CIR v Pineda
GR No L-22734, September 15, 1967
FACTS:
BIR investigated the income tax liability of
Anastacio Pineda’s estate for the years
1945, 1946, 1947, and 1948 and it found
that the corresponding income tax return
were not filed. This resulted to a P760.28
deficiency income tax for 1945 and 1946
and real estate dealer’s fixed tax for the
4th quarter of 1946 and for the whole year
1947. Manuel Pineda, eldest son of
Anastacio, received the assessment. He
contested the same alleging that only a
proportionate part should be his liability.
CTA ruled that Pineda is liable only for taxes
corresponding to his share in the estate.
Hence, the present petition.
ISSUE:
Whether the Government can require
Manuel Pineda to pay the full amount of the
tax assessed
RULING:
Yes. As a holder of property belonging to the
estate, Pineda is liable for the tax up to the
amount of the property in his possession.
The BIR is given the discretion to avail of
the most expeditious way to collect the tax.
This is, of course, without prejudice to
Pineda’s right of contribution for his co-
heirs. Put simply, the Supreme Court held
that the rule on solidarity applies to taxes
because it is not an ordinary contract. Two
persons liable for payment of estate tax:
1. Executor or administrator;
2. Heirs up to the extent of their
inheritance.
CIR v Algue
GR No. L-28896, February 17, 1988
FACTS:
The BIR assessed Algue a total amount of
delinquency taxes of Php 83,183.85 for the
years 1958 and 1959. It contends that the
company's claimed deduction of Php 75,000
in the form of promotional fees is disallowed
because it was not ordinary reasonable or
necessary business expenses. Algue filed a
protest.
BIR did not take any action. So, Algue filed
a petition for review with the Court of Tax
Appeals which rule in favor of Algue. Thus,
the current petition.
ISSUE:
Whether the BIR correctly disallowed the
deduction
RULING:
No.
The burden is on the taxpayer to prove the
validity of the claimed deduction. Here, the
onus has been discharged satisfactorily.
Here, the onus has been discharged
satisfactorily. The promotional fees were
necessary and reasonable in the light of the
efforts exerted by the payees in the
inducement of investors to venture in an
experimental enterprise. Thus, the payees
should be sufficiently recompensed.
Francia v Intermediate Appellate Court
(1988)
Francia v Intermediate Appellate Court GR
No L-67649, June 28, 1988
FACTS:
Engracio Francia was the registered owner
of a house and lot located in Pasay City. A
portion of such property was
expropriated by the Republic of the
Philippines in 1977. It appeared that Francia
did not pay his real estate taxes from 1963
to 1977. Thus, his property was sold in a
public auction by the City Treasurer of
Pasay City. Francia filed a complaint to
annual the auction sale. The lower court
dismissed the complaint and the
Intermediate Appellate Court affirmed the
decision of the lower court in toto. Hence,
this petition for review. Francia contends
that his tax delinquency of P 2,400 has been
extinguished by legal compensation. He
claims that the government owed him P
4,116 when a portion of his land was
expropriated on October 15, 1977.
ISSUE:
May the expropriation payment compensate
for the real estate taxes due?
RULING:
No. There can be no offsetting of taxes
against the claims that the taxpayer may
have against the government. A person
cannot refuse to pay a tax on the ground
that the government owes him an amount
equal to or greater than the tax being
collected. The collection of a tax cannot
await the results of a lawsuit against the
government. Internal revenue taxes cannot
be the subject of compensation. The
Government and the taxpayer are not
mutually creditors and debtors of each other
under Article 1278 of the Civil Code and a
claim of taxes is not such a debt, demand,
contract or judgment as is allowed to be set-
off.
Moreover, the amount of P4,116 paid by the
national government for the 125 square
meter portion of his lot was deposited with
the Philippine National Bank long before the
sale at public auction of his remaining
property. It would have been an easy matter
to withdraw P 2,400 from the deposit so that
he could pay the tax obligation thus aborting
the sale at public auction. Thus, the petition
for review is dismissed. The taxes assessed
are the obligations of the taxpayer arising
from law, while the money judgment against
the government is an obligation arising from
contract, whether express or implied.
Progressive Development Corporation v.
Quezon City
Facts:
The City Council of QC passed an
ordinance known as the Market Code of
QC, which imposed a 5% supervision fee on
gross receipts on rentals or lease of
privately-owned market spaces in QC. In
case of failure of the owners of the market
spaces to pay the tax for three consecutive
months, the City shall revoke the permit of
the privately-owned market to operate.
Progressive Development Corp, owner and
operator of Farmer’s Market, filed a petition
for prohibition against QC on the ground
that the tax imposed by the Market Code
was in reality a tax on income, which the
municipal corporation was prohibited by law
to impose.
Issue:
Whether or not the supervision fee is an
income tax or a license fee
Held:
It is a license fee. A LICENSE FEE is
imposed in the exercise of the police power
primarily for purposes of regulation, while
TAX is imposed under the taxing power
primarily for purposes of raising revenues. If
the generating of revenue is the primary
purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is
the primary purpose, the fact that
incidentally, revenue is also obtained does
not make the imposition a tax. To be
considered a license fee, the imposition
must relate to an occupation or activity that
so engages the public interest in health,
morals, safety, and development as to
require regulation for the protection and
promotion of such public interest; the
imposition must also bear a reasonable
relation to the probable expenses of
regulation, taking into account not only the
costs of direct regulation but also its
incidental consequences. In this case, the
Farmers’ Market is a privately-owned
market established for the rendition of
service to the general public. It warrants
close supervision and control by the City for
the protection of the health of the public by
insuring the maintenance of sanitary
conditions, prevention of fraud upon the
buying public, etc. Since the purpose of the
ordinance is primarily regulation and not
revenue generation, the tax is a license fee.
The use of the gross amount of stall rentals
as basis for determining the collectible
amount of license tax does not, by itself,
convert the license tax into a prohibited tax
on income. Such basis actually has a
reasonable relationship to the probable
costs of regulation and supervision
of Progressive’s kind of business, since
ordinarily, the higher the amount of rentals,
the higher the volume of items sold. The
higher the volume of goods sold, the greater
the extent and frequency of supervision and
inspection may be required in the interest of
the buying public.
Apostolic Prefect of Mountain Province v
City Treasurer of Baguio City (1941)
Apostolic Prefect of Mountain Province v
City Treasurer of Baguio City GR No 47252,
April 18, 1941
FACTS:
The Apostolic Prefect is a corporation sole,
of religious character, organized under the
Philippine laws, and with residence
in Baguio. The City imposed a special
assessment against properties within its
territorial jurisdiction, including those of the
Apostolic Prefect, which benefits from its
drainage and sewerage system. The
Apostolic Prefect contends that its
properties should be free from tax.
ISSUE:
Is the Apostolic Prefect exempt from
paying?
RULING:
No, it is liable.
In its broad meaning, tax includes both
general taxes and special assessment. Yet
actually, there is a recognized distinction
between them in that assessment is
confined to local impositions upon property
for the payment of the cost of public
improvements in its immediate vicinity and
levied with reference to special benefits to
the property assessed.
A special assessment is not, strictly
speaking, a tax; and neither the decree nor
the Constitution exempt the Apostolic
Prefect from payment of said special
assessment.
Furthermore, arguendo that exemption may
encompass such assessment, the Apostolic
Prefect cannot claim exemption as it has not
proven the property in question is used
exclusively for religious purposes; but that it
appears that the same is being used to
other non-religious purposes.
Thus, the Apostolic Prefect is required to
pay the special assessment.
RENATO V. DIAZ AND AURORA MA. F.
TIMBOL vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE
Facts:
Petitioners Renato Diaz and Aurora Ma. F.
