the intention of the Legislature to impose percentage taxes on pawnshops because if it were so, pawnshops
would have been included as among the businesses subject to the said tax. Inasmuch as revenue laws impose special
burdens upon taxpayers, the enforcement of such laws should not be extended by implication beyond the clear import
of the language used.
We are therefore called upon to resolve the issue of whether pawnshops are subject to the 5% lending investors
tax. Corollary to this issue are the following questions: (1) Are RMO No. 15-91 and RMC No. 43-91 valid? (2) Were
they issued to implement Section 116 of the NIRC of 1977, as amended? (3) Are pawnshops considered lending
investors for the purpose of the imposition of the lending investors tax? (4) Is publication necessary for the validity of
RMO No. 15-91 and RMC No. 43-91.
RMO No. 15-91 and RMC No. 43-91 were issued in accordance with the power of the CIR to make rulings and
opinions in connection with the implementation of internal revenue laws, which was bestowed by then Section 245 of
the NIRC of 1977, as amended by E.O. No. 273.[6] Such power of the CIR cannot be controverted. However, the CIR
cannot, in the exercise of such power, issue administrative rulings or circulars not consistent with the law sought to be
applied. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent
with the law they intend to carry out. Only Congress can repeal or amend the law.[7]
The CIR argues that both issuances are mere rules and regulations implementing then Section 116 of the NIRC, as
amended, which provided:

SEC. 116. Percentage tax on dealers in securities; lending investors. - Dealers in securities and lending investors shall
pay a tax equivalent to six (6) per centum of their gross income. Lending investors shall pay a tax equivalent to five
(5%) percent of their gross income.
 It is clear from the aforequoted provision that pawnshops are not specifically included. Thus, the question is
whether pawnshops are considered lending investors for the purpose of imposing percentage tax.
We rule in the negative.
Incidentally, we observe that both parties, as well as the Court of Tax Appeals and the Court of Appeals, refer to
the National Internal Revenue Code as the Tax Code. They did not specify whether the provisions they cited were
taken from the NIRC of 1977, as amended, or the NIRC of 1986, as amended. For clarity, it must be pointed out that
the NIRC of 1977 as renumbered and rearranged by E.O. No. 273 is a later law than the NIRC of 1986, as amended by
P.D. Nos. 1991, 1994, 2006 and 2031. The citation of the specific Code is important for us to determine the intent of
the law.
Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes all persons who make
a practice of lending money for themselves or others at interest. Apawnshop, on the other hand, is defined under
Section 3 of P.D. No. 114 as a person or entity engaged in the business of lending money on personal property
delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn
brokerage.
While it is true that pawnshops are engaged in the business of lending money, they are not considered lending
investors for the purpose of imposing the 5% percentage taxes for the following reasons:
First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977, prior to its amendment
by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd) and (ff), of the NIRC of 1986, pawnshops
and lending investors were subjected to different tax treatments; thus:

(3) Other Fixed Taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified:

(dd) Lending investors

1. In chartered cities and first class municipalities, one thousand pesos;

2. In second and third class municipalities, five hundred pesos;
3. In fourth and fifth class municipalities and municipal districts, two hundred fifty pesos: Provided, That
lending investors who do business as such in more than one province shall pay a tax of one thousand pesos.

(ff) Pawnshops, one thousand pesos (underscoring ours)

Second. Congress never intended pawnshops to be treated in the same way as lending investors. Section 116 of the
NIRC of 1977, as renumbered and rearranged by E.O. No. 273, was basically lifted from Section 175 [8] of the NIRC of
1986, which treated both tax subjects differently. Section 175 of the latter Code read as follows:

Sec. 175. Percentage tax on dealers in securities, lending investors. -- Dealers in securities shall pay a tax equivalent
to six (6%) percent of their gross income. Lending investors shall pay a tax equivalent to five (5%) percent of their
gross income. (As amended by P.D. No. 1739, P.D. No. 1959 and P.D. No. 1994).

We note that the definition of lending investors found in Section 157 (u) of the NIRC of 1986 is not found in the
NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked by the CIR is found. However, as emphasized
earlier, both the NIRC of 1986 and the NIRC of 1977 dealt with pawnshops and lending investors differently. Verily
then, it was the intent of Congress to deal with both subjects differently. Hence, we must likewise interpret the statute
to conform with such legislative intent.
Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in
securities and lending investors only. There is no mention of pawnshops.Under the maxim expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute enumerates
the things upon which it is to operate, everything else must necessarily and by implication be excluded from its
operation and effect.[9] This rule, as a guide to probable legislative intent, is based upon the rules of logic and natural
workings of the human mind.[10]
Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops
were not subject to the 5% percentage tax imposed by Section 116 of the NIRC of 1977, as amended by E.O. No.
273. This was even admitted by the CIR in RMO No. 15-91 itself. Considering that Section 116 of the NIRC of 1977,
as amended, was practically lifted from Section 175 of the NIRC of 1986, as amended, and there being no change in
the law, the interpretation thereof should not have been altered.
It may not be amiss to state that, as pointed out by the respondent, pawnshops was sought to be included as among
those subject to 5% percentage tax by House Bill No. 11197 in 1994. Section 13 thereof reads:

Section 13. Section 116 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

SEC. 116. Percentage tax on dealers in securities; lending investors; OWNERS OF PAWNSHOPS; FOREIGN
CURRENCY DEALERS AND/OR MONEY CHANGERS. Dealers in securities shall pay a tax equivalent to Six (6%)
per centum of their gross income. Lending investors, OWNERS OF PAWNSHOPS AND FOREIGN CURRENCY
DEALERS AND/OR MONEY CHANGERS shall pay a tax equivalent to Five (5%) percent of their gross income.

If pawnshops were covered within the term lending investor, there would have been no need to introduce such
amendment to include owners of pawnshops. At any rate, such proposed amendment was not adopted. Instead, the
approved bill which became R.A. No. 7716[11] repealed Section 116 of NIRC of 1977, as amended, which was the basis
of RMO No. 15-91 and RMC No. 43-91; thus:

SEC. 20. Repealing Clauses. -- The provisions of any special law relative to the rate of franchise taxes are hereby
expressly repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed.

