PHILEX MINING CORP v.

COMMISSIONER OF INTERNAL REVENUE (August 28, 1998) DOCTRINE: A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. NATURE: Petition for Review on Certiorari under Rule 45 PONENTE: Romero, J. FACTS: 1. August 5, 1992, BIR sent petitioner Phillex a letter asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of1991 and for the 1st and 2nd quarter of 1992 2. August 20, 1992, Philex sent a letter protesting the demand for payment alleging that it has pending claims for VAT input credit/refund for taxes it paid (1989-1991) in the amount of PhP119.97 M plus interest. Therefore, these claims for tax refund should be applied against the tax liabilities of Philex in accordance with the ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. BIR denied this position and answered that since the pending claims have not yet been determined with certainty, there can be no legal compensation. 3. November 6, 1992 Philex Mining raised this issue in the Court of Tax Appeals, In the course of the proceedings, the BIR issued a Tax Credit Certificate (amounting to 13 M) applied to the total tax liabilities of Philex (123 M) which effectively lowered the latters tax obligation to PhP110 M. 4. Despite the reduction, CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest: a. For legal compensation to take place, both obligations must be liquidated and demandable, where the exact amount of the debt has already been determined. In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court. A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor. b. taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract. 5. Philex appealed the case to the CA, but the appellate court affirmed the CTAs decision. 6. However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994. 7. In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities since both had already become due and demandable, as well as fully liquidated hence, legal compensation can properly take place. ISSUE: 1. WON legal compensation can apply in the instant case. NO a. WON the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. NO

2.

WON BIR violated Section 106(e)[30] of the NIRC which requires the refund of input taxes within 60 days when it took five years for the latter to grant its tax claim for VAT input credit/refund. YES

HELD: 1. In many instances (Francia v. IAC; Caltex v. COA) prior to the instant case, the Court has consistently pronounced that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. There is no cogent reason to deviate from the aforementioned distinction. Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, is no longer without any support in statutory law. It is important to note that the premise of our ruling in the aforementioned case was anchored on Section 51(d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex. a. Philex posits the theory that it had no obligation to pay the excise liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. The court disagrees. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. Philex's theory can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. The fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. The same cannot be condoned for flimsy reasons, such as the one supplied by Philex. 2. In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. Simple justice requires the speedy refund of wrongly-held taxes

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However, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong. In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action. DISPOSITION: WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED. VOTING: Third Division, all concur. -Jenin DOMINGO v GARLITOS (June 29, 1963) Doctrine: The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. In this case, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law and both debts are extinguished to the concurrent amount. Nature: Petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. Ponente: Labrador, J. Facts: On January, 30, 1960 the Court declared as final and executory the order for payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to around 40k issued by the CIF of Leyte in special proceedings to settle the estate of Walter Price. In order to enforce the claims against the estate the fiscal presented a petition to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of around 262k. The orders stated that the 40k due to the CIR be deducted from the 262k due to the administratix, the balance to be paid by the Govt. without delay. Thus the present case.

Held: Ratio: -

WON there can be legal compensation between taxes and claims of intestate recognized and appropriated for by law. The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. Yes, there can be legal compensation. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. Aldamiz v Judge of CIF of Mindoro: Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require" The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.

Issues: WON the Government is entitled to an order for the execution of judgement as to the estate of the deceased for payment of inheritance taxes.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

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Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. Disposition: The petition is, therefore, dismissed, without costs. Vote: Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part. Concurring/Dissenting Opinion: None. -JP PAL vs Edu, supra Osmena vs Orbos, supra Republic vs Bacolod-Murcia Milling, supra TIO vs. VIDEOGRAM REGULATORY BOARD June 18, 1987 DOCTRINE: A tax does not cease to be valid because it regulates, discourages, or even definitely deters the activities taxed. Such levy is for a public purpose, which is government regulation. NATURE: Assailing the constitutionality of PD 1994 PONENTE: Melencio-Herrera FACTS: PD 1994 amended the NIRC providing that there shall be an annual tax of 5 pesos on each processed video-tape cassette, regardless of length, and a 30% tax on the purchase price or rental rates. o The rationale behind the decree is (relevant ones) 1. Proliferation and unregulated circulation of videograms, causing a sharp decline in theatrical attendance (40%) and a drop in sales; 2. Videogram establishments collectively earn 600 million pesos per annum, and such earnings have not been subjected to tax; Several theater and movie companies intervened in the case; ISSUES: (3 other side issues on undue delegation of power, ex post facto laws, and use of executive judgment; all of which decided in favor of the constitutionality of the bill) 1. Is the imposition of the 5 peso tax a rider to the bill itself? NO. 2. Is the tax imposed harsh, confiscatory, oppressive, or in unlawful restraint of trade? NO. 3. Is there over-regulation of the video industry? NO. RATIO: 1. The provision on taxing the videograms is allied and germane to, and is reasonably necessary for the accomplishment of the general object of the decree. As a tool for regulation, it is simply one of the regulatory and control mechanisms scattered throughout the decree. 2.

