I.
GENERAL PRINCIPLES OF  RA 1125: the appeal may be made within thirty
TAXATION:
A. DEFINITION & CONCEPT OF
TAXATION
COMMISSIONER OF INTERNAL REVENUE VS.
ALGUE INC.
GR NO. L-28896 | FEB. 17, 1988
FACTS:
 Algue Inc. is a domestic corp engaged in
engineering, construction and other allied
activities
 On Jan. 14, 1965, the corp received a letter
from the CIR regarding its delinquency income
taxes from 1958-1959, amtg to P83,183.85
 A letter of protest or reconsideration was filed
by Algue Inc on Jan 18
 On March 12, a warrant of distraint and levy
was presented to Algue Inc. thru its counsel,
Atty. Guevara, who refused to receive it on the
ground of the pending protest
 Since the protest was not found on the records,
a file copy from the corp was produced and
given to BIR Agent Reyes, who deferred service
of the warrant
 On April 7, Atty. Guevara was 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
 On April 23, Algue filed a petition for review of
the decision of the CIR with the Court of Tax
Appeals
CIR contentions:
 the claimed deduction of P75,000.00 was
properly disallowed because it was not an
ordinary reasonable or necessary business
expense
 payments are fictitious because most of the
payees are members of the same family in
control of Algue and that there is not enough
substantiation of such payments
 CTA: 75K had been legitimately paid by Algue
Inc. for actual services rendered 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.
ISSUE: W/N the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses
in its income tax returns
RULING:
 Taxes are the lifeblood of the government and
so should be collected without unnecessary
hindrance, made in accordance with law.
1
days after receipt of the decision or ruling
challenged
 During the intervening period, the warrant was
premature and could therefore not be served.
 Originally, CIR claimed that the 75K promotional
fees to be personal holding company income,
but later on conformed to the decision of CTA
 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. CTA also found,
after examining the evidence, that no
distribution of dividends was involved
 CIR suggests a tax dodge, an attempt to evade
a legitimate assessment by involving an
imaginary deduction
 Algue Inc. was a family corporation where strict
business procedures were not applied and
immediate issuance of receipts was not
required. 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. This
arrangement was understandable in view of the
close relationship among the persons in the
family corporation
 The amount of the promotional fees was not
excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to
Algue Inc. was P125K. After 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.
 Sec. 30 of the Tax Code: allowed deductions in
the net income – Expenses - 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 xxx
 the burden is on the taxpayer to prove the
validity of the claimed deduction
 In this case, Algue Inc. 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.
 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
 Taxation must 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
 Algue Inc.’s appeal from the decision of the CIR
was filed on time with the CTA in accordance
with Rep. Act No. 1125. And we also find that
the claimed deduction by Algue Inc. was
permitted under the Internal Revenue Code and
should therefore not have been disallowed by
the CIR
ISSUE: Whether the assessment was reasonable.
RULING:
 Taxes are the lifeblood of the government and
so should be collected without unnecessary
hindrance
 Every person who is able to pay must
contribute his share in the running of the
government. The Government, for his 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 is an arbitrary method of
exaction by those in the seat of power.
 Tax collection, however, should be made in
accordance with law as any arbitrariness will
negate the very reason for government itself.
For all the awesome power of the tax collector,
he may still be stopped in his tracks if the
taxpayer can demonstrate that the law has not
been observed. Herein, the claimed deduction
(pursuant to Section 30 [a] [1] of the Tax Code
and Section 70 [1] of Revenue Regulation [2]:
as to compensation for personal services) had
been legitimately by Algue Inc. It has further
proven that the payment of fees was
reasonable and necessary in light of the efforts
exerted by the payees in inducing investors (in
VOICP) to involve themselves in an
experimental enterprise or a business requiring
millions of pesos.
The assessment was not reasonable.
E. PURPOSE OF TAXATION
1. Revenue-raising
OSMENA, PETITIONER VS ORBOS,
RESPONDENTS
FACTS:
 PD 1956 was issued to create the Oil Price
Stabilization Fund (OPSF) designed to reimburse
oil companies for cost increases in crude oil
resulting from exchange rate fluctuations and
from increases in the prices of oil in the world
market.
 It was later amended by EO 137 which expands
the grounds for reimbursement to oil companies
for possible cost underrecovery incurred as a
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result of the reduction of domestic prices of
petroleum products.
 In 1991, the OPSF incurred a deficit to which the
Energy Regulatory Board (ERB) tried to resolve
such problem by issuing an order to increase
pump prices of petroleum and such shall have
covered the OPSF deficit within 6 months.
Osmena reacted to this by claiming that the
OPSF should be treated as a special fund and
not as a trust account/fund because a special
tax collected for a specific purpose shall have
its revenue expended for such purposes only
and not channeled to another government
objective and that PD 1956 is unconstitutional
because it confers invalid delegation to ERB.
 It thus appears that the challenge posed by the
petitioner is premised primarily on the view that
the powers granted to the ERB under PD 1956,
partake the nature of the taxation power of the
State.
ISSUES:
(1) Whether PD 1956 is a legislation partaking the
nature of the taxation power of the State or is it
more of police power;
(2) Whether Paragraph 1 PD No. 1956 is
unconstitutional for being an undue and invalid
delegation of legislative power, setting no limit on
the powers of the ERB
RULING:
The fluctuations in world market prices and foreign
exchange rates would in a completely free market
translate into corresponding adjustments in
domestic prices of oil and petroleum products with
sympathetic frequency. But domestic prices which
vary from day to day would result in a chaotic
market with unpredictable effects upon the
country’s economy. The OPSF was established to
protect local consumers from the adverse
consequences that frequent oil price adjustments
may have upon the economy.
The OPSF is thus a buffer mechanism through
which the domestic consumer prices of oil and
petroleum products are stabilized instead of
fluctuating every so often. The establishment and
maintenance of the OPSF is well within that power
and responsibility of the government to secure the
physical and economic survival—it is within the
police power of the State.
The stabilization and subsidy of domestic prices of
petroleum products is regarded as public purpose.
With regard to undue delegation of legislative
power, the Court finds that the authority conferred
upon the ERB to impose additional amounts on
petroleum provides a sufficient standard. PD 1956
expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.
What is here involved is not so much the power of
taxation as police power.
Although the provision authorizing the ERB to
impose additional amounts could be construed to
refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to
enable the delegate to act with expediency in
carrying out the objectives of the law which are
embraced by the police power of the State.
Constant fluctuation of the various factors involved
in the determination of the price of oil and
petroleum products do not conveniently permit the
setting of fixed or rigid parameters in the law as
proposed by the petitioner.
As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated
power. The petition is granted only for the
nullification of the reimbursement of financing
charges but dismissed in all other respects.
PHILIPPINE AIRLINES, INC. v. EDU
G.R. No. L- 41383, August 15, 1988
FACTS:
The Philippine Airlines (PAL) is a corporation
engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its
franchise, PAL is exempt from the payment of
taxes.
Sometime in 1971, however, Land Transportation
Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act
4136, otherwise known as the Land and
Transportation and Traffic Code, requiring all tax
exempt entities, among them PAL to pay motor
vehicle registration fees.
Despite PAL's protestations, Elevate refused to
register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL
thus paid, under protest, registration fees of its
motor vehicles. After paying under protest, PAL
through counsel, wrote a letter dated May 19,1971,
to Land Transportation Commissioner Romeo Edu
(Edu) demanding a refund of the amounts paid.
Edu denied the request for refund. Hence, PAL filed
a complaint against Edu and National Treasurer
Ubaldo Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL
appealed to the Court of Appeals which in turn
certified the case to the Supreme Court.
ISSUE:
Whether or not motor vehicle registration
fees are considered as taxes.
RULING:
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Yes. If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.
Such is the case of motor vehicle registration fees.
The motor vehicle registration fees are actually
taxes intended for additional revenues of the
government even if one fifth or less of the amount
collected is set aside for the operating expenses of
the agency administering the program.
2. Non-revenue/special or regulatory
REPUBLIC V. BACOLOD-MURCIA MILLING
CO., INC., ET AL.
Action: Joint Appeal from Court of First Instance of
Manila
Summary:
 The three sugar centrals are sister companies
under single ownership and management.
 They were required to pay 10 centavos per picul
(around 5-6 kilos) of sugar collected for 5 crop
years under Sec. 15 of RA 632.
 The sugar tax was levied to create Philsugin
(Philippine Sugar Institute), to conduct research
and development for sugar and sugar by-
products.
 Philsugin acquired the Insular Sugar Refinery
and lost a lot of money
 Appellants stopped paying the levy because
they said that the purchase was unauthorized
by RA 632. They had unpaid balances
 The Court of First Instance said that they had to
pay the balance, and the Supreme Court
affirmed its decision
Definitions:
Special assessments: a levy on property where
the property against which it is levied derives
special benefits from how the money was used (in
normal people speak: whatever this tax is spent on
will benefit those who paid the tax)
RA 632: Philippine Sugar Institute charter; where
Philsugin is a semi-public corporation meant to
advance the Philippine sugar industry (research,
marketing, etc.)
Section 15 of RA 632: to raise funds for
Philsugin, annual sugar production will be levied
10c per picul of sugar collected for 5 crop years,
(c.y. 1951-52 to 1956). The amount will be borne by
sugar centrals and sugar cane planters
FACTS:
 RA 632 created the Philippine Sugar Institute, a
semi-public corporation. In 1951, the Institute
acquired the Insular Sugar Refinery for P3.07
million payable in installments from the
proceeds of the sugar tax to be collected under
RA 632. The operation of the refinery for 1954
to 1957 was disastrous as the Institute suffered
tremendous losses. Contending that the
purchase of the refinery with money from the
 Institute’s fund was not authorized under RA
632, and that the continued operation of the
refinery is inimical to their interest, Bacolod-
Murcia Milling Co., Ma-ao Sugar Central, Talisay-
Silay Milling Co. and the Central Azucarera del
Danao refused to continue with their
contribution to said fund. The trial court found
them liable under RA 632.
ISSUE:
Whether the taxpayers may refuse to pay the
special assessment, allegedly distinct from an
ordinary tax which no one can refuse to pay.
RULING:
The nature of a “special assessment” similar to the
case has been discussed and explained in Lutz vs.
Araneta. The special assessment or levy for the
Philippine Sugar Institute (Philsugin) Fund is not so
much an exercise of the power of taxation, nor the
imposition of a special assessment, but the
exercise of police power for the general welfare of
the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may
lawfully resist. Section 2a of the Charter authorizing
Philsugin to “conduct research work for the sugar
industry in all its phases, either agricultural or
industrial, for the purpose of introducing into the
sugar industry such practices or processes that will
reduce the cost of production and achieve greater
efficiency in the industry, justifies the acquisition of
the refinery in question. The financial loss resulting
from the operation thereof is no means an index
that the industry did not profit therefrom, as other
gains of a different nature (such as experience)
may have been realized.
ISSUE:
Are the milling companies liable?
RULING:
Yes. The special assessment or levy for the
Philippine Sugar Institute Fund is not so much an
exercise of the power of taxation, nor the
imposition of a special assessment, but the
exercise of police power for the general welfare of
the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may
lawfully resist. Section 2a of the charter authorizes
Philsugin to acquire the refinery in question. The
financial loss resulting from the operation thereof is
no means an index that the industry did profit
therefrom, as other gains of a different nature
(such as experience) may have been realized.
TIO VS VIDEOGRAM REGULATORY
COMMISSION (G.R. NO. 75697)
FACTS:
The case is a petition filed by petitioner on behalf
of videogram operators adversely affected by
Presidential Decree No. 1987, “An Act Creating the
4
Videogram Regulatory Board” with broad powers to
regulate and supervise the videogram industry.
A month after the promulgation of the said
Presidential Decree, the amended the National
Internal Revenue Code provided that:
“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.”
“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 accrue 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 rationale behind the tax provision is to curb 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 movie houses and theaters. Such
unregulated circulation 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.
Videogram(s) establishments collectively earn
around P600 Million per annum from rentals, sales
and disposition of videograms, and these earnings
have not been subjected to tax, thereby depriving
the Government of approximately P180 Million in
taxes each year.
The unregulated activities of videogram
establishments have also affected the viability of
the movie industry.
ISSUES:
(1) Whether or not tax imposed by the DECREE is a
valid exercise of police power.
(2) Whether or nor the DECREE is constitutional.
RULING:
Taxation has been made the implement of the
state’s police power. 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.
We find no clear violation of the Constitution which
would justify us in pronouncing Presidential Decree
No. 1987 as unconstitutional and void. 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.”
WHEREFORE, the instant Petition is hereby
dismissed. No costs.
CALTEX PHILIPPINES, INC. V COMMISSION ON
AUDIT
GR NO. 92585, MAY 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it to
remit its collection to the Oil Price Stabilization
Fund (OPSF), excluding that unremitted for the
years 1986 and 1988, of the additional tax on
petroleum products authorized under the PD 1956.
Pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in
abeyance. The grant total of its unremitted
collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further
offsetting remittances and reimbursements for the
current and ensuing years. Caltex moved for
reconsideration but was denied. Hence, the present
petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF
may be offsetted against Caltex’s outstanding
claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of
5
government. Taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is
affected with public interest as to be within the
police power of the State.
PD 1956, as amended by EO 137, explicitly
provides that the source of OPSF is taxation.
A taxpayer may not offset taxes due from the
claims he may have against the government. Taxes
cannot be subject of compensation because the
government and taxpayer are not mutually
creditors and debtors of each other and a claim for
taxes is not such a debt, demand,, contract or
judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that
Caltex’s claim for reimbursement of underrecovery
arising from sales to the National Power
Corporation is allowed.
F. PRINCIPLES OF SOUND TAX SYSTEM
1. Fiscal adequacy
2. Administrative feasibility
3. Theoretical justice
CHAVEZ V ONGPIN
GR NO 76778, JUNE 6, 1990
FACTS:
Section 21 of Presidential Decree 464 provides that
every 5 years starting calendar year 1978, there
shall be a provincial or city general revision of real
property assessments. The general revision was
completed in 1984.
On November 25, 1986, President Corazon Aquino
issued EO 73 stating that beginning January 1,
1987, the 1984 assessments shall be the basis of
real property taxes. Francisco Chavez, a taxpayer
and landowner, questioned the constitutionality of
EO 74. He alleges that it will bring unreasonable
increase in real property taxes.
ISSUE:
Is EO 73 constitutional?
RULING:
Yes. Without EO 73, the basis for collection of real
property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting
real property taxes based on valuations arrived at
several years ago, in disregard of the increases in
the value of real properties that have occurred
since then is not in consonance with a sound tax
system.
Fiscal adequacy, which is one of the characteristics
of a sound tax system, requires that sources of
revenue must be adequate to meet government
expenditures and their variations.
G. THEORY AND BASIS OF TAXATION
1. Lifeblood Theory
 2. Necessity Theory
PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
FACTS:
The petitioner Philippine Guaranty Co., Inc., a
domestic insurance company, entered into
reinsurance contracts with foreign insurance
companies not doing business in the country,
thereby ceding to foreign reinsurers a portion of the
premiums on insurance it has originally
underwritten in the Philippines. The premiums paid
by such companies were excluded by the petitioner
from its gross income when it file its income tax
returns for 1953 and 1954. Furthermore, it did not
withhold or pay tax on them. Consequently, the CIR
assessed against the petitioner withholding taxes
on the ceded reinsurance premiums to which the
latter protested the assessment on the ground that
the premiums are not subject to tax for the
premiums did not constitute income from sources
within the Philippines because the foreign
reinsurers did not engage in business in the
Philippines, and CIR's previous rulings did not
require insurance companies to withhold income
tax due from foreign companies.
ISSUE:
Are insurance companies not required to withhold
tax on reinsurance premiums ceded to foreign
insurance companies, which deprives the
government from collecting the tax due from them?
HELD:
No. The power to tax is an attribute of sovereignty.
It is a power emanating from necessity. It is a
necessary burden to preserve the State's
sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to
serve, public improvement designed for the
enjoyment of the citizenry and those which come
within the State's territory, and facilities and
protection which a government is supposed to
provide. Considering that the reinsurance
premiums in question were afforded protection by
the government and the recipient foreign reinsurers
exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers
should share the burden of maintaining the state.
The petitioner's defense of reliance of good faith
on rulings of the CIR requiring no withholding of tax
due on reinsurance premiums may free the
taxpayer from the payment of surcharges or
penalties imposed for failure to pay the
corresponding withholding tax, but it certainly
would not exculpate it from liability to pay such
withholding tax. The Government is not estopped
6
from collecting taxes by the mistakes or errors of
its agents.
ISSUES:
1. Is PhilGuaranty innocent of the charges?
2. Is PhilGuaranty not expected to withhold taxes
for reinsurance premiums?
3. Is PhilGuaranty released from liability for the tax
after it was advised by the CIR that reinsurance
premiums were not subject to withholding?
RULING:
1. No. Precisely, the mere fact that it was exempted
implies violation of Section 53c.
2. No, it should withhold taxes. The law sets no
condition for the personal liability of the
withholding agent to attach. The reason is to
compel the withholding agent to withhold the tax
under all circumstances.
3. No, it is liable. It has not been shown that it
withheld the amount of tax due before it inquired
form the BIR, contrary to the requirements of
Section 200. Strict observance of said steps is
required of a withholding agent before he could be
released from liability. Foreign corporations are
taxable on their income from sources within the
Philippines. The foreign insurer’s place of business
should not be confused with their place of activity.
It suffices that the activity creating the income is
performed or done in the Philippines.
3.Benefits-protectiontheory
(Symbiotic relationship)
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
FACTS:
Petitioner Benjamin Gomez mailed a letter at the
post office in San Fernando, Pampanga. It did not
bear the special anti-TB stamp required by the RA
1635. It was returned to the petitioner. Petitioner
now assails the constitutionality of the statute
claiming that RA 1635 otherwise known as the Anti-
TB Stamp law is violative of the equal protection
clause because 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
exemptions. The law in question requires an
additional 5 centavo stamp for every mail being
posted, and no mail shall be delivered unless
bearing the said stamp.
ISSUE:
Is the Anti-TB Stamp Law unconstitutional, for being
allegedly violative of the equal protection clause?
RULING:
No. It is settled that the legislature has the inherent
power to select the subjects of taxation and to
grant exemptions. This power has aptly been
described as "of wide range and flexibility." Indeed,
it is said that in the field of taxation, more than in
other areas, the legislature possesses the greatest
freedom in classification. 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.
The classification of mail users is based on the
ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have
never been thought of as raising revenues under
the equal protection clause.
LORENZO VS. POSADAS
64 PHIL 353
FACTS:
On 27 May 1922, Thomas Hanley died in
Zamboanga, leaving a will and considerable
amount of real and personal properties. Hanley’s
will provides the following: his money will be given
to his nephew, Matthew Hanley, as well as the real
estate owned by him. It further provided that the
property will only be given ten years after Thomas
Hanley’s death.
Thus, in the testamentary proceedings, the Court of
First Instance of Zamboanga appointed P.J.M. Moore
as trustee of the estate. Moore took oath of office
on March 10, 1924, and resigned on Feb. 29, 1932.
Pablo Lorenzo was appointed in his stead.
Juan Posadas, Collector of Internal Revenue,
assessed inheritance tax against the estate
amounting to P2,057.74 which includes penalty and
surcharge. He filed a motion in the testamentary
proceedings so that Lorenzo will be ordered to pay
the amount due. Lorenzo paid the amount in
protest after CFI granted Posadas’ motion. He
claimed that the inheritance tax should have been
assessed after 10 years.
He asked for a refund but Posadas declined to do
so. The latter counterclaimed for the additional
amount of P1,191.27 which represents interest due
on the tax and which was not included in the
original assessment. However, CFI dismissed this
counterclaim. It also denied Lorenzo’s claim for
refund against Posadas.
Hence, both appealed.
ISSUE:
Whether the estate was delinquent in paying the
inheritance tax and therefore liable for the
P1,191.27 that Posadas is asking for?
RULING:
Yes. It was delinquent because according to Sec.
1544 (b) of the Revised Administrative Code,
payment of the inheritance tax shall be made
before delivering to each beneficiary his share. This
7
payment should have been made before March 10,
1924, the date when P.J.M. Moore formally assumed
the function of trustee.
Although the property was only to be given after 10
years from the death of Hanley, the court
considered that delivery to the trustee is delivery
to cestui que trust, the beneficiary within the
meaning of Sec. 1544 (b).
Even though there was no express mention of the
word “trust” in the will, the court of first instance
was correct in appointing a trustee because no
particular or technical words are required to create
a testamentary trust (69 C.J.,p. 711).
The requisites of a valid testamentary trust are:
1) sufficient words to raise a trust,
2) a definite subject,
3) a certain or ascertained object.
There is no doubt that Hanley intended to create a
trust since he ordered in his will that certain of his
properties be kept together undisposed during a
fixed period or for a stated purpose.
ISSUES:
1. When does the inheritance tax accrue and when
must it be satisfied?
2. Should the inheritance tax be computed on the
basis of the value at the time of the testator's
death or on its value ten years later?
3. In determining the net value of the estate
subject to tax, is it proper to deduct the
compensation due to trustees?
4. What law governs the case?
5. Has there been delinquency in the payment of
the inheritance tax?
RULING:
1. Thomas Hanley having died on May 27, 1922,
the inheritance tax accrued as of that date. But it
must be paid before the delivery of the properties
in question to PJM Moore as trustee on March 10,
1924.
2. It should be computed at the time of the
decedent's death, regardless of any subsequent
contingency value of any increase or decrease and
notwithstanding the postponement of the actual
possession or enjoyment of the estate by the
beneficiary and the tax measured by the value of
the property transmitted at that time regardless of
its appreciation or depreciation.
3. No. The compensation of a trustee, earned not in
the administration of the estate, but in the
management thereof for the benefit of the legatees
or devises, does not come properly within the class
or reason for exempting administration expenses.
4. Act 3031 and not Act 3606 applies. Even if Act
3606 is more favorable to the taxpayer, revenue
laws, generally, which impose taxes collected by
means ordinarily resorted to for the collection of
taxes are not classes as penal laws. The presumption that tax statutes are intended to
operate uniformly and equally was not overthrown
5. Yes. That taxes must be collected promptly is a therein.
policy deeply entrenched in our tax system. Thus,
no court is allowed to grant injunction to restrain c. Constitutionality of Double
the collection of any internal revenue tax. The mere Taxation
fact that the estate of the deceased was placed in
trust did not remove it from the operation of our CITY OF BAGUIO vs. DE LEON
inheritance tax laws or exempt it from the payment 25 SCRA 938
of the inheritance tax. GR No. L-24756, October 31, 1968

