A.

GENERAL PRINCIPLES
I. Concept, Nature and Characteristics of Taxation and
Taxes
1. Commissioner of Internal Revenue v. Cebu Portland
Cement Company and Court of Tax AppealsThe argument
that the assessment cannot as yet be enforced because it
is still being contested loses sight of the urgency of the
need to collect taxes as "the lifeblood of the government."
If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state
would grind to a halt and all government functions would
be paralyzed.
2. Commissioner of Internal Revenue v. Algue Inc., and
CTA
Taxes are the lifeblood of the government and so should be
collected without
unnecessary hindrance. On the other hand, such collection
should be made in
accordance with the law, and any arbitrariness will negate
the very reason for government itself. Without taxes, the
government would be paralyzed for lack of the motive to
activate and operate it. Hence, despite the natural
reluctance to surrender part of ones hard earned income
to the taxing authorities, every person who is able to must
contributehis share in the running of the government. The
government for its part is expected to respond in the form
of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material
values. This symbiotic
relationship is the rationale of taxation and should dispel
the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
3. C. N. Hodges v The Municipal Board Of The City Of
Iloilo, et al.
An ordinance imposing a sales tax, which has an additional
provision prohibiting
the registration of the objects of the sale thereof, unless
the tax impost has been
paid, such additional prohibition is not be considered a tax,
for the same is merely
a coercive measure to make the enforcement of the
contemplated sales tax more
effective.
Taxes are the lifeblood of the government. It is imperative
that the power to
impose them to be clothed with the implied authority to
devise ways and means
to accomplish their collection in the most effective manner.
Without this implied
power the end of government may falter or fail.
II. Classification and Distinctions
4. Association of Customs Brokers Inc. and G. Manlapit v
The Municipal Board, The

City Trasurer, The City Assessor and the City Mayor of the
City of Manila
While as a rule an ad valorem tax is a property tax, and
this rule is supported by
some authorities, the rule should not be taken in its
absolute sense if the nature and
purpose of the tax as gathered from the context show that
it is in effect an excise or
a license tax. The character of the tax as a property tax or
a license or occupation tax must be
determined by its incidents, and from the natural and legal
effect of the language
employed in the act or ordinance, and not by the name by
which it is described, or
by the mode adopted in fixing its amount. If it is clearly a
property tax, it will be so
regarded, even though nominally and in form it is a license
or occupation tax; and, on
the other hand, if the tax is levied upon persons on account
of their business, it will
be construed as a license or occupation tax, even though it
is graduated according to
the property used in such business, or on the gross
receipts of the business.
5. Esso Standard Eastern, Inc. (formerly, Standard-Vacuum
Oil Company) v The
Commissioner of Internal Revenue
A margin fee is imposed by the State in the exercise of its
police power and not the
power of taxation. A margin fee is not a tax but an exaction
designed to curb the
excessive demands upon our international reserve.
A tax is a levy for the purpose of providing revenue for
government operations.
6. Progressive Development Corp. v. Quezon City
If the generating of revenue is the primary purpose and
regulation is merely
incidental, the imposition is a tax; but if regulation is the
primary purpose, the
fact that incidentally revenue is also obtained does not
make the imposition a tax.
Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of
inspection and regulation may be held to be a tax rather
than an exercise of the
police power.
7. Philippine Airlines, Inc. v. Edu
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. Such is the case of
motor vehicle registration fees. Fees may be properly
regarded as taxes even though
they also serve as an instrument of regulation.
8. Villegas vs. Hiu Chiong Tsai Pao Ho

While it is true that the first part of Ordinance No. 6537,

which requires that the alien
to secure an employment permit, is regulatory in
character, the second part which
requires the payment of P50.00 as employee's fee is not
regulatory but a revenue
measure. There is no logic or justification in exacting
P50.00 from aliens who have
been cleared for employment. It is obvious that the
purpose of the ordinance is to
raise money under the guise of regulation.
9. Compania General de Tabacos de Filipinas v. City of
Manila
A license fee is a legal concept quite distinct from tax; the
former is imposed in the
exercise of police power for purposes of regulation, while
the latter is imposed
under the taxing power for the purpose of raising
revenues. Both a license fee and
a tax may be imposed on the same business or occupation,
or for selling the same
article, this not being in violation of the rule against double
taxation.
10. American Mail Lines v. City of Basilan
The power to regulate as an exercise of police power does
not include the power to
impose fees for revenue purposes. Fees for purely
regulatory purposes may only be
of sufficient amount to include the expenses of issuing the
license and the cost of the
necessary inspection or police surveillance.
11. Osmea vs. Orbos
Hence, it seems clear that while the funds collected may
be referred to as taxes,
they are exacted in the exercise of the police power of the
State. Moreover, that the
OPSF is a special fund is plain from the special treatment
given it by E.O. 137. It is
segregated from the general fund; and while it is placed in
what the law refers to as
a "trust liability account," the fund nonetheless remains
subject to the scrutiny and
review of the COA
12. Republic vs. Bacolod-Murcia Milling Co.
The protection of a large industry constituting one of the
great source of the state's
wealth and therefore directly or indirectly affecting the
welfare of so great a portion
of the population of the State is affected to such an extent
by public interests as to be
within the police power of the sovereign.
The levy for the Philsugin Fund is not so much an exercise
of the power of taxation,
nor the imposition of a special assessment, but, the
exercise of the police power for

the general welfare of the entire country. It is, therefore,

an exercise of a sovereign
power which no private citizen may lawfully resist.
13. Victorias Milling Co., Inc. v. Municipality of Victorias
The designation given by the municipal authorities does
not decide whether the
imposition is properly a license tax or a license fee. The
determining factors are the
purpose and effect of the imposition as may be apparent
from the provisions of the
ordinance. Thus, "when no police inspection, supervision,
or regulation is provided,
nor any standard set for the applicant to establish, or that
he agrees to attain or
maintain, but any and all persons engaged in the business
designated, without
qualification or hindrance, may come, and a license on
payment of the stipulated
sum will issue, to do business, subject to no prescribed rule
of conduct and under no
guardian eye, but according to the unrestrained judgment
or fancy of the applicant
and licensee, the presumption is strong that the power of
taxation, and not the police
power, is being exercised."
14. Lutz v. Araneta
Analysis of the Act will show that the tax is levied with a
regulatory purpose, to
provide means for the rehabilitation and stabilization of the
threatened sugar
industry. In other words, the act is primarily an exercise of
the police power.
This Court can take judicial notice of the fact that sugar
production is one of the
great industries of our nation. Hence it was competent for
the legislature to find that
the general welfare demanded that the sugar industry
should be stabilized in turn;
and in the wide field of its police power, the lawmaking
body could provide that the
distribution of benefits therefrom be readjusted among its
components to enable it
to resist the added strain of the increase in taxes that it
had to sustain.
15. PCGG v. Cojuanco
Indeed, coconut levy funds partake of the nature of taxes
which, in general, are
enforced proportional contributions from persons and
properties, exacted by the
State by virtue of its sovereignty for the support of
government and for all public
needs.
Based on this definition, a tax has three elements, namely:
a) it is an enforced

proportional contribution from persons and properties; b) it

is imposed by the State
by virtue of its sovereignty; and c) it is levied for the
support of the government. The
coconut levy funds fall squarely into these elements
The coconut levy funds -- like the sugar levy and the oil
stabilization funds, as well
as the monies generated by the On-line Lottery System -are funds exacted by the
State. Being enforced contributions, they are prima facie
public funds.III. Limitations on the Power of Taxation
16. Pascual v. Secretary of Public Works and
Communications
The right of the legislature to appropriate funds is
correlative with its right to tax,
under the constitutional provision against taxation except
for public purposes
and prohibiting the collection of a tax for one purpose and
the devotion thereof
to another purpose as appropriation for state funds can be
made for other than a
public purpose.
17. John Osmea v. Oscar Orbos
For a valid delegation of power, it is essential that the law
delegating the power
must be (1) complete in itself, that is it must set forth the
policy to be executed by the
delegate and (2) it must fix a standard limits of which
are sufficiently determinate
or determinable to which the delegate must conform.
18. Pepsi-Cola Bottling Company v. Municipality of Tanauan
Double taxation, in general, is not forbidden by our
fundamental law. Double
taxation becomes obnoxious only where 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 or
municipality.
19. Social Security System v. City of Bacolod and Reynaldo
When the legislature exempted lands and buildings owned
by the government from
payment of said taxes, what it intended was a broad and
comprehensive application
of such mandate, regardless of whether such property is
devoted to governmental
or proprietary purpose. It is axiomatic that when public
property is involved,
exemption is the rule and taxation, the exception..
20. Sea-Land Service, Inc. v. Court of Appeals
Laws granting exemption from tax are construed
strictissimi juris against the
taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption

is the exception. Any interpretation that would give it an

expansive construction to
encompass an exemption from taxation would be
unwarranted.
21. Commissioner of Internal Revenue v. Mitsubishi Metal
Corporation
Laws granting exemption from tax are construed
strictissimi juris against the
taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption
is the exception. The burden of proof rests upon the party
claiming exemption to
prove that it is in fact covered by the exemption so
claimed, which onus petitioners
have failed to discharge.
22. Thirty-First Infantry Post Exchange and First Lieutenant
David L. Hardee v. Juan
Posadas
The sale of merchandise through the post exchanges to the
individuals of the United
States Army and Navy are not goods sold and delivered
directly to the United States
Army or Navy for the actual use or issue by the Army or
Navy and are therefore, not
exempt from the payment of the internal revenue tax
imposed by the law. 23. Commissioner of Internal Revenue
v. Marubeni Corporation
A tax amnesty is a general pardon or intentional
overlooking by the State of its
authority to impose penalties on persons otherwise guilty
of evasion or violation
of a revenue or tax law. It partakes of an absolute
forgiveness or waiver by the
government of its right to collect what is due it and to give
tax evaders who wish to
relent a chance to start with a clean slate. A tax amnesty,
much like a tax exemption,
is never favored nor presumed in law. If granted, the terms
of the amnesty, like that
of a tax exemption, must be construed strictly against the
taxpayer and liberally in
favor of the taxing authority.
24. William Reagan, Etc. v. Commissioner of Internal
Revenue
The Philippines being independent and sovereign, its
authority may be exercised
over its entire domain. There is no portion thereof that is
beyond its power. Within
its limits, its decrees are supreme, its commands
paramount. Its laws govern therein,
and everyone to whom it applies must submit to its terms.
25. Conrado L. Tiu vs. Court of Appeals
The Constitution does not require absolute equality among
residents. It is enough

that all persons under like circumstances or conditions are

given the same privileges
and required to follow the same obligations. In short, a
classification based on valid
and reasonable standards does not violate the equal
protection clause.
26. John Hay Peoples Alternative Coalition v. Bases
Conversion Development
Authority
The nature of most of the assailed privileges is one of tax
exemption. It is the
legislature, unless limited by a provision of the state
constitution, that has full power
to exempt any person or corporation or class of property
from taxation, its power to
exempt being as broad as its power to tax. Other than
Congress, the Constitution may
itself provide for specific tax exemptions, or local
governments may pass ordinances
on exemption only from local taxes.
27. Coconut Oil Refiners Association, Inc. vs. Hon Ruben
Torres
The mere fact that incentives and privileges are granted to
certain enterprises to
the exclusion of others does not render the issuance
unconstitutional for espousing
unfair competition.
28. The Province Of Abra vs. Honorable Harold M.
Hernando
It has been the constant and uniform holding that
exemption from taxation is not
favored and is never presumed, so that if granted it must
be strictly construed
against the taxpayer. Affirmatively put, the law frowns on
exemption from taxation,
hence, an exempting provision should be construed
strictissimi juris.
29. Arturo M. Tolentino vs.The Secretary of Finance and
The Commisioner of Internal
Revenue
The VAT is not a license tax. It is not a tax on the exercise
of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or
properties or the sale or exchange of services and the
lease of properties purely for
revenue purposes. To subject the press to its payment is
not to burden the exercise
of its right any more than to make the press pay income
tax or subject it to general
regulation is not to violate its freedom under the
Constitution.30. Abakada Guro Party List vs. The Honorable
Executive Secretary Eduardo Ermita
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.
31. MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS,
INC. vs. DEPARTMENT OF
FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE
(BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS
ORIENTAL
There is a material or substantial difference between
coconut farmers and copra
producers, on the one hand, and copra traders and dealers,
on the other. The former
produce and sell copra, the latter merely sell copra. The
Constitution does not
forbid the differential treatment of persons so long as there
is a reasonable basis for
classifying them differently.
32. COMMISSIONER OF INTERNAL REVENUE vs. HON.
COURT OF APPEALS, HON.
COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION
In a legislative rule (as opposed to interpretative), due
observance of the requirements
of notice, of hearing, and of publication must be observed.
33. THE COMMISSIONER OF INTERNAL REVENUE vs.
LINGAYEN GULF ELECTRIC
POWER CO., INC. and THE COURT OF TAX APPEALS
A tax is uniform when it operates with the same force and
effect in every place where
the subject of it is found. Uniformity means that all
property belonging to the same
class shall be taxed alike. The Legislature has the inherent
power not only to select
the subjects of taxation but to grant exemptions. Tax
exemptions have never been
deemed violative of the equal protection clause.
34. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN
NG PILIPINAS, INC.,
HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and
MARIO C. VILLANUEVA
vs. HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue
1) The 1987 Constitution mentions a specific date when
the President loses her
power to legislate. If the framers of said Constitution had
intended to terminate the
exercise of legislative powers by the President at the
beginning of the term of office
of the members of Congress, they should have so stated
(but did not) in clear and
unequivocal terms.
2) It appears that a comprehensive study of the VAT had
been extensively discussed

by this framers and other government agencies involved in

its implementation, even
under the past administration. The legislative process
started long before the signing
when the data were gathered, proposals were weighed and
the final wordings of the
measure were drafted, revised and finalized.
3) To justify the nullification of a law. there must be a clear
and unequivocal breach
of the Constitution, not a doubtful and argumentative
implication and not merely
rely upon newspaper articles which are actually hearsay
and have evidentiary value
4) The distinction of the customs brokers from the other
professionals who
are subject to occupation tax under the Local Tax Code is
based upon material
differences, in that the activities of customs brokers (like
those of stock, real estate
and immigration brokers) partake more of a business,
rather than a profession and
were thus subjected to the percentage tax .35. ANTERO M.
SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner,
Bureau of
Internal Revenue et al.
Taxpayers may be classified into different categories. To
repeat, it is enough that
the classification must rest upon substantial distinctions
that make real differences.
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.
36. Villegas v. Hiu Chiong Tsai Pao Ho
Although the equal protection clause of the Constitution
does not forbid classification,
it is imperative that the classification should be based on
real and substantial
differences having a reasonable relation to the subject of
the particular legislation.
37. Villanueva v. City of Iloilo
A license tax may be levied upon a business or
occupational though the land or
property used in connection therewith is subject to
property tax. The rule of equality
and uniformity is not violated by the fact that tenement
taxes are not imposed in
other cities, for the same rule does not require that taxes
for the same purpose
should be imposed in different territorial subdivisions at
the same time. So long
as the burden of the tax falls equally and impartially on all
owners or operators of

tenement houses similarly classified or situated, equality

and uniformity of taxation
is accomplished.
38. Pepsi-Cola Bottling Co. of the Philippines, Inc v. City of
Butuan
When the intention to limit the application of the ordinance
to those merchandise
brought into the City from outside thereof is apparent, the
tax partakes the nature
of an import duty, which is beyond defendant's authority to
impose by express
provision of law.
39. Ormoc Sugar Co. v. Treasurer of Ormoc CityOrmoc
Sugar Co. v. Treasurer of
Ormoc City
The classification, to be reasonable, should be in terms
applicable to future
conditions as well. The taxing ordinance should not be
singular and exclusive as to
exclude any subsequently established sugar central, of the
same class as plaintiff, for
the coverage of the tax.
40. Lutz v. Araneta
If objectives and methods are alike constitutionally valid,
no reason is seen why
the state may not levy taxes to raise funds for their
prosecution and attainment.
Taxation may be made with the implement of the states
police power. Inequalities
which result from a singling out of one particular class for
taxation, or exemption
infringe no constitutional limitation.41. Association of
Customs Broker Inc. vs. The Municipal Board
While the ordinance in question refers to property tax and
it is fixed ad valorem yet
we cannot reject the idea that it is merely levied on motor
vehicles operating within
the City of Manila with the main purpose of raising funds to
be expended exclusively
for the repair, maintenance and improvement of the
streets and bridges in said city.
This is precisely what the Motor Vehicle Law (Act No. 3992)
intends to prevent,
for the reason that, under said Act, municipal corporation
already participate in
the distribution of the proceeds that are raised for the
same purpose of repairing,
maintaining and improving bridges and public highway
(section 73 of the Motor
Vehicle Law). This prohibition is intended to prevent
duplication in the imposition
of fees for the same purpose. It is for this reason that we
believe that the ordinance
in question merely imposes a license fee although under
the cloak of an ad valorem

tax to circumvent the prohibition above adverted to. Also,

the ordinance infringes
the rule of the uniformity of taxation ordained by our
Constitution. It does not
distinguish between a motor vehicle for hire and one which
is purely for private use.
Neither does it distinguish between a motor vehicle
registered in the City of Manila
nor one registered in another place but occasionally comes
to Manila and uses its
streets and public highways. This is an inequality which we
find in the ordinance,
and which renders it offensive to the Constitution.
42. Eastern Theatrical Co., Inc., et al. vs. Alfonso
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;
and the theater companies cannot point out what places of
amusement taxed by the
ordinance do not constitute a class by themselves and
which can be confused with
those not included in the ordinance. The fact that somehow
places of amusement are
not taxed while others, like the ones herein, are taxed is no
argument at all against
the equality and uniformity of the tax imposition.
43. Churchill vs. Concepcion
Uniformity in taxation means that all taxable articles or
kinds of property, of the
same class, shall be taxed at the same rate. It does not
mean that lands, chattels,
securities, incomes, occupations, franchises, privileges,
necessities, and luxuries
shall all be assessed at the same rate. The rule does not
require taxes to be graded
according to the value of the subject(s) upon which they
are imposed, especially
those levied as privilege or occupation taxes.
44. Philippine Trust Company vs. A.L. Yatco
A tax is considered uniform when it operates with the same
force and effect in every
place where the subject may be found. The rule of
uniformity does not call for perfect
uniformity or perfect equality, because this is hardly
attainable.
45. Meralco vs. Province of Laguna
Local Governments do not have the inherent power to tax
except to the extent
that such power might be delegated to them either by the
basic law or by statute.
Presently, Under Article X of the 1987 Constitution, a
general delegation of that

power has been given in favor of the Local Government

Units (LGU).
46. Province of Misamis Oriental v. Cagayan Electric Power
and Light Company Inc.
A special and local statute applicable to a particular case is
not repealed by a later
statute which is general in its terms, provisions and
application even if the terms of
the general act are broad enough to include the cases in
the special law unless there
is manifest intent to repeal or alter the special law.47.
Cagayan Electric Power & Light Co. Inc. v. CIR
The Constitution provides that a franchise is subject to
amendment, alteration or
repeal by the Congress when the public interest so
requires.
48. Lealda v. CIR
It seems clear, therefore, that the intention of the
legislature was to impose upon the
grantee and his successors in interest, the obligation to
pay the same franchise tax
imposed upon other grantees or franchise holders at the
time Act 2475 was enacted.
49. J. Casanovas vs. JNO S. Hord
The concessions can be cancelled only by reason of
illegality in the procedure by
which they were obtained, or for failure to comply with the
conditions prescribed as
requisites for their retention in the laws under which they
were granted.
50. American Bible Society vs. City of Manila
A tax on the income of one who engages in religious
activities is different from a tax
on property used or employed in connection with those
activities. It is one thing
to impose a tax on the income or property of a preacher,
and another to exact a tax
for him for the privilege of delivering a sermon. The power
to tax the exercise of a
privilege is thepower to control or suppress its enjoyment.
51. Abra Valley College vs. Aquino
Reasonable emphasis has always been made that the
exemption extends to facilities
which are incidental to and reasonably necessary for the
accomplishment of the
main purposes. The use of the school building or lot for
commercial purposes is
neither contemplated by law, nor by jurisprudence.
52. Commissioner of Internal Revenue vs. Bishop of the
Missionary District of the
Philippines
The following requisites must concur in order that a
taxpayer may claim exemption
under the law:(1) the imported articles must have been
donated; (2) the done must

be duly incorporated or established international civic

organization, religious or
charitable society, or institution for civic religious or
charitable purposes; and (3)
the articles so imported must have been donated for the
use of the organization,
society or institution or for free distribution and not for
barter, sale or hire.
53. Lladoc vs. Commissioner of Internal Revenue
Imposition of the gift tax was valid, under Section 22(3)
Article VI of the Constitution
contemplates exemption only from payment of taxes
assessed on such properties as
Property taxes contra distinguished from Excise taxes The
imposition of the gift tax
on the property used for religious purpose is not a violation
of the Constitution. A
gift tax is not a property by way of gift inter vivos.
54. Herrera v. Quezon City Board of Assessment Appeals
Where rendering charity is its primary object, and the
funds derived from payments
made by patients able to pay are devoted to the
benevolent purposes of the
institution, the mere fact that a profit has been made will
not deprive the hospital of
its benevolent character.
The exemption in favor of property used exclusively for
charitable or educational
purposes is not limited to property actually indispensable
therefor but extends to
facilities which are incidental to and reasonably necessary
for the accomplishment
of said purposes.55. Bishop of Nueva Segovia vs. Provincial
Board of Ilocos Norte
The exemption in favor of the convent in the payment of
land tax refers to the home of
the priest who presides over the church and who has to
take care of himself in order
to discharge his duties. The exemption includes not only
the land actually occupied
by the Church but also the adjacent ground destined to the
ordinary incidental uses
of man.
56. Commissioner of Internal Revenue v. Court of Appeals
and YMCA
Rental income derived by a tax-exempt organization from
the lease of its properties,
real or personal, is not exempt from income taxation, even
if such income is
exclusively used for the accomplishment of its objectives.
A claim of statutory exemption from taxation should be
manifest and unmistakable
from the language of the law on which it is based. Thus, it
must expressly be granted

in a statute stated in a language too clear to be mistaken.

Verba legis non est
recedendum where the law does not distinguish, neither
should we.
The bare allegation alone that one is a non-stock, nonprofit educational institution
is insufficient to justify its exemption from the payment of
income tax. It must prove
with substantial evidence that (1) it falls under the
classification non-stock, nonprofit educational institution;
and (2) the income it seeks to be exempted from
taxation is used actually, directly, and exclusively for
educational purposes.
57. Lung Center of the Philippines v. Quezon City
What is meant by actual, direct and exclusive use of the
property for charitable
purposes is the direct and immediate and actual
application of the property itself to
the purposes for which the charitable institution is
organized. It is not the use of the
income from the real property that is determinative of
whether the property is used
for tax-exempt purposes.
III. Situs of Taxation and Double Taxation
58. Republic Bank, Petitioner, Vs. Court Of Tax Appeals And
The Commissioner Of
Internal Revenue, Respondents
It is clear from the statutes then in force that there was no
double taxation involved
-- one was a penalty and the other was a tax. At any rate,
we have upheld the validity
of double taxation. The payment of 1/10 of 1% is a penalty
as the primary purpose
involved is regulation, while the payment of 1% for the
same violation is a tax for the
generation of revenue which is the primary purpose in this
instance.
59. Procter and Gamble Philippines Manufacturing Corp. vs.
Municipality of Jagna
For double taxation to exist, the same property must be
taxed twice, when it should
be taxed but once. Double taxation has also been defined
as taxing the same person
twice by the same jurisdiction for the same thing. Surely, a
tax on plaintiff's products
is different from a tax on the privilege of storing copra in a
bodega situated within
the territorial boundary of defendant municipality.
60. PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES,
INC. vs. MUNICIPALITY
OF TANAUAN
Municipalities are empowered to impose, not only
municipal license taxes upon
persons engaged in any business or occupation but also to
levy for public purposes,

just and uniform taxes. The ordinance in question

(Ordinance No. 27) comes within
the second power of a municipality.61. Villanueva, Et Al., v
City of Iloilo
In order to constitute double taxation in the objectionable
or prohibited sense the
same property must be taxed twice when it should be
taxed but once; both taxes
must be imposed on the same property or subject-matter,
for the same purpose,
by the same State, Government, or taxing authority, within
the same jurisdiction or
taxing district, during the same taxing period, and they
must be the same kind or
character of tax
62. Victorias Milling Co. v Municipality of Victoria
For double taxation to exist, "the same property must be
taxed twice, when it should
be taxed but once." Double taxation has also been "defined
as taxing the same person
twice by the same jurisdiction for the same thing."
63. Compania General De Tabacos De Filipinas v City of
Manila, Et Al
Both a license fee and a tax may be imposed on the same
business or occupation,
or for selling the same article, this not being in violation of
the rule against double
taxation.
64. Province of Bulacan v Court of Appeals
A province may not levy excise taxes on articles already
taxed by the National
Internal Revenue Code.
IV. Forms of Escape from Taxation
65. Delpher Trades Corporation v. IAC and Hydro Pipes
Philippines
By changing the nature of their ownership from
unincorporated to incorporated
form, petitioners were able to save on inheritance tax.
66. Heng Tong Textiles Co., Inc. v. CIR
An attempt to minimize one's tax does not necessarily
constitute fraud. It is a settled
principle that a taxpayer may diminish his liability by any
means which the law
permits.
67. CIR v. The Estate of Benigno Toda, Jr.
Tax evasion connotes the integration of three factors: (1)
the end to be achieved, i.e.
the payment of less than that known by the taxpayer to be
legally due, or the nonpayment of tax when it is shown that
a tax is due; (2) an accompanying state of mind
which is described as being evil, in bad faith, willfull,
or deliberate and not
accidental; and (3) a course of action or failure of action
which is unlawful.

In cases of fraudulent returns, false returns with intent to

evade tax, and failure to
file a return, the period within which to assess tax is ten
years from discovery of the
fraud, falsification or omission, as the case may be.
A corporation has a juridical personality distinct and
separate from the persons
owning or composing it. Thus, the owners or stockholders
of a corporation may not
generally be made to answer for the liabilities of a
corporation and vice versa.
V. Exemption from Taxation
68. Davao Gulf Lumber Corporation v. CIR
Because taxes are the lifeblood of the nation, statutes that
allow exemptions are
construed strictly against the grantee and liberally in favor
of the government. Any
exemption from the payment of a tax must be clearly
stated in the language of the
law; it cannot be merely implied therefrom.69. Philippine
Acetylene Inc. vs. Commissioner of Internal Revenue
The tax imposed by section 186 of the National Internal
Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser.
The purchaser does not
pay the tax. He pays or may pay the seller more for the
goods because of the seller's
obligation, but that is all and the amount added because of
the tax is paid to get the
goods and for nothing else.
70. Commissioner of Internal Revenue v. Court of Appeals,
Court of Tax Appeals, and
Ateneo de Manila University
Private respondent is mandated by law to undertake
research activities to maintain its
university status and it occasionally accepts sponsorship
for unfunded IPC research
projects
from
international
organizations,
private
foundations and governmental
agencies. The funds received by private respondent are
not given in the concept of
a fee or price in exchange for the performance of a service
or delivery of an object.
Rather, the amounts are in the nature of an endowment or
donation given by IPC's
benefactors solely for the purpose of sponsoring or funding
the research with no
strings attached which are tax-exempt.
71. Caltex Philippines, Inc. v. Commission on Audit,
Commissioner Bartolome
Fernandez and Commissioner Alberto Cruz
Tax exemptions as a general rule are construed strictly
against the grantee and
liberally in favor of the taxing authority. The burden of
proof rests upon the party

claiming exemption to prove that it is in fact covered by

the exemption so claimed.
The party claiming exemption must therefore be expressly
mentioned in the
exempting law or at least be within its purview by clear
legislative intent.
72. Luzon Stevedoring Corp. v. Court of Tax Appeals,
Commissioner of Internal
Revenue
In order that the importations of tugboats may be declared
exempt from the
compensating tax, the following requirements must be
complied with: (1) the engines
and spare parts must be used by the importer himself as a
passenger and/or cargo,
vessel; and (2) the said passenger and/or cargo vessel
must be used in coastwise or
oceangoing navigation. The amendatory provisions of R.A.
3176 limit tax exemption
from the compensating tax to imported items to be used
by the importer himself as
operator of passenger and/or cargo vessel.
73. National Development Company v. Commissioner Of
Internal Revenue
Tax exemptions cannot be merely implied but must be
categorically and unmistakably
expressed. Any doubt concerning this question must be
resolved in favor of the
taxing power.
74. Manila Electric Company v. Misael P. Vera
One who claims to be exempt from the payment of a
particular tax must do so under
clear and unmistakable terms found in the statute. Tax
exemptions are strictly
construed against the taxpayer.
75. Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr., et al.
The National Power Corporation under the provisions of its
Revised Charter retains
its exemption from duties and taxes imposed on the
petroleum products purchased
locally and used for the generation of electricity. 76.
Commissioner Of Internal Revenue v. John Gotamco &
Sons, Inc. and The Court
of Tax Appeals
Direct taxes are those that are demanded from the very
person who, it is intended
or desired, should pay them; while indirect taxes are those
that are demanded in the
first instance from one person in the expectation and
intention that he can shift the
burden to someone else.
77. COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS
Under Section 27 of the NIRC, the income from any
property of exempt organizations,

as well as that arising from any activity it conducts for

profit is taxable. The phrase
any of their activities conducted for profit does not
qualify the word properties.
This makes income from the property of the organization
taxable, regardless of how
the income is used- whether for profit of for lofty non-profit
purposes. On the other
hand, Article VI, Section 28 of paragraph
3 of the
Constitution, failed to prove by
substantial evidence that: 1) it falls under the classification
non-stock, non-profit
educational institution; and 2) the income it seeks to be
exempted from taxation is
actually, directly and exclusively for educational purposes.
78. DAVID G. NITAFAN vs. COMMISSIONER OF INTERNAL
REVENUE
The payment of income tax, which is applicable to all
income earners, by Justices
and Judges does not fall within the constitutional protection
against decrease of
their salaries during their continuance in office.
79. THE PROVINCE OF ABRA vs. HONORABLE HAROLD M.
HERNANDO
To be exempt under the Constitution, lands, buildings and
improvements of religious
and charitable institutions must not only be exclusively but
also actually and directly
used for religious and charitable purposes.
80. COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI
METAL CORPORATION
Laws granting exemption from tax are construed
strictissimi juris against the
taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption
is the exception. The taxability of a party cannot be blandly
glossed over on the basis
of a supposed broad, pragmatic analysis alone without
substantial supportive
evidence.
VI. Exemption from Taxation
81. 31st Infantry Post Exchange v. Posadas
Whenever a state engages in a business which is of a
private nature, that business is
not withdrawn from the taxing power of the Nation, or,
conversely stated, whenever
the National Government permits an organization under its
control to engage in a
business which is of a private nature, that business is not
withdrawn from the taxing
power of the state.
82. PLDT v. City of Davao
The tax exemption must be expressed in the statute in
clear language that leaves no

doubt of the intention of the legislature to grant such

exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi
juris against the taxpayer
and liberally in favor of the taxing authority
83. Sea Land Services, Inc. v. CA
Laws granting exemption from tax are construed
strictissimi juris against the
taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption
is the exception.84. MERALCO v. Province of Laguna
Under the now prevailing Constitution, where there is
neither a grant nor a
prohibition by statute, the tax power must be deemed to
exist although Congress
may provide statutory limitations and guidelines. The
basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local
government units by
directly granting them general and broad tax powers.
85. Tiu vs. Court of Appeals
The constitutional right to equal protection of the law is not
violated by an executive
order, issued pursuant to law, granting tax and duty
incentives only to businesses and
residents within the secured area of the Subic Special
Economic Zone and denying
them to those who live within the Zone but outside such
fenced-in territory. A
classification based on valid and reasonable standards
does not violate the equal
protection clause.
86. Mactan Cebu International Airport vs. Marcos
The law frowns against exemptions from taxation and
statutes granting tax
exemptions are thus construed strictissimi juris against the
taxpayer and liberally
in favor of the taxing authority. However, if the grantee of
the exemption is a political
subdivision or instrumentality, the rigid rule of construction
does not apply because
the practical effect of the exemption is merely to reduce
the amount of money that
has to be handled by the government in the course of its
operations.
87. Commissioner of Internal Revenue vs. Robertson
Although the laws granting tax exemptions must be
construed in strictissimi juris
against the taxpayer, and that the burden of proof is with
the person or entity given
the exemption. The court, however, will not deem itself
authorized to depart from the
plain meaning of the tax exemption provision, so explicit in
terms and so searching
in extent.

88. Basco vs. PAGCOR

The states have no power by taxation or otherwise, to
retard, impede, burden or in
any manner control the operation of constitutional laws
enacted by Congress to carry
into execution the powers vested in the federal
government. The power to tax which
was called as the "power to destroy" cannot be allowed to
defeat an instrumentality
or creation of the very entity which has the inherent power
to wield it.
89. Republic of the Philippines v. Intermediate Appellate
Court
The rule is that in case of doubt, tax statutes are to be
construed strictly against the
Government and liberally in favor of expressly and clearly
declares.
90. Commissioner of internal Revenue v. Court of Appeals
A tax amnesty, being a general pardon or intentional
overlooking by the State of its
authority to impose penalties on persons otherwise guilty
of evasion or violation of a
revenue or tax law, partakes of an absolute forgiveness or
waiver by the Government
of its right to collect what otherwise would be due it, and in
this sense, prejudicial
thereto, particularly to give tax evaders, who wish to relent
and are willing to reform
a chance to do so and thereby become a part of the new
society with a clean slate.VII. NATURE, CONSTRUCTION,
APPLICATION & SOURCES OF TAX
LAWS
91. Hilado v. Collector of Internal Revenue
It is a legal maxim, that excepting that of a political nature,
Law once established
continues until changed by some competent legislative
power. It is not changed
merely by change of sovereignty.
It seems too clear for serious argument that an
administrative officer cannot
change a law enacted by Congress. A regulation that is
merely an interpretation
of the statute when once determined to have been
erroneous becomes nullity. An
erroneous construction of the law by the Treasury
Department or the collector of
internal revenue does not preclude or estop the
government from collecting a tax
which is legally due.
92. Misamis Oriental of Coco Traders, inc. v. Department
of Finance Secretary
The Commissioner of Internal Revenue is not bound by the
ruling of his predecessors.
7 To the contrary, the overruling of decisions is inherent in
the interpretation of laws.

93. Commissioner of Internal Revenue v. Court of Appeals

Well-entrenched is the rule that rulings and circulars, rules
and regulations
promulgated by the Commissioner of Internal Revenue
would have no retroactive
application if to so apply them would be prejudicial to the
taxpayers.
94. CIR vs. Lingayen Gulf Electric Power Co., Inc.
The power of the Legislature to alter, amend, or repeal any
franchise is always
deemed reserved.
95. ABS-CBN Broadcasting Corporation v. Court of Tax
Appeals
Rulings or circulars promulgated by the CIR have no
retroactive application where
to so apply them would be prejudicial to taxpayers.
96. Philippine Bank of Communications v. Commissioner of
Internal Revenue
Administrative issuances are merely interpretations and
not expansions of the
provisions of law, thus, in case of inconsistency, the law
prevails over them.
Administrative agencies have no legislative power.
VIII. POWER TO TAX INVOLVES POWER TO DESTROY
97. Commissioner of Internal Revenue vs. Tokyo Shipping
Co., Ltd.
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.
98. Reyes vs. Almanzor
The power to tax is not the power to destroy while the
Supreme Court sits.
99. Commissioner of Internal Revenue vs. Algue
Taxes are, indeed, the lifeblood of the nation but the
exercise of taxation must be
done reasonably and through the prescribed procedure. IX.
SET-OFF OF TAXES
100. Philex Mining Corp. vs. Commissioner of Internal
Revenue
Taxes cannot be the subject for compensation for simple
reason that the government
and the tax payer are not mutual creditors and debtors of
each other.
101. Francia v. Intermediate Appellate Court
There can be no off-setting of taxes against the claims that
the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the
government owes him an amount equal to or greater than
the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government.

102. Commissioner of Internal Revenue v. Itogon-Suyoc

Mines, Inc.
The National Internal Revenue Code provides that interest
upon the amount
determined as a deficiency shall be assessed and shall be
paid upon notice and
demand from the Commissioner of Internal Revenue at the
specified. It is made clear,
however, in an earlier provision found in the same section
that if in any preceding
year, the taxpayer was entitled to a refund of any amount
due as tax, such amount, if
not yet refunded, may be deducted from the tax to be
paid.
103. Domingo v. Garlitos
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.
104. Republic of the Philippines v. Mambulao Lumber
Company
Appellant and appellee are not mutually creditors and
debtors of each other.
Consequently, the law on compensation is inapplicable.
With respect to the
forest charges which the defendant Mambulao Lumber
Company has paid to the
government, they are in the coffers of the government as
taxes collected, and the
government does not owe anything, crystal clear that the
Republic of the Philippines
and the Mambulao Lumber Company are not creditors and
debtors of each other,
because compensation refers to mutual debts.
X. TAXPAYER SUIT
105. Anti-Graft League of the Philippines v. San Juan
In order to constitute a taxpayers suit, two requisites must
be met. First, public
funds are disbursed by a political subdivision or
instrumentality and in doing so, a
law is violated or some irregularity is committed. Second,
the petitioner is directly
affected by the alleged ultra vires act.
106. Joya v. Presidential Commission on Good Governance
Not every action filed by a taxpayer can qualify to
challenge the legality of official
acts done by the government. A taxpayer's suit can
prosper only if the governmental

acts being questioned involve disbursement of public funds

upon 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.
107. Lozada v. Commission on Elections
A taxpayers suit may be allowed only when an act
complained of, which may include
a legislative enactment of statute, involves the illegal
expenditure of public money.B. TAX LAWS & REGULATIONS
108. Commissioner of Internal Revenue v. S.C. Johnson
The essence of the principle of the most-favored nation
clause is to allow the
taxpayer in one state to avail more liberal provisions
granted in another tax treaty
to which the country of residence of such taxpayer is also a
party provided that
the subject matter of taxation is the same as that in the
tax treaty under which the
taxpayer is liable.
Tax refunds are in the nature of tax exemptions and they
are regarded as in derogation
of sovereign authority and to be construed strictissimi juris
against the person or
entity claiming the exemption. The burden of proof is upon
him who claims the
exemption in his favor and he must be able to justify hi
claim by the clearest grant of
organic or statute law.
C. TAX REMEDIES
109. St. Stephens Association and St. Stephens Girls
School v. The Collector of
Internal Revenue
The period for appeal to the respondent court in this case
must be computed from
the time petitioners received the decision of the
respondent Collector of Internal
Revenue on the disputed assessment, and not from the
time they received said
assessment.
110. Advertising Associates, Inc. v. Court of Appeals and
CIR
The petition for review was filed on time. The reviewable
decision is that contained
in Commissioner Plana's letter of May 23, 1979 and not the
warrants of distraint.
111. Commissioner of Internal Revenue v. Isabela Cultural
Corporation
The Final Notice Before Seizure should be considered as a
denial of respondents
request for reconsideration of the disputed assessment.
The Notice should be

deemed as petitioner's last act, since failure to comply with

it would lead to the
distraint and levy of respondent's properties, as indicated
therein.
112. Surigao Electric, Co., Inc. and Arturo Lumanlan v.
Municipality of Surigao
A municipal government or a municipal corporation such as
the Municipality of
Surigao is a government entity recognized, supported and
utilized by the National
Government as a part of its government machinery and
functions; a municipal
government actually functions as an extension of the
national government and,
therefore, it is an instrumentality of the latter; and by
express provisions of Section
14(e) of Act 2677, an instrumentality of the national
government is exempted from
the jurisdiction of the PSC except with respect to the fixing
of rates. This exemption
is even clearer in Section 13(a).
It would be to erode the term "government entities" of its
meaning if we are to reverse
the Public Service Commission and to hold that a
municipality is to be considered
outside its scope.
113. Yabes vs. Flojo
Court of Tax Appeals has exclusive jurisdiction over
complaints involving an
assessment made by a Commissioner which has not yet
become final and
incontestable. 114. Commissioner of Internal Revenue v.
Algue
Deductions on gross income includes all the ordinary and
necessary expenses paid
or incurred during the taxable year in carrying on any trade
or business, including
a reasonable allowance for salaries or other compensation
for personal services
actually rendered.
115. Commissioner of Internal Revenue v. Union Shipping
Corporation and the CTA
If an individual or corporation is not in the actual
possession, custody, or control of
the funds, it can neither be physically nor legally liable or
obligated to pay the socalled withholding tax on income.
116. Philippine Journalists, Inc v. Commissioner of Internal
Revenue
The appellate jurisdiction of the CTA is not limited to cases
which involve decisions
of the Commissioner of Internal Revenue on matters
relating to assessments or
refunds. It gives the CTA the jurisdiction to determine if the
warrant of distraint and

levy issued by the BIR is valid and to rule if the Waiver of

Statute of Limitations was
validly effected.
117. CIR v. Philippine Global Communications, Inc.
The law prescribed a period of three years from the date
the return was actually
filed or from the last date prescribed by law for the filing of
such return, whichever
came later, within which the BIR may assess a national
internal revenue tax. The
three-year period for collection of the assessed tax began
to run on the date the
assessment notice had been released, mailed or sent by
the BIR.
118. RCBC v Commissioner of Internal Revenue
As provided under section 228, Such assessment may be
protested administratively
by filing a request for reconsideration or reinvestigation
within thirty (30) days
from receipt of the assessment in such form and manner
as may be prescribed
by implementing rules and regulations. Within sixty (60)
days from filing of the
protest, all relevant supporting documents shall have been
submitted; otherwise,
the assessment shall become final.
119. Ocean Wireless Network v. Commissioner of Internal
Revenue
In this case, the letter of demand dated January 24, 1991,
unquestionably
constitutes the final action taken by the Bureau of Internal
Revenue on petitioners
request for reconsideration when it reiterated the tax
deficiency assessments due
from petitioner, and requested its payment. ; Moreover,
the general rule is that the
Commissioner of Internal Revenue may delegate any
power vested upon him by law
to Division Chiefs or to officials of higher rank.
120. Fishwealth v. Commissioner of Internal Revenue
If the protest is denied in whole or in part, or is not acted
upon within one hundred
eighty (180) days from submission of documents, the
taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within thirty
(30) days from receipt of the said decision, or from the
lapse of the one hundred
eighty (180)-day period; otherwise, the decision shall
become final, executory and
demandable. PART II.
A. LOCAL TAXATION
121. Lung Center of the Philippines vs. Quezon City
The portions of the land leased to private entities as well
as those parts of the hospital

leased to private individuals are not exempt from such

taxes. On the other hand, the
portions of the land occupied by the hospital and portions
of the hospital used for its
patients, whether paying or non-paying, are exempt from
real property taxes.
122. Philippine Rural Electric Cooperatives vs. The
Secretary, Department of Interior
and Local Government
The withdrawal by the Local Government Code under
Sections 193 and 234 of the
tax exemptions previously enjoyed by petitioners does not
impair the obligations
of the borrower, the lender or the beneficiary under loan
agreements as in fact, no
taxation exemption is granted taxation exemption is
granted therein.
123. City Assessor of Cebu City vs. Association of Benevola
de Cebu
The Chong Hua Hospital Medical Arts Center building
should be classified as
commercial and should not be imposed the commercial
level of 35% as it is not
operated primarily for profit but as an integral part of CHH.
The CHHMAC, with
operations being devoted for the benefit of the CHHs
patients, should be accorded
the 10% special assessment.
124. City Government of San Pablo vs. Hon. Bienvenido
Reyes
The franchise tax under the LGC is imposable despite any
exemption enjoyed under
special laws. Hence, in the absence of any provision of the
Code to the contrary, any
existing tax exemption or incentive enjoyed by MERALCO
under existing law was
clearly intended to be withdrawn.
125. First Philippine Industrial Corporation v. Court of
Appeals
A "common carrier" is exempted from business tax as
provided for in Section 133 (j),
of the Local Government Code. It is clear that the
legislative intent in excluding from
the taxing power of the local government unit the
imposition of business tax against
common carriers is to prevent a duplication of the so-called
"common carrier's tax."
Petitioner is already paying three (3%) percent common
carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.
To tax petitioner again
on its gross receipts in its transportation of petroleum
business would defeat the
purpose of the Local Government Code.
126. Manila Electric Company vs. Province of Laguna

Where there is neither a grant nor a prohibition by statute,

the tax power must be
deemed to exist although Congress may provide statutory
limitations and guidelines.
127. Philippine Basketball Asscoiation vs. Court of Appeals
The government can never be in estoppel particularly in
matters involving taxes.
It is an established rule that erroneous application and
enforcement of the law by
public officers do not preclude subsequent correct
application of the statute and the
Government is never estopped by mistake or error on the
part of its agents.
128. MIAA vs Court of Appeals and the City of Paraaque
Real Properties owned by Republic of the Philippines are
exempt from real estate
tax. An instrumentality of the government is likewise
exempt from local taxation.129. Province of Bulacan vs.
Court of Appeals
The preemption on taxation refers to an instance wherein
the National Government
elects to tax a particular area, impliedly withholding from
the local government the
delegated power to tax the same field.
130. Drilon v. Lim
Section 187 authorizes the Secretary of Justice to review
only the constitutionality
or legality of the tax ordinance and, if warranted, to revoke
it on either or both of
these grounds. When he alters or modifies or sets aside a
tax ordinance, he is not also
permitted to substitute his own judgment for the judgment
of the local government
that enacted the measure. Such is an act not of control but
of mere supervision.
B. REAL PROPERTY TAXATION
131. Davao Sawmill Co. v. Castillo
It must further be pointed out that while not conclusive,
the characterization of
the property as chattels by the appellant is indicative of
intention and impresses
upon the property the character determined by the parties.
It is machinery which is
involved; moreover, machinery not intended by the owner
of any building or land for
use in connection therewith, but intended by a lessee for
use in a building erected on
the land by the latter to be returned to the lessee on the
expiration or abandonment
of the lease.
132. City of Baguio v. Busuego
While the GSIS may be exempt from real estate tax, the
exemption does not cover
property belonging to it "where the beneficial use thereof
has been granted for

consideration or otherwise to a taxable person."

133. Reyes, et al. v. Almanzor
It is declared that the first Fundamental Principle to guide
the appraisal and
assessment of real property for taxation purposes is that
the property must be
"appraised at its current and fair market value." By no
strength of the imagination
can the market value of properties covered by P.D. No. 20
be equated with the market
value of properties not so covered. The former has
naturally a much lesser market
value in view of the rental restrictions.
134. Pecson vs. Court of Appeals
Notices of the sale of the public auction may be sent to the
delinquent taxpayer,
either (i) at the address as shown in the tax rolls or
property tax record cards of the
municipality or city where the property is located or (ii) at
his residence, if known
to such treasurer or barrio captain.
135. Mathay, Jr. v. Macalincag
Section 9 of P.D. 921 is specific and mandatory. The
Schedule of Values that will
serve as the basis for the appraisal and assessment for
taxation purposes of real
properties located within the Metropolitan Area shall be
prepared jointly by the City
Assessors of the Districts created under Section one
hereof, with the City Assessor
of Manila acting as Chairman.136. Patalinghug vs. Court of
Appeals
A tax declaration is not conclusive of the nature of the
property for zoning purposes.
A property may have been declared by its owner as
residential for real estate taxation
purposes but it may well be within a commercial zone. A
discrepancy may thus exist
in the determination of the nature of property for real
estate taxation purposes visa-vis the determination of a
property for zoning purposes.
137. Ty, et. al. Vs. Trampe
RA 7160 (LGC) and PD 921 are compatible laws and can be
harmonized in order to
achieve the objective that real estate tax should not
unduly burden the taxpayer and
at the same time encouraging local government units to
consolidate or coordinate
their efforts, services and resources. Thus new schedule of
values and assessments
within Metro Manila must be jointly agreed by the city,
municipal assessors within
the Assessment Districts.
138. Talento vs. Escalada

Generally, even pending on appeal the LBAA, CBAA or the

courts may not supend
the collection of taxes, only a payment under protest may
stay an impending levy,
however, under certain conditions provided under the
Rules of Procedure of the
LBAA and the ammendments made by RA 9282, the
collection of taxes may be
suspended pending the resolution of an appeal.
139. FELS Energy vs. Province of Batangas
First; should a taxpayer wish to question the assessment
made by the city, provincial
or municipal assessor, the proper recourse would be to
appeal before the Local
Board of Assessment Appeals within 60 days from receipt
of assessment. Second;
movable property such as barges may be considered real
property subject to real
property tax depending on the nature of their use. Lastly;
taxation is the rule and
excemption is the exception, thus strict construction
against excemptions.
140. Mactan Cebu International Airport Authority vs.
Marcos
The Local Government Code's excemptions found in Sec.
133 of the LGC is the general
provision for excemption but this is further refined by Sec.
232 and 234, the objective
of which is to limit those who may enjoy the privilege of
excemption and to increase
those that can be taxed by the local government in order
to maximize their income
to attain fiscal autonomy. When there is doubt as to
whether an entity is excempt or
not, the rule is that the law shall be strictly interpreted
against exemption.
141. Sesbreo v. Central Board of Assessment Appeals
Petitioner failed to pay under protest the tax assessed
against his property. This is a
violation of Section 64 of Presidential Decree No. 464 20
which requires that, before
a court may entertain any suit assailing the validity of a tax
assessment, the taxpayer
must first pay under protest the tax assessed against him.
As a rule, no issue may
be raised on appeal unless it has been brought before the
lower tribunal for its
consideration. 21 The Court has held in several cases,
however, that an appellate
court has an inherent authority to review unassigned errors
(1) which are closely
related to an error properly raised, or (2) upon which the
determination of the error
properly assigned is dependent, or (3) where the Court
finds that consideration of

them is necessary in arriving at a just decision of the

case.142. Lopez v. City of Manila
Should the taxpayers question the excessiveness of the
amount of tax, he must first
pay the amount due, in accordance with Section 252 of
R.A. 7160. Then, he must
request the annotation of the phrase "paid under protest"
and accordingly appeal
to the Board of Assessment Appeals by filing a petition
under oath together with
copies of the tax declarations and affidavits or documents
to support his appeal. The
reduced assessment levels multiplied by the schedule of
fair market values of real
properties, provided by Manila Ordinance No. 7894,
resulted to decrease in taxes.
To that extent, the ordinance is likewise, a social legislation
intended to soften the
impact of the tremendous increase in the value of the real
properties subject to tax.
The lower taxes will ease, in part, the economic
predicament of the low and middleincome groups of
taxpayers.
143. Cagayan Robina Sugar Milling Co. v. Court of Appeals
Section 28 must be read in consonance with Section 3 (n)
[8] of the said law, which
defines "market value." Under the latter provision, the
LBAA and CBAA were not
precluded from adopting various approaches to value
determination, including
adopting the APT "floor bid price" for petitioner's
properties. Tax assessments by tax
examiners are presumed correct and made in good faith,
with the taxpayer having
the burden of proving otherwise.
144. Light Rail Transit Authority v. Central Board of
Assessment Appeals
The Light Rail Transit Authority and the Metro Transit
Organization function as
service-oriented business entities, which provide valuable
transportation facilities
to the paying public. In the absence, however, of any
express grant of exemption in
their favor, they are subject to the payment of real
property taxes.
C. TARIFF & CUSTOMS LAWS
145. Jao v. Court of Appeals
The estate of an inhabitant of the Philippines shall be
settled or letters of
administration granted in the proper court located in the
province where the
decedent resides at the time of his death.
146. Transglobe International v. Court of Appeals
Forfeiture of seized goods in the Bureau of Customs is a
proceeding against the goods

and not against the owner. It is in the nature of a

proceeding in rem, i.e., directed
against the res or imported articles and entails a
determination of the legality of their
importation. The fraud contemplated by law must be actual
and not constructive.
It must be intentional, consisting of deception willfully and
deliberately done or
resorted to in order to induce another to give up same
right.
147. Acting Commissioner of Customs v. Court of Appeals
In all proceedings taken for the seizure and/or forfeiture of
any vehicle, vessel,
aircraft, beast or articles under the provisions of the tariff
and customs laws, the
burden of proof shall lie upon the claimant: Provided, That
probable cause shall be
first shown for the institution of such proceedings and that
seizure and/or forfeiture
was made under the circumstances and in the manner
described in the preceding
sections of this Code148. Chevron v. Commissioner of
Bureau of Customs
Under the relevant provisions of the TCC (Sec 205, 1301,
1802), both the IED and
IEIRD should be filed within 30 days from the date of
discharge of the last package
from the vessel or aircraft. When the importer fails to file
the entry within the said
period, he "shall be deemed to have renounced all his
interests and property rights"
to the importations and these shall be considered impliedly
abandoned in favor of
the government.Part I: General Principles
Concept, Nature and
Characteristics of Taxation
and Taxes Commissioner of Internal Revenue v. Cebu
Portland Cement
Company and Court of Tax Appeals
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B
PONENTE: Cruz, J.
FACTS:
By virtue of a decision of the CTA rendered on June 21,
1961, as modified on appeal
by the SC on February 27, 1965, the CIR was ordered to
refund to the Cebu Portland Cement
Co.
the
amount
of
P359,408.92,
representing
overpayments of ad valorem taxes on cement
produced and sold by it after October1957.
On March 28, 1968, following denial of motions for
reconsideration filed by both the
petitioner and the private respondent, the latter moved for
writ of execution to enforce the
said judgment.

The motion was opposed by the petitioner on the ground

that the private respondent
had an outstanding sales tax liability to which the
judgment debt had already been credited.
In fact, it was stressed, there was still a balance owing on
the sales taxes in the amount of
P4,789,278.85 plus 28% surcharge.
On April 22, 1968, CTA granted the motion, holding that
the alleged sales tax liability
of Cebu Portland was still being questioned and therefore
could not be set-off against the
refund.
In his petition to review the said resolution, the CIR claims
that the refund should be
charged against the deficiency of the private respondent
on the sales of cement under Sec.
186 of the Tax Code, which is a manufactured and not a
mineral product and therefore not
exempt from sales tax. The petitioner also denies that the
sale tax assessments have already
prescribed because the prescriptive period should be
counted from the filing of the sales tax
returns, which had not yet been done by the private
respondent.
Cebu Portland questioned the assessed tax based also on
Article 186 of the Tax Code,
and on jurisprudence contending that cement was
adjudged a mineral and not a manufactured
product; and thusly they were not liable for their alleged
tax deficiency. Thereby, petitioner
filed this petition for review.
ISSUE:
Whether or not assessment of taxes can be enforced (setoff against the deficiency
sales tax of Cebu Portland) even if there is a case
contesting it.
HELD:
The argument that the assessment cannot as yet be
enforced because it is still
being contested loses sight of the urgency of the need to
collect taxes as the lifeblood of
PAGE 1the government. If the payment of taxes could be
postponed by simply questioning their
validity, the machinery of the state would grind to a halt
and all government functions
would be paralyzed. That is the reason why, save for the
exception in RA 1125 , the Tax Code
provides that injunction is not available to restrain
collection of tax. Thereby, we hold that the
respondent Court of Tax Appeals erred in its order. The Tax
Code provides:
Sec. 291. Injunction not available to restrain collection of
tax. No court shall
have authority to grant an injunction to restrain the
collection of any national

internal revenue tax, fee or charge imposed by this Code.