The title of the decree, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its preamble and reasonable covers all its provisions.

A tax does not cease to be valid because it regulates, discourages, or even definitely deters the activities taxed. The power to impose tax is one so unlimited in force. The tax imposed by the decree is not only a regulatory measure, but also a revenue measure since videogram establishments are earning P600 million per annum not subject to tax. Such levy is for a public purpose, which is the regulation of the video industry. The videogram industry is a new one, and the need for its regulation was apparent considering the unfair competition posed by rampant film piracy, the erosion of the moral fiber of the public due to the availability of pornographic and violent videos, and losses in government revenue due to dropping theatrical attendance. -Ice Caltex vs COA, supra ESSO STANDARD V CIR (July 7, 1989)

3.

ISSUES: WON the RA 2009, An Act to Authorize the Central Bank of the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police measure or a revenue measure. WON the margin fees can be considered necessary and ordinary business expenses and therefore still deductible from the companys gross income.

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FACTS: In CTA Case No 1251, ESSO claimed ordinary and necessary expenses in the amount of P340, 822 representing margin fees it paid to the Central Bank on its profit remittances to its New York head office. In CTA Case No 1558, CIR assessed ESSO a deficiency income tax for 1960. The deficiency arose from the disallowance of the margin fees of P1M paid by ESSO to the Central Bank on its profit remittances to its New York head office. On May 1965, the CIR denied claims of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, insisting that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. ESSO appealed to the CTA and sought refund of P102K for 1959, arguing that the margin fees were deductible from gross income either as tax or as an ordinary and necessary business expense. CTA denied ESSOs claim for P102k refund for 1959 and P434k refund for 1960; but sustained its claim for P39k as excess interest.

HELD:

RA 2009 is a police measure. No

Nature: Appeal from a decision of the CTA Ponente: Bengzon, J. P., J. Facts: Phil. Guaranty Co. Inc. entered into reinsurance contracts on various dates with foreign insurance companies not doing business in the Philippines Said contracts were signed by Phil. Guaranty in Manila and by the foreign reinsurers outside the Philippines, except for one, which was signed by both parties in Switzerland o The contracts made the commencement of the reinsurers liability simultaneous with that of Phil. Guaranty under the original insurance o Phil. Guaranty was required to keep a register in Manila where the risks ceded to the foreign reinsurers were entered, and entry therein was binding upon the reinsurers o A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers o 5% of the reinsurance premiums will be given to Phil. Guaranty as compensation for managing the foreign reinsurers affairs in the Philippines o Conflicts are to be arbitrated in Manila o One contract stipulated that their contract shall be construed by the laws of the Philippines Phil. Guaranty ceded to the foreign insurers premiums in 1953 (P842, 466.71) and 1954 (P721, 471.85), which it excluded from its gross income when it filed its income tax returns for the 1953 and 1954. It also did not withhold or pay tax on them Thus, the CIR assessed against Phil. Guaranty withholding tax on the ceded reinsurance premiums which amounted to P230, 673.00 for 1953 and P234, 364.00 for 1954 Phil. Guaranty protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers are not subject to withholding tax o Denied o Phil. Guaranty appealed to CTA = denied, but reduced the amounts

Phil. Guaranty Co. Inc. v. Commissioner of Internal Revenue (April 30, 1965) Doctrine: The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the States territory, and facilities and protection which a government is supposed to provide.

Issue: W/N the CIRs assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the foreign insurers is legal W/N the reinsurance premiums constitute income from within the Philippines Held: Yes. Yes.