H. DOCTRINES IN TAXATION "There is no double taxation where one tax is

1. Prospectivity of tax laws imposed by the state and the other is imposed by
2. Imprescriptibility the city."
3. Double taxation
FACTS:
a. Strict sense
The City of Baguio passed an ordinance imposing a
b. Broad sense
license fee on any person, entity or corporation
doing business in the City. The ordinance sourced
VILLANUEVA V CITY V ILOILO
its authority from RA No. 329, thereby amending
GR NO L-26521, DECEMBER 28, 1968
the city charter empowering it to fix the license fee
FACTS: On September 30, 1946, the Municipal
and regulate businesses, trades and occupations as
Board of Iloilo City enacted Ordinance 86 imposing
may be established or practiced in the City. De
license tax fees upon tenement houses.
Leon was assessed for P50 annual fee it being
shown that he was engaged in property rental and
The validity of such ordinance was challenged by
deriving income therefrom. The latter assailed the
Eusebio and Remedios Villanueva, owners of four
validity of the ordinance arguing that it is ultra
tenement houses containing 34 apartments. The
vires for there is no statury authority which
Supreme Court held the ordinance to be ultra
expressly grants the City of Baguio to levy such
views.
tax, and that there it imposed double taxation, and
violates the requirement of uniformity.
On January 15, 1960, however, the municipal
ISSUE:
board, believing that it acquired authority to enact
Are the contentions of the defendant-appellant
an ordinance of the same nature pursuant to the
tenable?
Local Autonomy Act, enacted Ordinance 11,
Eusebio and Remedios Villanueva assailed the
HELD:
ordinance anew.
No. First, RA 329 was enacted amending Section
2553 of the Revised Administrative Code
ISSUE:
empowering the City Council not only to impose a
Does Ordinance 11 violate the rule of uniformity of
license fee but to levy a tax for purposes of
taxation?
revenue, thus the ordinance cannot be considered
ultra vires for there is more than ample statury
RULING:
authority for the enactment thereof.
No. The Court has ruled the tenement houses
constitute a distinct class of property and that
Second, an argument against double taxation may
taxes are uniform and equal when imposed upon all
not be invoked where one tax is imposed by the
property of the same class or character within the
state and the other is imposed by the city, so that
taxing authority.
where, as here, Congress has clearly expressed its
intention, the statute must be sustained even
The fact that the owners of the other classes of though double taxation results.
buildings in Iloilo are not imposed upon by the
ordinance, or that tenement taxes are imposed in And third, violation of uniformity is out of place it
other cities do not violate the rule of equality and being widely recognized that there is nothing
uniformity. inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the
The rule does not require that taxes for the same same occupation, calling or activity by both the
purpose should be imposed in different territorial state and the political subdivisions thereof.
subdivisions at the same time. So long as the
burden of tax falls equally and impartially on all PEPSI-COLA BOTTLING CO. OF THE PHILS.,
owners or operators of tenement houses similarly INC. vs. CITY OF BUTUAN
classified or situated, equality and uniformity is 24 SCRA 789
accomplished. GR No. L-22814, August 28, 1968
8

"The classification made in the exercise of power to
tax, to be valid, must be reasonable ."
FACTS:
Plaintiff-appellant Pepsi-Cola sought to recover the
sums paid by it under protest, to the City of
Butuan, and collected by the latter, pursuant to its
Municipal Ordinance No. 110 which plaintiff assails
as null and void because it partakes of the nature
of an import tax, amounts to double taxation,
highly unjust and discriminatory, excessive,
oppressive and confiscatory, and constitutes an
invlaid delegation of the power to tax.
The ordinance imposes taxes for every case of
softdrinks, liquors and other carbonated beverages,
regardless of the volume of sales, shipped to the
agents and/or consignees by outside dealers or
any person or company having its actual business
outside the City.
ISSUE:
Does the tax ordinance violate the uniformity
requirement of taxation?
RULING:
Yes. The tax levied is discriminatory. Even 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.
The classification made in the exercise of this
authority, to be valid, must, however, be
reasonable 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 to all those
who belong to the same class.
d. Modes of eliminating double
taxation
9
4. Escape from taxation
a. Shifting of tax burden
i. Ways of shifting the tax
burden
ii. Taxes that can be shifted
iii. Meaning of impact &
incidence of taxation
b. Tax avoidance
DELPHER TRADES CORP. V. IAC (1988)
Petitioners: Delpher Trades Corporation, and
Delphin Pacheco
Respondents: Intermediate Appellate Court and
Hydro Pipes Philippines, Inc.
Brief Facts: Delf and Pelagia Pacheco leased the
lot they co-owned to CCII to which the siblings
granted a right of first refusal. CCII assigned its
rights to Hydro Pipes. A deed of exchange was
executed between the Pachecos and Delpher
Trades Corp. wherein the Pachecos conveyed the
leased lot to Delpher in exchange for 2500 shares
of stock. Hydro Pipes filed a complaint for
reconveyance for alleged violation of its right of
first refusal.
Doctrine: After incorporation, one becomes a
stockholder of a corporation by subscription or by
purchasing stock directly from the corporation or
from individual owners thereof.
FACTS:
1. Delfin Pacheco and his sister Pelagia Pacheco
were the co-owners of a real estate in Polo (now
Valenzuela).
2. They leased the property to Construction
Components International Inc. (CCII), providing
that during the existence or after the term of
this lease the lessor, should he decide to sell
the property leased shall first offer the same to
the lessee and the latter has the priority to buy
under similar conditions.
3. CCII assigned its rights and obligations under
the contract of lease in favour of Hydro Pipes
Philippines, Inc. with the signed conformity and
consent of the Pachecos. The contract and
assignment of lease were annotated at the back
of the title.
4. A deed of exchange was executed between the
Pachecos and defendant Delpher Trades
Corporation whereby the former conveyed to
the latter the leased property together with
another parcel of land also in Valenzuela for
2500 shares of stock of Delpher (total value of
P1.5M)
5. On the ground that it was not given the first
option to buy the leased property pursuant to
the proviso in the lease agreement, Hydro Pipes
filed an amended complaint for reconveyance
of the lot in its favour under conditions similar
 to those whereby Delpher acquired the property
from the Pachecos.
6. The CFI ruled in favour of Hydro Pipes. This was
affirmed on appeal by the IAC.
7. Petitioners filed a petition for certiorari which
was initially denied by the SC but upon MR, the
SC gave it due course.
8. Eduardo Neria, CPA and son-in-law of Pelagia
testified that:
a. Delpher is a family corporation,
organized by the children of Pelagia
Pacheco and Benjamin Hernandez, and
Sps. Delfin and Pilar Pacheco, who
owned in common the parcel of land
leased to Hydro Pipes in order to
perpetuate their control over the
property through the corporation and to
avoid taxes;
b. To accomplish this, two pieces of real
estate, including the land leased to
Hydro Pipes, were transferred to the
corporation;
c. The leased property was transferred to
the corporation by virtue of a deed of
exchange of property; in exchange for
these properties, Pelagia and Delfin
acquired 2500 unissued no par value
shares of stock which are equivalent to a
55% majority in the corporation because
the other owners only owned 2000
shares
d. At the time of incorporation, he knew all
about the contract of lease to Hydro
Pipes. In the petitioners’ MR, they refer
to this scheme as “estate planning”
9. Petitioners contend that there was actually no
transfer of ownership of the subject parcel of
land since the Pachecos remained in control of
the property. The transfer of ownership, if
anything, was merely in form, but not in
substance.
a. Petitioner corporation is a mere alter ego
or conduit of the Pacheco co-owners;
hence the corporation and the co-
owners should be deemed to be the
same, there being identity of interest.
b. The Pachecos did not sell the property.
There was no sale and they exchanged
the land for shares of stocks in their own
corporation.
10. Respondents argue that Delpher is a corporate
entity separate and distinct from the Pachecos.
It cannot be said that Delpher is the Pacheco’s
alter ego or conduit.
a. That Delfin, having treated Delpher as
such a separate and distinct corporate
entity, is not a party who may allege
that this separate corporate existence
should be disregarded.
b. There was actual transfer of ownership
interest over the leased property when
the same was transferred to Delpher in
exchange for the latter’s shares of stock.
10
ISSUE: WON the Deed of Exchange executed
by the Pachecos and Delpher was meant to
be a contract of sale, which prejudiced
respondent’s right of first refusal. (NO)
RATIO: The Delpher Trades Corporation is a
business conduit of the Pachecos. What they really
did was to invest their properties and change the
nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades
Corporation to take control of their properties and
at the same time save on inheritance taxes.
 The Deed of Exchange of property cannot be a
considered a contract of sale since there was no
transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family
merely changed their ownership from one form
to another.
 There is nothing wrong or objectionable about
the estate planning scheme resorted to by the
Pachecos. “The legal right of a taxpayer to
decrease the amount of what otherwise could
be his taxes or altogether avoid them, by
means which the law permits, cannot be
doubted.”
 After incorporation, one becomes a stockholder
of a corporation by subscription or by
purchasing stock directly from the corporation
or from individual owners thereof.
o In exchange of their properties, the
Pachecos acquired 2500 original
unissued no par value shares of stocks
of the Delpher Trades Corporation.
Consequently, the Pachecos became
stockholders of the corporation by
subscription.
 A no-par value share does not purport to
represent any stated proportionate interest in
the capital stock measured by value, but only
an aliquot part of the whole number of such
share issuing corporation. The holder of no-par
shares may see from the certificate itself that
he is an aliquot sharer in the assets of the
corporation. But this character of proportionate
interest is not hidden beneath a false
appearance of a given sum in money, as in the
case of par value shares. The capital stock of a
corporation issuing only no-par value shares is
not set forth by a stated amount of money, but
instead is expressed to be divided into a stated
number of shares, such as 1000 shares. This
indicates that a shareholder of 100 such shares
is an aliquot sharer in the assets of the
corporation, no matter what value they may
have to the extent of 100/1000, or 1/10. Thus,
by removing the par value of shares, the
attention of persons interested in the financial
condition of a corporation is focused upon the
value of assets and the amount of its debts.
 There was no attempt to state the true or
current market value of the real estate. Land
valued at P300.00 per square meter was turned
 over to the family’s corporation for only P14.00 Whether or not Southern Motors, Inc. was
a square meter. organized as a tax evasion device.
DISPOSITIVE: Petition granted.
YUTIVO VS CTA RULING
1 SCRA 160
NO. SM was organized in June, 1946 when it
could not have caused Yutivo any tax savings.
FACTS
From that date up to June 30, 1947, or a period
1.Yutivo Sons Hardware Co. (Yutivo), a domestic
corporation incorporated under Philippine laws in
of more than one year, GM was the importer of
1916, was engaged inthe importation and sale of the cars and trucks sold to Yutivo, which, in
hardware supplies and equipment. turn resold them to SM.
2. After the first world war, it resumed its business During that period, it is not disputed that GM
and bought a number of cars and trucks from as importer, was the one solely liable for sales
General MotorsCorporation (GM), an American taxes.
Corporation licensed to do business in the Neither Yutivo or SM was subject to the sales
Philippines. taxes on their sales of cars and trucks.
3. GM paid sales tax prescribed by the Tax Code on
The sales tax liability of Yutivo did not arise
the basis of its selling price to Yutivo but Yutivo paid
until July 1, 1947 when it became the importer
no further salestax on its sales to the public.
4. On June 13, 1946, the Southern Motors Inc, (SM) and simply continued its practice of selling to
was organized to engage in the business of selling SM.
cars, trucks andspare parts. One of the subscribers The decision, therefore, of the Tax Court that
of stocks during its incorporation was Yu Khe Thai, SM was organized purposely as a tax evasion
Yu Khe Siong and Hu Kho Jin,(sons of Yu Tiong Yee, device runs counter to the fact that there was
one of Yutivo’s founders) as well as Yu Eng Poh, and no tax to evade.
Washington Sycip (sons of Yu Tiong Sin andAlbino
Sycip, respectively, also founders of Yutivo). c. Tax evasion
5. After SM’s incorporation and until the withdrawal
of GM from the Philippines, the cars and trucks REPUBLIC V. GONZALES
purchased by Yutivofrom GM were sold by Yutivo to
SM which the latter sold to the public.
FACTS
6. Yutivo was appointed importer for Visayas and
Mindanao by the US manufacturer of cars and
Since 1946, Blas Gonzales, has been a private
trucks sold by GM. Yutivopaid the sales tax
concessionaire in the U.S. Military Base at Clark
prescribed on the basis of selling price to SM. SM
Field, Angeles City: He was engaged in the
paid no sales tax on its sales to the public.
manufacture of furniture and, per agreement with
7. An assessment was made upon Yutivo for
base authorities, supplied them with his
deficiency sales tax. The Collector of Internal
manufactured articles.
Revenue, contends that thetaxable sales were the
retail sales by SM to the public and not the sales at
The appellant filed his income tax returns for the
wholesale made by Yutivo to the latter
years 1946 and 1947, respectively, with the then
inasmuchasSM and Yutivo were one and the same
Municipal Treasurer of Angeles, Pampanga. Upon
corporation, the former being a subsidiary of the
investigation, however, the BIR discovered that for
latter.
the years 1946 and 1947, the appellant had been
8. The assessment was disputed by petitioner. After
paid a total of P2,199,920.50 for furniture delivered
reinvestigation, a second assessment was made,
by him to the base authorities.
sustaining the validityof the first assessment.
Yutivo contested the second assessment,alleging
Compared against the sales figure provided by the
that:
base authorities, therefore, the amount of
(1) there is no valid ground to disregardthe
P1,787,848.32 declared by the appellant as his
corporate personality of SM and to hold that it is an
total sales for the two tax years in question was
adjunct of petitioner;
short or underdeclared by some P412,072.18.
(2) assuming the separate personality ofSM
may be disregarded, the sales tax already paid by
Accordingly, the appellee considered this last
Yutivo should first be deducted from the selling
mentioned amount as unreported item of income of
price of SM incomputing the sales tax due on each
the appellant for 1946. Further investigation into
vehicle; and
the appellant's 1946 profit and loss statement
(3) the surcharge has been erroneously
disclosed "local sales," that is, sales to persons
imposed by respondent.
other than the United States Army, in the amount
of P124,510.43. As a result, the appellee likewise
ISSUE considered the said amount as unreported income
for the said year.
11