Timbol filed a petition for declaratory relief
assailing the validity of the impending
imposition of value-added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the
collections of tollway operators. They
alleged that the Congress when it enacted
the NIRC did not intend to include toll fees
within the meaning of "sale of services" that
are subject to VAT; that a toll fee is a "users
tax," not a sale of services; that to impose
VAT on toll fees would amount to a tax on
public service; and that, since VAT was
never factored into the formula for
computing toll fees, its imposition would
violate the non-impairment clause of the
constitution. The government averred that
the NIRC imposes VAT on all kinds of
services of franchise grantees, including
tollway operations, except where the law
provides otherwise; that the Court should
seek the meaning and intent of the law from
the words used in the statute; and that the
imposition of VAT on tollway operations has
been the subject as early as 2003 of several
BIR rulings and circulars.
Issue: Whether or not toll fees collected by
tollway operators may be subjected to
value- added tax.
Ruling:
Yes. If the legislative intent was to exempt
tollway operations from VAT, as petitioners
so strongly allege, then it would have been
well for the law to clearly say so. Tax
exemptions must be justified by clear
statutory grant and based on language in
the law too plain to be mistaken. The
operation by the government of a tollway
does not change the character of the road
as one for public use. Someone must pay
for the maintenance of the road, either the
public indirectly through the taxes they pay
the government, or only those among the
public who actually use the road through the
toll fees they pay upon using the road. The
tollway system is even a more efficient and
equitable manner of taxing the public for the
maintenance of public roads. The charging
of fees to the public does not determine the
character of the property whether it is for
public dominion or not. Article 420 of the
Civil Code defines property of public
dominion as "one intended for public use."
Even if the government collects toll fees, the
road is still "intended for public use" if
anyone can use the road under the same
terms and conditions as the rest of the
public. The charging of fees, the limitation
on the kind of vehicles that can use the
road, the speed restrictions and other
conditions for the use of the road do not
affect the public character of the road.
Hydro Resources Contractors
Corporation v CTA
Facts:
National Irrigation Administration (NIA)
entered into an agreement with Hydro
Resources for the construction of the Magat
River Multipurpose Project in Isabela. Under
their contract, Hydro was allowed to procure
new construction equipment, the payment
for which will be advanced by NIA. Hydro
shall repay NIA the costs incurred and the
manner of repayment shall be through
deductions from each monthly payment due
to Hydro. Hydro shall repay NIA the full
value of the construction before the
eventual transfer of ownership.
Upon transfer, Hydro was assessed an
additional 3% ad valorem duty which it paid
under protest. The Collector of Customs
then ordered for the refund of the ad
valorem duty in the form of tax credit. This
was then reversed by the Deputy Minister of
Finance.
Issue:
Whether or not the imposition of the 3% ad
valorem tax on importations is valid.
Held:
No. EO 860 which was the basis for the
imposition of the ad valorem duty took effect
December 1982. The importations were
effected in 1978 and 1979 by NIA. It is a
cardinal rule that laws shall have no
retroactive effect unless contrary is
provided. EO 860 does not provide for its
retroactivity. The Deputy Minister of Finance
even clarified that letters of credit opened
prior to the effectivity of EO 860 are not
subject to its provisions.
In the case, the procurement of the
equipment was not on a tax exempt basis
as the import liabilities have been secured
to paid under a financial scheme. It is a
matter of implementing a pre-existing
agreement, hence, the imported articles can
only be subject to the rates of import duties
prevailing at the time of entry or withdrawal
from the customs’ custody.
Commissioner of Internal Revenue v
Ayala Securities Corporation
Facts:
Ayala Securities Corp. (Ayala) failed to file
returns of their accumulated surplus so
Ayala was charged with 25% surtax by the
Commissioner of internal Revenue. The
CTA (Court of Tax Appeals) reversed the
Commissioner’s decision and held that the
assessment made against Ayala was
beyond the 5-yr prescriptive period as
provided in section 331 of the National
Internal Revenue Code. Commissioner now
files a motion for reconsideration of this
decision. Ayala invokes the defense of
prescription against the right of the
Commissioner to assess the surtax.
Issue:
Whether or not the right to assess and
collect the 25% surtax has prescribed after
five years.
Held:
No. There is no such time limit on the right
of the Commissioner to assess the 25%
surtax since there is no express statutory
provision limiting such right or providing for
its prescription. Hence, the collection of
surtax is imprescriptible. The underlying
purpose of the surtax is to avoid a situation
where the corporation unduly retains its
surplus earnings instead of declaring and
paying dividends to its shareholders. SC
reverses the ruling of the CTA.
Villanueva v City v Iloilo
GR No L-26521, December 28, 1968
FACTS:
On September 30, 1946, the Municipal
Board of Iloilo City enacted Ordinance 86
imposing license tax fees upon
tenement houses. The validity of such
ordinance was challenged by Eusebio and
Remedios Villanueva, owners of four
tenement houses containing 34 apartments.
The Supreme Court held the ordinance to
be ultra views. On January 15, 1960,
however, the municipal board, believing that
it acquired authority to enact an ordinance
of the same nature pursuant to the Local
Autonomy Act, enacted Ordinance 11,
Eusebio and Remedios Villanueva assailed
the ordinance anew.
ISSUE:
Does Ordinance 11 violate the rule of
uniformity of taxation?
RULING:
No. The Court has ruled the tenement
houses constitute a distinct class of property
and that taxes are uniform and equal when
imposed upon all property of the same class
or character within the taxing authority.
The fact that the owners of the other
classes of buildings in Iloilo are not imposed
upon by the ordinance, or that tenement
taxes are imposed in other cities do not
violate the rule of equality and uniformity.
The rule does not require that taxes for the
same purpose should be imposed in
different territorial subdivisions at the same
time. So long as the burden of tax falls
equally and impartially on all owners or
operators of tenement houses similarly
classified or situated, equality and uniformity
is accomplished. The presumption that tax
statutes are intended to operate uniformly
and equally was not overthrown therein.
CITY OF MANILA vs. COCA-COLA
BOTTLERS PHILIPPINES, INC.- CTA,
Double Taxation
FACTS:
Respondent paid the local business tax only
as a manufacturers as it was expressly
exempted from the business tax under a
different section and which applied to
businesses subject to excise, VAT or
percentage tax under the Tax Code. The
City of Manila subsequently amended the
ordinance by deleting the provision
exempting businesses under the latter
section if they have already paid taxes
under a different section in the ordinance.
This amending ordinance was later declared
by the Supreme Court null and void.
Respondent then filed a protest on the
ground of double taxation. RTC decided in
favor of Respondent and the decision was
received by Petitioner on April 20, 2007. On
May 4, 2007, Petitioner filed with the CTA a
Motion for Extension of Time to File Petition
for Review asking for a 15-day extension or
until May 20, 2007 within which to file its
Petition. A second Motion for Extension was
filed on May 18, 2007, this time asking for a
10-day extension to file the Petition.
Petitioner finally filed the Petition on May
30, 2007 even if the CTA had earlier issued
a resolution dismissing the case for failure
to timely file the Petition.
ISSUES:
(1) Has Petitioner’s the right to appeal with
the CTA lapsed?
(2) Does the enforcement of the latter
section of the tax ordinance constitute
double taxation?
HELD:
(1) NO. Petitioner complied with the
reglementary period for filing the petition.
From April 20, 2007, Petitioner had 30 days,
or until May 20, 2007, within which to file
their Petition for Review with the CTA. The
Motion for Extension filed by the petitioners
on May 18, 2007, prior to the lapse of the
30-day period on 20 May 2007, in which
they prayed for another extended period of
10 days, or until 30 May 2007, to file their
Petition for Review was, in reality, only the
first Motion for Extension of petitioners.
Thus, when Petitioner filed their Petition via
registered mail their Petition for Review on
30 May 2007, they were able to comply with
the period for filing such a petition.
