Maceda v.

Macaraig – last case

Roxas v. CTA, 23 SCRA 276

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 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
Pascual v. Secretary of Public Works, 110 Phil 331 (1960)

PASCUAL vs. SECRETARY OF PUBLIC WORKS

110 PHIL 331
GR No. L-10405, December 29, 1960

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

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

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

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

Tio v. Videogram Regulatory Board – Supra

Gaston v. Republic Planter

Melencio-Herrera, J. Other respondents:

 Phil Sugar Commission (PhilSuCom)- formerly the gov’t office that regulates the sugar industry.

 Sugar Regulatory Cadmin (SRA)- superceded PhilSuCom under EO 18 (abolished PhilSuCom but
existence of PhilSuCom was to continue for 3 more yrs for the purpose of prosecuting and defending
suits)

FACTS:

 Petitioners are sugar producers, planters and millers. They, in their individual capacities and in
representation of others sugar producers, planters, and millers (bec they are numerous that it is
impracticable to bring them all to court although the subject matter of the controversy is of common
interest to all of them whether parties in the action or not) (so, class suit?)pray for a writ of mandamus:
“to implement the privatization of Republic Planters Bank by the distribution of the shares of stock in
the Bank (now still held in the name of the Philippine Sugar Commission), to the sugar producers,
planters, and millers, who are the true beneficial owners of the common and preferred shares with a
total investment of P290mil, the investment funded by the deduction of P1.00 per picul from sugar
proceeds of the sugar producers.

o The deduction started in 1978, as a Stabilization Fund, pursuant to PD 388.

 Respondent Bank does not take issue with petitioners because it has no interest to be affected by the
ruling. It welcomes the Petition since it will finally settle the issue of legal ownership of the shares of
stock.

 However, other respondents’ arguments: o That no trust (funds in trust for them) results from Sec 7 of
PD 388;

o That the stabilization fees collected are considered government funds under the
Government Auditing Code;
o That the transfer of shares of stock from PhilSuCom to the sugar producers would be
irregular, if not illegal
o That the suit is barred by laches.
ISSUES:

 Accdg to the case, the SolGen aptly summarized the basic issues:

1. Whether the stabilization fees collected pursuant to PD 388 are funds in trust for them or public
funds
2. Whether shares of stock in the Bank paid for with the stabilization fees belong to PhilSuCom or to the
diff sugar planters/millers

HELD:

1. Not in trust for them, they are public funds.

2. They belong to PhilSuCom

RATIO:

General rule: Presumptive trust arises where, and only where, such may be reasonably presumed to be
the intention of the parties

 Sec 7 of PD 388 does provide that the stabilization fees collected "shall be administered in trust by the
Commission." However, a resulting trust in the petitioners’ favor cannot be said to have ensued because
the presumptive intention of the parties is not reasonably ascertainable from the language of the
statute.

 The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general
rule, it arises where, and only where, such may be reasonably presumed to be the intention of the
parties, as determined from the facts and circumstances existing at the time of the transaction out of
which it is sought to be established. No implied trust can be deduced from the imposition of the levy.

 The essential idea of an implied trust involves a certain antagonism between the cestui que trust and
the trustee even when the trust has not arisen out of fraud or any transaction of a fraudulent or
immoral character.

 It is not shown from the statute itself that PhilSuCom imposed on itself the obligation of holding the
stabilization fund for the benefit of the sugar producers.

 It must be categorically demonstrated that the very administrative agency which is the source of such
regulation would place a burden on itself. Petitioners use the history of the Bank as a basis for the
creation of the trust. Petitioners cannot rely on the history of the Bank.

 They say that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent
difficulties early 1978, Benedicto, then Chairman of PhilSuCom, proposed to the Central Bank for the
rehabilitation of the Bank.

 The Central Bank agreed, subject to the infusion of fresh capital by the Benedicto Group.

 Petitioners say that this infusion of capital was accomplished, not by Benedicto, but by PhilSuCom,
which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares
of stock of the Bank.
 Petitioners argue that all shares were placed in PhilSuCom’s name only out of convenience and
necessity and that they are the true and beneficial owners.

 SC says: That could have been clarified by the Trust Agreement between PhilSuCom (as "Trustor") and
the Bank (as "Trustee") by stating there that PhilSuCom holds the shares for and in behalf of the sugar
producers, the sugar prducers "being the true and beneficial owners."