The full amount of P124,510.43 was considered as
taxable income because the appellant could not
produce the books of account on the same upon
which any deduction could be based.
ISSUES
1. Whether or not Gonzales is subject to Philippine
tax laws pursuant to the United States-Philippine
Military Bases Agreement
2. Whether or not Gonzales is guilty of fraud.
RULING
1. YES. None of the mentioned covenants shields a
concessionaire, like the appellant, from the
payment of the income tax. For one thing, even the
exemption in favor of members of the United States
Armed Forces and nationals of the United States
does not include income derived from Philippine
sources. The appellant cannot seek refuge in the
use of "excise" or "other taxes or imposts" in
paragraph 1 of Article XVIII of the Military Bases
Agreement, because, as already stated, said terms
are employed with specific application to the right
to establish agencies and concessions within the
bases and to the merchandise or services sold or
dispensed by such agencies or concessions.
2. YES. As rightly argued by the Solicitor General's
office, since fraud is a state of mind, it need not be
proved by direct evidence but may be inferred from
the circumstances of the case. The failure of the
appellant to declare for taxation purposes his true
and actual income derived from his furniture
business at the Clark Field Air Base for two
consecutive years is an indication of his fraudulent
intent to cheat the Government of its due taxes.
5. Exemption from Taxation
a. Meaning of exemption from
taxation
GREENFIELD V. MEER
FACTS
Since the year 1933, the plaintiff has been
continuously engaged in the embroidery business.
In 1935, the plaintiff began engaging in buying and
selling mining stocks and securities for his own
exclusive account and not for the account of
others.
The plaintiff has not been a dealer in securities as
defined in section 84 (t) of Commonwealth Act No.
466; he has no established place of business for
the purchase and sale of mining stocks and
securities; and he was never a member of any
stock exchange.
The plaintiff filed an income tax return where he
claims a deduction of P67,307.80 representing the
net loss sustained by him in mining stocks
securities during the year 1939.
12
The defendant disallowed said item of deduction on
the ground that said losses were sustained by the
plaintiff from the sale of mining stocks and
securities which are capital assets, and that the
loss arising from the sale of the same should be
allowed only to the extent of the gains from such
sales, which gains were already taken into
consideration in the computation of the alleged net
loss of P67,307.80.
ISSUE
Whether the personal and additional exemptions
granted by section 23 of Commonwealth Act No.
466 should be considered as a credit against or be
deducted from the net income, or whether it is the
tax on such exemptions that should be deducted
from the tax on the total net income.
RULING
Personal and additional exemptions claimed by
appellant should be credited against or deducted
from the net income. "Exception is an immunity or
privilege; it is freedom from a charge or burden to
which others are subjected." (If the amounts of
personal and additional exemptions fixed in section
23 are exempt from taxation, they should not be
included as part of the net income, which is
taxable. There is nothing in said section 23 to
justify the contention that the tax on personal
exemptions (which are exempt from taxation)
should first be fixed, and then deducted from the
tax on the net income.
b. Nature of tax exemption
TOLENTINO VS. SECRETARY OF FINANCE
G.R. No. 115455
FACTS
RA 7716, otherwise known as the Expanded Value-
Added Tax Law, is an act that seeks to widen the
tax base of the existing VAT system and enhance
its administration by amending the National
Internal Revenue Code. There are various suits
questioning and challenging the constitutionality
of RA 7716 on various grounds.
Tolentino contends that RA 7716 did not originate
exclusively from the House of Representatives but
is a mere consolidation of HB. No. 11197 and SB.
No. 1630 and it did not pass three readings on
separate days on the Senate thus violating Article
VI, Sections 24 and 26(2) of the Constitution,
respectively.
Art. VI, Section 24: All appropriation, revenue or
tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills
shall originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments.
Art. VI, Section 26(2): No bill passed by either
House shall become a law unless it has passed
three readings on separate days, and printed
copies thereof in its final form have been
distributed to its Members three days before its
passage, except when the President certifies to
the necessity of its immediate enactment to meet
a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays
entered in the Journal.
ISSUE
Whether or not RA 7716 violated Art. VI, Section
24 and Art. VI, Section 26(2) of the Constitution.
RULING
No. The phrase “originate exclusively” refers to
the revenue bill and not to the revenue law. It is
sufficient that the House of Representatives
initiated the passage of the bill which may
undergo extensive changes in the Senate.
SB. No. 1630, having been certified as urgent by
the President need not meet the requirement not
only of printing but also of reading the bill on
separate days.
The argument that RA 7716 did not originate
exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution will
not bear analysis. To begin with, it is not the law
but the revenue bill which is required by the
Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute
and not only the bill which initiated the legislative
process culminating in the enactment of the law
must substantially be the same as the House bill
would be to deny the Senate’s power not only to
concur with amendments but also to propose
amendments. Indeed, what the Constitution simply
means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local
application must come from the House of
Representatives on the theory that, elected as they
are from the districts, the members of the House
can be expected to be more sensitive to the local
needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill
in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is
withheld pending receipt of the House bill.
The next argument of the petitioners was that S.
No. 1630 did not pass 3 readings on separate days
as required by the Constitution because the second
and third readings were done on the same day. But
this was because the President had certified S. No.
1630 as urgent. The presidential certification
dispensed with the requirement not only of printing
13
but also that of reading the bill on separate days.
That upon the certification of a bill by the President
the requirement of 3 readings on separate days
and of printing and distribution can be dispensed
with is supported by the weight of legislative
practice.
ISSUE: Whether or not EVAT originated in the HoR.
HELD: By a 9-6 vote, the SC rejected the
challenge, holding that such consolidation was
consistent with the power of the Senate to propose
or concur with amendments to the version
originated in the HoR. What the Constitution simply
means, according to the 9 justices, is that the
initiative must come from the HoR. Note also that
there were several instances before where Senate
passed its own version rather than having the HoR
version as far as revenue and other such bills are
concerned. This practice of amendment by
substitution has always been accepted. The
proposition of Tolentino concerns a mere matter of
form. There is no showing that it would make a
significant difference if Senate were to adopt his
over what has been done.
MACEDA v. MACARAIG
(Rationale/Ground for tax exemption &
Construction of Statutes Granting Tax Exemption –
Exemption)
FACTS:
(same as 1991 case)
* CA 120 created NAPOCOR as a public corporation
to undertake the development of hydraulic power
and the production of power from other sources.
* RA 358 (1949) granted NAPOCOR tax and duty
exemption privileges. RA 6395 (1971) revised the
charter of the NAPOCOR, tasking it to carry out the
policy of the national electrification, and provided
in detail NAPOCOR’s tax exceptions. PD 380 (1974)
specified that NAPOCOR’s exemption includes all
taxes, etc. imposed “directly or indirectly.”
* PD 938 integrated the exemptions in favor of
GOCCs including their subsidiaries; however,
empowering the President or the Minister of
Finance, upon recommendation of the Fiscal
Incentives Review Board (FIRB) to restore, partially
or completely, the exemptions withdrawn or
revised.
* The FIRB issued Resolution 10-85 (7 February
1985) restoring the duty and tax exemptions
privileges of NAPOCOR for period 11 June 1984- 30
June 1985. Resolution 1-86 (1January 1986)
restored such exemption indefinitely effective 1 July
1985. EO 93 (1987) again withdrew the exemption.
FIRB issued Resolution 17-87 (24 June 1987)
restoring NAPOCOR’s exemption, which was
approved by the President on 5 October 1987.
* Since 1976, oil firms never paid excise or specific
and ad valorem taxes for petroleum products sold
and delivered to NAPOCOR. Oil companies started
to pay specific and ad valorem taxes on their sales
of oil products to NAPOCOR only in 1984.
* NAPOCOR claimed for a refund (P468.58 million).
Only portion thereof, corresponding to Caltex, was
approved and released by way of a tax credit
memo. The claim for refund of taxes paid by
PetroPhil, Shell and Caltex amounting to P410.58
million was denied.
* NAPOCOR moved for reconsideration, starting
that all deliveries of petroleum products to
NAPOCOR are tax exempt, regardless of the period
of delivery.
ISSUE:
WON NAPOCOR cease to enjoy exemption from
indirect tax when exemption in PD 938 is in general
terms.
RULING:
NO, NAPOCOR still exempt. Tax exemptions are
undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions
taxpayers have to pay are in the nature of indirect
taxes.
To limit the exemption granted the National Power
Corporation to direct taxes notwithstanding the
general and broad language of the statute will be
to thwart the legislative intention in giving
exemption from all forms of taxes and impositions
without distinguishing between those that are
direct and those that are not. 1991 case held:
NAPOCOR is a non-profit public corporation created
for the general good and welfare, and wholly
owned by the government of the Republic of the
Philippines. From the very beginning of the
corporation’s existence, NAPOCOR enjoyed
preferential tax treatment “to enable the
corporation to pay the indebtness and obligation”
and effective implementation of the policy
enunciated in Section 1 of RA 6395.
From the preamble of PD 938, it is evident that the
provisions of PD 938 were not intended to be
strictly construed against NAPOCOR.
On the contrary, the law mandates that it should be
interpreted liberally so as to enhance the tax
exempt status of NAPOCOR. It is recognized
principle that the rule on strict interpretation does
not apply in the case of exemptions in favor of
government political subdivision or instrumentality.
The basis for applying the rule of strict construction
to statutory provisions granting tax exemptions or
deductions, even more obvious than with reference
to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and
foster impartiality, fairness, and equality of
treatment among tax payers. 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
14
tax liability of such agencies. In the case of
property owned by the state or a city or other
public corporations, the express exemption should
not be construed with the same degree of
strictness that applies to exemptions contrary to
the policy of the state, since as to such property
“exemption is the rule and taxation the exception.”
DISPOSITIVE: NAPOCOR exempt from tax.
PHILIPPINE ACETYLENE CO., INC. V CIR
(Indirect Tax; also in Nature of Tax Exemption)
FACTS:
Petitioner is a corporation engaged in the
manufacture and sale of oxygen and acetylene
gases. It made various sales of its product to the
National Power Corporation (NPC) an agency of the
government and to Voice of America (VOA) an
agency of the US government.
The respondent assessed against and demanded
from the petitioner the payment of deficiency sales
tax and surcharge as provided by Sections 186 and
183 of the NIRC.
Petitioner denied liability on the payment of the tax
based on the sales made to these agencies stating
that the same are exempt from taxation because
the NPC is exempt from taxation by virtue of RA
947 Sec2 and because VOA is exempt as well
because of the Bases Agreement.
ISSUE:
Is petitioner exempt from paying the percentage
taxes on the sales made to NPC and VOA?
RULING:
No.
The percentage tax provided by Section 286 of the
NIRC is a tax on the producer or manufacturer and
not a tax on the purchaser.
Section 183 of the NIRC provide that sales tax shall
be paid by the manufacturer or producer who must
make a true and complete return of the amount of
his or her or its gross monthly sales, receipts or
earnings or gross value of output actually removed
from the factory or mill warehouse and within
twenty days after the end of each month, pay the
tax due thereon. Since the tax imposed by section
186 is a tax on the manufacturer or producer and
not a tax on the purchaser, petitioner could not be
considered exempt.
As regards VOA, petitioner is also not exempt from
percentage tax because the Bases Agreement only
exempts from tax sales made “for exclusive use in
the construction, maintenance and operation or
defense of the bases,” or sales to the
quartermaster.
Sales of goods to any other party even if it be an
agency of the US, or even the quartermaster but
for a different purpose are not exempt from tax. It
is a familiar learning in the American law of
taxation that tax exemption must be strictly
construed and that the exemption will not be held
to be conferred unless the terms under which it is
granted clearly and distinctly show that such was
the intention of the parties.
WONDER MECHANICAL ENGINEERING CORP. V
CTA
FACTS:
Wonder Corp. was engaged in the business of
manufacturing auto spare parts, lamp shades, rice
threshers and other articles. It was also engaged in
the business of electroplating and repair of
machines. However, it did not pay sales tax on the
sale of articles and the percentage tax on its
electroplating and repair business.
Commissioner of Internal Revenue caused the
investigation of Wonder Corp. for the purpose of
ascertaining its tax liability. Revenue Examiner
Pedro Cabigao reported that Corp. manufactured
and sold other articles subject to 7% sales tax but
not covered by the Corp’s tax exemption privilege.
The Corp. was assessed with a deficiency
percentage tax of P25, 080. and a 25% surcharge.
Wonder Corp. contends that it was a given a
Certificate of Tax Exemption with respect to the
manufacture of machines for making cigarette
paper, pails, lead washer, nails… (those which are
determined as new and necessary by RA 901).
ISSUE:
Whether or not the manufacture and sale of steel
chairs, jeep parts… which are not machines for
making other products are tax exempt under RA
901.
RULING
No. Wonder Corp. was granted the tax exemption in
the manufacture and sale of machines but not
manufacture and sale of the articles produced by
the machines. Such was the intention of the State
for new and necessary industries as an incentive to
greater and adequate production of products made
scarce by World War II. Tax exemptions are highly
disfavored in law and those who claim them must
be able to justify his claim and must be clearly
expressed in the law. Tax exemptions cannot be
established by implication.
In the case, Wonder Corp. was granted tax
exemption in the manufacture of cigarette paper,
pails, lead washers, nails… as explicitly stated in
the Certificate of Tax Exemption. The manufacture
of steel chairs, jeep parts and other articles not
15
constituting machines for making certain products
does not fall under RA 901.
C.Kinds of Tax exemption
ATLAS FERTILIZER V CIR
100 SCRA 556
"The taxpayer must justify his claim for tax
exemption or refund by the clearest grant of
organic or statute law and should not be permitted
to stand on vague implications."
"Export processing zones (EPZA) are effectively
considered as foreign territory for tax purposes."
FACTS:
Petitioner corporation, a VAT-registered taxpayer
engaged in mining, production, and sale of various
mineral products, filed claims with the BIR for
refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales in the
taxable quarters of the years 1990 and 1992. BIR
did not immediately act on the matter prompting
the petitioner to file a petition for review before the
CTA. The latter denied the claims on the grounds
that for zero-rating to apply, 70% of the company's
sales must consists of exports, that the same were
not filed within the 2-year prescriptive period (the
claim for 1992 quarterly returns were judicially filed
only on April 20, 1994), and that petitioner failed to
submit substantial evidence to support its claim for
refund/credit.
The petitioner, on the other hand, contends that
CTA failed to consider the following: sales to PASAR
and PHILPOS within the EPZA as zero-rated export
sales; the 2-year prescriptive period should be
counted from the date of filing of the last
adjustment return which was April 15, 1993, and
not on every end of the applicable quarters; and
that the certification of the independent CPA
attesting to the correctness of the contents of the
summary of suppliers’ invoices or receipts
examined, evaluated and audited by said CPA
should substantiate its claims.
ISSUE:
Did the petitioner corporation sufficiently establish
the factual bases for its applications for
refund/credit of input VAT?
HELD:
No. Although the Court agreed with the petitioner
corporation that the two-year prescriptive period
for the filing of claims for refund/credit of input VAT
must be counted from the date of filing of the
quarterly VAT return, and that sales to PASAR and
PHILPOS inside the EPZA are taxed as exports
because these export processing zones are to be
managed as a separate customs territory from the
rest of the Philippines, and thus, for tax purposes,
are effectively considered as foreign territory, it still
denies the claims of petitioner corporation for
refund of its input VAT on its purchases of capital
goods and effectively zero-rated sales during the
period claimed for not being established and
substantiated by appropriate and sufficient
evidence.
Tax refunds are in the nature of tax exemptions.
It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi
juris against the person or entity claiming the
exemption. The taxpayer who claims for
exemption must justify his claim by the clearest
grant of organic or statute law and should not be
permitted to stand on vague implications.
CIR V PHIL. ACE LINE
In 1959 The Reparations Commission agreed to sell to the
Philippine Ace Lines the cargo vessel M/S YAKAL and M/S
MOLAVE which were procured by the Reparations Commission
from Japan for its end-use under the 1956 Philippine- Japanese
Reparations Agreement at the agreed prices of P4,283,241.48
and P4,292,457.48, respectively. Similar agreements involving
the sale of M/S TINDALO and also M/S NARRA were subsequently
entered into between the same parties. These "Contracts of
Conditional Purchase and Sale of Reparations Goods" stipulated
that the Reparations Commission retains title and ownership of
the vessels until they were fully paid. Payment was to be made
in ten (10) equal annual installments. The four (4) vessels were
delivered to Phil. Ace Lines then registered in the Bureau of
Customs in the name of the Reparations Commission. The
vessels were operated by Phil. Ace Lines in its shipping
business, plying between ports of foreign countries and the
Philippines.
CIR assessed Phil. Ace lines the amounts of P304,428.00,
P256,275.00, P499,948.10 and P305.073.47 as compensating
taxes on the 4 vessels. Customs, joining the CIR, then placed
the vessels under its custody at the different ports of the
Philippines where they were found and refused to give due
course to the "clearance" of said vessels unless the
compensating taxes were first paid.
Phil. Ace Lines protested, alleging that the legal title and
ownership of the vessels were still vested with the Reparations
Commission which was exempt from payment of all duties, fees
and taxes on all reparations goods obtained by it under
Reparations act. Officials rejected this and ruled that the
compensating taxes should first be paid, per directive of the
Secretary of Finance. Phil. Ace Lines filed 2 petitions for review
from the above rulings of CIR and Customs to the CTA. Writs of
preliminary injunction were issued upon the Phil. Ace Lines’
filing of surety bonds to guarantee payment of the amounts
claimed.
In the meantime, Congress enacted RA 30791 effective June 17,
1961 amending RA. 1789 (Reparations Act). RA 3079 provided
1
SEC. 14. Exemption from tax. — All reparations goods obtained by the
Government shall be exempt from the payment of all duties, fees and taxes.
Reparations goods obtained by private parties shall be exempt from the
payment of customs duties, compensating tax, consular fees and the special
import tax.
SEC. 20. This Act shall take effect upon its approval, except that the amendment
contained in section seven hereof relating to the requirements for procurement
orders including the requirement of down payment by private applicant end-
users shall not apply to procurement orders already duly issued and verified at
the time of the passage of this amendatory Act, and except further that the
amendment contained in section ten relating to the insurance of the reparations
goods by the end-users upon delivery shall apply also to goods covered by
contracts already entered into by the Commission and the end-user prior to the
approval of this amendatory Act as well as goods already delivered to the end-
user, and except further that the amendments contained in sections eleven and
twelve hereof relating to the terms of the installment payments on capital
goods disposed of to private parties, and the execution of a performance bond
before delivery of reparations goods, shall not apply to contract for the
utilization of reparations goods already entered into by the Commission and the
end-users prior to the approval of this amendatory Act: Provided, That any end-
user may apply the renovation of his utilization contract with the commission
in order to avail of any provision of this amendatory Act which is more
favorable to an applicant end-user than has heretofore been granted in like
manner and to the same extent as an end-user filing his application after the
approval of this amendatory Act, and the Commission may agree to such
renovation on condition that the end-user shall voluntarily assume all the new
obligations provided for in this amendatory Act.
16
tax exemptions to end users. Invoking the favorable provisions
of the new law Phil. Ace Lines then entered into "Renovated
Contract(s) of Conditional Purchase and Sale of Reparations
Goods" with the Reparations Commission, covering the 4 cargo
vessels it had previously acquired from the Reparations
Commission under the old Reparations Act. Thereafter, the
company filed a "Supplement to the Petition for Review" in each
of the cases before CTA submitting copies of the renovated
contracts it had entered with the Reparations Commission with
the allegation that the parties were "expressly implementing
section 14 of Republic Act No. 3079 in the aforesaid renovated
contracts."
CIR and Customs: Even if Philippine Ace Lines and the
Reparations Commission have agreed to implement the
provisions of Section 14 of RA No. 1789, as amended by RA No.
3079, in the new contract such implementation did not relieve
the Philippine Ace Lines from the payment of the compensating
taxes; vessels were acquired from the Reparations Commission
long before the approval of said amendatory Act which, by the
way, did not expressly authorize such exemption; Provisions of
RA No. 3079 cannot include exemption from compensating tax,
otherwise, had Congress intended so, it would have provided for
such exemption in clear and explicit terms; the tax exemption
contained in Section 14 of the RA No. 3079 cannot have
retroactive application in the absence of any provision for
retroactivity; to grant such exemption to end-users who have
acquired reparations goods before the approval of RA No. 3079
would be prejudicial to the Government.
CTA: Cancelled bonds. Philippine Ace and Reparations
Commission exempt.
Issue: Is Phil. Ace liable for the compensating tax on the four
ocean-going vessels in question? No. It is exempt.
Held: SC answers CIR’s contentions by citing only one
case, Commissioner of Internal Revenue vs. Bothelo Shipping
Corporation, which it reproduced at length.
The inherent weakness of the last ground
becomes manifest when we consider that, if
true, there could be no tax exemption of any
kind whatsoever, even if Congress should wish
to create one, because every such exemption
implies a waiver of the right to collect what
otherwise would be due to the Government,
and, in this sense, is prejudicial thereto. In
fact, however, tax exemptions may and do
exist, such as the one prescribed in section
14 of Republic Act No. 1789, as amended by
Republic Act No. 3079, which, by the way,
is "clear and explicit," thus, meeting the first
ground of appellant's contention. It may not
be amiss to add that no tax exemption — like
any other legal exemption or exception — is
given without any reason therefor. In much
the same way as other statutory commands,
its avowed purpose is some public benefit or
interest, which the law-making body considers
sufficient to offset the monetary loss entailed
in the grant of the exemption. Indeed, section
20 of Republic Act No. 3079 exacts a valuable
consideration for the retroactivity of its
favorable provision, namely, the voluntary
assumption, by the end-user, who bought
reparations goods prior to June 17, 1961, of
"all the new obligations provided for in" said
Act.
The argument adduced in support of the third
ground is that the view adopted by the Tax
Court would operate to grant exemption to
particular persons, the Buyers therein. It
should be noted, however, that there is no
constitutional injunction against granting
tax exemptions to particular persons. In
fact, it is not unusual to grant legislative
franchises to specific individuals or entities,
 conferring tax exemptions thereto. What the
fundamental law forbids is the denial of equal
protection such as through unreasonable
discrimination or classification.
From the view point of Constitutional Law,
especially the equal protection clause,
there is no difference between the grant of
exemption to said end-users, and the
extension of the grant to those whose
contracts of purchase and sale were
made before said date, under Republic Act
No. 1789.
It is true that Republic Act No. 3079 does
not explicitly declare that those who
purchased reparations goods prior to June
17, 1961, are exempt from the
compensating tax. It does not say so,
because they do not really enjoy such
exemption, unless they comply with the
proviso in Section 20 of said Act, by
applying for the renovation of their
respective utilization contracts, "in order
to avail of any provision of the Amendatory
Act which is more favorable" to the
applicant. In other words, it is manifest, from
the language of said section 20, that the same
intended to give such buyers the opportunity
to be treated "in like manner and to the same
extent as an end-user filing his application
after the approval of this Amendatory Act."
Like the "most favored nation clause" in
international agreements, the aforementioned
section 20 thus seeks, not to discriminate or
to create an exemption or exceptions, but
to abolish the discrimination, exemption or
exception that would otherwise result, in
favor of the end-user who bought after June
17, 1961 and against one who bought prior
thereto. Indeed, it is difficult to find
substantial justification for the distinction
between the one and the other.
CTA decision affirmed.
CALTEX V CIR
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for the years 1986 and 1988, of the additional tax
on petroleum products authorized under the PD 1956. Pending
such remittance, all of its claims for reimbursement from the
OPSF shall be held in abeyance. The grant total of its unremitted
collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the
recovery of claims. COA approved the proposal but prohibited
Caltex from further offsetting remittances and reimbursements for
the current and ensuing years. Caltex moved for reconsideration
but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be
offsetted against Caltex’s outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to
raise revenue to support the existence of government. Taxes
may be levied with a regulatory purpose to provide means for the
17
rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of
the State.
PD 1956, as amended by EO 137, explicitly provides that the
source of OPSF is taxation. A taxpayer may not offset taxes due
from the claims he may have against the government. Taxes
cannot be subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand,, contract or
judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for