(2) YES. There is indeed double taxation if
respondent is subjected to the taxes under
both Sections 14 and 21 of the tax
ordinance since these are being imposed:
(1) on the same subject matter — the
privilege of doing business in the City of
Manila; (2) for the same purpose — to make
persons conducting business within the City
of Manila contribute to city revenues; (3) by
the same taxing authority — petitioner City
of Manila; (4) within the same taxing
jurisdiction — within the territorial
jurisdiction of the City of Manila; (5) for the
same taxing periods — per calendar year;
and (6) of the same kind or character — a
local business tax imposed on gross sales
or receipts of the business.
Estate of Benigno Toda Jr.
G.R. No. 147188. September 14, 2004
DAVIDE, JR., C.J.
FACTS:
March 2, 1989: Cibeles Insurance Corp.
(CIC) authorized Benigno P. Toda Jr.,
President and Owner of 99.991% of
outstanding capital stock, to sell the Cibeles
Building and 2 parcels of land which he sold
to Rafael A. Altonaga on August 30, 1987
for P 100M who then sold it on the same
day to Royal Match Inc. for P 200M.
CIC included gains from sale of real
property of P 75,728.021 in its annual
income tax return while Altonaga paid a 5%
capital gains tax of P 10M
July 12, 1990: Toda sold his shares to Le
Hun T. Choa for P 12.5M evidenced by a
deed of sale of shares of stock which
provides that the buyer is free from all
income tax liabilities for 1987, 1988 and
1989.
Toda Jr. died 3 years later.
March 29, 1994: BIR sent an assessment
notice and demand letter to CIC for
deficiency of income tax of P 79,099, 999.22
January 27, 1995: BIR sent the same to the
estate of Toda Jr.
Estate filed a protest which was dismissed -
fraudulent sale to evade the 35% corporate
income tax for the additional gain of P 100M
and that there is in fact only 1 sale.
Since it is falsity or fraud, the prescription
period is 10 years from the discovery of the
falsity or fraud as prescribed under Sec. 223
(a) of the NIRC
CTA: No proof of fraudulent transaction so
the applicable period is 3 years after the last
day prescribed by law for filing the return
CA: affirmed
CIR appealed
ISSUE: W/N there is falsity or fraud
resulting to tax evasion rather than tax
avoidance so the period for assessment has
not prescribed.
HELD: YES. Estate shall be liable since
NOT yet prescribed.
Tax avoidance and tax evasion are the two
most common ways used by taxpayers in
escaping from taxation. ax avoidance is the
tax saving device within the means
sanctioned by law. This method should be
used by the taxpayer in good faith and at
arms length. Tax evasion, on the other
hand, is a scheme used outside of those
lawful means and when availed of, it usually
subjects the taxpayer to further or additional
civil or criminal liabilities.
Tax evasion connotes the integration of
three factors:
(1) the end to be achieved, i.e., the payment
of less than that known by the taxpayer to
be legally due, or the non-payment of tax
when it is shown that a tax is due
(2) an accompanying state of mind which is
described as being evil, in bad faith,
willfull,or deliberate and not accidental; and
(3) a course of action or failure of action
which is unlawful.
All are present in this case. The trial
balance showed that RMI debited P 40M as
"other-inv. Cibeles Building" that indicates
RMI Paid CIC (NOT Altonaga)
Fraud in its general sense, is deemed to
comprise anything calculated to deceive,
including all acts, omissions, and
concealment involving a breach of legal or
equitable duty, trust or confidence justly
reposed, resulting in the damage to another,
or by which an undue and unconscionable
advantage is taken of another.
Here, it is obvious that the objective of the
sale to Altonaga was to reduce the amount
of tax to be paid especially that the transfer
from him to RMI would then subject the
income to only 5% individual capital gains
tax, and not the 35% corporate income tax.
Generally, a sale of or exchange of assets
will have an income tax incidence only when
it is consummated but such tax incidence
depends upon the substance of the
transaction rather them mere formalities.
Pascual vs. Secretary of Public Works
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.
Quezon City vs. Bayantel G.R. No.
162015 March 6, 2006 Local Taxation
NOVEMBER 9, 2017
FACTS:
BAYANTEL is a legislative franchise holder
under RA 3259 to establish and operate
radio stations for domestic
telecommunications, radiophone,
broadcasting and telecasting. On January 1,
2992, RA 7160 of the “Local Government
Code of 1991” took effect. Section 232 of
the Code grants local government units
within the Metro Manila area the power to
levy tax on real properties. Section 234 of
the same Code withdrew any exemption
from realty tax granted to all persons,
natural or juridical.
On July 20, 1992, few months after the LGC
took effect, Congress enacted RA 7633,
amending Bayantel’s original franchise. In
1993, the Quezon City government enacted
the Quezon City Revenue Code imposing
real property tax on all real properties in
Quezon City.
ISSUE:
What is the extent of the Power of Local
Taxation?
RULING:
The power to tax is primarily vested in the
Congress; however, it may be exercised by
local legislative bodies pursuant to direct
authority conferred by Section 5, Article X of
the Constitution. Under the latter, the
exercise of the power may be subject to
such guidelines and limitations as Congress
may provide.
Since RA 7633 amended Bayantel’s original
franchise and granted it real property tax
exemption from its real properties that is
directly used in its operations, the Quezon
City government cannot levy real property
taxes on the real properties of Bayantel that
are in Quezon City area.
For sure, in Philippine Long Distance
Telephone Company, Inc. (PLDT) vs. City of
Davao, this Court has upheld the power of
Congress to grant exemptions over the
power of local government units to impose
taxes. There, the Court wrote:
Indeed, the grant of taxing powers to
local government units under the
Constitution and the LGC does not affect
the power of Congress to grant
exemptions to certain persons, pursuant to
a declared national policy. The legal effect
of the constitutional grant to local
governments simply means that in
interpreting statutory provisions on
municipal taxing powers, doubts must be
resolved in favor of municipal corporations.
PHILCOMSAT VS. ALCUAZ [180 SCRA
218; G.R. NO.84818; 18 DEC 1989]
Facts: Herein petitioner is engaged in
providing for services involving
telecommunications. Charging rates for
certain specified lines that were reduced by
order of herein respondent Jose Alcuaz
Commissioner of
the National Telecommunications
Commission. The rates were ordered to be
reduced by fifteen percent (15%) due to
Executive Order No. 546 which granted the
NTC the power to fix rates. Said order was
issued without prior notice and hearing.
Issue: Whether or Not E.O. 546 is
unconstitutional.
Held: Yes. Respondents admitted that
the application of a policy like the fixing of
rates as exercised by administrative bodies
is quasi-judicial rather than quasi-legislative.
But respondent’s contention that notice and
hearing are not required since the assailed
order is merely incidental to the entire
proceedings and temporary in nature is
erroneous. Section 16(c) of the Public
Service Act, providing for the proceedings of
the Commission, upon notice and hearing,
dictates that a Commission has power to fix
rates, upon proper notice and hearing, and,
if not subject to the exceptions, limitations or
saving provisions.
It is thus clear that with regard to rate-fixing,
respondent has no authority to make such
order without first giving petitioner a
hearing, whether the order be temporary or
permanent, and it is immaterial whether the
same is made upon a complaint, a summary
investigation, or upon the commission's
own motion as in the present case.
WHEREFORE, the writ prayed for is
GRANTED and the order of respondents is
hereby SET ASIDE.
British American Tobacco Corporation v.
Finance Secretary Camacho,
BIRCommissioner Parayno
(2009)Doctrine:
A levy of tax is not unconstitutional because
it is not intrinsically equal and uniform in its
operation. The uniformity rule does not
prohibit classification for purposes of
taxation
Facts:
British American Tobacco filed a Motion
for Reconsideration for the Court’s decision
in 2008
Petitioner interposes that the assailed
provisions:(1) violate the equal protection
and uniformity of taxation clauses of
the Constitution,(2) contravene Section 19,
[1] Article XII of the Constitution on unfair
competition, and(3) infringe the
constitutional provisions on regressive and
inequitable taxation.