 The Agreement, however, did not get off the ground because it failed to receive the approval of the
PhilSuCom Board of Commissioners. d2015member

 Neither did the SRA approve the Agreement.

 SC agrees with opinion of the Commission on Audit that PhilSuCom owns the stocks. Fees collected are
in the nature of a tax.

 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)

 They constitute sugar liens (Sec. 7[b], PD 388).

 The collections accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to
the "Sugar Adjustment and Stabilization Fund.”

 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).

 The protection of a large industry constituting one of the great sources of the state's wealth and
therefore affecting the welfare of a great portion of the population is affected to such an extent by
public interests as to be within the police power of the sovereign.

 The stabilization fees 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.

 Levied for a special purpose, the revenues are to be treated as a special fund to be “administered in
trust” (PD 388) for the purpose intended. Once the purpose has been fulfilled or abandoned, the
balance, is to be transferred to the general funds of the Government. That is the essence of the trust
intended. Stabilization fund is a special fund.

 This 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 Consti, Art VI, Sec. 29(1)]
 That the fees were collected from them and were used to the purchase of shares of stock in the Bank
do not convert the funds into a trust for their benefit nor make them the beneficial owners of the shares
bought.

 It is only 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.

 Also, 1/2 of the amount levied is to be utilized for the "payment of salaries and wages of personnel 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
including the foreign market, the industry being of vital importance to the country's economy and to
national interest. Writ of Mandamus denied, Petition dismissed.
 Tan v. Del Rosario, 237 SCRA 324 (1994)

Tan v. Del Rosario Digest

Tan v Del Rosario

Facts:

1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation
Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as the Rules and
Regulations promulgated by public respondents pursuant to said law.

2. Petitioners posit that RA 7496 is unconstitutional as it allegedlyviolates the following provisions

of the Constitution:

-Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject
which shall be expressed in the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . . property without due process of law,
nor shall any person be denied the equal protection of the laws.

3. Petitioners contended that public respondents exceeded their rule-making authority in applying
SNIT to general professional partnerships. Petitioner contends that the title of HB 34314,
progenitor of RA 7496, is deficient for being merely entitled, "Simplified Net Income Taxation
Scheme for the Self-Employed and Professionals Engaged in the Practice of their
Profession" (Petition in G.R. No. 109289) when the full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code,' as amended. Petitioners also contend it violated due process.

5. The Solicitor General espouses the position taken by public respondents.

6. The Court has given due course to both petitions.

ISSUE: Whether or not the tax law is unconstitutional for violating due process

NO. The due process clause may correctly be invoked only when there is a clear contravention
of inherent or constitutional limitations in the exercise of the tax power. No such transgression
is so evident in herein case.

1. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity does not violate classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative
 purpose, (3) the 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.

2. What is apparent from the amendatory law is the legislative intent to increasingly shift the
income tax system towards the schedular approach in the income taxation of individual
taxpayers and to maintain, by and large, the present global treatment on taxable corporations.
The Court does not view this classification to be arbitrary and inappropriate.

ISSUE 2: Whether or not public respondents exceeded their authority in promulgating the RR

No. There is no evident intention of the law, either before or after the amendatory legislation,
to place in an unequal footing or in significant variance the income tax treatment of
professionals who practice their respective professions individually and of those who do it
through a general professional partnership.
Sison v. Ancheta, 130 SCRA 654 (1984) *

Sison v Ancheta G.R. No. L-59431. July 25, 1984.

C. J. Fernando
Declaratory Relief

Facts:

Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens
or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and
other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted gross income.

Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section
as arbitrary amounting to class legislation, oppressive and capricious in character.

For petitioner, therefore, there is a transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring uniformity in taxation.

The OSG prayed for dismissal of the petition due to lack of merit.

Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.

(WON there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation)

Held: No. Petition dismissed

Ratio:
The need for more revenues is rationalized by the government's role to fill the gap not done by
public enterprise in order to meet the needs of the times. It is better equipped to administer for the
public welfare.

The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital
state functions. It is the source of the bulk of public funds.

The power to tax is an attribute of sovereignty and the strongest power of the government. There are
restrictions, however, diversely affecting as it does property rights, both the due process and equal
protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a
revenue measure. If it were otherwise, taxation would be a destructive power.