reimbursement of underrecovery arising from sales to the
National Power Corporation is allowed.
DAVAO LIGHT & POWER CO. INC. V CA
(204 SCRA 343)
FACTS:
Davao Light and Power Inc, Co. filed a complaint for
recovery of sum of money and damages against
Queensland Hotel and Teodorico Adarna. The
complaint contained an ex parte application for a
writ of preliminary attachment.
Judge Nartatez granted the writ and fixed the
attachment bond at around P4Million. The
summons, copy of complaint, writ of attachment,
copy of attachment bond were served upon
Queensland and Adarna. Pursuant to the writ, the
Sheriff seized the properties of the latter.
Queensland and Adarna filed a motion to discharge
the attachment for lack of jurisdiction to issue the
same because at the time the order of attachment
was promulgated (May 3, 1989) and the
attachment writ issued (May 11,1989), the Trial
Court had not yet acquired jurisdiction over cause
and person of defendants.
Trial Court denied the motion to discharge.
CA annulled the Trial Court’s Order. Davao seeks to
reverse CA’s order.
ISSUE:
Whether or not preliminary attachment may issue
ex parte against a defendant before acquiring
jurisdiction over his person.
RULING:
Yes. Rule 57 speaks of the grant of the remedy “at
the commencement of the action or at any time
thereafter” What the rule is saying is that after an
action is properly commenced (by filing of the
complaint and payment of all requisite docket and
other fees), the plaintiff may apply for and obtain a
writ of preliminary attachment. This he may do so,
before or after, the summons to the defendant.
The CA decision is reversed and the writ of
attachment issued by Judge Nartatez is reinstated.
**
Preliminary Attachment – provisional remedy in
virtue of which a plaintiff or other party may, at the
commencement of the action or at any time
thereafter, have the property of the adverse party
taken into custody of court as security for
satisfaction of judgment to be recovered.
Nature of Attachment: a remedy which is purely
statutory in respect of which the law requires a
strict of construction of the provisions granting it.
No principle, whether statutory or through
jurisprudence, prohibits its issuance by any court
before the acquisition of jurisdiction over the
person.
ABRA VALLEY COLLEGE V. AQUINO
(Prohibition Against Taxation of Religious,
Charitable Entities and Educational Entities)
FACTS:
The Municipal Treasurer of Bangued, Abra
caused to be seized and sold the lot and
building of Abra Valley Junior College for its
failure to pay taxes (P5140.31).
Petitioner school wants to declare the notice of
sale and notice of seizure annulled. The lot
and the building was sold at public auction to
the mayor. Provincial fiscal: building and lot
used for educational purposes are exempted
from the payment of taxes.
RTC: not exempted since the second floor is
used by the Director of the school for
residential purposes;
Respondent: (raised for the first time in the
SC but still considered in the interest of
substantial justice) for commercial purposes
because the ground floor of the college
building is being used and rented by a
commercial establishment, the Northern
Marketing Corporation
ISSUE:
Is the school exclusively used for educational
purposes?
RULING
NO (leased to commercial establishment)
Section 22, paragraph 3, Article VI, of the then
1935 Philippine Constitution, exempts
"Cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively
18
for religious, charitable or educational
purposes ... from real taxes.
The Assessment Law also exempts from real
property tax (c) churches and parsonages or
convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively
for religious, charitable, scientific or
educational purposes. It was clarified that the
term "used exclusively" also considers
incidental use.
The exemption in favor of property used
exclusively for charitable or educational
purposes is 'not limited to property actually
indispensable' but extends to facilities which
are incidental to and reasonably necessary for
the accomplishment of said purposes,
The test of exemption from taxation is the use
of the property for purposes mentioned in the
Constitution. It must be stressed however, that
while this Court allows a more liberal and non-
restrictive interpretation of the phrase
"exclusively used for educational purposes" as
provided for in Article VI, Section 22,
paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always
been made that exemption extends to facilities
which are incidental to and reasonably
necessary for the accomplishment of the main
purposes.
Otherwise stated, the use of the school
building or lot for commercial purposes is
neither contemplated by law, nor by
jurisprudence. The lease of the first floor
thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be
considered incidental to the purpose of
education.
Under the 1935 Constitution, the trial court
correctly arrived at the conclusion that the
school building as well as the lot where it is
built, should be taxed, not because the second
floor of the same is being used by the Director
and his family for residential purposes, but
because the first floor thereof is being used for
commercial purposes.
However, since only a portion is used for
purposes of commerce, it is only fair that half
of the assessed tax be returned to the school
involved.
LUNG CENTER V. QC
 (Prohibition Against Taxation of Religious,
Charitable Entities and Educational Entities)
FACTS:
Lung Center of the Philippines (both land and
hospital) was assessed for tax purposes. In the
middle of the lot is the hospital.
A big space at the ground floor is being leased
to private parties, for canteen and small store
spaces, and to medical or professional
practitioners who use the same as their
private clinics for their patients whom they
charge for their professional services.
The corner right side of Quezon Avenue and
Elliptical Road, is being leased for commercial
purposes to Elliptical Orchids and Garden
Center. The petitioner accepts paying and non-
paying patients.
The petitioner receives annual subsidies from
the government. The institution filed a claim
for exemption predicated on its claim that it’s
a charitable institution.
It averred that a minimum of 60% of its
hospital beds are exclusively used for charity
patients and that the major thrust of its
hospital operation is to serve charity patients.
The petitioner contends that it is a charitable
institution and, as such, is exempt from real
property taxes. Central Board of Assessment
Appeals of Quezon City thinks otherwise:
Before a patient is admitted for treatment in
the Center, first impression is that it is pay-
patient and required to pay a certain amount
as deposit.
That even if a patient is living below the
poverty line, he is charged with high hospital
bills.
RULING: 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.
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. Petitioner is
a charitable institution within the context of
the 1973 and 1987 Constitutions.
To determine whether an enterprise is a
charitable institution/entity or not, the
elements which should be considered include
the statute creating the enterprise, its
corporate purposes, its constitution and by-
laws, the methods of administration, the
nature of the actual work performed, the
character of the services rendered, the
19
indefiniteness of the beneficiaries, and the use
and occupation of the properties.
In the legal sense, a charity may be fully
defined as a gift, to be applied consistently
with existing laws, for the benefit of an
indefinite number of persons, either by
bringing their minds and hearts under the
influence of education or religion, by assisting
them to establish themselves in life or
otherwise lessening the burden of
government.
It may be applied to almost anything that tend
to promote the well-doing and well-being of
social man. It embraces the improvement and
promotion of the happiness of man. The word
"charitable" is not restricted to relief of the
poor or sick.
The test of a charity and a charitable
organization are in law the same. The test
whether an enterprise is charitable or not is
whether it exists to carry out a purpose
reorganized in law as charitable or whether it
is maintained for gain, profit, or private
advantage.
Under P.D. No. 1823, the petitioner is a non-
profit and nonstock corporation which, subject
to the provisions of the decree, organized for
the welfare and benefit of the Filipino people
principally to help combat the high incidence
of lung and pulmonary diseases in the
Philippines.
The general purpose of its creation is to ease
the burden among the Filipinos from
contracting respiratory illnesses which are
considered as among the most prevalent in
the country. Hence, the medical services of the
petitioner are to be rendered to the public in
general in any and all walks of life including
those who are poor and the needy without
discrimination. As a general principle, a
charitable institution does not lose its
character as such and its exemption from
taxes simply because it derives income from
paying patients, or receives subsidies from the
government, so long as the money received is
devoted or used altogether to the charitable
object which it is intended to achieve; and no
money inures to the private benefit of the
persons managing or operating the institution
The fundamental ground upon which all
exemptions in favor of charitable institutions
are based is the benefit conferred upon the
public by them, and a consequent relief, to
some extent, of the burden upon the state to
care for and advance the interests of its
citizens.20 Subsidies are like a gift or donation
of any other kind except they come from the
government. The crux is the presence or
absence of material reciprocity. Therefore, the
fact that subsidization of part of the cost of
furnishing such housing is by the government
rather than private charitable contributions
does not dictate the denial of a charitable
exemption if the facts otherwise support such
an exemption, as they do here. In this case,
the petitioner adduced substantial evidence
that it spent its income, including the
subsidies from the government for 1991 and
1992 for its patients and for the operation of
the hospital. It even incurred a net loss in 1991
and 1992 from its operations. Even as we find
that the petitioner is a charitable institution,
we hold, that those portions of its real property
that are leased to private entities are not
exempt from real property taxes as these are
not actually, directly and exclusively used for
charitable purposes. The settled rule in this
jurisdiction is that laws granting exemption
from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the
taxing power. Hence, a claim for exemption
from tax payments must be clearly shown and
based on language in the law too plain to be
mistaken. Section 28(3), Article VI of the 1987
Philippine Constitution provides, thus: (3)
Charitable institutions, churches and
parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly
and exclusively used for religious, charitable or
educational purposes shall be exempt from
taxation.32 The tax exemption under this
constitutional provision covers property taxes
only.33 As Chief Justice Hilario G. Davide, Jr.,
then a member of the 1986 Constitutional
Commission, explained: ". . . what is exempted
is not the institution itself . . .; those exempted
from real estate taxes are lands, buildings and
improvements actually, directly and
exclusively used for religious, charitable or
educational purposes."34 Under the 1973 and
1987 Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. "Exclusive" is defined
as possessed and enjoyed to the exclusion of
20
others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a
manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one
or more commercial purposes, it is not
exclusively used for the exempted purposes
but is subject to taxation.41 The words
"dominant use" or "principal use" cannot be
substituted for the words "used exclusively"
without doing violence to the Constitutions
and the law.42 Solely is synonymous with
exclusively.43 What is meant by actual, direct
and exclusive use of the property for
charitable purposes is the direct and
immediate and actual application of the
property itself to the purposes for which the
charitable institution is organized. It is not the
use of the income from the real property that
is determinative of whether the property is
used for tax-exempt purposes.44 The
petitioner failed to discharge its burden to
prove that the entirety of its real property is
actually, directly and exclusively used for
charitable purposes. While portions of the
hospital are used for the treatment of patients
and the dispensation of medical services to
them, whether paying or non-paying, other
portions thereof are being leased to private
individuals for their clinics and a canteen.
Further, a portion of the land is being leased to
a private individual for her business enterprise
under the business name "Elliptical Orchids
and Garden Center."
CIR VS MARUBENI
GR NO 137377
FACTS:
CIR assails the CA decision which affirmed CTA,
ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and
contractor’s taxes from Marubeni Corp after finding
the latter to have properly availed of the tax
amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in
general import and export trading, financing and
construction, is duly registered in the Philippines
with Manila branch office. CIR examined the Manila
branch’s books of accounts for fiscal year ending
March 1985, and found that respondent had
undeclared income from contracts with NDC and
Philphos for construction of a wharf/port complex
and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter
from CIR assessing it for several deficiency taxes.
CIR claims that the income respondent derived
were income from Philippine sources, hence subject
to internal revenue taxes. On Sept 1986,
respondent filed 2 petitions for review with CTA: the
first, questioned the deficiency income, branch
profit remittance and contractor’s tax assessments
and second questioned the deficiency commercial
broker’s assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for
unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or
before Oct 31, 1986. Marubeni filed its tax amnesty
return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope
to include estate and donor’s taxes under Title 3
and business tax under Chap 2, Title 5 of NIRC,
extended the period of availment to Dec 15, 1986
and stated those who already availed amnesty
under EO 41 should file an amended return to avail
of the new benefits. Marubeni filed a supplemental
tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax
amnesty and deemed cancelled the deficiency
taxes. CA affirmed on appeal.
ISSUE:
W/N Marubeni is exempted from paying tax
RULING
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax
amnesty because it falls under the exception in Sec
4b of EO 41:
“Sec. 4. Exceptions.—The following taxpayers may
not avail themselves of the amnesty herein
granted: xxx b) Those with income tax cases
already filed in Court as of the effectivity hereof;”
Petitioner argues that at the time respondent filed
for income tax amnesty on Oct 30, 1986, a case
had already been filed and was pending before the
CTA and Marubeni therefore fell under the
exception. However, the point of reference is the
date of effectivity of EO 41 and that the filing of
income tax cases must have been made before and
as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case
questioning the 1985 deficiency was filed with CTA
on Sept 26, 1986. When EO 41 became effective,
the case had not yet been filed. Marubeni does not
fall in the exception and is thus, not disqualified
from availing of the amnesty under EO 41 for taxes
on income and branch profit remittance.
The difficulty herein is with respect to the
contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO
64, which expanded EO 41’s coverage. When EO 64
took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for
21
business, estate and donor’s taxes. Instead,
Section 8 said EO provided that:
“Section 8. The provisions of Executive Orders Nos.
41 and 54 which are not contrary to or inconsistent
with this amendatory Executive Order shall remain
in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be
construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory
act operates prospectively. It may not be given a
retroactive effect unless it is so provided expressly
or by necessary implication and no vested right or
obligations of contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly
avail of the amnesty, it is still not liable for the
deficiency tax because the income from the
projects came from the “Offshore Portion” as
opposed to “Onshore Portion”. It claims all
materials and equipment in the contract
under the “Offshore Portion” were
manufactured and completed in Japan, not in
the Philippines, and are therefore not subject
to Philippine taxes.
(BG: Marubeni won in the public bidding for
projects with government corporations NDC and
Philphos. In the contracts, the prices were broken
down into a Japanese Yen Portion (I and II) and
Philippine Pesos Portion and financed either by
OECF or by supplier’s credit. The Japanese Yen
Portion I corresponds to the Foreign Offshore
Portion, while Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the
Philippine Onshore Portion. Marubeni has already
paid the Onshore Portion, a fact that CIR does not
deny.)
CIR argues that since the two agreements are turn-
key, they call for the supply of both materials and
services to the client, they are contracts for a piece
of work and are indivisible. The situs of the two
projects is in the Philippines, and the materials
provided and services rendered were all done and
completed within the territorial jurisdiction of the
Philippines. Accordingly, respondent’s entire
receipts from the contracts, including its receipts
from the Offshore Portion, constitute income from
Philippine sources. The total gross receipts covering
both labor and materials should be subjected to
contractor’s tax (a tax on the exercise of a privilege
of selling services or labor rather than a sale on
products).
Marubeni, however, was able to sufficiently prove
in trial that not all its work was performed in the
Philippines because some of them were completed
in Japan (and in fact subcontracted) in accordance
with the provisions of the contracts. All services for
the design, fabrication, engineering and
manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside
Philippines’ taxing jurisdiction and are
therefore not subject to contractor’s
tax. Petition denied.
MISAMIS ORIENTAL ASSOCIATION OF COCO
TRADERS, INC. v. DEPARTMENT OF
FINANCE SECRETARY G.R. No. 108524.
November 10, 1994
FACTS:
Petitioner is engaged in the buying and selling of
copra in Misamis Oriental. The petitioner questions
Revenue Memorandum Circular 47-91 issued by the
respondent, in which copra was classified as
agricultural non-food product effectively removing
copra as one of the exemptions under Section 103
of the NIRC.
Section 103a of the NIRC states that the sale of
agricultural non-food products in their original state
is exempt from VAT only if the sale is made by the
primary producer or owner of the land from which
the same are produced and not by any other
person or entity. Section 103b states the sale of
agricultural food products in their original state is
exempt from VAT at all stages of production or
distribution regardless of who the seller is - which
the petitioner enjoys. The reclassification had the
effect of denying to the petitioner this exemption
when copra was classified as an agricultural food
product.
Petitioner filed a motion for prohibition.
ISSUE: Whether the Circular is valid.
RULING:
Yes. The Court first stated that the CIR gave the
circular a strict construction consistent with the
rule that tax exemptions must be strictly construed
against the taxpayer and liberally in favor of the
state.
The Court also stated that the Circular is not
discriminatory and in violation of the equal
protection clause. Petitioner likened copra farmers /
producers, who are exempted from VAT and copra
traders, which the Court disagreed.
Lastly, petitioners argued that the Circular was
counterproductive which the Court answers that it
is a question of wisdom or policy which should be
addressed to respondent officials and to Congress.
PASCUAL V. SEC. OF PUBLIC WORKS
(inherent limitation: public purpose)
FACTS:
RA 920 (Act appropriating funds for public works) was
enacted in 1953 containing an item (Section 1 c[a]) for
the construction, reconstruction, repair, extension and
improvement of Pasig feeder road terminals (the
22
projected and planned subdivision roads, which were not
yet constructed, within Antonio Subdivision owned by
Senator Jose C. Zulueta). Zulueta “donated” said parcels
of land to the Government 5 months after the enactment
of RA 920, on the condition that if the Government
violates such condition the lands would revert to Zulueta.
The provincial governor of Rizal, Wenceslao Pascual,
questioned the validity of the donation and the
Constitutionality of the item in RA 920, it being not for a
public purpose.
ISSUE:
Whether the item in the appropriation is valid.
HELD:
NO.
 The right of the legislature to appropriate funds is
correlative with its right to tax, 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 a public purpose.
 The validity of a statute depends upon the powers of
Congress at the time of its passage or approval, not
upon events occupying, or acts performed,
subsequently thereto, unless the latter consist of an
amendment of the organic law, removing, with
retrospective operation, the constitutional limitation
infringed by said statute.
 Herein, inasmuch as the land on which the projected
feeder roads were to be constructed belonged to
Senator Zulueta at the time RA 920 was passed by
Congress, or approved by the President, and the
disbursement of said sum became effective on 20
June 1953 pursuant to Section 13 of the Act, the
result is that the appropriating sough a private
purpose and hence, null and void.
GASTON V. REPUBLIC PLANTERS BANK
(Prohibition on Use of Tax Levied for Special Purpose)
FACTS:
 Philippine Sugar Commission (PHILSUCOM) which
was tasked with the function of regulating and
supervising the sugar industry was abolished. P. D.
No. 388, promulgated on February 2,1974, which
created the PHILSUCOM, provided for the collection
of a Stabilization Fund for the purpose of financing
the growth and development of the sugar industry
market to be administered in trust by the
Commission and deposited in the Philippine National
Bank derived by collecting 2 pesos/picul produced
and milled for 5 years, and 1 peso/picul produced
and milled every year thereafter.
 Petitioners filed a mandamus to compel the
distribution of shares of stock in PNB, in the name of
PHILSUCOM to the sugar producers, planters and
millers who contributed in the Stabilization fund.
 Petitioners say that the fees collected were held in
trust for the sugar planters and millers (belonging to
them) and not public funds (belonging to
PHILSUCOM) which should be transferred to the
general funds of the government upon dissolution of
the Commission.
 Section 7 of P.D. No. 388 does provide that the
stabilization fees collected "shall be administered in
trust by the Commission." However, while the
element of an intent to create a trust is present, a
resulting trust in favor of the sugar producers, millers
and planters cannot be said to have ensued because
the presumptive intention of the parties is not
reasonably ascertainable from the language of the
statute itself.
 No implied trust in favor of the sugar producers
either can be deduced from the imposition of the
levy. It is not clearly shown from the statute itself
that the PHILSUCOM imposed on itself the obligation
of holding the stabilization fund for the benefit of the
sugar producers. Petitioners maintain that this
infusion of fresh capital was accomplished by
PHILSUCOM, using the proceeds of the P1.00 per
picul stabilization fund to pay for its subscription in
shares of stock of respondent Bank. It is petitioners'
submission that all shares were placed in
PHILSUCOM's name only out of convenience and
necessity and that they are the true and beneficial
owners thereof. But, while it is true that the collected
stabilization fees were set aside by PHILSUCOM to
pay its subscription to RPB, it did not collect said fees
for the account of the sugar producers. That
stabilization fees are charges/levies on sugar
produced and milled which accrued to PHILSUCOM
under PD 338, as amended. ...
 The stabilization fees collected are in the nature of a
tax, which is within the power of the State to impose
for the promotion of the sugar industry (Lutz vs.
Araneta, 98 Phil. 148). They constitute sugar liens
(Sec. 7[b], P.D. No. 388). The collections made accrue
to a "Special Fund," a "Development and Stabilization
Fund," almost Identical to the "Sugar Adjustment and
Stabilization Fund" created under Section 6 of
Commonwealth Act 567. 1 The tax collected is not in
a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide means for the
stabilization of the sugar industry.
 The levy is primarily in the exercise of the police
power of the State (Lutz vs. Araneta, supra.). The
stabilization fees in question are levied by the State
upon sugar millers, planters and producers for a
special purpose — that of "financing the growth and
development of the sugar industry and all its
components, stabilization of the domestic market
including the foreign market. the fact that the State
has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even
though they are held for a special purpose. Having
been levied for a special purpose, the revenues
collected are to be treated as a special fund, to be, in
the language of the statute, "administered in trust'
for the purpose intended.
 Once the purpose has been fulfilled or abandoned,
the balance, if any, is to be transferred to the general
funds of the Government. That is the essence of the
trust intended (See 1987 Constitution, Article VI, Sec.
29(3), lifted from the 1935 Constitution, Article VI,
Sec. 23(l]). 2
 The character of the Stabilization Fund as a special
fund is emphasized by the fact that the funds are
deposited in the Philippine National Bank and not in
the Philippine Treasury, moneys from which may be
paid out only in pursuance of an appropriation made
by law (1987) Constitution, Article VI, Sec.
29[1],1973 Constitution, Article VIII, Sec. 18[l]).
23
 That the fees were collected from sugar producers,
planters and millers, and that the funds were
channeled to the purchase of shares of stock in
respondent Bank do not convert the funds into a
trust fired for their benefit nor make them the
beneficial owners of the shares so purchased. It is
but rational that the fees be collected from them
since it is also they who are to be benefited from the
expenditure of the funds derived from it. The
investment in shares of respondent Bank is not alien
to the purpose intended because of the Bank's
character as a commodity bank for sugar conceived
for the industry's growth and development.
Furthermore, of note is the fact that onehalf, (1/2) or
PO.50 per picul, of the amount levied under P.D. No.
388 is to be utilized for the "payment of salaries and
wages of personnel, fringe benefits and allowances
of officers and employees of PHILSUCOM" thereby
immediately negating the claim that the entire
amount levied is in trust for sugar, producers,
planters and millers.
 To rule in petitioners' favor would contravene the
general principle that revenues derived from taxes
cannot be used for purely private purposes or for the
exclusive benefit of private persons. The Stabilization
Fund is to be utilized for the benefit of the entire
sugar industry, "and all its components, stabilization
of the domestic market," including the foreign market
the industry being of vital importance to the
country's economy and to national interest.
TAN V. DEL ROSARIO
(inherently legislative)
FACTS:
• The constitutionality of RA 7496 – the Simplified Net
Income Taxation Scheme (SNIT) violates the following
provisions of the Constitution: Art6, Sec26(1)
• Every bill passed in Congress shall embrace only one
subject which shall be expressed in the title thereof Art6,
Sec28(1)
• The rule of taxation shall be uniform and equitable. The
congress shall evolve a
progressive system of taxation
_ Art3, Sec1
• No person shall be deprived of Uproperty without due
process of law, nor shall any person be denied equal
protection of the law
ISSUE/S:
WON RA 7496 violated the constitutional requirement
thattaxation shall be uniform and equitable in that it
attempts to tax single proprietorships and professionals
differently from corporations and partnerships
RULING:
• NO. Uniformity of taxation merely requires that all
subjects or objects of taxation, similarly situated, are to
be treated alike both in privileges and liabilities. Such
classification is valid as long as:
(1) standards used are substantial andnot arbitrary;
(2) categorization is germane to achieve the legislative
purpose;
(3) law applies, all things being equal, to both present
and future conditions; and (4) the
classification applies equally well to all those belonging
to the same class.