Petitioner further argues that assuming the
assailed provisions are constitutional, itis
entitled to a downward reclassification of
Lucky Strike from the premium-priced to the
high-priced tax bracket.
Lucky Strike reiterates in its MR that the
classification freeze provision
violates theequal protection and uniformity
of taxation clauses because older brands
are taxedbased on their 1996 net retail
prices while new brands are taxed based on
theirpresent day net retail prices.
HELD: Petition is denied
Without merit
and a rehash of petitioner’s previous
arguments before this Court.
The rational basis test was properly applied
to gauge the constitutionality of the assailed
law in the face of an equal protection
challenge. The classification is considered
valid and reasonable provided that: (1) it
rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it
applies, all things being equal, to both
present and future conditions; and (4) it
applies equally to all those belonging to the
same class.
The classification freeze provision
was inserted in the law for reasons of
practicality and expediency.
Since a new brand was not yet in existence
at the time of the passage of RA8240, then
Congress needed a uniform mechanism to
fix the tax bracket of anew brand.
The current net retail price, similar to what
was used to classify the brands
under Annex “D” as of October 1, 1996, was
thus the logical and practical
choice
The classification freeze provision
was in the main the result of Congress’s
earnest efforts to improve the efficiency and
effectivity of the tax administration over sin
products while trying to balance the same
with other State interest.
PHILRECA vs DILG GR 143076 10
June 2003
Facts: Under Presidential Decree (PD) 269,
as amended, or the National Electrification
Administration Decree, it is the declared
policy of the State to provide “the total
electrification of the Philippines on an area
coverage basis” the same “being vital to the
people and the sound development of the
nation.”
Pursuant to this policy, PD 269 aims to
“promote, encourage and assist all public
service entities engaged in supplying
electric service, particularly electric
cooperatives” by “giving every tenable
support and assistance” to the electric
cooperatives coming within the purview of
the law.
From 1971 to 1978, in order to finance the
electrification projects envisioned by PD
269, as amended, the Philippine
Government, acting through the National
Economic Council (now National Economic
Development Authority) and the NEA
(National Electrification Administration),
entered into 6 loan agreements with the
government of the United States of America
through the United States Agency for
International Development (USAID) with
electric cooperatives, including Agusan Del
Norte Electric Cooperative, Inc. (ANECO);
Iloilo I Electric Cooperative, Inc. (ILECO I);
and Isabela I Electric Cooperative, Inc.
(ISELCO I), as beneficiaries.
The 6 loan agreements involved a total
amount of approximately
US$86,000,000.00. These loan agreements
are existing until today.
The loan agreements contain similarly
worded provisions on the tax application of
the loan and any property or commodity
acquired through the proceeds of the loan.
On 23 May 2000, a class suit was filed by
the Philippine Rural Electric Cooperatives
Association, Inc. (PHILRECA); ANECO,
ILECO I and ISELCO I; in their own behalf
and in behalf of other electric cooperatives
organized and existing under PD 269,
against the Secretary of the Department of
Interior and Local Government (DILG) and
the Secretary of the Department of Finance,
through a petition for prohibition, contending
that pursuant to the provisions of PD 269,
as amended, and the provision in the loan
agreements, they are exempt from payment
of local taxes, including payment of real
property tax.
With the passage of the Local Government
Code, however, they allege that their tax
exemptions have been invalidly withdrawn,
in violation of the equal protection clause
and impairing the obligation of contracts
between the Philippine Government and the
United States Government.
Issue: Whether or not the Local
Government Code unduly discriminated
against electric cooperatives organized and
existing under PD 269 on the ground that it
violated the equal protection clause.
Decision: The equal protection clause
under the Constitution means that “no
person or class of persons shall be deprived
of the same protection of laws which is
enjoyed by other persons or other classes in
the same place and in like circumstances.”
Thus, the guaranty of the equal protection of
the laws is not violated by a law based on
reasonable classification.
Classification, to be reasonable, must (1)
rest on substantial distinctions; (2) be
germane to the purposes of the law; (3) not
be limited to existing conditions only; and
(4) apply equally to all members of the
same class.
There is reasonable classification under the
Local Government Code to justify the
different tax treatment between electric
cooperatives covered by PD 269, as
amended, and electric cooperatives under
RA 6938 (Cooperative Code of the
Philippines).
First, nowhere in PD 269, as amended,
does it require cooperatives to make
equitable contributions to capital. Under the
Cooperative Code, the articles of
cooperation of a cooperative applying for
registration must be accompanied with the
bonds of the accountable officers and a
sworn statement of the treasurer elected by
the subscribers showing that at least 25% of
the authorized share capital has been
subscribed and at least 25% of the total
subscription has been paid and in no case
shall the paid-up share capital be less than
P2,000.00.
Second, another principle adhered to by the
Cooperative Code is the principle of
subsidiarity. Pursuant to this principle, the
government may only engage in
development activities where cooperatives
do not possess the capability nor the
resources to do so and only upon the
request of such cooperatives. In contrast,
PD 269, as amended by PD 1645, is replete
with provisions which grant the NEA, upon
the happening of certain events, the power
to control and take over the management
and operations of cooperatives registered
under it. The extent of government control
over electric cooperatives covered by PD
269, as amended, is largely a function of the
role of the NEA as a primary source of funds
of these electric cooperatives. It is crystal
clear that NEA incurred loans from various
sources to finance the development and
operations of the electric cooperatives.
Consequently, amendments to PD 269 were
primarily geared to expand the powers of
the NEA over the electric cooperatives to
ensure that loans granted to them would be
repaid to the government. In contrast,
cooperatives under RA 6938 are envisioned
to be self-sufficient and independent
organizations with minimal government
intervention or regulation.
Lastly, the transitory provisions of RA 6938
are indicative of the recognition by
Congress of the fundamental distinctions
between electric cooperatives organized
under PD 269, as amended, and
cooperatives under the new Cooperative
Code.
Article 128 of the Cooperative Code
provides that all cooperatives registered
under previous laws shall be deemed
registered with the CDA upon submission of
certain requirements within one year.
However, cooperatives created under PD
269, as amended, are given three years
within which to qualify and register with the
CDA, after which, provisions of PD 1645
which expand the powers of the NEA over
electric cooperatives, would no longer apply.
ABRA VALLEY COLLEGE VS
AQUINO (1988)
ABRA VALLEY COLLEGE, INC.,
represented by PEDRO V. BORGONIA
vs.
HON. JUAN P. AQUINO, Judge, Court of
First Instance. et. al.
[G.R. No. L-39086; June 15,
1988] Constitutional Law| Power of
Taxation
FACTS:
Abra Valley College is an educational
corporation and institution of higher learning
in Bangued, Abra. In 1974, the CFI ordered
for the seizure and sale of the subject
school property for non-payment of real
estate taxes and penalties. Private
respondents stated that the college lot and
building in question are not only used for
educational purposes of the college, but
also as the permanent residence of the
President and Director, Mr. Pedro V.
Borgonia, and his family including his in-
laws and grandchildren; while the ground
floor of the college building is being used
and rented by a commercial establishment.
ISSUE:
Whether or not the lot and building in
question are used exclusively for
educational purposes and thus exempted
from paying taxes.
HELD:
The 1935 Philippine Constitution, Art. VI,
par. 3 Sec. 22, 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….
Relative thereto, CA No. 470 as amended
by RA No. 409, Sec. 54, paragraph c
otherwise known as the Assessment Law,
provides:
The following are exempted from real
property tax under the Assessment Law:
(c) churches and parsonages or convents
appurtenant thereto, and all lands,
buildings, and improvements used
exclusively for religious, charitable, scientific
or educational purposes.
Thus, the use of the second floor of the
main building for residential purposes of the
Director and his family, may find justification
under the concept of incidental use, which is
complimentary to the main or primary
purpose–educational. The lease of the first
floor, however, by a commercial
establishment cannot 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.