The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness
as basis without a factual foundation. This is merely to adhere to the authoritative doctrine that
where the due process and equal protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such persuasive character as would
lead to such a conclusion.
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 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.

For equal protection, the applicable standard to determine whether this was denied in the exercise of
police power or eminent domain was the presence of the purpose of hostility or unreasonable
discrimination.

It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to
every person under circumstances, which if not identical are analogous. If law be looks upon in
terms of burden or charges, those that fall within a class should be treated in the same fashion,
whatever restrictions cast on some in the group equally binding on the rest.

The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of
the laws's benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the idea of law.

The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are
not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, addressed to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion to
be treated in law as though they were the same.

Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.

Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly attainable

Equality and uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation

There is quite a similarity then to the standard of equal protection for all that is required is that the
tax "applies equally to all persons, firms and corporations placed in similar situation"

There was a difference between a tax rate and a tax base. There is no legal objection to a broader
tax base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate.

The discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of them. As there is practically no overhead expense, these
taxpayers are not entitled to make deductions for income tax purposes because they are in the same
situation more or less.

Taxpayers who are recipients of compensation income are set apart as a class.

On the other hand, in the case of professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to produce their income. It would not be
just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose
on all alike the same tax rates on the basis of gross income.

There was a lack of a factual foundation, the forcer of doctrines on due process and equal
protection, and he reasonableness of the distinction between compensation and taxable net income
of professionals and businessmen not being a dubious classification.
Kapatiran v. Tan, 163 SCRA 372 (1988) *

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan (1988)

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311 June 30, 1988

FACTS:
EO 372 was issued by the President of the Philippines which amended the Revenue Code, adopting the
value-added tax (VAT) effective January 1, 1988. Four petitions assailed the validity of the VAT Law
from 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
103r) 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 is void for being discriminatory against customs brokers

RULING:
No. 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 on material differences, in that the activities of customs 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.
Basco v. PAGCOR, 197 SCRA 52 (1991)

Basco v. PAGCOR
GRN 91649, 14 May 1991)

FACTS:
On July 11, 1983, PAGCOR was created under Presidential Decree 1869, pursuant to the policy
of the government, “ to regulate and centralize through an appropriate institution all games of
chance authorized by existing franchise or permitted by law.” This was subsequently proven to
be beneficial not just to the government but also to the society in general. It is a reliable source
of much needed revenue for the cash-strapped Government.

Petitioners filed an instant petition seeking to annul the PAGCOR because it is allegedly
contrary to morals, public policy and public order, among others.

ISSUES:
Whether PD 1869 is unconstitutional because:
1.) it is contrary to morals, public policy and public order;

2.) it constitutes a waiver of the right of the City of Manila to improve taxes and legal fees; and
that the exemption clause in PD 1869 is violative of constitutional principle of Local Autonomy;

3.) it violates the equal protection clause of the Constitution in that it legalizes gambling thru
PAGCOR while most other forms are outlawed together with prostitution, drug trafficking and
other vices; and

4.) it is contrary to the avowed trend of the Cory Government, away from monopolistic and crony
economy and toward free enterprise and privatization.

HELD:
1.) Gambling, in all its forms, is generally prohibited, unless allowed by law. But the prohibition of gambling does not
mean that the government can not regulate it in the exercise of its police power, wherein the state has the authority to
enact legislation that may interfere with personal liberty or property in order to promote the general welfare.

2.) The City of Manila, being a mere Municipal Corporation has no inherent right to impose taxes. Its charter was
created by Congress, therefore subject to its control. Also, local governments have no power to tax instrumentalities
of the National Government.

3.) Equal protection clause of the Constitution does not preclude classification of individuals who may be accorded
different treatment under the law, provided it is not unreasonable or arbitrary. The clause does not prohibit the
legislature from establishing classes of individuals or objects upon which different rules shall operate.

4.) The Judiciary does not settle policy issues which are within the domain of the political branches of government
and the people themselves as the repository of all state power.