To require the CIR to actually refund to the Cebu Portland
the amount of the judgment debt,
which he will later have the right to distrain for payment of
its sales tax liability is in our view
an Idle ritual.
PAGE 2 Commissioner of Internal Revenue v. Algue Inc.,
and CTA
[G.R. No. L-28896. February 17, 1988]
Digest by: ALVIAR, Joyce B
PONENTE: Cruz, J.
FACTS:
Algue, Inc., is a domestic corporation engaged in
engineering, construction and other
allied activities. Philippine Sugar Estate Development
Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil
manufacturing process. A sale
transpired for which Algue received as agent a commission
of P126,000.00, and from this
commission a P75,000 promotional fees were paid to
certain individuals (Guevara, et. al.
organizers of the VOICP). The payees duly reported their
respective shares of the fees in their
income tax returns and paid the corresponding taxes
thereon, there was no distribution if
dividends involved.
In 1965, Algue received an
assessment from the Commissioner of Internal
Revenue in the amount of P83,183.85 as delinquency
income tax for years 1958 and 1959.
Algue filed a protest or request for reconsideration which
was not acted upon by the Bureau of
Internal Revenue. The counsel of Algue had to accept the
warrant of distraint and levy. Algue
filed a petition for review with the Court of Tax Appeals. it
claimed the 75,000 promotional
fees are to be deductible from their tax which the CIR
disallowed.
ISSUE:
Whether or not the Collector of Internal Revenue acted
correctly in disallowing the
P75,000 deduction claimed by Algue as a legitimate
business expenses in its income tax
returns.
HELD:
CIR is incorrect. The burden is on the taxpayer to prove
the validity of the claimed
deduction. In the present case however, we find that the
onus has been discharged satisfactorily
by Algue. Algue has proves that the payment of fees was
necessary and reasonable in light
of the effort of the payees in inducing investors and
prominent businessmen to venture in
an experimental enterprise and involve themselves in a
new business requiring millions of

pesos.
This was no mean feat and should be, as it was, to be
sufficiently recompensed.
Taxes are the lifeblood of the government and so should be
collected without unnecessary
hindrance. On the other hand, such collection should be
made in accordance with the law, and
any arbitrariness will negate the very reason for
government itself. It is therefore necessary to
reconcile the apparent conflicting interest of the authorities
and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good may be realized. It is said
that taxes are what we pay for a civilized society.
Without taxes, the government would be paralyzed for lack
of the motive to activate
and operate it. Hence, despite the natural reluctance to
surrender part of ones hard earned
income to the taxing authorities, every person who is able
to must contribute his share in the
PAGE 3running of the government. The government for its
part, is expected to respond in the form
of tangible and intangible benefits intended to improve the
lives of the people and enhance
their moral and material values. This symbiotic
relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the
seat of power.
But even as we concede the inevitability and
indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised
reasonably and in accordance with
the prescribed procedure. Otherwise, the taxpayer has a
right to complain and the courts will
then come to his succor. For all the power vested in the tax
collector, he may still be stopped in
his tracks if the taxpayer can demonstrate, as it has been
in this case, that the law has not been
observed.
PAGE 4 C. N. Hodges v The Municipal Board Of The City Of
Iloilo, et
al.
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B
PONENTE: Bautista Angelo, J.
FACTS:
In 1960, the Municipal Board of Iloilo City enacted
Ordinance No. 33, pursuant to the
provisions of Republic Act No. 2264, known as the Local
Autonomy Act requiring the payment
of sales tax of of 1% of the selling price of any motor
vehicle and prohibiting the registration
of the sale involving said vehicle in the Motor Vehicles
Office of the City of Iloilo unless the

tax has been paid. It also expressly required that the

payment of the municipal tax shall be
a requirement for registration and transfer of ownership.
C.N. Hodges (Hodges), engaged in
buying and selling of second hand motor vehicles in the
city, filed a petition for declaratory
judgment with the Court of First Instance of Iloilo assailing
the ordinance as invalid for being
passed in excess of the authority conferred by law upon
the Municipal Board.
The CFI rendered a decision which upheld that portion in
the Ordinance, imposing
of sales tax of of 1% of the selling price, but considered
invalid that portion prohibiting
registration of the sale/transfer unless such tax has not
been paid.
ISSUE:
1. Whether or not the City of Iloilo is empowered to impose
the tax.
2. Whether or not the condition prohibiting the registration
of motor vehicles unless
the tax impost has been paid is invalid.
HELD:
1. Section 2 of Republic Act No. 2264, known as the Local
Autonomy Act pursuant to
which the ordinance in question was approved by the
Municipal Board of the City of Iloilo,
provides in part:
SEC. 2. Taxation. Any provision of law to the contrary
notwithstanding, all
chartered cities, municipalities and municipal districts shall
have authority to
impose municipal license taxes or fees upon persons
engaged in any occupation
or business, or exercising privileges in chartered cities,
municipalities or
municipal districts by requiring them to secure licenses at
rates fixed by
the municipal board or city council of the city, the
municipal council of the
municipality, or the municipal district council of the
municipal district;
to collect fees and charges for services rendered by the
city, municipality
or municipal district; to regulate and impose reasonable
fees for services
rendered in connection with any business, profession or
occupation being
conducted within the city, municipality or municipal district
and otherwise
to levy for public purposes, just and uniform taxes, licenses
or fees; Provided,
That municipalities and municipal districts shall, in no case,
impose any

percentage tax on sales or other taxes in any form based

thereon nor impose
PAGE 5taxes on articles subject to specific tax, except
gasoline, under the provisions
of the national internal revenue code: ....
Hence, The City of Iloilo is empowered (a) to impose
Municipal licenses, taxes or fees
upon any person engaged in any occupation or business, or
exercising any privilege in the
City; (b) to regulate and impose reasonable fees for
services rendered or conducted within
the City, and (c) to levy for public purposes just and
uniform taxes, licenses, or fees. It would
also appear that municipalities and municipal districts are
prohibited from imposing any
percentage tax on sales or other taxes in any form on
articles subject to specific tax, except
gasoline, under the provisions of the National Internal
Revenue Code. The tax in question is
in the form of percentage tax on the proceeds of the sale
of a motor vehicle. The prohibition
against such tax as mentiones, refer only to municipalities
and municipal districts and does
not comprehend chartered cities like the City of Iloilo.
2. CFI undoubtedly had in mind the provisions of Section
2(h) of Republic Act No. 2264
which prohibits a chartered city from imposing a tax on the
registration of motor vehicles
and the issuance of all kinds of licenses or permits for the
driving thereof, which is one of
the exceptions constituting a restriction on the taxation
power granted by said Act to a city,
municipality or municipal district. But the requirement of
the ordinance cannot be considered
a tax, for the same is merely a coercive measure to make
the enforcement of the contemplated
sales tax more effective. Well-settled is the principle that
taxes are imposed for the support
of the government in return for the general advantage and
protection which the government
affords to taxpayers and their. Taxes are the lifeblood of
the government. It is imperative that
the power to impose them to be clothed with the implied
authority to devise ways and means
to accomplish their collection in the most effective manner.
Without this implied power the
end of government may falter or fail.
PAGE 6Part I: General Principles
Classification and
Distinctions Association of Customs Brokers Inc. and G.
Manlapit v The
Municipal Board, The City Trasurer, The City Assessor and
the City Mayor of the City of Manila
[G.R. No. L-28896. February 17, 1988]
Digest by: ALVIAR, Joyce B

PONENTE: Bautista Angelo, J.

FACTS:
The Municipal Board of Manila passed ordinance No. 3379
which imposes a property
tax that is within the power of the City under its revised
charter. The ordinance was passed
by the Municipal Board under the authority conferred by
section 18 of RA 409, which confers
upon the municipal board the power to tax motor and
other vehicles operating within the City
of Manila the provisions of any existing law to the contrary
notwithstanding. The plaintiff, an
association composed of all brokers and public service
operators of Motor Vehicles in the City
of Manila filed this petition for declaratory relief
challenging the validity of the ordinance on
the following grounds; that while it levies a so-called
property tax, it is in reality a license fee
which is beyond the power of the board to impose; that the
said ordinance goes against the
rule on uniformity of taxation; and, that the said imposition
constitutes double taxation.
ISSUE:
1. What is the Character of an ad valorem tax?
2.
Whether or not the ordinance infringes on the
uniformity of taxes as ordained by
the Constitution.
HELD:
1. As a rule an ad valorem tax is a property tax, and
supported by some authorities,
however it should not be taken in its absolute sense, if the
nature and purpose of the tax as
gathered from the context show that it is in effect an
excise or a license tax. Thus, it has been
held that If a tax is in its nature an excise, it does not
become a property tax because it is
proportioned in amount to the value of the property used
in connection with the occupation,
privilege or act which is taxed. Every excise necessarily
must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but
if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the
engaging in an occupation, it will be
considered an excise.
The character of the tax as a property tax or a license or
occupation tax must be
determined by its incidents, and from the natural and legal
effect of the language employed in
the act or ordinance, and not by the name by which it is
described, or by the mode adopted in
fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally
and in form it is a license or occupation tax; and, on the
other hand, if the tax is levied upon

persons on account of their business, it will be construed

as a license or occupation tax, even
though it is graduated according to the property used in
such business, or on the gross receipts
of the business.
PAGE 72. YES, The ordinance infringes the rule of the
uniformity of taxation ordained by our
Constitution. The Motor Vehicle Law (Section 70[b])
provides that no fees may be exacted
or demanded for the operation of any motor vehicle other
than those therein provided , the
only exception being that which refers to property tax
which may be imposed by municipal
corporations. While the ordinance refers to property tax
and it is fixed ad valorem, it is merely
levied on motor vehicles operating within the city of Manila
with the main purpose of raising
funds to be expanded exclusively for the repair,
maintenance and improvement of streets and
bridges in said city. Because of this, the ordinance in
question merely imposes a license fee
although under the cloak of being an ad valorem tax to
circumvent the prohibition provided
by the Motor Vehicle Law.
Note that the ordinance exacts the tax upon all motor
vehicles operating within the
City of Manila. The distinction is important if we note that
the ordinance intends to burden
with the tax only those registered in the City of Manila as
may be inferred from the word
operating used. The word operating is akin to a
registration, for under the Motor Vehicle
Law no motor vehicle can be operated without previous
payment of the registration fees.
There is no pretense that the ordinance equally applies to
motor vehicles who come to Manila
for a temporary purposes, and it cannot be denied that
they contribute in no small degree to
the deterioration of the streets and public highway. The
fact that they are benefited by their
use they should also be made to share the corresponding
burden. And yet such is not the case.
This is an inequality which we find in the ordinance, and
which renders it offensive to the
Constitution.
PAGE 8 Esso Standard Eastern, Inc. (formerly, StandardVacuum Oil
Company) v The Commissioner of Internal Revenue
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B.
PONENTE: : Cruz, J.
FACTS:
The CTA denied ESSOs claims for refund of overpaid
income taxes of P102,246.00

for 1959 and P434,234.93for 1960 in CTA Cases No. 1251

and 1558 respectively. In CTA Case
No.1251, ESSO deducted from its gross income for 1959,
as part of its ordinary and necessary
business expenses, the amount it had spent for drilling and
exploration of its petroleum
concessions. This claim was disallowed by the respondent
Commissioner of Internal Revenue
on the ground that the expenses should be capitalized and
might be written off as a loss only
when a dry hole should result. ESSO then filed an
amended return where it asked for the
refund of P323,279.00 by reason of its abandonment as dry
holes of several of its oil wells
and claimed as ordinary and necessary expenses the
margin fees paid to the Central Bank on
profit remittances to its New York head office. In another
CTA Case, the CIR assessed ESSO a
deficiency income tax for the year 1960 arising from the
disallowance of the margin fees paid
by ESSO to the Central Bank on its profit remittances to its
New York head office. ESSO settled
the same by applying as tax credit its overpayment on its
income tax in 1959 and paying under
protest the remaining amount. The CIR denied the claims
for refund of the overpayment of its
1959 and 1960 income taxes, holding 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 the refund, contending that the margin fees
were deductible from gross income
either as a tax or as an ordinary and necessary business
expense, which was also denied.
ISSUE:
Whether or not the margin fees were deductible from gross
income as a tax or an
ordinary and necessary business expense.
HELD:
The margin fee was imposed by the State in the exercise of
its police power and not
the power of taxation. In citing two previous cases the
Court held that a margin fee is not a
tax but an exaction designed to curb the excessive
demands upon our international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs,
the Court stated: 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. By its nature,
the margin levy is part of the rate
of exchange as fixed by the government. Moreover, it has
been settled that a tax is levied to

provide revenue for government operations, while the

proceeds of the margin fee are applied
to strengthen our countrys international reserves.
In
Chamber of Agriculture and Natural
Resources of the Philippines v. Central Bank,
The same idea was expressed, though in connection with a
different levy: we do not
PAGE 9find merit in the argument that the 20% retention of
exporters foreign exchange constitutes
an export tax. A tax is a levy for the purpose of providing
revenue for government operations,
while the proceeds of the 20% retention, are applied to
strengthen the Central Banks
international reserve. The margin fees are not ordinary and
necessary business expenses. Esso
contends that such remittance was an expenditure
necessary and proper for the conduct of its
corporate affairs. The Court citing a case, laid down the
rules on the deductibility of business
expenses, thus: the law allowing expenses as deduction
from gross income for purposes of
the income tax is Section 30(a) of the National Internal
Revenue which allows a deduction of
all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying
on any trade or business. An item of expenditure, in order
to be deductible under this section
of the statute, must fall squarely within its language. We
come, then, to the statutory test of
deductibility where it is axiomatic that to be deductible as
a business expense, three conditions
are imposed, namely: (1) the expense must be ordinary
and necessary, (2) it must be paid or
incurred within the taxable year, and (3) it must be paid or
incurred in carrying on a trade or
business. In addition, not only must the taxpayer meet the
business test, he must substantially
prove by evidence or records the deductions claimed under
the law, otherwise, the same will
be disallowed.
Ordinarily, an expense will be considered necessary
where the expenditure is
appropriate and helpful in the development of the
taxpayers business. It is ordinary when
it connotes a payment which is normal in relation to the
business of the taxpayer and the
surrounding circumstances. Assuming that the expenditure
is ordinary and necessary in the
operation of the taxpayers business, the answer to the
question as to whether the expenditure
is an allowable deduction as a business expense must be
determined from the nature of the
expenditure itself, depends on the extent and permanency
of the work accomplished by the
expenditure.

The Court held that CTA was correct in saying that the
margin fees are not expenses in
connection with the production or earning of petitioners
incomes in the Philippines. Since the
margin fees in question were incurred for the remittance of
funds to petitioners Head Office
in New York, a separate and distinct income taxpayer from
the branch in the Philippines,
for its disposal abroad, it can never be said therefore that
the margin fees were appropriate
and helpful in the development of petitioners business in
the Philippines exclusively or
were incurred for purposes proper to the conduct of the
affairs of petitioners branch in the
Philippines exclusively or for the purpose of realizing a
profit or of minimizing a loss in the
Philippines 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.
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.
PAGE 10Progressive Development Corp. v. Quezon City
[G.R. No. L-36081. April 24, 1989]
Digest by: ARBAS, Andrei Christopher G.
PONENTE: Feliciano, J.
FACTS:
On 24 December 1969, the City Council of respondent
Quezon City adopted Ordinance
No. 7997, Series of 1969, otherwise known as the Market
Code of Quezon City, which provided
that privately owned and operated public markets shall
submit monthly to the Treasurers Office, a
certified list of stallholders showing the amount of stall fees
or rentals paid daily by each stallholder
and shall pay 10% of the gross receipts from stall rentals to
the City as supervision fee. Failure to
submit said list and to pay the corresponding amount
within the period prescribed shall subject
the operator to the penalties provided in this Code
including revocation of permit to operate. The
Market Code was thereafter amended by Ordinance No.
9236 on 23 March 1972, which imposed
a five percent (5 %) tax on gross receipts on rentals or
lease of space in privately-owned public
markets in Quezon City.
On 15 July 1972, petitioner Progressive Development
Corporation, owner and operator of
a public market known as the Farmers Market & Shopping
Center filed a Petition for Prohibition
with Preliminary Injunction against respondent before the
then Court of First Instance of Rizal on

the ground that the supervision fee or license tax imposed

by the above-mentioned ordinances is in
reality a tax on income which respondent may not impose,
the same being expressly prohibited by
Republic Act No. 2264, as amended.
In its Answer, respondent contended that it had authority
to enact the questioned ordinances,
maintaining that the tax on gross receipts imposed therein
is not a tax on income but one imposed
for the enjoyment of the privilege to engage in a particular
trade or business which was within the
power of respondent to impose.
On 21 October 1972, the lower court dismissed the
petition, ruling 3 that the questioned
imposition is not a tax on income, but rather a privilege tax
or license fee which local governments,
like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision,
petitioner came to us on the present
Petition for Review.
ISSUE:
Whether or not the tax imposed by respondent on gross
receipts of stall rentals is
properly characterized as partaking of the nature of an
income tax.
HELD:
NO. The tax imposed by respondent is a license fee. The
term tax frequently applies
to all kinds of exactions of monies which become public
funds. It is often loosely used to
include levies for revenue as well as levies for regulatory
purposes such that license fees are
frequently called taxes although license fee is a legal
concept distinguishable from tax: the
former is imposed in the exercise of police power primarily
for purposes of regulation, while
PAGE 11the latter is imposed under the taxing power
primarily for purposes of raising revenues. Thus,
if the generating of revenue is the primary purpose and
regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose,
the fact that incidentally revenue
is also obtained does not make the imposition a tax.
To be considered a license fee, the imposition questioned
must relate to an occupation
or activity that so engages the public interest in health,
morals, safety and development as to
require regulation for the protection and promotion of such
public interest; the imposition
must also bear a reasonable relation to the probable
expenses of regulation, taking into
account not only the costs of direct regulation but also its
incidental consequences as well.
Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of inspection and

regulation may be held to be a tax rather than an exercise

of the police power.
The Farmers Market and Shopping Center being a public
market in the sense of a
market open to and inviting the patronage of the general
public, even though privately owned,
petitioners operation thereof required a license issued by
the respondent City, the issuance
of which, applying the standards set forth above, was done
principally in the exercise of the
respondents police power. The operation of a privately
owned market is as equivalent to or
quite the same as the operation of a government-owned
market; both are established for the
rendition of service to the general public, which warrants
close supervision and control by the
respondent City for the protection of the health of the
public.
The Supreme Court held that the five percent (5%) tax
imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as
distinguished from the national
income tax imposed by the National Internal Revenue
Code) within the meaning of Section 2
(g) of the Local Autonomy Act, but rather a license tax or
fee for the regulation of the business
in which the petitioner is engaged.
PAGE 12Philippine Airlines, Inc. v. Edu
[G.R. No. L-41383. August 15, 1988]
Digest by: ARBAS, Andrei Christopher G.
PONENTE: Gutierrez, Jr., J.
FACTS:
The Philippine Airlines (PAL) is a corporation organized and
existing under the laws
of the Philippines and engaged in the air transportation
business under a legislative franchise,
Act No. 42739. Under its franchise, PAL is exempt from the
payment of taxes. On the strength
of an opinion of the Secretary of Justice (Op. No. 307,
series of 1956) PAL has, since 1956, not
been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner
Romeo F. Elevate issued a
regulation requiring all tax exempt entities, among them
PAL to pay motor vehicle registration
fees. LTO refused to register the PALs motor vehicles
unless the amounts imposed under
Republic Act 4136 were paid. Under protest, PAL paid the
registration fees of its motor
vehicles. After paying under protest, PAL through counsel,
wrote a letter to respondent LTO
Commissioner Edu demanding a refund of the amounts
paid invoking that motor vehicle
registration fees are in reality taxes from the payment of
which PAL is exempt by virtue of its

legislative franchise.
Respondent denied the request for refund on the ground
that motor vehicle registration
fees are regulatory exceptional and not revenue measures
and therefore, do not come within
the exemption granted to PAL under its franchise. Hence,
PAL filed the complaint against Land
Transportation Commissioner Romeo F. Edu and National
Treasurer Ubaldo Carbonell with
the Court of First Instance of Rizal.
Respondents filed a motion to dismiss alleging that the
complaint states no cause of
action because registration fees of motor vehicles are not
taxes, but regulatory fees imposed
as an incident of the exercise of the police power of the
state. They contended that while Act
4271 exempts PAL from the payment of any tax except two
per cent on its gross revenue or
earnings, it does not exempt the plaintiff from paying
regulatory fees, such as motor vehicle
registration fees.
The trial court rendered a decision dismissing the PALs
complaint. From this judgment,
PAL appealed to the Court of Appeals which certified the
case to us.
ISSUE:
Whether or not motor vehicle registration fees partakes
nature a kind of tax.
HELD:
YES. 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. Such is the case of motor
vehicle registration fees.
It is quite apparent that vehicle registration fees were
originally simple exceptional
PAGE 13intended only for rigidly purposes in the exercise
of the States police powers. Over the
years, however, as vehicular traffic exploded in number
and motor vehicles became absolute
necessities without which modem life as we know it would
stand still, Congress found the
registration of vehicles a very convenient way of raising
much needed revenues. Without
changing the earlier deputy. of registration payments as
fees, their nature has become that
of taxes.
In view of the foregoing, the Supreme Court ruled that
motor vehicle registration
fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually
taxes intended for additional revenues of government even
if one fifth or less of the amount
collected is set aside for the operating expenses of the
agency administering the program.

PAGE 14Villegas vs. Hiu Chiong Tsai Pao Ho

[G.R. No. 29646. November 10, 1978]
Digest by: ARBAS, Andrei Christopher G.
PONENTE: Fernandez, J.
FACTS:
Ordinance No. 6537 was passed by the Municipal Board of
Manila and signed by
the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. The ordinance
prohibits aliens from being employed or to engage or
participate in any position or occupation
or business enumerated therein, whether permanent,
temporary or casual, without first
securing an employment permit from the Mayor of Manila
and paying the permit fee of
P50.00 except persons employed in the diplomatic or
consular missions of foreign countries,
or in the technical assistance programs of both the
Philippine Government and any foreign
government, and those working in their respective
households, and members of religious
orders or congregations, sect or denomination, who are not
paid monetarily or in kind.
Violations of the ordinance is punishable by an
imprisonment of not less than three
(3) months to six (6) months or fine of not less than
P100.00 but not more than P200.00 or
both such fine and imprisonment, upon conviction.
On May 4, 1968, private respondent Hiu Chiong Tsai Pao
Ho who was employed in
Manila, filed a petition with the Court of First Instance of
Manila, praying for the issuance of
the writ of preliminary injunction and restraining order to
stop the enforcement of Ordinance
No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void on the
ground that it is discriminatory and violative of the rule of
the uniformity in taxation.
Petitioner Mayor Villegas argues that Ordinance No. 6537
cannot be declared null and
void on the ground that it violated the rule on uniformity of
taxation because the rule on
uniformity of taxation applies only to purely tax or revenue
measures and that Ordinance No.
6537 is not a tax or revenue measure but is an exercise of
the police power of the state, it being
principally a regulatory measure in nature.
ISSUE:
Whether or not the required employment permit is a form
of tax.
HELD:
YES. The contention that Ordinance No. 6537 is not a
purely tax or revenue measure
because its principal purpose is regulatory in nature has no
merit. While it is true that the

first part which requires that the alien shall secure an

employment permit from the Mayor
involves the exercise of discretion and judgment in the
processing and approval or disapproval
of applications for employment permits and therefore is
regulatory in character the second
part which requires the payment of P50.00 as employees
fee is not regulatory but a revenue
measure. There is no logic or justification in exacting
P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of
the ordinance is to raise money
under the guise of regulation.
PAGE 15The P50.00 fee is unreasonable not only because it
is excessive but because it fails to
consider valid substantial differences in situation among
individual aliens who are required to
pay it. Although the equal protection clause of the
Constitution does not forbid classification, it
is imperative that the classification should be based on real
and substantial differences having
a reasonable relation to the subject of the particular
legislation. The same amount of P50.00
is being collected from every employed alien whether he is
casual or permanent, part time or
full time or whether he is a lowly employee or a highly paid
executive.
PAGE 16Compania General de Tabacos de Filipinas v. City
of Manila
[G.R. No. 16619. June 29, 1963]
Digest by: ARBAS, Andrei Christopher G.
PONENTE: Dizon J.
FACTS:
Tabacalera, as a duly licensed first class wholesale and
retail liquor dealer paid the
City the fixed license fees prescribed by Ordinance No.
3358 for the years 1954 to 1957,
inclusive, and, as a wholesale and retail dealer of general
merchandise, it also paid the sales
taxes required by Ordinances Nos. 3634, 3301, and 3816.
In its sworn statements of wholesale, retail, and grocery
sales of general merchandise
from the third quarter of 1954 to the second quarter of
1957, inclusive, Tabacalera included
its liquor sales of the same period, and it is not denied that
of the taxes it paid on all its sales
of general merchandise, the sum of P15,280.00 subject to
the action represents the tax
corresponding to the liquor sales aforesaid.
Tabacalera filed an action for refund based on the theory
that, in connection with
its liquor sales, it should pay the license fees prescribed by
Ordinance No. 3358 but not the
municipal sales taxes imposed by Ordinances Nos. 3634,
3301, and 3816; and since it already

paid the license fees aforesaid, the sales taxes paid by it

under the three ordinances mentioned
heretofore is an overpayment made by mistake, and
therefore refundable.
The City, on the other hand, contends that, for the permit
issued to it granting proper
authority to conduct or engage in the sale of alcoholic
beverages, or liquors Tabacalera
is subject to pay the license fees prescribed by Ordinance
No. 3358, aside from the sales
taxes imposed by Ordinances Nos. 3634, 3301, and 3816.
The City of Manila contended that
Tabaclera is not entitled to a refund.
ISSUE:
Whether or not both a license fee and a tax may be
imposed on the same business or
occupation.
HELD:
YES. The term tax applies, generally speaking, to all
kinds of exactions which become
public funds. The term is often loosely used to include
levies for revenue as well as levies for
regulatory purposes. Thus license fees are commonly
called taxes. Legally speaking, however,
license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of
police power for purposes of regulation, while the latter is
imposed under the taxing power
for the purpose of raising revenues
Ordinance No. 3358 is clearly one that prescribes
municipal license fees for the
privilege to engage in the business of selling liquor or
alcoholic beverages, having been
enacted by the Municipal Board of Manila pursuant to its
charter power to fix license fees
on, and regulate, the sale of intoxicating liquors, whether
imported or locally manufactured.
PAGE 17The license fees imposed by it are essentially for
purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is,
potentially at least, harmful to public health
and morals, and must be subject to supervision or
regulation by the state and by cities and
municipalities authorized to act in the premises.
On the other hand, it is clear that Ordinances Nos. 3634,
3301, and 3816 impose taxes
on the sales of general merchandise, wholesale or retail,
and are revenue measures enacted
by the Municipal Board of Manila by virtue of its power to
tax dealers for the sale of such
merchandise.
Both a license fee and a tax may be imposed on the same
business or occupation, or for
selling the same article, this not being in violation of the
rule against double taxation.

PAGE 18American Mail Lines v. City of Basilan

[G.R. No. 12647. May 31, 1961]
Digest by: ARBAS, Andrei Christopher G.
PONENTE: Dizon J.
FACTS:
On September 12, 1955 the City Council of Basilan City
enacted Ordinance No. 180,
Series of 1955, stating that any foreign vessel engaged in
coastwise trade which may anchor
at any open bay, channel, or any loading point within the
territorial waters of the City of
Basilan for the purpose of loading or unloading logs or
passengers and other cargoes shall pay
an anchorage fee of P.005 per registered gross ton of the
vessel for the first 24 hours provided
that maximum charge shall not exceed P75.00 per day.
As the city treasurer assessed and attempted to collect
anchorage fees prescribed in
the aforesaid amendatory ordinance, the company filed the
present action for Declaratory
Relief to have the courts determine its validity.
Respondents argued that the ordinance in question was
validly enacted in the exercise
of the citys police power and that the fees imposed therein
are for purely regulatory purposes.
ISSUE:
Whether or not the anchorage fees were for regulatory
purposes.
HELD:
NO. The fees required are extended for revenue purposes.
It has been held that the power to regulate as an exercise
of police power does not
include the power to impose fees for revenue purposes.
Fees for purely regulatory purposes
may only be of sufficient amount to include the expenses
of issuing the license and the cost of
the necessary inspection or police surveillance, taking into
account not only the expense of
direct regulation but also incidental expenses.
The fees have no proper or reasonable relation to the cost
of issuing the permits and
the cost of inspection or surveillance. The fee imposed on
foreign vessels, 1/2 centavo per
registered gross ton for the first 24 hours and which shall
not exceed P75.00 per day, exceeds
even the harbor fee imposed by the National Government,
which is only P50.00 for foreign
vessels. Respondents contention that the questioned
ordinance was enacted in the exercise
of its power of taxation makes it obvious that the fees
imposed are not merely regulatory.
PAGE 19Osmea v. Orbos
[G.R. No. 99886. March 31, 1993]
Digest by: AUMENTADO, Adrian F.
PONENTE: Narvasa J.

FACTS:
On October 10, 1984, President Ferdinand Marcos issued
P.D. 1956 creating a Special
Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF). It was
designed to reimburse oil companies for cost increases in
crude oil and imported petroleum
products resulting from exchange rate adjustments and
from increases in the world market
prices of crude oil.
Later, the OPSF was reclassified into a trust liability
account, by virtue of Executive
Order (E.O.) 1024, and ordered released from the National
Treasury to the Ministry of Energy.
President Corazon C. Aquino, amending PD 1956,
promulgated Executive Order No. 137,
expanding the grounds for reimbursement to oil companies
for possible cost under recovery
incurred due to the reduction of domestic prices of
petroleum products, the amount of the
under recovery being left for determination by the Ministry
of Finance.
Petitioner argues, among others, that the
monies collected pursuant to P.D. 1956, as
amended, must be treated as a SPECIAL FUND, not as a
trust account or a trust fund, and
that if a special tax is collected for a specific purpose, the
revenue generated therefrom shall
be treated as a special fund to be used only for the
purpose indicated, and not channeled
to another government objective. Further, that since a
special fund consists of monies
collected through the taxing power of a State, such
amounts belong to the State, although the
use thereof is limited to the special purpose/objective for
which it was created.
The petitioner does not suggest that a trust account is
illegal per se, but maintains
that the monies collected, which form part of the OPSF,
should be maintained in a special
account of the general fund for the reason that the
Constitution so provides, and because they
are, supposedly, taxes levied for a special purpose. He
assumes that the Fund is formed from
a tax undoubtedly because a portion thereof is taken from
collections of ad valorem taxes and
the increases thereon.
ISSUE:
What is the nature and character of the OPSF?
HELD:
While the funds collected may be referred to as taxes, they
are exacted in the exercise of
the police power of the State. Moreover, that the OPSF is a
special fund is plain from the special

treatment given it by E.O. 137. It is segregated from the

general fund; and while it is placed in
what the law refers to as a trust liability account, the
fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied
that these measures comply with the
constitutional description of a special fund. Indeed, the
practice is not without precedent.
PAGE 20Also of relevance is this Courts ruling in relation to
the sugar stabilization fund the nature of
which is not far different from the OPSF. In Gaston v.
Republic Planters Bank, this Court upheld
the legality of the sugar stabilization fees and explained
their nature and character, viz.:
The stabilization fees collected are in the nature of a tax,
which is within the
power of the State to impose for the promotion of the
sugar industry (Lutz
v. Araneta, 98 Phil. 148). . . . The tax collected is not in a
pure exercise of the
taxing power. It is levied with a regulatory purpose, to
provide a means for the
stabilization of the sugar industry. The levy is primarily in
the exercise of the
police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
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.
That is the essence of the trust intended.
The character of the Stabilization Fund as a special kind of
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 (1987) Constitution, Article VI,

Sec.
29 (3), lifted from the 1935 Constitution, Article VI, Sec.
23(1).
PAGE 21Republic v. Bacolod-Murcia Milling Co., Inc., et al
[G.R. No. L-19824. July 9, 1966]
Digest by: AUMENTADO, Adrian F.
PONENTE: Regala J.
FACTS:
The three sugar centrals are sister companies under single
ownership and management.
They were required to pay 10 centavos per picul of sugar
collected for 5 crop years under Sec.
15 of RA 632.
The sugar tax was levied to create Philsugin (Philippine
Sugar Institute), to conduct
research and development for sugar and sugar by-products
for the benefit, development and
improvement of the sugar industry. Philsugin acquired the
Insular Sugar Refinery and lost a
lot of money
Appellants stopped paying the levy because they said that
the purchase was
unauthorized by RA 632. They maintained that their
obligation to contribute or pay to the
said Fund subsists only to the limit and extent that they
are benefited by such contributions
since Republic Act 632 is not a revenue measure but an
Act which establishes a Special
assessments. As such, the proceeds thereof may be
devoted only to the specific purpose
for which the assessment was authorized, a special
assessment being a levy upon property
predicated on the doctrine that the property against which
it is levied derives some special
benefit from the improvement. It is not a tax measure
intended to raise revenues for the
Government. Consequently, once it has been determined
that no benefit accrues or inures to
the property owners paying the assessment, or that the
proceeds from the said assessment are
being misapplied to the prejudice of those against whom it
has been levied, then the authority
to insist on the payment of the said assessment ceases.
ISSUE:
Whether or not the appellants may refuse to continue
paying the assessment under
Republic Act 632?
HELD:
No. The nature of a special assessment similar to the
case at bar has already been
discussed and explained by this Court in the case of Lutz
vs. Araneta, 98 Phil. 148. For in this
Lutz case, Commonwealth Act 567, otherwise known as the
Sugar Adjustment Act, levies on

owners or persons in control of lands devoted to the

cultivation of sugar cane and ceded to
others for a consideration, on lease or otherwise
The plaintiff in the above case, Walter Lutz, contended that
the aforementioned tax or special
assessment was unconstitutional because it was being
levied for the aid and support of the
sugar industry exclusively, and therefore, not for a public
purpose. In rejecting the theory
advanced by the said plaintiff, this Court said:
PAGE 22The basic defect in the plaintiffs position in his
assumption that the tax
provided for in Commonwealth Act No. 567 is a pure
exercise of the taxing
power. Analysis of the Act, and particularly Section 6, will
show that the tax
is levied with a regulatory purpose, to provide means for
the rehabilitation
and stabilization of the threatened sugar industry. In other
words, the act is
primarily an exercise of the police power.
We hold that the special assessment at bar may be
considered as similarly as the above, that
is, that the levy for the Philsugin Fund is not so much an
exercise of the power of taxation, nor
the imposition of a special assessment, but, the exercise of
the police power for the general
welfare of the entire country. It is, therefore, an exercise of
a sovereign power which no private
citizen may lawfully resist.
PAGE 23Victorias Milling Co., Inc. v. Municipality of
Victorias
[G.R. No. L-21183. September 27, 1968]
Digest by: AUMENTADO, Adrian F.
PONENTE: Sanchez J.
FACTS:
This case calls into question the validity of Ordinance No.
1, series of 1956, of the
Municipality of Victorias, Negros Occidental. The disputed
ordinance imposed license taxes
on operators of sugar centrals and sugar refineries.
Such changes were: with respect to sugar centrals, by
increasing the rates of municipal
license taxes; and as to sugar refineries, by increasing the
rates of municipal license taxes
as well as the range of graduated schedule of annual
output capacity. The production of
plaintiff Victorias Milling Co., Inc. in both its sugar central
and its sugar refinery located in
the Municipality of Victorias comes within these items.
Plaintiff filed suit below to ask for
judgment declaring Ordinance No. 1, series of 1956, null
and void. The plaintiff contends that
the ordinance is discriminatory since it singles out plaintiff,
which is the only operator of a

sugar central and a sugar refinery within the jurisdiction of

defendant municipality. The trial
court rendered its judgment declaring that the ordinance in
question refers to license taxes or
fees. Both plaintiff and defendant directly appealed to the
Supreme Court.
ISSUE:
Was Ordinance No. 1, series of 1956, passed as a
regulatory enactment or as a
revenue measure?
HELD:
A municipality is authorized to impose three kinds of
licenses: (1) license for regulation
of useful occupations or enterprises; (2) license for
restriction or regulation of non-useful
occupations or enterprises; and (3) license for revenue. 12
The first two easily fall within the
broad police power granted under the general welfare
clause. 13 The third class, however,
is for revenue purposes. It is not a license fee, properly
speaking, and yet it is generally so
termed. It rests on the taxing power. That taxing power
must be expressly conferred by statute
upon the municipality.
Because of the purpose of solving the financial
difficulty of the low rates imposed by the
municipality which deprives the barrios, sitios and rural
areas of the essential and necessary
services and facilities, the present imposition must be
treated as a levy for revenue purposes.
A quick glance at the big amount of maximum annual tax
set forth in the ordinance, P40,000.00
for sugar centrals, and P40,000.00 for sugar refineries, will
readily convince one that the tax
is really a revenue tax. And then, we read in the ordinance
nothing which would as much as
indicate that the tax imposed is merely for police
inspection, supervision or regulation.
We should not hang so heavy a meaning on the use of the
term municipal license tax.
This does not necessarily connote the idea that the tax is
imposed as the lower court would
PAGE 24want it to mean a revenue measure in the guise
of a license tax. For really, this runs counter
to the declared purpose to make money. Besides, the term
license tax has not acquired a fixed
meaning. It is often used indiscriminately to designate
impositions exacted for the exercise
of various privileges. It does not refer solely to a license
for regulation. In many instances,
it refers to revenue-raising exactions on privileges or
activities. On the other hand, license
fees are commonly called taxes. But, legally speaking, the
latter are for the purpose of raising

revenues, in contrast to the former which are imposed in

the exercise of police power for
purposes of regulation.
We accordingly say that the designation given by the
municipal authorities does not
decide whether the imposition is properly a license tax or a
license fee. The determining
factors are the purpose and effect of the imposition as may
be apparent from the provisions
of the ordinance. Thus, when no police inspection,
supervision, or regulation is provided, nor
any standard set for the applicant to establish, or that he
agrees to attain or maintain, but any
and all persons engaged in the business designated,
without qualification or hindrance, may
come, and a license on payment of the stipulated sum will
issue, to do business, subject to
no prescribed rule of conduct and under no guardian eye,
but according to the unrestrained
judgment or fancy of the applicant and licensee, the
presumption is strong that the power of
taxation, and not the police power, is being exercised.
PAGE 25Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955]
Digest by: AUMENTADO, Adrian F.
PONENTE: Reyes J.
FACTS:
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate
of Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum
of P14,666.40 paid by the estate as taxes, under section 3
of the Act, for the crop years 19481949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the
aid and support of the sugar industry exclusively, which in
plaintiffs opinion is not a public
purpose for which a tax may be constitutionally levied.
ISSUE:
Whether or not the imposition of the taxes are valid?
HELD:
Yes. The basic defect in the plaintiffs position is his
assumption that the tax provided
for in Commonwealth Act No. 567 is a pure exercise of the
taxing power. The tax is levied
with regulatory purpose; such is to provide means for the
rehabilitation and stabilization of
the sugar industry. The act is primarily an exercise of
police power, and not a pure exercise
of taxing power. As sugar production is one of the great
industries of the Philippines, and
that its promotion, protection and advancement redounds
greatly to the general welfare. The
legislature found that the general welfare demands that
the industry should be stabilized, and

provided that the distribution of benefits therefrom be

readjusted among its component to
enable it to resist the added strain of the increase in tax
that it had to sustain.
PAGE 26PCGG v. Cojuanco
[G.R. Nos. 147062-64. December 14, 2001]
Digest by: AUMENTADO, Adrian F.
PONENTE: Panganiban J.
FACTS:
The
PCGG
issued
and
implemented
numerous
sequestrations, freeze orders and
provisional takeovers of allegedly ill-gotten companies,
assets and properties, real or personal.
Among the properties sequestered by the Commission
were shares of stock in the United
Coconut Planters Bank(UCPB) registered in the names of
the alleged one million coconut
farmers, the so-called Coconut Industry Investment Fund
companies (CIIF companies) and
Private Respondent Eduardo Cojuangco Jr. On January 23,
1995, the trial court rendered its
final Decision nullifying and setting aside the Resolution of
the Sandiganbayan which lifted
the sequestration of the subject UCPB shares.
ISSUE:
Are the Coconut Levy Funds raised through the States
police and taxing powers?
HELD:
Yes. Coconut levy funds partake of the nature of taxes
which, in general, are enforced
proportional contributions from persons and properties,
exacted by the State by virtue of its
sovereignty for the support of government and for all
public needs. Based on this definition,
a tax has three elements, namely: a) it is an enforced
proportional contribution from persons
and properties; b) it is imposed by the State by virtue of its
sovereignty; and c) it is levied
for the support of the government. Taxation is done not
merely to raise revenues to support
the government, but also to provide means for the
rehabilitation and the stabilization of a
threatened industry, which is so affected with public
interest as to be within the police power
of the State.
Even if the money is allocated for a special purpose and
raised by special means, it
is still public in character. In the case before us, the funds
were even used to organize and
finance State offices.
It cannot be denied that the coconut industry is one of the
major industries supporting
the national economy. It is, therefore, the States concern
to make it a strong and secure

source not only of the livelihood of a significant segment of

the population, but also of export
earnings the sustained growth of which is one of the
imperatives of economic stability.
The coconut levy funds constitute state funds even though
they may be held for a
special public purpose. Such coconut levy funds -- like the
sugar levy and the oil stabilization
funds, as well as the monies generated by the On-line
Lottery System -- are funds exacted by
the State. Being enforced contributions, they are prima
facie public funds.
PAGE 27Part I: General Principles
Limitations on the Power of
TaxationPascual v. Secretary of Public Works and
Communications
[G.R. No. L-10405. December 29, 1960]
Digest by: AVILA, Alyssa Daphne M.
PONENTE: Concepcion, J.
FACTS:
Republic Act No. 920, the act appropriating funds for public
works was enacted in
1953
containing
an
item
for
the
construction,
reconstruction and improvement of Pasig
feeder road terminals which were not yet constructed
within Antonio subdivision owned by
Sen. Jose Zulueta. Zulueta donated said parcels of land to
the government five months after the
enactment of R.A. No. 920 on the condition that if the
government violates such condition, the
lands would revert to Zulueta. The provincial governor of
Rizal questioned the validity of the
donation and the unconstitutionality of the item in R.A. No.
920, it being for a public purpose.
ISSUE:
Whether or not the appropriation was made for a public
purpose.
HELD:
No. The right of the legislature to appropriate funds is
correlative with its right to
tax, under the constitutional provision against taxation
except for public purposes and
prohibiting the collection of a tax for one purpose and the
devotion thereof to another
purpose as appropriation for state funds can be made for
other than a public purpose. The
validity of a statute depends upon the powers of Congress
at the time of its passage not upon
events or acts performed subsequent thereto, unless the
latter consist an amendment of the
organic law, removing with retrospective operation the
constitutional limitation infringed by
said statute. Herein, inasmuch as the land on which the
projected feeder roads were to be

constructed belonged to Sen. Zulueta at the time of R.A.

No. 920 was passed by Congress and
the disbursement of said fund became effective pursuant
to Sec.13 of the law, the result is that
the appropriation sought a private purpose, hence, null and
void.
PAGE 28John Osmea v. Oscar Orbos
[G.R. No. 99886. March 31, 1993]
Digest by: AVILA, Alyssa Daphne M.
PONENTE: Narvasa, C.J.
FACTS:
Presidential Decree No. 1956 created a Special Account in
the General Fund, designated
as the Oil Price Stabilization Fund (OPSF) which was
designed to reimburse oil companies
for cost increases in crude oil and imported petroleum
products resulting from exchange
rate adjustments and from increases in the world market
prices of crude oil. Subsequently,
the OPSF was reclassified into a trust liability account, in
virtue of E.O. 1024 and ordered
released from the National Treasury to the Ministry of
Energy. The same Executive Order
also authorized the investment of the fund in government
securities, with the earnings from
such placements accruing to the fund. President Corazon
C. Aquino, amended P.D. 1956. She
promulgated Executive Order No. 137 on February 27,
1987, expanding the grounds for
reimbursement to oil companies for possible cost under
recovery incurred as a result of the
reduction of domestic prices of petroleum products, the
amount of the under recovery being
left for determination by the Ministry of Finance.
The petition further avers that the creation of the trust
fund violates Section 29(3),
Article VI of the Constitution. The petitioner argues that
the monies collected pursuant to
P.D. 1956, as amended, must be treated as a SPECIAL
FUND, not as a trust account or a
trust fund, and that if a special tax is collected for a
specific purpose, the revenue generated
therefrom shall be treated as a special fund to be used
only for the purpose indicated, and
not channeled to another government objective.10
Petitioner further points out that since a
special fund consists of monies collected through the
taxing power of a State, such amounts
belong to the State, although the use thereof is limited to
the special purpose/objective for
which it was created.
ISSUE:
Whether or not there was undue delegation of legislative
power.
HELD:

The Court finds that the provision conferring the authority

upon the ERB to impose
additional amounts on petroleum products provides a
sufficient standard by which the
authority must be exercised. In addition to the general
policy of the law to protect the local
consumer by stabilizing and subsidizing domestic pump
rates, Sec. 8(c) of P.D. 1956 expressly
authorizes the ERB to impose additional amounts to
augment the resources of the Fund. What
petitioner would wish is the fixing of some definite,
quantitative restriction, or a specific
limit on how much to tax. The Court is cited to this
requirement by the petitioner on the
premise that what is involved here is the power of taxation;
but as already discussed, this
is not the case. What is here involved is not so much the
power of taxation as police power.
Although the provision authorizing the ERB to impose
additional amounts could be construed
to refer to the power of taxation, it cannot be overlooked
that the overriding consideration is
PAGE 29to enable the delegate to act with expediency in
carrying out the objectives of the law which
are embraced by the police power of the State.
For a valid delegation of power, it is essential that the law
delegating the power must
be (1) complete in itself, that is it must set forth the policy
to be executed by the delegate and
(2) it must fix a standard limits of which are sufficiently
determinate or determinable to
which the delegate must conform.
The standard, as the Court has already stated, may even
be implied. In that light, there
can be no ground upon which to sustain the petition,
inasmuch as the challenged law sets
forth a determinable standard which guides the exercise of
the power granted to the ERB.
By the same token, the proper exercise of the delegated
power may be tested with ease. It
seems obvious that what the law intended was to permit
the additional imposts for as long as
there exists a need to protect the general public and the
petroleum industry from the adverse
consequences of pump rate fluctuations.
Where the standards set up for the guidance of an
administrative officer and the action
taken are in fact recorded in the orders of such officer, so
that Congress, the courts and the
public are assured that the orders in the judgment of such
officer conform to the legislative
standard, there is no failure in the performance of the
legislative functions.
PAGE 30Pepsi-Cola Bottling Company v. Municipality of
Tanauan

[G.R. No. L-31156. February 27, 1976]

Digest by: AVILA, Alyssa Daphne M.
PONENTE: Martin, J.
FACTS:
Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint
with preliminary injunction before the Court of First
Instance of Leyte for that court to
declare Section 2 of Republic Act No. 2264. Otherwise
known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority
as well as to declare Ordinances
Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was
approved on September 25, 1962,
levies and collects from soft drinks producers and
manufacturers a tai of one sixteenth
(1/16) of a centavo for every bottle of soft drink corked.
For the purpose of computing the
taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number
of bottles produced and corked
during the month. On the other hand, Municipal Ordinance
No. 27, which was approved on
October 28, 1962, levies and collects on soft drinks
produced or manufactured within
the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. For the
purpose of computing the taxes due, the
person, fun company, partnership, corporation or plant
producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total
number of gallons produced or
manufactured during the month. The tax imposed in
both Ordinances Nos. 23 and 27 is
denominated as municipal production tax.
ISSUE:
Whether or not ordinances No. 23 and 27 constitute double
taxation.
HELD:
There is no validity to the assertion that the delegated
authority can be declared
unconstitutional on the theory of double taxation. It
must be observed that the delegating
authority specifies the limitations and enumerates the
taxes over which local taxation may
not be exercised. The reason is that the State has
exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not
forbidden by our
fundamental law, since we have not adopted as part
thereof the injunction against double

taxation found in the Constitution of the United States and

some states of the Union. Double
taxation becomes obnoxious only where 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 or municipality.
Ordinance No. 27 is thus clear: it was intended as a plain
substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect.
Plaintiff-appellant in its brief admitted that defendantsappellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation
of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought t6
compel compliance by the
PAGE 31plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No.
27, series of 1962 is being enforced
by defendants-appellees. Even the Provincial Fiscal,
counsel for defendants-appellees admits
in his brief that Section 7 of Ordinance No. 27, series
of 1962 clearly repeals Ordinance No.
23 as the provisions of the latter are inconsistent with the
provisions of the former.
PAGE 32Social Security System v. City of Bacolod and
Reynaldo
[G.R. No. L-35726. July 21, 1982]
Digest by: AVILA, Alyssa Daphne M.
PONENTE: Escolin, J.
FACTS:
Petitioner is a government agency whose primary function
is to develop, establish
gradually and perfect a social security system which shall
be equitable to the needs of the
Philippines throughout the Philippines. For its failure to pay
realty taxes, respondent city
levied upon petitioners lands and building and later
declared such properties forfeited in the
citys favor. Petitioner argued that being a governmentowned and controlled corporation, it
is exempt from payment of real estate taxes. The trial
court ruled that properties of petitioner
are not exempt since there is no law which exempts said
entity from taxes and it also does
not fall under the provisions of Section 29 of the Charter of
the City of Bacolod which exempt
from taxation lands and buildings owned by the
government and those used exclusively for
religious, charitable, scientific, or educational purposes and
not for profit. The court a quo

restricted the scope of the exemption exclusively to those

government agencies, entities and
instrumentalities exercising governmental or sovereign
functions. It relied on a previous
ruling that a government agency performing ministrant
functions is not included in the term
Government of the Republic of the Philippines || for
purposes of exemption from the legal
fees provided for in Rule 130 of the Rules of Court.
ISSUE:
Whether the properties of the Social Security System is
exempted from payment of
real estate taxes.
HELD:
Yes. There can be no question that a government owned or
controlled corporation is
subject to payment of the legal fees provided for in Rule
130 of the Rules of Court. However,
the subject of inquiry in the case at bar is not whether a
government corporation exercising
ministrant or proprietary function, such as petitioner SSS,
is exempt from the payment of legal
fees, but whether the properties in question, which are
concededly owned by the government,
are exempt from realty taxes.
Under Section 29 of the Charter of the City of Bacolod, they
are so exempt. Said section
does not contain any qualification whatsoever in providing
for the exemption from real estate
taxes of lands and buildings owned by the Commonwealth
or Republic of Philippines. Hence,
when the legislature exempted lands and buildings owned
by the government from payment
of said taxes, 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 purpose, are in fact owned by the
government of the Philippines. As such they
are exempt from realty taxes. It is axiomatic that when
public property is involved, exemption
is the rule and taxation, the exception.
PAGE 33Sea-Land Service, Inc. v. Court of Appeals
[G.R. No. 122605. April 30, 2001]
Digest by: AVILA, Alyssa Daphne M.
PONENTE: Pardo, J.
FACTS:
Sea-Land is an American international shipping company
licensed by the SEC to do
business in the Philippines entered into a contract with the
US Government to transport
military household goods and effects of US military
personnel assigned to the Subic Naval

Base. From the aforesaid contract, Sea-Land derived an

income for the taxable year 1984
amounting to P58,006,207.54. During the taxable year in
question, Sea-Land filed with the
Bureau of Internal Revenue (BIR) the corresponding
corporate Income Tax Return (ITR) and
paid the income tax due thereon of 1.5% as required in
Section 25 (a) (2) of the National
Internal Revenue Code (NIRC) in relation to Article 9 of the
RP-US Tax Treaty, amounting to
P870,093.12. Claiming that it paid the aforementioned
income tax by mistake, a written claim
for refund was filed with the BIR on 15 April 1987.
However, before the said claim for refund
could be acted upon by the CIR, petitioner-appellant filed a
petition for review with the CTA
to judicially pursue its claim for refund and to stop the
running of the two-year prescriptive
period under the then Section 243 of the NIRC. CTA denied
Sea-Land s claim for refund of the
income tax it paid in 1984. Such decision was then
affirmed by the Court of Appeals.
ISSUE:
Whether or not the income that petitioner derived from
services in transporting
the household goods and effects of U. S. military personnel
falls within the tax exemption
provided in Article XII, paragraph 4 of the RP-US Military
Bases Agreement.
HELD:
No. The Supreme Court denied the petition of tax for the
refund. The RP-US Military
Bases Agreement provides: No national of the United
States, or corporation organized under
the laws of the United States, resident in the United States,
shall be liable to pay income tax
in the Philippines in respect of any profits derived under a
contract made in the United States
with the government of the United States 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 United States in connection with the
construction, maintenance, operation
and defense of the bases.
Under Article XII (4) of the RPUS Military Bases
Agreement, the Philippine
Government agreed to exempt from payment of Philippine
income tax nationals of the United
States, or corporations organized under the laws of the
United States, residents in the United
States in respect of any profit derived under a contract
made in the United States with the
Government of the United States in connection with the
construction, maintenance, operation

and defense of the bases.

It is obvious that the transport or shipment of household
goods and effects of U. S.
PAGE 34military personnel is not included in the term
construction, maintenance, operation and
defense of the bases. Neither could the performance of this
service to the U. S. government
be interpreted as directly related to the defense and
security of the Philippine territories.
When the law speaks in clear and categorical language,
there is no reason for interpretation
or construction, but only for application. Any interpretation
that would give it an expansive
construction to encompass petitioners exemption from
taxation would be unwarranted. Laws
granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally
in favor of the taxing power. Taxation is the rule and
exemption is the exception. The law
does not look with favor on tax exemptions and that he
who would seek to be thus privileged
must justify it by words too plain to be mistaken and too
categorical to be misinterpreted. The
avowed purpose of 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.
The hauling or transport of household goods and personal
effects of U. S. military personnel
would not directly contribute to the defense and security of
the Philippines.
PAGE 35Commissioner of Internal Revenue v. Mitsubishi
Metal
Corporation
[G.R. No. L-54908. January 22, 1990]
Digest by: BAUTISTA, Cecille Catherine A.
PONENTE: Regalado, J.
FACTS:
On April 17, 1970, Atlas Consolidated Mining and
Development Corporation (Atlas)
entered into a Loan and Sales Contract with Mitsubishi
Metal Corporation (Mitsubishi), a
Japanese corporation licensed to engage in business in the
Philippines, for projected expansion
of the productive capacity of the formers mines in Toledo,
Cebu. Under the contract, Mitsubishi
agreed to extend a loan to Atlas in the amount of
$20,000,000.00, United States currency, for
the installation of a new concentrator for copper
production. Atlas, in turn undertook to sell
to Mitsubishi all the copper concentrates produced from
said machine for a period of fifteen
(15) years.
In order to comply with its obligation, Mitsubishi applied for
a loan with the

Export-Import Bank of Japan [Eximbank] which was

approved on May 26, 1970 in the sum
of4,320,000,000.00, at about the same time as the
approval of its loan for 2,880,000,000.00
from a consortium of Japanese banks.
Pursuant to the contract between Atlas and Mitsubishi,
interest payments were
made by the former to the latter totalling P13,143,966.79
for the years 1974 and 1975. The
corresponding 15% tax thereon in the amount of
P1,971,595.01 was withheld pursuant to
Section 24 (b) (1) and Section 53 (b) (2) of the National
Internal Revenue Code, as amended
by Presidential Decree No. 131, and duly remitted to the
Government. On March 5, 1976,
private respondents filed a claim for tax credit requesting
that the sum of P1,971,595.01 be
applied against their existing and future tax liabilities. The
petitioner not having acted on the
claim for tax credit, private respondents filed a petition for
review with respondent court.
While said case was still pending before the tax court, the
corresponding 15% tax on the
amount of P439,167.95 on the P2,927,789.06 interest
payments for the years 1977 and 1978
was withheld and remitted to the Government. Atlas again
filed a claim for tax credit with the
petitioner, repeating the same basis for exemption.
Respondent Court in both cases ordered
petitioner to grant a tax credit in favor of Atlas.
ISSUE:
Whether or not Mitsubishi is a mere conduit of Eximbank
which will then be
considered as the creditor whose investments in the
Philippines on loans are exempt from
taxes under the code
HELD:
No. The loan and sales contract between Mitsubishi and
Atlas does not contain any
direct or inferential reference to Eximbank whatsoever. The
agreement is strictly between
Mitsubishi as creditor in the contract of loan and Atlas as
the seller of the copper concentrates.
MITSUBISHI secured such loans in its own independent
capacity as a private entity and not
PAGE 36as a conduit of the consortium of Japanese banks
or the EXIMBANK of Japan. While the loans
were secured by MITSUBISHI primarily as a loan to and in
consideration for importing
copper concentrates from ATLAS, the fact remains that it
was a loan by EXIMBANK of Japan to
MITSUBISHI and not to ATLAS. Thus, the transaction
between MITSUBISHI and EXIMBANK of
Japan was a distinct and separate contract from that
entered into by MITSUBISHI and ATLAS.