Section 21 of the same law provides that the law shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) national newspapers of general circulation whichever comes earlier. R.A. No.
7716 was published in the Official Gazette on 1 August 1994[12]; in the Journal and Malaya newspapers, on 12 May
1994; and in the Manila Bulletin, on 5 June 1994. Thus, R.A. No. 7716 is deemed effective on 27 May 1994.
Since Section 116 of the NIRC of 1977, which breathed life on the questioned administrative issuances, had
already been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are deemed automatically
repealed. Hence, even granting that pawnshops are included within the term lending investors, the assessment from 27
May 1994 onward would have no leg to stand on.
Adding to the invalidity of the RMC No. 43-91 and RMO No. 15-91 is the absence of publication. While the rule-
making authority of the CIR is not doubted, like any other government agency, the CIR may not disregard legal
requirements or applicable principles in the exercise of quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances: the legislative rule and the interpretative
rule. A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by
providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law
which the administrative agency is in charge of enforcing.[13]
In Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary,[14] this Tribunal ruled:

In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule
is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:

Public Participation. - If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been
published in a newspaper of general circulation at least two weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.

In addition, such rule must be published.

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, on the other
hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially 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 given the force and effect of law.[15]
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective measures
revoking in the process the previous rulings of past Commissioners.Specifically, they would have been amendatory
provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops would not be liable to pay the
5% percentage tax, considering that they were not specifically included in Section 116 of the NIRC of 1977, as
amended. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice,
hearing, and publication should not have been ignored.
There is no need for us to discuss the ruling in CA-G.R. SP No. 59282 entitled Commissioner of Internal Revenue
v. Agencia Exquisite of Bohol Inc., which upheld the validity of RMO No. 15-91 and RMC No. 43-91. Suffice it to say
that the judgment in that case cannot be binding upon the Supreme Court because it is only a decision of the Court of
Appeals. The Supreme Court, by tradition and in our system of judicial administration, has the last word on what the
law is; it is the final arbiter of any justifiable controversy. There is only one Supreme Court from whose decisions all
other courts should take their bearings.[16]
In view of the foregoing, RMO No. 15-91 and RMC No. 43-91 are hereby declared null and void. Consequently,
Lhuillier is not liable to pay the 5% lending investors tax.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. The decision of the Court of Appeals of 20
November 2001 in CA-G.R. SP No. 62463 is AFFIRMED.
SO ORDERED.
 G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner, vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco Arca of
the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents, declaring
Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is made permanent. No
pronouncement as to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.) FRANCISCO ARCA

Judge1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed
by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES
TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF
TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING
AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any position
or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the
diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or
fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the
Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the writ
of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null
and void:

1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory
and violative of the rule of the uniformity in taxation;

2) As a police power measure, it makes no distinction between useful and non-useful occupations, imposing a
fixed P50.00 employment permit, which is out of proportion to the cost of registration and that it fails to prescribe
any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on illegal
delegation of legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to
life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution.7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered
judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on
March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the latter's
decision of September 17,1968: 9

I THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
 II RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION
OF LEGISLATIVE POWER.

III RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of
the state, it being principally a regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or
disapproval of applications for employment permits and therefore is regulatory in character the second part which
requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or
justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of
the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the
Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being
collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It
has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or
limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its
grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant
or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of
power to allow or prevent an activity per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency
power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the interpretation
of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised without a policy,
rule, or standard from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal
discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the
exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien
is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of livelihood.
The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and
citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.

SO ORDERED.
 G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-appellant, vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS
as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.

On January 29, 1964, the Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of 1964, 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 the United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March 20, 1964 for P7,087.50 and
on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte, with service of a copy
upon the Solicitor General, a complaint 3 against the City of Ormoc as well as its Treasurer, Municipal Board and
Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of the equal protection clause
(Sec. 1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from
being an export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged that the tax is
neither a production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2 of
Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that the tax amounts to
a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both
the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's power to enact under the Local
Autonomy Act and that the same did not violate the afore-cited constitutional limitations. After pre-trial and
submission of the case on memoranda, the Court of First Instance, on August 6, 1964, rendered a decision that upheld
the constitutionality of the ordinance and declared the taxing power of defendant chartered city broadened by the Local
Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant alleges the same
statutory and constitutional violations in the aforesaid taxing ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all productions of centrifugal
sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a municipal tax equivalent to one per centum
(1%) per export sale to the United States of America and other foreign countries." Though referred to as a tax on the
export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the
only time the tax applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an export tax, in view of Section 2287
of the Revised Administrative Code which denies from municipal councils the power to impose an export tax. Section
2287 in part states: "It shall not be in the power of the municipal council to impose a tax in any form whatever, upon
goods and merchandise carried into the municipality, or out of the same, and any attempt to impose an import or export
tax upon such goods in the guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave chartered cities, municipalities
and municipal districts authority to levy for public purposes just and uniform taxes, licenses or fees. Anent the
inconsistency between Section 2287 of the Revised Administrative Code and Section 2 of Republic Act 2264, this
Court, in Nin Bay Mining Co. v. Municipality of Roxas 4 held the former to have been repealed by the latter. And
expressing Our awareness of the transcendental effects that municipal export or import taxes or licenses will have on
the national economy, due to Section 2 of Republic Act 2264, We stated that there was no other alternative until
Congress acts to provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of taxation, specifically the
equal protection clause and rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal protection of the laws."
(Sec. 1 [1], Art. III) In Felwa vs. Salas, 5 We ruled that the 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 on substantial distinctions which make real differences; (2) these are germane to the
purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are
substantially identical to those of the present; (4) the classification applies only to those who belong to the same class.
A perusal of the requisites instantly 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. At the time of the taxing
ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should
not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for
the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because
the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not arbitrarily collected (Collector
of Internal Revenue v. Binalbagan). 6 At the time of collection, the ordinance provided a sufficient basis to preclude
arbitrariness, the same being then presumed constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is declared unconstitutional
and the defendants-appellees are hereby ordered to refund the P12,087.50 plaintiff-appellant paid under protest. No
costs. So ordered.
 G.R. No. L-9637 April 30, 1957
AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF MANILA, defendant-appellee.

