Pascual v.

Secretary of Public Works Doctrine: The legislaure is without power to appropriate public revenue for anything but a public purpose. It is the essential character of the expenditure which must determine the validity as justifying a tax, and not the magnitude of the interests 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. The test of constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might be incidental to the public. Facts: Zulueta is the owner of several parcels of residential land situated in Rizal and known as the Antonio Subdivision, certain portions of which have been reserved for feeder roads project to which RA 920 appropriated an amount of $85,000 for its construction, reconstruction, repair, extension, and improvement. According to said petition, such appropriation would have the effect of relieving the respondent Zulueta (then senator) 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. Thus, this appropriation was clearly for a private, and not for a public purpose. Allegedly, the government passed this law for the reason that the feeder roads were to be donated by Zulueta to the state for street purposes. However, the contract of donation subsequently entered into was in the form of an onerous one, hence similar to a contract which is unconstitutional since it allows members of the congress to be directly or indirectly interested in any contract with the government. Issue: Whether or not the legislature has the power to appropriate public revenues for anything but a public purpose. Whether or not the subsequent donation to the government cured the constitutional defect. Whether or not the provincial governor of Rizal has the legal personality to initiate this suit. Ratio: Well settled is the rule that the taxing power of the government must be exercised for a public purpose only and not for the advantage of private individuals. Hence, the legality of this circumstance depended on whether the roads in question were public or private property at the time the law in

question took effect. The donation to the government over 5 months after the approval and effectivity of the act made for the purpose of giving a semblance of legality or legalizing the appropriation in question did not cure the basic defect. The province of Rizal, represented by its provincial governor and the taxpayers therein bear a substantial portion of the burden of taxation in the Philippines. Taxpayers have the right to assail the constitutionality of a legislation appropriating local or state public funds. Taxpayers have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of the statutes requiring expenditure of public moneys. Pepsi-Cola Bottling Co v. Municipality of Tanauan, Leyte Doctrine: The power of taxation is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative power may be delegated to local government in respect of matters of local concern. Lawful exercise of the power of taxation: 1) for a public purpose; 2) the rule on uniformity of taxation is observed; 3) either the person or property taxed is within the jurisdiction of the government levying the tax; 4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. Double taxation becomes obnoxious only when the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city of municipality. Facts: Pepsi initiated this complaint with preliminary injunction before the CFI for that court to declare the Local Autonomy Act and ordinances 23 and 27, issued pursuant to the it, null and void for being unconstitutional. Ordinance No. 23 levies and collects from softdrinks producers a tax of 1/16 of a centavo for every bottle of softdrink corked. Ordinance No. 27 levies and collects on softdrinks manufacturers and producers within the territorial jurisdiction of the municipality a tax of 1 centavo on each gallon of volume capacity.

Issue: Whether or not the Local Autonomy Act unduly delegates legislative power to the municipality. Whether or not the ordinances in question constitute double taxation. Whether or not the ordinances impose percentage or specific taxes which are prohibited by the delegating statute (Local Autonomy Act). Ratio: There is no undue delegation of legislative power. Under the new constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Each local government unit shall have the power to create its sources of revenue and to levy taxes subject to such limitations as may be provided by law. Withal, it cannot be said that the Local Autonomy Act emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of taxation. Settled is the rule that legislative powers may be delegated to local government units in matters of local concern. Municipalities may tax subjects which for reasons of public policy the State has not deemed wise for more general purposes. There is no double taxation. Ordinance 27 was intended as a plain substitute for the prior ordinance and operates as a repeal of the latter even without words to that effect. They were only sought to pay for the tax imposed by Ordinance 27, not both. A municipal ordinance which prescribes a set ration between the amount of the tax and the volume of the sale of the taxpayer imposes a sales tax and is null and void for being outside of the municipality to enact. However, the tax imposed in this case does not partake the nature of such. The tax levied is on the produce and not on the sales. The volume capacity in this case is what is being taxed. There is no set ration between volume of the sales and the amount of the tax. Neither is the tax imposed a specific tax. Specific taxes are those imposed on specific articles such as wines, cigarettes, firecrackers, etc. Soft drink is not one of those specified.