It is too settled a rule in this jurisdiction that laws granting

exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor
of the taxing power. Taxation is
the rule and exemption is the exception. The burden of
proof rests upon the party claiming
exemption to prove that it is in fact covered by the
exemption so claimed, which onus
petitioners have failed to discharge. Significantly, private
respondents are not even among
the entities which, under Section 29 (b) (7) (A) of the tax
code, are entitled to exemption and
which should indispensably be the party in interest in this
case.
PAGE 37Thirty-First Infantry Post Exchange and First
Lieutenant
David L. Hardee vs Juan Posadas, Jr., Collector of Internal
Revenue
[G.R. No. 33403. September 4, 1930]
Digest by: BAUTISTA, Cecille Catherine A.
PONENTE: Malcolm, J.
FACTS:
Thirty-first Infantry Post Exchange, is a post exchange
constituted in accordance with
the Army Regulations and the laws of the United States,
with its place of business in the Cuartel
de Espaa in the City of Manila, P. I. It is an agency within
the United States Army, under the
control of the officers of the Army which is designed for the
accommodation, convenience, and
assistance of the personnel of the Army. All of the goods
sold to and purchased by the plaintiff
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 defendant and his predecessors in that office have
collected from the merchants
who made the sales of the commodities, goods, wares, and
merchandise to the plaintiff
Exchange, taxes at the rate of one and one-half per
centum on the gross value in money of the
commodities, goods, wares, and merchandise, sold by
them to the plaintiff Exchange.
petitioner to grant a tax credit in favor of Atlas.
ISSUE:
Whether or not a tax may be levied by the Government of
the Philippine Islands on
sales made by merchants to Post Exchanges of the United
States Army in the Philippines
HELD:
The Court, citing the case of Walter E. Olsen vs Rafferty,
ruled that the sale of
merchandise through the post exchanges to the individuals
of the United States Army and

Navy are not goods sold and delivered directly to the

United States Army or Navy for the
actual use or issue by the Army or Navy and are therefore,
not exempt from the payment of
the internal revenue tax imposed by the law.
Since no law of the Congress forbids the taxation of
merchants who deal with Army
Post Exchanges, and since the Congress has legalized the
applicable law, and in doing so has
granted no immunity from taxation to merchants who deal
with Army Post Exchanges, the
Congress has permitted such transactions with Army Post
Exchanges, on the assumption that
Post Exchanges are agencies of the United States, to be
taxed by the Philippine Government.
It must be understood, however, that the waiver must be
clear, and that every well grounded
doubt should be resolved in favor of the exemption.
PAGE 38Commissioner of Internal Revenue v. Marubeni
Corporation
[G.R. No. 33403. September 4, 1930]
Digest by: BAUTISTA, Cecille Catherine A.
PONENTE: Puno, J.
FACTS:
Respondent Marubeni Corporation is a foreign corporation
organized and existing
under the laws of Japan duly registered to engage in such
business in the Philippines and
maintains a branch office in Manila. Petitioner found
respondent to have undeclared income
from two (2) contracts in the Philippines in 1984.
Respondent then received a letter from
petitioner assessing it for several deficiency taxes
including surcharges and interests.
Respondent filed two (2) petitions for review with the Court
of Tax Appeals, the first
questioning the deficiency income, branch profit
remittance and contractors tax assessments
and the second questioning the deficiency commercial
brokers assessment.
On August 2, 1986, Executive Order (E.O.) No. 412
declaring a one-time amnesty
covering unpaid income taxes for the years 1981 to 1985
was issued. Taxpayers who wished
to avail of said amnesty should file the necessary
documents before October 31, 1986. In
accordance with the terms of E.O. No. 41, respondent filed
its tax amnesty return dated October
30, 1986. On November 17, 1986, the scope and coverage
of E.O. No. 41 was expanded by
Executive Order (E.O.) No. 64. In addition to the income tax
amnesty granted by E.O. No. 41 for
the years 1981 to 1985, E.O. No. 64 included estate and
donors taxes under Title III and the

tax on business under Chapter II, Title V of the National

Internal Revenue Code, also covering
the years 1981 to 1985. Under E.O. No. 64, those
taxpayers who already filed their amnesty
return under E.O. No. 41, as amended, could avail
themselves of the benefits, immunities and
privileges under the new E.O. by filing an amended return
and paying an additional 5% on the
increase in net worth to cover business, estate and donors
tax liabilities.
On December 15, 1986, respondent filed a supplemental
tax amnesty return under
the benefit of E.O. No. 64 and paid a further amount of
P1,445,637.00 to the BIR equivalent to
five percent (5%) of the increase of its net worth between
1981 and 1986.
On July 29, 1996, the Court of Tax Appeals rendered a
decision stating that respondent
had properly availed of the tax amnesty under E.O. Nos. 41
and 64 and declared the deficiency
taxes subject of said case as deemed cancelled and
withdrawn.
ISSUE:
Whether or not respondent is covered by the tax amnesties
HELD:
Yes. Section 4 of E.O. No. 41 enumerates which taxpayers
cannot avail of the amnesty
granted thereunder, viz:
Sec. 4. Exceptions. The following taxpayers may not
avail themselves of the
PAGE 39amnesty herein granted:
a) Those falling under the provisions of Executive Order
Nos. 1, 2 and 14;
b) Those with income tax cases already filed in Court as of
the effectivity
hereof;
The point of reference is the date of effectivity of E.O. No.
41. E.O. No. 41 took effect on
August 22, 1986. CTA Case No. 4109 questioning the 1985
deficiency income, branch profit
remittance and contractors tax assessments was filed by
respondent with the Court of Tax
Appeals on September 26, 1986. When E.O. No. 41 became
effective on August 22, 1986, CTA
Case No. 4109 had not yet been filed in court. Respondent
corporation did not fall under the
said exception in Section 4 (b), hence, respondent was not
disqualified from availing of the
amnesty for income tax under E.O. No. 41.
The difficulty lies with respect to the contractors tax
assessment and respondents
availment of the amnesty under E.O. No. 64. E.O. No. 64
expanded the coverage of E.O. No.
41 by including estate and donors taxes and tax on
business. When E.O. No. 64 took effect

on November 17, 1986, it did not provide for exceptions to

the coverage of the amnesty for
business, estate and donors taxes. By virtue of Section 8
of E.O. No. 64, the provisions of E.O.
No. 41 not contrary to or inconsistent with the amendatory
act were reenacted in E.O. No. 64.
Thus, Section 4 of E.O. No. 41 on the exceptions to
amnesty coverage also applied to E.O. No. 64.
With respect to Section 4 (b) in particular, this provision
excepts from tax amnesty coverage
a taxpayer who has income tax cases already filed in
court as of the effectivity hereof. In
view of the amendment introduced by E.O. No. 64, Section
4 (b) cannot be construed to refer
to E.O. No. 41 and its date of effectivity. The general rule is
that an amendatory act operates
prospectively. While an amendment is generally construed
as becoming a part of the original
act as if it had always been contained therein,10 it may not
be given a retroactive effect unless
it is so provided expressly or by necessary implication and
no vested right or obligations of
contract are thereby impaired.11
E.O. Nos. 41 and 64 are tax amnesty issuances. A tax
amnesty is a general pardon or
intentional overlooking by the State of its authority to
impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law. It
partakes of an absolute forgiveness or
waiver by the government of its right to collect what is due
it and to give tax evaders who wish
to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never
favored nor presumed in law. If granted, the terms of the
amnesty, like that of a tax exemption,
must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.
For the right of taxation is inherent in government. The
State cannot strip itself of the most
essential power of taxation by doubtful words. He who
claims an exemption (or an amnesty)
from the common burden must justify his claim by the
clearest grant of organic or state law.
It cannot be allowed to exist upon a vague implication. If a
doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the
state.
PAGE 40William Reagan, Etc. v. Commissioner of Internal
Revenue
[G.R. No. L-26379. December 27, 1969]
Digest by: BAUTISTA, Cecille Catherine A.
PONENTE: Fernando, J.
FACTS:
Petitioner William C. Reagan, at one time a civilian
employee of an American

corporation providing technical assistance to the United

States Air Force in the Philippines,
disputes the payment of the income tax assessed on him
by respondent Commissioner of
Internal Revenue on an amount realized by him on a sale
of his automobile to a member of
the United States Marine Corps, the transaction having
taken place at the Clark Field Air Base
at Pampanga. He contends that in legal contemplation the
sale was made outside Philippine
territory and therefore beyond our jurisdictional power to
tax.
ISSUE:
Whether or not the sale was in legal contemplation
outside the Philippines and
thus beyond our jurisdiction to tax
HELD:
No. Nothing is better settled than that the Philippines
being independent and
sovereign, its authority may be exercised over its entire
domain. There is no portion thereof
that is beyond its power. Within its limits, its decrees are
supreme, its commands paramount.
Its laws govern therein, and everyone to whom it applies
must submit to its terms. That is
the extent of its jurisdiction, both territorial and personal.
Necessarily, likewise, it has to be
exclusive. If it were not thus, there is a diminution of its
sovereignty.
The contention that Clark Air Force is foreign soil or
territory for purposes of income
tax legislation is clearly without support in law. There is
nothing in the Military Bases
Agreement that lends support to such an assertion. It has
not become foreign soil or territory.
This countrys jurisdictional rights therein, certainly not
excluding the power to tax, have
been preserved.
PAGE 41Conrado L. Tiu v. Court of Appeals
[G.R. No. 127410. January 20, 1999]
Digest by: BAUTISTA, Cecille Catherine A.
PONENTE: Panganiban, J.
FACTS:
On March 13, 1992 RA 7227 entitled An Act Accelerating
the Conversion of Military
Reservations Into Other Productive Uses, Creating the
Bases Conversion and Development
Authority for this Purpose, Providing Funds Therefor and for
Other Purposes was passed.
Section 12 of said law created the Subic Special Economic
Zone and granted thereto special
privileges. On June 10, 1993, then President Fidel V. Ramos
issued Executive Order No. 97 (EO
97), clarifying the application of the tax and duty
incentives and subsequently issued on June

19, 1993 Executive Order No. 97-A (EO 97-A), specifying

that The Secured Area consisting
of the presently fenced-in former Subic Naval Base shall be
the only completely tax and dutyfree area in the SSEFPZ
[Subic Special Economic and Free Port Zone]. Petitioners
assailed the
constitutionality of EO 97-A for allegedly being violative of
their right to equal protection of
the laws.
ISSUE:
Whether or not Executive Order No. 97-A violates the equal
protection clause of the
Constitution [Specifically the issue is whether the
provisions of Executive Order No. 97-A
confining the application of R.A. 7227 within the secured
area and excluding the residents of
the zone outside of the secured area is discriminatory or
not]
HELD:
The constitutional rights to equal protection of the law is
not violated by an executive
order, issued pursuant to law, granting tax and duty
incentives only to the bussiness and
residents within the secured area of the Subic Special
Econimic Zone and denying them
to those who live within the Zone but outside such fencedin territory. The Constitution
does not require absolute equality among residents. It is
enough that all persons under like
circumstances or conditions are given the same privileges
and required to follow the same
obligations. In short, a classification based on valid and
reasonable standards does not violate
the equal protection clause.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to
the purpose of the law, (3) not be limited to existing
conditions only, and (4) apply equally to
all members of the same class.
PAGE 42John Hay Peoples Alternative Coaliton v. Bases
Conversion
Development Authority
[G.R. No. 127410. January 20, 1999]
Digest by: BONAVENTE, Arianne
PONENTE: Carpio-Morales
FACTS:
The Bases Conversion and Development Act of 1992 set
out the policy of the
government to accelerate the sound and balanced
conversion into alternative productive uses
of the former military bases under the 1947 PhilippinesUnited States of America Military
Bases Agreement, namely, the Clark and Subic military
reservations as well as their extensions

including the John Hay Station (Camp John Hay or the

camp) in the City of Baguio. R.A. No.
7227 likewise created the Subic Special Economic [and
Free Port] Zone (Subic SEZ) which
granted the Subic SEZ incentives ranging from tax and
duty-free importations, exemption of
businesses therein from local and national taxes, to other
hallmarks of a liberalized financial
and business climate. It also expressly gave authority to
the President to create through
executive proclamation, subject to the concurrence of the
local government units directly
affected, other Special Economic Zones (SEZ) in the areas
covered respectively by the Clark
military reservation, the Wallace Air Station in San
Fernando, La Union, and Camp John Hay.
BCDA entered into a Memorandum of Agreement and
Escrow Agreement with private
respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and
Asiaworld Internationale Group, Inc.
(ASIAWORLD) preparatory to the formation of a joint
venture for the development of Poro
Point in La Union and Camp John Hay as premier tourist
destinations and recreation centers.
They executed a Joint Venture Agreement whereby they
bound themselves to put up a
joint venture company known as the Baguio International
Development and Management
Corporation which would lease areas within Camp John Hay
and Poro Point for the purpose of
turning such places into principal tourist and recreation
spots, as originally envisioned by the
parties under their Memorandum of Agreement.
On July 5, 1994 then President Ramos issued Proclamation
No. 420, the title of which
was earlier indicated, which established a SEZ on a portion
of Camp John Hay and which reads
as follows:
Sec. 3. Investment Climate in John Hay Special Economic
Zone. Pursuant
to Section 5(m) and Section 15 of Republic Act No. 7227,
the John Hay Poro
Point Development Corporation shall implement all
necessary policies,
rules, and regulations governing the zone, including
investment incentives,
in consultation with pertinent government departments.
Among others, the
zone shall have all the applicable incentives of the Special
Economic Zone
under Section 12 of Republic Act No. 7227 and those
applicable incentives
granted in the Export Processing Zones, the Omnibus
Investment Code of

1987, the Foreign Investment Act of 1991, and new

investment laws that may
hereinafter be enacted.
PAGE 43Petitioners argue that nowhere in R. A. No. 7227 is
there a grant of tax exemption
to SEZs yet to be established in base areas, unlike the
grant under Section 12 thereof of tax
exemption and investment incentives to the therein
established Subic SEZ. The grant of tax
exemption to the John Hay SEZ, petitioners conclude, thus
contravenes Article VI, Section
28 (4) of the Constitution which provides that No law
granting any tax exemption shall be
passed without the concurrence of a majority of all the
members of Congress.
Respondents contend that by extending to the John Hay
SEZ economic incentives
similar to those enjoyed by the Subic SEZ which was
established under R.A. No. 7227, the
proclamation is merely implementing the legislative intent
of said law to turn the US military
bases into hubs of business activity or investment.
the laws.
PAGE 44
ISSUE:
Whether Proclamation No. 420 is constitutional by
providing for national and
local tax exemption within and granting other economic
incentives to the John Hay Special
Economic Zone.
HELD:
No. It is clear that under Section 12 of R.A. No. 7227 it is
only the Subic SEZ which
was granted by Congress with tax exemption, investment
incentives and the like. There is
no express extension of the aforesaid benefits to other
SEZs still to be created at the time via
presidential proclamation. The deliberations of the Senate
confirm the exclusivity to Subic
SEZ of the tax and investment privileges accorded it under
the law.
Moreover the nature of most of the assailed privileges is
one of tax exemption. It is
the legislature, unless limited by a provision of the state
constitution, that has full power to
exempt any person or corporation or class of property from
taxation, its power to exempt
being as broad as its power to tax. Other than Congress,
the Constitution may itself provide for
specific tax exemptions, or local governments may pass
ordinances on exemption only from
local taxes.
The challenged grant of tax exemption would circumvent
the Constitutions imposition

that a law granting any tax exemption must have the

concurrence of a majority of all the
members of Congress. In the same vein, the other kinds of
privileges extended to the John Hay
SEZ are by tradition and usage for Congress to legislate
upon.
Contrary to public respondents suggestions, the claimed
statutory exemption of the
John Hay SEZ from taxation should be manifest and
unmistakable from the language of the
law on which it is based; it must be expressly granted in a
statute stated in a language too clear
to be mistaken. Tax exemption cannot be implied as it
must be categorically and unmistakably
expressed. If it were the intent of the legislature to grant to
the John Hay SEZ the same tax
exemption and incentives given to the Subic SEZ, it would
have so expressly provided in the
R.A. No. 7227.Coconut Oil Refiners Association, Inc. vs. Hon
Ruben Torres
[G.R. No. 132527. July 29, 2005]
Digest by:BONAVENTE, Arianne
PONENTE: Azcuna, J.
FACTS:
On March 13, 1992, Republic Act No. 7227 was enacted,
providing for, among other
things, the sound and balanced conversion of the Clark and
Subic military reservations and
their extensions into alternative productive uses in the
form of special economic zones in
order to promote the economic and social development of
Central Luzon in particular and the
country in general. Among the salient provisions are as
follows:
SECTION 12. Subic Special Economic Zone.
The abovementioned zone shall be subject to the following
policies:
(a)
Within the framework and subject to the mandate
and limitations of the
Constitution and the pertinent provisions of the Local
Government Code, the Subic Special
Economic Zone shall be developed into a self-sustaining,
industrial, commercial, financial
and investment center to generate employment
opportunities in and around the zone and to
attract and promote productive foreign investments;
(b)
The Subic Special Economic Zone shall be operated
and managed as a separate
customs territory ensuring free flow or movement of goods
and capital within, into and
exported out of the Subic Special Economic Zone, as well
as provide incentives such as tax
and duty-free importations of raw materials, capital and
equipment. However, exportation or

removal of goods from the territory of the Subic Special

Economic Zone to the other parts of
the Philippine territory shall be subject to customs duties
and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines;
[4]
(c)
The provision of existing laws, rules and regulations
to the contrary
notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special
Economic Zone. In lieu of paying taxes, three percent
(3%) of the gross income earned by
all businesses and enterprises within the Subic Special
Ecoomic Zone shall be remitted to the
National Government, one percent (1%) each to the local
government units affected by the
declaration of the zone in proportion to their population
area, and other factors. In addition,
there is hereby established a development fund of one
percent (1%) of the gross income
earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized
for the development of municipalities outside the City of
Olangapo and the Municipality of
Subic, and other municipalities contiguous to the base
areas.
On April 3, 1993, President Fidel V. Ramos issued Executive
Order No. 80, which
declared, among others, that Clark shall have all the
applicable incentives granted to the Subic
Special Economic and Free Port Zone under Republic Act
No. 7227.
Pursuant to the directive under Executive Order No. 80, the
BCDA passed Board
PAGE 45Resolution No. 93-05-034 on May 18, 1993,
allowing the tax and duty-free sale at retail of
consumer goods imported via Clark for consumption
outside the CSEZ. On June 10, 1993, the
President issued Executive Order No. 97, Clarifying the
Tax and Duty Free Incentive Within
the Subic Special Economic Zone Pursuant to R.A. No.
7227. Said issuance in part states, thus:
SECTION 1. On Import Taxes and Duties Tax and dutyfree importations shall apply only
to raw materials, capital goods and equipment brought in
by business enterprises into the
SSEZ. Except for these items, importations of other goods
into the SSEZ, whether by business
enterprises or resident individuals, are subject to taxes and
duties under relevant Philippine
laws.
The exportation or removal of tax and duty-free goods
from the territory of the SSEZ
to other parts of the Philippine territory shall be subject to
duties and taxes under relevant

Philippine laws.
On June 19, 1993, Executive Order No. 97-A was issued,
Further Clarifying the Tax
and Duty-Free Privilege Within the Subic Special Economic
and Free Port Zone. The relevant
provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax
and duty-free privilege within the
Secured Area of the Subic Special Economic and Free Port
Zone:
1.1
The Secured Area consisting of the presently
fenced-in former Subic
Naval Base shall be the only completely tax and duty-free
area in the SSEFPZ.
Business enterprises and individuals (Filipinos and
foreigners) residing within
the Secured Area are free to import raw materials, capital
goods, equipment,
and consumer items tax and duty-free.
Consumption
items, however, must be
consumed within the Secured Area.
Removal of raw
materials, capital goods,
equipment and consumer items out of the Secured Area for
sale to non-SSEFPZ
registered enterprises shall be subject to the usual taxes
and duties, except as
may be provided herein.
1.2.
Residents of the SSEFPZ living outside the
Secured Area can enter the
Secured Area and consume any quantity of consumption
items in hotels and
restaurants within the Secured Area. However, these
residents can purchase
and bring out of the Secured Area to other parts of the
Philippine territory
consumer items worth not exceeding US$100 per month
per person. Only
residents age 15 and over are entitled to this privilege.
1.3.
Filipinos not residing within the SSEFPZ can enter
the Secured Area
and consume any quantity of consumption items in hotels
and restaurants
within the Secured Area. However, they can purchase and
bring out [of] the
Secured Area to other parts of the Philippine territory
consumer items worth
not exceeding US$200 per year per person. Only Filipinos
age 15 and over are
entitled to this privilege.
Petitioners assail the $100 monthly and $200 yearly taxfree shopping
privileges granted by the aforecited provisions respectively
to SSEZ residents
living outside the Secured Area of the SSEZ and to Filipinos
aged 15 and over

residing outside the SSEZ.

PAGE 46ISSUE:
Whether or not the assailed issuances are unconstitutional,
illegal and void for
being an exercise of executivelawmaking, contrary to RA
No. 7227 and in violation of the
Constitutional
provisions,
particularly
the
equal
protectionclause, prohibition of unfair
competition and combinations in restraint of trade, and
preferential use of Filipino
labor,domestic materials and locally produced goods?
HELD:
On the issue of executive legislation, petitioners contend
that the wording of RA No.
7227 clearly limits the grant of tax incentives to the
importation of raw materials, capital and
equipment only. Hence, they claim that the assailed
issuances constitute executive legislation
for invalidly granting tax incentives in the importation of
consumer goods such as those
being sold in the duty-free shops, in violation of the letter
and intent of RA No. 7227. The
Court held that Section12 of RA No. 7227 clearly does not
restrict the duty-free importation
only to raw materials, capital and equipment. To limit the
tax-free importation privilege
of enterprises located inside the special economic zone
only to raw materials, capital and
equipment clearly runs counter to the intention of the
Legislature to create a free port where
the free flow of goods or capital within, into, and out of the
zones is insured. The phrase
tax and duty-free importations of raw materials, capital
and equipment was merely cited as
an example of incentives that may be given to entities
operating within the zone. Moreover,
the records of the Senate containing the discussion of the
concept of special economic zone
in Section 12 (a)of Republic Act No. 7227 show the
legislative intent that consumer goods
entering the SSEZ which satisfy the needs of the zone and
are consumed there are not subject
to duties and taxes in accordance with Philippine laws.
However, the second sentences of
paragraphs 1.2 and 1.3 of EO No. 97-A, allowing tax and
duty-free removal of goods to certain
individuals, even in a limited amount, from the Secured
Area of the SSEZ, are null and void for
being contrary to Section12 of RA No. 7227. Said Section
clearly provides that exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of
the Philippine territory shall be subject to customs duties
and taxes under the Customs and

Tariff Code and other relevant tax laws of the Philippines.

On the other hand, insofar as the
CSEZ is concerned, the case for an invalid exercise of
executive legislation is tenable. While
Section 12 of RA No. 7227 expressly provides for the grant
of incentives to the SSEZ, it fails to
make any similar grant in favor of other economic zones,
including the CSEZ. Tax and dutyfree incentives being in
the nature of tax exemptions, the basis thereof should be
categorically
and unmistakably expressed from the language of the
statute. Consequently, in the absence
of any express grant of tax and duty-free privileges to the
CSEZ in RA No. 7227, there would
be no legal basis to uphold the questioned portions of two
issuances: Section 5 of Executive
Order No. 80 and Section 4 of BCDA Board Resolution No.
93-05-034, which both pertain to
the CSEZ. On the issue on equal protection, it is an
established principle of constitutional law
that the guaranty of the equal protection of the laws is not
violated by a legislation based on
a reasonable classification. Classification, to be valid, must
(1) rest on substantial distinction,
(2) be germane to the purpose of the law, (3) not be
limited to existing conditions only, and (4)
apply equally to all members of the same class. In this
case, the Court found that theres real
and substantial distinction between residents within the
secured area and those living within
the economic zone but outside the fenced-off area. A
significant distinction between the two
PAGE 47groups is that enterprises outside the zones
maintain their businesses within Philippine
customs territory, while private respondents and the other
duly-registered zone enterprises
operate within the so-called separate customs territory.
The classification is also germane
to the purpose of RA No. 7227 because its purpose is to
convert the lands formerly occupied
by the US military bases into economic or industrial areas.
In furtherance of such objective,
Congress deemed it necessary to extend economic
incentives to the establishments within the
zone to attract and encourage foreign and local investors.
The classification, moreover, is not
limited to the existing conditions when the law was
promulgated, but to future conditions as
well, inasmuch as the law envisioned the former military
reservation to ultimately develop
into a self-sustaining investment center. And, lastly, the
classification applies equally to all
retailers found within the secured area. On the issue of
unfair competition the Court held that

the mere fact that incentives and privileges are granted to

certain enterprises to the exclusion
of others does not render the issuance unconstitutional for
espousing unfair competition.
Said constitutional prohibition cannot hinder the
Legislature from using tax incentives as a
tool to pursue RA No. 7227 policies of developing the SSEZ
into a self-sustaining entity that
will generate employment and attract foreign and local
investment. Lastly, on the issue of
preferential use of Filipino labor, materials and goods, the
Court held that this Constitutional
provision did not intend to pursue an isolationist policy. It
did not shut out foreign investments,
goods and services in the development of the Philippine
economy. In fact, it allows an exchange
on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair
Furthermore, Executive Department, with its subsequent
issuance of Executive Order Nos.
444 and 303, has already provided certain measures to
prevent that unfair competition.
The petition is PARTLY GRANTED. Section 5 of Executive
Order No. 80 and Section
4 of BCDA Board Resolution No. 93-05-034 are hereby
declared NULL and VOID and are
accordingly declared of no legal force and effect. All
portions of Executive Order No. 97-A are
valid and effective, except the second sentences in
paragraphs 1.2 and 1.3of said Executive
Order, which are hereby declared INVALID.
PAGE 48The Province Of Abra vs. Honorable Harold M.
Hernando
[G.R. No. L-49336. August 31, 1981]
Digest by: BONAVENTE, Arianne
PONENTE: Fernando, J.:
FACTS:
The Province of Abra sought to tax the properties of the
Roman Catholic Bishop, Inc. of
Bangued. Judge Hernando dismissed the petition of Abra
without hearing its side. Hernando
ruled that there is no question that the real properties
sought to be taxed by the Province of
Abra are properties of the respondent Roman Catholic
Bishop of Bangued, Inc. Likewise, there
is no dispute that the properties including their produce
are actually, directly and exclusively
used by the Roman Catholic Bishop of Bangued, Inc. for
religious or charitable purposes. The
proper remedy of the petitioner is appeal and not this
special civil action.
ISSUE:
Whether or not the properties of the church (in this case) is
exempt from taxes.
HELD:

The petition must be granted.

1. Respondent Judge would not have erred so grievously
had he merely compared
the provisions of the present Constitution with that
appearing in the 1935 Charter on the
tax exemption of lands, buildings, and improvements.
There is a marked difference. Under
the 1935 Constitution: Cemeteries, churches, and
parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable,
or educational purposes shall be exempt from taxation.
The present Constitution added
charitable
institutions,
mosques,
and
non-profit
cemeteries and required that for the
exemption of :lands, buildings, and improvements, they
should not only be exclusively
but also actually and directly used for religious or
charitable purposes. The Constitution is
worded differently. The change should not be ignored. It
must be duly taken into consideration.
Reliance on past decisions would have sufficed were the
words actually as well as directly
not added. There must be proof therefore of the actual and
direct use of the lands, buildings,
and improvements for religious or charitable purposes to
be exempt from taxation. According
to Commissioner of Internal Revenue v. Guerrero: From
1906, in Catholic Church v. Hastings
to 1966, in Esso Standard Eastern, Inc. v. Acting
Commissioner of Customs, it has been the
constant and uniform holding that exemption from taxation
is not favored and is never
presumed, so that if granted it must be strictly construed
against the taxpayer. Affirmatively
put, the law frowns on exemption from taxation, hence, an
exempting provision should
be construed strictissimi juris. In Manila Electric Company
v. Vera, a 1975 decision, such
principle was reiterated, reference being made to Republic
Flour Mills, Inc. v. Commissioner
of Internal Revenue; Commissioner of Customs v.
Philippine Acetylene Co. & CTA; and Davao
Light and Power Co., Inc. v. Commissioner of Customs.
2. Petitioner Province of Abra is therefore fully justified in
invoking the protection
of procedural due process. If there is any case where proof
is necessary to demonstrate that
PAGE 49there is compliance with the constitutional
provision that allows an exemption, this is it.
Instead, respondent Judge accepted at its face the
allegation of private respondent. All that
was alleged in the petition for declaratory relief filed by
private respondents, after mentioning

certain parcels of land owned by it, are that they are used
actually, directly and exclusively as
sources of support of the parish priest and his helpers and
also of private respondent Bishop.
In the motion to dismiss filed on behalf of petitioner
Province of Abra, the objection was based
primarily on the lack of jurisdiction, as the validity of a tax
assessment may be questioned
before the Local Board of Assessment Appeals and not with
a court. There was also mention of
a lack of a cause of action, but only because, in its view,
declaratory relief is not proper, as there
had been breach or violation of the right of government to
assess and collect taxes on such
property. It clearly appears, therefore, that in failing to
accord a hearing to petitioner Province
of Abra and deciding the case immediately in favor of
private respondent, respondent Judge
failed to abide by the constitutional command of
procedural due process.
The petition is granted and the resolution of June 19, 1978
is set aside. Respondent
Judge, or who ever is acting on his behalf, is ordered to
hear the case on the merit.
PAGE 50Arturo M. Tolentino vs.The Secretary of Finance
and The
Commisioner of Internal Revenue
[G.R. No. 115455. October 30, 1995]
Digest by: BONAVENTE, Arianne
PONENTE: Mendoza, J.:
FACTS:
Tolentino et al is questioning the constitutionality of RA
7716 otherwise known as
the Expanded Value Added Tax (EVAT) Law. Tolentino
averred that this revenue bill did not
exclusively originate from the House of Representatives as
required by Section 24, Article
6 of the Constitution. Even though RA 7716 originated as
HB 11197 and that it passed the
3 readings in the HoR, the same did not complete the 3
readings in Senate for after the 1st
reading it was referred to the Senate Ways & Means
Committee thereafter Senate passed its
own version known as Senate Bill 1630. Tolentino averred
that what Senate could have done
is amend HB 11197 by striking out its text and substituting
it w/ the text of SB 1630 in that
way the bill remains a House Bill and the Senate version
just becomes the text (only the text)
of the HB. Tolentino and co-petitioner Roco [however]
even signed the said Senate Bill.
ISSUE:
Whether or not EVAT originated in the HoR.
HELD:
The contention has no merit.

The addition of the word exclusively in the Philippine

Constitution and the decision
to drop the phrase as on other Bills in the American
version, according to petitioners, shows
the intention of the framers of our Constitution to restrict
the Senates power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word exclusively was
inserted to modify originate and the words as in any
other bills (sic) were eliminated so as
to show that these bills were not to be like other bills but
must be treated as a special kind.
The history of this provision does not support this
contention. The supposed indicia of
constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of
the Senate. It will be recalled that the 1935 Constitution
originally provided for a unicameral
National Assembly. When it was decided in 1939 to change
to a bicameral legislature, it
became necessary to provide for the procedure for
lawmaking by the Senate and the House
of Representatives. The work of proposing amendments to
the Constitution was done by the
National Assembly, acting as a constituent assembly, some
of whose members, jealous of
preserving the Assemblys lawmaking powers, sought to
curtail the powers of the proposed
Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills,
bills of local
application, and private bills shall originate exclusively in
the Assembly, but
the Senate may propose or concur with amendments. In
case of disapproval by
PAGE 51the Senate of any such bills, the Assembly may
repass the same by a two-thirds
vote of all its members, and thereupon, the bill so repassed
shall be deemed
enacted and may be submitted to the President for
corresponding action.
In the event that the Senate should fail to finally act on any
such bills, the
Assembly may, after thirty days from the opening of the
next regular session
of the same legislative term, reapprove the same with a
vote of two-thirds of
all the members of the Assembly. And upon such
reapproval, the bill shall be
deemed enacted and may be submitted to the President
for corresponding
action.
This is the history of Art. VI, 18 (2) of the 1935
Constitution, from which Art. VI, 24 of

the present Constitution was derived. It explains why the

word exclusively was added to the
American text from which the framers of the Philippine
Constitution borrowed and why the
phrase as on other Bills was not copied. Considering the
defeat of the proposal, the power of
the Senate to propose amendments must be understood to
be full, plenary and complete as
on other Bills. Thus, because revenue bills are required to
originate exclusively in the House
of Representatives, the Senate cannot enact revenue
measures of its own without such bills.
After a revenue bill is passed and sent over to it by the
House, however, the Senate certainly
can pass its own version on the same subject matter. This
follows from the coequality of the
two chambers of Congress.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax,
is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a
prior restraint on the exercise of its right. Hence, although
its application to others, such
those selling goods, is valid, its application to the press or
to religious groups, such as the
Jehovahs Witnesses, in connection with the latters sale of
religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, it is
one thing to impose a tax on income or
property of a preacher. It is quite another thing to exact a
tax on him for delivering a sermon.
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil.
386 (1957) which invalidated a city ordinance requiring a
business license fee on those
engaged in the sale of general merchandise. It was held
that the tax could not be imposed on
the sale of bibles by the American Bible Society without
restraining the free exercise of its
right to propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on
the sale, barter, lease or exchange
of goods or properties or the sale or exchange of services
and the lease of properties purely
for revenue purposes. To subject the press to its payment
is not to burden the exercise of its
right any more than to make the press pay income tax or
subject it to general regulation is not
to violate its freedom under the Constitution.
It is claimed that the application of the tax to existing
contracts of the sale of real
property by installment or on deferred payment basis
would result in substantial increases

in the monthly amortizations to be paid because of the

10% VAT. The additional amount, it
is pointed out, is something that the buyer did not
anticipate at the time he entered into the
PAGE 52contract.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the
VAT, are regressive. What it simply provides is that
Congress shall evolve a progressive system
of taxation. The constitutional provision has been
interpreted to mean simply that direct
taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized. (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the
mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect
taxes, would have been prohibited
with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art.
VI, 28(1) was taken. Sales taxes are also regressive.
We have carefully read the various arguments raised
against the constitutional validity
of R.A. No. 7716. We have in fact taken the extraordinary
step of enjoining its enforcement
pending resolution of these cases. We have now come to
the conclusion that the law suffers
from none of the infirmities attributed to it by petitioners
and that its enactment by the other
branches of the government does not constitute a grave
abuse of discretion. Any question as
to its necessity, desirability or expediency must be
addressed to Congress as the body which
is electorally responsible, remembering that, as Justice
Holmes has said, legislators are the
ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are
the courts. (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in G.R. No. 115543
does in arguing that we should enforce
the public accountability of legislators, that those who took
part in passing the law in question
by voting for it in Congress should later thrust to the courts
the burden of reviewing measures
in the flush of enactment. This Court does not sit as a third
branch of the legislature, much less
exercise a veto power over legislation.
PAGE 53Abakada Guro Party List vs. The Honorable
Executive Secretary Eduardo Ermita
[G.R. No. 168056. September 1, 2005]
Digest by: BONAVENTE, Arianne
PONENTE: Austria-Martinez, J.:
FACTS:

Petitioners ABAKADA GURO Party List, et al. question the

constitutionality of Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the National
Internal Revenue Code (NIRC). Section 4 imposes a 10%
VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on
sale of services and use or lease of properties. These
questioned provisions contain a uniform
proviso authorizing the President, upon recommendation of
the Secretary of Finance, to raise
the VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been
satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance,
shall, effective January 1, 2006, raise the rate of valueadded 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 %).
Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes
under Article VI, Section 28(2) of the
1987 Philippine Constitution.
Aside from questioning the so-called stand-by authority of
the President to increase
the VAT rate to 12%, on the ground that it amounts to an
undue delegation of legislative power,
petitioners also contend that the increase in the VAT rate
to 12% contingent on any of the two
conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of
the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1)
the 12% increase is ambiguous because it does not state if
the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2)
the rate is unfair and unreasonable,
as the people are unsure of the applicable VAT rate from
year to year; and (3) the increase in
the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection
to at least 2 4/5 of the GDP of the previous year, should
only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by
authority granted to the

President by the Bicameral Conference Committee is a

violation of the no-amendment rule
upon last reading of a bill laid down in Article VI, Section
26(2) of the Constitution.
PAGE 54Thereafter, a petition for prohibition was filed by
the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of
R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input
tax on depreciable goods shall be amortized over a 60month period, if the
acquisition, excluding the VAT components, exceeds One
Million Pesos (P1,
000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on
the amount of input tax to be credited against the output
tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the
Government or any of its political subdivisions,
instrumentalities or agencies,
including GOCCs, to deduct a 5% final withholding tax on
gross payments of
goods and services, which are subject to 10% VAT under
Sections 106 (sale of
goods and properties) and 108 (sale of services and use or
lease of properties)
of the NIRC.
Petitioners
contend
that
these
provisions
are
unconstitutional for being arbitrary,
oppressive, excessive, and confiscatory.
According to petitioners, the contested sections impose
limitations on the amount of
input tax that may be claimed. Petitioners also argue that
the input tax partakes the nature of
a property that may not be confiscated, appropriated, or
limited without due process of law.
Petitioners further contend that like any other property or
property right, the input tax credit
may be transferred or disposed of, and that by limiting the
same, the government gets to tax a
profit or value-added even if there is no profit or valueadded.
Petitioners also believe that these provisions violate the
constitutional guarantee of
equal protection of the law under Article III, Section 1 of
the Constitution, as the limitation on
the creditable input tax if: (1) the entity has a high ratio of
input tax; or (2) invests in capital
equipment; or (3) has several transactions with the
government, is not based on real and
substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything

but progressive, violative of
Article VI, Section 28(1) of the Constitution, and that it is
the smaller businesses with higher
input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever
meager margins the petitioners make.
Governor Enrique T. Garcia filed a petition for certiorari and
prohibition, alleging
unconstitutionality of the law on the ground that the
limitation on the creditable input tax
in effect allows VAT-registered establishments to retain a
portion of the taxes they collect,
thus violating the principle that tax collection and revenue
should be solely allocated for
public purposes and expenditures. Petitioner Garcia further
claims that allowing these
establishments to pass on the tax to the consumers is
inequitable, in violation of Article VI,
Section 28(1) of the Constitution.
The Office of the Solicitor General (OSG) filed a Comment
in behalf of respondents.
PAGE 55Preliminarily, respondents contend that R.A. No.
9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance,
respondents argue that the
procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive
origination of revenue measures and the power of the
Senate concomitant thereto, have
already been settled. With regard to the issue of undue
delegation of legislative power to
the President, respondents contend that the law is
complete and leaves no discretion to the
President but to increase the rate to 12% once any of the
two conditions provided therein
arise.
Respondents also refute petitioners argument that the
increase to 12%, as well as
the 70% limitation on the creditable input tax, the 60month amortization on the purchase
or importation of capital goods exceeding P1,000,000.00,
and the 5% final withholding tax
by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the
constitutional principle on progressive taxation, among
others. Finally, respondents manifest
that R.A. No. 9337 is the anchor of the governments fiscal
reform agenda. A reform in the
value-added system of taxation is the core revenue
measure that will tilt the balance towards
a sustainable macroeconomic environment necessary for
economic growth.

PAGE 56
ISSUE:
Whether or not the questioned provisions of R.A. No. 9337
are unconstitutional.
HELD:
Petitioners allege that the grant of the stand-by authority
to the President to increase
the VAT rate is a virtual abdication by Congress of its
exclusive power to tax because such
delegation is not within the purview of Section 28 (2),
Article VI of the Constitution, which
provides: The Congress may, by law, authorize the
President to fix within specified limits,
and may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and
other duties or imposts within the framework of the
national development program of the
government.
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. Thus, 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. Inasmuch as the law
specifically uses the word shall, the
exercise of discretion by the President does not come into
play. It is a clear directive to impose
the 12% VAT rate when the specified conditions are
present. The time of taking into effect of
the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the
ascertainment of certain facts or conditions by a person or
body other than the legislature
itself.PAGE 57
The Court finds no merit to the contention of petitioners
ABAKADA GURO Party List,
et al. that the law effectively nullified the Presidents power
of control over the Secretary of
Finance by mandating the fixing of the tax rate by the
President upon the recommendation of
the Secretary of Finance. The Court cannot also subscribe
to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to
mean may in view of the
phrase upon the recommendation of the Secretary of
Finance. Neither does the Court find

persuasive the submission of petitioners Escudero, et al.

that any recommendation by the
Secretary of Finance can easily be brushed aside by the
President since the former is a mere
alter ego of the latter.
In the absence of any provision providing for a return to
the 10% rate, which in this
case the Court finds none, petitioners argument is, at best,
purely speculative. 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 provided
in Sections 4, 5 and 6 are no longer
present. The rule is that where the provision of the law is
clear and unambiguous, so that
there is no occasion for the courts seeking the legislative
intent, the law must be taken as it is,
devoid of judicial addition or subtraction.
Petitioners claim that the contested sections impose
limitations on the amount of input
tax that may be claimed. In effect, a portion of the input
tax that has already been paid cannot
now be credited against the output tax. Petitioners
argument is not absolute. It assumes that
the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70%
remains uncredited. However, to the extent that the input
tax is less than 70% of the output
tax, then 100% of such input tax is still creditable.
Every law enjoys in its favor the presumption of
constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for
the invalidity of the law. Hence,
R.A. No. 9337 is not unconstitutional. Republic Act No.
9337 not being unconstitutional, the
petitions in G.R. Nos. 168056, 168207, 168461, 168463,
and 168730, are hereby dismissed.MISAMIS ORIENTAL
ASSOCIATION OF COCO TRADERS, INC. vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF
THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE
DISTRICT OFFICER, BIR MISAMIS ORIENTAL
[G.R. No. 108524. November 10, 1994]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: Mendoza, J.:
FACTS:
Petitioner are engaged in the buying and selling of copra in
Misamis Oriental. They seek
to nullify Revenue Memorandum Circular No. 47-91 and
enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale
of copra by members of petitioner
organization.
They allege that prior to the issuance of the assailed
Revenue Memorandum, which

implemented VAT Ruling 190-90, copra was classified as

agricultural food product under $
103(b) of the National Internal Revenue Code and,
therefore, exempt from VAT at all stages of
production
or
distribution.
However,
respondent
Commissioner of Internal Revenue issued
the circular in question, classifying copra as an agricultural
non-food product and declaring it
exempt from VAT only if the sale is made by the primary
producer pursuant to Section 103(a)
of the Tax Code, as amended.
The reclassification had the effect of denying to the
petitioner the exemption it
previously enjoyed when copra was classified as an
agricultural food product under 103(b)
of the NIRC.
Petitioner likewise claims that RMC No. 47-91 is
discriminatory and violative of
the equal protection clause of the Constitution because
while coconut farmers and copra
producers are exempt, traders and dealers are not,
although both sell copra in its original
state. Petitioners add that oil millers do not enjoy tax credit
out of the VAT payment of traders
and dealers.
ISSUE:
Whether there was violation of the equal protection clause.
HELD:
No. There is a material or substantial difference between
coconut farmers and copra
producers, on the one hand, and copra traders and dealers,
on the other. The former produce
and sell copra, the latter merely sell copra. The
Constitution does not forbid the differential
treatment of persons so long as there is a reasonable basis
for classifying them differently.
PAGE 58COMMISSIONER OF INTERNAL REVENUE vs. HON.
COURT OF
APPEALS, HON. COURT OF TAX APPEALS and FORTUNE
TOBACCO CORPORATION
[G.R. No. 119761. August 29, 1996]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: VITUG, J.
FACTS:
On various dates, the Philippine Patent Office issued to the
corporation separate
certificates of trademark registration over Champion,
Hope, and More cigarettes. The
Commissioner of Internal Revenue Bienvenido A. Tan, Jr.
classify them as foreign brands since
they were listed in the World Tobacco Directory as
belonging to foreign companies. However,
Fortune Tobacco changed the names of Hope to Hope
Luxury and More to Premium More,

thereby removing the said brands from the foreign brand

category. Proof was also submitted
to the Bureau (of Internal Revenue [BIR]) that Champion
was an original Fortune Tobacco
Corporation register and therefore a local brand. Ad
Valorem taxes were imposed on these
brands.
A bill, which later became Republic Act (RA) No. 7654
was enacted. In effect, a
revenue memorandum circular was issued which stated
that the aforesaid brands of cigarettes,
viz: HOPE, MORE and CHAMPION being manufactured
by Fortune Tobacco Corporation
are hereby considered locally manufactured cigarettes
bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
The CTA ruled that the Revenue Memorandum Circular
reclassifying the brands of
cigarettes, viz: HOPE, MORE and CHAMPION being
manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a
foreign brand subject to the 55%
ad valorem tax on cigarettes is found to be defective,
invalid and unenforceable, such that
when R.A. No. 7654 took effect on July 3, 1993, the brands
in question were not CURRENTLY
CLASSIFIED AND TAXED at 55% pursuant to Section
1142(c)(1) of the Tax Code, as amended
by R.A. No. 7654 and were therefore still classified as other
locally manufactured cigarettes
and taxed at 45% or 20% as the case may be.
ISSUE:
1. Whether there was violation of due process in the
issuance of the circular.
2. Whether the circular is discriminatory (violation of
uniformity in taxation).
HELD:
1. Yes, there was violation of due process. Being a
legislative rule (as opposed to
interpretative), due observance of the requirements of
notice, of hearing, and of publication
should not have been then ignored.
It has been observed that one of the problem areas
bearing on compliance with Internal
PAGE 59Revenue Tax rules and regulations is lack or
insufficiency of due notice to the tax paying
public. Unless there is due notice, due compliance
therewith may not be reasonably expected.
And most importantly, their strict enforcement could
possibly suffer from legal infirmity in
the light of the constitutional provision on due process of
law and the essence of the Civil
Code provision concerning effectivity of laws, whereby due
notice is a basic requirement.

In order that there shall be a just enforcement of rules and

regulations, in conformity with the
basic element of due process, the following procedures are
hereby prescribed for the drafting,
issuance and implementation of the said Revenue Tax
Issuances:
(a) This Circular shall apply only to (a) Revenue
Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum
Circulars and Revenue Memorandum
Orders bearing on internal revenue tax rules and
regulations.
(b) Except when the law otherwise expressly provides, the
aforesaid internal
revenue tax issuances shall not begin to be operative until
after due notice thereof may be
fairly presumed.
Due notice of the said issuances may be fairly presumed
only after the following
procedures have been taken.
2. Yes, there was no uniformity. The assailed RMC 37-93
would only apply to Hope
Luxury, Premium More and Champion cigarettes and
that other cigarettes bearing foreign
brands have not been similarly included within the scope of
the circular.
PAGE 60THE COMMISSIONER OF INTERNAL REVENUE vs.
LINGAYEN
GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX
APPEALS
[G.R. No. L-23771. August 4, 1988]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: SARMIENTO, J.
FACTS:
The respondent taxpayer, Lingayen Gulf Electric Power Co.,
Inc., operates an electric
power plant serving the adjoining municipalities of
Lingayen and Binmaley, both in the
province of Pangasinan, pursuant to the municipal
franchise granted it by their respective
municipal councils, under Resolution Nos. 14 and 25 of
June 29 and July 2, 1946, respectively.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the
private respondent.
On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against
and demanded from the private respondent the total
amount of P19,293.41 representing
deficiency franchise taxes and surcharges.
Pending the hearing of the said cases, Republic Act (R.A.)
No. 3843 was passed on June
22, 1 963, granting to the private respondent a legislative
franchise for the operation of the

electric light, heat, and power system in the same

municipalities of Pangasinan which states
that no other tax and/or licenses other than the franchise
tax of two per centum on the gross
receipts as provided for in the original franchise shall be
collected from the grantee.
The petitioner submits that the said law is unconstitutional
insofar as it provides for
the payment by the private respondent of a franchise tax
of 2% of its gross receipts, while
other taxpayers similarly situated were subject to the 5%
franchise tax imposed in Section 259
of the Tax Code, thereby discriminatory and violative of the
rule on uniformity and equality of
taxation.
ISSUE:
1. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of
the uniformity and equality of taxation clause of the
Constitution.
2. If the abovementioned Section 4 of R.A. No. 3843 is
valid, whether or not it could
be given retroactive effect so as to render uncollectible the
taxes in question which were
assessed before its enactment.
HELD:
1. No violation of uniformity and equality of taxation. A tax
is uniform when it operates
with the same force and effect in every place where the
subject of it is found. Uniformity
means that all property belonging to the same class shall
be taxed alike The Legislature has
the inherent power not only to select the subjects of
taxation but to grant exemptions. Tax
exemptions have never been deemed violative of the equal
protection clause. It is true that the
PAGE 61private respondents municipal franchises were
obtained under Act No. 667 of the Philippine
Commission, but these original franchises have been
replaced by a new legislative franchise,
i.e. R.A. No. 3843. As correctly held by the respondent
court, the latter was granted subject
to the terms and conditions established in Act No. 3636, as
amended by C.A. No. 132. These
conditions identify the private respondents power plant as
falling within that class of power
plants created by Act No. 3636, as amended. The benefits
of the tax reduction provided by
law (Act No. 3636 as amended by C.A. No. 132 and R.A.
No. 3843) apply to the respondents
power plant and others circumscribed within this class.
R.A-No. 3843 merely transferred the
petitioners power plant from that class provided for in Act
No. 667, as amended, to which it

belonged until the approval of R.A- No. 3843, and placed it

within the class falling under Act
No. 3636, as amended. Thus, it only effected the transfer
of a taxable property from one class
to another.
Furthermore, the 5% franchise tax rate provided in Section
259 of the Tax Code was
never intended to have a universal application. The said
Section 259 of the Tax Code expressly
allows the payment of taxes at rates lower than 5% when
the charter granting the franchise
of a grantee, like the one granted to the private
respondent under Section 4 of R.A. No. 3843,
precludes the imposition of a higher tax. R.A. No. 3843 did
not only fix and specify a franchise
tax of 2% on its gross receipts, but made it in lieu of any
and all taxes, all laws to the contrary
notwithstanding, thus, leaving no room for doubt
regarding the legislative intent. Charters
or special laws granted and enacted by the Legislature are
in the nature of private contracts.
They do not constitute a part of the machinery of the
general government. They are usually
adopted after careful consideration of the private rights in
relation with resultant benefits to
the State ... in passing a special charter the attention of
the Legislature is directed to the facts
and circumstances which the act or charter is intended to
meet. The Legislature consider and
make provision for all the circumstances of a particular
case. In view of the foregoing, SC
finds no reason to disturb the respondent courts ruling
upholding the constitutionality of the
law in question.
2. Yes. In the instant case, Act No. 3843 provides that
effective ... upon the date the
original franchise was granted, no other tax and/or licenses
other than the franchise tax
of two per centum on the gross receipts ... shall be
collected, any provision to the contrary
notwithstanding. Republic Act No. 3843 therefore
specifically provided for the retroactive
effect of the law.
PAGE
62KAPATIRAN
NG
MGA
NAGLILINGKOD
SA
PAMAHALAAN NG
PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q.
QUADRA, and MARIO C. VILLANUEVA vs. HON. BIENVENIDO
TAN, as Commissioner of Internal Revenue
[G.R. No. 81311. June 30, 1988]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: PADILLA, J.
FACTS:
There are four petitions which seek to nullify Executive
Order No. 273 issued by the

President which amended certain sections of the National

Internal Revenue Code and adopted
the value-added tax for being unconstitutional in that its
enactment is not alledgedly within
the powers of the President; that the VAT is oppressive,
discriminatory, regressive, and violates
the due process and equal protection clauses and other
provisions of the 1987 Constitution.
ISSUE:
1. Whether the President had no authority to issue EO 273.
2. Whether there was grave abuse of discretion on the part
of the President.
3. Whether EO 273 is oppressive, discriminatory, unjust
and regressive.
4. Whether EO 273 unduly discriminates against customs
brokers.
HELD:
1. Yes, under both the Provisional and the 1987
Constitutions, the President is vested
with legislative powers until a legislature under a new
Constitution is convened. The first
Congress, created and elected under the 1987
Constitution, was convened on 27 July 1987.
Hence, the enactment of EO 273 on 25 July 1987, two (2)
days before Congress convened on
27 July 1987, was within the Presidents constitutional
power and authority to legislate.
The 1987 Constitution mentions a specific date when the
President loses her power to legislate.
If the framers of said Constitution had intended to
terminate the exercise of legislative powers
by the President at the beginning of the term of office of
the members of Congress, they should
have so stated (but did not) in clear and unequivocal
terms. The Court has not power to rewrite the Constitution
and give it a meaning different from that intended.
2. No grave abuse if discretion. Petitioners have failed to
show that EO 273 was issued
capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or
personal hostility. It appears that a comprehensive study of
the VAT had been extensively
discussed by this framers and other government agencies
involved in its implementation,
even under the past administration. The signing of E.O.
273 was merely the last stage in the
exercise of her (Pres. Aquino) legislative powers. The
legislative process started long before
the signing when the data were gathered, proposals were
weighed and the final wordings of
the measure were drafted, revised and finalized. Certainly,
it cannot be said that the President
made a jump, so to speak, on the Congress, two days
before it convened.