Every law has in its favor the presumption of constitutionality, thus, to be nullified, it must be shown that there is a
clear and unequivocal breach of the Constitution. In this case, the grounds raised by petitioners have failed to
overcome the presumption. Therefore, it is hereby dismissed for lack of merit.
NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003 *

National Power Corporation vs City

of Cabanatuan
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
FACTS: Petitioner is a government-owned and controlled corporation created under Commonwealth
Act No. 120, as amended.
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter’s gross receipts for the preceding year.

Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose
tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees in accordance with sec. 13
of Rep. Act No. 6395, as amended.

The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax
due, plus surcharge. Respondent alleged that petitioner’s exemption from local taxes has been
repealed by section 193 of the LGC, which reads as follows:

“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial court’s Order on the ground
that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions
granted to the petitioner.
ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and
impose an annual tax on “businesses enjoying a franchise
HELD: YES. 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;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax “notwithstanding any
exemption granted by any law or other special law.” This particular provision of the LGC does not
admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO’s exemption
from the payment of franchise taxes was brought as an issue before this Court. The same issue was
involved in the subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor
of the local government in both instances, we ruled that the franchise tax in question is imposable
despite any exemption enjoyed by MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO’s tax exemption has been withdrawn. The explicit language of
section 137 which authorizes the province to impose franchise tax ‘notwithstanding any exemption
granted by any law or other special law’ is all-encompassing and clear. The franchise tax is
imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless
otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled corporations except
(1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-
profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of
any provision of the Code to the contrary, and we find no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter
is clearly manifested by the language used on (sic) Sections 137 and 193 categorically withdrawing
such exemption subject only to the exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used.”76 (emphases supplied)
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, “the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises.” With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.
Garcia v. Executive Secretary, 210 SCRA 219 (1992) *

Enrique Garcia vs Executive

Secretary (1992)
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 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.
Maceda v. Macaraig – Supra

Maceda v. ERB, 192 SCRA 365 (1990)

Case Digest: Ernesto M. Maceda vs. Energy Regulatory Board,

et al.
18 July 1991 :: G.R. No. 96266
Medialdea, J.

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 hearing 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 increase it further or to deny the application. The provisional increase is akin to a temporary
restraining order, which are given ex-parte.
The Court further noted the Solicitor General’s comments that “the ERB is not averse to the idea of a
presidential review of its decision,” except that there is no law at present authorizing the same. The Court
suggested that it will be under the scope of the legislative to allow the presidential review of the decisions
of the ERB since, despite its being a quasi-judicial body, it is still “ an administrative body under the
Office of the President whose decisions should be appealed to the President under the established
principle of exhaustion of administrative remedies,” especially on a matter as transcendental as oil price
increases which affect the lives of almost all Filipinos.
Commissioner v. BOAC (1987)

CIR vs. British Overseas Airways Corporation (BOAC)

Post under case digests, Taxation at Sunday, February 26, 2012 Posted by Schizophrenic Mind

Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged
in international airline business and is a member of the Interline Air Transport Association, and thus, it
operates air transportation services and sells transportation tickets over the routes of the other airline
members.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not
carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the
Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling
BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed
deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of
BOAC from Philippine sources, and accordingly taxable.

Held: 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. Herein, the sale of tickets in the Philippines is the activity
that produced the income. The tickets exchanged hands here and payment for fares were also made
here in the 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. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income
from Philippine sources. The 2 1/2% tax on gross billings is an income tax. If it had been intended as an
excise tax or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on
business.
CIR v. Japan Air Lines, Inc. (1991)

Topic: limitation of territorial jurisdiction; territorial vs. personal jurisdiction

Ponente: Paras, J.

Parties: Commission on Internal Revenue (petitioner) and Japan Airlines(JAL) (respondent)

Nature: Petition for review which seeking the reversal of the decision of the Court of Tax Appeals
which set aside petitioner’s assessment of deficiency income tax inclusive of interest and surcharge
as well as compromise penalty

Facts:

 That Japan Airlines is a foreign corporation engaged in the business of international air
carriage.
 That from 1959 to 1963, JAL had not been granted a certificate of public convenience and
necessity to operate
 However, since mid-July 1957, JAL had maintained and office at the Filipinas Hotel, Roxas
Boulevard, Manila
 That there was no selling of tickets in this office but was maintained merely for the
promotion of the company’s public relations and to hand out brochures, literature and other
information playing up to the attractions of Japan as a tourist spot and the services enjoyed
in JAL planes
 That on July 17, 1957, JAL constituted PAL as its general sales agent in the Philippines
 That PAL sold for and in behalf of JAL, plane tickets and reservations for cargo spaces
which were used by passengers or customers on the facilities of JAL
 That on June 2, 1972, JAL received deficiency income tax assessment notices and a demand
letter from CIR for a total amount of P2,099,687.52 inclusive of 50% surcharge and interest
for the years 1959 through 1963
 That JAL protested the said assessment through the following actions