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in
the Philippines through its Philippine agency established in Manila in November, 1898, with its principal office at 636 Isaac
Peral in said City. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with
the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions
thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several
Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was
conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's
permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364,
and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise
covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under
protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its
business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under
protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City
Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were
being collected (Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its
complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the
plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further
praying for such other relief and remedy as the court may deem just equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of
the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of the Revised Administrative
Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised
Charter of the City of Manila, and praying that the complaint be dismissed, with costs against plaintiff. This answer
was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the
following stipulation of facts:

1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles,
New Testaments, bible portions and bible concordance in English and other foreign languages imported by it
from the United States as well as Bibles, New Testaments and bible portions in the local dialects imported
and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales
made by the plaintiff were as follows:

Quarter Amount of Sales

4th quarter 1945 P1,244.21
1st quarter 1946 2,206.85
Xxxx Xxxx

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further
evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines
since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties
located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee
or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the
sale of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which
are disposed of for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial
remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United
States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of
profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on
cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold
here by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each; those bearing
the price of $7 each are sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearly
show that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:
 As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of
section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet
their meaning is practically the same for the purpose of taxing the merchandise mentioned in said legal provisions,
and that the taxes to be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance
No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case
should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.

Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the
reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos.
2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the
new Charter of the City of Manila, must first be approved by the President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape
from the operation of said municipal ordinances under the cloak of religious privilege.

The issues. As may be seen from the proceeding statement of the case, the issues involved in the present controversy may
be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and
3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and
the free exercise and enjoyment of religious profession and worship, without discrimination or preference,
shall forever be allowed. No religion test shall be required for the exercise of civil or political rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as
respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide for
religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution and
sale of bibles and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the
questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by
letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with
the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the
period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the
permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application
and not particularly directed against institutions like the plaintiff, and it does not contain any provisions whatever
prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1
of Ordinance No. 3000 reads as follows:

SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of
the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or
occupations for which a permit is required for the proper supervision and enforcement of existing laws and
ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged
in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT
THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the
Ordinance, and the record does not show that a permit is required therefor under existing laws and ordinances for the
proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public and
the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains
item No. 79, which reads as follows:

79. All other businesses, trades or occupations not mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business,
trade or occupation.

As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945
to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as
amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:
 SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended,
there shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated,
quarterly, license fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates
herein prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time
shall pay the initial license fee based on the probable gross sales or receipts for the first quarter beginning from the date
of the opening of the business as indicated herein for the corresponding business or occupation.

xxx xxx xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of
any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the
sale of . . . books, including stationery.

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are
not imposed directly upon any religious institution but upon those engaged in any of the business or occupations
therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the business or
occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body, as
amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers
in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and
(2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office
supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both,
enumerated under these subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein,
SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the
power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said ordinances are
longer in force and effect as the law under which they were promulgated has been expressly repealed by Section 102 of
Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the
provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section
2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative intent
was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in both
legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full
force and effect uninterruptedly up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety
and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by
this sort of legislative action involves mainly the effect of the repeal upon rights and liabilities which accrued under
the original statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as to the
effect of simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities accrued
under the repealed act are destroyed, since the statutes from which they sprang are actually terminated, even though
for only a very short period of time. Others, and they seem to be in the majority, refuse to accept this view of the
situation, and consequently maintain that all rights an liabilities which have accrued under the original statute are
preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore, continuing the law in force
without interruption. (Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation
and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-
enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m-2) of the Revised
Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act
No. 409, which reads as follows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those
dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the
tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2)
semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not
be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed
by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance.
 For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural
products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing on the case at bar,
is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both,
enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned therein, shall
not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not
contain any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in
accordance with the weight of the authorities above referred to that maintain that "all rights and liabilities which have
accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal,
therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of
Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the
Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila, not
otherwise enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts,
subject to the approval of the PRESIDENT, except amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of
Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of
"retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409;
hence, an ordinance prescribing a municipal tax on said business does not have to be approved by the President to be
effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in
force, having been promulgated by the Municipal Board of the City of Manila under the authority granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional
if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious
corporation like the American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is
unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship
of appellant.

Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious
profession and worship. "Religion has been spoken of as a profession of faith to an active power that binds and elevates
man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His Creator and
to the obligations they impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason,
133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession and worship
carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other
restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which
the State has the right to prevent". (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297).
In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and
other religious literature:

In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a
person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply
to members of Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to
"purchase" certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The
"price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown that in
making the solicitations there was a request for additional "contribution" of twenty-five cents each for the books and
five cents each for the pamphlets. Lesser sum were accepted, however, and books were even donated in case
interested persons were without funds.

On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial
rather than a religious venture. Their activities could not be described as embraced in the occupation of selling
books and pamphlets. Then the Court continued:

"We do not mean to say that religious groups and the press are free from all financial burdens of government.
See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here
something quite different, for example, from a tax on the income of one who engages in religious activities or a tax
on property used or employed in connection with activities. It is one thing to impose a tax on the income or property
of a preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon. The tax imposed
by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these constitutional
privileges. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those
who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources
necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism
 can close all its doors to all those who do not have a full purse. Spreading religious beliefs in this ancient and
honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does
not do so. But that is to disregard the nature of this tax. It is a license tax a flat tax imposed on the exercise of a
privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is
indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee
imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is
guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is
almost uniformly recognized as the inherent vice and evil of this flat license tax."

Nor could dissemination of religious information be conditioned upon the approval of an official or manager even if
the town were owned by a corporation as held in the case of Marsh vs. State of Alabama (326 U.S. 501), or by the
United States itself as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court
expressed the opinion that the right to enjoy freedom of the press and religion occupies a preferred position as
against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of
press and religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In
our view the circumstance that the property rights to the premises where the deprivation of property here involved, took
place, were held by others than the public, is not sufficient to justify the State's permitting a corporation to govern a
community of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by the application
of a State statute." (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not be
taxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational
purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties,
real or personal, or from any activity conducted for profit, regardless of the disposition made of such income,
shall be liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that
such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall
under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances
a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and
enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person
can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any
charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. In the case
of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars,
handbooks, advertising, or literature of any kind, whether said articles are being delivered free, or whether same are
being sold within the city limits of the City of Griffin, without first obtaining written permission from the city
manager of the City of Griffin, shall be deemed a nuisance and punishable as an offense against the City of
Griffin, does not deprive defendant of his constitutional right of the free exercise and enjoyment of religious
profession and worship, even though it prohibits him from introducing and carrying out a scheme or purpose which
he sees fit to claim as a part of his religious system.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff
Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and
defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein for, as stated before,
it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its
rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said
business, trade or occupation of the plaintiff.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from,
sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without pronouncement as to
costs. It is so ordered.
 G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee, vs.
FORTUNATO DE LEON, defendant-appellant.