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RATIO: In Caltex v Acting Commissioner of Customs the Court held that: A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports and ultimately, curtail any excessive demand upon the international reserve in order to stabilize the currency. A tax is levied to provide revenue for government operations. On the other hand, margin fees are applied to strengthen our countrys international reserves. The margin fee imposed by the state was done in the exercise of its police power and not the power of taxation. In Atlas Consolidated v CIR the Court stated that statutory test of deductibility: o The expense must be ordinary and necessary o The expense must be paid or incurred within the taxable year o The expense must be paid or incurred in carrying on a trade or business. Not only must the taxpayer meet this test, he must also be able to substantially prove by evidence or records the deductions claimed under the law, otherwise, the same shall be disallowed. The CTA correctly ruled that: Since the margin fees were incurred for the remittance of funds to ESSOs New York HQ, (which is a separate income taxpayer from the branch in the PH) for its disposal abroad, it can not be said therefore that the margin fees were appropriate and helpful in the development of ESSOs businesses in the PH exclusively. Neither was it incurred for purposes proper to the conduct of the affairs of ESSOs PH branch exclusively or for the purpose of realizing a profit or minimizing a loss in the PH branch exclusively. ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires. The taxpayer in every instance has the burden of justifying the allowance of any deduction claimed." It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or business. -Ivan

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties. "Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance." "Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

Disposition: Decision affirmed. -Leah CIR vs Algue, supra

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Ratio/Ruling: Petitioner: the reinsurance premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here Court: the reinsurance contracts show that the transactions/activities that constituted the undertaking to reinsure Phil. Guaranty against losses arising from the original insurances in the Philippines were performed in the Philippines (the commencement of the liability of the reinsurers, the register kept in Manila, etc. = those mentioned in the facts) Sec. 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines o sources interpreted as the activity, property or service giving rise to the income o reinsurance premiums income created from the undertaking of the foreign reinsurance companies to reinsure Phil. Guaranty, and such undertaking took place in the Philippines o thus, these premiums came from sources within the Philippines and are subject to corporate income tax The foreign insurers place of business should not be confused with place of activity o Business: implies continuity and progression of transactions o Activity: may consist of only a single transaction o What is controlling in Sec. 24 of the Tax Code is the place of the activity that created an income Petitioner: the reinsurance premiums are not income from sources within the Philippines because they are not enumerated in Sec. 37 of the Tax Code Court: Sec. 37 is not an all-inclusive enumeration Relevant to topic: The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the States sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the States territory, and facilities and protection which a government is supposed to provide. o Considering that the reinsurance premiums were afforded protection by the government and the recipient foreign insurers exercised rights and privileges guaranteed by our laws, such premiums and reinsurers should share the burden of maintaining the state. Petitioner: reliance in good faith on rulings of the CIR requiring no withholding of the tax due Court: such may only free it from surcharges or penalties but will not exculpate it from liability to pay o Govt is not estopped from collecting taxes by the mistakes or errors of its agents

FERDINAND R. MARCOS II, petitioner -versusCOURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents. (June 5, 1997| GR No 120880| 2nd Division) DOCTRINE: XXX In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests to this: "Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power conferred to it by this Code or other laws." Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment of claims for taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervisunt rei publicae - taxes are the sinews of the state. "Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate."

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax. XXX NATURE: Petition for Review on Certiorari PONENTE: Torres Jr., J. FACTS: More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in estate taxes, are still unresolved, the latter issue being now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his father, despite the pendency of the proceedings on probate of the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156. XXX "On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA. On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and obligations of the late president, as well as that of his family, associates and "cronies". Said audit team concluded its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as several income tax returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code (NIRC). Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized

under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal Revenue Code (NIRC). The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985. On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985). The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax assessments were all personally and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also personally and constructively served upon him (through his caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail. The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the late president, within 30 days from service of said assessments. On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos. On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the deficiency income taxes. On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC). In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting the interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the late president - copies of the

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aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'. Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government. On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary injunction." ISSUE: (a) Is it correct for the Bureau of Internal Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the deceased. HELD: (a) YES, these taxes are exempted from the statute of non claims.

"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance." "Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.) From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. XXX

REASONING: A. In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the National Internal Revenue Code attests to this: "Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power conferred to it by this Code or other laws." Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment of claims for taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervisunt rei publicae - taxes are the sinews of the state. "Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate." Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties.

DISPOSITIVE: IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects. OTHER NOTES:

Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by the Government, collection thereof may have been done in violation of the law. Thus, the manner and method in which the latter is enforced may be questioned separately, and irrespective of the finality of the former, because the Government does not have the unbridled discretion to enforce collection without regard to the clear provision of law." Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed period, and are therefore null and void. XXX We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable, the same can now be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.