LUNG CENTER OF THE PHILIPPINES VS
QUEZON CITY
Posted by kaye lee on 5:15 PM
G.R. No. 144104, June 29, 2004
[Constitutional Law - Article VI: Legislative
Department; Taxation ]
FACTS:
Petitioner is a non-stock, non-profit entity
established by virtue of PD No. 1823, seeks
exemption from real property taxes when
the City Assessor issued Tax Declarations
for the land and the hospital building.
Petitioner predicted on its claim that it is a
charitable institution. The request was
denied, and a petition hereafter filed before
the Local Board of Assessment Appeals of
Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner
alleged that as a charitable institution, is
exempted from real property taxes under
Sec 28(3) Art VI of the Constitution. QC-
LBAA dismissed the petition and the
decision was likewise affirmed on appeal by
the Central Board of Assessment Appeals of
Quezon City. The Court of Appeals affirmed
the judgment of the CBAA.
ISSUE:
1. Whether or not petitioner is a charitable
institution within the context of PD 1823 and
the 1973 and 1987 Constitution and Section
234(b) of RA 7160.
2. Whether or not petitioner is exempted
from real property taxes.
RULING:
1. Yes. The Court hold that the petitioner is
a charitable institution within the context of
the 1973 and 1987 Constitution. Under PD
1823, the petitioner is a non-profit and non-
stock corporation which, subject to the
provisions of the decree, is to be
administered by the Office of the President
with the Ministry of Health and the Ministry
of Human Settlements. The purpose for
which it was created was to render medical
services to the public in general including
those who are poor and also the rich, and
become a subject of charity. Under PD
1823, petitioner is entitled to receive
donations, even if the gift or donation is in
the form of subsidies granted by the
government.
2. Partly No. Under PD 1823, the lung
center does not enjoy any property tax
exemption privileges for its real properties
as well as the building constructed thereon.
The property tax exemption under Sec.
28(3), Art. VI of the Constitution of the
property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which
provides that in order to be entitled to the
exemption, the lung center must be able to
prove that: it is a charitable institution and;
its real properties are actually, directly and
exclusively used for charitable purpose.
Accordingly, the portions occupied by the
hospital used for its patients are exempt
from real property taxes while those leased
to private entities are not exempt from such
taxes.
CIR v. ST. LUKE'S
COMMISSIONER OF INTERNAL
REVENUE, Petitioner VS ST. LUKE’S
MEDICAL CENTER INC., Respondent
G.R. No. 203514
February 13, 2017
FACTS:
The respondent St. Luke’s Medical Center,
Inc. (SLMC) received a tax payment
assessment from the Large Taxpayers
Service-Documents Processing and Quality
Assurance Division of the Bureau of Internal
Revenue Audit Result/Assessment Notice
on December 14, 2007. Based on the
assessment the respondent SLMC has a
deficiency income tax under Section 27 (B)
of the 1997 National Internal Revenue Code
(NIRC), as amended for the taxable year
2005 in the amount of P78, 617,434.54 and
for taxable year 2006 in the amount of P57,
119,867.33.
In response to the received assessment
from NIRC on January 14, 2008, SLMC filed
with the petitioner Commission on Internal
Revenue (CIR) an administrative protest
assailing the assessments. The SLMC
alleged that they are exempted from paying
the income tax since SLMC is a non-stock,
non-profit, charitable and social welfare
organization under Section 30 (E) and (G)
of the 1997 NIRC as amended.
However, on April 25, 2008, SLMC received
the petitioner CIR’s Final Decision on the
Disputed Assessment dated April 9, 2008
increasing the deficiency income from P78,
617, 434.54 to P82,419,522.21 for taxable
year 2005 and from P57,119,867.33 to P60,
259,885.94 for taxable year 2006.
The aggrieved SLMC elevated the matter to
Court of Tax Appeal (CTA) finding the
decision that SLMC is not liable for the
deficiency income tax under Section 27 (B)
of the 1997 NIRC, as amended and exempt
from paying the income under Section 30
(E) and (G) of the same code.
Consequently, the CIR moved for
reconsideration but the CTA Division denied
which the CIR prompted to file a petition for
review before the CTA En Banc which
eventually denied and affirmed the first
decision of the CTA Division.
Moreover, the CIR filed an instant petition
contending that the CTA erred in exempting
SLMC from payment of income tax, where
the CIR petition is partly granted. SLMC
ordered to pay the deficiency income tax in
1998 based on the 10% preferential income
tax. The CIR argues that under the doctrine
of Stare Decisis SLMC is subject to 10%
income tax under Section 27 (B) of the 1997
NIRC, and liable to pay the compromise
penalty. SLMC argues that the income
derives from operating a hospital is not
income from activities conducted for profit.
And the case should be dismissed since
payment to BIR for the basic taxes due for
taxable years 1998, 2000-2002 and 2004-
2007 has been made.
ISSUES:
1. Whether or not SLMC is liable for income
tax under Section 27 (B) of the 1997 NIRC.
2. Whether or not SLMC is not liable for
compromise penalty.
3. Whether or not the petition is rendered
moot by payment made by SLMC on April
30, 2013.
HELD:
1. Yes. Based on Section 27 (B) of the NIRC
imposes 10% preferential tax rate on the
income of (1) proprietary non-profit
educational institutions and (2) proprietary
non-profit hospitals. The only qualifications
for hospitals are they must be proprietary
and non-profit. Proprietary means private,
following the definition of a proprietary
educational institution, as any other private
school maintained and administered by
private individuals or groups with
government permit. While non-profit means
no net income or asset accrues to or
benefits any member or specific person with
all the net income or asset devoted to the
institution’s purposes and all its activities
conducted not for profit.
2. Yes. Under Sections 248 and 249 of the
1997 NIRC the imposition of surcharges
and interests were deleted on the basis of
good faith and honest belief on the part of
SLMC that it is not subject to tax so
therefore, SLMC is not liable to pay the
compromise penalty.
3. Yes. The payment of basic taxes made by
the SLMC has become moot even the court
agrees with the CIR that the payment
confirmation from the BIR is not competent
proof as presented by SLMC due to no
specific taxable period for payments that it
covers. However, the court finds sufficient
proof of payment based on the Certification
of Payment issued by the Large Taxpayers
Service of the BIR since CIR never question
for its documents authenticity. The court
dismissed the petition and lowered the basic
taxes for taxable year 2005 and 2006, in the
amounts of P49, 919,496.40 and P41,
525,608.40.
CIR v CA & YMCA (1998)
Digest #1
CIR v CA & YMCA
GR No 124043, October 14, 1998
FACTS:
In 1980, YMCA earned an income of
676,829.80 from leasing out a portion of its
premises to small shop owners, like
restaurants and canteen operators and
44,259 from parking fees collected from
non-members. On July 2, 1984, the CIR
issued an assessment to YMCA for
deficiency taxes which included the income
from lease of YMCA’s real property. YMCA
formally protested the assessment but the
CIR denied the claims of YMCA. On appeal,
the CTA ruled in favor of YMCA and
excluded income from lease to small shop
owners and parking fees. However, the CA
reversed the CTA but affirmed the CTA upon
motion for reconsideration.
ISSUE:
Whether the rental income of YMCA is
taxable
RULING:
Yes. The exemption claimed by YMCA is
expressly disallowed by the very wording of
then Section 27 of the NIRC which
mandates that the income of exempt
organizations (such as the YMCA) from any
of their properties, real or personal, be
subject to the tax imposed by the same
Code. While the income received by the
organizations enumerated in Section 26 of
the NIRC is, as a rule, exempted from the
payment of tax in respect to income
received by them as such, the exemption
does not apply to income derived from any
of their properties, real or personal or from
any of their activities conducted for profit,
regardless of the disposition made of such
income.
Tolentino vs. Secretary of Finance
G.R. No. 115455
235 SCRA 630 (1994)
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.