PAGE 633. No. The petitioners assertions in this regard are

not supported by facts and
circumstances to warrant their conclusions. They have
failed to adequately show that the
VAT is oppressive, discriminatory or unjust. Petitioners
merely rely upon newspaper articles
which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there
must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative
implication.
4. No. At any rate, the distinction of the customs brokers
from the other professionals
who are subject to occupation tax under the Local Tax
Code is based upon material differences,
in that the activities of customs brokers (like those of
stock, real estate and immigration
brokers) partake more of a business, rather than a
profession and were thus subjected to the
percentage tax under Sec. 174 of the National Internal
Revenue Code prior to its amendment
by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the petitioner
Association did not protest the classification of customs
brokers then, the Court sees no reason
why it should protest now.
PAGE 64ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA,
Acting Commissioner, Bureau of Internal Revenue et al.
[G.R. No. L-59431. July 25, 1984]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: PADILLA, J.
FACTS:
The validity of Section I of Batas Pambansa Blg. 135 is
questioned due to constitutional
infirmities. 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. He characterizes the above sction as arbitrary
amounting to class legislation,

oppressive and capricious in character. For petitioner,

therefore, there is a transgression of
both the equal protection and due process clauses of the
Constitution as well as of the rule
requiring uniformity in taxation.
ISSUE:
Whether the assailed law is discriminatory.
HELD:
No. 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. As there is practically no overhead
expense, these taxpayers are e not
entitled to make deductions for income tax purposes
because they are in the same situation
more or less. 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.
PAGE 65Villegas v. Hiu Chiong Tsai Pao Ho
[G.R. No. L-29646. November 10, 1978]
Digest by: DE GUZMAN, Pristine B.
PONENTE: Fernandez, J.
FACTS:
Ordinance No. 6537 was passed by the Municipal Board of
Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J.
Villegas of Manila on March 27,
1968. Section 1 of said Ordinance No. 6537 prohibits aliens
from being employed or to
engage or participate in any position or occupation or
business enumerated therein, whether
permanent, temporary or casual, without first securing an
employment permit from the
Mayor of Manila and paying the permit fee of P50.00.
Hiu Chiong Tsai Pao questioned the validity of the
ordinance on the ground that it is

discriminatory and violative of the rule of uniformity in

taxation. On the other hand, petitioner
Mayor Villegas argues that Ordinance No. 6537 did not
violate the rule on uniformity of taxation
because the rule on uniformity of taxation applies only to
purely tax or revenue measures and
that Ordinance No. 6537 is not a tax or revenue measure
but is an exercise of the police power
of the state, it being principally a regulatory measure in
nature.
ISSUE:
Whether or not Ordinance No. 6537 is null and void on the
ground that it violated
the rule on uniformity of taxation.
HELD:
YES. While it is true that the first part which requires that
the alien shall secure an
employment permit from the Mayor involves the exercise
of discretion and judgment in
the processing and approval or disapproval of applications
for employment permits and
therefore is regulatory in character the second part which
requires the payment of P50.00
as employees fee is not regulatory but a revenue
measure. There is no logic or justification
in exacting P50.00 from aliens who have been cleared for
employment. It is obvious that the
purpose of the ordinance is to raise money under the guise
of regulation.
The P50.00 fee is unreasonable not only because it is
excessive but because it fails to
consider valid substantial differences in situation among
individual aliens who are required to
pay it. Although the equal protection clause of the
Constitution does not forbid classification, it
is imperative that the classification should be based on real
and substantial differences having
a reasonable relation to the subject of the particular
legislation. The same amount of P50.00
is being collected from every employed alien whether he is
casual or permanent, part time or
full time or whether he is a lowly employee or a highly paid
executive
Ordinance No. 6537 does not lay down any criterion or
standard to guide the Mayor in
PAGE 66the exercise of his discretion. It has been held that
where an ordinance of a municipality fails
to state any policy or to set up any standard to guide or
limit the mayors action, expresses no
purpose to be attained by requiring a permit, enumerates
no conditions for its grant or refusal,
and entirely lacks standard, thus conferring upon the
Mayor arbitrary and unrestricted power
to grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined

and unlimited delegation of power to allow or prevent an

activity per se lawful.
PAGE 67Villanueva v. City of Iloilo
[G.R. No. L-26521. December 28, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: CASTRO, J.
FACTS:
On September 30, 1946 the municipal board of Iloilo City
enacted Ordinance 86. The
Supreme Court, however, declared the ordinance ultra
vires. On January 15, 1960 the municipal
board of Iloilo City, believing that with the passage of
Republic Act 2264, otherwise known as
the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar
to that previously declared by the Supreme Court as ultra
vires, enacted Ordinance 11, series
of 1960, imposing municipal license tax on persons
engaged in the business of operating
tenement houses in accordance with the schedule of
payment provided by therein.
Villanueva and the other apartment owners from whom,
the city collected license taxes
by virtue of Ordinance 11 aver that the said ordinance is
unconstitutional for RA 2264 does
not empower cities to impose apartment taxes; that the
same is oppressive and unreasonable
for it penalizes those who fail to pay the apartment taxes;
that it constitutes not only double
taxation but treble taxation; and, that it violates uniformity
of taxation.
ISSUE:
1. Whether or not the ordinance constitutes double
taxation?
2. Whether or not the City of Iloilo is empowered by the
Local Autonomy Act to
impose tenement taxes.
3. Whether or not Ordinance 11 violated the rule of
uniformity of taxation.
HELD:
1. NO. While it is true that appellees are taxable under the
NIRC as real estate dealers,
and taxable under Ordinance 11, double taxation may not
be invoked. This is because the
same tax may be imposed by the national government as
well as by the local government.
The contention that appellees are doubly taxed because
they are paying real estate taxes
and the tenement tax is also devoid of merit. A license tax
may be levied upon a business or
occupational though the land or property used in
connection therewith is subject to property
tax. In order to constitute double taxation, both taxes must
be the same kind or character. Real

estate taxes and tenement taxes are not of the same

character.
2. YES. The lower court has interchangeably denominated
the tax in question as a
tenement tax or an apartment tax. Called by either name,
it is not among the exceptions listed
in Section 2 of the Local Autonomy Act. The imposition by
the ordinance of a license tax on
persons engaged in the business of operating tenement
houses finds authority in Section 2
of the Local Autonomy Act which provides that chartered
cities have the authority to impose
municipal license taxes or fees upon persons engaged in
any occupation or business, or
PAGE 68exercising privileges within their respective
territories, and otherwise to levy for public
purposes, just and uniform taxes, licenses, or fees.
3. NO. The ordinance is not violative of the rule of
uniformity in taxation. The Supreme
Court has already ruled that tenement houses constitute a
distinct class of property. It has
likewise ruled that taxes are uniform and equal when
imposed upon all property of the same
class or character within the taxing authority. The fact,
therefore, that the owners of other
classes of buildings in the City of Iloilo do not pay the taxes
imposed by the ordinance in
question is no argument at all against uniformity and
equality of the tax imposition. Neither
is the rule of equality and uniformity violated by the fact
that tenement taxes are not imposed
in other cities, for the same rule does not require that
taxes for the same purpose should
be imposed in different territorial subdivisions at the same
time. So long as the burden of
the tax falls equally and impartially on all owners or
operators of tenement houses similarly
classified or situated, equality and uniformity of taxation is
accomplished.
PAGE 69Pepsi-Cola Bottling Co. of the Philippines, Inc v.
City of Butuan
[G.R. No. L-2281. August 28, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: CONCEPCION, C.J.
FACTS:
In 1960, Ordinance 110 was passed in Butuan. It was later
amended by Ordinance
122. This Ordinance imposes a tax on any person,
association, etc., of P0.10 per case of 24
bottles of Pepsi- Cola. Pepsi operates within the Butuan
and it paid under protest the amount
of P4.926.63 from August 16 to December 31, 1960 and
the amount of P9,250.40 from
January 1 to July 30, 1961. Pepsi filed a complaint for the
recovery of the total amount of

P14,177.03 paid under protest and those that it may later

on pay until the termination of the
case. Pepsi maintains that the disputed ordinance is null
and void because: (1) it partakes of
the nature of an import tax; (2) it amounts to double
taxation; (3) it is excessive, oppressive
and confiscatory; (4) it is highly unjust and discriminatory;
and (5) section 2 of Republic Act
No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of
legislative powers.
ISSUE:
Whether or not the ordinance is null and void.
HELD:
YES. The first and the fourth objections by petitioner merit
serious consideration.
In this connection, it is noteworthy that the tax prescribed
in section 3 of Ordinance No.
110, as originally approved, was imposed upon dealers
engaged in selling soft drinks or
carbonated drinks. Thus, it would seem that the intent was
then to levy a tax upon the sale of
said merchandise. As amended by Ordinance No. 122, the
tax is, however, imposed only upon
any agent and/or consignee of any person, association,
partnership, company or corporation
engaged in selling ... soft drinks or carbonated drinks.
As a consequence, merchants engaged in the sale of soft
drink or carbonated drinks,
are not subject to the tax, unless they are agents and/or
consignees of another dealer, who,
in the very nature of things, must be one engaged in
business outside the City. Besides, the
tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft
drinks are consigned or shipped to him every month. When
we consider, also, that the tax
shall be based and computed from the cargo manifest or
bill of lading ... showing the number
of cases not sold but received by the taxpayer, the
intention to limit the application of
the ordinance to soft drinks and carbonated drinks brought
into the City from outside thereof
becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty,
which is beyond defendants authority to impose by
express provision of law.
Even however, if the burden in question were regarded as
a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and
hence, violative of the uniformity
PAGE 70required by the Constitution and the law therefor,
since only sales by agents or consignees of
outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of

other merchants, regardless of the volume of their sales,

and even if the same exceeded those
made by said agents or consignees of producers or
merchants established outside the City of
Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise
of the power of taxation
does not require identity or equality under all
circumstances, or negate the authority to
classify the objects of taxation. The classification made in
the exercise of this authority, to be
valid, must, however, be reasonable and this requirement
is not deemed satisfied unless: (1) it
is based upon substantial distinctions which make real
differences; (2) these are germane to
the purpose of the legislation or ordinance; (3) the
classification applies, not only to present
conditions, but, also, to future conditions substantially
identical to those of the present; and
(4) the classification applies equally all those who belong
to the same class.
These conditions are not fully met by the ordinance in
question. Indeed, if its purpose were
merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no
reason why sales thereof by sealers other than agents or
consignees of producers or merchants
established outside the City of Butuan should be exempt
from the tax.
PAGE 71Ormoc Sugar Co. v. Treasurer of Ormoc City
[G.R. No. L-23794. February 17, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: BENGZON, J.P., J.
FACTS:
Ormoc city passed an ordinance which provides: There
shall be paid to the City
Treasurer on any and all productions of centrifugal sugar
milled at the Ormoc Sugar Company,
Incorporated, in Ormoc City, a municipal tax equivalent to
one per centum (1%) per export
sale to the United States of America and other foreign
countries.
Though referred to as a production tax, the imposition
actually amounts to a tax
on the export of centrifugal sugar produced at Ormoc
Sugar Company, Inc. For production of
sugar alone is not taxable; the only time the tax applies is
when the sugar produced is exported.
Ormoc Sugar paid the tax (P7,087.50) in protest averring
that the same is violative of Section
2287 of the Revised Administrative Code which provides:
It shall not be in the power of the
municipal council to impose a tax in any form whatever,
upon goods and merchandise carried

into the municipality, or out of the same, and any attempt

to impose an import or export
tax upon such goods in the guise of an unreasonable
charge for wharfage, use of bridges or
otherwise, shall be void. And that the ordinance is
violative to equal protection as it singled
out Ormoc Sugar as being liable for such tax impost for no
other sugar mill is found in the city.
ISSUE:
Whether or not the ordinance violates the equal protection
clause and the uniformity
of taxation.
HELD:
YES. The equal protection clause applies only to persons or
things identically situated
and does not bar a reasonable classification of the subject
of legislation, and a classification
is reasonable where (1) it is based on substantial
distinctions which make real differences;
(2) these are germane to the purpose of the law; (3) the
classification applies not only to
present conditions but also to future conditions which are
substantially identical to those of
the present; (4) the classification applies only to those who
belong to the same class.
A perusal of the requisites instantly shows that the
questioned ordinance does not
meet them, for it taxes only centrifugal sugar produced
and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing
ordinances enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in the
city of Ormoc. Still, the classification,
to be reasonable, should be in terms applicable to future
conditions as well. The taxing
ordinance should not be singular and exclusive as to
exclude any subsequently established
sugar central, of the same class as plaintiff, for the
coverage of the tax. As it is now, even if later
a similar company is set up, it cannot be subject to the tax
because the ordinance expressly
points only to Ormoc City Sugar Company, Inc. as the
entity to be levied upon.
PAGE 72Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955]
Digest by: DE GUZMAN, Pristine B.
PONENTE: REYES, J.B L., J..
FACTS:
Due to the threat to industry by the imminent imposition of
export taxes upon sugar
as provided in the Tydings-McDuffe Act, and the eventual
loss of its preferential position
in the United States market; the National Assembly
promulgated Commonwealth Act No.

567, otherwise known as the Sugar Adjustment Act to

obtain a readjustment of the benefits
derived from the sugar industry by the component
elements thereof and to stabilize the
sugar industry so as to prepare it for the eventuality of the
loss of its preferential position in
the United States market and the imposition of the export
taxes.
Walter Lutz, as the Judicial Administrator of the Intestate
Estate of Antonio Jayme
Ledesma, seeks to recover from J. Antonio Araneta, the
Collector of Internal Revenue, the sum
of money paid by the estate as taxes, pursuant to the
Sugar Adjustment Act. Under Section
3 of said Act, taxes are levied on the owners or persons in
control of the lands devoted to
the cultivation of sugar cane. Furthermore, Section 6 states
all the collections made under
said Act shall be for aid and support of the sugar industry
exclusively. Lutz contends that
such purpose is not a matter of public concern hence
making the tax levied for that cause
unconstitutional and void. The Court of First Instance
dismissed his petition, thus this appeal
before the Supreme Court.
ISSUE:
Whether or not the tax levied under the Sugar Adjustment
Act is unconstitutional.
HELD:
NO. The tax levied under the Sugar Adjustment Act is
constitutional. The tax under
said Act is levied with a regulatory purpose, to provide
means for the rehabilitation and
stabilization of the threatened sugar industry. Since sugar
production is one of the great
industries of our nation, its promotion, protection, and
advancement, therefore redounds
greatly to the general welfare. Hence, said objectives of
the Act are of public concern and
is therefore constitutional. It follows that the Legislature
may determine within reasonable
bounds what is necessary for its protection and expedient
for its promotion. If objectives and
methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to
raise funds for their prosecution and attainment. Taxation
may be made with the implement
of the states police power. In addition, it is only rational
that the taxes be obtained from those
that will directly benefit from it.
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
PAGE 73From the point of view we have taken it appears of
no moment that the funds raised under
the Sugar Stabilization Act, now in question, should be
exclusively spent in aid of the sugar
industry, since it is that very enterprise that is being
protected. It may be that other industries
are also in need of similar protection; that the legislature is
not required by the Constitution to
adhere to a policy of all or none. if the law presumably
hits the evil where it is most felt, it is
not to be overthrown because there are other instances to
which it might have been applied;
and that the legislative authority, exerted within its proper
field, need not embrace all the
evils within its reach
Even from the standpoint that the Act is a pure tax
measure, it cannot be said that
the devotion of tax money to experimental stations to seek
increase of efficiency in sugar
production, utilization of by-products and solution of allied
problems, as well as to the
improvements of living and working conditions in sugar
mills or plantations, without any
part of such money being channeled directly to private
persons, constitutes expenditure of tax
money for private purposes.
PAGE 74ASSOCIATION OF CUSTOMS BROKERS, INC. and G.
MANLAPIT,
INC., vs. THE MUNICIPALITY BOARD, THE CITY TREASURER,
THE CITY ASSESSOR and THE CITY MAYOR, all of the City of
Manila
[G.R. No. L-4376, May 22, 1953]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: BAUTISTA ANGELO, J.
FACTS:
The Association of Customs Brokers, Inc., which is
composed of all brokers and public
service operators of motor vehicles in the City of Manila,
and G. Manlapit, Inc., a member of
said association, also a public service operator of the
trucks in said City, challenge the validity
of Ordinance No. 3379 passed by the Municipal Board of
the City of Manila on March 24, 1950
on the ground that (1) while it levies a so-called property
tax it is in reality a license tax which
is beyond the power of the Municipal Board of the City of
Manila; (2) said ordinance offends
against the rule of uniformity of taxation; and (3) it
constitutes double taxation.
The respondents, represented by the city fiscal, contend on
their part that the
challenged ordinance imposes a property tax which is
within the power of the City of Manila

to impose under its Revised Charter [Section 18 (p) of

Republic Act No. 409], and that the tax
in question does not violate the rule of uniformity of
taxation, nor does it constitute double
taxation.
The Court of First Instance of Manila sustained the validity
of the ordinance and
dismissed the petition. Hence this appeal.
ISSUE:
1. Whether or not Ordinance no. 3379 is void for having
passed beyond the power of
the Municipal Board of the City of Manila.
2. Whether or not Ordinance no. 3379 violates the rule of
uniformity of taxation.
HELD:
1. In the deciding the issue before us it is necessary to
bear in mind the pertinent
provisions of the Motor Vehicles Law, as amended, (Act No.
3992) which has a bearing on the
power of the municipal corporation to impose tax on motor
vehicles operating in any highway
in the Philippines. The pertinent provisions are contained in
section 70 (b) which provide in
part: No further fees than those fixed in this Act shall be
exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the
profession of chauffeur, or for the operation
of any motor vehicle by the owner thereof: Provided,
however, That nothing in this Act shall be
construed to exempt any motor vehicle from the payment
of any lawful and equitable insular,
local or municipal property tax imposed thereupon. . . .
Note that under the said section no fees may be exacted or
demanded for the operation
PAGE 75of any motor vehicle other than those therein
provided, the only exception being that which
refers to the property tax which may be imposed by a
municipal corporation. This provision
is all-inclusive in that sense that it applies to all motor
vehicles. In this sense, this provision
should be construed as limiting the broad grant of power
conferred upon the City of Manila by
its Charter to impose taxes.
While it refers to property tax and it is fixed ad valorem yet
we cannot reject the
idea that it is merely levied on motor vehicles operating
within the City of Manila with the
main purpose of raising funds to be expended exclusively
for the repair, maintenance and
improvement of the streets and bridges in said city. This is
precisely what the Motor Vehicle
Law (Act No. 3992) intends to prevent, for the reason that,
under said Act, municipal
corporation already participate in the distribution of the
proceeds that are raised for the same

purpose of repairing, maintaining and improving bridges

and public highway (section 73 of
the Motor Vehicle Law). This prohibition is intended to
prevent duplication in the imposition
of fees for the same purpose. It is for this reason that we
believe that the ordinance in question
merely imposes a license fee although under the cloak of
an ad valorem tax to circumvent the
prohibition above adverted to.
2. The ordinance infringes the rule of the uniformity of
taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon
all motor vehicles operating within
the City of Manila. It does not distinguish between a motor
vehicle for hire and one which is
purely for private use. Neither does it distinguish between
a motor vehicle registered in the
City of Manila and one registered in another place but
occasionally comes to Manila and uses its
streets and public highways. The distinction is important if
we note that the ordinance intends
to burden with the tax only those registered in the City of
Manila as may be inferred from the
word operating used therein. The word operating
denotes a connotation which is akin
to a registration, for under the Motor Vehicle Law no motor
vehicle can be operated without
previous payment of the registration fees. There is no
pretense that the ordinance equally
applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and
it cannot be denied that they contribute in no small degree
to the deterioration of the streets
and public highway. The fact that they are benefited by
their use they should also be made to
share the corresponding burden. And yet such is not the
case. This is an inequality which we
find in the ordinance, and which renders it offensive to the
Constitution.
PAGE 76EASTERN THEATRICAL CO., INC., ET AL., vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE
MUNICIPAL BOARD OF
THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the
City of Manila
[G.R. No. L-1104, May 31, 1949]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: PERFECTO, J.
FACTS:
The municipal board of Manila enacted Ordinance 2958
(series of 1946) imposing a fee
on the price of every admission ticket sold by
cinematograph theaters, vaudeville companies,
theatrical shows and boxing exhibitions, in addition to fees
imposed under Sections 633 and

778 of Ordinance 1600. Plaintiffs, operator of theaters in

Manila And distributor of local or
imported films allege that they are interested in the
provision of section 1,2 and 4 of said
ordinance which they impugn as null and void upon the
following grounds: (a) For violation the
Constitution more particular the provision regarding the
uniformity and equality of taxation
and the equal protection of the laws; (b) because the
Municipal Board of Manila exceeded and
over-stepped the power granted it the Charter of the City
of Manila; (c) because it contravenes
violates and is inconsistent with, existing national
legislation more particularly revenue and
tax laws and (d) because it is unfair, unjust, arbitrary
capricious unreasonable oppressive and
is contrary to and violation our basic and recognizes
principles of taxation and licensing laws.
ISSUE:
Whether the ordinance violates the rule on uniformity and
equality of taxation.
HELD:
The fact that some places of amusement are not taxed
while others, such as
cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and
other kinds of amusements or places of amusement are
taxed, is no argument at all against the
equality and uniformity of the tax imposition. Equality and
uniformity of the tax imposition.
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; and the appellants cannot
point out what places of amusement taxed by the
ordinance do not constitute a class by
themselves and which can be confused with those not
included in the ordinance.
PAGE 77PHILIPPINE TRUST COMPANY, PEOPLES BANK AND
TRUST
COMPANY, THE YOKOHAMA SPECIE BANK, LTD., and THE
CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA, vs.
A.L. YATCO, as Collector of Internal Revenue,
[G.R. Nos. L-46255, 46256, 46259 and 46277, January 23,
1940]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: LAUREL, J
FACTS:
The original plaintiffs in the Court of First Instance of
Manila were the Philippine
Trust Company, the Peoples Bank and Trust Company, the
Yokohama Specie Bank, Ltd., the

Chartered Bank of India, Australia & China, the Bank of the

Philippine Islands, the Hongkong
& Shanghai Banking Corporation, and the China Banking
corporation. As the last three named
Banks did not appeal from the decision of the lower court,
we are here concerned with the
appeal taken by the plaintiffs named in the four abovetitled cases.
The records disclosed that prior to the filing of these suits,
and for a number of years, the
plaintiffs-appellants had been paying capital and deposit
taxes without protest, formerly
under section 111 of Act No. 1189, and later under section
1499 of the Revised Administrative
Code of 1917, as amended.
In the trial court, by agreement of the parties, the case
were submitted and heard together on a
joint stipulation of facts. After trial, the Court of First
Instance of Manila dismissed the actions
and upheld the validity of section 1499 of the Revised
Administrative Code, as amended by
Act No. 3199.
Appellants challenge the constitutionality of the aforesaid
section of the Revised
Administrative Code, principally on the grounds that it
violates the rule regarding uniformity
of taxation, and that it is discriminatory, and therefore
violative of the equal protection clause
of the Constitution.
ISSUE:
Whether or not said section of thr Revised Administrative
Code violates the Rule on
uniformity of taxation.
HELD:
No. A tax is considered uniform when it operates with the
same force and effect in
every place where the subject may be found. (State v.
Railroad Tax Cases, 92 U.S. 575, 595,
612, 23 Law. ed. 363, 373.) Section 1499 of the Revised
Administrative Code, as amended,
applies uniformly to, and operates on, all banks in the
Philippines without distinction and
discrimination, and if the National City Bank of New York is
exempted from its operation
because it is a federal instrumentality subject only to the
authority of Congress, that alone
could have the effect of rendering it violative of the rule of
uniformity. In every well-regulated
and enlightened state or government, certain descriptions
of property and also certain
PAGE 78institutions are exempt from taxation, but these
exemptions have never been regarded as
disturbing the rules of taxation, even where the
fundamental law had ordained that it should

be uniform. (Des Moines Bank v. Fairweather, 263 U.S.

103,118). The rule of uniformity does
not call for perfect uniformity or perfect equality, because
this is hardly attainable.
PAGE 79FRANCIS A. CHURCHILL and STEWART TAIT, ET AL,
vs.
VENANCIO CONCEPCION, as Acting Collector of Internal
Revenue,
[G.R. No. 11572, September 22, 1916]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: TRENT, J.:
FACTS:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 1914, imposed
an annual tax of P4 per square meter upon electric signs,
billboards, and spaces used for
posting or displaying temporary signs, and all signs
displayed on premises not occupied by
buildings. This section was subsequently amended by Act
No. 2432, effective January 1, 1915,
by reducing the tax on such signs, billboards, etc., to P2
per square meter or fraction thereof.
Section 26 of Act No. 2432 was in turn amended by Act No.
2445, but this amendment does not
in any way affect the questions involved in the case under
consideration. The taxes imposed
by Act No. 2432, as amended, were ratified by the
Congress of the United States on March 4,
1915.
Francis A. Churchill and Stewart Tait, copartners doing
business under the firm name
and style of the Mercantile Advertising Agency, owners of a
sign or billboard containing an
area of 52 square meters constructed on private property
in the city of Manila and exposed to
public view, were taxes thereon P104. The tax was paid
under protest and the plaintiffs having
exhausted all their administrative remedies instituted the
present action under section 140 of
Act No. 2339 against the Collector of Internal Revenue to
recover back the amount thus paid.
From a judgment dismissing the complaint upon the
merits.
ISSUE:
Whether the statute or tax is void for lack of uniformity.
HELD:
A tax is uniform when it operates with the same force and
effect in every place
where the subject of it is found (State Railroad Tax Cases,
92 U.S., 575.) The words uniform
throughout the United States, as required of a tax by the
Constitution, do not signify an
intrinsic, but simply a geographical, uniformity, and such
uniformity is therefore the only

uniformity which is prescribed by the Constitution. (Patton

vs. Brady, 184 U.S., 608; 46 L. Ed.,
713.) A tax is uniform, within the constitutional
requirement, when it operates with the same
force and effect in every place where the subject of it is
found. (Edye vs. Robertson, 112 U.S.,
580; 28 L. Ed., 798.) Uniformity, as applied to the
constitutional provision that all taxes shall
be uniform, means that all property belonging to the same
class shall be taxed alike. (Adams
vs. Mississippi State Bank, 23 South, 395, citing Mississippi
Mills vs Cook, 56 Miss., 40.) The
statute under consideration imposes a tax of P2 per square
meter or fraction thereof upon
every electric sign, bill-board, etc., wherever found in the
Philippine Islands. Or in other words,
the rule of taxation upon such signs is uniform
throughout the Islands. The rule, which we
PAGE 80have just quoted from the Philippine Bill, does not
require taxes to be graded according to
the value of the subject or subjects upon which they are
imposed, especially those levied as
privilege or occupation taxes. We can hardly see wherein
the tax in question constitutes double
taxation. The fact that the land upon which the billboards
are located is taxed at so much per
unit and the billboards at so much per square meter does
not constitute double taxation.
Double taxation, within the true meaning of that
expression, does not necessarily affect its
validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it
is not for the judiciary to say that the
classification upon which the tax is based is mere
arbitrary selection and not based upon any
reasonable grounds. The Legislature selected signs and
billboards as a subject for taxation
and it must be presumed that it, in so doing, acted with a
full knowledge of the situation.
PAGE 81Meralco vs. Province of Laguna
[G.R. No. 131359. May 5, 1999]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Vitug, J.
FACTS:
In the province of Laguna, certain municipalities thereof
issued resolutions through
their respective municipal councils, granting MERALCO
franchises for the supply of light and
power. Thereafter, the Local Government Code of 1991
was enacted enjoining local goverment
units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the
limitations, consistent with the basic policy of local
autonomy.
Thereafter, the Province of Laguna enacted Laguna
Provincial Ordinance which

imposed tax on businesses enjoying a franchise at a rate of

50% of 1% of the gross annual
receipts. MERALCO was then sent a demand letter to pay
the corresponding tax. MERALCO
paid the tax under protest (approx. Php19.5M) and later on
filed a formal claim for refund.
MERALCO claims that the franchise tax it had paid and
continued to pay to the
National Government already included the tax imposed by
the Provincial Tax Ordinance. The
RTC dismissed the complaint and ruled that the Ordinance
was valid, binding, reasonable and
enforceable.
ISSUE:
Whether or not the Laguna Provincial Tax Ordinance is
valid.
HELD:
Yes. Local Governments do not have the inherent power to
tax except to the extent that
such power might be delegated to them either by the basic
law or by statute. Presently, Under
Article X of the 1987 Constitution, a general delegation of
that power has been given in favor
of the Local Government Units (LGU).
Under the now prevailing Constitution, where there is
neither a grant nor a prohibition
by statute, the tax power must be deemed to exist
although Congress may provide statutory
limitations and guidelines. The basic rationale for the
current rule is to safeguard the viability
and self-sufficiency of local government units by directly
granting them general and broad
tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute
and unconditional. While the Court has, not too
infrequently, referred to tax exemptions
contained in special franchises as being in the nature of
contracts and a part of the inducement
for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly
contractual in nature. Contractual tax exemptions, in the
real sense of the term and where the
non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the
taxing authority in contracts, such as those contained in
government bonds or debentures,
lawfully entered into by them under enabling laws in which
the government, acting in its
PAGE 82private capacity, sheds its cloak of authority and
waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be
confused with tax exemptions

granted under franchises. A franchise partakes the nature

of a grant which is beyond the
purview of the non-impairment clause of the Constitution.
The Local Government Code of 1991 explicitly authorizes
provincial governments,
notwithstanding any exemption granted by any law or
other special law, to impose a tax
on businesses enjoying a franchise. Indicative of the
legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to
local government units, LGC has
effectively withdrawn under Section 193 thereof, tax
exemptions or incentives theretofore
enjoyed by certain entities.
MERALCO further contends that in a plethora of cases, the
phrase shall be in lieu of
all taxes and at any time levied, established by, or
collected by any authority exempted the
franchise holder from any other tax imposed by the then
Internal Revenue Code and local
ordinaces. The SC holds otherwise. Court has held that the
phrase in lieu of all taxes have
to give way to the peremptory language of the Local
Government Code specifically providing
for the withdrawal of such exemptions, privileges, and
that upon the effectivity of the Local
Government Code all exemptions except only as provided
therein can no longer be invoked
by MERALCO to disclaim liability for the local tax. In fine,
the Court has viewed its previous
rulings as laying stress more on the legislative intent of the
amendatory law whether the tax
exemption privilege is to be withdrawn or not rather than
on whether the law can withdraw,
without violating the Constitution, the tax exemption or
not.
PAGE 83Province of Misamis Oriental v. Cagayan Electric
Power and
Light Company Inc.
[G.R. No. 131359. May 5, 1999]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Grino-Aquino
FACTS:
Cagayan Electric Power and Light Company, Inc.
(CEPALCO) was granted a franchise
on June 17, 1961 under RA 3247 to install, operate and
maintain an electric light, heat and
power system in the City of Cagayan de Oro and its
suburbs. The franchise was amended on
June 21, 1963 by RA 3570 which added the municipalities
of Tagoloan and Opol to CEPALCOs
sphere of operation, and was further amended on August
4, 1969 by RA 6020 which extended
its field of operation to the municipalities of Villanueva and
Jasaan.

On June 28, 1973, the Local Tax Code (PD 231) was
promulgated. Pursuant thereto,
the Province of Misamis Oriental enacted Provincial
Revenue Ordinance 19 which provide
for a franchise tax. The Provincial Treasurer of Misamis
Oriental demanded payment of the
provincial franchise tax from CEPALCO. The company
refused to pay, alleging that it is exempt
from all taxes except the franchise tax required by RA
6020. Nevertheless, CEPALCO paid
under protest on May 27, 1974 the sum of P4,276.28 and
appealed the fiscals ruling to the
Secretary of Justice who reversed it and ruled in favor of
CEPALCO.
On 16 February 1976, the Province filed in the CFI Misamis
Oriental a complaint for
declaratory relief praying that the Court exercise its power
to construe PD 231 in relation to
the franchise of CEPALCO (RA 6020), and to declare the
franchise as having been amended by
PD 231. The Court dismissed the complaint and ordered
the Province to return to CEPALCO
the sum of P4,276.28 paid under protest.
ISSUE:
Whether or not the imposed franchise tax is valid.
HELD:
Section 9 of PD 231 provides that any provision of special
laws to the contrary
notwithstanding, the province may impose a tax on
businesses enjoying franchise, based on
the gross receipts realized within its territorial jurisdiction,
at the rate of not exceeding onehalf of one per cent of the
gross annual receipts for the preceding calendar year. In
the case of
newly started business, the rate shall not exceed three
thousand pesos per year. Sixty per cent
of the proceeds of the tax shall accrue to the general fund
of the province and forty per cent to
the general fund of the municipalities serviced by the
business on the basis of the gross annual
receipts derived therefrom by the franchise holder. In the
case of a newly started business,
forty per cent of the proceeds of the tax shall be divided
equally among the municipalities
serviced by the business.
PAGE 84The Provincial Revenue Ordinance 19 provides
that there shall be levied, collected and paid
on businesses enjoying franchise tax of one-half of one per
cent of their gross annual receipts
for the preceding calendar year realized within the
territorial jurisdiction of the province of
Misamis Oriental.
There is no provision in PD 231 expressly or impliedly
amending or repealing Section

3 of RA 6020. The perceived repugnancy between the two

statutes should be very clear before
the Court may hold that the prior one has been repealed
by the later, since there is no express
provision to that effect.
The rule is that a special and local statute applicable to a
particular case is not repealed
by a later statute which is general in its terms, provisions
and application even if the terms
of the general act are broad enough to include the cases in
the special law unless there is
manifest intent to repeal or alter the special law.
Republic Acts 3247, 3570 and 6020 are special laws
applicable only to CEPALCO, while
PD 231 is a general tax law. The presumption is that the
special statutes are exceptions to the
general law (PD 231) because they pertain to a special
charter granted to meet a particular set
of conditions and circumstances. The CEPALCOs franchise
expressly exempts it from payment
of all taxes of whatever authority except the three per
centum (3%) tax on its gross earnings.
The Local Tax Regulation 3-75 issued by the Secretary of
Finance on 26 June 1976, has made
it crystal clear that the franchise tax provided in the Local
Tax Code (PD 231, Sec. 9) may only
be imposed on companies with franchises that do not
contain the exempting clause.
The provision: shall be in lieu of all taxes of every name
and nature in the franchise
of the Manila Railroad exempts the Manila Railroad from
payment of internal revenue tax.
The Court pointed out that such exemption is part of the
inducement for the acceptance
of the franchise and the rendition of public service by the
grantee. As a charter is in the nature
of a private contract, the imposition of another franchise
tax on the corporation by the local
authority would constitute an impairment of the contract
between the government and the
corporation.
PAGE 85Cagayan Electric Power & Light Co. Inc. v. CIR
[G.R. No. L-60126 September 25, 1985]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Aquino
FACTS:
Under RA 3247, Cagayan Electric Power and Light Co. is
the holder of a legislative
franchise, which its payment of 3% tax on its gross
earnings from the sale of electric current is
in lieu of all taxes and assessments of whatever authority
upon privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of
the grantee, from which taxes and
assessments the grantee is hereby expressly exempted.

On June 27 1968, RA 5431 amended section 24 of the Tax

Code by making liable for
income tax all corporate taxpayers not specifically exempt
under paragraph (c) (1) of said
section and section 27 of the Tax Code notwithstanding the
provisions of existing special
or general laws to the contrary. Thus, franchise
companies were subjected to income tax in
addition to franchise tax. However, in the companys case,
its franchise was amended by RA
6020 by authorizing the company to furnish electricity to
the municipalities of Villanueva and
Jasaan, Misamis Oriental in addition to Cagayan de Oro City
and the municipalities of Tagoloan
and Opol.
Said amendment reenacted the tax exemption in its
original charter or neutralized
the modification made by RA 5431 more than a year
before. By reason of the amendment
to section 24 of the Tax Code, the Commissioner of Internal
Revenue required the company
to pay deficiency income taxes for 1968 to 1971. The
company contested the assessments.
The Commissioner cancelled the assessments for 1970 and
1971 but insisted on those for
1968 and 1969. The company filed a petition for review
with the Tax Court, which held the
company liable only for the income tax for the period from
January 1 to August 3, 1969 or
before the passage of RA 6020 which reiterated its tax
exemption. The liability of the company
for income tax amounted to P75,149.73 for the more than
seven-month period of the year
1969 in addition to franchise tax. The company appealed
to the Supreme Court.
ISSUE:
Whether or not Congress could impair the companys
legislative franchise
HELD:
Yes. Congress could impair the companys legislative
franchise by making it liable for
income tax from which heretofore it was exempted by
virtue of the exemption provided for in
section 3 of its franchise. The Constitution provides that a
franchise is subject to amendment,
alteration or repeal by the Congress when the public
interest so requires. Section 1 of the
companys franchise, RA 3247, provides that it is subject to
the provisions of the Constitution
and to the terms and conditions established in Act 3636
whose section 12 provides that the
franchise is subject to amendment, alteration or repeal by
Congress.
RA 5431, in amending section 24 of the Tax Code by
subjecting to income tax all

PAGE 86corporate taxpayers not expressly exempted

therein and in section 27 of the Code, had the
effect of withdrawing the companys exemption from
income tax.
The exemption was restored by the subsequent enactment
on 4 August 1969 of RA
6020 which reenacted the said tax exemption. Hence, the
company is liable only for the income
tax for the period from January 1 to August 3, 1969 when
its tax exemption was modified by
RA 5431.
PAGE 87Lealda v. CIR
[G.R. No. L-16428. April 30, 1963.]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Dizon
FACTS:
Julian M. Locsin Anson was granted a franchise in 1915, to
operate an electric light
and power plant to supply electric current to the residents
of the municipalities of Legaspi
and Daraga in Albay province (Act 2475, as amended by
Act 2620). Subsequently, he sold his
franchise, certificate of public convenience and the electric
plant to Saturnino Benito, who in
turn sold the same to Alfredo, Mario and Benjamin, all
surnamed Benito, on March 13, 1941.
On June 11, 1949, the Benitos and other parties formed a
partnership to operate the electric
plant. After the incorporation of Lealda Electric on February
8, 1951, the franchise, certificate
of public convenience and the electric plant was
transferred to it by said partnership. All these
transactions were approved by the Public Service
Commission.
Since 1915, the original grantee and, after him, his various
successors in interest, paid
a franchise tax of 2% on the gross earnings or receipts
from the business operated under
the franchise until October 1, 1946 when Section 259 of
the National Internal Revenue Code
was amended by RA 39 which increased the franchise tax
to 5%. Upon the approval of this
mandatory act, Lealda Electric was required to pay, as it
did pay, the increased franchise tax,
except those that became payable before its incorporation,
these having been paid by its
predecessors in interest. Apparently on 27 October 1953,
Lealda Electric had filed a claim for
refund, action on which, however, was held in abeyance
pending receipt by the Collector of
Internal Revenue of an audit report expected from the
General Auditing Office. On January 8,
1954, Lealda Electric filed with the Commissioner of
Internal Revenue a petition for refund

contending that, under its charter, it was liable to pay a

franchise tax equivalent to only 2%
and not 5% of its gross earnings or receipts. On June 22,
1958, Lealda Electric filed its last
claim for refund of the total amount of P78,891.34
representing alleged excess payments of
franchise tax covering the period from 20 January 1947 to
April 15, 1958.
On January 8, 1959 petitioner filed with the Court of Tax
Appeals a petition for review
praying for the refund of the total sum of P84,573.61
representing alleged excess payments
of franchise tax for the period from January 20, 1947 to
October 14, 1958, and for an order
restraining said commission and its agents from collecting
from it more than 2% of its gross
earnings or receipts, as franchise tax. After proper
proceedings in the Court of Tax Appeals,
the court held that Lealda Electric was subject to pay the
5% franchise tax as prescribed
in Section 259 of the National Internal Revenue Code, as
amended by RA 39 and, as a
consequence, dismissing the petition for refund for lack of
merit.
PAGE 88
ISSUE:
Whether or not Lealda is entitled to the refund.HELD:
No. Lealda Electrics franchise does not specifically state
that the rate of the franchise
tax to be paid thereunder by the original grantee and his
successors in interest shall be 2%
of his gross earnings or receipts. It seems clear, therefore,
that the intention of the legislature
was to impose upon the grantee and his successors in
interest, the obligation to pay the same
franchise tax imposed upon other grantees or franchise
holders at the time Act 2475 was
enacted.
Prior to its amendment, Section 259 of the Tax Code
merely provided that the
grantees of franchises should pay on their gross earnings
or receipts such taxes, charges and
percentages as are specified in special charters of
corporations upon whom such franchises
are conferred This provision did not cover the case of
franchise holders whose charters did
not specify the rate of franchise tax to be paid by them.
Consequently, prior to the enactment
of RA 39, the franchise tax paid by grantees whose
charters did not specify the rate of the
franchise tax to be paid by them was the one provided for
in Section 10 of Act 3636, known as
the Model Electric Light and Power Franchise Act.
Consequently, Section 259 of the Tax Code,

as amended by RA 39, became the basic franchise tax law

because it was not only entitled Tax
on Corporate Franchises but it fixed the rate of the
franchise tax to be paid by holders of all
existing and future franchises. Such being the case, the
provisions of the act amending said
section must be deemed to apply likewise to Lealda
Electric because its franchise was already
existing at the time of the adoption of the amendment. Tax
exemptions are not presumed.
PAGE 89Casanovas v. Hord
[G.R. No. 3473, March 22, 1907]
Digest by: ESCANER, Michael Joseph
PONENTE: Willard, J.
FACTS:
The Spanish Government in 1897 granted petitioner
certain mines in the province of
Ambos Camarines in accordance with the provisions of the
royal decree of 14th May 1867.
The mines granted are now in the ownership of petitioner.
Petitioner contended that these
were validly perfected mining concessions granted to him
prior to 11th of April 1899. The
Collector of Internal Revenue considered the mines to fall
within the provisions of Section
134 of Act 1189 (InternalRevenue Act). The defendant
Commissioner, JNO S. Hord, imposed
upon these properties the tax mentioned in Section134,
which plaintiff Casanovas paid under
protest.
ISSUE:
Whether or not Section 134 of Act 1189 is valid.
HELD:
The deed constituted a contract between the Spanish
Government and Casanovas.
The concessions can be cancelled only by reason of
illegality in the procedure by which they
were obtained, or for failure to comply with the conditions
prescribed as requisites for their
retention in the laws under which they were granted. There
is no claim in this case that there
was any illegality in the procedure by which these
concessions were obtained, nor is there any
claim that the plaintiff has not complied with the conditions
prescribed in the royal decree
of 1867. The obligation in the contract was impaired by the
enactment of Section 134 of the
Internal Revenue Law
PAGE 90American Bible Society vs. City of Manila
[G.R. No. L-9637, April 30, 1957]
Digest by: ESCANER, Michael Joseph
PONENTE: Felix, J.
FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit,
religious, missionary corporation

duly registered and doing business in the Philippines. The

defendant appellee is a municipal
corporation with powers that are to be exercised in
conformity with the provisions of the
Revised Charter of the City of Manila. In the course of its
ministry, the Philippine agency of
the American Bible Society has been distributing and
selling bibles and/or gospel portions
thereof throughout the Philippines and translating the
same into several Philippine dialects.
The acting City Treasurer of Manila required the society to
secure the corresponding Mayors
permit and municipal license fees, together with
compromise covering the period from the
4th quarter of 1945 to the 2nd quarter of 1953. The society
paid such under protest, and filed
suit questioning the legality of the ordinances under which
the fees are being collected.
ISSUE:
Whether or not the respondent can tax the petitioner with
respect to its act of selling
bibles.
HELD:
A tax on the income of one who engages in religious
activities is different from a tax
on property used or employed in connection with those
activities. It is one thing to impose a
tax on the income or property of a preacher, and another
to exact a tax for him for the privilege
of delivering a sermon. The power to tax the exercise of a
privilege is the power to control or
suppress its enjoyment. Even if religious groups and the
press are not altogether free from the
burdens of the government, the act of distributing and
selling bibles is purely religious and
does not fall under Section 27(e) of the Tax Code (CA 466).
The fact that the price of bibles
petitioner are selling is a little higher than actual cost of
the same does not necessarily mean
it is already engaged in business for profit. Ordinance 2529
and 3000 are not applicable to
the petitioner for in doing so it would impair its free
exercise and enjoyment of its religious
profession and worship as well as its rights of
dissemination of religious beliefs.
PAGE 91Abra Valley College v. Aquino
[G.R. NO. 39086 June 15, 1988]
Digest by: ESCANER, Michael Joseph
PONENTE: Paras
FACTS:
Petitioner filed a complaint to annul and declare void the
Notice of Seizure and
the Notice of Sale of its lot and building located at
Bangued, Abra, for non-payment of real

estate taxes and penalties amounting toP5,140.31. Said

Notice of Seizure by respondents
Municipal Treasurer and Provincial Treasurer was issued for
the satisfaction of the said taxes
thereon. The trial court ruled for the government, holding
that the second floor of the building
is being used by the director for residential purposes and
that the ground floor is being used
and rented by Northern Marketing Corporation, a
commercial establishment, and thus the
property is not being used exclusively for educational
purposes.
ISSUE:
Whether or not the lot and building are used exclusively for
educational purposes
and is thus tax exempt.
HELD:
Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, expressly
grants exemption from realty taxes for cemeteries,
churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious,
charitable or educational purposes. In the case at bar, the
lease of the first floor of the building
to the Northern Marketing Corporation cannot by any
stretch of the imagination be considered
incidental to the purpose of education. The test of
exemption from taxation is the use of the
property for purposes mentioned in the Constitution. The
decision of the CFI Abra (Branch I) is
affirmed subject to the modification that half of the
assessed tax be returned to the petitioner.
The modification is derived from the fact that the ground
floor is being used for commercial
purposes and the second floor being used as incidental to
education.
PAGE 92Commissioner of Internal Revenue vs. Bishop of
the
Missionary District of the Philippines
[G.R. No. L-19445, August 31, 1965]
Digest by: ESCANER, Michael Joseph
PONENTE: Regala, J.
FACTS:
In 1957 to 1959, the Missionary District received various
shipments of materials,
supplies, equipment and other articles intended for use in
the construction and operation of
the new St. Lukes Hospital. On these shipments, the
Commissioner collected compensation
tax. The Missionary District filed claims for refund, but
which was denied by the Commissioner
on the ground that St. Lukes Hospital was not a charitable
institution and therefore was not
exempt from taxes because it admits pay patients.

ISSUE:
Whether or not the shipments for St. Lukes Hospital are
tax-exempt.
HELD:
The following requisites must concur in order that a
taxpayer may claim exemption
under the law:(1) the imported articles must have been
donated; (2) the done must be duly
incorporated or established international civic organization,
religious or charitable society,
or institution for civic religious or charitable purposes; and
(3) the articles so imported must
have been donated for the use of the organization, society
or institution or for free distribution
and not for barter, sale or hire. As the law does not
distinguish or qualify the enjoyment or
the exemption (as the Secretary of Finance did in
Department Order 18, series of 1958), the
admission of pay patients does not detract from the
charitable character of a hospital, if its
funds are devoted exclusively to the maintenance of the
institution. Thus, the shipments are
tax exempt.
PAGE 93REV. FR. CASIMIRO LLADOC v. CIR and CTA
[14 SCRA 202 ,June 16, 1965]
Digest by: GARCIA, Vianne Marie O.
PONENTE: J. Paredes
FACTS:
In 1957, the M.B. Estate, Inc. in Bacolod City donated
P10,000 in case to Rev. Fr. Crispin
Ruiz, the then parish priest of Victorias, Negros Occidental
and the predecessor of Rev. Fr.
Casimiro Lladoc, for the construction of a new Catholic
Church. The total amount was actually
spent for the purpose intended.
On March 1958, M.B. Estate filed a donors gift tax return.
Subsequently, on April 1960,
the CIR issued an assessment for donees gift tax in the
amount of P1,370 including surcharges,
interest of 1% monthly from May 1958 to June 1960 and
the compromise for the late filing of
the return against the Catholic Parish of Victorias, Negros
Occidental of which Lladoc was a
priest.
Lladoc protested and moved to reconsider but it was
denied. He then appealed to
the CTA, in his petition for review, he claimed that at the
time of the donation, he was not
the parish priest, thus, he is not liable. Moreover, he
asserted that the assessment of the gift
tax, even against the Roman Catholic Church, would not be
valid, for such would be a clear
violation of the Constitution. The CTA ruled in favor of the
CIR. Hence, the present petition.
ISSUE:

Whether or not donees gift tax should be paid

HELD:
Yes. Section 22 (3), Art. VI of the Constitution of the
Philippines, exempts from
taxation cemeteries, churches and parsonages or
convents, appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious
purposes. The exemption is only
from the payment of taxes assessed on such properties
enumerated, as property taxes, as
contra distinguished from excise taxes.
In the present case, what the Collector assessed was a
donees gift tax; the assessment
was not on the properties themselves. It did not rest upon
general ownership; it was an
excise upon the use made of the properties, upon the
exercise of the privilege of receiving
the properties. Manifestly, gift tax is not within the
exempting provisions of the section just
mentioned. A gift tax is not a property tax, but an excise
tax imposed on the transfer of property
by way of gift inter vivos, the imposition of which on
property used exclusively for religious
purposes, does not constitute an impairment of the
Constitution.
As well observed by the learned respondent Court, the
phrase exempt from taxation,
as employed in the Constitution should not be interpreted
to mean exemption from all kinds
of taxes. And there being no clear, positive or express
grant of such privilege by law, in favor of
PAGE 94Lladoc, the exemption herein must be denied.
However, the Court noted the merit of Lladocs claim, and
held as liable the Head of
Deocese for being the real party in interest instead of
Lladoc who was held to be not personally
liable; the former manifested that it was submitting himself
to the jurisdiction and orders of
the Court and he presented Lladocs brief, by reference, as
his own and for all purposes.
PAGE 95Jose V. Herrera and Ester Herrera vs. The Quezon
City Board
Of Assessment Appeals
[L-15270 ,September 30, 1961]
Digest by: GARCIA, Vianne Marie O.
PONENTE: Concepcion, J.
FACTS:
Petitioners Jose and Ester Herrera were authorized by the
Director of the Bureau of
Hospitals to establish and operate the St. Catherines
Hospital. In 1953, the petitioners sent
a letter to the Quezon City Assessor requesting exemption
from payment of real estate tax on
the lot, building and other improvements comprising the
hospital stating that the same was

established for charitable and humanitarian purposes and

not for commercial gain which was
granted effective the years 1953 to 1955. Subsequently,
however, in a letter dated August 10,
1955 the Quezon City Assessor notified the petitioners that
the aforesaid properties were reclassified from exempt to
taxable and thus assessed for real property taxes
effective 1956.
The petitioners appealed the assessment to the Quezon
City Board of Assessment Appeals,
which, affirmed the decision of the City Assessor. A motion
for reconsideration thereof was
denied. From this decision, the petitioners instituted the
instant appeal.
The building involved in this case is principally used as a
hospital. From the evidence
presented by petitioners, it is made to appear that there
are two kinds of charity patients (a)
those who come for consultation only (out-charity
patients); and (b) those who remain in
the hospital for treatment (lying-in-patients). Petitioners
also operate within the premises
of the hospital the St. Catherines School of Midwifery
which was granted government
recognition by the Secretary of Education. The students
practice in the St. Catherines Hospital,
as well as in the St. Marys Hospital, which is also owned by
the petitioners. A separate set of
accounting books is maintained by the school for midwifery
distinct from that kept by the
hospital. However, the petitioners have refused to submit
a separate statement of accounts of
the school.
ISSUE:
Whether or not the said properties are used exclusively for
charitable or educational
purposes which are exempt from real property tax
HELD:
The Supreme Court ruled in the affirmative. The Court of
Tax Appeals decided the
issue in the negative, upon the ground that the St.
Catherines Hospital has a pay ward for ...
pay-patients, who are charged for the use of the private
rooms, operating room, laboratory
room, delivery room, etc., like other hospitals operated for
profit and that petitioners and
their family occupy a portion of the building for their
residence.
It should be noted, however, that, according to the very
statement of facts made in
the decision appealed from, of the thirty-two (32) beds in
the hospital, twenty (20) are for
charity-patients; that the income realized from paypatients is spent for improvement of the

charity wards; and that petitioners, Dr. Ester Ochangco

Herrera, as directress of said hospital,
PAGE 96does not receive any salary, although its resident
physician gets a monthly salary of P170.00. It
is well settled, in this connection, that the admission of
pay-patients does not detract from the
charitable character of a hospital, if all its funds are
devoted exclusively to the maintenance
of the institution as a public charity. In other words, where
rendering charity is its primary
object, and the funds derived from payments made by
patients able to pay are devoted to
the benevolent purposes of the institution, the mere fact
that a profit has been made will not
deprive the hospital of its benevolent character.
Moreover, the exemption in favor of property used
exclusively for charitable or
educational purposes is not limited to property actually
indispensable therefor but extends
to facilities which are incidental to and reasonably
necessary for the accomplishment of
said purposes, such as, in the case of hospitals, a school
for training nurses, a nurses home,
property use to provide housing facilities for interns,
resident doctors, superintendents, and
other members of the hospital staff, and recreational
facilities for student nurses, interns and
residents.
Within the purview of the Constitutional exemption from
taxation, the St. Catherines
Hospital is, therefore, a charitable institution, and the fact
that it admits pay-patients does not
bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted
that the income derived from pay-patients is devoted to
the improvement of the charity wards,
which represent almost two-thirds (2/3) of the bed capacity
of the hospital, aside from outcharity patients who come
only for consultation.
PAGE 97Bishop of Nueva Segovia vs. Provincial Board of
Ilocos Norte
[GR 27588, 31 December 1927]
Digest by: GARCIA, Vianne Marie O.
PONENTE: AVANCEA, J
FACTS:
The Roman Catholic Apostolic Church is the owner of a
parcel of land in San Nicolas,
Ilocos Norte. On the south side is a part of the Church yard,
the convent and an adjacent lots
used for a vegetable garden in which there is a stable and
a well for the use of the convent.
In the center is the remainder of the church yard and the
Church. On the north side is an old
cemetery with its two walls still standing, and a portion
where formerly stood a tower. The

provincial board assessed land tax on lots comprising the

north and south side, which the
church paid under protest. It filed suit to recover the
amount, alleging that the collection of
this tax is illegal.
ISSUE:
Whether the lots are covered by the Churchs tax
exemption?
HELD:
The exemption in favor of the convent in the payment of
land tax refers to the home
of the priest who presides over the church and who has to
take care of himself in order to
discharge his duties. The exemption includes not only the
land actually occupied by the Church
but also the adjacent ground destined to the ordinary
incidental uses of man. A vegetable
garden, thus, which belongs to a convent, where its use is
limited to the necessity of the priest,
comes under the exemption.
In regard to the lot which formerly was the cemetery was
neither used for any
commercial purpose. The land was used as a lodging house
by the people who participate
in religious festivities, which constitute an incidental use in
religious functions. Likewise it
comes within the exemption.
PAGE 98COMMISSIONER OF INTERNAL REVENUE v. YMCA
[G.R. No. 124043 October 14, 1998]
Digest by: GARCIA, Vianne Marie O.
PONENTE: Panganiban, J.
FACTS:
Private Respondent YMCA is a non-stock, non-profit
institution, which conducts
various programs and activities that are beneficial to the
public, especially the young people,
pursuant to its religious, educational and charitable
objectives.
YMCA earned income from leasing out a portion of its
premises to small shop owners,
like restaurants and canteen operators, and from parking
fees collected from non-members.
Petitioner issued an assessment to private respondent for
deficiency taxes. Private respondent
formally protested the assessment. In reply, the CIR denied
the claims of YMCA.
ISSUE:
Whether or not the income derived from rentals of real
property owned by YMCA
subject to income tax
HELD:
Yes. Income of whatever kind and character of non-stock
non-profit organizations
from any of their properties, real or personal, or from any
of their activities conducted for

profit, regardless of the disposition made of such income,

shall be subject to the tax imposed
under the NIRC.
Rental income derived by a tax-exempt organization from
the lease of its properties,
real or personal, is not exempt from income taxation, even
if such income is exclusively used
for the accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine
of strict in interpretation in construing tax exemptions
(Commissioner of Internal Revenue
v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997).
Furthermore, a claim of statutory
exemption from taxation should be manifest and
unmistakable from the language of the law on
which it is based. Thus, the claimed exemption must
expressly be granted in a statute stated
in a language too clear to be mistaken (Davao Gulf
Lumber Corporation v. Commissioner of
Internal Revenue and Court of Appeals, G.R. No. 117359, p.
15 July 23, 1998).
Verba legis non est recedendum. The law does not make a
distinction. The rental
income is taxable regardless of whence such income is
derived and how it is used or disposed
of. Where the law does not distinguish, neither should we.
Private respondent also invokes Article XIV, Section 4, par.
3 of the Constitution,
claiming that it is a non-stock, non-profit educational
institution whose revenues and assets
are used actually, directly and exclusively for educational
purposes so it is exempt from taxes
PAGE 99on its properties and income. This is without
merit since the exemption provided lies on the
payment of property tax, and not on the income tax on the
rentals of its property. The bare
allegation alone that one is a non-stock, non-profit
educational institution is insufficient to
justify its exemption from the payment of income tax.
For the YMCA to be granted the exemption it claims under
the above provision, it must
prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used
actually, directly, and exclusively for educational purposes.
Unfortunately for respondent,
the Court noted that not a scintilla of evidence was
submitted to prove that it met the said
requisites.
The Court appreciates the nobility of respondents cause.
However, the Courts power
and function are limited merely to applying the law fairly
and objectively. It cannot change the

law or bend it to suit its sympathies and appreciations.

Otherwise, it would be overspilling its
role and invading the realm of legislation. The Court
regrets that, given its limited constitutional
authority, it cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to
the political departments of government.
PAGE 100Lung Center of the Philippines vs. Quezon City
[G.R. No. 144104 June 29, 2004]
Digest by: HATOL, Michelle Marie
PONENTE: CALLEJO, SR., J.:
FACTS:
The petitioner Lung Center of the Philippines is a non-stock
and non-profit entity
established by virtue of P D No. 1823. It is the registered
owner of a parcel of land, located
in Quezon City. The lot has an area of 121,463 square
meters and Erected in the middle of
the aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at
the ground floor is being leased to private parties, for
canteen and small store spaces, and
to medical or professional practitioners who use the same
as their private clinics for their
patients whom they charge for their professional services.
A big portion on the right side is
being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids
and Garden Center.
The petitioner accepts paying and non-paying patients.
Aside from its income from
paying patients, the petitioner receives annual subsidies
from the government.
On June 7, 1993, both the land and the hospital building of
the petitioner were
assessed for real property taxes in the amount of
P4,554,860 by the City Assessor of Quezon
City. Accordingly, Tax Declarations were issued for the land
and the hospital building. On
August 25, 1993, the petitioner filed a Claim for Exemption
from real property taxes with the
City Assessor, predicated on its claim that it is a charitable
institution. The petitioners request
was denied.
ISSUE:
1. Whether the petitioner is a charitable institution within
the context of Presidential
Decree No. 1823 and the 1973 and 1987 Constitutions and
Republic Act No. 7160;
2.
Whether the real properties of the petitioner are
exempt from real property taxes.
HELD:
1. On the first issue, we hold that the petitioner is a
charitable institution. To determine

whether an enterprise is a charitable institution/entity or

not, the elements which should be
considered include the statute creating the enterprise, its
corporate purposes, its constitution
and by-laws, the methods of administration, the nature of
the actual work performed, the
character of the services rendered, the indefiniteness of
the beneficiaries, and the use and
occupation of the properties.
Under P.D. No. 1823, the petitioner is a non-profit and nonstock corporation which, subject
to the provisions of the decree, is to be administered by
the Office of the President of the
Philippines with the Ministry of Health and the Ministry of
Human Settlements. It was
organized for the welfare and benefit of the Filipino people
principally to help combat the
high incidence of lung and pulmonary diseases in the
Philippines.
PAGE 101As a general principle, a charitable institution
does not lose its character as such and
its exemption from taxes simply because it derives income
from paying patients, whether outpatient, or confined in
the hospital, or receives subsidies from the government, so
long as the
money received is devoted or used altogether to the
charitable object which it is intended to
achieve; and no money inures to the private benefit of the
persons managing or operating the
institution.
The money received by the petitioner becomes a part of
the trust fund and must be
devoted to public trust purposes and cannot be diverted to
private profit or benefit.
2. Even as we find that the petitioner is a charitable
institution, we hold, anent the
second issue, that those portions of its real property that
are leased to private entities are not
exempt from real property taxes as these are not actually,
directly and exclusively used for
charitable purposes.
Consequently, the constitutional provision is implemented
by Section 234(b) of
Republic Act No. 7160 (otherwise known as the Local
Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. The
following are
exempted from payment of the real property tax:
(b) Charitable institutions, churches, parsonages or
convents
appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious,
charitable
or educational purposes.