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1. Assuming tax assessment is correct; collection may have been wrong:

2. Do pending cases in the Sandiganbayan affect tax assessments on property?: Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. 3. BIR's total assessment of P23,292,607,638.00, deviates from the findings of the DOJ Panel of Prosecutors as per its resolution of 20 September 1991: This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had already become final and unappealable. It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made. 4. Was there proper service of notice to levy properties?: Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties should have been served upon him. We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the

taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states: "xxx ...Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question. xxx" The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot therefore, countenance petitioner's insistence that he was denied due process. Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority. -Poy NATIONAL POWER CORPORATION v. CITY OF CABANATUAN (April 9, 2003) DOCTRINE: The theory behind the exercise of the power to tax emanates from necessity, without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. PONENTE: Puno, J. FACTS: Petitioner sells electric power to the residents of Cabanatuan. Pursuant to an ordinance, respondent assessed petitioner a franchise tax of P808,606.41 Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, refused to pay arguing that respondent has no authority to impose tax on government entities. As a non-profit organization, it is exempt from all taxes, charges, duties or fees in accordance with RA6395 Sec 13. Respondent filed a collection suit in the RTC of Cabanatuan, demanding petitioner pay the assessed tax due plus surcharge. It alleged that petitioners exemption from local taxes has been repealed by Sec 193 of RA7160 the Local Government Code. Trial Court: Dismissed the case, ruling that tax exemption privileges granted to petitioner subsist despite the LGC since (1) RA 6395 is a particular law and may not be repealed by the LGC which is a general law (2) Sec 193 of LGC is an implied repeal which is not favored (3) local govts have no power to tax instrumentalities of the national government per Basco v PAGCOR

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Court of Appeals: Reversed as the LGC expressly withdrew the exemptions granted to petitioner; order petitioner to pay

ISSUES/HELD: WON petitioner is liable to pay an annual franchise tax? Yes. 1. 2. 3. 4. RATIO/RULING: 1. Taxes are the lifeblood of the government, for without taxes the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity, without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz: "Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments." This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. To shatter this culture of dependence, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers. Prior to the enactment of the LGC, various measures were enacted to promote local autonomy. Despite these initiatives, LGUs still faced same problems (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs WON the LGC authorizes respondent city government to impose the franchise tax in question? Yes. WON petitioner is covered by the franchise tax in question? Yes. WON petitioner is excluded because its stocks are owned by the national govt and is a non-profit org? No WON petitioners tax exemptions under its charter subsist despite passage of the LGC? No

to include taxes which were prohibited by previous laws (taxes on forest products, forest concessionaires, mineral products, mining operations). It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. The doctrine in Basco vs. PAGCOR relied upon by the petitioner no longer applies. It was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question. 2. Petitioner is covered by the franchise tax in question since it is a tax on the privilege of transacting business in the state (a secondary or special franchise). It is not levied on the corporation for simply existing as a corporation, upon its property or income (as opposed to a general or primary franchise). Petitioner has a secondary franchise for under its charter, it has the monopoly in transmission of electricity. It is also exercising rights or privileges under this franchise within the territory of respondent. 3. A franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corp, not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the national govt. Ownership by the national govt of its capital stock does not imply that petitioner is not engaged in business. GOCCs are classified as those performing governmental functions (administration of govt; absolute obligations) and proprietary functions (for general interest of society; optional). Petitioner generates power and sells electricity in bulk, which are purely private and commercial undertakings albeit imbued with public interest. Thus, pet is performing proprietary functions. 4. As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions. In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and

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other government agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It reads: "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." (emphases supplied) 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. Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes. But this would be an exercise in futility. 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. DISPOSITION: Petition is denied. Decision of CA is affirmed. VOTE: Panganiban, Sandoval-Gutierrez, Corona, Carpio-Morales, concur. -Steph

expended by the Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis. The respondent Postmaster General, in implementation of the law, thereafter issued four administrative orders numbered 3, 7 9, and 10 which further specified the mail categories to which the statue will apply. In September 1963, Gomez mailed a letter at the post office in Pampanga. Because this letter did not bear the special anti-TB stamp required by the statute, it was returned to him. Because of this incident, Gomez brought suit for declaratory relief in the CFI Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued, contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional.