SSS v. City of Bacolod Doctrine: When public property is involved, exemption is the rule and taxation is the exception. Facts: SSS is a government agency whose primary function is to develop a social security system which shall be suitable to the needs of the people throughout the Philippines. Pursuant to its operations, it owned a 5-storey building in Bacolod City occupying 4 parcels of land. For failure to pay realty taxes on said property, the same was levied and forfeited. SSS, however, asserts that as a government owned and/or controlled corporation, it is exempted from realty taxes pursuant to the charter of the City of Bacolod. Issue: Whether or not SSS is exempt from the payment of realty taxes. Ratio: Under Section 29 of the Charter of the City of Bacolod, SSS is exempt from realty taxes. Since the charter does not contain any qualifiction whatsoever in providing for the exemption of real estate taxes of lands and buildings owned by the Republic of the Philippines. Hence, then the legislature enacted said charter what it intended was a broad and comprehensive application of such mandate regardless of whether such property is devoted to governmental or proprietary purpose. What is decisive is that the properties possessed by the SSS, albeit devoted to private or proprietary purposes, are in fact owned by the government of the Philippines. Moreover, PD No 24 has removed all doubts as to the exemption of SSS from taxation. It declared the SSS exempt from all kinds of taxes, fees or charges and shall not be liable to attachment, garnishment levy or seizure by or any legal equitable process whatsoever. Manila International Airport v. City of Paranaque Facts: The MIAA administers the land, improvements and equipment of the NAIA complex, as its operator. The MIAA charter transferred approximately 600 hectares of land, including runways and buildings It also provided that no portion of the land transferred to the MIAA shall be disposed through sale or any other mode unless approved by the president. MIAA received final notices of real estate tax delinquency from the

city for the taxable year 1992-2001. Consequently, the city issue notice for levy on the airport land and buildings. MIAA opposed the levy and contended that SEC. 21 of EO 903 specifically exempts it from the payment of real estate tax. MIAA invokes the principle that the government cannot tax itself on the theory that it is a governmental instrument. Issue: Whether or not the MIAA is liable for realty taxes. Ratio: No. MIAA is not a GOCC but a government instrumentality vested with corporate powers to perform efficiently government functions. A government instrumentality falls under sec 133(o) of the LGC which limits the taxing powers of LGUs. The LGC recognize that the LGUs cannot tax the national government, which delegated the power to tax. Moreover, the airport lands and buildings of MIAA are owned by the republic is not taxable pursuant to Sec 234 (a) of the LGC. MIAA is not organized as a stock or non-stock corporation. It is like any other governmental instrumentality, the only difference is that it is not vested with corporate powers. MIAA is merely holding title to the Airport lands and buildings in trust for the Republic. LGC clearly exempts from real estate tax any real property owned by the Republic of the Philippines. Sea Land Service v. Court of Appeals Doctrine: Laws granting exemption from tax are construed strictissimi juris against the taypayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. Facts: SEA-LAND is an American shipping company authorized to do business in the Philippines. It entered into a contract with the US government to transport military household goods and effects of the US military personnel assigned to the Subic Naval Base. During the taxable year of 1984, it paid the income tax due on its income tax return. However, claiming that it was paid by mistake, it filed a petition for review, claiming for refund, on the ground that it is exempt from the payment of taxes by virtue of the RP-US Military Bases Agreement (which provides that no national of the US or corporation [xxx] shall be liable to pay income tax in the Philippines in respect of any