HELD
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.
[G. R. No. 119775. October 24, 2003]
JOHN HAY PEOPLES
ALTERNATIVE COALITION
Facts:
R.A. No. 7227 likewise created and grantedt
he Subic SEZ incentives ranging from tax a
nd duty-free importations, exemption of busi
nesses therein from local and national taxes
, to other hallmarks of a liberalized financial
and business climate.
And R.A. No. 7227 expressly gave authority
to the President to create through executive
proclamation, subject to the concurrence of
the local government units directly affected,
other Special Economic Zones (SEZ) in the
areas covered respectively by the Clark milit
ary reservation, the Wallace Air Station in S
an Fernando, La Union, and Camp John Ha
y.
On July 5, 1994 then President Ramos issu
ed Proclamation No. 420 which established
a SEZ on a portion of Camp John Hay.
In maintaining the validity of Proclamation N
o. 420, respondents contend that by extendi
ng to the John Hay SEZ economic incentive
s similar to those enjoyed by the Subic SEZ
which was established under R.A. No. 7227,
the proclamation is merely implementing the
legislative intent of said law to turn the US
military bases into hubs of business activity
or investment.
Issue:
WON Proclamation No. 420 is constitutional
by providing for national and local tax exem
ption within and granting other economic inc
entives to the John Hay SEZ
NO!
Nowhere in RA 7227 is there a grant of tax
exemption to SEZs yet to be established in
base areas, unlike the grant under Section 1
2 which provides for tax exemption to the es
tablished Subic SEZ. The tax exemption gra
nt to John Hay SEZ contravenes Article VI,
Section 28 (4) of the 1987 Constitution whic
h provides that “No law granting any tax exe
mption shall be passed without the concurre
nce of a majority of all the members of Cong
ress.
Furthermore, it is the Legislature, unless limi
ted by a provision of the state constitution,
which has the full power to exempt any pers
on or corporation or class of property from t
axation, its power to exempt being as broad
as its power to tax. The grant by Proclamati
on No. 420 of tax exemption and other privil
eges to the John Hay SEZ is VOID for being
violative of the Constitution.
BPI LEASING CORP. vs. CA, et al.
GR No. 127624, 18 Nov. 2003
FACTS:
BLC is a corporation engaged in the
business of leasing properties. For the
calendar year 1986, it paid Commissioner of
Internal Revenue a total of P1,139,041.49 r
epresenting 4% contractor’s percentage tax
as imposed by the National Internal
Revenue Code. However, in November
1986, CIR issued a Revenue Regulation
which provides that companies registered
under RA 5980, like BLC, are no longer
liable for contractor’s percentage tax,
instead, subject only to gross
receipts tax. Thereafter, BLC filed a claim
for refund before the CIR and
simultaneously filed a petition for review
before the Court of Tax Appeal in order to
stop the running of the prescriptive period
for refunds. Both cases were denied,
despite motion for reconsideration by
BLC, hence, they appealed before the Court
of Appeals, which the latter affirmed the
decision of CTA and CIR. Aggrieved by the
decision, BLC instituted a petition before the
SC. However, the certification against non-
forum shopping attached to the petition was
signed by the counsel on record of the BLC,
who was not specifically authorized to
do so.
ISSUE:
Whether or not a lawyer is authorized to
validly sign, for and in behalf of its client, the
certification of non-forum shopping.
HELD:
It was held that while the certification of
non-forum shopping may be signed,for
an on behalf of a corporation, by a specifical
ly authorized lawyer who has personal
knowledge of the facts required to be
disclosed in such document, it doesnot
mean that any lawyer, acting on behalf of
the corporation he is
representing,may routinely sign a certificatio
n of non-forum shopping – the lawyer must
be“specifically authorized” in order to
validly sign the certification. Since powers of
corporations are exercised through their
board of directors
and/or duly authorized officers and agents,
physical acts, like the signing of documents,
can be performed only by natural persons d
uly authorized for thepurpose by corporate
by laws or by specific acts of the board of
directors. Being
counsel of record does not vest upon a lawy
er the authority to execute the certification
on behalf of his client. PETITION DENIED.
COMMISSIONER OF INTERNAL
REVENUE v. PHILIPPINE HEALTH CARE
PROVIDERS, INC. G.R. No. 168129. April
24, 2007
FACTS:
On 1987, CIR issued VAT Ruling No. 231-
88 stating that Philhealth, as a provider of
medical services, is exempt from the VAT
coverage. When RA 8424 or the new Tax
Code was implemented it adopted the
provisions of VAT and E-VAT. On 1999, the
BIR sent Philhealth an assessment notice
for deficiency VAT and documentary stamp
taxes for taxable years 1996 and
1997. After CIR did not act on it, Philhealth
filed a petition for review with the CTA. The
CTA withdrew the VAT assessment. The
CIR then filed an appeal with the CA which
was denied.
ISSUES:
1. Whether Philhealth is subject to
VAT.
2. Whether VAT Ruling No. 231-88
exempting Philhealth from payment
of VAT has retroactive application.
RULING:
YES. Section 103 of the NIRC exempts
taxpayers engaged in the performance of
medical, dental, hospital, and veterinary
services from VAT. But, in Philhealth's letter
requesting of its VAT-exempt status, it was
held that it showed Philhealth provides
medical service only between their
members and their accredited hospitals,
that it only provides for the provision of pre-
need health care services, it contracts the
services of medical practitioners and
establishments for their members in the
delivery of health services.
Thus, Philhealth does not fall under the
exemptions provided in Section 103, but
merely arranges for such, making Philhealth
not VAT-exempt. YES. Generally, the NIRC
has no retroactive application except when:
1. where the taxpayer deliberately
misstates or omits material facts
from his return or in any document
required of him by the Bureau of
Internal Revenue;
2. where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different
from the facts on which the ruling is
based, or
3. where the taxpayer acted in bad
faith.
The Court held that Philhealth acted in good
faith. The term health maintenance
organization was first recorded in the
Philippine statute books in 1995. It is
apparent that when VAT Ruling No. 231-88
was issued in Philhealth's favor, the term
health maintenance organization was
unknown and had no significance for
taxation purposes. Philhealth, therefore,
believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997
on the basis of VAT Ruling No. 231-88. The
rule is that the BIR rulings have no
retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer.
PBCom v CIR
GR No 112024, January 28, 1999
FACTS:
PBCom filed its quarterly income tax returns
for the first and second quarters of 1985,
reported profits and paid the total income
tax of P5,016,954. But, PBCom suffered net
losses at the end of the year 1985 in the
amount of P25,317,288 and P14,129,602 at
the end of 1986. But during these two years,
PBCom earned rental income from leased
properties. The lessees withheld and
remitted to the BIR withholding creditable
taxes in 1985 and 1986. On August 7, 1987,
petitioner requested the CIR for a tax credit
of P5,016,954 representing overpayment of
taxes. Thereafter, petitioner filed claim for
refund of creditable taxes.
ISSUES:
1. Whether PBCom is entitled to the tax
refund 2. Whether the action has
prescribed
RULING:
1. No. The corporation must signify in its
annual corporate adjustment return its
intention whether to request for a refund or
claim for an automatic tax credit for the
succeeding taxable year. That the petitioner
opted for an automatic tax credit, his choice
precludes the other.
2. The action has prescribed. The
prescriptive period per Section 230 of the
1977 NIRC is 2 years and must be followed
notwithstanding the RMC 7-85 which
changed the prescriptive period of 2 years
to 10 years. Such clear inconsistency
legislated guidelines contrary to the statute
passed by Congress.