First Action/Initiatory Action

Filed by: JAL

Kind of action: request for cancellation of assessments

Court: CIR

Issue/s: that as a non-resident foreign corporation, it was taxable only on income from Philippines
sources and that they had no income in the years covered by the assessments

Ruling: denied by the CIR

JAL elevated the case to CTA

Secondary Action: before the CIR denied their claim for refund

Filed by: JAL

Kind of action: appeal

Court: CTA

Issue/s: same issues with the ones raised to the CIR

Ruling: CTA reversed CIR’s decision and denied the CIR’s motion for reconsideration

Tertiary action

Filed by: CIR

Kind of action: petition for review CTA’s decision

Court: Supreme Court

Issue/s: 1. Whether or not proceeds from sales of JAL sold in the Philippines are taxable as income
from sources within the Philippines

2. Whether or not Japan Airlines is a foreign corporation engaged in trade or business in the
Philippines

Ruling: petition was granted; CTA’s decision was set aside; JAL was ordered to pay the assessments

Reasoning:

1. Yes, the proceeds of JAL are considered income from sources within the Philippines

2. Yes, JAL is a resident foreign corporation under Sec. 84 (g) of the National Internal Revenue
Code of 1939. The definition of “resident foreign corporation” is provided in sec.20 of the 1977 tax
code (refer below)

Laws/Jurisprudence/Further court rulings

1. What may be considered income from Philippine sources?

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 site 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 Philippines (Sec. 29,(3) of the Tax Code)
True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within
the Philippines, namely: (1) interest, (21) 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. Section 37, by its language, does not intend the enumeration to be exclusive. It merely
directs that the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an all inclusive
enumeration, and that no other kind of income may be so considered.

2. Is JAL a resident foreign corporation doing business in the Philippines?

Under Section 20 of the 1977 Tax Code:

"(h) the term `resident foreign corporation' applies to a foreign corporation engaged in trade or
business within the Philippines or having an office or place of business therein.
"(i) the term `non-resident foreign corporation' applies to a foreign corporation not engaged in trade
or business within the Philippines and not having any office or place of business therein. There is no
specific criterion as to what constitutes `doing' or `engaging in' or `transacting' business. Each case
must be judged in the light of its peculiar environmental circumstances. The term implies continuity
of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts
or works or the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business organization.

In order that a foreign corporation may be regarded as doing business within a State, there must be
continuity of conduct and intention to establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character (Pacific Micronesian Line, Inc. vs. Del Rosario
and Peligon, 96 Phil. 23, 30, citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and
Fisher's Philippine Law of Stock Corporation, p. 415).

-end-
Wells Fargo v. Collector (1940)

Wells Fargo Banks & Union Trust Company vs Collector of Internal Revenue

70 Phil. 325 – Mercantile Law – Corporation Code – Shares of Stock – Situs of Shares of Stock

In September 1932, Birdie Lillian Eye died in Los Angeles, California, USA which was also her place of
domicile. She left various properties. Among those properties include some intangibles consisting of
70,000 shares in the Benguet Consolidated Mining Company, a corporation organized and existing under
Philippine laws.

The Collector of Internal Revenue sought to assess and collect estate tax on the said shares. Wells Fargo
Banks & Union Trust Company, the trustee of the estate of the decedent Eye, objected to said
assessment. Wells Fargo averred that said shares were already subjected to inheritance tax in California
and hence cannot be taxed again in the Philippines (note at that time the Philippines was still under the
Commonwealth and were not yet totally independent from the US).

ISSUE: Whether or not the shares are subject to estate tax in the Philippines.