In this appeal, a lower court decision upholding the validity of an ordinance1 of the City of Baguio imposing a license
fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-appellant
Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more than P10,000, but not
in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal
question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction
of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney
of Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to
the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit
being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower
court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and held
defendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume the validity
of such ordinance, and there would be no question about the liability of defendant-appellant for the above license fee, it
being shown in the partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving
income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter of
Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be established or
practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the ordinance
now assailed, the decision appealed from must be affirmed. The task confronting defendant-appellant, therefore, was
far from easy. Why he failed is understandable, considering that even a cursory reading of the above amendment
readily discloses that the enactment of the ordinance in question finds support in the power thus conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3 the effect
of the amendatory section insofar as it would expand the previous power vested by the city charter was clarified in
these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised Administrative Code,
which empowers the City of Baguio merely to impose a license fee for the purpose of rating the business that may be
established in the city. The power as thus conferred is indeed limited, as it does not include the power to levy a tax. But
on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to
license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was
approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the
city council not only to impose a license fee but also to levy a tax for purposes of revenue, more so when in amending
section 2553 (b), the phrase 'as provided by law' has been removed by section 2 of Republic Act No. 329. The city
council of Baguio, therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be considered ultra
vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to be
sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be
discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the lower
court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for the
collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, and it is
his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguio
where this action originated, since the principal issue was the legality and constitutionality of the challenged ordinance,
it is not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on September 7,
1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in that case filed
a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The
question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement of the
decision of the Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money claim" and therefore
"within the original jurisdiction of the Justice of the Peace Court where it was filed, considering the amount involved."
Such is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee corresponding to
the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount involved. The thought
that the municipal court lacked jurisdiction apparently was not even in the minds of the parties and did not receive any
consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is the Court
of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, that what
confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was clearly within
the jurisdiction of the City Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defense against its
enforcement from one adversely affected, the matter should be elevated to the Court of First Instance. For the City
Court could rely on the presumption of the validity of such ordinance, 6 and the mere fact, however, that in the answer
to such a complaint a constitutional question was raised did not suffice to oust the City Court of its jurisdiction. The
suit remains one for collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the ascertainment of
facts and the application of the law, the Constitution as the highest law superseding any statute or ordinance in conflict
therewith, it cannot be said that a City Court is bereft of competence to proceed on the matter. In the exercise of such
delicate power, however, the admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be
evident to any one that the power to declare a legislative enactment void is one which the judge, conscious of the
fallibility of the human judgment, will shrink from exercising in any case where he can conscientiously and with due
regard to duty and official oath decline the responsibility." 7 While it remains undoubted that such a power to pass on
the validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be
exercised with due care and circumspection, considering not only the presumption of validity but also the relatively
modest rank of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority
for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of the allegation
that it imposed double taxation, which is repugnant to the due process clause, and that it violated the requirement of
uniformity. We do not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The objection
to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause] no more
forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional
on other grounds."8With that decision rendered at a time when American sovereignty in the Philippines was
recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de graceto the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United
States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading American decision:10 "Where, as here, Congress has
clearly expressed its intention, the statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked
where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According to
the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual fee of
P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than
P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of
uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in every place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a
classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente14incorporated the above
excerpt in his opinion and continued: "Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the
Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the statute
or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court
is on record as accepting the view in a leading American case16 that "inequalities which result from a singling out of
one particular class for taxation or exemption infringe no constitutional limitation." 17

It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the
allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is no
need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained that the license
fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of
equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on the
complaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged errors, as was
the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed within the limits of his
authority, is presumptively the act of the President unless reprobated or disapproved, 18 similarly the act of the City
Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the City Mayor unless
repudiated or set aside. This should be the case considering that such city official is called upon to see to it that
revenues due the City are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be resorted to by him. It
would be a reflection on the state of the law if such fidelity to duty would be met by condemnation rather than
commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from the
functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal ordinance
is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatever valid reason
may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such a
manifestation of official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of affairs. The more
desirable legal doctrine therefore, on the assumption that a choice exists, is one that would do away with such
temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-appellant.
 G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to
P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax.

The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its
gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes
and assessments the grantee is hereby expressly exempted" (Sec. 3).

On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all
corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were
subjected to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by authorizing
the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan
de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax exemption in its original charter
or neutralized the modification made by Republic Act No. 5431 more than a year before.

By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter
dated February 15, 1973 required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitioner
contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for
1968 and 1969.

The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only
for the income tax for the period from January 1 to August 3, 1969 or before the passage of Republic Act No. 6020
which reiterated its tax exemption. The petitioner appealed to this Court.

It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax
which already includes the income tax; (2) in holding that Republic Act No. 5431 as amended, altered or repealed
petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal
and (4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government.

We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.

The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the
public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),

Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the
Constitution and to the terms and conditions established in Act No. 3636 whose section 12 provides that the franchise
is subject to amendment, alteration or repeal by Congress.

Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers
not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption
from income tax.

The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of
Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax for the
period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.

It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been
paying income tax in addition to the franchise tax.

However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at
the outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax
exemption in its franchise.

For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest.
(Advertising Associates, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No. 59758,
December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024;
C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.)

WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the
tax proper and that it should not pay the delinquency penalties. No costs. SO ORDERED.
 G.R. No. 3473 March 22, 1907
J. CASANOVAS, plaintiff-appellant, vs. JNO. S. HORD, defendant-appellee.

The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of P9,600,
paid by him under protest as taxes on certain mining claims owned by him in the Province of Ambos Camarines.
Judgment was rendered in the court below in favor of the defendant, and from that judgment the plaintiff appealed.

There is no dispute about the facts.

In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May,
1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the plaintiff is
now the owner.

That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so
considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134 of
Act No. 1189, known as the Internal Revenue Act. That section is as follows:

SEC. 134. On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and
ninety-nine, there shall be levied and collected on the after January first, nineteen hundred and five, the
following taxes:

2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos;
(b) and at the same rate proportionately on each claim containing an area in excess of, or less than, sixty
thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such
output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has before
been stated, plaintiff paid under protest.

The only question in the case is whether this section 134 is void or valid.