Philippine Health Care Providers v CIR
G.R. No. 167330 June 12, 2008
Facts:
The petitioner, a prepaid health-care
organization offering benefits to its
members. The CIR found that the
organization had a deficiency in the
payment of the DST under Section 185 of
the 1997 Tax Code which stipulated its
implementation:
“On all policies of insurance or bonds or
obligations of the nature of indemnity for
loss, damage, or liability made or renewed
by any person, association or company or
corporation transacting the business of
accident, fidelity, employer's liability, plate,
glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of
insurance (except life, marine, inland, and
fire insurance)”
The CIR sent a demand for the payment
of deficiency taxes, including surcharges
and interest, for 1996-1997 in the total
amount of P224,702,641.18.
The petitioner protested to the CIR, but it
didn’t act on the appeal. Hence, the
company had to go to the CTA. The latter
declared judgment against them and
reduced the taxes. It ordered them to pay
22 million pesos for deficiency VAT for 1997
and 31 million deficiency VAT for 1996.
CA denied the company’s appeal an d
increased taxes to 55 and 68 million for
1996 to 1997.
Issues: WON a health care agreement in
the nature of an insurance contract and
therefore subject to the documentary stamp
tax (DST) imposed under Section 185 of
Republic Act 8424 (Tax Code of 1997)
Held: Yes. Petition dismissed.
Ratio:
The DST is levied on the exercise by
persons of certain privileges conferred by
law for the creation, revision, or termination
of specific legal relationships through
the execution of specific instruments.
The DST is an excise upon the privilege,
opportunity, or facility offered
at exchanges for the transaction of the
business. In particular, the DST under
Section 185 of the 1997 Tax Code is
imposed on the privilege of making or
renewing any policy of insurance (except
life, marine, inland and fire insurance), bond
or obligation in the nature of indemnity for
loss, damage, or liability.
Petitioner's health care agreement is
primarily a contract of indemnity. And in the
recent case of Blue Cross Healthcare, Inc.
v. Olivares, this Court ruled that a health
care agreement is in the nature of a non-life
insurance policy.
Its health care agreement is not a contract
for the provision of medical services.
Petitioner does not actually provide medical
or hospital services but merely arranges for
the same
It is also incorrect to say that the health care
agreement is not based on loss or damage
because, under the said agreement,
petitioner assumes the liability and
indemnifies its member for hospital, medical
and related expenses (such as professional
fees of physicians). The term "loss or
damage" is broad enough to cover the
monetary expense or liability a member will
incur in case of illness or injury.
Philamcare Health Systems, Inc. v. CA.-
The health care agreement was in the
nature of non-life insurance, which is
primarily a contract of indemnity.
Similarly, the insurable interest of every
member of petitioner's health care program
in obtaining the health care agreement is his
own health. Under the agreement, petitioner
is bound to indemnify any member who
incurs hospital, medical or any
other expense arising from sickness, injury
or other stipulated contingency to the extent
agreed upon under the contract.
THE CITY OF ILOILO vs. SMART
COMMUNICATIONS, INC. (SMART)
THE CITY OF ILOILO vs. SMART
COMMUNICATIONS, INC. (SMART)
GR No. 167260
February 27, 2009
FACTS:
SMART received a letter of assessment
dated February 12, 2002 from petitioner
requiring it to pay deficiency local franchise
and business taxes, in the amount of
P764,545.29, which it incurred for the years
1997 to 2001. SMART protested the
assessment, claiming exemption from
payment of local franchise and business
taxes based on Section 9 of its legislative
franchise under Republic Act (R.A.) No.
7294 (SMART’s franchise). Under SMART’s
franchise, it was required to pay a franchise
tax equivalent to 3% of all gross receipts,
which amount shall be in lieu of all taxes.
SMART contends that the “in lieu of all
taxes” clause covers local franchise and
business taxes. SMART similarly invoked
R.A. No. 7925 or the Public
Telecommunications Policy Act (Public
Telecoms Act) whose Section 23 declares
that any existing privilege, incentive,
advantage, or exemption granted under
existing franchises shall ipso facto become
part of previously granted-
telecommunications franchise. SMART
contends that by virtue of Section 23, tax
exemptions granted by the legislature to
other holders of telecommunications
franchise may be extended to and availed of
by SMART.
The petitioner posits that SMART’s claim for
exemption under its franchise is not
equivocal enough to prevail over the
specific grant of power to local government
units to exact taxes from businesses
operating within its territorial jurisdiction
under Section 137 in relation to Section 151
of the LGC. More importantly, it claimed that
exemptions from taxation have already
been removed by Section 193 of the LGC,
which provides that 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 RA No.
6938, non-stock and non-profit hospitals
and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
ISSUE: whether or not SMART is exempt
from the payment of local franchise and
business taxes under Section 9 of its
franchise and Section 23 of the Public
Telecoms Act.
HELD:
The basic principle in the construction of
laws granting tax exemptions is he who
claims an exemption from his share of the
common burden of taxation must justify his
claim by showing that the Legislature
intended to exempt him by words too plain
to be beyond doubt or mistake.
We have indeed ruled that by virtue of
Section 193 of the LGC, all tax exemption
privileges then enjoyed by all persons, save
those expressly mentioned, have been
withdrawn effective January 1, 1992 – the
date of effectivity of the LGC. The first
clause of Section 137 of the LGC states the
same rule. However, the withdrawal of
exemptions, whether under Section 193 or
137 of the LGC, pertains only to those
already existing when the LGC was
enacted. The intention of the legislature was
to remove all tax exemptions or incentives
granted prior to the LGC. As SMART’s
franchise was made effective on March 27,
1992 – after the effectivity of the LGC –
Section 193 will therefore not apply in this
case.
But while Section 193 of the LGC will not
affect the claimed tax exemption under
SMART’s franchise, we fail to find a
categorical and encompassing grant of tax
exemption to SMART covering exemption
from both national and local taxes:
R.A. No 7294 does not expressly provide
what kind of taxes SMART is exempted
from. It is not clear whether the “in lieu of all
taxes” provision in the franchise of SMART
would include exemption from local or
national taxation. What is clear is that
SMART shall pay franchise tax equivalent to
three percent (3%) of all gross receipts of
the business transacted under its franchise.
But whether the franchise tax exemption
would include exemption from exactions by
both the local and the national government
is not unequivocal.
The uncertainty in the “in lieu of all taxes”
clause in R.A. No. 7294 on whether SMART
is exempted from both local and national
franchise tax must be construed strictly
against SMART which claims the
exemption.
SMART’s claim for exemption from local
business and franchise taxes based on
Section 9 of its franchise is therefore
unfounded.
Whether Section 23 of the Public Telecoms
Act extends tax exemptions granted by
Congress to new franchise holders to
existing ones has been answered in the
negative in the case of PLDT v. City of
Davao. The term “exemption” in Section 23
of the Public Telecoms Act does not mean
tax exemption; rather, it refers to exemption
from certain regulatory or reporting
requirements imposed by government
agencies such as the National
Telecommunications Commission. The
thrust of the Public Telecoms Act is to
promote the gradual deregulation of entry,
pricing, and operations of all public
telecommunications entities, and thus to
level the playing field in the
telecommunications industry. The language
of Section 23 and the proceedings of both
Houses of Congress are bereft of anything
that would signify the grant of tax
exemptions to all telecommunications
entities. Intent to grant tax exemption
cannot therefore be discerned from the law;
the term “exemption” is too general to
include tax exemption and runs counter to
the requirement that the grant of tax
exemption should be stated in clear and
unequivocal language too plain to be
beyond doubt or mistake.
FACTS:
Respondent KEPCO ILIJAN Corporation
filed with the Bureau of Internal Revenue
(BIR) its claim for refund for input tax
incurred for the first and second quarters of
the calendar year 2000 from its importation
and domestic purchases of capital goods
and services preparatory to its production
and sales of electricity to the National
Power Corporation.
For failure of petitioner BIR to act upon
respondent’s claim for refund or issuance of
tax credit certificate, respondent filed a
Petition for Review. Thereafter, respondent
filed its Memorandum, but petitioner failed
to file its Memorandum despite notice, thus,
the case was submitted for decision.