• What may be apparent is simply that the amendatory
law reflects he legislative intent to increasingly shift the
income tax system towards the schedular approach.
• Also, with the legislature primarily lies the discretion to
determine the nature (kind0, object (purpose), extent
(rate), coverage (subjects), and situs (place) of taxation.
The court cannot freely delve into these matters, unless
the tax becomes so unconscionable and unjust as to
amount to confiscation of property. Only then will the
courts able to strike it down.
SISON V. ANCHETA
(Due Process)
(Sec 1, Art III, Consti)
FACTS:
In a suit for declaratory relief and probation, petitioner
alleges arbitrariness in Sec. 1, BP 135. He reasons that
he would be unduly discriminated against by the
imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual
taxpayers.
ISSUE:
Whether the imposition of a higher tax rate on taxable
net income derived from business or profession than on
compensation is constitutionally infirm.
RULING:
No. 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
declared and adjudge it null.
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.
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 police power or the power of eminent
domain is to demonstrate "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 to support
24
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.
In the case at bar, petitioner failed to make a case that
the challenged law was constitutionally infirm because
the classifications were valid for tax purposes, and the it
is not arbitrary and confiscatory.
COMMISSIONER VS JAPAN AIR LINES
(Gross or taxable income fromsources within the
Philippines)
FACTS:
Respondent Japan Air Lines, Inc. (hereinafter referred to
as JAL for brevity), is a foreign corporation engaged in
the business of international air carriage. From 1959 to
1963, JAL did not have planes that lifted or landed
passengers and cargo in the Philippines as it had not
been granted then by the Civil Aeronautics Board (CAB) a
certificate of public convenience and necessity to
operate here. However, since mid-July, 1957, JAL had
maintained an officeat the Filipinas Hotel, Roxas
Boulevard, Manila. Said office did not sell tickets but was
maintained merely for the promotion of the company's
public relations and to hand out brochures, literature and
other information playing up the attractions of Japan as a
tourist spot and the services enjoyed in JAL planes.
On July 17, 1957, JAL constituted the Philippine Air Lines
(PAL), as its general sales agent in the Philippines. As an
agent, PAL, among other things, sold for and in behalf of
JAL, plane tickets and reservations for cargo spaces
which were used by the passengers or customers on the
facilities of JAL.
On June 2, 1972, JAL received deficiency income tax
assessment notices and a demand letter from petitioner
Commissioner of Internal Revenue (hereinafter referred
to as Commissioner for brevity), all dated February 28,
1972, for a total amount of P2,099,687.52 inclusive of
50% surcharge and interest, for years 1959 through 1963
On June 19, 1972, JAL protested said assessments
alleging that as a non-resident foreign corporation, it was
taxable only on income from Philippine sources as
determined under Section 37 of the Tax Code, and there
being no such income
during the period in question, it was not liable for the
deficiency income tax liabilities assessed .
The Commissioner resolved otherwise and in a letter-
decision dated December 21, 1972, denied JAL's request
for cancellaton of the assessment .
ISSUE:
Whether or not proceeds from JAL ticket sales in the
Philippines are taxable as income from sources within the
Philippines.
HELD:
YES. The issues in the case at bar have already been laid
to rest in no less than three cases resolved by this Court.
Anent the first issue, the landmark case of Commissioner
of Internal Revenue vs. British Overseas Airways
Corporation (G.R. No.L-65773-74, April 30, 1987, 149
SCRA 395) has categorically ruled: "The source of an
income is the property, activity or service that produced
the income.
For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. In BOAC's
case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands
here and payments for fares were also made here in
Philippine currency.
The situs of the source of payments is the Philippines.
The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by
the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of
supporting the government.
"x x x x x x
"True, Section 37(a) of the Tax Code, which enumerates
items of gross income from sources within the
Philippines, namely:
(1) interest,
(2) dividends,
(3) service,
(4) rentals and royalties,
(5) sale of real property, and
(6) sale of personal property, does not mention income
from the sale of tickets for international transportation.
However, that
does not render it less an income from sources within the
Philippines.
WELLS FARGO BANK V CIR
(Situs of Taxation)
FACTS:
Birdie Lillian Eye, died on September 16, 1932 at Los
Angeles California, the place of her alleged last residence
and domicile. Among the properties she left was her one
half conjugal shares in 70,000 shares of stock in Benguet
Consolidated Mining Company, an anonymous
partnership organized and existing under the laws of the
Philippines, with its principal office in Manila.
She left a will which was duly admitted to probate in
California where her estate was administered and
settled. Petitioner is the trustee of the trust created by
the will. The Federal and State of California’s inheritance
taxes due on said shares have been duly paid. The
respondent now claims that the same shares of stocks
are also subject to inheritance tax here in the Philippines.
Hence, this petition for declaratory judgment was
instituted by plaintiff to ascertain whether the shares are
still subject to inheritance tax.
ISSUE:
May inheritance taxes be imposed on the said
shares?
RULING:
25
Yes. Originally the settled law in the US is that
intangibles have only one situs for the purpose of
inheritance tax, and that such situs is in the domicile of
the decedent at the time of his death. But this rule has
been relaxed due to:
(1) the recognition of the inherent power of each
government to tax persons, properties and rights within
its jurisdiction and enjoying thus, the protection of its
laws; and
(2) upon the principle that as to intangibles, a single
location in space is hardly possible considering the
multiple, distinct relationships which may be entered into
with respect thereto.
It is the identity or association of intangibles with the
person of their owner at his domicile which gives
jurisdiction to tax. But when the taxpayer extends his
activities with respect to his intangibles, so as to avail
himself of the protection and benefit of the laws of
another state, in such a way as to bring his person or
property within the reach of the tax gatherer there, the
reason for a single place of taxation no longer obtains.
In this case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein.
The owner residing in California has extended her
activities with respect to her intangibles so as to avail
herself of the protection and benefit of the Philippine
laws. The jurisdiction of the Philippine government to
impose tax must be upheld.
BASCO VS PAGCOR (1991)
(Delegation to Loc Gov)
FACTS:
Petitioners filed the instant petition seeking to annul
PAGCOR Charter (PD 1869) because it is allegedly
contrary to morals, public policy and order, and because
—
a. It constitutes a waiver of a right prejudicial to a
third person with a right recognized by law. It
waived the Manila City government's right to
impose taxes and license fees, which is
recognized by law;
b. For the same reason stated in the immediately
preceding paragraph, the law has intruded into
the local government's right to impose local
taxes and license fees. This, in contravention of
the constitutionally enshrined principle of local
autonomy
c. It violates the equal protection clause of the
constitution in that it legalizes PAGCOR —
conducted gambling, while most other forms of
gambling are outlawed,together with prostitution,
drug trafficking and other vices
d. It violates the avowed trend of the
Corygovernment away from monopolistic and
crony economy, andtoward free enterprise and
privatization. (p. 2, Amended Petition; p. 7, Rollo)
ISSUE
WON the Charter has intruded into thelocal government’s
right to impose taxes and license fees
RULING:
NO Petitioners contend that the exemption clause in P.D.
1869 is violative of the principle of local autonomy. They
must be referring to Section 13 par. (2) of P.D. 1869
which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature,
whether National or Local."
Their contention is without merit for the following
reasons:
(a) The City of Manila, being a mere Municipal
corporation has no inherent right to impose taxes. Thus,
"the Charter or statute must plainly show an intent to
confer that power or the municipality cannot assume it.”
Its "power to tax" therefore must always yield to a
legislative act which is superior having been passed upon
by the state itself which has the "inherent power to tax"
(b) The Charter of the City of Manila is subject to control
by Congress. It should be stressed that "municipal
corporations are mere creatures of Congress" which has
the power to "create and abolish municipal corporations"
due to its "general legislative powers." Congress,
therefore, has the power of control over Local
governments. And if Congress can grant the City of
Manila the power to tax certain matters, it can also
provide for exemptions or even take back the power.
(c) The City of Manila's power to impose license fees on
gambling, has long been revoked. As early as 1975, the
power of local governments to regulate gambling thru
the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively on
the National Government. Therefore, only the National
Government has the power to issue "licenses or permits"
for the operation of gambling. Necessarily, the power to
demand or collect license fees which is a consequence of
the issuance of "licenses or permits" is no longer vested
in the City of Manila.
(d) SUPREMACY of NATIONAL GOVT. Local governments
have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869.
All of its shares of stocks are owned by the National
Government. PAGCOR has a dual role, to operate and to
regulate gambling casinos. The latter role is
governmental, which places it in the category of an
agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to
control by a mere
Local government.
(e) Petitioners also argue that the Local Autonomy Clause
of the Constitution will be violated by P.D. 1869. This is a
pointless argument. Article X of the 1987 Constitution (on
Local Autonomy) provides: Sec. 5. Each local government
unit shall have the power
to create its own source of revenue and to levy taxes,
fees, and other charges subject to such guidelines and
limitation as the congress may provide, consistent with
the basic policy on local autonomy. Such taxes, fees and
charges shall accrue exclusively to the local government.
(emphasis supplied) The power of local government to
"impose taxes and fees" is always subject to "limitations"
which Congress may provide by law. Since PD 1869
remains an "operative" law until "amended, repealed or
revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its
"exemption clause" remains as an exception to the
exercise of the power of local governments to impose
26
taxes and fees. It cannot therefore be violative but rather
is consistent with the principle of
local autonomy.
NPC V. CITY OF CABANATUAN
(necessity theory)
FACTS:
• NAPOCOR sells electric power to the resident
Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. City of Cabanatuan assessed
the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the former’s gross receipts for
the preceding year.
• NPC refused to pay the tax assessment, which argued
that the respondent has no authority to impose tax on
government entities. Petitioner also contend that as a
nonprofit organization, it is exempted from the payment
of all forms of taxes, charges, duties or fees.
• The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay.
Respondent alleged that petitioner’s exemption from
local taxes has been repealed by Sec. 193 of RA 7160
(Local Government Code).
• The trial court issued an order dismissing the case. On
appeal, the Court of Appeals reversed the decision of the
RTC and ordered the petitioner to pay the city
government
the tax assessment.
ISSUE:
WON NPC is exempted from franchise tax by the
local government?
RULING:
NO.
• Taxes are the lifeblood of the government, for
without taxes, the government can neither exist
nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very
existence of the state whose social contract with its
citizens obliges it to promote public interest and common
good.
The theory behind the exercise of the power to tax
emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
• In recent years, the increasing social challenges of the
times expanded the scope of state activity, and taxation
has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare
and similar objectives.33 Taxation assumes even greater
significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees
and other charges34 pursuant to Article X, section
5 of the 1987 Constitution.
• The local government code removed the blanket
exclusion of instrumentalities and agencies of the
National Government from the coverage of local taxation.
• A franchise tax is imposed based not on the ownership
but on the exercise by the corporation of a privilege to do
business. The taxable entity is the corporation which
exercises the franchise, and not the individual
stockholders.
By virtue of its charter, petitioner was created as a
separate and distinct entity from the National
Government. It can sue and be sued under its own name,
and can exercise all the powers of a corporation under
the Corporation Code. The ownership by the National
Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in
business.
COMMISSIONER V. BOAC
(Territorial)
FACTS:
1. Commissioner of Internal Revenue (CIR) questioned a
ruling by the Court of Tax Appeals wherein the CTA set
aside the CIR’s assessment of deficiency income taxes
against respondent British Overseas Airways Corporation
(BOAC).
2. BOAC is a UK government-owned corporation engaged
in the international airline business. It did not have
landing rights in the Philippines nor was it granted a
certificate of public convenience by the Civil Aeronautics
Board.
It did not have flight operations in the Philippines;
it did not carry passengers or cargo.
3. However, it maintained a general sales agent.
(Warner Barnes and Co. at first then Qantas Airways) The
agent sold BOAC tickets covering passengers and
cargoes.
ISSUE:
1. WON BOAC is a resident foreign corporation. (tax
scheme is different for a nonresident foreign corporation)
– Yes; BOAC is a resident corporation doing
business in the Philippines.
2. WON the revenue derived by BOAC from sales of its
tickets, while having no flight operations in the
Philippines, is taxable. – Yes; the revenue constitutes
income from
Philippine sources so it is taxable.
RULING:
1. Sec 20 of the 1977 Tax Code defines a resident foreign
corporation as a foreign corporation engaged in trade or
business within the Philippines or having an office or
place of business therein.
2. BOAC was engaged in business in the Philippines
through a local agent during the period covered by the
CIR’s assessments.
It is a resident foreign corporation subject to tax
upon its total net income received in the
27
preceding taxable year from all sources within the
Philippines. (Sec 24(b), (2), Tax Code as amended
3. Tax Code provides that for revenue to be taxable, it
must constitute income from Philippine sources (see
previous paragraph)
4. Income is broadly and comprehensively defined as
cash received or its equivalent or the amount of money
comint to a person within a specific time.
5. Source of an income is the property, activity or
service that produced the income. For the source
to be considered as from the Philippines, it is
sufficient that the income is derived from activity
within the Philippines.
6. In this case, the sale of the tickets in the Philippines is
the source of income. The situs of the source of
payments is the Philippines.
MANILA RACE HORCE V. DELA FUENTE
(valid classification of taxpayers/subject matter to be
taxed)
FACTS:
Ordinance No. 3065 of the City of Manila imposes a tax
on stable owners based on the number of race horses
kept or maintained in the stables (P10/year for each race
horce). Manila Race Horce Trainers Association, Inc., a
group of owners of boarding stables for race horses
wants to declare the Ordinance invalid for being violative
of the Constitution. It is argued that the ordinance taxes
race horses and not boarding
stables (Sec. 2 of the Ordinance does not impose a
license fee on empty stables).
RULING
Ordinance VALID. The spirit, rather than the letter, of
an ordinance determines the construction thereof, and
the court looks less to its words and more to the context,
subject matter, consequence and effect. The tax is
assessed not on the owners of the horses but on the
owners of the stables, as counsel admit in their brief,
although there is nothing, of course, to stop stable
owners from shifting the tax to the horse owners in the
form of increased rents or fees, which is generally the
case.
It is also plain from the text of the whole ordinance that
the number of horses is used in the assessment purely as
a method of fixing an equitable and practical distribution
of the burden imposed by the measure. Far from being
obnoxious, the method is fair and just. It is but fair and
just that for a boarding stable where only one horse is
maintained
proportionately less amount should be exacted than for a
stable where more horses are kept and from which
greater income is derived.
In taxing only boarding stables for race horses, we do not
believe that the ordinance makes arbitrary classification.
it was said there is equality and uniformity in taxation if
all articles or kinds of property of the same class are
taxed at the same rate.
From the viewpoint of economics and public policy the
taxing of boarding stables for race horses to the
exclusion of boarding stables for horses dedicated to
other purposes is not indefensible. The owners of
boarding stables for race horses and, for that matter, the
race horse owners themselves, who in the scheme of
shifting may carry the taxation burden, are a class by
themselves and appropriately taxed where owners of
other kinds of horses are taxed less or not at all,
considering that equity in taxation is generally conceived
in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the
business or property taxed. Race horses are devoted to
gambling if legalized, their owners derive fat income and
the public hardly any profit from horse racing, and this
business demands relatively heavy police supervision.
Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not
discrimatory within the meaning of the Constitution.
SHELL V. MUNICIPALITY OF CORDOVA
(valid classification of taxpayers/subject matter to be
taxed)
FACTS:
The Municipality of Cordova, Cebu adopted a series of
ordinances, one of which is Ordinance 10 which imposes
an annual tax of P150 on occupation or the exercise of
the privilege of installation manager. Shell, Co. wants to
refund the taxes paid by it on the ground that the
ordinances imposing the taxes are ultra vires.
RULING
The ordinances are valid.
Ordinance No. 10 which imposes an annual tax of P150
on "installation manager" comes under the provisions of
Commonwealth Act No. 472. The claim that "installation
manager" is a designation made by the plaintiff and such
designation cannot be deemed to be a "calling" as
defined in section 178 of the National Internal Revenue
Code (Com. Act No. 466), and that the installation
manager employed by the plaintiff is a salaried employee
which may not be taxed by the municipal council under
the provisions of Commonwealth Act No. 472 is without
merit.
Even if the installation manager is a salaried employee of
the plaintiff, still it is an occupation "and one occupation
or line of business does not become exempt by being
conducted with some other occupation or business for
which such tax has been paid'1 and the occupation tax
must be paid "by each individual engaged in a calling
subject thereto." And pursuant to section 179 of the
National Internal Revenue Code, "The
payment of . . . occupation tax shall not exempt any
person from any tax, . . . provided by law or ordinance in
places where such . . . occupation in . . . regulated by
municipal law, nor shall the payment of any such tax be
held to prohibit any municipality from placing a tax upon
the same . . . occupation, for local purposes, where the
imposition of such tax is authorized by law."
The contention that the ordinance is discriminatory and
hostile because there is no other person in the locality
who exercises such "designation" or occupation is also
without merit, because the fact that there is no other
person in the locality who
exercises such a "designation" or calling does not make
the ordinance discriminatory and hostile, inasmuch as it
is and will be applicable to any person or firm who