I. It is claimed by the plaintiff that it is void because it comes within the provision of section 5 of the act of Congress of
July 1, 19021 (32 U.S. Stat. L., 691), which provides "that no law impairing the obligation of contracts shall be
enacted." The royal decree of the 14th of May, 1867, provided, among other things, as follows:

ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the first paragraph of article 13
(sixty thousand square meters) there shall be paid annually a fixed tax of forty escudos (about P20.00).
The pertenencia referred to in the second paragraph of the same article, though of greater area than the others
(one hundred and fifty thousand square meters), shall pay only twenty escudos (about P10.00).

ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be exempt from the annual tax
for a period of thirty years from the date of publication of this decree.

ART. 80. A further tax of three per centum on the gross earnings shall be paid without deduction of costs of
any kind whatsoever. All substances enumerated in section one shall be exempt from said tax of three per
centum for a period of thirty years.

ART. 81. No other taxes than those herein mentioned shall be imposed upon mining and metallurgical
industries.

The royal decree and regulation for its enforcement provided that the deeds granted by the Government should be in a
particular form, which form was inserted in the regulations. It must be presumed that the deeds granted to the plaintiff
were made as provided by law, and, in fact, one of such concessions was exhibited during the argument in this court,
and was found to be in exact conformity with the form prescribed by law. The deed is as follows:

Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los Ejercitos Nacionales,
Caballero Gran Cruz de la Real y Militar Orden de San Hermenegildo, de la Real y distinguida de Isabel la
Catolica, de la del Merito Militar Roja, de la de la Corona de Italia, Comendador de Carlos Tercero,
Bennemerito de la Patria en grado eminente, condecorado con varias cruses de distincion por meritos de
guerra, Capitan General y Gobernador General de Filipinas.

Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin Buck the concession of a gold
mine entitled "Nueva California Segunda" in the jurisdiction of Paracale, Province of Ambos Camarines: Now,
therefore, in the name of His Majesty the King (whom God preserve), and pursuant to the provisions of article
37 of the royal decree of May 14, 1867, regulating mining in these Islands, I issue, this fifth day of November,
eighteen hundred and ninety-six, this title deed to four pertenencias, comprising an area of two hundred and
 forty thousand square meters, as shown in the attached sketch map drafted by the engineer Don Enrique Abella
y Casariego, and dated at Manila December sixteenth of the said year, subject to the following general terms
and conditions:

1. That the mine shall be worked in conformity with the rules in mining, the grantee and his laborers to be
governed by the police rules established by existing regulations.

2. That the grantee shall be liable for all damages to third parties that may be caused by his operations.

3. That the grantee shall likewise indemnify his neighbors for any damage they may suffer by reason of water
accumulated on his works, if, upon being requested, he fail to drain the same within the time indicated.

4. That he shall contribute for the drainage of the adjacent mines and for the general galleries for drainage or
haulage in proportion to the benefit he derives therefrom, whenever, by authority of the Governor-General,
such works shall be opened for a group of pertenencias or for the entire mining locality in which the mine is
situated.

5. That he shall commence work on the mine immediately upon receipt of this concession unless prevented
by force majeure.

6. That he shall keep the mine in active operation by employing at the rate of at least four laborers for
each pertenencia for at least six months of each year.

7. That he shall strengthen the walls of the mine within the time indicated whenever, by reason of
mismanagement of the work, it threatens to cave in, unless he be prevented by force majeure.

8. That he shall not render further profitable development of the mine difficult or impossible by avaricious
operation.

9. That he shall not suspend the operation of the mine with the intention of abandoning the same without first
informing the Governor of his intention, in which case he must leave the mine in a good state of timbering.

10. That he shall pay taxes on the mine and its output as prescribed in the royal decree.

11. Finally, that he shall comply with all the requirements contained in the royal decree and in the regulations
for concessions of the same nature as the present.

Without special conditions.

Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y Llovet and to Don Martin Buck
the ownership of the said mine for an unlimited period of time so long as they shall comply with the foregoing
terms and conditions, to the end that they may develop the same and make free use and disposition of the
output thereof, with the right to alienate the said mine subject to the provisions of existing laws, and to enjoy
all the rights and benefits conceded to such grantees by the royal decree and by the mining regulations. And for
the prompt fulfillment and observance of the said conditions, both on the part of the said grantees and by all
authorities, courts, corporations, and private persons whom it may concern, I have ordered this title deed to be
issued given under my hand and the proper seal and countersigned by the undersigned Director-General of
Civil Administration.

It seems very clear to us that this deed constituted a contract between the Spanish Government and the plaintiff, the
obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above cited,
thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902. This conclusion
seems necessarily to result from the decisions of the Supreme Court of the United States in similar cases. In the case of
McGee vs. Mathis (4 Wallace, 143), it appeared that the State of Arkansas, by an act of the legislature of 1851,
provided for the sale of certain swamp lands granted to it by the United States; for the issue of transferable scrip
receivable for any lands not already taken up at the time of selection by the holder; for contracts for the making of
levees and drains, and for the payment of contractors in scrip and otherwise. In the fourteenth section of this act it was
provided that

To encourage by all just means the progress and completion of the reclaiming of such lands by offering
inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall be
exempt from taxation for the term of ten years or until they shall be reclaimed.

In 1855 this section was repealed and provision was made by law for the taxation of swamp and overflowed lands, sold
or to be sold, precisely as other lands. McGee, before this appeal, had become the owner by transfer from contractors
of a large amount of scrip issued under the Act of 1851, and with this scrip, after the repeal, took up and paid for many
sections and parts of sections of the granted lands. Taxes were levied by the State on the lands so taken up by McGee.
The Supreme Court held that these taxes could not be collected. The Court said at page 156:
 It seems quite clear that the Act of 1851 authorizing the issue of land scrip constituted a contract between the
State and the holders of the land scrip issued under the act.

In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it appeared that on the 3d day of February, 1853,
the legislature of Missouri passed on act to incorporate the Home of the Friendless in the city of St. Louis. Section 1 of
the act provided that

All property of said corporation shall be exempt from taxation.

The court held that the State had no power afterwards to pass laws providing for the levying of taxes upon this
institution. The Court said among other things at page 438:

The validity of this contract is questioned at the bar on the ground that the legislature had no authority to grant
away the power of taxation. The answer to this position is, that the question is no longer open for argument
here, for it is settled by the repeated adjudications of this court, that a State may be contract based on a
consideration exempt the property of an individual or corporation from taxation, either for a specified period or
permanently. And it is equally well settled that the exemption is presumed to be on sufficient consideration,
and binds the State if the charter containing it is accepted.