HELD: Yes. The Supreme Court ruled that even though the Philippines was considered a US territory at
that time, it is still a separate jurisdiction from the US in several aspects particularly taxation. Hence, the
Philippines has the power to tax said shares. The situs of taxation is here in the Philippines because the
situs of the shares of stock concerned is here in the Philippines because of the fact that the said shares
were issued here by a corporation organized and existing under the laws of the Philippines which is also
domiciled here. Further, (and this is the deeper reason), when Eye was alive, she actually delivered the
title to said shares to the resident secretary of the corporation here in the Philippines hence the shares
never left the Philippines.

Note: As a rule, intangibles follow the person (mobilia sequuntur personam). Hence, intangibles are
taxable in the place where their owner may be domiciled. However, Section 104 of the NIRC provides
that if the shares have attained business situs here in the Philippines, then said shares are taxable here
even if the owner of said shares are domiciled abroad.
Tolentino v. Sec. of Finance, supra

Pepsi Cola v. City of Butuan, 24 SCRA 787 (1968) – supra

Manila Race Horse v. Dela Fuente, 88 Phil 60 (1951) * - NO ONLINE DIGEST

Eastern Theatrical v. Alfonso, 83 Phil 852 (1949) * - NO ONLINE DIGEST

Shell v. Municipality of Cordova, 94 Phil 387 (1954) *

Shell Corporation v. Vano (As Municipal Treasurer)

GR L-6093, 94 Phil 387, February 24, 1954
Facts:
The Municipal Council of Cordova, Cebu adopted Ordinance 10 which imposes an annual tax on
occupation or the exercise of the privilege of installation manager and Ordinance 11 imposing an
annual tax on tin can factories having a maximum output capacity of 30,000 tin cans. Shell, a
foreign corporation, disputed the ordinances and contended that: first, “installation manager” is a
designation made by the company and such designation cannot be deemed to be a “calling” as
defined in Sec 178 of NIRC and that the installation manager employed by Shell is a salaried
employee which may not be taxed by the municipal council under the provisions of NIRC; second,
the ordinance is discriminatory and hostile because there is no other person in the locality who
exercises such designation or calling; and third, the imposition of tax on tin can factories having a
30,000 maximum output capacity is unlawful because it is a percentage tax and falls under the
exceptions provided in the Tax Code.

Issue: W/N an installation manager, although a salaried employee, is liable for occupation tax
Ruling:
Yes. Even if the installation manager is a salaried employee of the corporation, still it is an
occupation. Further, 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. The
occupation tax must be paid by each individual engaged in a calling subject to it.

Issue 2: W/N the ordinance is unconstitutional because it is hostile and discriminatory

Ruling:
No. 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.
Issue 3: W/N the annual tax imposition on tin can factories having an annual output capacity of 30,000
is valid
Ruling:
Yes. It is not a percentage tax because the maximum annual output capacity is not a percentage. It
is not a share or a tax based on the amount of the proceeds realized out of the sale of the tin cans
manufactured therein but on the business of manufacturing tin cans having a maximum annual
output capacity of 30,000 tin cans.
Issue 4: W/N the Municipal Treasurer should have been impleaded in this case
Ruling:
No. In an action for refund of municipal taxes claimed to have been paid and collected under an
illegal ordinance, it is not the municipal treasuer who is the real party-in-interest but the municipality
concerned that is empowered to sue and be sued.
##
Abra Valley College v. Aquino, 162 SCRA 106 (1988)

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities
and Exchange Commission in 1948, filed a complaint to annul and declare void the “Notice of Seizure’ and the
“Notice of Sale” of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties
amounting to P5,140.31. Said “Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The
trial court ruled for the government, holding that the second floor of the building is being used by the director for
residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial
establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an
appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before
the Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from
realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes.ﾝ Reasonable emphasis has always
been made that the exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the
Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of
education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be
returned to the petitioner. The modification is derived from the fact that the ground floor is being used for
commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).
Lung Center v. Quezon City, G.R. No. 144104, June 29, 2004 – Supra

Gonzales v. Macaraig, 191 SCRA 452 (1990)

Gonzales, together w/ 22 other senators, assailed the constitutionality of Cory’s veto of

Section 55 of the 1989 Appropriations Bill (Sec 55 FY ’89, and subsequently of its
counterpart Section 16 of the 1990 Appropriations Bill (Sec 16 FY ’90). Gonzalez averred
the following: (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, has the President the power to veto `provisions’ of an
Appropriations Bill.
HELD: 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.
San Miguel Corp. v. Avelino, 89 SCRA 70 (1979) *