profits derived under a contract made in the US with the government of the US in connection with the construction, maintenance, operation and defense of the bases or any tax in the nature of a license in respect of any service or work for the US in connection with the same". Issue: Whether or not SEA-LAND falls under the coverage of the aforementioned provision hence, exempt from income tax. Ratio: It is obvious that the transport or shipment of household goods and effects of the US military personnel is not included in the term construction, maintenance, operation and defense of the bases. When the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application. The avowed purposeof tax exemption is some public benefit or interest, which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption. In this case, the hauling or transport of household goods and personal effects of the US military personnel would not directly contribute to the defense and security of the Philippines. CIR v. Mitsubishi Metal Corp. Doctrine: Laws granting exemption from tax are construed strictissimi juris against the taypayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. Facts: Atlas entered into a Loan and Sales Contract with Mitsubishi, a Japanese corporation, for the purpose of the projected expansion of the productive capacity of the former's mines. Under said contract, Mitsubishi agreed to extend a loan to Atlas in the amount of 20M for the installation of a new concentrator for copper production. Atlas in turn, undertook to sell to Mitsubishi all the copper concentrate produced from said machine for a period of 15 years. To pay its loan to Atlas, Mitsubishi applied for a loan with EXIMBANK . It was granted. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter and the corresponding 15% withholding tax thereon was withheld and duly remitted to the government. Atlas now is filing for a claim for tax credit asking that the 15% the

government withheld be applied to existing and future tax liabilities. It claims that the 15% should not have been withheld for the reason that Mtsubishi was a mere agent of Eximbank which is a financing institution of the Japanese government. As such, it is exempt from taxes on the interest payments pursuant to the NIRC which states that "income received from their investments in loans by foreign governments, financing institutions owned and controlled and international regional financing institutions established by governments are excluded from gross income." Issue: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excluded from gross income taxation and therefore, exempt from withholding tax. Ratio: The specific terms and reciprocal nature of the obligations between Atlas and Mitsubishi make it implausible that Mitsubishi was a mere agent of Eximbank and therefore, not exempt from withholding tax. The loans and sales contract between them does not contain any reference to Eximbank whatsoever. Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan application with the former was that the amount being procured would be used as a loan to and in consideration of importing copper concentrates from Atlas. When Mitsubushi secured the loan, it did so in its independent capacity as a private entity and not as a conduit of the consortium of Eximbank. The transactions were distinct and separate. It follows therefore that the interest income of the loan paid by Atlas to Mitsubishi is different from the interest paid by the latter to Eximbank. Thus, the interest income paid by Mitsubishi to Atlas was subject to withholding tax. 31st Infantry Post Exchange v. Posadas Facts: 31st Infantry Post Exchange is constituted as a post exchange in accordance with the Army Regulations and the laws of the US. All of the goods sold to and purchased by the said exchange are intended for resale to and are in fact resold, as they have been in the past, to the officers, soldiers, and the civilian employees of the Army and their families. The funds accrued by the exchange are used for the betterment of the condition of the enlisted personnel of the Army. The CIR has collected from merchants who made sales of the

commodities to the Exchange taxes at the rate of one and a half per centum on the gross value in money of the commodities based on actual prices on which the sale is made. For this tax imposed, the Exchange filed this case because the effect of the demand and collection of taxes by the CIR from the merchants selling to them would cause the same to increase the cost of the commodities to the exchange to compensate for the taxes imposed. They claim exemption from taxes on the ground that the revenue law provides that no specific tax shall be collected on any goods sold and delivered directly to the US Army of Navy for their actual use or issue. Issue: Whether or not a tax may be levied on sales made by merchants to Post Exchanges of the US Army in the Philippines. Ratio: Yes. An army post exchange, although an agency within the US Army, cannot secure exemption from taxation for merchants who make sales to them. The goods are sold to the Exchange for resale to individuals belonging to the army as these are commodities. They are not sold to the Army of the Navy itself. They do not fall within the exemption. Only those agencies through which the Federal government immediately and directly exercising its sovereign powers are immune from the taxing power of the State. The tax laid upon Philippine merchants to sell to exchanges does not interfere with the supremacy of the US government or the operations of their instrumentality to such extent or in such a manner as to render the tax illegal. Commissioner of Internal Revenue v. Marubeni Corporation Facts: Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is engaged in general import and export trading, financing and the construction business. Sometime in 1985, the CIR issued a letter of authority to examine the books of accounts of its Manila branch for said fiscal year. It found that Marubeni had undeclared income from 2 contracts in the Philippines, both of which were completed in 1984. One of the contracts was a contract with the NDC and the other was with Philphos. CIR contends that such contracts were made on a turn key basis. Each was a contract for piece of work and since the projects called for