We note that under the 1935 Constitution, ... all lands,

buildings, and improvements
used exclusively for charitable purposes shall be
exempt from taxation. However, under
the 1973 and the present Constitutions, for lands,
buildings, and improvements of the
charitable institution to be considered exempt, the same
should not only be exclusively used
for charitable purposes; it is required that such property be
used actually and directly for
such purposes.
What is meant by actual, direct and exclusive use of the
property for charitable purposes
is the direct and immediate and actual application of the
property itself to the purposes for
which the charitable institution is organized. It is not the
use of the income from the real
property that is determinative of whether the property is
used for tax-exempt purposes.
The petitioner failed to discharge its burden to prove that
the entirety of its real
property is actually, directly and exclusively used for
charitable purposes. While portions of
the hospital are used for the treatment of patients and the
dispensation of medical services
to them, whether paying or non-paying, other portions
thereof are being leased to private
individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a
private individual for her business enterprise under the
business name Elliptical Orchids
and Garden Center. Indeed, the petitioners evidence
shows that it collected P1,136,483.45 as
PAGE 102rentals in 1991 and P1,679,999.28 for 1992 from
the said lessees.
Accordingly, we hold that the portions of the land leased to
private entities as well as
those parts of the hospital leased to private individuals are
not exempt from such taxes. On the
other hand, the portions of the land occupied by the
hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt
from real property taxes.
PAGE 103Part I: General Principles
Situs of Taxation and
Double TaxationRepublic Bank vs. Court of Tax Appeals
[G.R. No. 62554-55, September 02, 1992]
Digest by: HATOL, Michelle Marie
PONENTE: NOCON, J.
FACTS:
On 14 September 1971, respondent Commissioner
assessed petitioner the amount of
P1,060,615.06, plus 25% surcharge in the amount of
P265,153.76, or a total of P1,325,768.82,

as 1% monthly bank reserve deficiency tax for taxable year

1969. On 5 April 1973, respondent
Commissioner assessed petitioner the amount of
P1,562,506.14, plus 25% surcharge in the
amount of P390,626.53, or a total of P1,953,132.67, as 1%
monthly bank reserve deficiency
tax for taxable year 1970.
Petitioner requested reconsideration of the assessment
which respondent
Commissioner denied.
Petitioner contends that Section 249 of the Tax Code is no
longer enforceable, because
Section 126 of Act 1459, which was allegedly the basis for
the imposition of the 1% reserve
deficiency tax, was repealed by Section 90 of Republic Act
337, the General Banking Act, and
by Sections 100 and 101 of Republic Act 265.
On 28 March 1973, petitioner filed a petition for review
with the Tax Court, contesting
the assessment for the taxable year 1969 and 1970.
The cases, involving similar issues, were consolidated.
After hearing, the Tax Court
rendered a decision dated 30 September 1982 dismissing
the petitions for review and
upholding the validity of the assessments.
Hence this petition;
ISSUE:
1. Whether section 249 OF THE TAX CODE WHICH
PROVIDES THAT THERE SHALL
BE COLLECTED UPON THE AMOUNT OF RESERVE
DEFICIENCIES INCURRED BY THE BANK
was repealed by section 126 of the corporation law.
2. Whether there was double taxation.
HELD:
After a careful consideration of the facts of the case and
the pertinent laws involved,
We vote to deny the petition.
Firstly, We would like to state that We find unfortunate
petitioners act of quoting
out of context the questioned provision in the Tax Code.
Petitioner alleged that the second
paragraph of Section 249 of the Tax Code merely states
that there shall be collected x x x as
provided in Section one hundred twenty one of Act
numbered one thousand four hundred and
fifty nine x x x one per centum per month.
PAGE 104If petitioner had been candid and honest enough,
it would have stated under what title and
chapter of the Tax Code the second paragraph of Section
249 falls. As it then stood, the law
stated:
xxx
TITLE VIII - MISCELLANEOUS TAXES
Sec. 249. Tax on Banks. xxx xxx xxx.
There shall be collected upon the amount of reserve

deficiencies incurred by the bank, and for the period of

their
duration, as provided in section one hundred twenty six of
Act numbered one thousand four hundred and fifty-nine, as
amended by Act Numbered Three thousand six hundred
and
ten, one per centum per month. xxx xxx xxx. (As amended
by
Rep. Act No. 6110)
As the law stood during the years the petitioner was
assessed for taxes on reserve
deficiencies (1969 & 1970), petitioner had to pay twice -the first, a penalty, to the Central
Bank by virtue of Section 106 for violation of Secs. 100 and
101, all of theCentral Bank Act and
the second, a tax to the Bureau of Internal Revenue for
incurring a reserve deficiency.
As correctly analyzed by the petitioner and public
respondents, the new legislations
on bank reserves merely provided the basis for
computation of the reserve deficiency of
petitioner bank.
Petitioner submits that it was not the legislative intention
that banks with reserve
deficiencies would pay twice as the Tax Code (CA 466, as
amended by P.D. 69) enacted on
January 1, 1973 did not contain said questioned provision.
While petitioner might have a point, the wisdom of this
legislation is not the province
of the Court. It is clear from the statutes then in force that
there was no double taxation
involved -- one was a penalty and the other was a tax. At
any rate, We have upheld the validity
of double taxation. The payment of 1/10 of 1% for incurring
reserve deficiencies (Section
106, Central Bank Act) is a penalty as the primary purpose
involved is regulation, while the
payment of 1% for the same violation (Second Paragraph,
Section 249, NIRC) is a tax for the
generation of revenue which is the primary purpose in this
instance. Petitioner should not
complain that it is being asked to pay twice for incurring
reserve deficiencies. It can always
avoid this predicament by not having reserve deficiencies.
Petitioners case is covered by two
special laws -- one a banking law and the other, a tax law.
These two laws should receive such
construction as to make them harmonize with each other
and with the other body of preexisting laws.
PAGE 105Proctor & Gamble Philippines Manufacturing
Corp. vs.
Municipality of Jagna
[G.R. No. 124043 October 14, 1998]
Digest by: HATOL, Michelle Marie
PONENTE: MELENCIO-HERRERA, J.

FACTS:
Petitioner Procter and Gamble Philippines Manufacturing
Corp. is a consolidated
corporation of Procter and Gamble Trading Company
engaged in the manufacture of soap,
edible oil, margarine and other similar products. Petitioner
maintains a bodega in the
municipality of Jagna, where it stores copra purchased in
the municipality and ships the same
for its manufacturing and other operations. In 1954, the
Municipal Council of Jagna enacted
Ordinance 4, imposing storage fees of all exportable copra
deposited in the bodega within
the jurisdiction of the municipality of Jagna, Bohol. From
1958 to 1963, the company paid the
municipality, allegedly under protest, storage fees. In
1964, it filed suit, wherein it prayed that
the Ordinance be declared inapplicable to it, and if not,
that it be declared ultra vires and void.
ISSUE:
Whether the Ordinance is void, as it amounts to double
taxation.
HELD:
The validity of the Ordinance must be upheld pursuant to
the broad authority
conferred upon municipalities by Commonwealth Act 472
(promulgated 1939), which was the
prevailing law when the Ordinance is actually a municipal
license tax or fee on persons, firms
and corporations exercising the privilege of storing copra
within the municipalitys territorial
jurisdiction. Such fees imposed do not amount to double
taxation. For double taxation to
exist, the same property must be taxed twice, when it
should be taxed but once. A tax on the
companys products is different from the tax on the
privilege of storing copra in a bodega
situated within the territorial boundary of the municipality.
PAGE 106Pepsi-Cola Bottling Company vs. Municipality of
Tanauan
G.R. No. L-31156 February 27, 1976]
Digest by: HATOL, Michelle Marie.
PONENTE: MARTIN, J.:
FACTS:
In February 1963, plaintiff commenced a complaint seeking
to declare Section 2 of
R.A. 2264 (Local Autonomy Act) unconstitutional as an
undue delegation of taxing power and
to declare Ordinance Nos. 23 and 27 issued by the
Municipality of Tanauan, Leyte as null and
void.
Municipal Ordinance No. 23 levies and collects from soft
drinks producers and
manufacturers one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked. On

the other hand, Municipal Ordinance No. 27 levies and

collects on soft drinks produced or
manufactured within the territorial jurisdiction of the
municipality a tax of one centavo
(P0.01) on each gallon of volume capacity. The tax
imposed in both Ordinances Nos. 23 and 27
is denominated as municipal production tax.
ISSUE:
1. Is Section 2 of R.A. 2264 an undue delegation of the
power of taxation?
2. Do Ordinance Nos. 23 and 24 constitute double taxation
and impose percentage or
specific taxes?
HELD:
1. NO. The power of taxation is purely legislative and
cannot be delegated to the
executive or judicial department of the government
without infringing upon the theory of
separation of powers. But as an exception, the theory does
not apply to municipal corporations.
Legislative powers may be delegated to local governments
in respect of matters of local
concern.
2. NO. The Municipality of Tanauan discovered that
manufacturers could increase the
volume contents of each bottle and still pay the same tax
rate since tax is imposed on every
bottle corked. To combat this scheme, Municipal Ordinance
No. 27 was enacted. As such, it
was a repeal of Municipal Ordinance No. 23. In the
stipulation of facts, the parties admitted
that the Municipal Treasurer was enforcing Municipal
Ordinance No. 27 only. Hence, there
was no case of double taxation.
PAGE 107Villanueva, Et Al., v City of Iloilo
[L-22405. December 28, 1968]
Digest by:JHOCSON, Maria Alexandria B.
PONENTE: Castro, J.
FACTS:
On September 30, 1946 the municipal board of Iloilo City
enacted Ordinance
86, imposing license tax fees as follows: (1) tenement
house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged in
or dedicated to business in the
streets of J.M. Basa, Iznart and Aldeguer, P24.00 per
apartment; (3) tenement house, partly
or wholly engaged in business in any other streets, P12.00
per apartment. The validity and
constitutionality of this ordinance were challenged by the
spouses Eusebio Villanueva and
Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This
Court, in City of Iloilo vs. Remedios Sian Villanueva and
Eusebio Villanueva, L-12695, March

23, 1959, declared the ordinance ultra vires, it not

appearing that the power to tax owners of
tenement houses is one among those clearly and expressly
granted to the City of Iloilo by its
Charter.
On January 15, 1960 the municipal board of Iloilo City
believing that with the passage
of RA 2264 (Local Autonomy Act), it had acquired the
authority or power to enact an ordinance
similar to that previously declared by this Court as ultra
vires, enacted Ordinance 11, series of
1960.
In Iloilo City, the appellees Eusebio Villanueva and
Remedios S. Villanueva are owners
of five tenement houses, aggregately containing 43
apartments, while the other appellees
and the same Remedios S. Villanueva are owners of ten
apartments. Each of the appellees
apartments has a door leading to a street and is rented by
either a Filipino or Chinese
merchant. The first floor is utilized as a store, while the
second floor is used as a dwelling of
the owner of the store. Eusebio Villanueva owns, likewise,
apartment buildings for rent in
Bacolod, Dumaguete City, Baguio City and Quezon City,
which cities, according to him, do not
impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City
collected from spouses
Eusebio Villanueva and Remedios S. Villanueva, for the
years 1960-1964, the sum of P5,824.30,
and from the appellees Pio Sian Melliza, Teresita S.
Topacio, and Remedios S. Villanueva, for
the years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real
estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees
filed a complaint, and
an amended complaint, respectively, against the City of
Iloilo, in the aforementioned court,
praying that Ordinance 11, series of 1960, be declared
invalid for being beyond the powers
of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative
of the rule as to uniformity of taxation and for depriving
said plaintiffs of the equal protection
clause of the Constitution, and that the City be ordered to
refund the amounts collected from
PAGE 108them under the said ordinance.
On March 30, 1966, the lower court rendered judgment
declaring the ordinance illegal
on the grounds that (a) RA 2264 does not empower cities
to impose apartment taxes, (b) the
same is oppressive and unreasonable, for the reason that
it penalizes owners of tenement

houses who fail to pay the tax, (c) it constitutes not only
double taxation, but treble at that and
(d) it violates the rule of uniformity of taxation.
ISSUE:
1. Is Ordinance 11, series of 1960, of the City of Iloilo,
illegal because it imposes
double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy
Act to impose tenement
taxes?
3. Is Ordinance 11, series of 1960, oppressive and
unreasonable because it carries a
penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of
uniformity of taxation?
HELD:
1. No. While it is true that the plaintiffs-appellees are
taxable under Sec. 182 (A) (3)
(s) of the National Internal Revenue Code as real estate
dealers, and still taxable under the
ordinance in question, the argument against double
taxation may not be invoked. The same
tax may be imposed by the national government as well as
by the local government. There
is nothing inherently obnoxious in the exaction of license
fees or taxes with respect to the
same occupation, calling or activity by both the State and a
political subdivision thereof. The
contention that the plaintiffs-appellees are doubly taxed
because they are paying the real
estate taxes and the tenement tax imposed by the
ordinance in question, is also devoid of
merit. It is a well-settled rule that a license tax may be
levied upon a business or occupation
although the land or property used in connection therewith
is subject to property tax. The
State may collect an ad valorem tax on property used in a
calling, and at the same time impose
a license tax on that calling, the imposition of the latter
kind of tax being in no sense a double
tax. In order to constitute double taxation in the
objectionable or prohibited sense the same
property must be taxed twice when it should be taxed but
once; both taxes must be imposed
on the same property or subject-matter, for the same
purpose, by the same State, Government,
or taxing authority, within the same jurisdiction or taxing
district, during the same taxing
period, and they must be the same kind or character of
tax. It has been shown that a real
estate tax and the tenement tax imposed by the
ordinance, although imposed by the same
taxing authority, are not of the same kind or character. At
all events, there is no constitutional

prohibition against double taxation in the Philippines. It is

something not favored, but is
permissible,
provided
some
other
constitutional
requirement is not thereby violated, such as
the requirement that taxes must be uniform.
2. Yes. RA 2264 confers on local governments broad taxing
authority which extends
to almost everything, excepting those which are
mentioned therein, provided that the tax so
levied is for public purposes, just and uniform, and does
not transgress any constitutional
provision or is not repugnant to a controlling statute. Thus,
when a tax, levied under the
PAGE 109authority of a city or municipal ordinance, is not
within the exceptions and limitations
aforementioned, the same comes within the ambit of the
general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat
regulum in casibus non excepti.
The appellees strongly maintain that it is a property tax
or real estate tax, and not a tax on
persons engaged in any occupation or business or
exercising privileges, or a license tax, or a
privilege tax, or an excise tax. It is our view that the tax in
question is not a real estate tax. A
real estate tax is a direct tax on the ownership of lands and
buildings or other improvements
thereon, not specially exempted, and is payable regardless
of whether the property is used
or not, although the value may vary in accordance with
such factor. The tax is usually single
or indivisible, although the land and building or
improvements erected thereon are assessed
separately, except when the land and building or
improvements belong to separate owners.
It is a fixed proportion of the assessed value of the
property taxed, and requires, therefore,
the intervention of assessors. It is collected or payable at
appointed times, and it constitutes
a superior lien on and is enforceable against the property
subject to such taxation, and not by
imprisonment of the owner. The tax imposed by the
ordinance in question does not possess
the aforestated attributes.
The subject-matter of the ordinance is tenement houses
whose nature and essence
are expressly set forth in section 2 which defines a
tenement house as any building or
dwelling for renting space divided into separate
apartments or accessorias. The Supreme
Court defined a tenement house as any house or building,
or portion thereof, which is rented,
leased, or hired out to be occupied, or is occupied, as the
home or residence of three families

or more living independently of each other and doing their

cooking in the premises or by
more than two families upon any floor, so living and
cooking, but having a common right in
the halls, stairways, yards, water-closets, or privies, or
some of them. Tenement houses, being
necessarily offered for rent or lease by their very nature
and essence, therefore constitute a
distinct form of business or calling, similar to the hotel or
motel business, or the operation of
lodging houses or boarding houses. The lower court has
interchangeably denominated the tax
in question as a tenement tax or an apartment tax. Called
by either name, it is not among the
exceptions listed in section 2 of the Local Autonomy Act.
3. No. A tax is not a debt in the sense of an obligation
incurred by contract, express
or implied, and therefore is not within the meaning of
constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a
statute or ordinance which punishes
the non-payment thereof by fine or imprisonment is not, in
conflict with that prohibition. Nor
is the tax in question a poll tax, for the latter is a tax of a
fixed amount upon all persons, or
upon all persons of a certain class, resident within a
specified territory, without regard to their
property or the occupations in which they may be
engaged. Therefore, the tax in question is
not oppressive in the manner the lower court puts it. On
the other hand, the charter of Iloilo
City empowers its municipal board to fix penalties for
violations of ordinances, which shall
not exceed a fine of two hundred pesos or six months
imprisonment, or both such fine and
imprisonment for each offense.
4. No. This Court has already ruled that tenement houses
constitute a distinct class
of property. It has likewise ruled that taxes are uniform
and equal when imposed upon all
PAGE 110property of the same class or character within
the taxing authority. The fact, therefore, that
the owners of other classes of buildings in the City of Iloilo
do not pay the taxes imposed by
the ordinance in question is no argument at all against
uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity
violated by the fact that tenement
taxes are not imposed in other cities, for the same rule
does not require that taxes for the same
purpose should be imposed in different territorial
subdivisions at the same time. So long as
the burden of the tax falls equally and impartially on all
owners or operators of tenement

houses similarly classified or situated, equality and

uniformity of taxation is accomplished.
The plaintiffs-appellees, as owners of tenement houses in
the City of Iloilo, have not shown
that the tax burden is not equally or uniformly distributed
among them, to overthrow the
presumption that tax statutes are intended to operate
uniformly and equally.
PAGE 111Victorias Milling Co., v Municipality of Victoria
[G.R. No. L-21183. September 27, 1968]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Sanchez
FACTS:
Ordinance No. 1 is an amendment to two municipal
ordinances separately imposing
license taxes on operators of sugar centrals and sugar
refineries. The changes were: with
respect to sugar centrals, by increasing the rates of license
taxes; and as to sugar refineries,
by increasing the rates of license taxes as well as the
range of graduated schedule of annual
output capacity. The production of plaintiff Victorias Milling
Co., Inc. in both its sugar central
and its sugar refinery located in the Municipality of
Victorias comes within the items in the
schedule of Section 1(m) relating to sugar centrals and
Section 2(m) covering sugar refineries
of Ordinance No. 1, An Ordinance Amending Ordinance
No. 25, Series of 1953 and Ordinance
No. 18, Series of 1947 on Sugar Central by Increasing the
Rates on Sugar Refinery Mill by
Increasing the Range of Graduated Schedule on Capacity
Annual Output Respectively, with
specific reference to the maximum annual license tax.
Plaintiff filed suit to ask for judgment declaring Ordinance
No. 1, series of 1956, null
and void. The trial court held that [t]here is no doubt that
the ordinance in question refers
to license taxes or fees, and that [i]t is settled that a
license tax should be limited to the cost
of licensing, regulating and surveillance. It also ruled that,
if the defendant has the power to
tax the plaintiff for purposes of revenue, it may do so by
proper municipal legislation, but not
in the guise of a license tax.
Both plaintiff and defendant appealed direct to this Court.
Plaintiff questions that
portion of the decision denying the refund of the license
taxes paid under protest in the
amount of P280,000 covering the period from the first
quarter of 1957 to the second quarter
of 1960; and balked at the courts order limiting refund to
any and all such license taxes paid
under protest after notice of this decision. Defendant,
upon the other hand, challenges the

correctness of the courts decision invalidating Ordinance

No. 1, series of 1956.
ISSUE:
Whether or not there was double taxation.
HELD:
No. Double taxation has been otherwise described as
direct duplicate taxation. For
double taxation to exist, the same property must be taxed
twice, when it should be taxed but
once. Double taxation has also been defined as taxing
the same person twice by the same
jurisdiction for the same thing. With the foregoing
precepts in mind, we find no difficulty
in saying that plaintiffs argument on double taxation does
not inspire assent. First. The two
taxes cover two different objects. Section 1 of the
ordinance taxes a person operating sugar
centrals or engaged in the manufacture of centrifugal
sugar. While under Section 2, those taxed
are the operators of sugar refinery mills. One occupation or
business is different from the
PAGE 112other. Second. The disputed taxes are imposed
on occupation or business. Both taxes are not
on sugar. The amount thereof depends on the annual
output capacity of the mills concerned,
regardless of the actual sugar milled. Plaintiffs argument
perhaps could make out a point if
the object of taxation here were the sugar it produces, not
the business of producing it.
PAGE 113Compania General De Tabacos De Filipinas v City
of Manila,
Et Al.
[G.R. No. L-16619. June 29, 1963]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Dizon
FACTS:
Appellee Compania General de Tabacos de Filipinas
(Tabacalera) filed this action
in the Court of First Instance of Manila to recover from
appellants, City of Manila and its
Treasurer, Marcelino Sarmiento (City) the sum of
P15,280.00 allegedly overpaid by it
as taxes on its wholesale and retail sales of liquor for the
period from the third quarter of
1954 to the second quarter of 1957, inclusive, under
Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and
retail liquor dealer paid the City the
fixed license fees prescribed by Ordinance No. 3358 for the
years 1954 to 1957, inclusive, and,
as a wholesale and retail dealer of general merchandise, it
also paid the sales taxes required
by Ordinances Nos. 3634, 3301, and 3816. In its sworn
statements of wholesale, retail, and

grocery sales of general merchandise from the third

quarter of 1954 to the second quarter of
1957, inclusive, Tabacalera included its liquor sales of the
same period, and it is not denied
that of the taxes it paid on all its sales of general
merchandise, the sum of P15,280.00 subject
to the action represents the tax corresponding to the liquor
sales aforesaid. In the year 1954,
the City, through its treasurer, addressed a letter to
Messrs. Sycip, Gorres, Velayo and Co., an
accounting firm, expressing the view that liquor dealers
paying the annual wholesale and
retail fixed tax under City Ordinance No. 3358 are not
subject to the wholesale and retail
dealers taxes prescribed by City Ordinances Nos. 3634,
3301, and 3816. Upon learning of
said opinion, appellee stopped including its sales of liquor
in its quarterly sworn declarations
submitted in accordance with the aforesaid City
Ordinances Nos. 3634, 3301, and 3816, and
on December 3, 1957, it addressed a letter to the City
Treasurer demanding refund of the
alleged overpayment. As the claim was disallowed, the
present action was instituted.
ISSUE:
Is Tabacalera subjected to double taxation?
HELD:
No. The term tax generally applies to all kinds of
exactions which become public
funds. The term is often loosely used to include levies for
revenue as well as levies for
regulatory purposes. Thus license fees are commonly
called taxes. Legally speaking, however,
license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of
police power for purposes of regulation, while the latter is
imposed under the taxing power
for the purpose of raising revenues.
Ordinance No. 3358 prescribes municipal license fees for
the privilege to engage in
the business of selling liquor or alcoholic beverages, having
been enacted by the Municipal
Board of Manila pursuant to its charter power to fix license
fees on, and regulate, the sale of
intoxicating
liquors,
whether
imported
or
locally
manufactured (Section 18 [p], Republic Act
PAGE 114409, as amended). The license fees imposed by it
are essentially for purposes of regulation,
and are justified, considering that the sale of intoxicating
liquor is, potentially at least, harmful
to public health and morals, and must be subject to
supervision or regulation by the state and
by cities and municipalities authorized to act in the
premises.

On the other hand, Ordinances Nos. 3634, 3301, and 3816

impose taxes on the sales of
general merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal
Board of Manila by virtue of its power to tax dealers for the
sale of such merchandise (Section
10 [o], Republic Act No. 409, as amended.).
Under Ordinance No. 3634 the word merchandise as
employed therein clearly
includes liquor. Aside from this, we have held in City of
Manila vs. Inter-Island Gas Service, Inc.,
that the word merchandise refers to all subjects of
commerce and traffic; whatever is usually
bought and sold in trade or market; goods or wares bought
and sold for gain; commodities or
goods to trade; and commercial commodities in general.
Ordinance No. 3358 is a license fee for the privilege of
engaging in the sale of liquor, a
calling in which not anyone or anybody may freely engage,
considering that the sale of liquor
indiscriminately may endanger public health and morals.
On the other hand, what the three
ordinances mentioned heretofore impose is a tax for
revenue purposes based on the sales
made of the same article or merchandise. It is already
settled in this connection that both a
license fee and a tax may be imposed on the same
business or occupation, or for selling the
same article, this not being in violation of the rule against
double taxation.
PAGE 115Province of Bulacan v Court of Appeals
[G.R. No. 126232. November 27, 1998]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Romero
FACTS:
On June 26, 1992, the Sangguniang Panlalawigan of
Bulacan passed Provincial
Ordinance No. 3, known as An Ordinance Enacting the
Revenue Code of the Bulacan Province.
which was to take effect on July 1, 1992. Section 21 of the
ordinance provides as follows:
Sec. 21 Imposition of Tax. There is hereby levied and
collected a tax of 10% of the fair market
value in the locality per cubic meter of ordinary stones,
sand, gravel, earth and other quarry
resources, such, but not limited to marble, granite, volcanic
cinders, basalt, tuff and rock
phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and
other public waters within its territorial jurisdiction.
Pursuant thereto, the Provincial Treasurer of Bulacan, in a
letter dated November 11,
1993, assessed private respondent Republic Cement
Corporation P2,524,692.13 for extracting

limestone, shale and silica from several parcels of private

land in the province during the
third quarter of 1992 until the second quarter of 1993.
Believing that the province, on the
basis of above-said ordinance, had no authority to impose
taxes on quarry resources extracted
from private lands, Republic Cement formally contested
the same on December 23, 1993. It
was denied by the Provincial Treasurer. Republic Cement
then filed a petition for declaratory
relief with the RTC of Bulacan while the province filed a
motion to dismiss Republic Cements
petition, which was granted by the trial court.
On July 11, 1994, Republic Cement filed a petition for
certiorari with the Supreme
Court seeking to reverse the trial courts dismissal of their
petition. The Court referred the
same to the Court of Appeals who ruled that the Province
did not have legal authority to
impose and assess taxes on quarry resources extracted by
RCC from private lands.
ISSUE:
Whether or not the provincial government could impose
taxes on stones, sand,
gravel, earth and other quarry resources extracted from
private lands.
HELD:
No. Section 186 allows a province to levy taxes other than
those specifically enumerated
under the Code, subject to the conditions specified therein.
However, petitioners are still
prohibited from imposing taxes on stones, sand, gravel,
earth and other quarry resources
extracted from private lands. The tax imposed by the
Province of Bulacan is an excise tax,
being a tax upon the performance, carrying on, or exercise
of an activity. The Local Government
Code provides:
Sec. 133. Common Limitations on the Taxing Powers of
Local Government
Units. Unless otherwise provided herein, the exercise of
the taxing powers
PAGE 116of provinces, cities, municipalities, and
barangays shall not extend to the levy
of the following:
xxx xxx xxx
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or
charges
on petroleum products;
xxx xxx xxx
A province may not, therefore, levy excise taxes on articles
already taxed by the National
Internal Revenue Code which provides:
Sec. 151. Mineral Products.

(A) Rates of Tax. There shall be levied, assessed and

collected on
minerals, mineral products and quarry resources, excise
tax as follows:
xxx xxx xxx
(2) On all nonmetallic minerals and quarry resources, a tax
of
two percent (2%) based on the actual market value of the
gross
output thereof at the time of removal, in case of those
locally
extracted or produced; or the values used by the Bureau of
Customs in determining tariff and customs duties, net of
excise
tax and value-added tax, in the case of importation.
It is clearly apparent from the above provision that the
NIRC levies a tax on all
quarry resources, regardless of origin, whether extracted
from public or private land. Thus,
a province may not ordinarily impose taxes on stones,
sand, gravel, earth and other quarry
resources, as the same are already taxed under the NIRC.
The province can, however, impose
a tax on stones, sand, gravel, earth and other quarry
resources extracted from public land
because it is expressly empowered to do so under the LGC.
As to stones, sand, gravel, earth and
other quarry resources extracted from private land,
however, it may not do so, because of the
limitation provided by Section 133 of the Code in relation
to Section 151 of the NIRC.
PAGE 117Part I: General Principles
Forms of Escape from
TaxationDelpher Trades Corporation v. IAC and Hydro Pipes
Philippines
[G.R. No. L-69259.January 26, 1988]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Gutierrez, Jr.
FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were the
owners of real estate in the
Municipality of Polo. The said co-owners leased to
Construction Components International
Inc. the same property and providing that during the
existence or after the term of this lease
the lessor should he decide to sell the property leased shall
first offer the same to the lessee.
The lessee Construction Components International, Inc.
assigned its rights and obligations
under the contract of lease in favor of Hydro Pipes
Philippines, Inc. with the signed conformity
and consent of lessors Delfin Pacheco and Pelagia Pacheco.
The contract of lease and the assignment of lease were
annotated at he back of the title. The

deed of exchange was executed between lessors Delfin

and Pelagia Pacheco and defendant
Delpher Trades Corporation whereby the former conveyed
to the latter the leased property
together with another parcel of land also for 2,500 shares
of stock of defendant corporation
with a total value of P1.5M.
On the ground that it was not given the first option to buy
the leased property pursuant to the
proviso in the lease agreement, respondent Hydro Pipes
Philippines, Inc., filed an amended
complaint for reconveyance of the lot.
ISSUE:
Whether the Deed of Exchange of the properties executed
by the Pachecos and the
Delpher Trades Corporation on the other was meant to be
a contract of sale which, in effect,
prejudiced the Hydro Phils right of first refusal over the
leased property included in the
deed of exchange.
HELD:
No. By their ownership of the 2,500 no par shares of stock,
the Pachecos have control
of the corporation. Their equity capital is 55% as against
45% of the other stockholders, who
also belong to the same family group. In effect, the
Delpher Trades Corporation is a business
conduit of the Pachecos. What they really did was to invest
their properties and change the
nature of their ownership from unincorporated to
incorporated form by organizing Delpher
Trades Corporation to take control of their properties and
at the same time save on inheritance
taxes. Its other advantages are continuous control of the
property, tax exemption benefits, and
other inherent benefits in a corporation.
The Deed of Exchange of property between the Pachecos
and Delpher Trades
Corporation cannot be considered a contract of sale. There
was no transfer of actual ownership
PAGE 118interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership
from one form to another. The ownership remained in the
same hands. Hence, the private
respondent has no basis for its claim of a light of first
refusal
PAGE 119Heng Tong Textiles Co., Inc. v. CIR
[G.R. No. L-19737. August 26, 1968]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Makalintal
FACTS:
In 1952 the then Collector of Internal Revenue assessed
against the petitioner
deficiency sales taxes and surcharges for the year 1949
and the first four months of 1950 in the

aggregate sum of P89,123.58. The deficiency taxes in

question were assessed on importations
of textiles from abroad. The goods were withdrawn from
Customs by Pan-Asiatic Commercial
Co., Inc., which paid, in the name of the petitioner, the
corresponding advance sales tax. The
assessment for the deficiency, however, was made against
the petitioner, Heng Tong Textiles
Co., Inc. (now Philip Manufacturing Corporation) on the
ground that it was the real importer
of the goods and did not pay the taxes due on the basis of
the gross selling prices thereof.
ISSUE:
Whether the petitioner was guilty of fraud so as to warrant
the imposition of a
penalty of 50% on the deficiency.
HELD:
No. The arrangement resorted to does not by itself alone
justify the penalty imposed.
Section 183 (a), paragraph 3, of the Internal Revenue
Code, as amended by Republic Act No.
253, speaks of willful neglect to file the return or willful
making of a false or fraudulent return.
An attempt to minimize ones tax does not necessarily
constitute fraud. It is a settled principle
that a taxpayer may diminish his liability by any means
which the law permits. The intention
to minimize taxes, when used in the context of fraud, must
be proved to exist by clear and
convincing evidence amounting to more than mere
preponderance, and cannot, be justified by
mere speculation. This is because fraud is never lightly to
be presumed. No such evidence is
shown by the record in the case of the herein petitioner. Its
actuation is not incompatible with
good faith on its part, that is, with a genuine belief that by
indorsing the goods to Pan-Asiatic
Commercial so that the latter could, as it did, take delivery
thereof, Pan-Asiatic Commercial
would in law be considered the importer. It may even be
true, as the petitioner insists, that
it was Pan-Asiatic Commercial that financed the
importations but placed them in the name
of the petitioner as a matter of accommodation, in which
case the element of fraud would
be ruled out, although from the legal viewpoint and as far
as the right of the Government to
collect the taxes was concerned the petitioner was the real
importer and hence must shoulder
the tax burden.
PAGE 120CIR v. The Estate of Benigno Toda, Jr.
[G.R. No. 147188. September 14, 2004]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Davide
FACTS:

On 2 March 1989, CIC authorized Benigno P. Toda, Jr.,

President and owner of 99.991%
of its outstanding capital stock, to sell the Cibeles Building.
On 30 August 1989, Toda purportedly
sold the property for P100 million to Rafael A. Altonaga,
who, in turn, sold the same property
on the same day to Royal Match Inc. (RMI) for P200 million.
Three and a half years later Toda
died. On 29 March 1994, the BIR sent an assessment
notice and demand letter to the CIC for
deficiency income tax for the year 1989. On 27 January
1995, the Estate of Benigno P. Toda, Jr.,
represented by special co-administrators Lorna Kapunan
and Mario Luza Bautista, received
a Notice of Assessment from the CIR for deficiency income
tax for the year 1989. The Estate
thereafter filed a letter of protest. The Commissioner
dismissed the protest. On 15 February
1996, the Estate filed a petition for review with the CTA. In
its decision the CTA held that
the Commissioner failed to prove that CIC committed fraud
to deprive the government of the
taxes due it. It ruled that even assuming that a preconceived scheme was adopted by CIC, the
same constituted mere tax avoidance, and not tax evasion.
Hence, the CTA declared that the
Estate is not liable for deficiency of income tax. The
Commissioner filed a petition for review
with the Court of Appeals. The Court of Appeals affirmed
the decision of the CTA, hence, this
recourse.
ISSUE:
1. Whether this a case of tax evasion or tax avoidance.
2. Whether the period for assessment of deficiency income
tax for the year 1989
prescribed.
3. Whether respondent Estate be held liable for the
deficiency income tax of CIC for
the year 1989, if any?
HELD:
1. Yes. Tax evasion connotes the integration of three
factors: (1) the end to be achieved,
i.e. the payment of less than that known by the taxpayer to
be legally due, or the non-payment
of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described
as being evil, in bad faith, willfull, or deliberate and
not accidental; and (3) a course of
action or failure of action which is unlawful. All these
factors are present in the instant case.
The scheme resorted to by CIC in making it appear that
there were two sales of the subject
properties, i.e. from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered

a legitimate tax planning. Such scheme is tainted with

fraud. Altonagas sole purpose of
acquiring and transferring title of the subject properties on
the same day was to create a tax
shelter. The sale to him was merely a tax ploy, a sham,
and without business purpose and
economic substance. Doubtless, the execution of the two
sales was calculated to mislead the
BIR with the end in view of reducing the consequent
income tax liability.
PAGE 1212. No. Section 269 of the NIRC of 1986 (now
Section 222 of the Tax Reform Act of
1997) read: Sec. 269.
Exceptions as to period of
limitation of assessment and collection of
taxes.-(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to
file a return, the tax may be assessed, or a proceeding in
court after the collection of such tax
may be begun without assessment, at any time within ten
years after the discovery of the
falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and
executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action
for collection thereof Put differently, in cases of (1)
fraudulent returns; (2) false returns
with intent to evade tax; and (3) failure to file a return, the
period within which to assess tax
is ten years from discovery of the fraud, falsification or
omission, as the case may be.
3. Yes. A corporation has a juridical personality distinct and
separate from the persons
owning or composing it. Thus, the owners or stockholders
of a corporation may not generally
be made to answer for the liabilities of a corporation and
vice versa. There are, however,
certain instances in which personal liability may arise, to
wit: 1. He assents to the (a) patently
unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c)
conflict of interest, resulting in damages to the corporation,
its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or,
having knowledge thereof, does not
forthwith file with the corporate secretary his written
objection thereto; 3. He agrees to hold
himself personally and solidarily liable with the corporation;
or 4. He is made, by specific
provision of law, to personally answer for his corporate
action.
It is worth noting that when the late Toda sold his shares of
stock to Le Hun T. Choa,
he knowingly and voluntarily held himself personally liable
for all the tax liabilities of CIC and

the buyer for the years 1987, 1988, and 1989. When the
late Toda undertook and agreed to
hold the BUYER and Cibeles free from any all income tax
liabilities of Cibeles for the fiscal
years 1987, 1988, and 1989, he thereby voluntarily held
himself personally liable therefor.
Respondent estate cannot, therefore, deny liability for
CICs deficiency income tax for the year
1989 by invoking the separate corporate personality of
CIC, since its obligation arose from
Todas contractual undertaking, as contained in the Deed
of Sale of Shares of Stock.
PAGE 122Part I: General Principles
Exemption from TaxationDavao Gulf Lumber Corporation v.
CIR
[G.R. No. 117359. July 23, 1998]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Panganiban
FACTS:
From July 1, 1980 to January 31, 1982 petitioner
purchased, from various oil
companies, refined and manufactured mineral oils as well
as motor and diesel fuels. Said oil
companies paid the specific taxes imposed on the sale of
said products. Being included in the
purchase price of the oil products, the specific taxes paid
by the oil companies were eventually
passed on to the petitioner in this case.
Petitioner filed before Respondent CIR a claim for refund in
the amount of P120,
825.11, representing 25% of the specific taxes actually
paid on the above-mentioned fuels
and oils that were used by petitioner in its operations as
forest concessionaire.
On January 20, 1983, petitioner filed at the CTA a petition
for review. The CTA
rendered its decision finding petitioner entitled to a partial
refund of specific taxes in the
reduced amount of P2, 923.15. In regard to the other
purchases, the CTA granted the claim,
but it computed the refund based on rates deemed paid
under RA 1435, and not on the higher
rates actually paid by petitioner under the NIRC.
ISSUE:
Whether or not petitioner is entitled to the refund of 25%
of the amount of specific
taxes it actually paid on various refined and manufactured
mineral oils.
HELD:
Yes, partially. At the outset, it must be stressed that
petitioner is entitled to a partial
refund under Section 5 of RA 1435, which was enacted to
provide means for increasing the
Highway Special Fund.

A tax cannot be imposed unless it is supported by the clear

and express language of
a statute; on the other hand, once the tax is
unquestionably imposed, [a] claim of exemption
from tax payments must be clearly shown and based on
language in the law too plain to be
mistaken. Since the partial refund authorized under
Section 5, RA 1435, is in the nature of a
tax exemption, it must be construed strictissimi juris
against the grantee. Hence, petitioners
claim of refund on the basis of the specific taxes it actually
paid must expressly be granted in
a statute stated in a language too clear to be mistaken.
PAGE 123Philippine Acetylene Co., Inc. v. Commissioner of
Internal
Revenue and Court of Tax Appeals
[L-19707. August 17, 1967]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Castro
FACTS:
The petitioner is a corporation engaged in the manufacture
and sale of oxygen and
acetylene gases, who made various sales of its products to
the National Power Corporation
(Phil. Gov. Agency), and to the Voice of America (US Gov.
Agency). The sales to the NPC
amounted to P145,866.70, while those to the VOA
amounted to P1,683, on account of which
the respondent Commission of Internal Revenue assessed
against, and demanded from, the
petitioner the payment of P12,910.60 as deficiency sales
tax and surcharge, pursuant to the
provisions of Secs. 183 and 186 of the National Internal
Revenue Code.
The petitioner denied liability for the payment of the tax on
the ground that both the
NPC and the VOA are exempt from taxation. It asked for a
reconsideration of the assessment
and, failing to secure one, appealed to the Court of Tax
Appeals.
The court ruled that the tax on the sale of articles or goods
in section 186 of the Code
is a tax on the manufacturer and not on the buyer with the
result that petitioner cannot claim
exemption from the payment of sales tax simply because
NPC is exempt from the payment of
all taxes. With respect to the sales made to the VOA, the
court held that goods purchased by
the American Government or its agencies are exempt from
the payment of the sales tax under
the agreement between the Philippines and that of the
United States, provided the purchases
are supported by certificates of exemption.
ISSUE:

Whether petitioner is liable for the payment of tax on the

sales it made to the NPC
and the VOA because both entities are exempt from
taxation.
HELD:
Yes. The tax imposed by section 186 of the National
Internal Revenue Code is a tax on
the manufacturer or producer and not a tax on the
purchaser except probably in a very remote
and inconsequential sense. It may indeed be that the
economic burden of the tax finally falls
on the purchaser; when it does the tax becomes a part of
the price which the purchaser must
pay. It does not matter that an additional amount is billed
as tax to the purchaser. The method
of listing the price and the tax separately and defining
taxable gross receipts as the amount
received less the amount of the tax added, merely avoids
payment by the seller of a tax on the
amount of the tax. The effect is still the same, namely, that
the purchaser does not pay the tax.
He pays or may pay the seller more for the goods because
of the sellers obligation, but that is
all and the amount added because of the tax is paid to get
the goods and for nothing else. Even
if the NPC enjoys tax exemption by virtue of an act of
Congress, petitioner still has to pay the
tax on the sales made.
PAGE 124With regard to petitioners sales to the Voice of
America, the provisions of the agreement
between the Government of the Philippines and the
Government of the United States, provide
that goods purchased locally by U.S. civilian agencies
directly from manufacturers, producers
or importers shall be exempt from the sales tax, provided
such purchases are supported by
serially umbered Certificates of Tax Exemption issued by
the vendee-agency.
However, we find nothing in the language of the
Agreement to warrant the general
exemption granted by that circular. The agreement
provides that only sales made for
exclusive use in the construction, maintenance, operation
or defense of the bases, in a word,
only sales to the quartermaster, are exempt under article V
from taxation. Sales of goods to
any other party even if it be an agency of the United
States, such as the VOA, or even to the
quartermaster but for a different purpose, are not free
from the payment of the tax. We hold,
therefore, that sales to the VOA are subject to the payment
of percentage taxes under section
186 of the Code.
PAGE 125Commissioner of Internal Revenue v. Court of
Appeals, Court

of Tax Appeals, and Ateneo de Manila University

[G.R. No. 115349. April 18, 1997]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Panganiban
FACTS:
Private respondent is a non-stock, non-profit educational
institution with auxiliary
units and branches all over the Philippines, one of which is
the Institute of Philippine Culture
(IPC), which has no legal personality separate and distinct
from that of private respondent.
The IPC is a Philippine unit engaged in social science
studies of Philippine society and
culture. Occasionally, it accepts sponsorships for its
research activities from international
organizations, private foundations and government
agencies.
On July 1983, private respondent received from petitioner
Commissioner of Internal
Revenue a demand letter assessing private respondent the
sum of P174,043.97 for alleged
deficiency contractors tax, and an assessment in the sum
of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended March 31, 1978.
Private respondent denied the
liability by contesting the validity of the assessments.
Petitioner further modified the
assessment for deficiency contractors tax by increasing
the amount due to P193,475.55.
Unsatisfied,
private
respondent
requested
for
a
reconsideration and at the same time filed in
the respondent court a petition for review of the said letterdecision of the petitioner. While
the petition was pending before the respondent court,
petitioner reduced the assessment for
deficiency contractors tax to P46,516.41, exclusive of
surcharge and interest.
On July 1993, the respondent court ruled that the
deficiency contractors tax
assessment in the amount of P46,516.41 exclusive of
surcharge and interest for the fiscal year
ended March 31, 1978 is cancelled.
ISSUE:
Whether Ateneo de Manila University, through its auxiliary
unit or branch the
Institute of Philippine Culture performing the work of an
independent contractor and, thus,
subject to the three percent contractors tax levied by then
Sec. 205 of the NIRC.
HELD:
No. To fall under its coverage, Section 205 of the National
Internal Revenue Code
requires that the independent contractor be engaged in
the business of selling its services.

We find no evidence that Ateneos Institute of Philippine

Culture ever sold its services for a fee
to anyone or was ever engaged in a business apart from
and independently of the academic
purposes of the university.
The funds received by Ateneos Institute of Philippine
Culture are not given in the
concept of a fee or price in exchange for the performance
of a service or delivery of an object.
Rather, the amounts are in the nature of an endowment or
donation given by IPCs benefactors
PAGE 126solely for the purpose of sponsoring or funding
the research with no strings attached which
are tax-exempt. Private respondent is mandated by law to
undertake research activities to
maintain its university status. Since it can only finance a
limited number of IPCs research
projects,
private
respondent
occasionally
accepts
sponsorship for unfunded IPC research
projects
from
international
organizations,
private
foundations and governmental agencies. It
bears stressing that private respondent is a non-stock, nonprofit educational corporation.
The fact that it accepted sponsorship for IPCs unfunded
projects is merely incidental. For, the
main function of the IPC is to undertake research projects
under the academic agenda of the
private respondent.
PAGE 127Caltex Philippines, Inc. v. Commission on Audit,
Commissioner
Bartolome Fernandez and Commissioner Alberto Cruz
[G.R. No. [92585. May 8, 1992]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Davide, Jr.
FACTS:
In 1989, the COA sent a letter to Caltex directing it to remit
to the OPSF its collection
of the additional tax on petroleum products authorized
under Sec. 8 of P.D. No. 1956 and
informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF
shall be held in abeyance. Thereafter, petitioner requested
the COA for an early release of its
reimbursement certificates from the OPSF covering claims
with the Office of Energy Affairs
since June 1987 up to March 1989. COA denied petitioners
request for the early release of the
reimbursement certificates from the OPSF.
Petitioner submitted to the COA a proposal for the payment
of the collections and the
recovery of claims and the COA, with the Chairman taking
no part, handed down Decision
No. 921 accepting the proposal but prohibiting petitioner
from further offsetting remittances

and reimbursements for the current and ensuing years.

Pursuant to this decision, the COA, on
August 18, 1989, sent the a letter to Executive Director De
la Paz of the Office of Energy Affairs
informing them that Caltex shall be required to remit to
OPSF a certain amount representing
remittances to the OPSF which were offset against its
claims reimbursements (net of
unsubmitted claims). In addition, the Commission
authorizes the Office of Energy Affairs
(OEA) to cause payment to Caltex of its claims initially
allowed in audit but the disallowance
includes sales to NPC, Atlas and Marcopper. It reasoned
that for the sales to Atlas/Marcopper,
LOI No. 1416 dated July 17, 1984 provides that I hereby
order and direct the suspension of
payment of all taxes, duties, fees, imposts and other
charges whether direct or indirect due and
payable by the copper mining companies in distress to the
national and local governments.
It is their opinion that LOI 1416 which implements the
exemption from payment of OPSF
imposts as effected by OEA has no legal basis.
Petitioner
filed
an
Omnibus
Request
for
the
Reconsideration of the decision contending
that administrative interpretations are legal and should be
respected and applied unless
declared null and void by courts or repealed by legislation.
The COA handed down Decision
No. 1171 affirming the disallowance for recovery of
financing charges, inventory losses, and
sales to Marcopper and Atlas.
ISSUE:
Whether petitioner has claim for reimbursement from its
sales to NPC, Atlas, and
Marcopper.
PAGE 128HELD:
For sales to NPC, we find for the petitioner. The
respondents themselves admit in their
Comment that underrecovery arising from sales to NPC are
reimbursable because NPC was
granted full exemption from the payment of taxes; to
prove this, respondents trace the laws
providing for such exemption. The last law cited is the
Fiscal Incentives Regulatory Boards
Resolution No. 17-87 of 24 June 1987 which provides, in
part, that the tax and duty exemption
privileges of the National Power Corporation, including
those pertaining to its domestic
purchases of petroleum and petroleum products . . . are
restored effective March 10, 1987. In
a Memorandum issued on 5 October 1987 by the Office of
the President, NPCs tax exemption
was confirmed and approved.

Furthermore, as pointed out by respondents, the intention

to exempt sales of petroleum
products to the NPC is evident in the recently passed
Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. The
pertinent part of Section 2, Republic
Act No. 6952 provides: Application of the Fund shall be
subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil
companies for (a) cost increases of
imported crude oil and finished petroleum products
resulting from foreign exchange rate
adjustments and/or increases in world market prices of
crude oil; (b) cost underrecovery
incurred as a result of fuel oil sales to the National Power
Corporation (NPC); and (c) other
cost underrecoveries incurred as may be finally decided by
the Supreme Court
For sales to ATLAS and MARCOPPER, petitioner relies on
Letter of Instruction (LOI)
1416, dated 17 July 1984. Pursuant to this LOI, then
Minister of Energy issued Memorandum
Circular No. 84-11-22 advising the oil companies that Atlas
Consolidated Mining Corporation
and Marcopper Mining Corporation are among those
declared to be in distress.
LOI 1416 could not have intended to exempt said
distressed mining companies
from the payment of OPSF dues for the following reasons:
a) LOI 1416 granting the alleged
exemption was issued on July 17, 1984. P.D. 1956 creating
the OPSF was promulgated on
October 10, 1984, while E.O. 137, amending P.D. 1956,
was issued on February 25, 1987; b)
LOI 1416 was issued in 1984 to assist distressed copper
mining companies in line with the
governments effort to prevent the collapse of the copper
industry. P.D No. 1956, as amended,
was issued for the purpose of minimizing frequent price
changes brought about by exchange
rate adjustments and/or changes in world market prices of
crude oil and imported petroleum
products; and c) LOI 1416 caused the suspension of all
taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the
copper mining companies in
distress to the Notional and Local Governments . . . On the
other hand, OPSF dues are not
payable by (sic) distressed copper companies but by oil
companies. It is to be noted that the
copper mining companies do not pay OPSF dues. Rather,
such imposts are built in or already
incorporated in the prices of oil products. While LOI 1416
suspends the payment of taxes by

distressed mining companies, it does not accord petitioner

the same privilege with respect to
its obligation to pay OPSF dues. Also, it is apparent that LOI
1416 was never published in the
Official Gazette 45 as required by Article 2 of the Civil
Code. Therefore it has no binding force
or effect as it was never published in the Official Gazette
after its issuance.
PAGE 129Even granting arguendo that LOI 1416 has force
and effect, petitioners claim must still
fail. Tax exemptions as a general rule are construed strictly
against the grantee and liberally
in favor of the taxing authority. The burden of proof rests
upon the party claiming exemption
to prove that it is in fact covered by the exemption so
claimed. The party claiming exemption
must therefore be expressly mentioned in the exempting
law or at least be within its purview
by clear legislative intent.
In the case at bar, petitioner failed to prove that it is
entitled, as a consequence of its
sales to ATLAS and MARCOPPER, to claim reimbursement
from the OPSF under LOI 1416.
Though LOI 1416 may suspend the payment of taxes by
copper mining companies, it does not
give petitioner the same privilege with respect to the
payment of OPSF dues.
PAGE 130Luzon Stevedoring Corp. v. Court of Tax Appeals,
Commissioner of Internal Revenue
[L-30232. July 29, 1988]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Paras
FACTS:
Petitioner-appellant, in 1961 and 1962, for the repair and
maintenance of its tugboats,
imported various engine parts and other equipment for
which it paid, under protest, the
assessed compensating tax. Unable to secure a tax refund
from the Commissioner of Internal
Revenue, on January 2, 1964, it filed a Petition for Review
with the Court of Tax Appeals,
praying that it be granted the refund of the amount of
P33,442.13. The Court of Tax Appeals
denied the various claims for tax refund. The Motion for
Reconsideration was denied, hence,
the instant petition.
ISSUE:
Whether petitioners tugboats can be interpreted to be
included in the term cargo
vessels for purposes of the tax exemption provided for in
Sec. 190 of the NIRC.
HELD:
No. This Court has laid down the rule that as the power of
taxation is a high prerogative

of sovereignty, the relinquishment is never presumed and

any reduction or dimunition thereof
with respect to its mode or its rate, must be strictly
construed, and the same must be coached
in clear and unmistakable terms in order that it may be
applied. The general rule is that any
claim for exemption from the tax statute should be strictly
construed against the taxpayer.
In order that the importations in question may be declared
exempt from the
compensating tax, the following requirements must be
complied with: (1) the engines and
spare parts must be used by the importer himself as a
passenger and/or cargo, vessel; and (2)
the said passenger and/or cargo vessel must be used in
coastwise or oceangoing navigation.
The amendatory provisions of R.A. 3176 limit tax
exemption from the compensating tax to
imported items to be used by the importer himself as
operator of passenger and/or cargo
vessel.
From the decision of the CTA, a tugboat is defined as a
strongly built, powerful steam
or power vessel, used for towing and, now, also used for
attendance on vessel. A tugboat is
a diesel or steam power vessel designed primarily for
moving large ships to and from piers
for towing barges and lighters in harbors, rivers and canals.
A tug is a steam vessel built for
towing, synonymous with tugboat. Hence, petitioners
tugboats clearly do not fall under the
categories of passenger and/or cargo vessels.
The Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant
that tugboats are passenger and/or cargo vessels used in
the shipping industry as an
independent business. On the contrary, petitionerappellants own evidence supports the view
PAGE 131that it is engaged as a stevedore, that is, the
work of unloading and loading of a vessel in port;
and towing of barges containing cargoes is a part of
petitioners undertaking as a stevedore.
In fact, even its trade name is indicative that its sole and
principal business is stevedoring and
lighterage, taxed under Section 191 of the National
Internal Revenue Code as a contractor, and
not an entity which transports passengers or freight for
hire which is taxed under Section 192
of the same Code as a common carrier by water.
PAGE
132National
Development
Company
v.
Commissioner Of Internal
Revenue
[L-53961. June 30, 1987]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Chico-Nazario

FACTS:
National Development Company (NDC) is a domestic
corporation with principal offices
in Manila. It entered into contracts in Tokyo with several
Japanese shipbuilding companies for
the construction of twelve ocean-going vessels.
Initial payments were made in cash and through
irrevocable letters of credit. Fourteen
promissory notes were signed for the balance by the NDC
and, as required by the shipbuilders,
guaranteed by the Republic of the Philippines. Thereafter,
remaining payments and the
interests thereon were remitted in due time by the NDC to
Tokyo. After the vessels were
delivered, the NDC remitted to the shipbuilders in Tokyo
the interest on the balance of the
purchase price. No tax was withheld. The Commissioner of
Internal Revenue held that the
interest remitted to the Japanese shipbuilders on the
unpaid balance of the purchase price of
the vessels acquired by petitioner is subject to income tax
under the Tax Code. The petitioner
argues that the Japanese shipbuilders were not subject to
tax under the Tax Code. Petitioner
contends that the interest payments were obligations of
the Republic of the Philippines and
that the promissory notes of the NDC were government
securities exempt from taxation under
Section 29(b)[4] of the Tax Code.
ISSUE:
Whether petitioner should not be held liable due to the
undertaking signed by the
Secretary of Finance and because the interest payments
were obligations of the Republic of
the Philippines and that the promissory notes of the NDC
were government securities exempt
from taxation under Section 29(b)[4] of the Tax Code as
alleged by petitioner.
HELD:
No. Petitioner should be held liable. There is nothing in
Section 29(b)[4] of the Tax
Code exempting the interests from taxes. Furthermore in
the said undertaking, petitioner has
not established a clear waiver therein of the right to tax
interests. Tax exemptions cannot be
merely implied but must be categorically and unmistakably
expressed. Any doubt concerning
this question must be resolved in favor of the taxing
power. It is not the NDC that is being
taxed. It was the income of the Japanese shipbuilders and
not the Republic of the Philippines
that was subject to the tax the NDC did not withhold. In
effect, therefore, the imposition of the
deficiency taxes on the NDC is a penalty for its failure to
withhold the same from the Japanese

shipbuilders.
PAGE 133Manila Electric Company v. Misael P. Vera
[L-29987s and L-23847. October 22, 1975]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Palma
FACTS:
MERALCO is the holder of a franchise by the Municipal
Board of the City of Manila to
Mr. Charles M. Swift and later assumed and taken over by
petitioner to construct, maintain, and
operate an electric light, heat, and power system in the
City of Manila and its suburbs. In two
separate occasions, MERALCO imported copper wires,
transformers, and insulators for use in
the operation of its business. The Collector of Customs, as
Deputy of Commissioner of Internal
Revenue, levied and collected a compensating tax for the
said importation. MERALCO claims
for a refund alleging that it was exempted from such
compensating tax based on paragraph 9
of its franchise. The court stated that MERALCOs claim for
exemption from the payment of the
compensating tax is not clear or expressed. Hence, this
appeal.
ISSUE:
Whether or not petitioner is exempted to pay
compensating tax for its purchase or
receipt of commodities, goods, wares, or merchandise
outside the Philippines.
HELD:
No. One who claims to be exempt from the payment of a
particular tax must do
so under clear and unmistakable terms found in the
statute. Tax exemptions are strictly
construed against the taxpayer. In the case at bar, the
Court is not aware whether or not the tax
exemption provisions contained in Par. 9, Part Two of Act
No. 484 of the Philippine Commission
of 1902 was incorporated in the municipal franchise
granted because no admissible copy of
Ordinance of the said Board was ever presented in
evidence by the petitioner. Furthermore
there is no plain and unambiguous terms declaring
petitioner MERALCO exempt from
paying a compensating tax on its imports of poles, wires,
transformers, and insulators. The
last clause of paragraph 9 merely reaffirms, what has been
expressed in the first sentence that
petitioner is exempted from payment of property tax. A
compensating tax is not a property tax
but an excise tax imposed on the performance of an act,
the engaging in an occupation, or the
enjoyment of a privilege.
PAGE 134Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr.,
et al.

