CITY OF BAGUIO v.

DE LEON
Facts:

Fortunato de Leon appealed to the SC questioning the validity of an ordinance enacted by the
Baguio City Council to collect taxes from real estate dealers. The source of councils power
to create such ordinance is the amending act (RA 329) of the Baguio Charter empowering the
city to fix the license fee and regulate business, trades, and occupations as may be
established or practiced in the City.
He was held liable as a real estate dealer with a property worth more than P10,000 but not in
excess of P50,000. He was obligated to pay a P50 annual fee. He was further engaged in the
rental of his property in Baguio deriving income therefrom during the period in 1958-1962.
The complaint was thereafter filed by the City Attorney of Baguio for his failure to pay P300
as license fee covering the period aforementioned.

Issues:
1) WON RA 329 is broad enough to justify the enactment of the ordinance
2) WON there was a violation of the rule of uniformity established by the Constitution
Held/Ratio:
1) YES. Even a cursory reading of the above amendment readily discloses that the enactment of
the ordinance in question finds support in the power thus conferred. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but
also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the
phrase 'as provided by law' has been removed by section 2 of Republic Act No. 329. The city
council of Baguio, therefore, has now the power to tax, to license and to regulate provided
that the subjects affected be one of those included in the charter. In this sense, the ordinance
under consideration cannot be considered ultra vires whether its purpose be to levy a tax or
impose a license fee. The terminology used is of no consequence."
2) NO. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not
over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face,
therefore, the above ordinance cannot be assailed as violative of the constitutional
requirement of uniformity. In Philippine Trust Company v. Yatco, Justice Laurel, speaking for
the Court, stated: "A tax is considered uniform when it operates with the same force and
effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co.
v. Alfonso. Thus: "Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation;

COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS

Facts:

The private respondent in this case is the Ateneo de Manila University, a non-stock, nonprofit educational institution with auxiliary units and branches all over the country. One
of these auxiliary units is the Institute of Philippine Culture, which is engaged in social
science studies of Philippine society and culture.
The IPC accepts sponsorships for its research activities of international organizations,
private foundations and government agencies.
In July 1983, the CIR wrote a demand letter assessing ADMU of P174,043 for alleged
deficiency contractors tax and P1.1 M for alleged deficiency income tax for the fiscal
year of 1978.
ADMU filed a memorandum contesting the validity of the assessments. The CIR
cancelled the assessment for the deficiency income tax but increased the amount due
under deficiency contractors tax. It is the CIRs theory that ADMU is subject to
contractors tax under Section 205 of the Tax Code1.
The CTA and CA ruled in favor of ADMU and rejected the contention of the CIR that
ADMU is an independent contractor within the purview of Section 205 of the Tax
Code, which encompasses all kinds of services rendered for a fee.

Issue: Is ADMU, through IPC, performing the work of an independent contractor and, thus,
subject to the 3% contractors tax levied by Section 205 of the NIRC
Held/Ratio: NO. It is CIRs contention that Ateneo has the burden of proof to show its
exemption from the coverage of the law. The Court disagrees by holding that in applying the
principles of tax exemption without first applying the well-settled doctrine of strict interpretation
in the imposition of taxes. It is obviously both illogical and impractical to determine who are
exempted without first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent was covered by Section 205,
1

Sec. 205. Contractor, proprietors or operators of dockyards, and others. - A contractors tax of three per centum of the gross
receipts is hereby imposed on the following:
(16)
Business agents and other independent contractors except persons, associations and corporations under contract for
embroidery and apparel for export, as well as their agents and contractors and except gross receipts of or from a pioneer industry
registered with the Board of Investments under Republic Act No. 5186:

The term independent contractors include persons (juridical or natural) not enumerated above (but not including individuals subject
to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services
for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties
of such contractors or their employees.

applying the rule of strict interpretation of laws imposing taxes and other burdens on the
populace, before asking Ateneo to prove its exemption therefrom.
The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws
that (a) statute will not be construed as imposing a tax unless it does so clearly, expressly,
and unambiguously. x x x (A) tax cannot be imposed without clear and express words for that
purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be
extended by implication. Parenthetically, in answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes are to be construed most strongly against
the government and in favor of the subjects or citizens because burdens are not to be imposed
nor presumed to be imposed beyond what statutes expressly and clearly import.
For the CIR to impose the 3% tax, it should be sufficiently proven that the private respondent is
indeed selling its services for a fee in pursuit of an independent business. And it is only after
private respondent has been found clearly to be subject to the provisions of Sec. 205 that the
question of exemption therefrom would arise. In this case, it is not shown that the CIR presented
evidence to prove its contention.
Records would also show that the funds received by ADMU are technically not a fee. They may
however fall as gifts or donations which are tax-exempt. Moreover, Ateneo is mandated by law
to undertake research activities to maintain its university status. In fact, the research activities
being carried out by the IPC is focused not on business or profit but on social sciences studies of
Philippine society and culture. It was also shown that the IPC was operating at a loss that is why
it accepted sponsorships. It is clear that the funds received by Ateneos Institute of Philippine
Culture are not given in the concept of a fee or price in exchange for the performance of a
service or delivery of an object. Rather, the amounts are in the nature of an endowment or
donation given by IPCs benefactors solely for the purpose of sponsoring or funding the
research with no strings attached.