exercises such calling or occupation named or
designated as "installation manager."
28
SAN MIGUEL CORP. V. AVELINO
(Non-Impairment of Jurisdiction of the Supreme Court)
FACTS
San Miguel challenged the existing Ordinance of the Tax
Code of the City of Mandaue. This was on the ground that
Section 12(e) (7) in relation to Section 12(e) (1) and (2),
Mandaue City Ordinance No. 97, is illegal and void
because it imposed a specific tax beyond its territorial
jurisdiction. The validity of the ordinance was sustained
by the City Fiscal.
However, when the case appealed to the Secretary
Justice, Macaraig, the challenged ordinance was deemed
“of doubtful validity”.
Respondent City filed a suit for collection on the issue of
the validity of the ordinance which had the effect of
questioning the opinion of the Justice Secretary. San
Miguel filed a petition for certiorari and prohibition to
oppose the suit and have it dismissed. It claimed that
under Section 47, which states that "The decision of the
Secretary of Justice shall be final and executory unless,
within thirty days upon receipt thereof, the
aggrieved party contents the same in a court of
competent jurisdiction”, the suit for collection was not
the appeal allowed by the law.
ISSUE:
WON the courts are ousted its jurisdiction over
questions of law because the mode of appeal by
the Respondent city was improper.
RULING:
No. The validity of a statute, an executive order or
ordinance is a matter for the judiciary to decide and that
whenever in the disposition of a pending case such a
question
becomes unavoidable, then it is not only the power but
the duty of the Court to resolve such a question. To
construe Section 47 narrowly would be to raise a serious
constitutional question.
For it would in effect bar what otherwise would be a
proper case cognizable by a court precisely is the
exercise of the conceded power of judicial review just
because the procedure contended for which is that of an
"appeal," under the circumstances a term vague and
ambiguous, was not followed.
AMERICAN BIBLE SOCIETY V. CITY OF MANILA
(Religious Freedom)
(Sec. 5, Art. III, Consti)
FACTS:
Plaintiff Bible Society challenges the City’s imposition of
license fees and refuses to pay taxes on the bible it sold
in the region. 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. Defendant retorts,
however, that they do obtain profit from selling the
bibles.
ISSUE:
Nevertheless, the issue in this case is whether tax
imposition and a fee (Ordinances Nos. 2529 and 3000
respectively) on activities religious in characters and on
religious materials are tantamount to religious
censorship and abridgment by the state.
RULING:
Ordinance No. 2529 which taxes the sale of assorted
merchandise does not apply to the sale of religious
materials in the exercise of the right to freedom of
religion. The right to enjoy freedom of the press and
religion occupies a preferred position as against the
constitutional right of property owners.
Otherwise, 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.
With respect to Ordinance No. 3000, as amended, which
requires the obtention of 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.
The fee 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.
GONZALES V. MARCOS
(Taxpayer’s Suit)
FACTS:
The action is centered on the validity of the creation in
EO 30 of a trust for the benefit of the Filipino people
under the name and style of the Cultural Center of the
Philippines. It was likewise alleged that the Board of
Trustees did accept donations from the private sector
and did secure from the Chemical Bank of New York a
loan of $5 million guaranteed by the National Investment
& Development Corporation as well as $3.5 million
received from President Johnson of the United States in
the concept of war damage funds, all intended for the
construction of the Cultural Center building estimated to
cost P48 million.
Respondents contention: petitioner did not have the
requisite personality to contest as a taxpayer the validity
of the executive order in question, as the funds held by
the Cultural Center came from donations and
contributions, not one centavo being raised by taxation.
ISSUE:
Does the petitioner have standing to sue? NO.
RULING:
29
1. It was pointed out as "one more valid reason" why
such an outcome was unavoidable was that "the funds
administered by the President of the Philippines came
from donations [and] contributions [not] by taxation."
2. Accordingly, there was that absence of the "requisite
pecuniary or monetary interest."
3. This is not to retreat from the liberal approach followed
in Pascual v. Secretary of Public Works, foreshadowed by
People v. Vera, where the doctrine of standing was first
fully discussed. It is only to make clear that petitioner,
judged by orthodox legal learning, has not satisfied the
elemental requisite for a taxpayer's suit.
4. Moreover, even on the assumption that public funds
raised by taxation were involved, it does not necessarily
follow that such kind of an action to assail the validity of
a legislative or executive act has to be passed upon. This
Court, as held in the recent case of Tan v. Macapagal, "is
not devoid of discretion as to whether or not it should be
entertained."
RULING: Petition denied.
ASSOC. OF CUSTOM BROKERS V MUNICIPAL BOARD
(privilege tax)
FACTS:
The disputed ordinance (Ordinance 3379) was passed by
the Municipal Board of the City of Manila under the
authority conferred by section 18(p) of RA 409 which
confers upon the municipal board the power “to tax
motor and other vehicles operating within the City of
Manila the provisions of any existing law to the contrary
notwithstanding. “
The plaintiff, an association composed of all brokers and
public service operators of Motor Vehicles in the City of
Manila filed this petition for declaratory relief challenging
the validity of the ordinance on the following grounds;
that it while it levies a socalled
property tax, it is in reality a license fee which is beyond
the power of the board to impose; that the said
ordinance goes against the rule on uniformity of taxation;
and, that the said imposition constitutes double taxation.
ISSUES:
Can the city validly enact such ordinance?
RULING:
No.
The Motor Vehicle Law (Section 70[b]) provides that no
fees may be exacted or demanded for the operation of
any motor vehicle other than those therein provided , the
only exception being that which refers to property tax
which may be imposed by municipal corporations.
While the ordinance refers to property tax and it is fixed
ad valorem, it is merely levied on motor vehicles
operating within the city of Manila with the main purpose
of raising funds to be expanded exclusively for the repair,
maintenance and improvement of streets and bridges in
said city.
Because of this, the ordinance in question merely
imposes a license fee although under the cloak of being
an ad valorem tax to circumvent the prohibition provided
by the Motor Vehicle Law.
ABS-CBN v. CTA
(BIR Rules and Regulations)
FACTS:
ABS-CBN is engaged in the business of telecasting local
as well as foreign films acquired from foreign
corporations not engaged in trade or business within the
Philippines.
The applicable law wrt the income tax of non-resident
corporations is section 24 (b) of the National Internal
Revenue Code, as amended by Republic Act No. 2343
dated June 20, 19598. On April 12, 1961, in
implementation of said provision, the CIR issued General
Circular No. V-3349.
Pursuant to the foregoing, ABS-CBN dutifully withheld
and turned over to the BIR the amount of 30% of one-half
of the film rentals paid by it to foreign corporations not
engaged in trade or business within the Philippines.
The last year that ABS-CBN withheld taxes pursuant to
the foregoing Circular was in 1968.
On June 27, 1968, RA 5431 amended Section 24 (b)10 of
the Tax Code increasing the tax rate from 30 % to 35 %
and revising the tax basis from "such amount" referring
to rents, etc. to "gross income."
On February 8, 1971, the CIR issued Revenue
Memorandum Circular No. 4-71, revoking General
Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax
therein prescribed should be based on gross income
without deduction whatever.
On the basis of this new Circular, CIR issued against
ABSCBN a letter of assessment and demand requiring
them to pay deficiency withholding income tax on the
remitted film rentals for the years 1965 through 1968
and film royalty as of the end of 1968 in the total amount
of P525,897.06.
ISSUE:
WON respondent can apply General Circular No. 4-71
retroactively and issue a deficiency assessment against
petitioner in the amount of P 525,897.06 as deficiency
withholding income tax for the years 1965, 1966, 1967
and 1968.
RULING:
No. Sec. 338-A11 (now Sec. 327) of the Tax Code applies
in this case. Rulings or circulars promulgated by the
CIR have no retroactive application where to so
apply them would be prejudicial to taxpayers. The
retroactive application of Memorandum Circular No. 4-71
prejudices ABSCBN since:
a) it was issued only in 1971, or 3 years after 1968, the
last year that petitioner had withheld taxes under
General Circular No. V-334.
b) the assessment and demand on petitioner to pay
deficiency withholding income tax was also made three
30
years after 1968 for a period of time commencing in
1965.
c) ABS-CBN was no longer in a position to withhold taxes
due from foreign corporations because it had already
remitted all film rentals and no longer had any control
over them when the new Circular was issued.
And in so far as the enumerated exceptions (to
nonretroactivity) are concerned, ABS-CBN does not fall
under any
of them.
BPI LEASING V.CA,CTA,CIR
(BIR Rules &Regulations)
FACTS:
For the calendar year 1986, BLC paid the CIR a total of
P1,139,041.49 representing 4% "contractor’s
percentage tax" imposed by Section 205 of the NIRC
based on its gross rentals from equipment leasing for
said year.
On November 10, 1986, CIR issued Revenue
Regulation 19- 86. Section 6.2 thereof provided that
finance and leasing companies registered under RA 5980
shall be subject to gross receipt tax of 5%-3%-1% on
actual income earned.
This means that companies registered under
Republic Act 5980, such as BLC, are not liable for
"contractor’s percentage tax" under Section 205 but
are, instead, subject to "gross receipts tax" under
Section 260 (now Section 122) of the NIRC.
Since BLC had earlier paid the "contractor’s percentage
tax for its 1986 lease rentals BLC filed a claim for a
refund with the CIR on April 1988 for the amount
representing the difference between what it had paid as
"contractor’s percentage tax" and
what it should have paid for "gross receipts tax."
ISSUES:
1. WON Revenue Regulation 19-86 is legislative12 rather
than interpretative in character.
2. WON it should retroact to the date of effectivity of the
law it seeks to interpret.
RULING:
1. NO. Section 1 of Revenue Regulation 19-86 plainly
states that it was promulgated pursuant to Section 277
of the NIRC. Section 277 (now Section 244) is an express
grant of authority to the Secretary of Finance to
promulgate all needful rules and
regulations for the effective enforcement of the
provisions of the NIRC.
2.NO. The principle is well entrenched that statutes,
including administrative rules and regulations, operate
prospectively only, unless the legislative intent to the
contrary is manifest by express terms or by necessary
implication. In the present case, there is no indication
that the revenue regulation may operate retroactively.
Furthermore, there is an express provision stating that it
"shall take effect on January 1, 1987," and that it
"shall be applicable to all leases written ON OR
AFTER the said date."
Being clear on its prospective application, it must be
given its literal meaning and applied without further
interpretation. Thus, BLC is not in a position to invoke the
provisions of Revenue Regulation 19-86 for lease rentals
it received prior to January 1, 1987.
VILLEGAS VS, HIU CHIONG TSAI PAO HO
GR L-29646, 10 NOVEMBER 1978
FACTS:
The Municipal Board of Manila enacted Ordinance 6537
requiring aliens (except those employed in the diplomatic
and consular missions of foreign countries, in technical
assistance programs of the government and another
country, and members of religious orders or
congregations) to procure the requisite mayor’s permit
so as to be employed or engage in trade in the City of
Manila.
The permit fee is P50, and the penalty for the violation of
the ordinance is 3 to 6 months imprisonment or a fine of
P100 to P200, or both.
ISSUE:
Whether the ordinance imposes a regulatory fee or a tax.
RULING:
The ordinance’s purpose is clearly to raise money under
the guise of regulation by exacting P50 from aliens who
have been cleared for employment.
The amount is unreasonable and excessive because it
fails to consider difference in situation among aliens
required to pay it, i.e. being casual, permanent, part-
time, rankand- file or executive.
[ The Ordinance was declared invalid as 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.
Further, the ordinance does not lay down any criterion or
standard to guide the Mayor in the exercise of his
discretion, thus conferring upon the mayor arbitrary and
unrestricted powers. ]
COMMISSIONER VS. GOTAMCO
GR L-31092, 27 FEBRUARY 1987
FACTS:
The World Trade Organization (WHO) decided to
construct a building to house its offices, as well as the
other United Nations Offices in Manila. In inviting bids for
the construction of the building, the WHO informed the
bidders of its tax exemptions. The contract was awarded
to John Gotamco and Sons.
The Commissioner opined that a 3% contractor’s tax
should be due from the contractor. The WHO issued a
31
certification that Gotamco should be exempted, but the
Commissioner insisted on the tax. Raised in the Court of
Tax Appeals, the court ruled in favor of Gotamco.
ISSUE:
Whether Gotamco is likewise from the contractor’s tax in
lieu of WHO’s exemption from indirect
taxes.
RULING:
Direct taxes are those that are demanded from the very
person who, it is intended or desired, should pay them;
while indirect taxes are those that are demanded in the
first instance from one person in the expectation and
intention that he can shift the burden to someone else.
Herein, the contractor’s tax is payable by the contractor
but it is the owner of the building that shoulders the
burden of the tax because the same is shifted by the
contractor to the owner as a matter of self-preservation.
Such tax is an “indirect tax” on the organization, as the
payment thereof or its inclusion in the bid price would
have meant an increase in the construction cost of the
building.
Hence, the Contractee’s (WHO) exemption from “indirect
taxes” implies that contractor (Gotamco) is exempt
from contractor’s tax.
KAPATIRAN NG MGA NAGLILINGKOD SA
PAMAHALAAN VS. TAN
GR L-81311, 30 JUNE 1988
FACTS:
EO 273 was issued by the President of the Philippines
which amended the Revenue Code, adopting the value-
added tax (VAT) effective 1 January 1988.
Four petitions assailed the validity of the VAT Law fro
being beyond the President to enact; for being
oppressive, discriminatory, regressive, and violative of
the due process and equal protection clauses, among
others, of the Constitution.
The Integrated Customs Brokers Association particularly
contend that it unduly discriminate against customs
brokers (Section 103 [r]) as the amended provision of the
Tax Code provides that “service performed in the
exercise of profession or calling (except custom brokers)
subject to occupational tax under the Local Tax Code,
and professional services performed by registered
general professional partnerships are exempt from VAT.
ISSUE:
Whether the E-VAT law discriminates against customs
brokers.
RULING
The phrase “except custom brokers” is not meant to
discriminate against custom brokers but to avert a
potential conflict between Sections 102 and 103 of the
Tax Code, as amended.
The distinction of the customs brokers from the other
professionals who are subject to occupation tax under
the Local Tax Code is based upon material differences, in
that the activities of customs brokers partake more of a
business, rather than a profession and were thus
subjected to the percentage tax under Section 174 of the
Tax Code prior to its amendment by EO 273. EO 273
abolished the percentage tax and replaced it with the
VAT.
If the Association did not protest the classification of
customs brokers then, there is no reason why it should
protest now.
REPUBLIC V. INTERMEDIATE APPELLATE COURT
FACTS:
Respondent spouses Antonio and Clara Pastor owed the
Government P1,283, 621.63 for taxes from the years
1955-1959. A reinvestigation of their debt was made and
the amount was changed to P17,117.08.
They applied for tax amnesty under P.D. 23, 213 and
370. Due to this, their debt even decreased to about
P12,000. They paid such debt to the Government and
had receipts as proofs of such.
The Government contended that the spouses could not
avail of the tax amnesty under P.D. 213 because of
Revenue Regulation No. 8-72 which stated that amnesty
is not allowed for those who had pending assessments
with the BIR.
Respondent spouses then contended that Revenue
Regulation No. 8-72 was null because P.D. 213 did not
contain any exemption wherein one should not be
allowed to amnesty.
ISSUE:
W/N Respondent spouses were properly given tax
amnesty.
HELD:
Yes, because Revenue Regulation No. 8-72 was null and
void. If Revenue Regulation No. 8-72 provided an
exception to the coverage of P.D. 213, then such
provision is null and void for being contrary to the
Presidential Decree. Revenue regulations shall not prevail
over provisions of a Presidential Decree.
PASCUAL AND DRAGON V. CIR, G.R. NO. 78133,
OCTOBER 18, 1988
FACTS:
Petitioners bought two (2) parcels of land and a year
after, they bought another three (3) parcels of land.
Petitioners subsequently sold the said lots in 1968 and
1970, and realized net profits. The corresponding capital
gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.
32
However, the Acting BIR Commissioner assessed and
required Petitioners to pay a total amount of P107,101.70
as alleged deficiency corporate income taxes for the
years 1968 and 1970. Petitioners protested the said
assessment asserting that they had availed of tax
amnesties way back in 1974.
In a reply, respondent Commissioner informed petitioners
that in the years 1968 and 1970, petitioners as co-
owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of
the National Internal Revenue Code that the unregistered
partnership was subject to corporate income tax as
distinguished from profits derived from the partnership
by them which is subject to individual income tax; and
that the availment of tax amnesty under P.D. No. 23, as
amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them
from the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the
deficiency income tax assessed.
ISSUE:
Whether the Petitioners should be treated as an
unregistered partnership or a co-ownership for the
purposes of income tax.
RULING:
The Petitioners are simply under the regime of co-
ownership and not under unregistered
partnership.
By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits
among themselves (Art. 1767, Civil Code of the
Philippines).
In the present case, there is no evidence that petitioners
entered into an agreement to contribute money, property
or industry to a common fund, and that they intended to
divide the profits among themselves.
The sharing of returns does not in itself establish a
partnership whether or not the persons sharing therein
have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the
existence of a juridical personality different from the
individual partners, and the freedom of each party to
transfer or assign the whole property.
Hence, there is no adequate basis to support the
proposition that they thereby formed an unregistered
partnership.
The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did
not thereby make them partners. They shared in the
gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty
thereby.
Under the circumstances, they cannot be considered to
have formed an unregistered partnership which is
thereby liable for corporate income tax, as
respondent commissioner proposes.
MERALCO VS. VERA
G.R. No. L-29987 | October 22, 1975
FACTS:
Meralco is the holder of a franchise to construct,
maintain, and operate an electric light, heat, and power
system in the City of Manila and its suburbs.
In 1962 and 1963, Meralco imported and received from
abroad copper wires, transformers, and insulators for use
in the operation of its business.
the
The exemption from “all taxes on this franchise or
earnings thereof” was subsequently withdrawn by RA
7160 (LGC), which at the same time gave local
government units the power to taxbusinesses enjoying a
franchise on the basis of income received or earned by
them within their territorial jurisdiction. The LGC took
effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of
1992, which in pertinent part provides: Notwithstanding
any exemption granted by law or other special laws,
there is hereby imposed a tax on businesses enjoying a
franchise, a rate of seventy-five percent (75%) of one
percent (1%) of the gross annual receipts for the
preceding calendar year based on the income receipts
realized within the territorial jurisdiction of Davao City.