In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it appears that St. Ariva's Asylum was
incorporated by an act of the legislature of Louisiana, approved April 29, 1853. The law incorporating it provided that
it should enjoy the same exemption from taxation which was enjoyed by the Orphan Boys' Asylum of New Orleans.
The law relating to the last named institution provided (page 364):

That, from and after the passage of this act, all the property, real and personal, belonging to the Orphan Boys'
Asylum of New Orleans be, and the same is hereby exempted from all taxation, either by the State, parish, or
city in which it is situated, any law to the contrary notwithstanding.

It was held that the State had no power by subsequent legislation to impose taxes upon the property of this institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case of Powers vs.The
Detroit, Grand Haven and Milwaukee Railway which was decided on the 16th of April, 1906, and reported in 201 U.
S., 543. Section 9 of the act of the legislature of Michigan, incorporating the railway company, provided:

Said company shall, on or before the 1st day of July, pay to the State treasurer, an annual tax of one per cent on
the capital stock of said company, pain in, which tax shall be in lieu of all other taxation.

The court said at page 556:

It has often been decided by this court, so often that a citation on authorities in unnecessary, that the legislature
of a State may, in the absence of special restrictions in its constitution, make a valid contract with a corporation
in respect to taxation, and that such contract can be enforced against the State at the instance of the corporation.

The case at bar falls within the cases hereinbefore cited. It is to be distinguished from the case of the Metropolitan
Street Railway Company vs. The New York State Board of Tax Commissioners (199 U.S., 1). In that case it was
provided by various acts of the legislature, that the companies therein referred to, should pay annually to the city of
New York, a fixed amount or percentage, varying from 2 to 8 per cent of their gross earnings additional taxes was
sustained by the court. It was sustained on the ground that the prior legislation did not expressly say that the taxes thus
provided for should be in lieu of all other taxes. The court said at page 37:

Applying these well-established rules to the several contracts, it will be perceived that there was no express
relinquishment of the right of taxation. The plaintiff in error must rely upon some implication, and not upon
any direct stipulation. In each contract there was a grant of privileges, but the grant was specifically or
privileges in respect to the construction, operation and maintenance of the street railroad. These were all that in
terms were granted. As consideration for this grant, the grantees were to pay something, and such payment is
nowhere said to be in lieu of, or as an equivalent or substitute of taxes. All that can be extracted from the
language used, was a grant of privileges and a payment therefor. Other words must be written into the contract
before there can be found any relinquishment of the power of taxation.

But in the case at bar, there is found not only the provisions for the payment of certain taxes annually, but there is also
found the provision contained in article 81, above quoted, which expressly declares that no other taxes shall be
imposed upon these mines.

The present case is to be distinguished also from that class of cases of which Grands Lodge vs. The City of New
Orleans (166 U.S., 143) is a type, and which includes Salt Company vs. East Saginaw (13 Wall., 373) and
Welch vs.Cook (97 U.S., 541). In these cases the exemption was a mere bounty and did not form a part of any contract.
The fact that this concession was made by the Government of Spain, and not by the Government of the United States,
is not important. (Trustees of Dartmouth College vs. Woodward, 4 Wheaton, 518.)

Our conclusion is that the concessions granted by the Government of Spain to the plaintiff, constitute contracts
between the parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is
therefore void as to them.

II. We think that this section is also void because in conflict with section 60 of the act of Congress of July 1, 1902. This
section is as follows:

That nothing in this Act shall be construed to effect the rights of any person, partnership, or corporation,
having a valid, perfected mining concession granted prior to April eleventh, eighteen hundred and ninety-nine,
but all such concessions shall be conducted under the provisions of the law in force at the time they were
granted, subject at all times to cancellation by reason of illegality in the procedure by which they were
obtained, or for failure to comply with the conditions prescribed as requisite to their retention in the laws under
which they were granted: Provided, That the owner or owners of every such concession shall cause the corners
made by its boundaries to be distinctly marked with permanent monuments within six months after this act has
been promulgated in the Philippine Islands, and that any concessions, the boundaries of which are not so
marked within this period shall be free and open to explorations and purchase under the provisions of this act.2

This section seems to indicate that concessions, like those in question, can be canceled only by reason of illegality in
the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisite for their
retention in the laws under which they were granted. There is nothing in the section which indicates that they can be
canceled for failure to comply with the conditions prescribed by subsequent legislation. In fact, the real intention of the
act seems to be that such concession should be subject to the former legislation and not to any subsequent legislation.
There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained,
nor is there any claim that the plaintiff has not complied with the conditions prescribed in the said royal decree of 1867.

III. In view of the result at which we have arrived, it is not necessary to consider the further claim made by the plaintiff
that the taxes imposed by article 134 above quoted, are in violation of the part of section 5 of the act of July 1, 1902,
which declares "that the rule of taxation in said Islands shall be uniform."

The judgment of the court below is reversed, and judgment is ordered in favor of the plaintiff and against the defendant
for P9,600, with interest thereon, at 6 per cent, from the 21st day of February, 1906, and the costs of the Court of First
Instance. No costs will be allowed to either party in this court.

After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter let the case
be remanded to the court from whence it came for proper action. So ordered.
 [G.R. No. 144486. April 13, 2005]
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), petitioner, vs. PROVINCIAL ASSESOR
OF SOUTH COTABATO, PROVINCIAL TREASURER OF SOUTH COTABATO, MUNICIPAL ASSESSOR
OF TUPI, SOUTH COTABATO, and MUNICIPAL TREASURER OF TUPI, SOUTH
COTABATO, respondents.

The Case

This is a petition for review[1] to set aside the Decision[2] dated 29 March 2000 of the Court of Appeals (appellate
court) in CA-G.R. SP No. 47446. The appellate court modified the ruling of the Central Board of Assessment Appeals
(CBAA) and exempted petitioner Radio Communications of the Philippines, Inc. (RCPI) from paying real property tax
assessed on its machinery and radio equipment mounted on its relay station tower as accessories. However, the
appellate court held RCPI liable for real property tax on its radio station building, machinery shed, and relay station
tower.