ISSUE/HELD: WON RA 1635, as amended, and the AOs are constitutional YES RATIO/RULING: It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility. Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convenience. In the allocation of the tax burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose who can afford the use of the mails. The classification is based on considerations of administrative convenience. For it is now a settled principle of law that consideration of practical administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined class. In the case of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select mail users as subjects of the tax is the relative ease and convenience of collecting the tax through the post offices. The small amount of five centavos does not justify the great expense and inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little inconvenience as possible. The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society,

DOCTRINE: The only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes. PONENTE: Castro, J. FACTS: RA 1635,as amended by RA 2631, provides that the Director of Posts shall order for the period from August nineteen to September thirty every year the printing and issue of semi-postal stamps of different denominations with face value showing the regular postage charge plus the additional amount of five centavos for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on newspapers. The additional proceeds realized from the sale of the semi-postal stamps would constitute a special fund and be deposited with the National Treasury to be

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GOMEZ v. PALOMAR (October 29, 1968)

established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying of taxes except as they are used to compensate for the burden on those who pay them and would involve the abandonment of the most fundamental principle of government that it exists primarily to provide for the common good. Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that considerations of administrative convenience and cost afford an adequate ground for classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons within the class regardless of the amount involved. DISPOSITION: Judgment reversed; RA 1635 is constitutional VOTE: Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur. Zaldivar, J., is on leave. (EN BANC)

3. 4.

5. 6.

7.

The original trustee, Moore, was replaced by herein petitioner Lorenzo. Subsequently, the defendant CIR assessed against the estate of Hanley an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. CIR filed a motion in the testamentary proceedings pending before the CFI of Zamboanga praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. Plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. Plaintiff brought an action in the CFIof Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased plus interest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. CFI dismissed both the plaintiff's complaint and the defendant's counterclaim. Both parties appealed.

-Nem Lorenzo v Posadas (June 18, 1937) Doctrine: The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state. For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. Nature: Appeal from the decision of CFI dismissing plaintiffs complaint and defendants counterclaim Ponente: Laurel 1. 2. In 1922, Thomas Hanley died in Zamboanga, Zamboanga, leaving a will and considerable amount of real and personal properties. Probate proceedings ensued. Among other things, Hanleys will stated the following: a. That any money left by him be given to his nephew Matthew Hanley. b. That all real estate owned by him at the time of his death be not sold/disposed of for a period of 10 years after his death, and that the same be handled and managed by the executors, and proceeds thereof to be given to his nephew, Matthew Hanley, and that he be directed that the same be used only for the education of his brother's children and their descendants. c. That his property be given to Matthew Hanley 10 years after his death to be disposed of in the way he thinks most advantageous.

WON the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases? Held: YES 1. When does the inheritance tax accrue? a. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." b. Plaintiff asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. i. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. c. The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. d. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. When must it be satisfied? a. The time for the payment on inheritance tax is clearly fixed by section 15441 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 15432 of the same Code.

2.

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

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2.

3.

i. The instant case falls under subsection (b) as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? a. Plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's death. b. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. c. We hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees?

4.

5.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum. A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance.
2

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference.

A statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission.

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(a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share.

There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the inheritance tax. What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? a. The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. b. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. c. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal3 in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. d. Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. Has there been deliquency in the payment of the inheritance tax? a. Defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. b. P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. c. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for thecestui que trust. When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust. He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required and,

a.

d.

e.

f.

g.

DISPOSITIVE: The judgment of the lower court affirmed with modification. -Zoilo ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: FACTS: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the ff:

During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. ASSESSMENTS Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, 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. In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers

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his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. The collection of the tax would then be left to the will of a private individual. The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state. For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue. In the case of Lim Co Chui vs. Posadas, this court held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent." ". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public." It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.

(1) 19K ha. of gricultural lands, situated in Nasugbu, Batangas (2) A residential house and lot at Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, the children, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS After WWII, the tenants expressed their desire to purchase from Roxas y Cia. The Government persuaded the Roxas brothers to part with their landholdings. The Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1.5M as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation 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. Fifty percent 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 Section 34 of the Tax Code. RESIDENTIAL HOUSE

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 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. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The Roxas brothers protested the assessment . Protes was denied CTA sustained CIRs assesment 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. Roxas appeals to SC ISSUES: (1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? NO (2) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers? CIR --> Roxas y Cia. could be considered a real estate dealer because it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. RATIO:CIR theory erroneous. Circumstance that there were hundreds of vendees and that instalment was paid for 10 years does not make them real estate dealers. It should be borne in mind that 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 bounden 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. However, since Govt had no funds Roxas sold directly to the farmers on installments 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, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, 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%. RE: the house in Malate Roxas y Cia. need not pay tax because rental income came from Jose, one of the 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 law, which states: . . . "Real estate dealer" includes 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: . . . (Emphasis supplied) . is too clear and explicit to admit construction. CTA modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. -Justin