the construction and installation of facilities in the Philippines, the entire income therefrom constituted income from Philippine sources, hence, subject to internal revenue taxes (contractor's tax). Issue: Whether or not a Marubeni is liable for contractor's tax. Ratio: No. A contractor's tax is a tax imposed upon the privilege of engaging in business. It is generally in a nature of an excise tax on the privilege of selling services or labor rather than a sale on the products. It is directly collectible from the person exercising the privilege. As an excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or performed within the jurisdiction of the said authority. Like property taxes, it cannot be imposed on an occupation or privilege outside the taxing district. In this case, while the construction and installation work were completed within the Philippines, the evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan. They were already finished products when shipped to the Philippines. All services for the design fabrication, engineering and manufacture of the materials and equipment under Japanese Yen Portion I (a phase in the contract) were made and completed in Japan. There services were rendered outside the taxing jurisdiction of the Philippines and therefore, not subject to contractor's tax. Reagan v. Commissioner of Internal Revenue Doctrine: The sale having taken place on what is indisputably is Philippine territory, petitioner's liability for the income tax as a result thereof was unavoidable. Facts: Eragan imported a tax free 1960 Cadillac car with accessories including freight, insurance and other charges. He requested his base commander for permission to sell the car, which was granted provided that the sale was made to a member of the US Armed Forces or a citizen of the US employed in the US military bases in the Philippines. After the sale, the CIR rendered him liable for an income tax in the sum of 2,979. After paying for such, he sought refund from the respondent claiming that he was exempt under the impression that, the transaction hving taken place at the Clark Air Base Field, he is exempt from the payment of taxes. However, pending action on his request for refund, he filed a case with the CTA seeking recovery of the sum

plus legal interest. Issue: Whether or not the said income tax was legally collected by CIR. Ratio: Yes. The areas covered by the US Military Bases are not foreign territories both in the policitcal and geographical sense. The sale having taken place on what is indisputably is Philippine territory, petitioner's liability for the income tax as a result thereof was unavoidable. The Clark Air Base are impressed with alien character but retain their status as native soil and are still subject to its authority. Every person who is found within the limits of a government, whether the temporary purposes or as a resident, is bound by its laws. Areas covered by the Uniteed States Military Bases are not foreign territories both in the political and the geographical sense. The Philippine government merely consents that the US exercise jurisdiction in certain cases. The consent was given purely as a matter of comity, courtesy, or expediency over the bases are part of the Philippine territory or divested itself completely of jurisdiction over offenses committed therein. Tiu v. Court of Appeals Doctrine: For classification to be valid it must: 1)rest on substantial distinctions; 2) germane to the purpose of the law; 3) not be limited to existing conditions only; 4) apply equally to all members of the same class. Facts: RA No 7227 created the Subic Special Economic Zone and granted thereto special privileges. Pursuant to such republic act, Eo No 97, which clarified the application of the tax and duty incentives of such zone and EO 97-A specifying the area within the tax and duty free privilege was operative was issued by FVR. Petitioners herein challenge the constitutionality of the EO for allegedly being violative of their right to equal protection of the laws. Issue: Whether or not the executive orders are unconstitutional.

Ratio: No. Said order is not violative of the equal protection clause; neither is it discriminatory. RA 7227 complies with the reasonable classification requirements provided for by case law in that it aims to accelerate the conversion of military reservations into productive uses and by declaring it a policy to develop such zones into self sustaining commercial, financial and investment centers. Congress deemed it necessary to attract and encourage investors, both local and foreign by granting them a separate customs territory, tax and duty free importations, restructured income tax rates on business enterprises within the zone, no foreign exchange control, liberalized regulations on banking and finance and the grant of resident status to certain investors.