The Facts

In 1957, Republic Act No. 2036 (RA 2036)[3] granted RCPI a fifty-year franchise. Section 14 of RA 2036, as
amended by Republic Act No. 4054 (RA 4054) in 1964, reads:

Sec. 14. In consideration of the franchise and rights hereby granted and any provision of law to the contrary
notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other
individuals, copartnerships, private, public or quasi-public associations, corporations or joint stock companies, on real
estate, buildings and other personal property except radio equipment, machinery and spare parts needed in connection
with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those
properties declared exempt in this section. In consideration of the franchise, a tax equal to one and one-half per centum
of all gross receipts from the business transacted under this franchise by the grantee shall be paid to the Treasurer of the
Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act. Said tax
shall be in lieu of any and all taxes of any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly
exempted. (Emphasis supplied)

On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI real property taxes from 1981 to
1985.[4] The municipal treasurer demanded that RCPI pay P166,810 as real property tax on its radio station building in
Barangay Kablon, as well as on its machinery shed, radio relay station tower and its accessories, and generating sets,
based on the following tax declarations:[5]

1. Tax Declaration No. 7639 - Radio station building

2. Tax Declaration No. 7640 - Machinery shed

3. Tax Declaration No. 7641 - Radio relay station tower and accessories
(100 feet high)

4. Tax Declaration No. 7642 - Two (2) units machinery [lister generating
set]

RCPI protested the assessment before the Local Board of Assessment Appeals (LBAA).[6] RCPI claimed that all
its assessed properties are personal properties and thus exempt from the real property tax. Assuming that the assessed
properties are real property, they are still exempt from real property taxes. Section 3 of Presidential Decree No. 464
(PD 464) states that to be taxable, the machinery should be attached to the real estate and essential for manufacturing,
commercial, mining, industrial, or agricultural purposes. RCPI claimed that the assessed properties are not used for
manufacturing, commercial, mining, industrial, or agricultural purposes. Besides, the assessed properties are attached
to a building on a lot not owned by RCPI.
RCPI also pointed out that its franchise exempts RCPI from paying any and all taxes of any kind, nature or
description in exchange for its payment of tax equal to one and one-half per cent on all gross receipts from the business
conducted under its franchise. RCPI further claimed that any deviation from its franchise would violate the non-
impairment of contract clause of the Constitution. Finally, RCPI stated that the value of the properties assessed has
depreciated since their acquisition in the 1960s.
The Provincial Assessor of South Cotabato (provincial assessor) opposed RCPIs claims on all points. The
provincial assessor insisted that the assessed properties are subject to the real property tax.

The Ruling of the Local Board of Assessment Appeals

In its Decision[7] dated 19 May 1995, the LBAA of Koronadal, South Cotabato affirmed the notices of assessment
as valid and consistent with the law. The properties covered by Tax Declaration Nos. 7639, 7640, 7641 and 7642 are
real properties for purposes of real property taxation under PD 464. The in lieu of all taxes clause in RCPIs franchise
does not exempt its properties from the real property tax. Finally, despite its protests, RCPI did not submit evidence as
to the date of acquisition, acquisition cost, and condition of the assessed properties to support its claim of depreciation.
The LBAA, in the absence of contrary evidence, relied on the validity of the Notice of Assessment and on the
presumption that official duty has been regularly performed. The dispositive portion of the LBAAs decision reads:

WHEREFORE, the appellant is hereby ordered to pay the real property taxes, inclusive of all penalties, surcharges and
interest accruing as of the date of actual payment, on the properties covered by Tax Declaration Nos. 7639, 7640, 7641,
and 7642, as computed.

SO ORDERED.[8]

RCPI appealed to the CBAA.[9] RCPI maintained that the in lieu of all taxes clause in its franchise forecloses the
imposition of taxes other than the franchise tax. RCPI also reiterated its arguments before the LBAA. Respondent
assessors repeated their opposition to RCPIs appeal.

The Ruling of the Central Board of Assessment Appeals

In its Decision[10] dated 7 November 1996, the CBAA dismissed RCPIs appeal. The CBAA held that RCPIs
liability for the franchise tax does not exempt RCPI from the real property tax. Under RCPIs franchise, only personal
properties such as radio equipment, machinery and spare parts are exempt from customs duties, tariffs and other taxes.
The CBAA ruled that RCPI was liable for the real property tax on the assessed properties. RCPI could also not invoke
the non-impairment of contract clause since no legal right of RCPI was violated. The dispositive portion of the CBAAs
decision reads:

WHEREFORE, the Decision rendered by the Local Board of Assessment Appeals of the Province of South Cotabato,
dated 19 May 1995, is hereby AFFIRMED and the instant appeal is hereby DISMISSED.

SO ORDERED.[11]

The Ruling of the Court of Appeals

RCPI filed its petition for review of the CBAA ruling before the appellate court. In its Decision[12] dated 29 March
2000, the appellate court modified the CBAA ruling. The appellate court ruled that Section 14 of RA 2036, as amended
by RA 4054, clearly exempts RCPI from tax on radio equipment, machinery, and spare parts needed in connection with
its business. Therefore, RCPI is not liable for real property tax on the generating sets, and on its radio relay station
tower and its accessories consisting of two units of UHF communication equipment, power distribution unit boar, and
battery charger, which are actually varying types of radio equipment. The appellate court explained thus:

The tower upon which these different types of radio equipment are mounted or attached is, however, subject to real
property tax since a tower is not strictly a radio equipment as it only serves as a support for antennas or other
communication equipment mounted thereon for the transmission and reception of radio signals (Colliers Encyclopedia,
Vol. 22, p. 127). Nor could it be classified as machinery, which is a combination of mechanical devices (26 Words and
Phrases, p. 7), for without attachments to it, a tower is merely a structure designed primarily with a view to elevation
(Websters New International Dictionary of the English Language, 2nd Ed., Unabridged).

As RCPIs tax exemption covers only its radio equipment, machinery, and spare parts essential to its business, it is
liable for realty tax on its radio station building. The machinery shed is likewise taxable as the same is a kind of real
property falling within the classification of buildings or permanent structures intended to shelter human beings or
domestic animals, or to receive, retain, or confine the goods in which a person deals, or to house the tools or machinery
he uses, or the persons he employs in his business (5 Words and Phrases, p. 877).[13]

The dispositive portion of the appellate courts decision reads:

WHEREFORE, the decision of the Central Board of Assessment Appeals is hereby MODIFIED. Petitioner is declared
exempt from paying the real property taxes assessed upon its machinery and radio equipment mounted as accessories to
its relay tower. The decision assessing taxes upon petitioners radio station building, machinery shed, and relay station
tower is, however, AFFIRMED.[14]

RCPI filed a partial motion for reconsideration, claiming that its exemption from real property tax applies to the
radio relay station tower, the radio station building, and the machinery shed. [15] The appellate court denied the
motion.[16]