SAN MIGUEL CORPORATION vs. HON. CELSO AVELINO, Presiding Judge of CFI Cebu and the
City of Mandaue (Fernando, 1979)

City of Cebu, in accordance with Presidential Decree No. 231, enacted in 1973, to take effect on January
1, 1974 the Mandaue City Tax Code. City Treasurer, on April 1, 1974, demanded from SMC payment of
the made specific tax on the total volume of beer it produced in the City of Mandaue. SMC on April 8,
1974, contested the correction of said specific tax "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.” In an opinion the City Fiscal upheld its validity which was
reversed by the Secretary of Justice, saying the ordinance was of “doubtful validity.” City of Cebu then
filed a suit for collection where it squarely put in issue the validity of such ordinance.

San Miguel Corporation filed a motion to dismiss claiming that the Ordinance No. 97, Section 12 should
be nullified and that the filing of the suit is not the “appeal” contemplated in the Presidential Decree.

CFI: motion to dismiss denied. SMC went to SC praying for writs of certiorari and prohibition.

SMC: A suit for collection is not the appeal provided for in the last sentence of Section 47: "The decision
of the Secretary of Justice shall be final and executory unless, within thirty days upon receipt thereof, the
aggrieved party contests the same in a court of competent jurisdiction."

City: A suit for collection cannot be viewed other than as an appeal. The City did definitely contest the
correctness of the decision of the Secretary of Justice in a court of competent jurisdiction. Such an action
is in accordance with the traditional and appropriate procedure to test the legality of a statute, decree, or
ordinance.

Issue Can City’s act of filing suit after the Secretary of Justice’s opinion was rendered be considered "an
appeal" under the Presidential Decree? Yes, action by City valid. The writs prayed for, certiorari and
prohibition, cannot issue.

1. The validity of a statute, an executive order or ordinance is a matter for the judiciary to decide
and 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. It is undoubted that
under the Constitution, even the legislative body cannot deprive this Court of its appellate
jurisdiction over all cases coming from inferior courts where the constitutionality or validity of an
ordinance or the legality of any tax, impost, assessment, or toll is in question. 1 Since it is likewise
expressly provided in Section 43 of the Judiciary Act that the original jurisdiction over all civil
actions involving the legality of any tax, impost or assessment appertains to the Court of First
Instance, it takes a certain degree of ingenuity to allege that the lower court was bereft of such
authority. Both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction
to make a declaration regarding an ordinance’s validity. It would be therefore premature for the corrective
power of this Tribunal to be interposed, just because he did not grant the motion to dismiss on the
allegation that there was lack of jurisdiction. Authorities support the municipal power to impose specific
taxes on beverages manufactured within its territorial boundaries, City of Bacolod v. Gruet and City of
Naga v. Court of Appeals. In the first case cited, the entity involved is SMC itself.

1
3 According to Article X, Section 5, par. (2) of the Constitution: "The Supreme Court shall have the following powers: ... (2) Review
and revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of the Court may provide, final judgments and
decrees in inferior courts in — (a) all cases in which the constitutionality or validity of any treaty, executive agreement, law,
ordinance, or executive order or regulation is in question, (b) All cases involving the legality of any tax, impost assessment, or toll, or
any penalty imposed in relation thereto." Under the 1935 Constitution, the equivalent provision is found in Article VIII, Section,
Section 2, par. (1) and (2).
2. To construe Section 47 the way SMC does would be to raise a serious constitutional question. It would
in effect bar what otherwise would be a proper case cognizable by a court precisely in 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. It would run counter to the well-settled doctrine that between two possible modes of
constructions, the one which would not be in conflict with what is ordained by the Constitution is to be
preferred. Every intendment of the law should lean towards its validity, not its invalidity.

3. Secretary of justice’s declaration that the ordinance in question was "of doubtful validity” is far from a
categorical declaration of its being repugnant to the Constitution or its being ultra vires. Presumption of
validity continues misgivings as to the likelihood of an alleged infringement of any binding norm do not
suffice.

4. This decision however does not extend to any de determination as to the validity, or lack of it, of the
assailed ordinance. To do so would be, at the very least, premature. That is a function for the lower court
to perform.

Petition dismissed. Case remanded for further proceedings.