[G.R. No. 88291. May 31, 1991 and G.R. No. 88291. June 8,
1993]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Nocon
FACTS:
Commonwealth Act No. 120 created the NPC as a public
corporation to undertake the
development of hydraulic power and the production of
power from other sources. Several
laws were enacted granting NPC tax and duty exemption
privileges such as taxes, duties, fees,
imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and
municipalities directly or indirectly, on all petroleum
products used by NPC in its operation.
However P.D. No. 1931 withdrew all tax exemption
privileges granted in favor of governmentowned or
controlled corporations including their subsidiaries but
empowered the President
and/or the then Minister of Finance, upon recommendation
of the FIRB to restore, partially
or totally, the exemption withdrawn. BIR ruled that the
exemption privilege enjoyed the NPC
under said section covers only taxes for which it is directly
liable and not on taxes, which are
only shifted to it.
In 1986, BIR Commissioner Tan, Jr. states that all deliveries
of petroleum products
to NPC are tax-exempt, regardless of the period of delivery.
Thereafter, the FIRB issued
several Resolutions in different occasions restoring the tax
and duty exemption privileges
of NPC indefinite period due to the restoration of the tax
exemption privileges of NPC, NPC
applied with the BIR for a refund of Specific Taxes paid on
petroleum products. On August
6, 1987, the Secretary of Justice, Opinion opined that the
power conferred upon Fiscal
Incentives Review Board constitute undue delegation of
legislative power and, therefore,
unconstitutional. However, respondents Finance Secretary
and the Executive Secretary
declared that NPC under the provisions of its Revised
Charter retains its exemption from
duties and taxes imposed on the petroleum products
purchased locally and used for the
generation of electricity. Thereafter investigations were
made for the refund of the tax
payments of the NPC, which includes Millions of pesos Tax
refund. Petitioner, as member of
the Philippine Senate introduced as Resolution Directing
the Senate Blue Ribbon Committee,
In Aid of Legislation, to conduct a Formal and Extensive
Inquiry into the Reported Massive Tax

Manipulations and Evasions by Oil Companies, particularly

Caltex (Phils.) Inc., Pilipinas Shell
and Petrophil, Which Were Made Possible By Their Availing
of the Non-Existing Exemption of
National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining
A Tax Refund Totalling P1.55 Billion From the Department
of Finance.
ISSUE:
Whether or not respondent NPC is legally entitled to the
questioned tax and duty
refunds.
HELD:
Yes. In G.R. No. 88291 the Supreme Court ruled in favor of
exempting NPC to the said
taxes. Also, in G.R.No. 88291 the Supreme Court ruled in
favor of respondents. NPC under the
PAGE 135provisions of its Revised Charter retains its
exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the
generation of electricity. Presidential
Decree No. 938 amended the tax exemption of NPC by
simplifying the same law in general
terms. It succinctly exempts NPC from all forms of taxes,
duties, fees, imposts, as well as
costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court
or administrative proceedings. the NPC electric power
rates did not carry the taxes and
duties paid on the fuel oil it used. The point is that while
these levies were in fact paid to
the government, no part thereof was recovered from the
sale of electricity produced. As a
consequence, as of our most recent information, some
P1.55 B in claims represent amounts
for which the oil suppliers and NPC are out-of-pocket.
There would have to be specific order
to the Bureaus concerned for the resumption of the
processing of these claims.construed
against the taxpayer. In the case at bar, the Court is not
aware whether or not the tax exemption
provisions contained in Par. 9, Part Two of Act No. 484 of
the Philippine Commission of
1902 was incorporated in the municipal franchise granted
because no admissible copy of
Ordinance of the said Board was ever presented in
evidence by the petitioner. Furthermore
there is no plain and unambiguous terms declaring
petitioner MERALCO exempt from
paying a compensating tax on its imports of poles, wires,
transformers, and insulators. The
last clause of paragraph 9 merely reaffirms, what has been
expressed in the first sentence that
petitioner is exempted from payment of property tax. A
compensating tax is not a property tax

but an excise tax imposed on the performance of an act,

the engaging in an occupation, or the
enjoyment of a privilege.
PAGE 136Commissioner Of Internal Revenue v. John
Gotamco & Sons,
Inc. and The Court of Tax Appeals
[L-31092. February 27, 1987]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Yap
FACTS:
The World Health Organization (WHO for short) is an
international organization that
has a regional office in Manila. An agreement was entered
into between the Republic of the
Philippines and the said Organization on July 22,1951.
Section 11 of that Agreement provides,
inter alia, that the Organization, its assets, income and
other properties shall be: (a) exempt
from all direct and indirect taxes. The WHO decided to
construct a building to house its own
offices, as well as the other United Nations offices
stationed in Manila. A bidding was held for
the building construction. The WHO informed the bidders
that the building to be constructed
belonged to an international organization exempted from
the payment of all fees, licenses,
and taxes, and that therefore their bids must take this
into account and should not include
items for such taxes, licenses and other payments to
Government agencies. Thereafter,
the construction contract was awarded to John Gotamco &
Sons, Inc. (Gotamco for short).
Subsequently, the Commissioner of Internal Revenue sent
a letter of demand to Gotamco
demanding payment of for the 3% contractors tax plus
surcharges on the gross receipts it
received from the WHO in the construction of the latters
building. WHO. The WHO issued
a certification that the bid of John Gotamco & Sons, should
be exempted from any taxes in
connection with the construction of the World Health
Organization office building because
such can be considered as an indirect tax to WHO.
However, The Commissioner of Internal
Revenue contends that the 3% contractors tax is neither a
direct nor an indirect tax on the
WHO, but a tax that is primarily due from the contractor,
and thus not covered by the tax
exemption agreement.
ISSUE:
Whether or not the said 3% contractors tax imposed upon
petitioner is covered by
the direct and indirect tax exemption granted to WHO by
the government.
HELD:

Yes. The 3% contractors tax imposed upon petitioner is

covered by the direct and
indirect tax exemption granted to WHO. Hence, petitioner
cannot be held liable for such
contractors tax. The Supreme Court explained that direct
taxes are those that are demanded
from the very person who, it is intended or desired, should
pay them; while indirect taxes
are those that are demanded in the first instance from one
person in the expectation and
intention that he can shift the burden to someone else.
While it is true that the contractors tax
is payable by the contractor, however in the last analysis it
is the owner of the building that
shoulders the burden of the tax because the same is
shifted by the contractor to the owner as
a matter of self-preservation. Thus, it is an indirect tax
against the WHO because, although it
is payable by the petitioner, the latter can shift its burden
on the WHO.
PAGE 137Commissioner Of Internal Revenue v. Court of
Appeals and
YMCA
[G.R. No. 124043. October 14, 1998]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Pabganiban
FACTS:
Young Mens Christian Association of the Philippines, Inc.
(YMCA) is a non-stock,
non-profit institution, which conducts various programs and
activities that are beneficial to
the public, especially the young people, pursuant to its
religious, educational and charitable
objectives. For the income earned from leasing its facilities
to small shop owners and the
operation of the parking lot, the commissioner of internal
revenue (CIR) issued an assessment
for deficiency income tax, deficiency expanded withholding
taxes on rentals and professional
fees and deficiency withholding tax on wages. YMCA
protested to the assessment claiming
that it is exempted from the income on rentals of small
shops and parking fees. The Court
of Tax Appeals (CTA) and the Court of Appeals (CA) ruled in
favor of YMCA, holding that the
latter is tax exempted on income it derived from renting
out its real property on the ground
that the income is not collected for profit but is merely
incidental to its operation. Hence this
petition for review on certiorari.
ISSUE:
Whether or not the income derived from rentals of real
property owned by the
YMCA is subject to income tax under the National Internal
Revenue Code (NIRC) and the

Constitution.
HELD:
Yes. Under Section 27 of the NIRC, the income from any
property of exempt
organizations, as well as that arising from any activity it
conducts for profit is taxable. The
phrase any of their activities conducted for profit does
not qualify the word properties.
This makes income from the property of the organization
taxable, regardless of how the
income is used- whether for profit of for lofty non-profit
purposes. This is contrary to the
argument of YMCA that the income from the properties
must arise from activities conducted
for profit before it may be considered taxable. On the other
hand, YMCA in invoking Article VI,
Section 28 of paragraph 3 of the Constitution, failed to
prove by substantial evidence that: 1) it
falls under the classification non-stock, non-profit
educational institution; and 2) the income
it seeks to be exempted from taxation is actually, directly
and exclusively for educational
purposes. The school system, under the Education Act of
1982, is synonymous with formal
education, which refers to the hierarchically structured and
chronological graded learnings
organized and provided by the formal school system and
for which certification is required in
order for the learner to progress through the grades or
move to the higher levels. With regard
to the second requirement, YMCA did not submit proof of
the proportionate amount of the
subject income that was actually, directly and exclusively
used for educational purposes.
PAGE 138Nitafan vs. Commissioner of Internal Revenue
[G.R. No. L-78780. July 23, 1987]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Melencio-Herrera
FACTS:
David Nitafan, Wenceslao Polo and Maximo Savellano, Jr.,
duly appointed and
qualified judges of the Regional Trial Court, seek to prohibit
and/or perpetually enjoin the
Commissioner of Internal Revenue and the Financial Officer
of the Supreme Court from
making any deduction of withholding taxes from their
salaries. They submit that any tax
withheld from their emoluments or compensation as
judicial officers constitutes a decrease
or diminution of their salaries, contrary to the provision of
Section 10, Article VIII of the
Constitution mandating that during their continuance in
office, their salary shall not be
decreased. In addition, said contention was in line with the
ruling on Perfecto vs. Meer and

Endencia vs. David, declaring the salaries of members of

the Judiciary exempt from payment
of the income tax and considered such payment as a
diminution of their salaries during their
continuance in office.
ISSUE:
Whether or not the salaries of Justices and Judges are
subject to income tax law.
HELD:
Yes. The payment of income tax, which is applicable to all
income earners, by Justices
and Judges does not fall within the constitutional protection
against decrease of their salaries
during their continuance in office. The true intent of the
framers of the 1987 Constitution was
to make the salaries of members of the Judiciary taxable.
The matter of tax exemption from tax
of the salary of justices violates the principles of the
uniformity of taxation and the principle
of equal protection of the law.
PAGE 139Province of Abra vs. Hernando
[G.R. No. L-49336. August 31, 1981]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Fernando
FACTS:
The Province of Abra sought to tax the real properties of
Roman Catholic Bishop
of Bangued, Inc. However, the latter was desirous of being
exempted from real estate tax
claiming that the properties including their produce are
actually, directly and exclusively used
by them for religious or charitable purposes. They invoked
Section 17, paragraph 3, Article
VII of the 1973 Constitution. The declaratory relief prayed
was granted by the CFI presiding
judge Hon. Harold Hernando without any hearing. Hence,
this instant petition for certiorari
and mandamus by the Province of Abra.
ISSUE:
Whether or not the properties of Roman Catholic Bishop of
Bangued, Inc. must be
shown to have been actually and directly used for religious
or charitable purposes to be
exempted from real estate tax.
HELD:
Yes. To be exempt under the Constitution, lands, buildings
and improvements of
religious and charitable institutions must not only be
exclusively but also actually and directly
used for religious and charitable purposes.
PAGE 140Commissioner of Internal Revenue vs. Mitsubishi
Metal
Corporation
[G.R. No. 54908. January 22, 1990]
Digest by:MALAMUG, Jena Lemienne Mae A.

PONENTE: Regalado
FACTS:
Atlas
Consolidated
Mining
and
Developmentt
Corporation(Atlas)entered into a Loan
and Sales Contract with Mitsubishi Metal Corporation.
Under the said contract, in consideration
of the loan amounting to $20,000,000.00, Atlas undertook
to sell all the copper concentrates
produced by the new concentrator to Mitsubishi.
Thereafter, application of Mitsubishi
for a loan with the Export-Import Bank of Japan was
granted subject to the condition that
Mitsubishi would use the amount as a loan to Atlas and as
a consideration for importing copper
concentrates from Atlas. Pursuant to the contract, Atlas
made interest payments to Mitsubishi
for the years 1974 and 1975. The corresponding 15% tax
thereon was withheld pursuant to
Section 24(b) (1) and Section 53 (b) (2) of the National
Internal Revenue Code. A claim for tax
credit was then made by herein private respondents so
that the amount previously withheld
be applied against their existing and future tax liabilities.
But the Commissioner of Internal
Revenue failed to act on the claim for tax credit. On the
other hand, the Court of Tax Appeals
granted a tax credit to Atlas declaring that Mitsubishi was a
mere agent of Eximbank, which
is a financing institution owned and controlled and financed
by the Japanese Government.
Hence, this petition for review.
ISSUE:
1. Whether or not Mitsubishi is a mere conduit of Eximbank
which will then be
considered as the creditor whose investments in the
Philippines on loans are exempt from
taxes under the code.
2. Whether or not the interest income from the loans
extended to Atlas by Mitsubishi
is excludible from gross income taxation pursuant to
Section 29 (b) (7) (A) of the tax code.
HELD:
1. No. The loan and sales contract between Mitsubishi and
Atlas does not contain any
direct or inferential reference to Eximbank whatsoever. The
agreement is strictly between
Mitsubishi as creditor in the contract of loan and Atlas as
the seller of the copper concentrates.
While the loans were secured by Mitsubishi as a loan to
and in consideration for importing
copper concentrates from Atlas, the fact remains that it
was a loan by Eximbank of Japan to
Mitsubishi and not to Atlas. The transaction between
Mitsubishi and Eximbank of Japan was a

distinct and separate contract from that entered into by

Mitsubishi and Atlas.
2. No. The provision of the National Internal Revenue Code
relied upon is Section 29
(b) (7) (A), 6 which excludes from gross income: (A)
Income received from their investments
in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on their
deposits in banks in the Philippines by (1) foreign
governments, (2) financing institutions
PAGE 141owned, controlled, or enjoying refinancing from
them, and (3) international or regional
financing institutions established by governments. Herein
private respondents are not
even among the entities which, under Section 29 (b) (7) (A)
of the tax code, are entitled to
exemption and which should indispensably be the party in
interest in this case. It is a settled
rule that that laws granting exemption from tax are
construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the
exception. The taxability of a party cannot be blandly
glossed over on the basis of a supposed
broad, pragmatic analysis alone without substantial
supportive evidence.
PAGE 14231
st
Infantry Post Exchange v Posadas
[G.R. No. 33403 September 4, 1930]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Malcolm
FACTS:
Petitioner is a post exchange in accordance with the Army
Regulations and the laws
of the US. It is designed for the accommodation,
convenience and assistance of the Armys
personnel. All the goods purchased are intended for resale
and are in fact resold to the officers,
soldiers and civilian employees of the Army, and their
family. The net proceeds derived from
the resale do not accrue to the general funds of the US but
are used for the betterment of the
Army personnel. The Exchange made purchases of various
and diverse commodities, goods,
wares and merchandise from various merchants of the
Philippines. The CIR collector, herein
respondent, have collected from the said merchants who
made the sales of the commodities,
etc. taxes at the rate of % on the gross value in money of
the commodities, etc. sold by
them to the Exchange. It intends to collect the same from
the Exchange. The Exchange made a
formal legal protest.
ISSUE:

Whether or not a tax may be levied by the Government of

the Philippine Islands on
sales made by merchants to Post Exchanges of the United
States Army in the Philippines.
HELD:
Yes. Philippine law as thus enacted and expressly
confirmed by the Congress, makes
particular mention of the persons exempt from this tax,
without, however, including in the
enumeration commercial transactions with Army Post
Exchanges. The sale of merchandise
through the post exchanges to the individuals of the United
States Army and Navy are not
goods sold and delivered directly to the United States Army
or Navy for the actual use or issue
by the Army or Navy and are therefore, not exempt from
the payment of the internal revenue
tax imposed by the law.
Since no law of the Congress forbids the taxation of
merchants who deal with Army
Post Exchanges, and since the Congress has legalized the
applicable law, and in doing so has
granted no immunity from taxation to merchants who deal
with Army Post Exchanges, the
Congress has permitted such transactions with Army Post
Exchanges, on the assumption that
Post Exchanges are agencies of the United States, to be
taxed by the Philippine Government.
PAGE 143PLDT v City of Davao
[G.R. No. 143867. August 22, 2001]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Mendoza
FACTS:
On 1999, PLDT applied for a Mayors Permit to operate its
Davao Metro Exchange but
respondent City of Davao withheld action on the
application pending payment by petitioner
of the local franchise tax in the for the first to the fourth
quarter of 1999. Petitioner protested
the assessment of the local franchise tax and requested a
refund of the franchise tax paid by
it for the year 1997 and the first to the third quarters of
1998. It contented that it was exempt
from the payment of franchise tax by virtue of Sec 12 of RA
7082 which states that it shall pay
a franchise tax equivalent to three percent (3%) of all gross
receipts of the telephone or other
telecommunications businesses transacted under this
franchise by the grantee, its successors
or assigns, and the said percentage shall be in lieu of all
taxes on this franchise or earnings
thereof . . .
PLDT also became automatically covered by the tax
exemption provisions of Public

Telecommunications Policy Act of the Philippines (RA 7925)

particularly Sec. 23, providing
for the equality of treatment in the telecommunications
industry, which took effect on March
1995. Accordingly, PLDT shall be exempt from the payment
of franchise and business taxes
imposable by LGUs upon the effectivity of RA 7925.
The City Treasurer denied the protest and claim for tax
refund of PLDT by virtue of an ordinance
imposing a tax on a business enjoying a franchise, at a rate
of 75% on 1% of the gross annual
receipts for the preceding calendar year based on the
incoming receipt, or realized, within its
territorial jurisdiction.
ISSUE:
Whether or not, after the withdrawal of its exemption by
virtue of Sec. 137 of the
LGC, petitioner has again become entitled to exemption
from local franchise tax.
HELD:
No. PLDT justifies its claim of exemption by strained
inferences particularly on R.A.
No. 7925. The term exemption under Sec. 23 thereof is
too general. The thrust of the law
is to promote gradually the deregulation of the entry,
pricing, and operations of all public
telecommunications entities and thus promote a level
playing field in the telecommunications
industry. There is nothing in the language of Sec.23 nor in
the proceedings of both the House of
Representatives and the Senate in enacting R.A. No. 7925
which shows that it contemplates the
grant of tax exemptions to all telecommunications entities,
including those whose exemptions
had been withdrawn by the LGC.
In approving 23 of R.A. No. 7925 Congress did not intend
it to operate as a blanket tax
exemption to all telecommunications entities. Applying the
rule of strict construction of laws
PAGE 144granting tax exemptions and the rule that doubts
should be resolved in favor of municipal
corporations in interpreting statutory provisions on
municipal taxing powers, we hold that
23 of R.A. No. 7925 cannot be considered as having
amended petitioners franchise so as to
entitle it to exemption from the imposition of local
franchise taxes.
PAGE 145Sea Land Services, Inc. v CA
[G.R. No. 122605. April 30, 2001]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Pardo
FACTS:
Sea Land entered into a contract with the United States
Government to transport

military household goods and effects of U. S. military

personnel assigned to the Subic Naval
Base. During the 1984 taxable year, it filed with the BIR the
corresponding ITR and paid the
income tax due thereon as required in Sec25 (a)(2) of the
NIRC in relation to the RP-US Tax
Treaty. However, Sea Land claimed that it paid the same
by mistake and a written claim for
refund was filed with the BIR. But before the refund could
be acted upon by the CIR, Sea Land
filed a petition for review before the CTA to judicially
pursue its claim for refund and to stop
the running of the two-year prescriptive period under the
then Section 243 of the NIRC. The
CTA denied its claim for refund.
ISSUE:
Whether or not the income that petitioner derived from
services in transporting
the household goods and effects of U. S. military personnel
falls within the tax exemption
provided in Article XII, paragraph 4 of the RP-US Military
Bases Agreement.
HELD:
No. Under Article XII (4) of the RPUS Military Bases
Agreement, the Philippine
Government agreed to exempt from payment of Philippine
income tax nationals of the United
States, or corporations organized under the laws of the
United States, residents in the United
States in respect of any profit derived under a contract
made in the United States with the
Government of the United States in connection with the
construction, maintenance, operation
and defense of the bases.
It is obvious that the transport or shipment of household
goods and effects of U. S.
military personnel is not included in the term
construction, maintenance, operation and
defense of the bases. Neither could the performance of
this service to the U. S. government
be interpreted as directly related to the defense and
security of the Philippine territories.
PAGE 146MERALCO v Province of Laguna
[G.R. No. 131359. May 5, 1999]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Vitug
FACTS:
Prior to the enactment of the Local Government Code of
1991 (RA 7160), MERALCO has
been granted a franchise for the supply of electric power in
various municipalities of Laguna.
Upon enactment of the said code enjoining LGUs to create
their own sources of revenue and
to levy taxes, it enacted Ordinance No. 01-92 imposing a
tax on business enjoying a franchise

at a rate of 50%of 1% of the gross annual receipts xxx.

Meralco paid the tax under protest.
A formal claim of refund was then sent by Meralco to the
Provincial Treasurer claiming
that the franchise tax it had paid and continued to pay to
the National Government pursuant to
P.D. 551 already included the franchise tax imposed by the
Provincial Tax Ordinance. Section
1 of PD 551 provides that, xxx any provision of the Local
Tax Code or any other law to the
contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed
by any national or local authority on earnings, receipts,
income and privilege of generation,
distribution and sale of electric current. Such claim for
refund was denied.
ISSUE:
Whether or not the imposition of a franchise tax under the
Provincial Ordinance No.
01-92, insofar as petitioner is concerned, is violative of the
non-impairment clause of the
Constitution and Section 1 of Presidential Decree No. 551.
HELD:
No. While the Court has, not too infrequently, referred to
tax exemptions contained in
special franchises as being in the nature of contracts and a
part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of
the term and where the non-impairment
clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in
contracts, such as those contained in government bonds or
debentures, lawfully entered into
by them under enabling laws in which the government,
acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked
without impairing the
obligations of contracts. These contractual tax exemptions,
however, are not to be confused
with tax exemptions granted under franchises.
Indeed,
Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and
the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall
be granted except under the
condition that such privilege shall be subject to
amendment, alteration or repeal by Congress
as and when the common good so requires.
PAGE 147Tiu vs. Court of Appeals
[G.R. No. 127410. January 20, 1999]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Panganiban

FACTS:
On March 13, 1992, Congress, with the approval of the
President, passed into law
RA 7227 entitled An Act Accelerating the Conversion of
Military Reservations Into Other
Productive Uses, Creating the Bases Conversion and
Development Authority for this Purpose,
Providing Funds Therefor and for Other Purposes. In order
the it shall be developed into
a self-sustaining, industrial, commercial, financial and
investment center to generate
employment opportunities in and around the zone and to
attract and promote productive
foreign investments, the Subic Special Economic Zone is
given special privileges, one of which
is that no taxes, local and national, shall be imposed within
the Subic Special Economic Zone.
On June 10, 1993, then President Fidel V. Ramos issued
Executive Order No. 97 (EO
97), clarifying that the tax and duty-free importations shall
apply only to raw materials, capital
goods and equipment brought in by business enterprises
into the SSEZ. And that except for
these items, importations of other goods into the SSEZ,
whether by business enterprises or
resident individuals, are subject to taxes and duties under
relevant Philippine laws.
The EO also provided that the Secured Area consisting of
the presently fenced-in
former Subic Naval Base shall be the only completely tax
and duty-free area in the SSEFPZ
[Subic Special Economic and Free Port Zone]. Business
enterprises and individuals (Filipinos
and foreigners) residing within the Secured Area are free to
import raw materials, capital
goods, equipment, and consumer items tax and duty-free.
Consumption items, however, must
be consumed within the Secured Area. Removal of raw
materials, capital goods, equipment
and consumer items out of the Secured Area for sale to
non-SSEFPZ registered enterprises
shall be subject to the usual taxes and duties, except as
may be provided.
The Court of Appeals further justified the limited
application of the tax incentives as
being within the prerogative of the legislature, pursuant to
its avowed purpose [of serving]
some public benefit or interest.
ISSUE:
Whether EO 97-A discriminated against them, without
reasonable or valid standards,
in contravention of the equal protection guarantee.
HELD:
No. The fundamental right of equal protection of the laws is
not absolute, but is subject

to reasonable classification.
If the groupings are
characterized by substantial distinctions that
make real differences, one class may be treated and
regulated differently from another. The
classification must also be germane to the purpose of the
law and must apply to all those
PAGE 148belonging to the same class. Classification, to be
valid, must (1) rest on substantial distinctions,
(2) be germane to the purpose of the law, (3) not be
limited to existing conditions only, and (4)
apply equally to all members of the same class.
From the very title itself, it is clear that RA 7227 aims
primarily to accelerate the
conversion of military reservations into productive uses.
Obviously, the lands covered under
the 1947 Military Bases Agreement are its object. Thus,
the law avows as one of its policies
is to encourage the active participation of the private
sector in transforming the Clark and
Subic military reservations and their extensions into other
productive uses. More so, the law
declared it a policy to develop the zone into a selfsustaining, industrial, commercial, financial
and investment center.
In furtherance of such objective, Congress deemed it
necessary to extend economic
incentives to attract and encourage investors, both local
and foreign. Among such enticements
are: (1) a separate customs territory within the zone, (2)
tax-and-duty-free importations and
(3) restructured income tax rates on business enterprises
within the zone.
Certainly, there are substantial differences between the big
investors who are being lured to
establish and operate their industries in the so-called
secured area and the present business
operators outside the area. On the one hand, we are
talking of billion-peso investments and
thousands of new jobs. On the other hand, definitely none
of such magnitude.
The classification occasioned by EO 97-A was not
unreasonable, capricious or
unfounded. To repeat, it was based, rather, on fair and
substantive considerations that were
germane to the legislative purpose.
PAGE 149Mactan Cebu Interational Airport Authority vs.
Marcos
[G.R. No. 120082. September 11, 1996]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Davide, Jr
FACTS:
Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of
Republic Act No. 6958, mandated to principally undertake
the economical, efficient and

effective control, management and supervision of the

Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City and
such other airports as may be
established in the Province of Cebu.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from
payment of realty taxes in accordance with Section 14 of
its Charter:
Sec. 14. Tax Exemptions. -- The Authority shall be exempt
from realty taxes imposed by the
National Government or any of its political subdivisions,
agencies and instrumentalities.
On October 11, 1994, however, Mr. Eustaquio B. Cesa,
Officer-in-Charge, Office of the Treasurer
of the City of Cebu, demanded payment for realty taxes on
several parcels of land belonging
to the petitioner.
Petitioner objected to such demand for payment as
baseless and unjustified, claiming in its
favor the aforecited Section 14 of RA 6958 which exempts
it from payment of realty taxes. It
was also asserted that it is an instrumentality of the
government performing governmental
functions and that unless otherwise provided, the exercise
of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the
levy on taxes, fees or charges of any
kind on the National Government, its agencies and
instrumentalities, and local government
units.
The petitioner was compelled to pay its tax account under
protest and thereafter filed a
Petition for Declaratory Relief with the Regional Trial Court
of Cebu. Respondent City, however,
asserted that MCIAA is not an instrumentality of the
government but merely a governmentowned corporation
performing proprietary functions.
ISSUE:
Whether the MCIAA as an instrumentality of the
government is exempted from
payment of realty taxes as imposed by the City of Cebu.
HELD:
There can be no question that under Section 14 of R.A. No.
6958 the petitioner is
exempt from the payment of realty taxes imposed by the
National Government or any of its
political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the
rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the
PAGE 150pleasure of the taxing authority.
The only
exception to this rule is where the exemption was
granted to private parties based on material consideration
of a mutual nature, which then

becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
The taxes, fees or charges, as provided by Section 133 of
the Local Government Code,
referred to are of any kind; hence, they include all,
unless otherwise provided by the LGC.
Reading together Sections 133, 232, and 234 of the LGC,
we conclude that as a general rule,
as laid down in Section 133, the taxing powers of local
government units cannot extend to
the levy of, inter alia, taxes, fees and charges of any kind
on the National Government, its
agencies and instrumentalities, and local government
units; however, pursuant to Section
232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real
property tax except on, inter alia, real property owned by
the Republic of the Philippines or
any of its political subdivisions except when the beneficial
use thereof has been granted, for
consideration or otherwise, to a taxable person, as
provided in item (a) of the first paragraph
of Section 234.
As to tax exemptions or incentives granted to or presently
enjoyed by natural or
juridical persons, including government-owned and
controlled corporations, Section 193
of the LGC prescribes the general rule, viz., they are
withdrawn upon the effectivity of the
LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational
institutions, and unless otherwise
provided in the LGC.
Even if the petitioner was originally not a taxable person
for purposes of real property
tax, in light of the foregoing disquisitions, it had already
become, even if it be conceded to be
an agency or instrumentality of the Government, a
taxable person for such purpose in
view of the withdrawal in the last paragraph of Section 234
of exemptions from the payment
of real property taxes, which, as earlier adverted to,
applies to the petitioner.
PAGE 151Commissioner of Internal Revenue v. Robertson
[G.R. No. L-70116-19, August 12, 1986]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Paras
FACTS:
Petition for Review of the consolidated decision dated 14
December 1984 of the Court
of Tax Appeals cancelling the assessments for deficiency
income tax for taxable years 19691972, inclusive of interests and penalties against the
respondents Frank Robertson (CTA Case

No. 2735), James Robertson (CTA CASE No. 2736), Robert

H. Cathey (CTA Case No. 2738) and
John Garrison (CTA CASE No. 2739). Respondents are all
American Citizens who were all
assigned at the U.S. Naval Base, Subic Bay, Philippines.
The Court a quo after due hearing, rendered its judgment
in favor of respondents
cancelling and setting aside the assessments for deficiency
income taxes of respondents for
the taxable years 1969-1972, inclusive of interests and
penalties. Pursuant to Article XII, Par.
2, of the RP-US Military Bases Agreement of 1947, quoted
as follows:
2.
No national of the United States serving in or
employed in the Philippines
in connection with the construction, maintenance,
operation or defense of the
bases and residing in the Philippines by reason only of such
employment, or his
spouse and minor children and dependent parents of either
spouse, shall be
liable to pay income tax in the Philippines except in respect
of income derived
from Philippine sources or sources other than the United
states sources.
Petitioner, to support his contentions, argues that the laws
granting tax exemptions
must be construed in strictissimi juris against the taxpayer,
and that the burden of proof is
private respondents, Frank Robertson, James W.
Robertson, Robert H. Cathey and John L.
Garrison to establish that their residence in the country is
by reason only of their employment
in connection with the construction, maintenance,
operation or defense of the U.S.
ISSUE:
Whether the respondents were able to sufficiently
discharge the burden of proof by
establishing their residence and employment.
HELD:
The law and the facts of the case are so clear that there is
no room left for Us to doubt
the validity of private respondents defense. In order to
avail oneself of the tax exemption
under the RP-US Military Bases Agreement he must be a
national of the United States employed
in connection with the construction, maintenance,
operation or defense, of the bases, residing
in the Philippines by reason of such employment, and the
income derived is from the U.S.
Government (Art. XII par. 2 of PI-US Military Bases
Agreement of 1947). Said circumstances
are all present in the case at bar.
PAGE 152It bears repeating as so disclosed in the records
that the petitioners together with

families upon repatriation in 1945 had since acquired

domicile and residency in the United
States. And, obtained employment with the United States
Federal Service. Not until after
several years of a hiatus, petitioners did return to the
Philippines not so much of honoring a
pledge nor of sentimental journey but by reason of taking
up assigned duties with the United
States military bases in the Philippines where they were
gainfully employed by the U.S. Federal
Government.
It appeals too much of a stretch to hold petitioners
straight-jacketed to an irreversible
situs of birth constraint and by reason thereof deny
altogether any opportunity to a
serendipitous enjoyment of a tax relief accorded in the
Agreement. Such a random quirk
of pirouette in the tax treatment falls sharply at odds with
the shared expectations of the
high contracting parties. This Court will not deem itself
authorized to depart from the plain
meaning of the tax exemption provision, so explicit in
terms and so searching in extent.
PAGE 153Basco v. PAGCOR
[G.R. No. 91649 May 14, 1991]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Paras
FACTS:
The Philippine Amusements and Gaming Corporation
(PAGCOR) was created by virtue
of P.D. 1067-A dated January 1, 1977 and was granted a
franchise under P.D. 1067-B also dated
January 1, 1977 to establish, operate and maintain
gambling casinos on land or water within
the territorial jurisdiction of the Philippines.
Subsequently, on July 11, 1983, PAGCOR was created
under P.D. 1869 to enable the
Government to regulate and centralize all games of chance
authorized by existing franchise
or permitted by law. To attain these objectives PAGCOR is
given territorial jurisdiction all over
the Philippines.
It is reported that PAGCOR is the third largest source of
government revenue, next to
the Bureau of Internal Revenue and the Bureau of
Customs.
But the petitioners, are questioning the validity of P.D. No.
1869. They allege that
the same is null and void for being contrary to morals,
public policy and public order,
monopolistic and tends toward crony economy, and is
violative of the equal protection
clause and local autonomy.
Petitioner refers to Section 13 par. (2) of P.D. 1869 which
exempts PAGCOR, as the

franchise holder from paying any tax of any kind or form,

income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or
Local. as violative of the principle
of local autonomy.
ISSUE:
Whether the establishment of PAGCOR pursuant to P.D.
1869 constitutes a waiver of
the right of the City of Manila to impose taxes and legal
fees and that the exemption clause in
P.D. 1869 is violative of the principle of local autonomy.
HELD:
Their contention stated hereinabove is without merit for
the following reasons:
(a) 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.
(b) 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
PAGE 154create 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.
Therefore, only the National Government has the power to
issue licenses or permits
for the operation of gambling. Necessarily, the power to
demand or collect license fees which
is a consequence of the issuance of licenses or permits is
no longer vested in the City of
Manila.
(d) 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.
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.
The states have no power by taxation or otherwise, to
retard, impede, burden or in

any manner control the operation of constitutional laws

enacted by Congress to carry into
execution the powers vested in the federal government.
PAGE 155Republic of the Philippines v. Intermediate
Appellate Court
[G.R. No. L-69344 April 26, 1991]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Grino- Aquino
FACTS:
The Republic through the Bureau of Internal Revenue
instituted an action against
the spouses Pastors for deficiency income taxes for the
years 1955 to 1959 in the amount
of P17,117.08 with a 5% surcharge and 1% monthly
interest, and costs. The Pastors filed
an answer admitting there was an assessment against
them of P17,117.08 for income tax
deficiency but denying liability therefor. They contended
that they had availed of the tax
amnesty under P.D.s Nos. 23, 213 and 370 and had paid
the corresponding amnesty taxes
amounting to P10,400 or 10% of their reported untaxed
income under P.D. 23, P2,951.20 or
20% of the reported untaxed income under P.D. 213, and a
final payment on October 26, 1973
under P.D. 370 evidenced by the Governments Official
Receipt No. 1052388. Consequently,
the Government is in estoppel to demand and compel
further payment of income taxes by
them.
The trial court rendered a decision on February 28, 1980,
holding that the defendants
spouses had settled their income tax deficiency for the
years 1955 to 1959, not under P.D.
23 or P.D. 370, but under P.D. 213, as shown in the
Amnesty Income Tax Returns Summary
Statement and the tax Payment Acceptance Order for
P2,951.20 with its corresponding
official receipt, which returns also contain the very
assessment for the questioned years. By
accepting the payment of the amnesty income taxes, the
Government, therefore, waived its
right to further recover deficiency incomes taxes.
ISSUE:
Whether or not the tax amnesty payments made by the
private respondents on
October 23, 1973 bar an action for recovery of deficiency
income taxes under P.D.s Nos. 23,
213 and 370.
HELD:
The rule is that in case of doubt, tax statutes are to be
construed strictly against the
Government and liberally in favor of the taxpayer, for
taxes, being burdens, are not to be

presumed beyond what the applicable statute (in this case

P.D. 213) expressly and clearly
declares.
Even assuming that the deficiency tax assessment of
P17,117.08 against the Pastor
spouses were correct, since the latter have already paid
almost the equivalent amount to
the Government by way of amnesty taxes under P.D. No.
213, and were granted not merely
an exemption, but an amnesty, for their past tax failings,
the Government is estopped from
collecting the difference between the deficiency tax
assessment and the amount already paid
by them as amnesty tax.
PAGE 156The finding of the appellate court that the
deficiency income taxes were paid by the
Pastors, and accepted by the Government, under P.D. 213,
granting amnesty to persons who
are required by law to file income tax returns but who
failed to do so, is entitled to the highest
respect and may not be disturbed except under
exceptional circumstances.
PAGE 157Commissioner of Internal Revenue v. Court of
Appels
[G.R. No. 108358 January 20, 1995]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Vitug
FACTS:
Executive Order No. 41 was promulgated declaring a onetime tax amnesty on unpaid
income taxes, later amended to include estate and donors
taxes and taxes on business, for the
taxable years 1981 to 1985.
R.O.H. Auto Products Philippines, Inc., availed of the
amnesty and filed, in October
1986 and November 1986, its Tax Amnesty Return No. 34F-00146-41 and Supplemental
Tax Amnesty Return No. 34-F-00146-64-B, respectively,
and paid the corresponding amnesty
taxes due.
Petitioner Commissioner of Internal Revenue, in a
communication received by private
respondent on 13 August 1986, assessed the latter
deficiency income and business taxes for
its fiscal years ended 30 September 1981 and 30
September 1982 in an aggregate amount
of P1,410,157.71. The taxpayer wrote back to state that
since it had been able to avail itself
of the tax amnesty, the deficiency tax notice should
forthwith be cancelled and withdrawn.
The contention of the petitioner was that the amnesty
coverage was to be to include only
assessments issued by the Bureau of Internal Revenue
after the promulgation of the executive

order on 22 August 1986 and not to assessments

theretofore made.
The CA ruled that in examining carefully the words used in
Executive Order No. 41,
as amended there is nothing which justifies petitioner
Commissioners ground for denying
respondent taxpayers claim to the benefits of the amnesty
law.
ISSUE:
Whether or not said deficiency assessments in question
were extinguished by reason
or private respondents availment of executive order no. 41
as amended by Executive Order
no. 6.
HELD:
We agree with both the court of Appeals and court of Tax
Appeals that Executive
Order No. 41 is quite explicit and requires hardly anything
beyond a simple application of its
provisions.
If, as the Commissioner argues, Executive Order No. 41
had not been intended to
include 1981-1985 tax liabilities already assessed
(administratively) prior to 22 August 1986,
the law could have simply so provided in its exclusionary
clauses. It did not. The conclusion
is unavoidable, and it is that the executive order has been
designed to be in the nature of a
general grant of tax amnesty subject only to the cases
specifically excepted by it.
PAGE 158A tax amnesty, being a general pardon or
intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty
of evasion or violation of a revenue
or tax law, partakes of an absolute forgiveness or waiver
by the Government of its right to
collect what otherwise would be due it, and in this sense,
prejudicial thereto, particularly to
give tax evaders, who wish to relent and are willing to
reform a chance to do so and thereby
become a part of the new society with a clean slate.
PAGE 159Part I: General Principles
Nature , Construction,
Application & Sources of tax
LawsHilado v. Commissioner of Internal Revenue
[G.R. No. L-9408. October 31, 1956.]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Bautista
FACTS:
On March 31, 1952, Petitioner filed his income tax return
for 1951 with the treasurer
of Bacolod City wherein he claimed, among other things,
the amount of P12,837.65 as a
deductible item from his gross income pursuant to General
Circular No. V-123 issued by the

Collector of Internal Revenue.

Through the collector, the secretary of finance issued
general circular V-139 which
revoked and declared void circular V123. It provided that
losses of property which occurred
in world war II from fire, storms and shipwreck or from
other casualty like robbery of theft or
embezzlement in the year of actual loss or destruction of
property. The deductions were later
on disallowed.
ISSUE:
Can Hilado claim compensation for destruction of his
property during the war under
the laws in effect at that time?
HELD:
Petitioners contention that during the last war and as a
consequence of enemy
occupation in the Philippines there was no taxable year
within the meaning of our internal
revenue laws because during that period they were
unenforceable, is without merit.
Philippine Internal Revenue laws are not political in nature
and as such were
continued in force during enemy occupation and in effect
were actually enforced by the
occupying government. Such tax laws are deemed to be
laws of the occupied territory and not
of the occupying enemy. As of the end of 1945, there was
no law which Hilado could claim for
the destruction of his properties during the liberation of our
country. Under the Philippine
rehabilitation act of 1948, the payment of claims by the
War damage Commission depended
upon its discretion. Non-payment of which does not give
rise to any enforceable right.
Furthermore, it is a legal maxim, that excepting that of a
political nature, Law once
established continues until changed by some competent
legislative power. It is not changed
merely by change of sovereignty.
It seems too clear for serious argument that an
administrative officer cannot change
a law enacted by Congress. A regulation that is merely an
interpretation of the statute when
once determined to have been erroneous becomes nullity.
An erroneous construction of the
law by the Treasury Department or the collector of internal
revenue does not preclude or
estop the government from collecting a tax which is legally
due.
PAGE 160Misamis Oriental Assoc. of CoCo Traders, Inc. vs.
Department
of Finance Secretary
[G.R. No. 108524 November 10, 1994]
Digest by: : NIEVA, Aubin Arn R.

PONENTE: Mendoza
FACTS:
Petitioner Misamis Oriental Association of Coco Traders,
Inc. is a domestic corporation
whose members, individually or collectively, are engaged
in the buying and selling of copra in
Misamis Oriental. The petitioner alleges that prior to the
issuance of Revenue Memorandum
Circular 47-91 on June 11, 1991, which implemented VAT
Ruling 190-90, copra was classified
as agricultural food product under $ 103(b) of the National
Internal Revenue Code and,
therefore, exempt from VAT at all stages of production or
distribution.
Under 103(a), as above quoted, the sale of agricultural
non-food products in their
original state is exempt from VAT only if the sale is made
by the primary producer or owner
of the land from which the same are produced. The sale
made by any other person or entity,
like a trader or dealer, is not exempt from the tax. On the
other hand, under 103(b) the sale of
agricultural food products in their original state is exempt
from VAT at all stages of production
or distribution regardless of who the seller is.
Petitioner contends that the Bureau of Food and Drug of
the Department of Health
and not the BIR is the competent government agency to
determine the proper classification of
food products.
On the other hand, the respondents argue that the opinion
of the BIR, as the government
agency
charged
with
the
implementation
and
interpretation of the tax laws, is entitled to great
respect.
ISSUE:
Whether or not the contention of the Commissioner is
correct.
HELD:
It is correct. we find no reason for holding that respondent
Commissioner erred
in not considering copra as an agricultural food product
within the meaning of 103(b)
of the NIRC. As the Solicitor General contends, copra per
se is not food, that is, it is not
intended for human consumption. Simply stated, nobody
eats copra for food. That previous
Commissioners considered it so, is not reason for holding
that the present interpretation is
wrong. The Commissioner of Internal Revenue is not bound
by the ruling of his predecessors.
To the contrary, the overruling of decisions is inherent in
the interpretation of laws.
Petitioner likewise claims that RMC No. 47-91 is
discriminatory and violative of

the equal protection clause of the Constitution because

while coconut farmers and copra
producers are exempt, traders and dealers are not,
although both sell copra in its original
PAGE 161state. Petitioners add that oil millers do not enjoy
tax credit out of the VAT payment of traders
and dealers.
The argument has no merit. There is a material or
substantial difference between
coconut farmers and copra producers, on the one hand,
and copra traders and dealers, on
the other. The former produce and sell copra, the latter
merely sell copra. The Constitution
does not forbid the differential treatment of persons so
long as there is a reasonable basis for
classifying them differently.
is finally argued that RMC No. 47-91 is counterproductive
because traders and dealers
would be forced to buy copra from coconut farmers who
are exempt from the VAT and that to
the extent that prices are reduced the government would
lose revenues as the 10% tax base is
correspondingly diminished.
This is not so. The sale of agricultural non-food products is
exempt from VAT only
when made by the primary producer or owner of the land
from which the same is produced,
but in the case of agricultural food products their sale in
their original state is exempt at all
stages of production or distribution. At any rate, the
argument that the classification of copra
as agricultural non-food product is counterproductive is a
question of wisdom or policy which
should be addressed to respondent officials and to
Congress.
PAGE 162Commissioner of Internal Revenue v. Court of
Appeals
[G.R. No. 117982. February 6, 1997]
Digest by: : ONG, Fina N.
PONENTE: BELLOSILLO, J.:
FACTS:
The present case arose from the discrepancy in the
taxable base on which the excise
tax is to apply on account of two incongruous BIR Rulings:
(1) BIR Ruling 473-88 dated 4
October 1988 which excluded the VAT from the tax base
in computing the fifteen percent
(15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11
February 1991 which included
back the VAT in computing the tax base for purposes of the
fifteen percent (15%) ad valorem
tax.
Alhambra industries, Inc. (Alhambra) is a domestic
corporation engaged in the

manufacture and sale of cigar and cigarette products. On

May 7, 1991 private respondent
received a letter dated April 26, 1991 from the
Commissioner of Internal Revenue assessing its
deficiency Ad Valorem Tax (AVT) in the total amount of
P488,396.62, inclusive of increments,
on the removals of cigarette products from their place of
production during the period Nov. 2,
1990 to January 22, 1991.
Alhambra filed protest against amount assessed by the
CIR, however, it was denied by
the latter at the same time increasing the amount
assessed to P520,835.29. Alhambra filed a
petition for review with the CTA, despite payment under
protest the amount of P520,835.29.
On December 1, 1993, CTA ordered petitioner to refund
said amount to Alhambra.
ISSUE:
The main contention is whether the new ruling should be
given retroactive effect thus,
in effect revoking the tax exemption given to the petitioner
in the first BIR ruling.
HELD:
The court held in the negative. In its ruling, it states that
well-entrenched is the rule
that
rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so
apply them would be prejudicial to the
taxpayers.
Section 246 provides for the Non-retroactivity of rulings.Any revocation,
modification, or reversal of any rules and regulations
promulgated in accordance with the
preceding section or any of the rulings or circulars
promulgated by the Commissioner of
Internal Revenue shall not be given retroactive application
if the revocation, modification,
or reversal will be prejudicial to the taxpayers except in
the following cases: a) where the
taxpayer deliberately misstates or omits material facts
from his return or in any document
required of him by the Bureau of Internal Revenue; b)
where the facts subsequently gathered
by the Bureau of Internal Revenue are materially different
from the facts on which the ruling
is based; or c) where the taxpayer acted in bad faith.
PAGE 163Without doubt, private respondent would be
prejudiced by the retroactive application
of the revocation as it would be assessed deficiency excise
tax as bad faith is also absent.
PAGE 164Commissioner of the Internal Revenue vs.
Lingayen Gulf
Electric Power Co., Inc.
[GR L-23771, 4 August 1988]

Digest by: : ONG, Fina N.

PONENTE: Sarmiento, J:
FACTS:
Lingayen Gulf Electric Power operates an electric power
plant serving the municipalities
of Lingayen and Binmaley, Pangaisnan, pursuant to
municipal franchise granted it by the
respective municipal councils. The franchises provided that
the grantee shall pay quarterly to
the Provincial Treasury of Pangasinan 1% of the gross
earnings obtained through the privilege
for the first 20 years (from 1946), and 2% during the
remaining 15 years of the life of the
franchise. In 1948, the Philippine President approved the
franchise (RA 3843). In 1955, the
BIR assessed and demanded against the company
deficiency franchise taxes and surcharges
for the years 1946 to 1954 applying the franchise tax rate
of 5% on gross receipts from 1948
to 1954. The company asked for a reinvestigation, which
was denied.
ISSUE:
Whether or not the 5% franchise tax prescribed in Section
259 of the National Internal
Revenue Code assessed against the private respondent on
its gross receipts realized before
the effectivity of R.A- No. 3843 is collectible.
HELD:
The court held in negative. R.A. No. 3843 granted the
private respondent a legislative
franchise in June, 1963, amending, altering, or even
repealing the original municipal franchises,
and providing that the private respondent should pay only
a 2% franchise tax on its gross
receipts, in lieu of any and all taxes and/or licenses of any
kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial, or national, now
or in the future and effective further upon the date the
original franchise was granted, no
other tax and/or licenses other than the franchise tax of
two per centum on the gross receipts
shall be collected, any provision of law to the contrary
notwithstanding. Thus, by virtue of
R.A- No. 3843, the private respondent was liable to pay
only the 2% franchise tax, effective
from the date the original municipal franchise was granted.
PAGE 165ABS-CBN Broadcasting Corporation v. Court of
Tax Appeals
[G.R. No. L-52306 October 12, 1981]
Digest by: : ONG, Fina N.
PONENTE: MELENCIO-HERRERA, J.:
FACTS:
ABS-CBN is engaged in the business of telecasting local as
well as foreign films

acquired from foreign corporations not engaged in trade or

business within the Philippines.
The applicable law with the income tax of non-resident
corporations is section 24 (b) of the
National Internal Revenue Code, as amended by Republic
Act No. 2343 dated June 20, 19598.
On April 12, 1961, in implementation of said provision, the
CIR issued General Circular No.
V-334. Pursuant to the foregoing, ABS-CBN dutifully
withheld and turned over to the BIR the
amount of 30% of one-half of the film rentals paid by it to
foreign corporations not engaged in
trade or business within the Philippines. The last year that
ABS-CBN withheld taxes pursuant
to the foregoing Circular was in 1968.
On June 27, 1968, RA 5431 amended Section 24 (b) of the
Tax Code increasing the tax
rate from 30 % to 35 % and revising the tax basis from
such amount referring to rents, etc.
to gross income.
On February 8, 1971, the CIR issued Revenue
Memorandum Circular No. 4-71,
revoking General Circular No. V-334, and holding that the
latter was erroneous for lack of
legal basis, because the tax therein prescribed should be
based on gross income without
deduction whatever.
On the basis of this new Circular, CIR issued against ABSCBN a letter of assessment
and demand requiring them to pay deficiency withholding
income tax on the remitted film
rentals for the years 1965 through 1968 and film royalty as
of the end of 1968 in the total
amount of P525,897.06.
ISSUE:
Whether or not respondent can apply General Circular No.
471 retroactively and
issue a deficiency assessment against petitioner in the
amount of P 525, 897.06 as deficiency
withholding income tax for the years 1965, 1966, 1967 and
1968.
HELD:
The court held in negative. Sec. 338-A (now Sec. 327) of
the Tax Code applies in this
case. Rulings or circulars promulgated by the CIR have no
retroactive application where to so
apply them would be prejudicial to taxpayers. The
retroactive application of Memorandum
Circular No. 4-71 prejudices ABS-CBN since:
a) It was issued only in 1971, or 3 years after 1968, the last
year that petitioner had
withheld taxes under General Circular No. V-334.
PAGE 166b) The assessment and demand on petitioner to
pay deficiency withholding income

tax was also made three years after 1968 for a period of
time commencing in 1965.
c) ABS-CBN was no longer in a position to withhold taxes
due from foreign corporations
because it had already remitted all film rentals and no
longer had any control over them when
the new Circular was issued.
And in so far as the enumerated exceptions (to nonretroactivity) are concerned, ABSCBN does not fall under
any of them.
PAGE
167Philippine
Bank
of
Communications
v.
Commissioner of
Internal Revenue
[G.R. No. 112024. January 28, 1999]
Digest by: : ONG, Fina N.
PONENTE: Quisumbing
FACTS:
The case is about the validity of the administrative
guidelines issued by the
commissioner of internal revenue altering the 2-year
prescriptive period imposed by law
to 10-year prescriptive period. Petitioner, Philippine Bank
of Communications (PBCom), a
commercial banking corporation duly organized under
Philippine laws, filed its quarterly
income tax returns for the first and second quarters of
1985, reported profits, and paid the
total income tax of P5,016,954.00 by applying PBComs tax
credit memos for P3,401,701.00
and P1,615,253.00, respectively. Subsequently, however,
PBCom suffered net loss of
P25,317,228.00, thereby showing no income tax liability in
its Annual Income Tax Returns for
the year-ended December 31, 1985. For the succeeding
year, ending December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00,
and thus declared no tax payable for
the year.
But during these two years, PBCom earned rental income
from leased properties.
The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in
1985 and P234,077.69 in 1986. On August 7, 1987,
petitioner requested the Commissioner
of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of
1985.
Thereafter, on July 25, 1988, petitioner filed a claim for
refund of creditable taxes
withheld by their lessees from property rentals in 1985 for
P282,795.50 and in 1986 for
P234,077.69.
Pending the investigation of the respondent Commissioner
of Internal Revenue,

petitioner instituted a Petition for Review on November 18,

1988 before the Court of Tax
Appeals (CTA). The petition was docketed as CTA Case No.
4309 entitled: Philippine Bank of
Communications vs. Commissioner of Internal Revenue.
The CTA decided in favor of the BIR on the ground that the
Petition was filed out of time
as the same was filed beyond the two-year reglementary
period. A motion for Reconsideration
was denied and the appeal to Court of Appeals was
likewise denied. Thus, this appeal to
Supreme Court.
ISSUE:
Whether or not Revenue Regulations No. 7-85 which alters
the reglementary period
from two (2) years to ten (10) years is valid.
PAGE 168HELD:
RR 7-85 altering the 2-year prescriptive period imposed by
law to 10-year prescriptive
period is invalid. Administrative issuances are merely
interpretations and not expansions of
the provisions of law, thus, in case of inconsistency, the
law prevails over them. Administrative
agencies have no legislative power.
When the Acting Commissioner of Internal Revenue issued
RMC 7-85, changing
the prescriptive period of two years to ten years on claims
of excess quarterly income tax
payments, such circular created a clear inconsistency with
the provision of Sec. 230 of 1977
NIRC. In so doing, the BIR did not simply interpret the law;
rather it issued guidelines contrary
to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars
are considered administrative
rulings (in the sense of more specific and less general
interpretations of tax laws) which are
issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that
the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it,
is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive
and will be ignored if judicially found to be erroneous.
Thus, courts will not countenance
administrative issuances that override, instead of
remaining consistent and in harmony with,
the law they seek to apply and implement.
Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes
or errors of its officials or agents. As pointed out by the
respondent courts, the nullification
of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative

interpretation which is not in harmony with Sec. 230 of

1977 NIRC, for being contrary to the
express provision of a statute. Hence, his interpretation
could not be given weight for to do so
would, in effect, amend the statute.
PAGE 169Part I: General Principles
Power TO Tax Involves The
Power To DestroyCommissioner of Internal Revenue vs.
Tokyo Shipping Co.,
Ltd.
[G.R. No. L-68252. May 26, 1995]
Digest by: : ONG, Ruth Ann
PONENTE: Puno
FACTS:
Private respondent, Tokyo Shipping Co. Ltd, is a foreign
corporation represented in the
Philippines by Soriamont Steamship Agencies, Inc. It owns
and operates tramper vessel M/V
Gardenia. In December 1980, NASUTRA chartered M/V
Gardenia to load 16,500 metric tons
of raw sugar in the Philippines. On December 23, 1980 Mr.
Edilberto Lising, the operations
supervisor of Soriamont Agency, paid the required income
and common carriers taxes in the
sum total of P107,142.75 based on the expected gross
receipts of the vessel. Upon arriving,
however, at Guimaras Port of Iloilo, the vessel found no
sugar for loading. On January 10, 1981,
NASUTRA and private respondents agent mutually agreed
to have the vessel sail for Japan
without any cargo.
Claiming the pre-payment of income and common carriers
taxes as erroneous since
no receipt was realized from the charter agreement private
respondent instituted a claim for
tax credit or refund of the sum of P107,142,75 before
petitioner Commissioner of Internal
Revenue on March 23, 1981. Petitioner failed to act
promptly on the claim, hence, on May 14,
1981, private respondent filed a petition for review before
public respondent CTA.
Petitioner contested the petition. As special and affirmative
defenses, it alleged the
following: that taxes are presumed to have been collected
in accordance with law; that in an
action for refund, the burden of proof is upon the taxpayer
to show that taxes are erroneously
or illegally collected and the taxpayers failure to sustain
said burden is fatal to the action for
refund; and that claims for refund are construed strictly
against tax claimants.
After trial, respondent tax court decided in favor of the
private respondent.
ISSUE:

Whether or not private respondent is entitled to a refund of

the taxes it pre-paid to the
government.
HELD:
A claim for refund is in the nature of a claim for exemption
and should be construed in
strictissimi juris against the taxpayer. Likewise, there can
be no disagreement with petitioners
stance that private respondent has the burden of proof to
establish the factual basis of its
claim for tax refund.
The court cannot but bewail the unyielding stance taken by
the government in refusing
to refund the sum of ONE HUNDRED SEVEN THOUSAND
ONE HUNDRED FORTY TWO PESOS
AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously
prepaid by private respondent.
PAGE 170The tax was paid way back in 1980 and despite
the clear showing that it was erroneously
paid, the government succeeded in delaying its refund for
fifteen (15) years. After fifteen (15)
long years and the expenses of litigation, the money that
will be finally refunded to the private
respondent is just worth a damaged nickel. This is not,
however, the kind of success the
government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected
by our taxpayers from the BIR and the duty demands that
BIR should refund without any
unreasonable delay what it has erroneously collected.
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
publics trust and confidence in the
Government this power must be used justly and not
treacherously.
PAGE 171Reyes vs. Almanzor
[L-49839-46 April 26, 1991]
Digest by: : ONG, Ruth Ann
PONENTE: Paras
FACTS:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are
owners of parcels of land
situated in Tondo and Sta. Cruz Districts, City of Manila,
which are leased and entirely occupied
as dwelling sites by tenants. Said tenants were paying
monthly rentals not exceeding three
hundred pesos (P300.00) in July, 1971. On July 14, 1971,
the National Legislature enacted
Republic Act No. 6359 prohibiting for one year from its
effectivity, an increase in monthly

rentals of dwelling units or of lands on which anothers

dwelling is located, where such rentals
do not exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not
more than 10% thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the
Civil Code for two years from its effectivity thereby
disallowing the ejectment of lessees upon
the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended
R.A. No. 6359 by making
absolute the prohibition to increase monthly rentals below
P300.00 and by indefinitely
suspending the aforementioned provision of the Civil Code,
excepting leases with a definite
period. Consequently, the Reyeses, petitioners herein,
were precluded from raising the rentals
and from ejecting the tenants. In 1973, respondent City
Assessor of Manila re-classified and
reassessed the value of the subject properties based on
the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as
expected, entailed an increase in the
corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement with
the Board of Tax Assessment Appeals. They averred that
the reassessments made were
excessive, unwarranted, inequitable, confiscatory and
unconstitutional considering that the
taxes imposed upon them greatly exceeded the annual
income derived from their properties.
They argued that the income approach should have been
used in determining the land values
instead of the comparable sales approach which the City
Assessor adopted.
The Board of Tax Assessment Appeals, however,
considered the assessments valid.
ISSUE:
Whether or not income approach is the method to be used
in the tax assessment and
not the comparable sales approach.
HELD:
By no stretch of the imagination can the market value of
properties covered by PD
20 be equated with the market value of properties not so
covered. In the case at bar, not even
factors determinant of the assessed value of subject
properties under the comparable sales
approach were presented by respondent namely:
PAGE 1721. That the sale must represent a bonafide arms
length transaction between a willing
seller and a willing buyer
2. The property must be comparable property.
As a general rule, there were no takers so that there can
be no reasonable basis for the

conclusion that these properties are comparable.