The Issues

RCPI filed its petition for review before this Court. RCPI presented the following issues for resolution:
1. The appellate court erred when it excluded RCPIs tower, relay station building and machinery shed from
tax exemption; and
 2. The appellate court erred when it did not resolve the issue of nullity of the tax declarations and
assessments due to non-inclusion of depreciation allowance.[17]

The Ruling of the Court

Exemption from Real Property Tax

Respondents assert that RCPI not only changed its arguments, RCPI also made incorrect arguments. RCPI earlier
maintained that its radio relay station tower, radio station building, and machinery shed are personal properties and are
thus not subject to the real property tax. RCPI now argues that its radio relay station tower, radio station building, and
machinery shed are tax-exempt because of the in lieu of all taxes clause in its franchise, which exempts RCPI from the
real estate tax.
RCPI contends that the in lieu of all taxes clause in its amended franchise exempts it from paying all taxes other
than franchise tax. It is thus no longer necessary to determine whether the tower, relay station building, and machinery
shed are radio equipment for purposes of exemption from the real estate tax.
RCPI also states that legislative enactments during the pendency of this petition caused it to lose and then regain
its tax-exempt status. RCPI enumerated thus:

First, Congress passed the Local Government Code that withdrew all the tax exemptions existing at the time of its
passageincluding that of RCPIs.

Second, Congress enacted the franchise of telecommunications companies, such as Islacom, Bell, Island Country,
IslaTel, TeleTech, Major Telecoms, and Smart, with the in lieu of all taxes proviso.

Third, Congress passed RA 7925 entitled An Act to Promote and Govern the Development of Philippine
Telecommunications and the Delivery of Public Telecommunications Services which, through Section 23, mandated
the equality of treatment of service providers in the telecommunications industry.[18]

We are not persuaded.

As found by the appellate court, RCPIs radio relay station tower, radio station building, and machinery shed are
real properties and are thus subject to the real property tax. Section 14 of RA 2036, as amended by RA 4054, states that
[i]n consideration of the franchise and rights hereby granted and any provision of law to the contrary
notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other
individuals, copartnerships, private, public or quasi-public associations, corporations or joint stock companies, on real
estate, buildings and other personal property x x x.[19] The clear language of Section 14 states that RCPI shall pay
the real estate tax.
The in lieu of all taxes clause in Section 14 of RA 2036, as amended by RA 4054, cannot exempt RCPI from the
real estate tax because the same Section 14 expressly states thatRCPI shall pay the same taxes x x x on real estate,
buildings x x x. The in lieu of all taxes clause in the third sentence of Section 14 cannot negate the first sentence of the
same Section 14, which imposes the real estate tax on RCPI. The Court must give effect to both provisions of the same
Section 14. This means that the real estate tax is an exception to the in lieu of all taxes clause.
Subsequent legislations have radically amended the in lieu of all taxes clause in franchises of public utilities. As
RCPI correctly observes, the Local Government Code of 1991 withdrew all the tax exemptions existing at the time
of its passage including that of RCPIs with respect to local taxes like the real property tax. Also, Republic Act No.
7716 (RA 7716) abolished the franchise tax on telecommunications companies effective 1 January 1996. To replace the
franchise tax, RA 7716 imposed a 10 percent value-added-tax on telecommunications companies under Section
102[20] of the National Internal Revenue Code. The present state of the law on the in lieu of all taxes clause in
franchises of telecommunications companies was summarized as follows:

The existing legislative policy is clearly against the revival of the in lieu of all taxes clause in franchises of
telecommunications companies. After the VAT on telecommunications companies took effect on January 1, 1996,
Congress never again included the in lieu of all taxes clause in any telecommunications franchise it subsequently
approved. Also, from September 2000 to July 2001, all the fourteen telecommunications franchises approved by
Congress uniformly and expressly state that the franchisee shall be subject to all taxes under the National Internal
Revenue Code, except the specific tax. The following is substantially the uniform tax provision in these fourteen
franchises:

Tax Provisions. The grantee, its successors or assigns, shall be subject to the payment of all taxes, duties, fees, or
charges and other impositions under the National Internal Revenue Code of 1997, as amended, and other applicable
laws: Provided, That nothing herein shall be construed as repealing any specific tax exemptions, incentives or
privileges granted under any relevant law: Provided, further, That all rights, privileges, benefits and exemptions
accorded to existing and future telecommunications entities shall likewise be extended to the grantee.

Thus, after the imposition of the VAT on telecommunications companies, Congress refused to grant any tax exemption
to telecommunications companies that sought new franchises from Congress, except the exemption from specific tax.
More importantly, the uniform tax provision in these new franchises expressly states that the franchisee shall pay not
only all taxes, except specific tax, under the National Internal Revenue Code, but also all taxes under other applicable
laws. One of the other applicable laws is the Local Government Code of 1991, which empowers local governments to
impose a franchise tax on telecommunications companies. This, to reiterate, is the existing legislative policy.[21]

RCPI cannot also invoke the equality of treatment clause under Section 23 of Republic Act No. 7925.[22] The franchises
of Smart,[23] Islacom,[24] TeleTech,[25] Bell,[26] Major Telecoms,[27] Island Country,[28] and IslaTel,[29] all expressly
declare that the franchisee shall pay the real estate tax, using words similar to Section 14 of RA 2036, as amended.
The provisions of these subsequent telecommunication franchises imposing the real estate tax on franchisees
only confirm that RCPI is subject to the real estate tax. Otherwise, RCPI will stick out like a sore thumb, being the
only telecommunications company exempt from the real estate tax, in mockery of the spirit of equality of treatment that
RCPI is invoking, not to mention the violation of the constitutional rule on uniformity of taxation.
It is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and liberally in favor
of the taxing authority. It is the taxpayers duty to justify the exemption by words too plain to be mistaken and too
categorical to be misinterpreted.[30]

Exclusion of Depreciation Allowance

RCPI contends that the tax declarations and assessments covering its radio relay station tower, radio station
building, and machinery shed are void because the assessors did not consider depreciation allowance in their
assessments.
We have examined the records of this case and found that RCPI raised before the LBAA and the CBAA the
nullity of the assessments due to the non-inclusion of depreciation allowance. Therefore, RCPI did not raise this issue
for the first time. However, even if we consider this issue, under the Real Property Tax Code depreciation allowance
applies only to machinery and not to real property.[31]
WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No.
47446 dated 29 March 2000.
SO ORDERED.