Subsequently, Court of Tax Appeals (CTA)
First Division rendered a Decision, holding
that respondent is entitled to a refund for its
unutilized input VAT paid. There being no
motion for reconsideration filed by the
petitioner, the said decision became final
and executory.
Aggrieved, petitioner filed a petition for
annulment of judgment with the CTA en
banc but the same was dismissed, and its
motion for reconsideration was likewise
denied. Petitioner elevated the case to the
Supreme Court via petition for review.
ISSUE:
Whether or not the Court of Tax Appeals en
banc has jurisdiction to take cognizance of
the Petition for Annulment of Judgment filed
by petitioner.
RULING:
The Revised Rules of the CTA and even
the Rules of Court which apply
suppletorily thereto provide for no
instance in which the en banc may
reverse, annul or void a final decision of
a division. Verily, the Revised Rules of
the CTA provide(s) for no instance of an
annulment of judgment at all. On the
other hand, the Rules of Court, through
Rule 47, provides, with certain conditions,
for annulment of judgment done by a
superior court, like the Court of Appeals,
against the final judgment, decision or ruling
of an inferior court, which is the Regional
Trial Court, based on the grounds of
extrinsic fraud and lack of jurisdiction. The
Regional Trial Court, in turn, also is
empowered to, upon a similar action, annul
a judgment or ruling of the Metropolitan or
Municipal Trial Courts within its territorial
jurisdiction. But, again, the said Rules are
silent as to whether a collegial court
sitting en banc may annul a final judgment
of its own division. As earlier explained,
the silence of the Rules may be
attributed to the need to preserve the
principles that there can be no hierarchy
within a collegial court between its
divisions and the en banc, and that a
court’s judgment, once final, is
immutable.
A direct petition for annulment of a
judgment of the CTA to the Supreme
Court, meanwhile, is likewise unavailing,
for the same reason that there is no
identical remedy with the High Court to
annul a final and executory judgment of
the Court of Appeals. RA No. 9282,
Section 1 puts the CTA on the same level as
the Court of Appeals, so that if the latter’s
final judgments may not be annulled before
the Supreme Court, then the CTA’s own
decisions similarly may not be so annulled.
And more importantly, it has been previously
discussed that annulment of judgment is an
original action, yet, it is not among the
cases enumerated in the Constitution,
Article VIII, Section 5, over which the
Supreme Court exercises original
jurisdiction. Annulment of judgment also
often requires an adjudication of facts, a
task that the Court loathes to perform, as it
is not a trier of facts.
Instead, what remained as a remedy for
the petitioner was to file a petition for
certiorari under Rule 65, which could
have been filed as an original action
before this Court and not before the CTA
en banc. xxx In any event, petitioner’s
failure to avail of this remedy and mistake in
filing of the wrong action are fatal to its case
and renders and leaves the CTA First
Division’s decision as indeed final and
executory. By the time the instant petition for
review was filed by petitioner with this
Court, more than sixty (60) days have
passed since petitioner’s alleged discovery
of its loss in the case as brought about by
the alleged negligence or fraud of its
counsel.
WHEREFORE, premised considered, the
petition for review is hereby DENIED. The
assailed Resolutions dated July 27,2011
and November 15, 2011 of the Court of Tax
Appeals En Banc are AFFIRMED.
Issue:
Whether or not the stock dividend was an
income and therefore taxable
Ruling:
No. Generally speaking, stock dividends
represent undistributed increase in the
capital of corporations or firms, joint stock
companies, etc., etc., for a particular period.
The inventory of the property of the
corporation for particular period shows an
increase in its capital, so that the stock
theretofore issued does not show the real
value of the stockholder's interest, and
additional stock is issued showing the
increase in the actual capital, or property, or
assets of the corporation. In the case of
Gray vs. Darlington (82 U.S., 653), the US
Supreme Court held that mere advance in
value does not constitute the "income"
specified in the revenue law as "income" of
the owner for the year in which the sale of
the property was made. Such advance
constitutes and can be treated merely as an
increase of capital. In the case of Towne vs.
Eisner, income was defined in an income
tax law to mean cash or its equivalent,
unless it is otherwise specified. It does not
mean unrealized increments in the value of
the property. A stock dividend really takes
nothing from the property of the corporation,
and adds nothing to the interests of the
shareholders. Its property is not diminished
and their interest are not increased. The
proportional interest of each shareholder
remains the same. In short, the corporation
is no poorer and the stockholder is no richer
then they were before. In the case of Doyle
vs. Mitchell Bros. Co. (247 U.S., 179), Mr.
Justice Pitney, said that the term "income" in
its natural and obvious sense, imports
something distinct from principal or capital
and conveying the idea of gain or increase
arising from corporate activity. In the case of
Eisner vs. Macomber (252 U.S., 189),
income was defined as the gain derived
from capital, from labor, or from both
combined, provided it be understood to
include profit gained through a sale or
conversion of capital assets. When a
corporation or company issues "stock
dividends" it shows that the company's
accumulated profits have been capitalized,
instead of distributed to the stockholders or
retained as surplus available for distribution,
in money or in kind, should opportunity offer.
The essential and controlling fact is that the
stockholder has received nothing out of the
company's assets for his separate use and
benefit; on the contrary, every dollar of his
original investment, together with whatever
accretions and accumulations resulting from
employment of his money and that of the
other stockholders in the business of the
company, still remains the property of the
company, and subject to business risks
which may result in wiping out of the entire
investment. The stockholder by virtue of the
stock dividend has in fact received nothing
that answers the definition of an "income."
The stockholder who receives a stock
dividend has received nothing but a
representation of his increased interest in
the capital of the corporation. There has
been no separation or segregation of his
interest. All the property or capital of the
corporation still belongs to the corporation.
There has been no separation of the
interest of the stockholder from the general
capital of the corporation. The stockholder, by a stock dividend is still in the corporation
by virtue of the stock dividend, has no and not in the holder of such stock, then it is
separate or individual control over the difficult to understand how it can be
interest represented thereby, further than he regarded as income to the stockholder and
had before the stock dividend was issued. not as a part of the capital or assets of the
He cannot use it for the reason that it is still corporation. If the holder of the stock
the property of the corporation and not the dividend is required to pay an income tax on
property of the individual holder of stock the same, the result would be that he has
dividend. A certificate of stock represented paid a tax upon an income which he never
by the stock dividend is simply a statement received. Such a conclusion is absolutely
of his proportional interest or participation in contradictory to the idea of an income. As
the capital of the corporation. The receipt of stock dividends are not "income," the same
a stock dividend in no way increases the cannot be considered taxes under that
money received of a stockholder nor his provision of Act No. 2833. For all of the
cash account at the close of the year. It foregoing reasons, SC held that the
simply shows that there has been an judgment of the lower court should be
increase in the amount of the capital of the REVOKED.
corporation during the particular period,
which may be due to an increased business
or to a natural increase of the value of the
capital due to business, economic, or other
reasons. We believe that the Legislature,
when it provided for an "income tax,"
intended to tax only the "income" of
corporations, firms or individuals, as that
term is generally used in its common
acceptation; that is that the income means
money received, coming to a person or
corporation for services, interest, or profit
from investments. We do not believe that
the Legislature intended that a mere
increase in the value of the capital or assets
of a corporation, firm, or individual, should
be taxed as "income." A stock dividend, still
being the property of the corporation and
not the stockholder, may be reached by an
execution against the corporation, and sold
as a part of the property of the corporation.
In such a case, if all the property of the
corporation is sold, then the stockholder
certainly could not be charged with having
received an income by virtue of the
issuance of the stock dividend. Until the
dividend is declared and paid, the corporate
profits still belong to the corporation, not to
the stockholders, and are liable for
corporate indebtedness. The rule is well
established that cash dividend, whether
large or small, are regarded as "income"
and all stock dividends, as capital or assets
If the ownership of the property represented