Taxes are lifeblood of government, however, such
collection should be made in
accordance with the law and therefore necessary to
reconcile conflicting interests of the
authorities so that the real purpose of taxation, promotion
of the welfare of common good can
be achieved.
The power to tax is an attribute of sovereignty. In fact, it
is the strongest of all the
powers of government. But for all its plenitude the power
to tax is not unconfined as there
are restrictions. Adversely effecting as it does property
rights, both the due process and equal
protection clauses of the Constitution may properly be
invoked to invalidate in appropriate
cases a revenue measure. If it were otherwise, there would
be truth to the 1903 dictum of Chief
Justice Marshall that the power to tax involves the power
to destroy. The web or unreality
spun from Marshalls famous dictum was brushed away by
one stroke of Mr. Justice Holmes
pen, thus: The power to tax is not the power to destroy
while this Court sits. So it is in the
Philippines.
PAGE 173Commissioner of Internal Revenue vs. Algue
[G.R. No. L-28896 February 17, 1988]
Digest by: : ONG, Ruth Ann
PONENTE: Cruz
FACTS:
Phil. Sugar Estate appointed Algue Inc. as its agent to sell
its land, factory & oil
manufacturing process. Pursuant to said authority, Alberto
Guevarra & four (4) other
individuals worked for the formation of Vegetable Oil
Investment Corporation (VOIC) by
inducing investors. After VOIC was incorporated, it bought
the properties being sold by Phil.
Sugar Estate (PSE). For the sale, PSE paid 125, 000 as
commission to Algue Inc. who, in turn,
paid 75, 000 to the individual agents, leaving a balance of
50, 000 as net income of Algue
Inc. for which it now seeks deduction being a legitimate
business expense. The Collector of
Internal Revenue disallowed such deduction saying that it
was fictitious and it was not an
ordinary reasonable or necessary business expense.
ISSUE:
Whether or not the CIR correctly disallowed the 75, 000
deduction claimed by Algue,
Inc. as legitimate business expense.
HELD:
The Tax Code provides: SEC. 30. Deductions from gross
income.--In computing net

income there shall be allowed as deductions (a) Expenses:

(1) In general.--All the ordinary
and necessary expenses paid or incurred during the
taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or
other compensation for personal
services actually rendered; and Revenue Regulations No.
2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the
ordinary and necessary expenses
paid or incurred in carrying on any trade or business may
be included a reasonable allowance
for salaries or other compensation for personal services
actually rendered.
The test of deductibility in the case of compensation
payments is whether they are
reasonable and are, in fact, payments purely for service.
This test and deductibility in the
case of compensation payments is whether they are
reasonable and are, in fact, payments
purely for service. This test and its practical application
maybe further stated and illustrated
as follows: Any amount paid in the form of compensation,
but not in fact as the purchase
price of services, is not deductible. (a) An ostensible salary
paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in
the case of a corporation having
few stockholders. Practically all of whom draw salaries. If in
such a case the salaries are in
excess of those ordinarily paid for similar services, and the
excessive payment correspond or
bear a close relationship to the stockholdings of the
officers of employees, it would seem likely
that the salaries are not paid wholly for services rendered,
but the excessive payments are a
distribution of earnings upon the stock.
The Court ruled that the 125, 000 paid by Algue Inc. to the
five (5) individuals were
PAGE 174legitimate fees for actual services rendered, that
is, the creation of the VOIC and the sale of the
properties of Phil. Sugar Estate and hence, allowed as
deduction.
Taxes are the lifeblood of the government and so should be
collected without
unnecessary hindrance On the other hand, such collection
should be made in accordance
with law as any arbitrariness will negate the very reason
for government itself. It is therefore
necessary to reconcile the apparently conflicting interests
of the authorities and the taxpayers
so that the real purpose of taxation, which is the promotion
of the common good, may be
achieved.
PAGE 175Part I: General Principles

Set-off Of TaxesPhilex Mining Corp. vs. Commissioner of

Internal Revenue
[G.R. No. 125704. August 28, 1998]
Digest by: : ONG, Ruth Ann
PONENTE: Romero
FACTS:
Petitioner Philex Mining Corp. assails the decision of the
Court of Appeals promulgated
on April 8, 1996 in CA-G.R. SP No. 36975 affirming the
Court of Tax Appeals decision in CTA
Case No. 4872 dated March 16, 1995 ordering it to pay the
amount of P110,677,668.52 as
excise tax liability for the period from the 2nd quarter of
1991 to the 2nd quarter of 1992 plus
20% annual interest from August 6, 1994 until fully paid
pursuant to Sections 248 and 249 of
the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a
letter to Philex asking it to settle
its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as
well as the 1st and 2nd quarter of
1992 in the total amount of P123,821,982.52.
In a letter dated August 20, 1992, Philex protested the
demand for payment of the tax
liabilities stating that it has pending claims for VAT input
credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore, these
claims for tax credit/refund should be applied against the
tax liabilities.
In reply, the BIR, in a letter dated September 7, 1992,
found no merit in Philexs position.
Since these pending claims have not yet been established
or determined with certainty, it
follows that no legal compensation can take place. Hence,
he BIR reiterated its demand that
Philex settle the amount plus interest within 30 days from
the receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim
for VAT input credit/
refund against its exercise tax obligation, Philex raised the
issue to the Court of Tax Appeals
on November 6, 1992. In the course of the proceedings,
the BIR issued a Tax Credit Certificate
SN 001795 in the amount of P13,144,313.88 which, applied
to the total tax liabilities of Philex
of P123,821,982.52; effectively lowered the latters tax
obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still
ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest. The
Court of Tax Appeals ruled that taxes
cannot be subject to set-off on compensation since claim
for taxes is not a debt or contract.
ISSUE:

Can taxes be subject to set-off?

HELD:
Taxes cannot be the subject for compensation for simple
reason that the government
and the tax payer are not mutual creditors and debtors of
each other. Debts are due in the
government in its corporate capacity while taxes are due
to the government in its sovereign
PAGE 176capacity. A tax payer cannot refuse to pay his
taxes when they fall due simply because he has
a claim against the government that the collection of the
tax is contingent on the result of the
law suit it filed against the government.
PAGE 177Francia v. Intermediate Appellate Court
[G.R. No. L-67649. June 28, 1988]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Gutierrez, Jr.
FACTS:
On October 15, 1977, a 125 square meter portion of
Francias property was
expropriated by the Republic of the Philippines for the sum
of P4,116.00 representing the
estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his
real estate taxes. Thus, on December
5, 1977, his property was sold at public auction by the City
Treasurer of Pasay City pursuant
to Section 73 of Presidential Decree No. 464 known as the
Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00.
In this petition, Francia contends that his tax delinquency
of P2,400.00 has been extinguished
by legal compensation. He claims that the government
owed him P4,116.00 when a portion of
his land was expropriated on October 15, 1977. Hence, his
tax obligation had been set-off by
operation of law as of October 15, 1977.
ISSUE:
Whether Francias tax obligation may be subject to
compensation by operation of law.
HELD:
No. By legal compensation, obligations of persons, who in
their own right are
reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements
provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and
that he be at the
same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx

There can be no off-setting of taxes against the claims that

the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the government
owes him an amount equal to or greater than the tax being
collected. The collection of a tax
cannot await the results of a lawsuit against the
government.
A taxpayer cannot refuse to pay his tax when called upon
by the collector because he
has a claim against the governmental body not included in
the tax levy.
Government and taxpayer are not mutually creditors and
debtors of each other under
PAGE 178Article 1278 of the Civil Code and a claim for
taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
There are other factors which compel us to rule against the
petitioner. The tax was
due to the city government while the expropriation was
effected by the national government.
Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter
portion of his lot was deposited with the Philippine National
Bank long before the sale at
public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was
received by the petitioner on September 30, 1977. The
petitioner admitted in his testimony
that he knew about the P4,116.00 deposited with the bank
but he did not withdraw it. It would
have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax
obligation thus aborting the sale at public auction.
PAGE 179Commissioner of Internal Revenue v. ItogonSuyoc Mines,
Inc.
[G.R. No. L-25299. July 29, 1969]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Fernando
FACTS:
Respondent Itogon-Suyoc Mines filed on January 13, 1961,
its income tax return for
the fiscal year 1959-1960. It declared a taxable income of
P114,368.04 and a tax due thereon
amounting to P26,310.41, for which it paid on the same
day, the amount of P13,155.20 as
the first installment of the income tax due. On May 17,
1961, petitioner filed an amended
income tax return, reporting therein a net loss of
P331,707.33. It thus sought a refund from
the Commissioner of Internal Revenue.
On February 14, 1962, respondent Itogon-Suyoc Mines, Inc.
filed its income tax return

for the fiscal year 1960-1961, setting forth its income tax
liability to the tune of P97,345.00,
but deducting the amount of P13,155.20 representing
alleged tax credit for overpayment of
the
preceding
fiscal
year
1959-1960.
Petitioner
Commissioner of Internal Revenue assessed
against the respondent the amount of P1,512.83 as 1%
monthly interest on the aforesaid
amount of P13,155.20 from January 16, 1962 to December
31, 1962. The basis for such an
assessment was the absence of legal right to deduct said
amount before the refund or tax
credit thereof was approved by petitioner Commissioner of
Internal Revenue.
ISSUE:
Whether petitioner has the legal right to deduct the
overpaid amount before the
refund or tax credit thereof is approved by the
Commissioner of Internal Revenue.
HELD:
Yes. The National Internal Revenue Code provides that
interest upon the amount
determined as a deficiency shall be assessed and shall be
paid upon notice and demand from
the Commissioner of Internal Revenue at the specified. It is
made clear, however, in an earlier
provision found in the same section that if in any preceding
year, the taxpayer was entitled to
a refund of any amount due as tax, such amount, if not yet
refunded, may be deducted from the
tax to be paid.
There is no question respondent was entitled to a refund.
Instead of waiting for the
sum involved to be delivered to it, it deducted the said
amount from the tax that it had to pay.
That it had a right to do according to the law. It is true a
doubt could have arisen due to the
fact that as of the time such a deduction was made, the
Commissioner of Internal Revenue
had not as yet approved such a refund. It is an admitted
fact though that respondent was
clearly entitled to it, and petitioner did not allege
otherwise. Nor could he do so. Under all
the circumstances disclosed therefore, the applicability of
the legal provision allowing such a
deduction from the amount of the tax to be paid cannot be
disputed.
PAGE 180What is therefore sought to be avoided is for the
taxpayer to make use of funds that should
have been paid to the government. Here, in view of the
overpayment for the fiscal year 19591960, the sum of P13,155.20 had already formed part of
the public funds. It cannot be said,
therefore, that respondent taxpayer was guilty of any
delay enabling it to utilize a sum of

money that should have been in the government treasury.

PAGE 181Domingo v. Garlitos
[G.R. No. L-18994. June 29, 1963]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Labrador
FACTS:
In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R.
No. L-14674 this Court
declared as final and executory the order for the payment
by the estate of the estate and
inheritance taxes, charges and penalties, amounting to
P40,058.55 issued by the Court of First
Instance of Leyte in, special proceedings No. 14 entitled In
the matter of the Intestate Estate
of the Late Walter Scott Price. In order to enforce the
claims against the estate the fiscal
presented a petition for the execution of the judgment. The
petition was, however, denied by
the respondent which held that the execution is not
justifiable as the Government is indebted
to the estate under administration in the amount of
P262,200.
Respondent ordered that the payment of inheritance taxes
in the sum of P40,058.55
due the Collector of Internal Revenue be deducted from
the amount of P262,200.00 due and
payable to the Administratrix Simeona K. Price, in this
estate, the balance to be paid by the
Government to her without further delay.
ISSUE:
Whether the claim by the Government against the estate
may be deducted from its
debt to the estate and whether compensation may take
place
HELD:
Yes. 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.
PAGE 182Republic of the Philippines v. Mambulao Lumber
Company
[G.R. No. L-17725. February 28, 1962]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE:Barrera
FACTS:
Defendants have a liability for forest charges to the
Republic of the Philippines
which amounts aggregate to P4,802.37. While from July 31,
1948 to December 29, 1956,
defendant Mambulao Lumber Company paid to the
Republic of the Philippines P8,200.52 for
reforestation charges and for the period commencing
from April 30, 1947 to June 24, 1948,
said defendant paid P927.08 to the Republic of the
Philippines for reforestation charges
pursuant to Section 1 of Republic Act 115.
It is the contention of the defendant Mambulao Lumber
Company that since the
Republic of the Philippines has not made use of those
reforestation charges collected from it for
reforesting the denuded area of the land covered by its
license, the Republic of the Philippines
should refund said amount, or, if it cannot be refunded, at
least it should be compensated
with what Mambulao Lumber Company owed the Republic
of the Philippines for reforestation
charges.
ISSUE:
Whether the sum paid for reforestation charges may be
set-off or applied to the
payment of forest charges owed by defendant to the
Government
HELD:
No. Appellant and appellee are not mutually creditors and
debtors of each other.
Consequently, the law on compensation is inapplicable.
Under Article 1278, NCC, compensation
should take place when two persons in their own right are
creditors and debtors of each
other. With respect to the forest charges which the
defendant Mambulao Lumber Company
has paid to the government, they are in the coffers of the
government as taxes collected, and
the government does not owe anything, crystal clear that
the Republic of the Philippines
and the Mambulao Lumber Company are not creditors and
debtors of each other, because
compensation refers to mutual debts.
A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be
set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy,

to exclude the remedy in an action or any indebtedness of

the state or municipality to one who
is liable to the state or municipality for taxes. Neither are
they a proper subject of recoupment
since they do not arise out of the contract or transaction
sued on.
The general rule, based on grounds of public policy is wellsettled that no set-off is
admissible against demands for taxes levied for general or
local governmental purposes. The
reason on which the general rule is based, is that taxes are
not in the nature of contracts between
the party and party but grow out of a duty to, and are the
positive acts of the government,
PAGE 183to the making and enforcing of which, the
personal consent of individual taxpayers is not
required. If the taxpayer can properly refuse to pay his tax
when called upon by the Collector,
because he has a claim against the governmental body
which is not included in the tax levy, it
is plain that some legitimate and necessary expenditure
must be curtailed. If the taxpayers
claim is disputed, the collection of the tax must await and
abide the result of a lawsuit, and
meanwhile the financial affairs of the government will be
thrown into great confusion. (47
Am. Jur. 766-767.)
PAGE 184Part I: General Principles
Taxpayer Suit Anti-Graft League of the Philippines v. San
Juan
[G.R. No. 97787. August 1, 1996]
Digest by: PADUA, Julie Ann E.
PONENTE:Romero
FACTS:
On March 20, 1975, President Ferdinand E. Marcos issued
Presidential Decree (PD)
No. 674, establishing the Technological Colleges of Rizal
and which also directed the Provincial
Board of Rizal (the Board) to provide funds for the
purchase of a site and the construction
of the necessary structures thereon. Consequently, the
Province of Rizal (Province) bought
four parcels of land located in Ugong Norte, Pasig from
Ortigas & Co., Ltd. (Ortigas). However,
the projected construction never materialized because of
the decimation of the Provinces
resources brought about by the creation of the Metro
Manila Commission (MMC) in 1976.
Twelve years later, with the said property lying idle and the
Province needing funds
to propel its 5-year Comprehensive Program, the Board
passed Resolution No. 87-205 dated
October 15, 1987 authorizing the Governor to sell the
property. The said property was

eventually sold to Valley View Realty Development

Corporation (Valley View) for a total of
P134,523,900.00.
On May 10, 1988, after learning about the sale, Ortigas,
filed an action for recission
of contract plus damages with preliminary injunction
against the Province (Civil Case No.
55904) alleging that the latter violated one of the terms of
the contract that the land will be
utilized solely for the construction of the Rizal
Technological Colleges and the Rizal Provincial
Hospital.
On April 21, 1988, the new provincial officials of the Board
adopted Resolution No. 8865 which provided for the rescission of the sale between
the Province and Valley View on the
ground that the sale was prejudicial to the former.
Consequently, Valley View filed Civil Case
no. 55913 against the Province for specific performance
and damages. However, the said case
was dismissed because the parties executed a compromise
agreement.
On March 20, 1989, Civil Case No. 55904 was resolved
through execution of a
compromise agreement between the Province and Ortigas.
Under the said agreement, the
Province agreed to reconvey the property to Ortigas at a
price of P432,398,250.00 payable
within two years at an annual interest rate of 14%. The
said amount was higher than the
market values separately determined by Asian Appraisal
Inc. and the Provincial Appraisal
Committee. Hence, this petition for certiorari.
ISSUE:
Whether or not the present action is a taxpayers suit and
that the petitioner has legal
standing to question the transaction entered into by the
Board and Ortigas.
PAGE 185HELD:
No. In order to constitute a taxpayers suit, two requisites
must be met, namely, that
public funds are disbursed by a political subdivision or
instrumentality and in doing so, a law
is violated or some irregularity is committed, and that the
petitioner is directly affected by the
alleged ultra vires act.
In the said case, the first requirement was not present
because the petitioner never
referred to such purchase as an illegal disbursement of
public funds but focused on the alleged
fraudulent reconveyance of said property to Ortigas
because the price paid was lower than
the prevailing market value of neighboring lots. Since
petitioner failed to show that there was

unlawful spending of public money, he, even as a taxpayer,

cannot question the transaction
validly executed by and between the Province and Ortigas
simply because he is not privy to
the contract. Therefore, petitioner has no locus standi.
PAGE 186Joya v. Presidential Commission on Good
Government
[G.R. No. 96541. August 24, 1993]
Digest by: PADUA, Julie Ann E.
PONENTE:Bellosillo
FACTS:
On August 9, 1990, Mateo A.T. Caparas, then Chairman of
the Presidential Commission
on Good Governance (PCGG), wrote then President
Corazon C. Aquino, requesting her
for authority to sign the proposed Consignment Agreement
between the Republic of the
Philippines through PCGG and Christie, Manson and Woods
International, Inc. (CHRISTIEs)
concerning the scheduled sale on January 11, 1991 of
eighty-two (82) Old Masters Paintings
and antique silverware seized from Malacaang and the
Metropolitan Museum of Manila
alleged to be part of the ill-gotten wealth of the late
President Marcos, his relatives and cronies.
On August 15, 1990, PCGG, through Chairman Caparas,
signed the Consignment
Agreement with CHRISTIEs. According to the agreement,
PCGG shall consign to CHRISTIES
for sale at public auction the eighty-two (82) Old Masters
Paintings then found at the
Metropolitan Museum of Manila as well as the silverware
contained in seventy-one (71)
cartons in the custody of the Central Bank of the
Philippines, and such other property as may
subsequently be identified by PCGG and accepted by
CHRISTIES to be subject to the provisions
of the agreement.
On October 26, 1990, the Commission on Audit (COA)
through then Chairman Eufemio
C. Domingo submitted to President Aquino the audit
findings and observations of COA on the
said Consignment Agreement to the effect that: (a) the
authority of former PCGG Chairman
Caparas to enter into the Consignment Agreement was of
doubtful legality; (b) the contract
was highly disadvantageous to the government; (c) PCGG
had a poor track record in asset
disposal by auction in the U.S.; and, (d) the assets subject
of auction were historical relics and
had cultural significance, hence, their disposal was
prohibited by law.
On November 15, 1990, PCGG through its new Chairman
David M. Castro, wrote

President Aquino to refute the allegations of Domingo. On

the same date, Director of National
Museum Gabriel S. Casal issued a certification that the
items subject of the Consignment
Agreement did not fall within the classification of protected
cultural properties and did not
specifically qualify as part of the Filipino cultural heritage.
Hence, this petition. However, the
public auction proceeded as scheduled and the proceeds of
$13,302,604.86 were turned over
to the Bureau of Treasury.
ISSUE:
1. Whether or not the petition can be allowed as a
taxpayers suit.
2. Whether or not the properties subject for public auction
constitute as public
properties.
PAGE 187HELD:
1. No. Not every action filed by a taxpayer can qualify to
challenge the legality of official
acts done by the government. A taxpayers suit can
prosper only if the governmental acts being
questioned involve disbursement of public funds upon 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 said case, the action cannot be considered as a
taxpayers suit because the
petitioners are not challenging any expenditure involving
public funds but the disposition of
what they alleged to be public properties.
2. No. The paintings were donated by private persons from
different parts of the world
to the Metropolitan Museum of Manila Foundation, a nonprofit and non-stock corporation
established to promoted non-Philippine arts, wherein
Former First Lady Imelda Marcos is
the chairman. Accordingly, the ownership of the paintings
legally belongs to the foundation or
corporation or the members thereof.
On the other hand, the pieces of antique silverware were
given to the Marcos couple
as gifts from friends and dignitaries from foreign countries
on their silver wedding and
anniversary. The confiscation of these properties by the
Aquino administration does not
mean that the ownership of these paintings has
automatically passed on the government
without complying with constitutional and statutory
requirements of due process and just
compensation.
PAGE 188Lozada v. Commission on Elections
[G.R. No. 88866. February 18, 1991]

Digest by: PADUA, Julie Ann E.

PONENTE:De Castro
FACTS:
Jose Mari Eulalio C. Lozada together with Romeo B. Igot
filed a petition for mandamus
compelling the Commission on Elections (COMELEC) to
hold a special election to fill up the
vacancies in the Interim Batasang Pambansa. The petition
was based on Section 5 (2), Article
VIII of the 1973 Constitution which provides:
In case a vacancy arises in the Batasang Pambansa
eighteen months or more
before a regular election, the Commission on Election shall
call a special
election to be held within sixty (60) days after the vacancy
occurs to elect the
Member to serve the unexpired term.
COMELEC opposes the petition alleging, substantially, that
1) petitioners lack standing to file
the instant petition for they are not the proper parties to
institute the action; 2) this Court
has no jurisdiction to entertain this petition; and 3) Section
5(2), Article VIII of the 1973
Constitution does not apply to the Interim Batasan
Pambansa.
ISSUE:
1. Whether or not petition may be considered as a
taxpayers suit.
2. Whether or not the Supreme Court can compel the
COMELEC to hold a special
election.
PAGE 189
HELD:
1. No. A taxpayers suit may be allowed only when an act
complained of, which may
include a legislative enactment of statute, involves the
illegal expenditure of public money.
In the said petition, it was not alleged the tax money is
being illegally spent rather the
act complained of was the inaction of COMELEC to call a
special election. Further, since the
asserted harm is a generalized grievance shared in
substantially equal measure by all or a
large class of citizens, the petitioners have no locus standi.
2. The SCs jurisdiction over the COMELEC is only to review
by certiorari the latters
decision, orders or rulings pursuant to Section 11, Article XI
IC of the new Constitution, to wit:
Any decision, order, or ruling of the Commission may be
brought to the
Supreme Court on certiorari by the aggrieved party within
thirty days from
his receipt of a copy thereof.
However, in this case, there was no decision, order or
ruling of the COMELEC which is PAGE 190

sought to be reviewed by this Court under its certiorari

jurisdiction, which is the only known
provision conferring jurisdiction or authority on the
Supreme Court over the COMELEC.
Further, the holding of special elections in several regional
districts where vacancies
exist, would entail huge expenditure of money. Only the
Batasang Pambansa can make the
necessary appropriation for the purpose, and this power
may neither be subject to mandamus
by the courts much less may COMELEC compel the
Batasang Pambansa to exercise its power of
appropriation. From the role Batasang Pambansa has to
play in the holding of special elections,
which is to appropriate the funds for the expenses thereof,
it would seem that the initiative on
the matter must come from the said body, not the
COMELEC, even when the vacancies would
occur in the regular not interim Batasang Pambansa. The
power to appropriate is the sole
and exclusive prerogative of the legislative body, the
exercise of which may not be compelled
through a petition for mandamus. Moreover, the provision
of Section 5(2), Article VIII of
the Constitution was intended to apply to vacancies in the
regular National Assembly, now
Batasang Pambansa, not to the Interim Batasang
Pambansa.Part I:
Tax Laws & RegulationsCommissioner of Internal Revenue
v. S.C. Johnson
[G.R. No. 127105. June 25, 1999]
Digest by: PADUA, Julie Ann E.
PONENTE:Gonzaga-Reyes
FACTS:
S.C. Johnson and Son, Inc. (S.C. Johnson), a domestic
corporation organized and
operating under the Philippine laws, entered into a license
agreement with SC Johnson and
Son, United States of America (USA), a non-resident foreign
corporation based in the U.S.A.
pursuant to which the [respondent] was granted the right
to use the trademark, patents and
technology owned by the latter including the right to
manufacture, package and distribute
the products covered by the Agreement and secure
assistance in management, marketing and
production from SC Johnson and Son, U. S. A.
For the use of the trademark or technology, S.C. Johnson
was obliged to pay SC Johnson
and Son, USA royalties based on a percentage of net sales
and subjected the same to 25%
withholding tax on royalty payments which S.C. Johnson
paid for the period covering July
1992 to May 1993 in the total amount of P1,603,443.00.

On October 29, 1993, S.C. Johnson filed with the

International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding
tax on royalties arguing that
the preferential tax rate of 10% withholding tax should
apply to the S.C. Johnson pursuant to
the most-favored nation clause of the RP-US Tax Treaty
[Article 13 Paragraph 2 (b) (iii)] in
relation to the RP-West Germany Tax Treaty [Article 12 (2)
(b)]. However, the Commissioner
did not act on said claim for refund resulting in the filing of
a petition for review before the
Court of Tax Appeals (CTA).
On May 7, 1996, the CTA rendered its decision in favor of
S.C. Johnson and ordered
the Commissioner of Internal Revenue (CIR) to issue a tax
credit certificate amounting to
P963,266.00 representing overpaid withholding tax on
royalty payments. The CIR thus filed
a petition for review with the Court of Appeals but the
latter affirmed in too the CTA ruling;
hence, this petition for review.
ISSUE:
Whether or not S. C. Johnson should be entitled to the
most-favored nation tax rate
of 10% on royalties as provided in the RP-US Tax Treaty in
relation to the RP-West German Tax
Treaty.
PAGE 191
HELD:
No. The RP-US and the RP-West Germany Tax Treaties do
not contain similar provisions
on tax crediting. Article 24 of the RP-Germany Tax Treaty,
expressly allows crediting against
German income and corporation tax of 20% of the gross
amount of royalties paid under the
law of the Philippines. On the other hand, Article 23 of the
RP-US Tax Treaty, which is the
counterpart provision with respect to relief for double
taxation, does not provide for similar PAGE 192
crediting of 20% of the gross amount of royalties paid.
The purpose of a most favored nation clause is to grant to
the contracting party
treatment not less favorable than that which has been or
may be granted to the most favored
among other countries. The most favored nation clause is
intended to establish the principle of
equality of international treatment by providing that the
citizens or subjects of the contracting
nations may enjoy the privileges accorded by either party
to those of the most favored nation.
The essence of the principle is to allow the taxpayer in one
state to avail of more liberal
provisions granted in another tax treaty to which the
country of residence of such taxpayer

is also a party provided that the subject matter of taxation,

in this case royalty income, is the
same as that in the tax treaty under which the taxpayer is
liable. Both Article 13 of the RP-US
Tax Treaty and Article 12 (2) (b) of the RP-West Germany
Tax Treaty, above-quoted, speaks
of tax on royalties for the use of trademark, patent, and
technology. The entitlement of the
10% rate by U.S. firms despite the absence of a matching
credit (20% for royalties) would
derogate from the design behind the most grant equality of
international treatment since the
tax burden laid upon the income of the investor is not the
same in the two countries. The
similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most
favored nation treatment precisely to underscore the need
for equality of treatment.
Further, since the RP-US Tax Treaty does not give a
matching tax credit of 20% for the
taxes paid to the Philippines on royalties as allowed under
the RP-West Germany Tax Treaty,
S.C. Johnson cannot be deemed entitled to the 10% rate
granted under the latter treaty for the
reason that there is no payment of taxes on royalties under
similar circumstances.Part I:
Tax RemediesSt. Stephens Association and St. Stephens
Girls School
v. The Collector of Internal Revenue
[G.R. No. L-11238. August 21, 1958]
Digest by: PALATTAO, Claudine M.
PONENTE: Reyes, J.B.L.
FACTS:
On January 21, 1950, the petitioner St. Stephens
Association turned over the amount
of P9,252.48 to the St. Stephens Chinese Girls School, and
the transfer of funds was entered
in the ledger and cash book of the School as a donation
from the Association. Having come
across the book entry in a routine inspection of the books
of the School, an examiner of the
Bureau of Internal Revenue reported the donation to the
Collector and thereafter, the Collector
of Internal Revenue sent petitioners his Assessment Notice
No. GA-3008-50 dated October 15,
1954, demanding the payment of the amounts of P98.70
and P699.07 as donors and donees
gift taxes on the donation in question, including surcharges
and interests.
On November 13, 1954, petitioners wrote the Collector a
letter requesting the
cancellation and withdrawal of the assessment notice in
question on the ground that the
amount of P9,252.48 was erroneously entered by the
bookkeeper as a donation from the

Association to the School, when the truth was that said

amount was obtained by the former by
means of small contributions from the public and allocated
to the School for its maintenance.
On April 21, 1955, petitioners received a letter from the
Collector dated April 6, 1955, denying
the request embodied in their letter of November 13, 1954,
and insisting that the assessment
in question be paid. On May 9, 1955, petitioners filed their
reply to the Collectors letter of
April 6, 1955, rebutting the arguments of the Collector in
support of the assessment, and
asking for its reconsideration. On July 25, 1955, petitioners
received the letter of the Collector
dated July 11, 1955, again denying their request that the
assessment in question be cancelled
and withdrawn, and stating in its last paragraph that:
This decision becomes final thirty days after your receipt
hereof unless an appeal is
taken to the Court of Tax Appeals within the same period,
in accordance with the provisions
of Republic Act No. 1125.
On August 15, 1955, the respondent court promulgated a
resolution dismissing the
petition for lack of jurisdiction. The resolution was
premised on the courts findings that the
period for petitioners appeal started to run from their
receipt of the assessment notice in
question; that said period was interrupted by the filing of
petitioners two requests for the
cancellation of the assessment, but started to run again
when said requests were denied; and
that from November 12, 1954, when petitioners received
the assessment notice, to August 13,
1955, when they filed their petition for review, deducting
the time when their two requests for
cancellation were pending with the respondent Collector,
37 days had elapsed and therefore,
their petition was filed out of time and did not confer
jurisdiction upon the respondent court.
From this resolution of dismissal, petitioners appealed to
this Court.
PAGE 193ISSUE:
Whether the period for appeal to the respondent court
must be computed from the
time petitioners received the decision of the respondent on
the disputed assessment and not
from the time they received said assessment.
PAGE 194
HELD:
Yes. The period for appeal to the respondent court in this
case must be computed from
the time petitioners received the decision of the
respondent Collector of Internal Revenue on

the disputed assessment, and not from the time they

received said assessment.
We believe the respondent court erred in holding that the
assessment in question is the
respondent Collectors decision or ruling appealable to it,
and that consequently, the period of
thirty days prescribed by section 11 of Republic Act No.
1125 within which petitioner should
have appealed to the respondent court must be counted
from its receipt of said assessment.
Where a taxpayer questions an assessment and asks the
Collector to reconsider or cancel the
same because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a
disputed assessment that the Collector must decide, and
the taxpayer can appeal to the Court
of Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment,
in accordance with paragraph (1) of section 7, Republic Act
No. 1125, conferring appellate
jurisdiction upon the Court of Tax Appeals to review
decisions of the Collector of Internal
Revenue
in
cases
involving
disputed
assessment . . .Advertising Associates, Inc. v. Court of
Appeals
and Commissioner of Internal Revenue
[G.R. No. L-59758. December 26, 1984]
Digest by: PALATTAO, Claudine M.
PONENTE: Aquino, J.
FACTS:
The Commissioner required Advertising Associates to pay
P297,927.06 and P84,773.10
as contractors tax for 1967-1971 and 1972, respectively,
including 25% surcharge (the latter
amount includes interest) on its income from billboards
and neon signs.
The basis of the assessment is the fact that the taxpayers
articles of incorporation
provide that its primary purpose is to engage in general
advertising business. Its income tax
returns indicate that its business was advertising.
The taxpayer requested the cancellation of the
assessments in its letters of September
13 and November 21, 1974. Then, on March 31, 1978, the
Commissioner resorted to the
summary remedy of issuing two warrants of distraint,
directing the collection enforcement
division to levy on the taxpayers personal properties as
would be sufficient to satisfy the
deficiency taxes. The warrants were served upon the
taxpayer on April 18 and May 25, 1978.
Acting Commissioner Efren I. Plana wrote a letter dated
May 23, 1979 in answer to
the requests of the taxpayer for the cancellation of the
assessments and the withdrawal of

the warrants of distraint. He justified the assessments by

stating that the rental income of
Advertising Associates from billboards and neon signs
constituted fees or compensation for
its advertising services. He requested the taxpayer to pay
the deficiency taxes within ten days
from receipt of the demand; otherwise, the Bureau would
enforce the warrants of distraint. He
closed his demand letter with this paragraph:
This constitutes our final decision on the matter. If you are
not agreeable, you may
appeal to the Court of Tax Appeals within 30 days from
receipt of this letter.
Advertising Associates received that letter on June 18,
1979. Nineteen days later or
on July 7, it filed its petition for review. In its resolution of
August 28, 1979, the Tax Court
enjoined the enforcement of the warrants of distraint.
The Tax Court did not resolve the case on the merits. It
ruled that the warrants of
distraint were the Commissioners appealable decisions.
Since Advertising Associates
appealed from the decision of May 23, 1979, the petition
for review was filed out of time. It
was dismissed. The taxpayer appealed to this Court.
PAGE 195ISSUE:
Whether or not the petition for review was filed on time
PAGE 196
HELD:
Yes. The petition for review was filed on time. The
reviewable decision is that contained
in Commissioner Planas letter of May 23, 1979 and not the
warrants of distraint.
No amount of quibbling or sophistry can blink the fact that
said letter, as its tenor
shows, embodies the Commissioners final decision within
the meaning of section 7 of Republic
Act No. 1125. The Commissioner said so. He even directed
the taxpayer to appeal it to the Tax
Court.
The directive is in consonance with this Courts dictum that
the Commissioner should
always indicate to the taxpayer in clear and unequivocal
language what constitutes his final
determination of the disputed assessment. That procedure
is demanded by the pressing need
for fair play, regularity and orderliness in administrative
action.Commissioner of Internal Revenue v. Isabela
Cultural
Corporation
[G.R. No. 135210. July 11, 2001]
Digest by: PALATTAO, Claudine M.
PONENTE: Panganiban, J.
FACTS:

In an investigation conducted on the 1986 books of

account of respondent, petitioner
had the preliminary finding that respondent incurred a
total income tax deficiency of
P9,985,392.15, inclusive of increments. Upon protest by
respondents counsel, the said
preliminary assessment was reduced to the amount of
P325,869.44.
On February 23, 1990, respondent received from petitioner
an assessment letter,
dated February 9, 1990, demanding payment of the
amounts of P333,196.86 and P4,897.79
as deficiency income tax and expanded withholding tax
inclusive of surcharge and interest,
respectively, for the taxable period from January 1, 1986 to
December 31, 1986.
On February 9, 1995, respondent received from petitioner
a Final Notice Before
Seizure, dated December 22, 1994. In said letter, petitioner
demanded payment of the subject
assessment within ten (10) days from receipt thereof.
Otherwise, failure on its part would
constrain [petitioner] to collect the subject assessment
through summary remedies.
Respondent considered said final notice of seizure as
petitioners final decision. Hence,
the instant petition for review filed with this Court on March
9, 1995.
The CTA having rendered judgment dismissing the petition,
respondent filed the
instant petition anchored on the argument that petitioners
issuance of the Final Notice
Before Seizure constitutes its decision on respondents
request for reinvestigation, which the
respondent may appeal to the CTA.
PAGE 197
ISSUE:
Whether or not the Final Notice Before Seizure dated
February 9, 1995 against
respondent constitutes the final decision of the CIR
appealable to the CTA.
HELD:
Yes. Respondent points out that the Final Notice Before
Seizure should be considered
as a denial of its request for reconsideration of the
disputed assessment. The Notice should be
deemed as petitioners last act, since failure to comply
with it would lead to the distraint and
levy of respondents properties, as indicated therein.
We agree with respondent. In the normal course, the
revenue district officer sends the
taxpayer a notice of delinquent taxes, indicating the period
covered, the amount due including
interest, and the reason for the delinquency. If the
taxpayer disagrees with or wishes to protest PAGE 198

the assessment, it sends a letter to the BIR indicating its

protest, stating the reasons therefor,
and submitting such proof as may be necessary. That letter
is considered as the taxpayers
request for reconsideration of the delinquent assessment.
After the request is filed and
received by the BIR, the assessment becomes a disputed
assessment on which it must render
a decision. That decision is appealable to the Court of Tax
Appeals for review.
The Final Notice Before Seizure cannot but be considered
as the commissioners
decision disposing of the request for reconsideration filed
by respondent, who received no
other response to its request. Not only was the Notice the
only response received; its content
and tenor supported the theory that it was the CIRs final
act regarding the request for
reconsideration. The very title expressly indicated that it
was a finalnotice prior to seizure
of property. The letter itself clearly stated that respondent
was being given this LAST
OPPORTUNITY to pay; otherwise, its properties would be
subjected to distraint and levy.
Furthermore, Section 228 of the National Internal Revenue
Code states that a
delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for
reconsideration remains unacted upon 180 days after
submission thereof.
In this case, the said period of 180 days had already lapsed
when respondent filed its
request for reconsideration on March 23, 1990, without any
action on the part of the CIR.
Lastly, jurisprudence dictates that a final demand letter for
payment of delinquent taxes may
be considered a decision on a disputed or protested
assessment.
In the instant case, the second notice received by private
respondent verily indicated
its nature that it was final. Unequivocably, therefore, it
was tantamount to a rejection of the
request for reconsideration.
Having admitted as a fact private respondents request for
reconsideration, petitioner
must have passed upon it prior to the issuance of the Final
Notice Before Seizure.Surigao Electric, Co., Inc. and Arturo
Lumanlan v. Municipality
of Surigao
[G.R. No. L-22766. August 30, 1968]
Digest by: PALATTAO, Claudine M.
PONENTE: Fernando, J.
FACTS:
On June 18, 1960, Congress further amended the Public
Service Act, one of the

changes introduced doing away with the requirement of a

certificate of public convenience
and necessity from the Public Service Commission for
public services owned or operated
by government entities or government-owned or controlled
corporations, but at the same
time affirming its power of regulation,1 more specifically as
set forth in the next section of
the law, which while exempting public services owned or
operated by any instrumentality of
the government or any government-owned or controlled
corporations from its supervision,
jurisdiction and control stops short of including the fixing
of rates.
Petitioner Surigao Electric Co., Inc., a legislative franchise
holder, and petitioner Arturo
Lumanlan to whom, on February 16, 1962, the rights and
privileges of the former as well as its
plant and facilities were transferred, challenge the validity
of the order of respondent Public
Service Commission, dated July 11, 1963, wherein it held
that it had no other alternative but
to approve as it did approve the tentative schedule of rates
submitted by the applicant, the
other respondent herein, the Municipality of Surigao.
Citing the above amendments introduced by Republic Act
No. 2677, respondent
Commission stated thus: A municipal government or a
municipal corporation such as the
Municipality of Surigao is a government entity recognized,
supported and utilized by the
National Government as a part of its government
machinery and functions; a municipal
government actually functions as an extension of the
national government and, therefore, it
is an instrumentality of the latter; and by express
provisions of Section 14(e) of Act 2677,
an instrumentality of the national government is exempted
from the jurisdiction of the PSC
except with respect to the fixing of rates. This exemption is
even clearer in Section 13(a).
PAGE 199
ISSUE:
Whether or not a municipal government can directly
maintain and operate an electric
plant without obtaining a specific franchise for the purpose
and without a certificate of public
convenience and necessity duly issued by the Public
Service Commission.
HELD:
Yes. We sustain the Public Service Commission. It would be
to erode the term
government entities of its meaning if we are to reverse
the Public Service Commission and

to hold that a municipality is to be considered outside its

scope.
Petitioners seek refuge in the legislative franchise granted
them. Whatever privilege
may be claimed by petitioners cannot override the specific
constitutional restriction that no PAGE 200
franchise or right shall be granted to any individual or
corporation except under a condition
that it shall be subject to amendment, alteration or repeal
by Congress. Such amendment or
alteration need not be express; it may be implied from a
latter act of general applicability, such
as the one now under consideration.
Reference by petitioners to the statute providing the
procedure for the taking over
and operation by the government of public utilities, in their
view to further strengthen
[their] contention, as to the commission of this alleged
error is unavailing, even if such statute
were applicable, which it is not. What is to be regulated by
this enactment is the exercise of
eminent domain, which is a taking of private property for
public use upon the payment of
just compensation. There is here no taking. There is here
no appropriation. What was owned
before by petitioners continue to remain theirs. There is to
be no transfer of ownership.
Rather,
a
municipal
corporation,
by
virtue
of
Commonwealth Act No. 2677, may
further promote community welfare by itself engaging in
supplying public services, without
the need of a certificate of public convenience. If at all
then, the exercise of this governmental
prerogative comes within the broad, well-nigh, undefined
scope of the police power. It is
not here, of course, the ordinary case of restraint on
property or liberty, by the imposition
of a regulation. What the amendatory act in effect
accomplishes is to lend encouragement
and support for the municipal corporation itself
undertaking an activity as a result of which,
profits of a competing private firm would be adversely
affected.Yabes vs. Flojo
[G.R. NO. L-46954 JULY 20, 1982]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: Concepcion, Jr.
FACTS:
Doroteo Yabes of Calamaniugan Cagayan, who was for
sometime an exclusive dealer of
products of the International Harvester Macleod, Inc.,
received on or about May 1, 1962, a letter
from the Commissioner of Internal Revenue dated March
27, 1962, demanding payment of the
amount of P15,976.81, as commercial brokers fixed and
percentage taxes plus surcharges to

which Yabes protested on the ground that his agreements

with the International Harvester
Macleod, Inc. were of purchase and sale, and not of
agency, hence not liable for such kind of
taxes. To give time for the Commissioner to study the case
and several other cases similar
thereto, Yabes filed, a tax waiver on October 20, 1962,
extending the period of prescription to
December 31, 1967; Doroteo Yabes died on March 13,
1963 and no estate proceedings were
instituted for the settlement of his estate. On March 14,
1966, the Court of Tax Appeals decided
the Constantino test case. The CTA ruled that
agreements entered into by Constantino with
the International Harvester Macleod, Inc. were of purchase
and sale, and not of agency, hence
no commercial brokers fixed and percentage fees could be
collected,however this Court
reversed the Court of Tax Appeals and ruled in favor of the
Commissioner of Internal Revenue.
The heirs of Doroteo Yabes filed a revised waiver further
extending the period of prescription
to December 31, 1970 as requested by the Commissioner.
Thereafter, no word was received
by the petitioners or their lawyers during the interim of
more than three (3) years, but on
January 20, 1971, petitioners as heirs of the deceased
Doroteo Yabes received the summons
and a copy of the complaint filed by the Commissioner on
December 4, 1970 with the Court of
First Instance of Cagayan which seeks to collect from the
petitioners the sum of P 15,976.82, as
deficiency commercial brokers fixed and percentage
taxes, including surcharges and interest
thereon, due from Yabes by reason of the latters income
derived from transactions as dealer
of the products of the International Harvester Macleod,
Inc.;
Taking the complaint as the final decision of the
Commissioner on the disputed
assessment against the deceased taxpayer Doroteo Yabes,
petitioners filed on February 12,
1971, a petition for review of said disputed assessment
with the CTA. Petitioners filed on
the same day their answer to the complaint before the
Court of First Instance of Cagayan
and alleged, by way of special defense, that the CTA has
exclusive jurisdiction of the action
and that there is another action of the same nature
between the parties relating to the same
assessment pending before the Court of Tax Appeals
PAGE 201
ISSUE:
WON the assessment made by the Commissioner has
already become final thereby

giving jurisdiction to CFI of Cagayan.PAGE 202

HELD:
No. The respondent Court of First Instance of Cagayan can
only acquire jurisdiction over
this case filed against the heirs of the taxpayer if the
assessment made by the Commissioner
of Internal Revenue had become final and incontestable. If
the contrary is established, as this
Court holds it to be, considering the aforementioned
conclusion of the Court of Tax Appeals
on the finality and incontestability of the assessment made
by the Commissioner is correct,
then the Court of Tax Appeals has exclusive jurisdiction
over this case. Petitioners received
the summons in Civil Case No. II-7 of the respondent Court
of First Instance of Cagayan on
January 20, 1971, and petitioners filed their appeal with
the Court of Tax Appeals in CTA Case
No. 2216, on February 12, 1971, well within the thirty-day
prescriptive period under Section
11 of Republic Act No. 1125. The Court of Tax Appeals has
exclusive appellate jurisdiction to
review on appeal any decision of the Collector of Internal
Revenue in cases involving disputed
assessments and other matters arising under the National
Internal Revenue Code.
For want of jurisdiction over the case, the Court of First
Instance of Cagayan should
have dismissed the complaint filed in Civil Case No. IICommissioner of Internal Revenue v. Algue
[G.R. No. L-28896 February 17, 1988]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: CRUZ, J.
FACTS:
Private respondent, a domestic corporation engaged in
engineering, construction and
other allied activities, received a letter from the petitioner
assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years
1958 and 1959. Algue on the other hand
was appointed as agent of the Philippine Sugar Estate
Development Company. On January 18,
1965, Algue filed a letter of protest or request for
reconsideration, on the assessment made by
the Commissioner disallowing the P75, ooo deductions on
their gross income which letter was
stamp received on the same day in the office of the
petitioner, which, however, was missing.
Atty. Guevara, private respondents counsel produced his
file copy and gave a photostat to BIR
agent Ramon Reyes, who deferred service of the warrant.
On April 7, 1965, Atty. Guevara was
finally informed that the BIR was not taking any action on
the protest and it was only then that

he accepted the warrant of distraint and levy earlier sought

to be served. Sixteen days later,
Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with
the CTA.
PAGE 203
ISSUE:
1. WON the Collector of Internal Revenue correctly
disallowed the P75,000.00
deduction claimed by private respondent Algue as
legitimate business expenses in its income
tax returns.
2. WON the appeal of the private respondent from the
decision of the Collector of
Internal Revenue was made on time and in accordance
with law.
HELD:
1. No. The CTA correctly held that the said amount had
been legitimately paid by the
private respondent for actual services rendered. The
payment was in the form of promotional
fees. These were collected by the Payees for their work in
the creation of the Vegetable Oil
Investment Corporation of the Philippines and its
subsequent purchase of the properties of
the Philippine Sugar Estate Development Company. Algue
received as agent a commission of
P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were
paid to the workers. There is no dispute that the payees
duly reported their respective shares
of the fees in their income tax returns and paid the
corresponding taxes thereon. The CTA also
found, after examining the evidence, that no distribution of
dividends was involved. It was
clearly shown that payments were not made in one lump
sum but periodically and in different
amounts as each payees need arose.
The court also held that the amount of the promotional
fees was not excessive. The total
commission paid by the Philippine Sugar Estate
Development Co. to the private respondent
was P125,000.00. After deducting the said fees, Algue still
had a balance of P50,000.00 as
clear profit from the transaction. The amount of
P75,000.00 was 60% of the total commission. PAGE 204
This was a reasonable proportion, considering that it was
the payees who did practically
everything, from the formation of the Vegetable Oil
Investment Corporation to the actual
purchase by it of the Sugar Estate properties. This finding
of the respondent court is in accord
with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net
income there shall

be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses
paid or incurred
during the taxable year in carrying on any trade or
business, including a
reasonable allowance for salaries or other compensation
for personal services
actually rendered;
and Revenue Regulations No. 2, Section 70 (1), reading as
follows:
SEC. 70. Compensation for personal services.--Among the
ordinary and
necessary expenses paid or incurred in carrying on any
trade or business
may be included a reasonable allowance for salaries or
other compensation
for personal services actually rendered. The test of
deductibility in the
case of compensation payments is whether they are
reasonable and are, in
fact, payments purely for service. This test and
deductibility in the case
of compensation payments is whether they are reasonable
and are, in fact,
payments purely for service. This test and its practical
application may be
further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in
fact as the purchase
price of services, is not deductible. (a) An ostensible salary
paid by a corporation
may be a distribution of a dividend on stock. This is likely
to occur in the case of
a corporation having few stockholders, Practically all of
whom draw salaries.
If in such a case the salaries are in excess of those
ordinarily paid for similar
services, and the excessive payment correspond or bear a
close relationship
to the stockholdings of the officers of employees, it would
seem likely that the
salaries are not paid wholly for services rendered, but the
excessive payments
are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931,
30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were
not in the regular employ
of Algue nor were they its controlling stockholders. The
private respondent has proved that
the payment of the fees was necessary and reasonable in
the light of the efforts exerted by
the payees in inducing investors and prominent
businessmen to venture in an experimental

enterprise and involve themselves in a new business

requiring millions of pesos. This was no
mean feat and should be, as it was, sufficiently
recompensed.
2. On the issue of time, according to RA No. 1125, the
appeal may be made within
thirty days after receipt of the decision or ruling
challenged. It is true that as a rule the warrant PAGE 205
of distraint and levy is proof of the finality of the
assessment and renders hopeless a request
for reconsideration, being tantamount to an outright
denial thereof and makes the said
request deemed rejected. But there is a special
circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is
that four days after the private
respondent received the petitioners notice of assessment,
it filed its letter of protest. This was
apparently not taken into account before the warrant of
distraint and levy was issued because
such protest could not be located.Commissioner of Internal
Revenue v. Union Shipping
Corporation and the CTA
[G.R. No. L-66160 May 21, 1990]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: PARAS, J.
FACTS:
In a letter dated December 27, 1974 petitioner
Commissioner of Internal Revenue
assessed against Yee Fong Hong, Ltd. and/or herein private
respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency
income taxes due for the years 1971
and 1972. Said letter was received on January 4, 1975, and
in a letter dated January 10, 1975
received by petitioner on January 13, 1975, private
respondent protested the assessment.
Petitioner, without ruling on the protest, issued a Warrant
of Distraint and Levy, which was
served on private respondents counsel, Clemente Celso,
on November 25, 1976. In a letter
dated November 27, 1976 (Exhibit D), received by
petitioner on November 29, 1976
private
respondent
reiterated
its
request
for
reinvestigation of the assessment and for the
reconsideration of the summary collection thru the Warrant
of Distraint and Levy.
Petitioner, again, without acting on the request for
reinvestigation and reconsideration
of the Warrant of Distraint and Levy, filed a collection suit
before Branch XXI of the then Court
of First Instance of Manila and docketed as Civil Case No.
120459 against private respondent.
Petitioner contends that the warrant of distraint and levy
was issued after respondent

corporation filed a request for reconsideration of subject

assessment, thus constituting
petitioners final decision in the disputed assessments.
Petitioner argues therefore that the
period to appeal to the Court of Tax Appeals commenced
to run from receipt of said warrant
on November 25, 1976, so that on January 10, 1979 when
respondent corporation sought
redress from the Tax Court, petitioners decision has long
become final and executory. On
January 10, 1979, private respondent filed with respondent
court its Petition for Review of the
petitioners assessment of its deficiency income taxes.
CTA ruled in favor of respondent. Hence, this petition.
PAGE 206
ISSUE:
WON the issuance of a warrant of distraint and levy by the
Commissioner in this case
is proof of the finality of an assessment
HELD:
No. There appears to be no dispute that petitioner did not
rule on private respondents
motion for reconsideration but on the contrary left private
respondent in the dark as to which
action of the Commissioner is the decision appealable to
the CTA. Had he categorically stated
that he denies private respondents motion for
reconsideration and that his action constitutes
his final determination on the disputed assessment, private
respondent without needless
difficulty would have been able to determine when his right
to appeal accrues and the resulting
confusion would have been avoided.PAGE 207
Under the circumstances, the Commissioner of Internal
Revenue, not having clearly
signified his final action on the disputed assessment,
legally the period to appeal has not
commenced to run. Thus, it was only when private
respondent received the summons on
the civil suit for collection of deficiency income on
December 28, 1978 that the period to
appeal commenced to run. The request for reinvestigation
and reconsideration was in effect
considered denied by petitioner when the latter filed a civil
suit for collection of deficiency
income. So. that on January 10, 1979 when private
respondent filed the appeal with the Court
of Tax Appeals, it consumed a total of only thirteen (13)
days well within the thirty day period
to appeal pursuant to Section 11 of R.A. 1125.
Neither can private respondent be liable for withholding
tax under Section 53 of the
Internal Revenue Code since it is not in possession,
custody or control of the funds received

by and remitted to Yee Fong Hong, Ltd., a non-resident

taxpayer. As correctly ruled by the CTA,
if an individual or corporation like the petitioner in this
case, is not in the actual possession,
custody, or control of the funds, it can neither be physically
nor legally liable or obligated to
pay the so-called withholding tax on income claimed by
Yee Fong Hong, Ltd.Philippine Journalists, Inc v.
Commissioner of Internal
Revenue
[G.R. No. 162852 December 16, 2004]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
The case arose from the Annual Income Tax Return filed by
petitioner for the calendar
year ended December 31, 1994 which presented a net
income of P30,877,387.00 and the tax
due of P10,807,086.00. After deducting tax credits for the
year, petitioner paid the amount
of P10,247,384.00. From the examination of petitioners
books of accounts, the petitioner
was told that there were deficiency taxes, inclusive of
surcharges, interest and compromise
penalty.
Upon an informal conference called upon by the
Commissioner, petitioners
Comptroller, Lorenza Tolentino, executed a Waiver of the
Statute of Limitation Under the
National Internal Revenue Code (NIRC) The document
waived the running of the prescriptive
period provided by Sections 223 and 224 and other
relevant provisions of the NIRC and
consented to the assessment and collection of taxes which
may be found due after the
examination at any time after the lapse of the period of
limitations fixed by said Sections 223
and 224 and other relevant provisions of the NIRC, until the
completion of the investigation
After which, petitioner was found to have a tax
delinquency, thus, BIR issued assessment/
demand from him. Hence, petitioner filed a petition for
review with the CTA.
CTA ruled in favor of petitioner and held that the Waiver of
the Statute of Limitation
is without any binding effect on the petitioner because it is
an unlimited waiver, it does not
contain a definite expiration date which is required under
RMO No. 20-90. Secondly, the waiver
failed to state the date of acceptance by the Bureau which
under the aforequoted RMO should
likewise be indicated. Finally, petitioner was not furnished
a copy of the waiver required by
RMO No. 20-90. On appeal to the CA, however, the CTA
judgment was reversed on the ground

that the defects mentioned by CTA were merely formal in

nature and ruled that only decisions
of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the
CTA. Mere assessment notices which have become final
after the lapse of the thirty (30)-day
reglementary period are not appealable.
PAGE 208
ISSUE:
1.WON the CTA has jurisdiction to determine whether the
warrant of distraint or levy
was illegally issued and that no assessment was issued
because it was based on an invalid
waiver of the statutes of limitations.
2. WON the waiver of the statute of limitations was valid as
to toll the prescriptive
period.PAGE 209
HELD:
1. Yes. Section 7(1) of Republic Act No. 1125, the Act
Creating the Court of Tax Appeals,
provides for the jurisdiction of that special court:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall
exercise exclusive appellate
jurisdiction to review by appeal, as herein provided
(1) Decisions of the Commissioner of Internal Revenue in
cases involving
disputed assessments, refunds of internal revenue taxes,
fees or other charges,
penalties imposed in relation thereto, or other matters
arising under the
National Internal Revenue Code or other laws or part of law
administered by
the Bureau of Internal Revenue;
The appellate jurisdiction of the CTA is not limited to cases
which involve decisions of
the Commissioner of Internal Revenue on matters relating
to assessments or refunds. It gives
the CTA the jurisdiction to determine if the warrant of
distraint and levy issued by the BIR is
valid and to rule if the Waiver of Statute of Limitations was
validly effected.
2. NO. The second issue focuses on Revenue Memorandum
Circular No. 20-90 (RMO
No. 20-90) on the requisites of a valid waiver of the statute
of limitations. The NIRC, under
Sections 203 and 222, provides for a statute of limitations
on the assessment and collection of
internal revenue taxes in order to safeguard the interest of
the taxpayer against unreasonable
investigation. Unreasonable investigation contemplates
cases where the period for assessment
extends indefinitely because this deprives the taxpayer of
the assurance that it will no longer
be subjected to further investigation for taxes after the
expiration of a reasonable period of

time. The waiver of the statute of limitations is not a

waiver of the right to invoke the defense
of prescription as erroneously held by the Court of Appeals.
It is an agreement between
the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is
extended to a date certain.
The Waiver of Statute of Limitations, signed by petitioners
comptroller on September
22, 1997 is not valid and binding because it does not
conform with the provisions of RMO No.
20-90. It did not specify a definite agreed date between the
BIR and petitioner, within which
the former may assess and collect revenue taxes. Thus,
petitioners waiver became unlimited
in time, violating Section 222(b) of the NIRC. The waiver is
also defective from the government
side because it was signed only by a revenue district
officer, not the Commissioner, as mandated
by the NIRC and RMO No. 20-90.
The waiver is NOT unilateral act of the taxpayer but is in
fact and in law an agreement
between the taxpayer and the BIR. When the petitioners
comptroller signed the waiver on
September 22, 1997, it was not yet complete and final
because the BIR had not assented.
There is compliance with the provision of RMO No. 20-90
only after the taxpayer received a
copy of the waiver accepted by the BIR. The requirement
to furnish the taxpayer with a copy
of the waiver is not only to give notice of the existence of
the document but of the acceptance
by the BIR and the perfection of the agreement.PAGE 210
The waiver is therefore incomplete and defective and thus
the three-year prescriptive
period was not tolled or extended and continued to run
until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-94 issued on
December 9, 1998 was invalid because
it was issued beyond the three (3) year period. In the same
manner, Warrant of Distraint and/
or Levy No. 33-06-046 which petitioner received on March
28, 2000 is also null and void for
having
been
issued
pursuant
to
an
invalid
assessment.COMMISSIONER OF INTERNAL REVENUE v.
PHILIPPINE
GLOBAL COMMUNICATION
[ GR No. 167146. October 31, 2006]
Digest by: PAMATMAT, John Red C.
PONENTE: Chico-Nazario, J.
FACTS:
On April 15, 1991, the respondent corporation filed its
annual income tax return for
taxable year 1990. Sometime in 1992, officials of the
Bureau of Internal Revenue (BIR), acting

on the authority given by the Commissioner of Internal

Revenue (CIR), sought to examine
the books of account and other accounting records of the
respondent. The respondent was
requested by the Bureau to produce and present some
documents to which the former failed.
Consequently,
respondent
received
a
Preliminary
Assessment notice for deficiency income tax
in the amount of P118,271,672.00 and on that following
day received a Formal Assessment
Notice with the same amount stated. This prompted the
respondent, through its counsels, to
file formal protests against the Formal assessment notice
and requested for the cancellation
of the same as it lacks factual and legal basis. The CIR
denied the protest and affirmed in
toto the assessment after eight years counting from the
period to which the assessment was
presumably issued.
As a consequence thereof, the respondent filed a petition
for review with the Court of
Tax Appeals (CTA) which favored respondent on the ground
of prescription, as the letters filed
by the respondent did not toll the running of the
prescriptive period as it did not constitute a
request for investigation. Motion for reconsideration was
denied from the same court and was
affirmed by the same court en banc.
PAGE 211
ISSUE:
Whether or not the letters filed by the respondent
constitute request for an
investigation so as to toll the running of the prescriptive
period.
HELD:
No. The law prescribed a period of three years from the
date the return was actually
filed or from the last date prescribed by law for the filing of
such return, whichever came
later, within which the BIR may assess a national internal
revenue tax. The three-year period
for collection of the assessed tax began to run on the date
the assessment notice had been
released, mailed or sent by the BIR. The assessment, in
this case, was presumably issued on
14 April 1994 since the respondent did not dispute the
CIRs claim. Therefore, the BIR had
until 13 April 1997. However, as there was no Warrant of
Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the
BIR, the earliest attempt of the BIR
to collect the tax due based on this assessment was when
it filed its Answer in CTA Case No.
6568 on 9 January 2003, which was several years beyond
the three-year prescriptive period.