The Collector of Customs, as deputy of the Commissioner

Subsequently, Congress granted in favor of Globe
of Internal Revenue, levied and collected a compensating
Mackay Cable and RadioCorporation (Globe) and Smart
tax. Meralco claimed for refund for the said years, but
Information Technologies, Inc. (Smart) franchises
such claims were either not acted upon or denied by the
which contained “in leiu of all taxes” provisos.
Commissioner.
In 1995, it enacted RA 7925, or the
ISSUE:
Public Telecommunication Policy of the Philippines, Sec.
23 of which provides that any advantage, favor,
Whether or not Meralco is exempt from payment of a
privilege, exemption, or immunity granted under existing
compensating tax on poles, wires, transformers and
franchises, or may hereafter be granted, shall
insulators imported by it for use in the operation of its
ipso facto become part of previously granted
electric light, heat, and power system.
telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such
RULING
franchises. The law took effect on March 16, 1995.

Meralco is not exempt from paying the compensation tax

In January 1999, when PLDT applied for a mayor’s permit
provided for in Section 190 of the Tax Code, the purpose
to operate itsDavao Metro exchange, it was required to
of which is to “place casual importers, who are not
pay the local franchise tax which then had amounted to
merchants on equal footing with established merchants
P3,681,985.72. PLDT challenged the power of the city
who pay sales tax on articles imported by them.”
government to collect the local franchise tax and
demanded a refund of what had been paid as a local
Meralco’s claim for exemption from payment of the
franchise tax for the year 1997 and for the first to the
compensating tax is not clear or expressed, contrary to
third quarters of 1998.
the rule that “exemptions from taxation are highly
disfavored in law, and he who claims exemption must be
ISSUE:
able to justify his claim by the clearest grant of organic
or statute law.”
Whether or not by virtue of RA 7925, Sec. 23, PLDT is
again entitled to the exemption from payment of the
Tax exemption are strictly construed against the
local franchise tax in view of the grant of tax exemption
taxpayer, they being highly disfavored and may almost
to Globe and Smart.
be said to be “odious to the law.” When exemption is
claimed, it must be shown indubitably to exist, for every
RULING:
presumption is against it, and a well-founded doubt is
fatal to the claim.
Petitioner contends that because their existing franchises
contain “in lieu of all taxes” clauses, the same grant of
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
tax exemption must be deemed to have become
INC. (PLDT)
ipso facto part of its previously granted
vs.
telecommunications franchise.
CITY OF DAVAO and ADELAIDA B. BARCELONA
GR. No. 143867/ March 25, 2003
But the rule is that tax exemptions should be granted
only by a clear and unequivocal provision of law
________________________
“expressed in a language too plain to be mistaken” and
TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF
assuming for the nonce that the charters of Globe and of
ALL TAXES” PROVISION
Smart grant tax exemptions, then this runabout way of
____________________________
granting tax exemption to PLDT is not a direct, “clear and
unequivocal” way of communicating the legislative
FACTS:
intent.