Pascual vs Sec of Public Works Facts: This case is a review of the order of the CFI of Rizal dismissing the case and dissolving the TRO issued in favor of Rizal Gov. Wenceslao Pascual. Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected feeder roads, which, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, and would "greatly enhance or increase the value of the subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose." Gov. Pascual then questions the validity of the said donation violates the constitutional provision prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"

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The trial court held that the legality of said donation may not be contested by petitioner herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed. Issues: 1) WON dismissal was proper? 2) WON legislature may appropriate for a private purpose? Held: 1) No, Petitioner has the requisite standing to question the constitutionality of the act. 2) No, the legislature is without power to appropriate public revenue for anything but a public purpose Ratio: 1) Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. Petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision, and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines. The circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been maintained. 2) 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. -Miggy

Gaston v. Republic Planters Bank March 15, 1988 Doctrine: 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. Ponente: Melencio-Herrera, J. Nature: Facts: Petitioners who are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in representation of other sugar producers, planters and millers and intervenors Angel Severino, Jr., et. al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed no objection to their intervention, filed with the Supreme Court a petition praying for a Writ of mandamus to order respondent Philippine Sugar Commission (PHILSUCOM, for short) which was superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) and Republic Planters Bank (briefly, the Bank), a commercial banking corporation, implement the privatization of the Bank by the transfer and distribution of the shares of stock of the said Bank which is in the name of PHILSUCOM to the sugar producers, millers and planters, who are the true and beneficial owners thereof. PHILSUCOM and SRA argued that no trust results and that the stabilization fees collected are considered government funds, that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal. Issue: Whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds Held: The Supreme Court held that the stabilization fees collected are in the nature of a tax which constitutes public funds, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. 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. The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law.

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That the fees were collected from sugar producers, planters and millers, and that the funds were channelled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. Dispositive: The Writ of mandamus is denied and the Petition hereby dismissed. No costs. Vote: EB, Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur. Fernan, J., took no part. -Wiggy

5.

Fertiphil: LOI 1456 is unconstitutional for being unjust, unreasonableunlawful imposition which solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of fertilizer industry b. FPA: LOI 1456 valid exercise of police power of State to ensure stability of fertilizer industry. Fertiphil did not incur any damage because the P10 burden was ultimately passed to the consumer. Assailing the constitutionality of LOI is improper since it is not necessary for the determination of the complaint for collection. RTC rendered judgment in favor of Fertiphil. P10 CRC is an exercise of States power of taxation, hence it can only be levied for public purpose. LOI 1456 invalid. CA affirmed.

a.

Issues: 1. WON Fertiphil has standing to question the constitutionality of LOI No. 1456. YES 2. WON RTC may pass on the constitutionality of a law. YES 3. WON LOI No. 1456 is constitutional. NO 4. Assuming LOI No. 1456 is unconstitutional, WON the doctrine of operative fact applies. NO Held and Reasoning: 1. YES. Fertiphil has locus standi because it suffered direct injury, having been required to pay, as it did in fact pay, the P10 levy. Even though it may have passed some or all of it to the ultimate consumer, that does not disqualify it from assailing the constitutionality as the fact of payment is sufficient injury to Fertiphil. It was also forced to raise prices for its products to factor in the levy, hence harming its competitiveness in the market. Moreover, doctrine of standing is a mere procedural technicality. (I will not dwell on the procedural aspects since its not related to the topic. Just remember your consti 1 if Maam asks). 2. YES. RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree, or executive order. (Just remember Ynot case from consti1) 3. NO. LOI No. 1456 is unconstitutional for violating the inherent limitation that a tax must be imposed for public purpose a. The P10 levy under LOI No. 1465 is an exercise of the power of taxation. The primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. i. The P10 levy is too excessive to serve a mere regulatory purpose. It is a big burden on the seller and the ultimate consumer, increasing as it does the price of a bag of fertilizer by as much as 5%. ii. A plain reading of the LOI supports the conclusion that it was for revenue generation, imposed until adequate capital is raised to make PPI viable. b. The power of taxation, though inherent in the State, is circumscribed by inherent and constitutional limitations. An

PLANTERS PRODUCTS, INC. v. FERTIPHIL CORP. Doctrine: The power of taxation, though inherent in the State, is circumscribed by inherent and constitutional limitations. An inherent limitation on the power of taxation is public purpose. The power to tax exists for the general welfare, hence implicit in its power is the limitation that it should be used only for a public purpose Public purpose is the heart of a tax law. Date: March 14, 2008 Ponente: Reyes, R.T., J. Facts: 1. PPI and Fertiphil are domestic corporations engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals. On June 3, 1985, Pres. Marcos issued LOI No. 1465 which provided for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizer, thus: a. The Administrator of the Fertilizer Pesticide Authority [FPA] to include in its fertilizer pricing formula a capital contribution component of not less than P10 per bag. The capital contribution shall be collected until adequate capital is raised to make PPI viable Pursuant to this LOI, Fertiphil paid FPA P10 per bag of fertilizer sold, or a total of P6,689,144 from July 1985 to January 1986. FPA then remitted the amount to the account of PPI. After the 1986 EDSA Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI 1465, but PPI refused to accede to the demand. Fertiphil filed a collection and damages suit against both FPA and PPI.

2. 3.

4.

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4.

inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. i. Reason: The power to tax exists for the general welfare, hence implicit in its power is the limitation that it should be used only for a public purpose. It would be robbery for a State to tax its people and use the funds generated for private purpose... Public purpose is the heart of a tax law. ii. The tax levied under LOI No. 1456 is not for a public purpose: 1. The purpose is explicitly to benefit a private company, PPI; 2. The imposition of the P10 levy was conditional and dependent on PPI becoming financially viable; 3. RTC and CA held that the levies paid under the LOI were directly remitted to the account of PPI; 4. Levy was used to pay the corporate debts of PPI; c. Even if enacted under police power, the LOI is still unconstitutional because it did not promote public interest. NO. Doctrine of operative fact, as an exception to the general rule, applies only as a matter of equity and fair play. The GR remains that an unconstitutional law is void; it produces no rights, imposes no duties and affords no protection. Being void, Fertiphil was not required to pay the levy. And since PPI was unjustly benefited by the levy, it must refund Fertiphil in accordance with the Civil Code principle against unjust enrichment.

1.

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. a. PET: They argue that it is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession" The amendatory law should be considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. SC HELD: The allowance for deductible items may have significantly been reduced by the questioned law in comparison with prior law; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. Various deductions, which are by no means inconsequential, continue to be well provided under the new law. The objectives of the constitution in preventing logrolling and surprises to the legislator have been sufficiently met.

b.

2.

Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. a. Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. (see HELD)

Disposition: Fertiphil entitled to refund. CA Decision affirmed. Voting: 5-0 -Sandra 3. TAN v. DEL ROSARIO October 3, 1994 DOCTRINE: Uniformity of taxation merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Such classification is valid as long as: (1) standards used are substantial and not arbitrary; (2) categorization is germane to achieve the legislative purpose; (3) law applies, all things being equal to both present and future conditions; and (4) the classification applies equally well to all those belonging to the same class NATURE: Two consolidated special civil actions for prohibition PONENTE: Vitug, J. FACTS/HELD (for non-tax issues) G.R. No. 109289 Petitioners, claiming to be taxpayers adversely affected by the continued implementation of the amendatory legislations, seek a declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provision:

a.

b.

PET: Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. SC HELD: The discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation lies with the legislation. The courts can only strike it down when it is unconscionable and/or confiscatory. No such transgression is evident to us.

G.R. No. 109446 The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.

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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

a. b.

PET: The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships. Petitioners SC HELD: A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. There is no distinction in income tax liability between a person who practices his profession alone and one who does it through partnership with others in the exercise of a common profession. In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently subject to the payment of income tax.

Nature: Petition to review the decision of the Acting Commissioner of Internal Revenue. (Suit was actually for declaratory relief or prohibition.) Ponente: Fernando, C.J. Facts: Petitioner filed suit assailing the validity of Section I of Batas Pambansa Blg. 135. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. The section as allegedly: 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. WON Section 1 of Batas Pambansa Blg. 135 which amended Section 21 of the NIRC of 1977 is unconstitutional. The petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision; (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification. The field of state activity has assumed a much wider scope, The reason (Chief Justice Makalintal): "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally... continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To paraphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets

MAIN TAX ISSUE: WON RA 7496 violated the constitutional requirement that taxation shall be uniform and equitable in that it attempts to tax single proprietorships and professionals differently from corporations and partnership HELD: Uniformity of taxation, like the kindred 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 forfend 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 What may instead be perceived to be 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. We certainly do not view this classification to be arbitrary and inappropriate. DISPOSITION: WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. VOTING: En Banc. All concur (save for 2 on leave) -Jenin SISON, JR v ANCHETA (July 25, 1984) Doctrine: The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." It is, of course, to be admitted that for all its plenitude the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits. Adversely affecting as it does properly rights, both the due process and equal protection clauses may properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure.