PLDT paid a franchise tax equal to three percent (3%) of

Nor does the term “exemption” in Sec. 23 of RA 7925
its gross receipts. The franchise tax was paid “in lieu of
mean tax exemption. The term refers to exemption from
all taxes on this franchise or earnings thereof” pursuant
regulations and requirements imposed by the National
to RA 7082.
33
Telecommunications Commission (NTC). For instance, RA
7925, Sec. 17 provides: The Commission shall exempt
any specific telecommunications service from its rate or
tariff regulations if the service has sufficient competition
to ensure fair and reasonable rates of tariffs. Another
exemption granted by the law in line with its policy
of deregulationis the exemption from the requirement of
securing permits from the NTCevery time a
telecommunications company imports equipment.
Tax exemptions should be granted only by clear and
unequivocal provision of law on the basis of language too
plain to be mistaken.
ROXAS VS. CTA
GR NO. L-25043 | APRIL 26, 1968
FACTS:
· Don Pedro Roxas and Dona Carmen Ayala, both
Spanish, transmitted to their grandchildren by hereditary
succession the following properties:
a. Agricultural lands with a total area of 19,000
hectares in Nasugbu, Batangas
- Tenants who have been tilling the lands expressed
their desire to purchase from Roxas y Cia, the parcels
which they actually occupied
- The govt, in line with the constitutional mandate
to acquire big landed estates and apportion them among
landless tenants-farmers, persuaded the Roxas brothers
to part with their landholdings
- The brothers agreed to sell 13,500 hec to the govt
for P2.079Mn, plus 300K survey and subdivision
expenses
- Unfortunately, the govt did not have funds
- A special arrangement was made with the
Rehabilitation Finance Corporation to advance to Roxas y
Cia the amount of P1.5Mn as loan
- Under the arrangement, Roxas y Cia. allowed the
farmers to buy the lands for the same price but by
installment, and contracted with the RFC to pay its loan
from the proceeds of the yearly amortizations paid by the
farmers
- In 1953 and 1955, Roxas y Cia. derived from said
installment payments a net gain of P42,480.83 and
P29,500.71. 50% of said net gain was reported for
income tax purposes as gain on the sale of capital asset
held for more than one year pursuant to Sec. 34 of the
Tax Code
b. Residential house and lot at Wright St.,
Malate, Manila
- After the marriage of Antonio and Eduardo, Jose
lived in the house where he paid rentals of 8K/year to
Roxas y Cia
c. Shares of stocks in different corporations
· To manage the properties, Antonio Roxas, Eduardo
Roxas and Jose Roxas, the children, formed a partnership
called Roxas y Compania
· On 1958, CIR demanded from Roxas y Cia the
payment of real estate dealer's tax for 1952 amtg to
P150.00 plus P10.00 compromise penalty for late
payment, and P150.00 tax for dealers of securities plus
P10.00 compromise penalty for late payment.
- Basis: house rentals received from Jose, pursuant
to Art. 194 of the Tax Code stating that an owner of a
real estate who derives a yearly rental income therefrom
34
in the amount of P3,000.00 or more is considered a real
estate dealer and is liable to pay the corresponding fixed
tax
· The Commissioner further assessed deficiency
income taxes against the brothers for 1953 and 1955,
resulting from the inclusion as income of Roxas y Cia of
the unreported 50% of the net profits derived from the
sale of the Nasugbu farm lands to the tenants, and the
disallowance of deductions from gross income of various
business expenses and contributions claimed by Roxas y
Cia and the Roxas brothers
· The brothers protested the assessment but was
denied, thus appealing to the CTA
· CTA decision: sustained the assessment except the
demand for the payment of the fixed tax on dealer of
securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas
de Jesus' Retiro de Manresa
ISSUE:
Should Roxas y Cia be considered a real estate dealer
because it engaged in the business of selling real estate
RULING:
NO, being an isolated transaction
· Real estate dealer: any person engaged in the
business of buying, selling, exchanging, leasing or
renting property on his own account as principal and
holding himself out as a full or part-time dealer in real
estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of
three thousand pesos or more a year:
· Section 194 of the Tax Code, in considering as real
estate dealers owners of real estate receiving rentals of
at least P3,000.00 a year, does not provide any
qualification as to the persons paying the rentals
· The fact that there were hundreds of vendees and
them being paid for their respective holdings in
installment for a period of ten years, it would
nevertheless not make the vendor Roxas y Cia. a real
estate dealer during the 10-year amortization period
· the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in
consonance with, but more in obedience to the request
and pursuant to the policy of our Government to allocate
lands to the landless
· It was the duty of the Government to pay the
agreed compensation after it had persuaded Roxas y Cia.
to sell its haciendas, and to subsequently subdivide them
among the farmers at very reasonable terms and prices.
But due to the lack of funds, Roxas y Cia. shouldered the
Government's burden, went out of its way and sold lands
directly to the farmers in the same way and under the
same terms as would have been the case had the
Government done it itself
· The power of taxation is sometimes called also the
power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and
uniformly
· Therefore, Roxas y Cia. cannot be considered a real
estate dealer for the sale in question. Hence, pursuant to
Section 34 of the Tax Code the lands sold to the farmers
are capital assets, and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%
As to the deductions
a. P40 tickets to a banquet given in honor of Sergio
Osmena and P28 San Miguel beer given as gifts to
various persons – representation expenses
· Representation expenses: deductible from gross
income as expenditures incurred in carrying on a trade or
business
· In this case, the evidence does not show such link
between the expenses and the business of Roxas y Cia
b. Contributions to the Pasay police and fire
department and other police departments as Christmas
funds
· Contributions to the Christmas funds are not
deductible for the reason that the Christmas funds were
not spent for public purposes but as Christmas gifts to
the families of the members of said entities
· Under Section 39(h), a contribution to a
government entity is deductible when used exclusively
for public purposes
· As to the contribution to the Manila Police trust
fund, such is an allowable deduction for said trust fund
belongs to the Manila Police, a government entity,
intended to be used exclusively for its public functions.
c. Contributions to the Philippines Herald's fund for
Manila's neediest families
· The contributions were not made to the Philippines
Herald but to a group of civic spirited citizens organized
by the Philippines Herald solely for charitable purposes
· There is no question that the members of this
group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a
group of citizens may be classified as an association
organized exclusively for charitable purposes mentioned
in Section 30(h) of the Tax Code
d. Contribution to Our Lady of Fatima chapel at the
FEU
· University gives dividends to its stockholders
· Located within the premises of the university, the
chapel in question has not been shown to belong to the
Catholic Church or any religious organization
· The contributions belongs to the Far Eastern
University, contributions to which are not deductible
under Section 30(h) of the Tax Code for the reason that
the net income of said university injures to the benefit of
its stockholders
No deficiency income tax is due for 1953 from Antonio
Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are
liable to pay deficiency income tax in the sum of
P109.00, P91.00 and P49.00, respectively
ENRIQUE GARCIA VS EXECUTIVE SECRETARY (1992)
211 SCRA 219 – Political Law – Congress Authorizing the
President to Tax
FACTS:
In November 1990, President Corazon Aquino issued
Executive Order No. 438 which imposed, in addition to
any other duties, taxes and charges imposed by law on
all articles imported into the Philippines, an additional
duty of 5% ad valorem tax. This additional duty was
imposed across the board on all imported articles,
including crude oil and other oil products imported into
the Philippines. In 1991, EO 443 increased the additional
duty to 9%. In the same year, EO 475 was passed
35
reinstating the previous 5% duty except that crude oil
and other oil products continued to be taxed at 9%.
Enrique Garcia, a representative from Bataan, avers that
EO 475 and 478 are unconstitutional for they violate
Section 24 of Article VI of the Constitution which
provides:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur
with amendments.
He contends that since the Constitution vests the
authority to enact revenue bills in Congress, the
President may not assume such power by issuing
Executive Orders Nos. 475 and 478 which are in the
nature of revenue-generating measures.
ISSUE: Whether or not EO 475 and 478 are
constitutional.
HELD: Under Section 24, Article VI of the Constitution,
the enactment of appropriation, revenue and tariff bills,
like all other bills is, of course, within the province of the
Legislative rather than the Executive Department. It does
not follow, however, that therefore Executive Orders Nos.
475 and 478, assuming they may be characterized as
revenue measures, are prohibited to be exercised by the
President, that they must be enacted instead by the
Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as
follows:
(2) The Congress may, by law, authorize the President to
fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national
development program of the Government.
There is thus explicit constitutional permission to
Congress to authorize the President “subject to such
limitations and restrictions as [Congress] may impose” to
fix “within specific limits” “tariff rates . . . and other
duties or imposts . . . .” In this case, it is the Tariff and
Customs Code which authorized the President ot issue
the said EOs.
ERNESTO M. MACEDA VS. ENERGY REGULATORY
BOARD, ET AL.
18 JULY 1991 :: G.R. NO. 96266
FACTS:
Upon the outbreak of the Persian Gulf conflict on August
1990, private respondents oil companies filed with the
ERB their respective applications on oil price increases.
ERB then issued an order granting a provisional increase
of P1.42 per liter. Petitioner Maceda filed a petition for
Prohibition seeking to nullify said increase.
ISSUE:
Whether or not the decisions of the Energy Regulatory
Board should be subject to presidential review.
HELD:
Pursuant to Section 8 of E.O. No. 172, while haring is
indispensable, it does not preclude the Board from
ordering a provisional increase subject to final disposition
of whether or not to make it permanent or to reduce or  Petitioners: Ordinance does not tax other
increase it further or to deny the application. The kinds of amusements (e.g. race tracks,
provisional increase is akin to a temporary restraining cockpits, cabarets, concert halls)
order, which are given ex-parte.
HELD AND RATIO:
The Court further noted the Solicitor General’s comments
that “the ERB is not averse to the idea of a presidential 1. NO. The tax imposed by Sec 2444(m) cannot be
review of its decision,” except that there is no law at defined as and be restricted to tax on business.
present authorizing the same. The fact that said section includes theaters and
similar amusement establishments shows that
The Court suggested that it will be under the scope of
the power to tax amusement is expressly
the legislative to allow the presidential review of the
included within the power granted by Sec
decisions of the ERB since, despite its being a quasi-
2444(m)
judicial body, it is still “ an administrative body under the
Office of the President whose decisions should be
2. NO. Both provisions of law may stand together
appealed to the President under the established principle
and enforced at the same time.
of exhaustion of administrative remedies,” especially on
a matter as transcendental as oil price increases which
3. NO. Equality and uniformity of taxation
affect the lives of almost all Filipinos.
means that all taxable articles or kinds of
property of the same class shall be taxed at
EASTERN THEATRICAL CO. V ALFONSO
the same rate. The taxing power has the
authority to make reasonable and natural
FACTS
classifications for purposes of taxation.
 The Municipal Board of the City of Manila enacted
Ordinance No. 2958 which imposes a fee on the price
Petitioners cannot point out what places of
of every admission ticket sold by theaters and other
amusement do not constitute a class by
similar amusement establishments. The fees
themselves and which can be confused with
imposed are graduated according to the price of the
those not included in the ordinance.
ticket sold.
 Twelve corporations (Petitioners) engaged in the
motion picture business instituted a complaint in the
GONZALES VS MACARAIG
CFI to impugn the validity of the ordinance.
 CFI upheld the validity of the ordinance and held
that:
Political Law – Veto Power – Inappropriate Provision in an
o Under Sec 2444(m) of the Revised Administrative
Appropriation Bill
Code (RAC), the City of Manila had the power to
enact the ordinance. FACTS:
o Sec 2444(m) of the RAC was not repealed by the
Gonzales, together w/ 22 other senators, assailed the
NIRC nor the power granted by it withdrawn.
constitutionality of Cory’s veto of Section 55 of the 1989
o Ordinance did not violate the principle of equality
Appropriations Bill (Sec 55 FY ’89, and subsequently of
and uniformity of taxation.
its counterpart Section 16 of the 1990 Appropriations Bill
(Sec 16 FY ’90).
ISSUES AND ARGUMENTS: Gonzalez averred the following:

1. WON ordinance was enacted beyond the
charter powers of the City of Manila?
 Petitioners: Sec 2444(m) of the Revised
Administrative Code, which grants to the
City the power to regulate theaters,
confers only the power to tax on business
but not on amusement.
2. WON Sec 2444(m) of the RAC has been
impliedly repealed by the NIRC?
 Petitioners: Since the NIRC was passed
later the RAC and since both taxing
powers cover the same field of
legislation, Sec 2444(m) of the RAC must
have been repealed by the NIRC and
consequently, the power to regulate
theaters granted to the City was
withdrawn.
3. WON the ordinance violates the principle of
equality and uniformity of taxation
enjoined by the Constitution?
(1) the President’s line-veto power as regards
appropriation bills is limited to item/s and does not cover
provision/s; therefore, she exceeded her authority when
she vetoed Section 55 (FY ’89) and Section 16 (FY ’90)
which are provision;
(2) when the President objects to a provision of an
appropriation bill, she cannot exercise the item-veto
power but should veto the entire bill;
(3) the item-veto power does not carry with it the power
to strike out conditions or restrictions for that would be
legislation, in violation of the doctrine of separation of
powers; and
(4) the power of augmentation in Article VI, Section 25
[5] of the 1987 Constitution, has to be provided for by
law and, therefore, Congress is also vested with the
prerogative to impose restrictions on the exercise of that
power.
ISSUE:
Whether or not the President exceeded the item-veto
power accorded by the Constitution. Or differently put,

36
has the President the power to veto `provisions’ of an
Appropriations Bill.
RULING:
SC ruled that Congress cannot include in a general
appropriations bill matters that should be more properly
enacted in separate legislation, and if it does that, the
inappropriate provisions inserted by it must be treated as
“item,” which can be vetoed by the President in the
exercise of his item-veto power.
The SC went one step further and rules that even
assuming arguendo that “provisions” are beyond the
executive power to veto, and Section 55 (FY ’89) and
Section 16 (FY ’90) were not “provisions” in the
budgetary sense of the term, they are “inappropriate
provisions” that should be treated as “items” for the
purpose of the President’s veto power.
UMALI VS. ESTANISLAO MAY 29, 1992
FACTS:
Congress enacted Republic Act 7167 amending the NIRC
(adjusting the basic and additional exemptions allowable
to individuals for income tax purposes to the poverty
threshold level).
The said Act was signed and approved by the President
on 19 December 1991 and published on 14 January 1992
in "Malaya" a newspaper of general circulation. On 26
December 1991, the CIR promulgated Revenue
Regulations No. 1-92 stating that the regulations shall
take effect on compensation income from January 1,
1992.
Petitioners filed a petition for mandamus to compel the
CIR to implement RA 7167 in regard to income earned or
received in 1991, and prohibition to enjoin the CIR from
implementing the revenue regulation.
ISSUE:
Assuming that Rep. Act 7167 took effect on 30 January
1992 (15 days after its publication in “Malaya”), whether
or not the said law nonetheless covers or applies to
compensation income earned or received during
calendar year 1991.
RULING
The Court is of the considered view that Rep. Act 7167
should cover or extend to compensation income earned
or received during calendar year 1991. Sec. 29, par. [L],
Item No. 4 of the National Internal Revenue Code, as
amended, provides:
Upon the recommendation of the Secretary of Finance,
the President shall automatically adjust not more often
than once every three years, the personal and
additional exemptions taking into account, among
others, the movement in consumer price indices, levels
of minimum wages, and bare subsistence levels.
The exemptions were last adjusted in 1986. The
president could have adjusted it in 1989 but did not do
so. The poverty threshold level refers to the level at the
time Rep. Act 7167 was enacted by Congress. The Act is
a social legislation intended to alleviate in part the
present economic plight of the lower income taxpayers.
37
Rep. Act 7167 says that the increased personal
exemptions shall be available after the law shall have
become effective. These exemptions are available upon
the filing of personal income tax returns, done not later
than the 15th day of April after the end of a calendar
year. Thus, under Rep. Act 7167, which became effective,
on 30 January 1992, the increased exemptions are
literally available on or before 15 April 1992 [though not
before 30 January 1992].
But these increased exemptions can be available on 15
April 1992 only in respect of compensation income
earned or received during the calendar year 1991. The
personal exemptions as increased by Rep. Act 7167 are
not available in respect of compensation income received
during the 1990 calendar year; the tax due in respect of
said income had already accrued, and been presumably
paid (The law does not state retroactive application).
The personal exemptions as increased by Rep. Act 7167
cannot be regarded as available as to compensation
income received during 1992 because it would in effect
postpone the availability of the increased exemptions to
1 January-15 April 1993. The implementing regulations
collide with Section 3 of Rep. Act 7167 which states that
the statute "shall take effect upon its approval”.
The revenue regulation should take effect on
compensation income earned or received from 1 January
1991. Since this decision is promulgated after 15 April
1992, those taxpayers who have already paid are
entitled to refunds or credits.
PHILIPPINE PETROLEUM CORPORATION vs.
MUNICIPALITY OF PILILLA
FACTS:
1. Petitioner, Philippine Petroleum Corporation (PPC for
short) is a business enterprise engaged in the
manufacture of lubricated oil basestock which is a
petroleum product, with its refinery plant situated at
Malaya, Pililla, Rizal, conducting its business activities
within the territorial jurisdiction of the Municipality of
Pililla, Rizal.
2. Under Section 142 of the National Internal Revenue
Code of 1939, manufactured oils and other fuels are
subject to specific tax.
3. Later, Presidential Decree No. 231, otherwise known
as the Local Tax Code was issued by former President
Ferdinand E. Marcos governing the exercise by
provinces, cities, municipalities and barrios of their
taxing and other revenue-raising powers. Sections 19
and 19 (a) thereof, provide among others, that the
municipality may impose taxes on business, except on
those for which fixed taxes are provided on
manufacturers, importers or producers of any article of
commerce of whatever kind or nature, including
brewers, distillers, rectifiers, repackers, and
compounders of liquors, distilled spirits and/or wines in
accordance with the schedule listed therein.
4. The Secretary of Finance issued a Circular directed to
all provincial, city and municipal treasurers to refrain
from collecting any local tax imposed in old or new tax
ordinances in the business of manufacturing,
wholesaling, retailing, or dealing in petroleum products
subject to the specific tax under the National Internal
Revenue Code.
5. Likewise, another Circular was issued by the
Secretary of Finance instructing all City Treasurers to
refrain from collecting any local tax imposed in tax
ordinances enacted before or after the effectivity of the
Local Tax Code on the businesses of manufacturing,
wholesaling, retailing, or dealing in, petroleum products
subject to the specific tax under the National Internal
Revenue Code.
6. Meanwhile, Respondent Municipality of Pililla enacted
Municipal Tax Ordinance No. 1 otherwise known as "The
Pililla Tax Code of 1974". Sections 9 and 10 of the said
ordinance imposed a tax on business, except for those
for which fixed taxes are provided in the Local Tax Code.
7. P.D. 436 was promulgated increasing the specific tax
on lubricating oils, gasoline, bunker fuel oil, diesel fuel
oil and other similar petroleum products levied under
Sections 142, 144 and 145 of the National Internal
Revenue Code, as amended, and granting provinces,
cities and municipalities certain shares in the specific
tax on such products in lieu of local taxes imposed on
petroleum products.
8. Provincial Circular No. 6-77 was also issued directing
all city and municipal treasurers to refrain from collecting
the so-called storage fee on flammable or combustible
materials imposed under the local tax ordinance of their
respective locality, said fee partaking of the nature of a
strictly revenue measure or service charge.
9. P.D. 1158 otherwise known as the National Internal
Revenue Code of 1977 was enacted, Section 153 of
which specifically imposes specific tax on refined and
manufactured mineral oils and motor fuels.
10. Enforcing the provisions of the above-mentioned
ordinance, the respondent filed a complaint on April 4,
1986 docketed as Civil Case No. 057-T against PPC for
the collection of the business tax from 1979 to 1986;
storage permit fees from 1975 to 1986; mayor's permit
and sanitary inspection fees from 1975 to 1984. PPC,
however, have already paid the last-named fees starting
1985 (Rollo, p. 74).
11. The trial court rendered a decision against the
petitioner. Hence, the instant petition.
ISSUE:
Whether petitioner PPC whose oil products are subject to
specific tax under the NIRC, is still liable to pay (a) tax on
business and (b) storage fees, considering Provincial
Circular No. 6-77; and mayor's permit and sanitary
inspection fee unto the respondent Municipality of Pililla,
Rizal, based on Municipal Ordinance No. 1.
RULING:
Petitioner PPC contends that:
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(a) Provincial Circular No. 2673 declared as contrary to
national economic policy the imposition of local taxes on
the manufacture of petroleum products as they are
already subject to specific tax under the National Internal
Revenue Code;
(b) the above declaration covers not only old tax
ordinances but new ones, as well as those which may be
enacted in the future;
(c) both Provincial Circulars (PC) 26-73 and 26 A-73 are
still effective, hence, unless and until revoked, any effort
on the part of the respondent to collect the suspended
tax on business from the petitioner would be illegal and
unauthorized; and
(d) Section 2 of P.D. 436 prohibits the imposition of local
taxes on petroleum products.
There is no question that Pililla's Municipal Tax Ordinance
No. 1 imposing the assailed taxes, fees and charges is
valid as it conforms with the mandate of law.
But P.D. No. 426 amending the Local Tax Code is deemed
to have repealed Provincial Circulars issued by the
Secretary of Finance when Sections 19 and 19 (a), were
carried over into P.D. No. 426 and no exemptions were
given to manufacturers, wholesalers, retailers, or dealers
in petroleum products.
Well-settled is the rule that administrative regulations
must be in harmony with the provisions of the law. In
case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails.
Furthermore, while Section 2 of P.D. 436 prohibits the
imposition of local taxes on petroleum products, said
decree did not amend Sections 19 and 19 (a) of P.D. 231
as amended by P.D. 426, wherein the municipality is
granted the right to levy taxes on business of
manufacturers, importers, producers of any article of
commerce of whatever kind or nature. A tax on business
is distinct from a tax on the article itself. Thus, if the
imposition of tax on business of manufacturers, etc. in
petroleum products contravenes a declared national
policy, it should have been expressly stated in P.D. No.
436.
The exercise by local governments of the power to tax is
ordained by the present Constitution. To allow the
continuous effectivity of the prohibition set forth in PC
No. 26-73 (1) would be tantamount to restricting their
power to tax by mere administrative issuances. Under
Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by
Congress can define and limit such power of local
governments. Thus:
Each local government unit shall have the power to
create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with
the basic policy of local autonomy . . .
Provincial Circular No. 6-77 enjoining all city and
municipal treasurers to refrain from collecting the so-
called storage fee on flammable or combustible materials
imposed in the local tax ordinance of their respective
locality frees petitioner PPC from the payment of storage
permit fee.

The storage permit fee being imposed by Pililla's tax

ordinance is a fee for the installation and keeping in
storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of
tanks owned not by the municipality of Pililla, but by
petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is
envisioned in Section 37 of the same Code.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No.

1 prescribing a permit fee is a permit fee allowed under
Section 36 of the amended Code.

As to the authority of the mayor to waive payment of the

mayor's permit and sanitary inspection fees, the trial
court did not err in holding that "since the power to tax
includes the power to exempt thereof which is essentially
a legislative prerogative, it follows that a municipal
mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the
enactment of a tax." The waiver partakes of the nature of
an exemption. It is an ancient rule that exemptions from
taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority
(Esso Standard Eastern, Inc. v. Acting Commissioner of
Customs, 18 SCRA 488 [1966]). Tax exemptions are
looked upon with disfavor (Western Minolco Corp. v.
Commissioner of Internal Revenue, 124 SCRA 121
[1983]). Thus, in the absence of a clear and express
exemption from the payment of said fees, the waiver
cannot be recognized. As already stated, it is the law-
making body, and not an executive like the mayor, who
can make an exemption. Under Section 36 of the Code, a
permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in
any business or occupation under the provisions of the
Code.

However, since the Local Tax Code does not provide the
prescriptive period for collection of local taxes, Article
1143 of the Civil Code applies. Said law provides that an
action upon an obligation created by law prescribes
within ten (10) years from the time the right of action
accrues. The Municipality of Pililla can therefore enforce
the collection of the tax on business of petitioner PPC
due from 1976 to 1986, and NOT the tax that had
accrued prior to 1976.

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