Issue: Held: -

Ratio: -

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forth such limits. Adversely affecting as it does properly rights, both the due process and equal protection clauses may properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." So it is in the Philippines. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. The injury is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. On arbitrariness. A mere allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. There is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary, an example is where it can be shown to amount to the confiscation of property. 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. On equal protection: The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. In a leading case of Lutz V. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" On the concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable." This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." Nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." 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." (Technical part so I di ko masyado inexcise. Baka magtanong si Maam eh.) Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income

Disposition: WHEREFORE, the petition is dismissed. Costs against petitioner. Vote: Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur. Teehankee, J., concurs in the result. Plana, J., took no part. Concurring/Dissenting Opinion: AQUINO, J., concurring: I concur in the result. The petitioner has no cause of action for prohibition. ABAD SANTOS, J., dissenting: This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal. -JP BASCO V. PAGCOR (14 May 1991) DOCTRINE: The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax." (Citations omitted)

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NATURE: Petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PONENTE: Paras, J. FACTS: PAGCOR was originally created by virtue of PD 1067-A in January 1977 and granted a franchise to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." The Charter was amended as PD 1869 dated July 11, 1983 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law Petitioners come to the Court questioning the validity of the PAGCOR charter anchoring their petition on the following points: o o o o It waives the City of Manilas power to impose taxes and license fees Such restriction is contrary to the principles of local autonomy It violates the equal protection clause by legalizing PAGCORconducted gambling but not other forms It violates the trend away from monopolistic and crony economy

ISSUES: 1. 2. W/N Petitioners have standing to question the legality of the Charter? W/N the Charter is void for being unconstitutional?

HELD/RATIO/RULING: 1. YES Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. The transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." 2. NO

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power. The aim of the Charter is to regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government Further, the Charter does not deprive the City of Manila its right to impose taxes and fees for the following reasons: o Thee City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" o The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers". Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. o The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government o Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government o Further, PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. o This doctrine emanates from the supremacy of the National over the local government. Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" Further, the Charter is not repugnant to local autonomy for the Constitution itself provides that the power of an LGU to create its own sources of wealth is subject to such guidelines as Congress may provide

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Finally, it does not violate the equal protection clause. The clause does not preclude a classification. Such classification is allowed so long as it is reasonable and not arbitrary Finally, the Constitution does not prohibit monopolies per se. It only enjoins their limitation or prohibition should public interest so require.

Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was payable only by the original sellers. It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method." ISSUES/RATIO: (Procedural ones not discussed) 1. Was there undue delegation of legislative power to the President? NO. Petitioners contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax. This gives the President, upon the recommendation of the Secretary of Finance, shall, power to raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %) In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard the limits of which are sufficiently determinate and determinable to which the delegate must conform in the performance of his functions. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends. The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. o It is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. o Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of

DISPOSITION: Petition DISMISSED. VOTE: Fernan, C.J., Gutierrez, Jr. Cruz, Feliciano, Gancayco, Bidin, Sarmiento, GrinoAquino, Medialdea, Regalado, Davide, JJ., concur -Raffy Kapatiran vs Tan (Di naisama sa digest assignments. Di ko na-double check, sorry!)

ABAKADA GURO PARTY LIST vs. ERMITA September 1, 2005 DOCTRINE: The power to ascertain facts is such a power which may be delegated. It is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. NATURE: assailing the wisdom and constitutionality of Republic Act No. 9337 PONENTE: Austria-Martinez FACTS: The Philippines was about to have a severe financial crisis and one of the ways that the government thought of to solve this is to amend the tax system of the RP, in order for the government to prevent further economic damage. With this, the legislature enacted RA No. 9337 which amended sections of the National Internal Revenue Code of 1997. The Congress passed HB Nos. 3555 and 3705, while the Senate, taking into consideration the said HBs, passed SB No. 1950. All these undergone 3 readings each, and were then discussed in the BCC. The BCC Report was then approved by both houses, and the enrolled copy of the consolidated House and Senate version was transmitted to the President who signed it into law as RA 9337. PRELUDE/TAX STUFF MAAM MIGHT WANT The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector. The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else.

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discretion. 2. Is the 12% increased VAT-rate an unfair and unnecessary tax burden? NO. Petitioners argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people. Petitioners also argue that the 12% increase is ambiguous because it does not state if the VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year. o The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert. o There is no basis for petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions are no longer present.

DISPOSITIVE: All things considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337. NOTE: There were separate opinions, but none of them contained anything relating to the delegation of power to the President. Proceed with caution. -Ice

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