Thus, the CIR is now prescribed from collecting the

assessed tax.
Among the exceptions provided by the section 224, and
invoked by the CIR as a ground PAGE
for this petition, is the instance when the taxpayer
requests for a reinvestigation which is
granted by the Commissioner. However, this exception
does not apply to this case since the
respondent never requested for a reinvestigation. More
importantly, the CIR could not have
conducted a reinvestigation where, as admitted by the CIR
in its Petition, the respondent refused
to submit any new evidence. In the present case, the
separate letters of protest dated 6 May
1994 and 23 May 1994 are requests for reconsideration.
The CIRs allegation that there was
a request for reinvestigation is inconceivable since
respondent consistently and categorically
refused to submit new evidence and cooperate in any
reinvestigation proceedings. Hence, the
petition is denied.
212RIZAL COMMERCIAL BANKING CORP. v. COMMISSIONER
OF
INTERNAL REVENUE
[GR No. 168498, June 16, 2006]
Digest by: PAMATMAT, John Red C.
PONENTE: Ynares-Santiago, J.
FACTS:
On July 5, 2001, a formal letter of demand was received by
petitioner Rizal Commercial
Banking
Corporation
(RCBC)
from
respondent
Commissioner of Internal Revenue (CIR) for its
tax
liabilities
amounting
to
P53,998,428.29
and
P47,717,952.76 for Gross onshore tax and
Documentary stamp tax, respectively. This prompted RCBC
to file a protest letter/request for
reconsideration/reinvestigation by virtue of section 228 of
NIRC. However, this protest was
ignored by the respondent, hence a petition for review with
the Court of Tax Appeals (CTA)
for the cancellation of the assessments was filed.
Unfortunately for the petitioner, the petition
was dismissed on the ground that it was filed beyond the
30-day period following the lapse of
180 days from petitioners submission of documents in
support of the protest. There was no
motion for reconsideration or appeal on the part of the
petitioner thus the resolution became
final and executory and consequently, an entry of
judgement was made.
PAGE 213
ISSUE:
Whether or not the period of the petitioner in protesting
the assessment has already
prescribed as provided for under section 228.

HELD:
Yes. As provided under section 228, Such assessment may
be protested administratively
by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt
of the assessment in such form and manner as may be
prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred
eighty (180) days from submission of documents, the
taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of
the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise the
decision shall become final, executory and demandable.
Following the periods provided for
under section 228, from July 20, 2001, that is, the date of
petitioners filing of protest, it had
until September 18, 2001 to submit relevant documents
and from September 18, 2001, the
Commissioner had until March 17, 2002 to issue his
decision. As admitted by petitioner, the
protest remained unacted by the Commissioner of Internal
Revenue. Therefore, it had until
April 16, 2002 within which to elevate the case to this
court. Thus, when petitioner filed its
Petition for Review on April 30, 2002, the same is outside
the thirty (30) period.OCEANIC WIRELESS NETWORK, INC.
v. COMMISSIONER OF
INTERNAL REVENUE
[GR No. 148380. December 9, 2005]
Digest by: PAMATMAT, John Red C.
PONENTE: Azcuna, J.
FACTS:
The bureau of Internal Revenue (BIR) sent deficiency tax
assessments for the taxable
year of 1984 amounting to P8,644,998.71 to herein
petitioner, Oceanic wireless Network
Inc. This prompted the petitioner to file protest against the
tax assessments and requested a
reconsideration or cancellation of the same to the
Commissioner of Internal Revenue (CIR).
The Chief of the BIR Accounts Receivable and Billing
Division, Mr. Severino Buot, then acting
in behalf of the CIR denied the request for reinvestigation
because there was failure to submit
necessary supporting papers and at the same time
reiterating the tax assessment. The said
letter also requests the petitioner to pay the amount within
ten days, failure of which will

prompt the Chief to refer the matter to Collection

Enforcement Division for the issuance
of a warrant of distraint and levy. Disregarding the request,
the petitioner failed to pay the
amount hence issuance of the corresponding warrants of
distraint and/or garnishment and
levy followed.
Consequently, petitioner filed a petition for review with the
Court of Tax Appeals
(CTA) to question the issuance of the warrants which was
dismissed on the ground that the
petition was filed beyond the 30-day period from the time
the demand letter from the Chief
was presumably received. The petitioner, on its motion fro
reconsideration, assails that the
demand letter cannot be considered as the final decision of
the CIR on its protest because
the same was signed by a mere subordinate and not the
CIR, hence there was no personal
determination as regards the merits of the case.
PAGE 214
ISSUE:
Whether or not the demand letter issued and signed by a
subordinate officer acting as
the CIR is deemed final and executor.
HELD:
Yes. A demand letter for payment of delinquent taxes may
be considered a decision on
a disputed or protested assessment. The determination on
whether or not a demand letter is
final is conditioned upon the language used or the tenor of
the letter being sent to the taxpayer.
In this case, the letter of demand dated January 24, 1991,
unquestionably constitutes the final
action taken by the Bureau of Internal Revenue on
petitioners request for reconsideration
when it reiterated the tax deficiency assessments due from
petitioner, and requested its
payment. Failure to do so would result in the issuance of a
warrant of distraint and levy
to enforce its collection without further notice. In addition,
the letter contained a notation
indicating that petitioners request for reconsideration had
been denied for lack of supporting
documents. Moreover, the general rule is that the
Commissioner of Internal Revenue may PAGE 215
delegate any power vested upon him by law to Division
Chiefs or to officials of higher rank.
He cannot, however, delegate the four powers granted to
him under the National Internal
Revenue Code (NIRC) enumerated in Section 7 and nothing
in this section speaks of the nondelegation of issuing a
demand letter by the Chief.
Here, petitioner failed to avail of its right to bring the
matter before the Court of Tax

Appeals within the reglementary period upon the receipt of

the demand letter reiterating the
assessed delinquent taxes and denying its request for
reconsideration which constituted the
final determination by the Bureau of Internal Revenue on
petitioners protest. Being a final
disposition by said agency, the same would have been a
proper subject for appeal to the Court
of Tax Appeals.
\Fishwealth v. Commissioner of Internal Revenue
[GR No. 179343, January 21, 2010]
Digest by: PAMATMAT, John Red C.
PONENTE: Carpio-Morales, J.
FACTS:
A letter of authority dated May 16, 2000 was issued by the
respondent Commissioner
of Internal Revenue (CIR) ordering the examination of the
internal revenue taxes for the
taxable year 1999 of petitioner. Such investigation yielded
that the petitioner is liable for
P2,395,826.88 worth of taxes. Subsequently, the petitioner
settled the liability.
The respondent again investigated the books of accounts
of the petitioner and by
reason of which issued a subpoena duces tecum requiring
the petitioner to submit what is
asked of by the respondent. Petitioner, on the other hand,
requests the cancellation of such
subpoena on the ground that the same set of documents
had already been examined.
Respondent issued a final assessment of notice which was
received and contested
by the petitioner. Such letter of protest was subsequently
denied by the respondent and
requested the immediate payment thereof. A petition for
review was filed before the CTA and
CTA en banc by the petitioner which were both dismissed
on the ground that it was filed out
of time.
PAGE 216
ISSUE:
Whether or not the petition was filed out of time
HELD:
Yes. As provided under section 228, xxx If the protest is
denied in whole or in part,
or is not acted upon within one hundred eighty (180) days
from submission of documents,
the taxpayer adversely affected by the decision or inaction
may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and
demandable.

In the case at bar, petitioners administrative protest was

denied by Final Decision
on Disputed Assessment dated August 2, 2005 issued by
respondent and which petitioner
received on August 4, 2005. Under the above-quoted
Section 228 of the 1997 Tax Code,
petitioner had 30 days to appeal respondents denial of its
protest to the CTA.Part II:
Local TaxationLung Center of the Philippines vs. Quezon
City
[G.R. No. 144104. June 29, 2004]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Callejo, Sr.
FACTS:
The petitioner Lung Center of the Philippines is a non-stock
and non-profit entity
established in 1981 by virtue of Presidential Decree No.
1823. It is the registered owner of a
parcel of land located in Quezon City.
A big space at the ground floor is being leased to private
parties, for canteen and small
store spaces, and to medical or professional practitioners
who use the same as their private
clinics for their patients whom they charge for their
professional services. Almost one-half of
the entire area on the left side of the building along
Quezon Avenue is vacant and idle, while
a big portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being
leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. It
also renders medical services
to out-patients, both paying and non-paying. Aside from its
income from paying patients, the
petitioner receives annual subsidies from the government.
In 1993, both the land and the hospital building of the
petitioner were assessed for
real property taxes. Accordingly, tax declarations are
issued for the land and hospital building.
The petitioner filed a Claim for Exemption but the same
was denied and held the petitioner
liable for property taxes.
The petitioner alleged that under Section 28, paragraph 3
of the 1987 Constitution,
the property is exempt from real property taxes. It averred
that a minimum of 60% of its
hospital beds are exclusively used for charity patients and
that the major thrust of its hospital
operation is to serve charity patients. The petitioner
contends that it is a charitable institution
and, as such, is exempt from real property taxes.
The respondent ruled that the petitioner was not a
charitable institution and that its

real properties were not actually, directly and exclusively

used for charitable purposes; hence,
it was not entitled to real property tax exemption under
the constitution and the law.
PAGE 217
ISSUE:
1. Whether or not the petitioner is a charitable institution
2. Whether or not the real properties of the petitioner are
exempt from real property
taxes.PAGE 218
HELD:
The petition is partially granted.
1. Yes. The petitioner is a charitable institution within the
context of the 1973 and
1987 Constitutions. The test whether an enterprise is
charitable or not is whether it exists
to carry out a purpose reorganized in law as charitable or
whether it is maintained for gain,
profit, or private advantage.
Hence, the medical services of the petitioner are to be
rendered to the public in general
in any and all walks of life including those who are poor
and the needy without discrimination.
After all, any person, the rich as well as the poor, may fall
sick or be injured or wounded and
become a subject of charity.
As a general principle, a charitable institution does not lose
its character as such and
its exemption from taxes simply because it derives income
from paying patients, whether outpatient, or confined in
the hospital, or receives subsidies from the government, so
long as the
money received is devoted or used altogether to the
charitable object which it is intended to
achieve; and no money inures to the private benefit of the
persons managing or operating the
institution.
2. No. Even as we find that the petitioner is a charitable
institution, we hold, anent the
second issue, that those portions of its real property that
are leased to private entities are not
exempt from real property taxes as these are not actually,
directly and exclusively used for
charitable purposes.
The settled rule in this jurisdiction is that laws granting
exemption from tax are
construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception.
Under Section 2 of Presidential Decree No. 1823, the
petitioner does not enjoy any
property tax exemption privileges for its real properties as
well as the building constructed
thereon. If the intentions were otherwise, the same should
have been among the enumeration

of tax exempt privileges.

What is meant by actual, direct and exclusive use of the
property for charitable purposes
is the direct and immediate and actual application of the
property itself to the purposes for
which the charitable institution is organized. It is not the
use of the income from the real
property that is determinative of whether the property is
used for tax-exempt purposes.
The petitioner failed to discharge its burden to prove that
the entirety of its real
property is actually, directly and exclusively used for
charitable purposes. While portions of
the hospital are used for the treatment of patients and the
dispensation of medical services
to them, whether paying or non-paying, other portions
thereof are being leased to private
individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a
private individual for her business enterprise.PAGE 219
Accordingly, we hold that the portions of the land leased to
private entities as well as those
parts of the hospital leased to private individuals are not
exempt from such taxes. On the
other hand, the portions of the land occupied by the
hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt
from real property taxes.Philippine Rural Electric
Cooperatives vs. The Secretary,
DILG
[G.R. No. 143076. June 10, 2003]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Puno
FACTS:
A class suit was filed by petitioners in their own behalf and
in behalf of other electric
cooperatives organized and existing under P.D. No. 269
who are members of petitioner
Philippine Rural Electric Cooperatives Association, Inc.
(PHILRECA). P.D. No. 269 provides the
electric cooperatives exemption from payment of income
taxes, national and local government
and municipal taxes and fees among others.
From 1971 to 1978, in order to finance the electrification
projects envisioned by P.D.
No. 269, the Philippine Government, acting through the
National Economic Council (now
National Economic Development Authority) and the NEA,
entered into 6 loan agreements with
the government of the USA through the United States
Agency for International Development
(USAID) with electric cooperatives. The 6 loan agreements
involved a total amount of
approximately US$86,000,000.00. These loan agreements
are existing until today.

Petitioners contend that they are exempt from payment of

local taxes, including
payment of real property tax. With the passage of the
Local Government Code, however, they
allege that their tax exemptions have been invalidly
withdrawn. In particular, petitioners assail
Sections 193 and 234 of the Local Government Code on
the ground that the said provisions
discriminate against them, in violation of the equal
protection clause. Further, they submit
that the said provisions are unconstitutional because they
impair the obligation of contracts
between the Philippine Government and the United States
Government.
PAGE 220
ISSUE:
Whether or not Sections 193 and 234 of the Local
Government Code are unconstitutional
for being in violation of the equal protection and nonimpairment of rights clause
HELD:
No. There is no violation of the equal protection clause
because there is reasonable
classification under the Local Government Code to justify
the different tax treatment between
electric cooperatives covered by P.D. No. 269, as
amended, and electric cooperatives under
R.A. No. 6938 with respect the capital contribution of its
members and extent of governmental
control over cooperatives. Electric cooperatives under R.A.
No. 6938 have their members make
equitable contributions to the capital required and
maintain autonomy from the State. On the
other hand, electric cooperatives under P.D. No. 269 do not
require equitable contributions to
capital
and
grants
the
National
Electrification
Administration the power to control and take
over the management and operation of cooperatives
registered under it upon the happening
of certain events.PAGE 221
Also, there is no violation of non-impairment clause. The
loan agreement does not
grant any tax exemption in favor of the borrower or the
beneficiary either on the proceeds of
the loan itself or the properties acquired through the said
loan. It simply states that the loan
proceeds and the principal and interest of the loan, upon
repayment by the borrower, shall
be without deduction of any tax or fee that may be payable
under Philippine laws as such tax
or fee will be absorbed by the borrower with funds other
than the loan proceeds. This only
means that whatever taxes imposed by the Philippines, if
any, will be paid by the borrower

and cannot be shifted to the lender. Thus, the withdrawal

by the Local Government Code of
the tax exemptions previously enjoyed by the petitioners
does not impair the obligation of the
borrower, the lender or the beneficiary under the loan
agreements as in fact, no tax exemption
is granted therein.City Assessor of Cebu City vs.
Association of Benevola de
Cebu
[G.R. No. 152904. June 8, 2007]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Velasco, Jr.
FACTS:
Respondent Association of Benevola de Cebu, Inc. is a nonstock, non-profit
organization and is the owner of Chong Hua Hospital (CHH)
in Cebu City. In the late 1990s,
respondent constructed the CHH Medical Arts Center
(CHHMAC).
Petitioner City Assessor of Cebu City assessed the CHHMAC
building as commercial at
the assessment level of 35% for commercial buildings, and
not at the 10% special assessment
currently imposed for CHH and its other separate buildings
the CHHs Dietary and Records
Departments. He further ascertained that it is not a part of
the CHH building but a separate
building which is actually used as commercial clinic/room
spaces for renting out to physicians
and, thus, classified as commercial.
On the other hand, respondent contended that CHHMAC
building is actually, directly,
and exclusively part of CHH and should have a special
assessment level of 10% as provided
under City Tax Ordinance LXX. Respondent asserted that
the CHHMAC building is similarly
situated as the buildings of CHH, housing its Dietary and
Records Departments, are completely
separate from the main CHH building and are imposed the
10% special assessment level. In
fine, respondent argued that the CHHMAC, though not
actually indispensable, is nonetheless
incidental and reasonably necessary to CHHs operations.
PAGE 222
ISSUE:
Whether or not the medical arts center built by Chong Hua
Hospital to house its
doctors a separate commercial establishment or an
appurtenant to the hospital
HELD:
Yes. The CHH Medical Arts Center (CHHMAC) is an integral
part of CHH. It is definitely
incidental to and reasonably necessary for the operations
of Chong Hua Hospital.

It is undisputed that the doctors and medical specialists

holding clinics in CHHMAC
are those duly accredited by CHH, that is, they are
consultants of the hospital and the ones
who can treat CHHs patients confined in it. This fact alone
takes away CHHMAC from being
categorized as commercial since a tertiary hospital like
CHH is required by law to have a
pool of physicians who comprises the required medical
departments in various medical fields.
The fact that the physicians are holding office in a separate
building does not take
away the essence and nature of their services vis--vis the
over-all operation of the hospital
and the benefits to the hospitals patients. Their transfer
to a more spacious and, perhaps,
convenient place and location for the benefit of the
hospitals patients does not remove them PAGE 223
from being an integral part of the overall operation of the
hospital.
Respondents charge of rentals for the offices and clinics
its accredited physicians
occupy cannot be equated to a commercial venture, which
is mainly for profit.
First, CHHMAC is only for its consultants or accredited
doctors and medical specialists.
Second, the charging of rentals is a practical necessity: (1)
to recoup the investment cost of
the building, (2) to cover the rentals for the lot CHHMAC is
built on, and (3) to maintain the
CHHMAC building and its facilities. Third, as correctly
pointed out by respondent, it pays the
proper taxes for its rental income. And, fourth, if there is
indeed any net income from the lease
income of CHHMAC, such does not inure to any private or
individual person as it will be used
for
respondents
other
charitable
projects.
City
Government of San Pablo vs. Hon. Bienvenido Reyes
[G.R. No. 127708. March 25, 1999]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Gonzaga-Reyes
FACTS:
Act No. 3648 granted the Escudero Electric Services
Company, a legislative franchise
to maintain and operate an electric light and power system
in the City of San Pablo. Escuderos
franchise was transferred to MERALCO under RA 2340.
Thereafter, RA 7160 (Local Government Code of 1991) took
effect and authorizes the
province/city to impose a tax on business enjoying a
franchise at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar
year realized within its jurisdiction. Hence, Ordinance
No.56 was enacted.

Private respondent paid under protest and subsequently

filed this action before the
RTC to declare Ordinance No. 56 null and void insofar as it
imposes the franchise tax upon
private respondent MERALCO and to claim for a refund of
the taxes paid.
The Court ruled in favor of MERALCO and upheld its
argument that the LGC did not
expressly or impliedly repeal the tax exemption/incentive
enjoyed by it under its charter.
PAGE 224
ISSUE:
Whether or not there is an implied repeal by RA 7160 of
the MERALCO franchise
insofar as the latter impose a 2% tax in lieu of all taxes
and assessments of whatever nature
HELD:
Yes. The explicit language of Section 137 which authorizes
the province to impose
franchise tax notwithstanding any exemption granted by
any law or other special laws is allencompassing and
clear. The franchise tax is imposable despite any
exemption enjoyed under
special laws.
The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter
is clearly manifested by the language used in Section 137
and 193 categorically withdrawing
such exemption subject only to the exceptions
enumerated. Since it would be not only tedious
and impractical to attempt to enumerate all the existing
statutes providing for special tax
exemptions or privileges, the LGC provided for an express,
albeit general, withdrawal of such
exemptions or privileges.
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 exlcusio alterius. Therefore, in the absence of
any provision of the Code to the
contrary, any existing tax exemption or incentive enjoyed
by MERALCO under existing law
was clearly intended to be withdrawn.FIRST PHILIPPINE
INDUSTRIAL CORPORATION vs. COURT
OF APPEALS
[G.R. No. 125948 December 29, 1998]
Digest by: RAMOS, Marinel M.
PONENTE: Martinez
FACTS:
Petitioner is a grantee of a pipeline concession under
Republic Act No. 387, as amended,
to contract, install and operate oil pipelines, originally
granted in 1967 and renewed by the

Energy Regulatory Board in 1992. Sometime in January

1995, petitioner applied for a mayors
permit with the Office of the Mayor of Batangas City.
However, before the mayors permit
could be issued, the respondent City Treasurer required
petitioner to pay a local tax based on
its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code (LGC). After
the City Treasurer assessed the business tax on the
petitioner payable in four installments, the
petitioner paid only the 1st installment under protest. Then
petitioner filed a letter-protest
addressed to the respondent City Treasurer, and claimed
that their Company is exempt from
paying tax on gross receipts for it can be considered a
transportation contractor and thus
exempted from business tax under the LGC (Sec. 133). The
City Treasurer denied the protest
contending that petitioner cannot be considered engaged
in transportation business, thus
it cannot claim exemption under the LGC. Subsequently
the petitioner filed with the RTC of
Batangas City a complaint for tax refund againsts
respondents City of Batangas and Adoracion
Arellano in her capacity as City Treasurer. Respondents
assert that pipelines are not included
in the term common carrier which refers solely to
ordinary carriers such as trucks, trains,
ships and the like. Respondents further posit that the term
common carrier under the said
code pertains to the mode or manner by which a product is
delivered to its destination. RTC
dismissed the complaint holding that tax exemptions are to
be strictly construed against the
taxpayer, taxes being the lifeblood of the government.
Exemption may therefore be granted
only by clear and unequivocal provisions of law. CA
affirmed RTCs decision.
PAGE 225
ISSUE:
1. Whether or not the petitioner is a common carrier or a
transportation contractor
2. Whether or not the exemption sought for by petitioner is
not clear under the law.
HELD:
1. Yes. Petitioner is a common carrier. A common carrier
may be defined, broadly, as
one who holds himself out to the public as engaged in the
business of transporting persons or
property from place to place, for compensation, offering his
services to the public generally.
Art. 1732 of the Civil Code defines a common carrier as
any person, corporation, firm or
association engaged in the business of carrying or
transporting passengers or goods or both,

by land, water, or air, for compensation, offering their

services to the public.
Based on the above definitions and requirements, there is
no doubt that petitioner is a
common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to
carry for all persons indifferently, PAGE 226
that is, to all persons who choose to employ its services,
and transports the goods by land
and for compensation. The fact that petitioner has a limited
clientele does not exclude it from
the definition of a common carrier. Also, the definition of
common carriers in the Civil Code
makes no distinction as to the means of transporting, as
long as it is by land, water or air.
It does not provide that the transportation of the
passengers or goods should be by motor
vehicle.
2. No. Petitioner is exempted from payment of tax - From
the foregoing disquisition,
there is no doubt that petitioner is a common carrier and,
therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local
Government Code. It is clear that
the legislative intent in excluding from the taxing power of
the local government unit the
imposition of business tax against common carriers is to
prevent a duplication of the so-called
common carriers tax. Petitioner is already paying three
(3%) percent common carriers tax
on its gross sales/earnings under the National Internal
Revenue Code. To tax petitioner again
on its gross receipts in its transportation of petroleum
business would defeat the purpose of
the Local Government Code.MANILA ELECTRIC COMPANY,
vs. PROVINCE OF LAGUNA
[G.R. No. 131359. May 5, 1999]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Vitug
FACTS:
On various dates, certain municipalities of the Province of
Laguna including, Bian,
Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by
virtue of existing laws then in effect,
issued resolutions through their respective municipal
councils granting franchise in favor of
petitioner Manila Electric Company (MERALCO) for the
supply of electric light, heat and
power within their concerned areas. On 19 January 1983,
MERALCO was likewise granted a
franchise by the National Electrification Administration to
operate an electric light and power
service in the Municipality of Calamba, Laguna.

On the enactment of Republic Act No. 7160, otherwise

known as the Local Government
Code of 1991, local government units were enjoined to
create their own sources of revenue,levy
taxes, fees and charges, subject to the limitations
expressed therein, consistent with the basic
policy of local autonomy. The province of Laguna, then
enacted Provincial Ordinance No. 0192, effective 01 January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax
on businesses enjoying a franchise,
at a rate of fifty percent (50%) of one percent (1%) of the
gross annual receipts, which shall
include both cash sales and sales on account realized
during the preceding calendar year
within this province, including the territorial limits on any
city located in the province
An amount of P19,520,628.42 was paid for tax under
protest by petitioner MERALCO.
The petitioner then sent a formal claim for refund to the
Provincial Treasurer of Laguna
claiming that the franchise tax it had paid and continued to
pay to the National Government
pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax
Ordinance. Petitioner claims that the imposition of a
franchise tax under Section 2.09 of
Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the
provisions of Section 1 of P.D. 551 which provides Any
provision of law or local ordinance
to the contrary notwithstanding, the franchise tax payable
by all grantees of franchises to
generate, distribute and sell electric current for light, heat
and power shall be two per cent
(2%) of their gross receipts received from the sale of
electric current and from transactions
incident to the generation, distribution and sale of electric
current Such franchise tax shall
be payable to the Commissioner of Internal Revenue or his
duly authorized representative. On
28 August 1995, the claim for refund of petitioner was
denied in a letter signed by Governor
Jose D. Lina. In denying the claim, respondents relied on a
more recent law, i.e., Republic Act
No. 7160 or the Local Government Code of 1991, than the
old decree ivoked by the petitioner.
A complaint was filed by petitioner Meralco to the RTC for
the refund of the amount paid for
tax against the Province of Laguna and also Benito R.
Balazo, in his capacity as the Provincial
Treasurer of Laguna. RTC dismissed the complaint and
ruled that the power to tax exercised
by province of Laguna was valid.
PAGE 227PAGE 228

HELD:
Under the now prevailing Constitution, where there is
neither a grant nor a prohibition
by statute, the tax power must be deemed to exist
although Congress may provide statutory
limitations and guidelines. The basic rationale for the
current rule is to safeguard the viability
and self-sufficiency of local government units by directly
granting them general and broad
tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute
and unconditional; the constitutional objective obviously is
to ensure that, while the local
government units are being strengthened and made more
autonomous,[6] the legislature
must still see to it that (a) the taxpayer will not be overburdened or saddled with multiple and
unreasonable impositions; (b) each local government unit
will have its fair share of available
resources; (c) the resources of the national government
will not be unduly disturbed; and (d)
local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and
adopted, by and large the
provisions of the now repealed Local Tax Code, which had
been in effect since 01 July 1973,
promulgated into law by Presidential Decree No. 231[7]
pursuant to the then provisions of
Section 2, Article XI, of the 1973 Constitution. The 1991
Code explicitly authorizes provincial
governments, notwithstanding any exemption granted by
any law or other special law, x x x
(to) impose a tax on businesses enjoying a franchise.
Indicative of the legislative intent to carry
out the Constitutional mandate of vesting broad tax powers
to local government units, the
Local Government Code has effectively withdrawn under
Section 193 thereof, tax exemptions
or incentives theretofore enjoyed by certain entities. The
Code, in addition, contains a general
repealing clause in its Section 534 which states that All
general and special laws, acts, city
charters, decrees, executive orders, proclamations and
administrative regulations, or part
or parts thereof which are inconsistent with any of the
provisions of this Code are hereby
repealed or modified accordingly.
While the Court has, not too infrequently, referred to tax
exemptions contained in
special franchises as being in the nature of contracts and a
part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of
the term and where the non-impairment

clause of the Constitution can rightly be invoked, are those

agreed to by the taxing authority in
contracts, such as those contained in government bonds or
debentures, lawfully entered into
by them under enabling laws in which the government,
acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of
contracts.[14] These contractual tax
exemptions, however, are not to be confused with tax
exemptions granted under franchises. A
franchise partakes the nature of a grant which is beyond
the purview of the non-impairment
clause of the Constitution.[15] Indeed, Article XII, Section
11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for
the operation of a public utility shall be granted except
under the condition that such privilege
shall be subject to amendment, alteration or repeal by
Congress as and when the common
good so requires.
WHEREFORE,
the
instant
petition
is
hereby
DISMISSED.PHILIPPINE BASKETBALL ASSOCIATION vs.
COURT OF
APPEALS
[G.R. No. 119122. August 8, 2000]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Purisima
FACTS:
Commissioner of Internal Revenue, herein respondent sent
an assessment letter to the
Philippine Basketball Association, herein petitioner; for the
payment of deficiency amusement
tax. Such deficiency tax amounted to P5, 864, 260.84
(including 25% surcharges and 25%
interest for two years). On July 18, 1989, petitioner
contested the assessment by filing a protest
with respondent Commissioner who denied the same on
November 6, 1989. The Court of Tax
Appeals likewise denied the petition filed by petitioner. The
decision of CTA was appealed to
Court of Appeals who affirmed the decision of CTA thus
dismissing petitioners appeal.
Petitioner contends that PD 231, otherwise known as the
Local Tax Code of 1973,
transferred the power and authority to levy and collect
amusement taxes from the sale
of admission tickets to places of amusement from the
national government to the local
governments. Petitioner cited BIR Memorandum Circular
No. 49-73 providing that the
power to levy and collect amusement tax on admission
tickets was transferred to the local

governments by virtue of the Local Tax Code; and BIR

Ruling No. 231-86 which held that
the jurisdiction to levy amusement tax on gross receipts
from admission tickets to places of
amusement was transferred to local governments under
P.D. No. 231, as amended.8 Further,
petitioner opined that even assuming arguendo that
respondent Commissioner revoked BIR
Ruling No. 231-86, the reversal, modification or revocation
cannot be given retroactive effect
since even as late as 1988 (BIR Memorandum Circular No.
8-88), respondent Commissioner
still recognized the jurisdiction of local governments to
collect amusement taxes.
PAGE 229
ISSUE:
1. Is the amusement tax on admission tickets to PBA
games a national or local tax?
Otherwise put, who between the national government and
local government should petitioner
pay amusement taxes?
2. Is the cession of advertising and streamer spaces to
Vintage Enterprises, Inc. (VEI)
subject to the payment of amusement tax?
3. If ever petitioner is liable for the payment of deficiency
amusement tax, is it liable to
pay a seventy-five percent (75%) surcharge on the
deficiency amount due?
HELD:
The Court ruled that petitioner PBA is liable to pay
amusement tax to the National
Government, and not to the Local Government, in
accordance with the rates prescribed by P.D.
1959. It is therein provided that the proprietor, lessee or
operator of professional basketball
games is required to pay amusement tax equivalent to
15% of the gross receipts to the
BIR, which payment is a national tax. Said payment of
amusement tax is in lieu of all other
percentage taxes of whatever nature and description.PAGE
230
While Section 13 of the Local Tax Code mentions other
places of amusement,
professional basketball games are definitely not within its
scope. Under the principle of
ejusdem generis, where general words follow an
enumeration of persons or things, by words
of a particular and specific meaning, such general words
are not to be construed in their widest
extent, but are to be held as applying only to persons or
things of the same kind or class as
those specifically mentioned.9 Thus, in determining the
meaning of the phrase other places
of amusement, one must refer to the prior enumeration of
theaters, cinematographs, concert

halls and circuses with artistic expression as their common

characteristic. Professional
basketball games do not fall under the same category as
theaters, cinematographs, concert
halls and circuses as the latter basically belong to artistic
forms of entertainment while the
former caters to sports and gaming.
Likewise erroneous is the stance of petitioner that
respondent Commissioners
issuance of BIR Ruling No. 231-8612 and BIR Revenue
Memorandum Circular No. 8-8813
both upholding the authority of the local government to
collect amusement taxes should
bind the government or that, if there is any revocation or
modification of said rule, the same
should operate prospectively.
It bears stressing that the government can never be in
estoppel, particularly in matters
involving taxes. It is a well-known rule that erroneous
application and enforcement of the law
by public officers do not preclude subsequent correct
application of the statute, and that the
Government is never estopped by mistake or error on the
part of its agents.
As regards to the second issue, the court finds the
petitioners contention that income
from the cession of streamer and advertising spaces to VEI
is not subject to amusement tax
untenable. The questioned proviso may be found in Section
1 of PD 1456 which states:
SECTION 1. Section 268 of the National Internal Revenue
Code of 1977, as
amended, is hereby further amended to read as follows:
Sec. 268. Amusement taxes. There shall be collected
from the proprietor,
lessee or operator of cockpits, cabarets, night or day clubs,
boxing exhibitions,
professional basketball games, Jai-Alai, race tracks and
bowling alleys, a tax
equivalent to:
xxx
xxx
xxx
of their gross receipts, irrespective of whether or not any
amount is charged
or paid for admission. For the purpose of the amusement
tax, the term gross
receipts embraces all the receipts of the proprietor, lessee
or operator of the
amusement place. Said gross receipts also include income
from television,
radio and motion picture rights, if any. (A person, or entity
or association
conducting any activity subject to the tax herein imposed
shall be similarly
liable for said tax with respect to such portion of the
receipts derived by him

or it.) (emphasis ours)

The foregoing definition of gross receipts is broad enough
to embrace the cession of
advertising and streamer spaces as the same embraces all
the receipts of the proprietor, lessee PAGE 231
or operator of the amusement place. The law being clear,
there is no need for an extended
interpretation.
The last issue for resolution concerns the liability of
petitioner for the payment of
surcharge and interest on the deficiency amount due.
Petitioner contends that it is not liable,
as it acted in good faith, having relied upon the issuances
of the respondent Commissioner.
This issue must necessarily fail as the same has never
been posed as an issue before the
respondent court. Issues not raised in the court a quo
cannot be raised for the first time on
appeal.
All things studiedly considered, the Court rules that the
petitioner is liable to pay
amusement tax to the national government, and not to the
local government, in accordance
with the rates prescribed by PD 1959.
WHEREFORE,
the
Petition
is
DENIEDMANILA
INTERNATIONAL AIRPORT AUTHORITY vs. CA
[G.R. No. 155650. July 20, 2006]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Carpio
FACTS:
Petitioner Manila International Airport Authority (MIAA)
operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City
under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila
International Airport Authority (MIAA
Charter), as amended. As operator of the international
airport, MIAA administers the land,
improvements and equipment within the NAIA Complex.
The MIAA Charter transferred to
MIAA approximately 600 hectares of land, including the
runways and buildings (Airport
Lands and Buildings) then under the Bureau of Air
Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to
MIAA shall be disposed of through
sale or any other mode unless specifically approved by the
President of the Philippines. On 21
March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061.
The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real
estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with

respondent City of Paraaque to pay the real estate tax

imposed by the City. MIAA then paid
some of the real estate tax already due.
Due to MIAAs tax delinquency, the City of Paraaque,
through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor
of the City of Paraaque threatened to sell at public
auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency.
MIAA thus sought a clarification of
OGCC Opinion No. 061.
The OGCC issued Opinion no. 147, clarifying Opinion no.
061 which pointed out that
Section 206 of the Local Government Code requires
persons exempt from real estate tax to
show proof of exemption. The OGCC opined that Section 21
of the MIAA Charter is the proof
that MIAA is exempt from real estate tax.
MIAA admits that the MIAA Charter has placed the title to
the Airport Lands and
Buildings in the name of MIAA. However, MIAA points out
that it cannot claim ownership over
these properties since the real owner of the Airport Lands
and Buildings is the Republic of
the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings
for the benefit of the general public. Since the Airport
Lands and Buildings are devoted to
public use and public service, the ownership of these
properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are
not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter
specifically exempts MIAA
from the payment of real estate tax. MIAA insists that it is
also exempt from real estate tax
under Section 234 of the Local Government Code because
the Airport Lands and Buildings
PAGE 232are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the
reason for tax exemption of public
property is that its taxation would not inure to any public
advantage, since in such a case the
tax debtor is also the tax creditor.
PAGE 233
ISSUE:
Whether or not the airport lands an buildings of MIAA are
exempt from real estate tax.
HELD:
The court rule that MIAAs Airport Lands and Buildings are
exempt from real estate

tax imposed by local governments. First, MIAA is not a

government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by
the Republic of the Philippines and
thus exempt from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt
from real estate tax. However, MIAA is not a governmentowned or controlled corporation.
Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to
any agency
organized as a stock or non-stock corporation, vested with
functions relating
to public needs whether governmental or proprietary in
nature, and owned
by the Government directly or through its instrumentalities
either wholly, or,
where applicable as in the case of stock corporations, to
the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be
organized as a stock
or non-stock corporation. MIAA is not organized as a stock
or non-stock
corporation. MIAA is not a stock corporation because it has
no capital stock
divided into shares. MIAA has no stockholders or voting
shares.
Section 234(a) of the Local Government Code exempts
from real estate tax any
real property owned by the Republic of the Philippines. This
exemption should
be read in relation with Section 133(o) of the same Code,
which prohibits local
governments from imposing [t]axes, fees or charges of
any kind on the National
Government, its agencies and instrumentalities x x x. The
real properties
owned by the Republic are titled either in the name of the
Republic itself or
in the name of agencies or instrumentalities of the National
Government. The
Administrative Code allows real property owned by the
Republic to be titled
in the name of agencies or instrumentalities of the national
government. Such
real properties remain owned by the Republic and continue
to be exempt from

real estate tax.The Republic may grant the beneficial use

of its real property to an agency or
instrumentality of the national government. This happens
when title of the real property is
transferred to an agency or instrumentality even as the
Republic remains the owner of the real
property. Such arrangement does not result in the loss of
the tax exemption. Section 234(a)
of the Local Government Code states that real property
owned by the Republic loses its tax
exemption only if the beneficial use thereof has been
granted, for consideration or otherwise,
to a taxable person. MIAA, as a government
instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code. Thus, even
if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make
these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that
MIAA leases to private
entities are not exempt from real estate tax. For example,
the land area occupied by hangars
that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA
has granted the beneficial use of such land area for a
consideration to a taxable person and
therefore such land area is subject to real estate tax.
WHEREFORE, we GRANT the petition. We SET ASIDE the
assailed Resolutions of
the Court of Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority
EXEMPT from the real estate tax imposed by the City of
Paraaque. We declare VOID all the
real estate tax assessments, including the final notices of
real estate tax delinquencies, issued
by the City of Paraaque on the Airport Lands and
Buildings of the Manila International
Airport Authority, except for the portions that the Manila
International Airport Authority has
leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of
the Airport Lands and Buildings of the Manila International
Airport Authority.
PAGE 234THE PROVINCE OF BULACAN vs. COURT OF
APPEALS
[G.R. No. 126232 November 27, 1998]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Romero
FACTS:
The Sangguniang Panlalawigan of Bulacan passed
Provincial Ordinance No. 3, known

as An Ordinance Enacting the Revenue Code of the

Bulacan Province. Section 21 of such code
provides:
Sec. 21 Imposition of Tax. There is hereby levied and
collected a tax of 10% of the fair market
value in the locality per cubic meter of ordinary stones,
sand, gravel, earth and other quarry
resources, such, but not limited to marble, granite, volcanic
cinders, basalt, tuff and rock
phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and
other public waters within its territorial jurisdiction
(Emphasis ours)
Pursuant thereto, the Provincial Treasurer of Bulacan,
assessed private respondent
Republic Cement Corporation (hereafter Republic Cement)
P2,524,692.13 for extracting
limestone, shale and silica from several parcels of private
land in the province during the
third quarter of 1992 until the second quarter of 1993.
Believing that the province, on the
basis of above-said ordinance, had no authority to impose
taxes on quarry resources extracted
from private lands, Republic Cement formally contested
the same on December 23, 1993. The
same was, however, denied by the Provincial Treasurer on
January 17, 1994. Republic Cement,
consequently filed a petition for declaratory relief with the
Regional Trial Court of Bulacan
on February 14, 1994. The province filed a motion to
dismiss Republic Cements petition,
which was granted by the trial court on May 13, 1993,
which ruled that declaratory relief
was improper, allegedly because a breach of the ordinance
had been committed by Republic
Cement.
On July 11, 1994, Republic Cement filed a petition for
certiorari with the Supreme
Court seeking to reverse the trial courts dismissal of their
petition. The Court, in a resolution
dated July 27, 1994, referred the same to the Court of
Appeals. Due to its allegedly unpaid
taxes, the Province of Bulacan issued a warrant of levy
against Republic Cement. Negotiations
between Republic Cement and petitioners resulted in an
agreement and modus vivendi on
December 12, 1994, whereby Republic Cement agreed to
pay under protest P1,262,346.00,
50% of the tax assessed by petitioner, in exchange for the
lifting of the warrant of levy. CA
ruled that Province of Bulacan has no legal authority.
Hence this petition.
PAGE 235
ISSUE:

Whether or not the provincial government could impose

and/or assess taxes on
quarry resources extracted by Republic Cement from
private lands pursuant to Section 21 of
Provincial Ordinance No. 3.PAGE 236
HELD:
The petition is devoid of merit.
The appellate court, on the basis of Section 134, ruled that
a province was empowered
to impose taxes only on sand, gravel, and other quarry
resources extracted from public lands,
its authority to tax being limited by said provision only to
those taxes, fees and charges
provided in Article One, Chapter 2, Title One of Book II of
the Local Government Code. 11 On
the other hand, petitioners claim that Sections 129 12 and
186 13 of the Local Government
Code authorizes the province to impose taxes other than
those specifically enumerated under
the Local Government Code.
The Court of Appeals erred in ruling that a province can
impose only the taxes specifically
mentioned under the Local Government Code. As correctly
pointed out by petitioners, Section
186 allows a province to levy taxes other than those
specifically enumerated under the Code,
subject to the conditions specified therein. A province may
not, therefore, levy excise taxes on
articles already taxed by the National Internal Revenue
Code. The National Internal Revenue
Code levies a tax on all quarry resources, regardless of
origin, whether extracted from public
or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth
and other quarry resources, as the same are already taxed
under the National Internal Revenue
Code. The province can, however, impose a tax on stones,
sand, gravel, earth and other quarry
resources extracted from public land because it is
expressly empowered to do so under the
Local Government Code. As to stones, sand, gravel, earth
and other quarry resources extracted
from private land, however, it may not do so, because of
the limitation provided by Section 133
of the Code in relation to Section 151 of the National
Internal Revenue Code.
WHEREFORE, premises considered, the instant petition is
DISMISSED for lack of merit
and the decision of the Court of Appeals is hereby
AFFIRMED in toto.DRILON vs. LIM
[G.R. No. 112497 August 4, 1994]
Digest by: RAMOS, Marinel M.
PONENTE: Cruz
FACTS:

Filed before the Secretary of Justice are appeals of four oil

companies and a taxpayer,
seeking for the declaration of Ordinance No. 7794,
otherwise known as the Manila Revenue
Code, null and void for non-compliance with the prescribed
procedure in the enactment
of tax ordinances and for containing certain provisions as
provided in Section 187 of the
Local Government Code reading as follows: Procedure For
Approval And Effectivity Of Tax
Ordinances And Revenue Measures; Mandatory Public
Hearings. The procedure for approval
of local tax ordinances and revenue measures shall be in
accordance with the provisions of
this Code: Provided, That public hearings shall be
conducted for the purpose prior to the
enactment thereof; Provided, further, That any question on
the constitutionality or legality
of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from
the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60)
days from the date of receipt of the appeal: Provided,
however, That such appeal shall not have
the effect of suspending the effectivity of the ordinance
and the accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That
within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without
the Secretary of Justice acting upon
the appeal, the aggrieved party may file appropriate
proceedings with a court of competent
jurisdiction.
Hon. Franklin Drilon found the said ordinance violative of
Sec. 187 of the LGC for the
procedural requirements for the enactment of tax
ordinances as specified in the LGC had
indeed not been observed.. In a petition for certiorari filed
by the City of Manila, the RTC
of Manila revoked the Secretarys resolution and sustained
the ordinance, holding inter alia
that the procedural requirements had been observed. More
importantly, it declared Section
187 of the Local Government Code as unconstitutional
because of its vesture in the Secretary
of Justice of the power of control over local governments in
violation of the policy of local
autonomy mandated in the Constitution and of the specific
provision therein conferring on
the President of the Philippines only the power of
supervision over local governments.
PAGE 237
ISSUE:
1. Whether or not Section 187 of the LGC is constitutional
thus making Ordinance No.

7794 null and void

2. Whether or not there is compliance on the part of City of
Manila in issuing Ordinance
No. 7794
HELD:
1. Section 187 of the LGC is valid. Section 187 authorizes
the Secretary of Justice to
review only the constitutionality or legality of the tax
ordinance and, if warranted, to revoke it
on either or both of these grounds. When he alters or
modifies or sets aside a tax ordinance, he PAGE 238
is not also permitted to substitute his own judgment for the
judgment of the local government
that enacted the measure. Secretary Drilon did set aside
the Manila Revenue Code, but he
did not replace it with his own version of what the Code
should be. He did not pronounce
the ordinance unwise or unreasonable as a basis for its
annulment. He did not say that in his
judgment it was a bad law. What he found only was that it
was illegal. All he did in reviewing the
said measure was determine if the petitioners were
performing their functions in accordance
with law, that is, with the prescribed procedure for the
enactment of tax ordinances and the
grant of powers to the city government under the Local
Government Code. As we see it, that
was an act not of control but of mere supervision.
2. There is compliance with the procedural requirements
for the enactment of the
ordinance. In his resolution, Secretary Drilon declared that
there were no written notices of
public hearings on the proposed Manila Revenue Code that
were sent to interested parties
as required by Art. 276(b) of the Implementing Rules of the
Local Government Code nor
were copies of the proposed ordinance published in three
successive issues of a newspaper
of general circulation pursuant to Art. 276(a). No minutes
were submitted to show that the
obligatory public hearings had been held. Neither were
copies of the measure as approved
posted in prominent places in the city in accordance with
Sec. 511(a) of the Local Government
Code. Finally, the Manila Revenue Code was not translated
into Pilipino or Tagalog and
disseminated among the people for their information and
guidance, conformably to Sec. 59(b)
of the Code. Judge Palattao found otherwise. Posting of the
ordinance as approved is may
be omitted and this omission does not affect its validity,
considering that its publication in
three successive issues of a newspaper of general
circulation will satisfy due process. It has

also not been shown that the text of the ordinance has
been translated and disseminated, but
this requirement applies to the approval of local
development plans and public investment
programs of the local government unit and not to tax
ordinances.Part II:
Real Property TaxationDAVAO SAWMILL CO., INC. vs.
CASTILLO
[L-40411. August 7, 1935]
Digest by: RAMOS, Marinel M.
PONENTE: Malcolm
FACTS:
The Davao Saw Mill Co., Inc., is the holder of a lumber
concession from the Government
of the Philippine Islands. It has operated a sawmill in the
Sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the
land upon which the business was
conducted belonged to another person. On the land the
sawmill company erected a building
which housed the machinery used by it. Some of the
implements thus used were clearly
personal property, the conflict concerning machines which
were placed and mounted on
foundations of cement. In the contract of lease between
the sawmill company and the owner
of the land there appeared provisions which provides that
on the expiration of the period
agreed upon, all the improvements and buildings
introduced and erected by the party of the
second part shall pass to the exclusive ownership of the
party of the first part without any
obligation on its part to pay any amount for said
improvements and buildings. In another
action, wherein the Davao Light & Power Co., Inc., was the
plaintiff and the Davao, Saw, Mill
Co., Inc., was the defendant, a judgment was rendered in
favor of the plaintiff in that action
against the defendant in that action; a writ of execution
issued thereon, and the properties
now in question were levied upon as personalty by the
sheriff. The plaintiff who was also the
highest bidder proceeded to take possession of the
machinery and other properties described
in the corresponding certificates of sale executed in its
favor by the sheriff of Davao. Petitioner
claims that the property involved is a real property being
mounted on cement and that a public
sale must be held.
PAGE 239
ISSUE:
Whether or not the property in question is a personal
property.
HELD:

The machinery is considered a personal property. As

connecting up with the facts, it
should further be explained that the Davao Saw Mill Co.,
Inc., has on a number of occasions
treated the machinery as personal property by executing
chattel mortgages in favor of third
persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in
point. According to the Code,
real property consists of 1. Land, buildings, roads and
constructions of all kinds adhering
to the soil; x x x
xxx
x x x 5. Machinery, liquid
containers, instruments or implements
intended by the owner of any building or land for use in
connection with any industry or trade
being carried on therein and which are expressly adapted
to meet the requirements of such
trade of industry.
It must further be pointed out that while not conclusive,
the characterization of
the property as chattels by the appellant is indicative of
intention and impresses upon the PAGE 240
property the character determined by the parties. It is
machinery which is involved; moreover,
machinery not intended by the owner of any building or
land for use in connection therewith,
but intended by a lessee for use in a building erected on
the land by the latter to be returned
to the lessee on the expiration or abandonment of the
lease.
A similar question arose in Puerto Rico, and on appeal
being taken to the United
States Supreme Court, it was held that machinery which is
movable in its nature only becomes
immobilized when placed in a plant by the owner of the
property or plant, but not when so
placed by a tenant, a usufructuary, or any person having
only a temporary right, unless such
person acted as the agent of the owner. CITY OF BAGUIO
vs. FERNANDO S. BUSUEGO
[L-29772. September 18, 1980]
Digest by: RAMOS, Marinel M.
PONENTE: Malcolm
FACTS:
A tax collection suit is instituted by the City of Baguio,
against appellant Fernando S.
Busuego, after it was established that the defendant and
the Government Service Insurance
System (GSIS), a government corporation, executed, by
and between themselves, a Contract
to Sell over a parcel of land although the agreed purchase
price for the property has not yet
been fully paid and the GSIS has up to the present time,
title of the property in question but the

defendant is using the same. It has also been established

that under Commonwealth Act No.
186, the GSIS as well as its property are exempt from
payment of all types and kinds of taxes;
that the property involved in this case has been
consistently assessed (amounting to P1,656)
by the City of Baguio in the name of the GSIS; and that
demands were made on the defendant
for payment of the aforesaid taxes but said defendant
refused and failed to pay the same. Also
it was undisputed that defendant has paid the amount of
P287.80 for realty taxes due for the
year 1963 and he is demanding for refund from petitioner.
The city court rendered judgment in favor of plaintiff
sentencing defendant to pay the
sum of P1,656.00.00 with legal interest from the filing of
complaint on August 18, 1966 the
same is fully paid. Upon appeal, CFI, concluding that the
contract entered into by the parties
was a perfected contract of sale, likewise held that
defendant as owner was liable for the realty
taxes on the property, and, therefore, likewise ordered
defendant to pay the same amount as
adjudged by the city court.
Paragraph 2 of the contract entered into by the GSIS and
the defendant-appellant
manifests the latters willingness at the signing thereof to
pay and shoulder all taxes and
assessments on the subject property and insurance
thereon during the term of the said
contract. However, appellants purchaser after having
voluntarily paid taxes due on the
property in the amount of P287.00 for the year 1963
backed out of his undertaking upon
discovering that section 28(c) of Commonwealth Act 186
exempts the GSIS from the payment
of taxes. His theory is that while title to the property has
not passed to him, per paragraph 4 of
the contract, and ownership remains with the seller, there
could not be any obligation to pay
taxes on the property that should be assumed by him as
purchaser, since the owner-seller, in
whom title remains, is exempt from taxes.
PAGE 241
ISSUE:
Whether or not defendant-appellant, an installment
purchaser of a parcel of land and
its building and improvements within a housing project
belonging to the Government Service
Insurance System (GSIS) liable to pay realty taxes thereon
from the time possession of such
property was transferred to him, although pending full
payment of the purchase price the
seller GSIS as a government corporation exempt from the
payment of taxes retains ownership

and title over the property.PAGE 242

HELD:
Defendant-Appellant is liable for the payment of Real
Property Tax. The court of first
instance may have erred in pronouncing the Contract to
Sell as a perfected contract of sale,
contrary to its very terms that title remained with the seller
who undertook to execute a final
deed of absolute sale and deliver to the purchaser title to
the property only after completion
of the stipulated payments, but this is not decisive of the
issue.
The delivery of possession by the seller GSIS to the
purchaser was clearly with the
intention of passing to the latter the possession, use of and
control over said property, and
all the other attributes of ownership, short of the naked
ownership such that it included in
said transfer the incidental obligation to pay the taxes
thereon, for nothing more was left to
the GSIS except its right to receive full payment of the
purchase price. The fact that in the
contract to sell the GSIS, although aware of its own
exemption from taxation stipulated and
exacted from the purchaser the payment of taxes amounts
to an interpretation on its part that
such an immunity was not to be transmitted to a private
person who becomes the beneficial
owner and user of the property. Verily, this interpretative
regulation by the administrative
agency officially charged with the duty of administering
and enforcing Commonwealth Act
186 which contains the tax-exempting provision at issue
carries great weight in determining
the operation of said provision.
The position taken by the GSIS is but in conformity with
Section 40(a) of Presidential
Decree No. 464 entitled The Real Property Tax Code
promulgated on May 20, 1974 which
reads as follows: Exemptions from Real Property Tax.
The exemptions shall be as follows:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions
and any government-owned corporation so exempt by its
charter; Provided, however, That
this exemption shall not apply to real property of the
above-named entitles the beneficial
use of which has been granted, for consideration or
otherwise, to a taxable person x x x.
Thus under this provision, while the GSIS may be exempt
from real estate tax the exemption
does not cover property belonging to it where the
beneficial use thereof has been granted
for consideration or otherwise to a taxable person. There
can be no doubt that under the

provisions of the contract in question, the purchaser to

whose possession the property had
been transferred was granted beneficial use thereof. It
follows on the strength of the provision
sec. 40(a) of PD 464 that the said property is not exempt
from the real property tax. While this
decree just cited was still inexistent at the time the taxes
at issue were assessed on the herein
appellant, indeed its above quoted provision sheds light
upon the legislative intent behind the
provision of Commonwealth Act 186, pertaining to
exemption of the GSIS from taxes.
The end result is but in consonance with the established
rule in taxation that
exemptions are held strictly against the taxpayer and
liberally in favor of the taxing authority. Reyes, et al. v.
Almanzor
[GR Nos. L-49839-46. April 26, 1991]
Digest by: REY, Floyd Ericson M.
PONENTE: Paras
FACTS:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are
owners of parcels of
land situated in Tondo and Sta. Cruz Districts, City of
Manila, which are leased and entirely
occupied as dwelling sites by tenants paying monthly
rentals not exceeding three hundred
pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic
Act No. 6359 prohibiting for one year from its effectivity,
an increase in monthly rentals of
dwelling units or of lands on which anothers dwelling is
located, where such rentals do not
exceed three hundred pesos (P300.00) a month but
allowing an increase in rent by not more
than 10% thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the Civil
Code for two years from its effectivity thereby disallowing
the ejectment of lessees upon the
expiration of the usual legal period of lease. The Reyeses,
were precluded from raising the
rentals and from ejecting the tenants.
In 1973, respondent City Assessor of Manila re-classified
and reassessed the
value of the subject properties based on the schedule of
market values. The revision, as
expected, entailed an increase in the corresponding tax
rates prompting petitioners to file
a Memorandum of Disagreement with the Board of Tax
Assessment Appeals. They averred
that
the
reassessments
made
were
excessive,
unwarranted, inequitable, confiscatory and
unconstitutional considering that the taxes imposed upon
them greatly exceeded the annual

income derived from their properties. They argued that the

income approach should have
been used in determining the land values instead of the
comparable sales approach which the
City Assessor adopted.
The Reyeses appealed to the Central Board of Assessment
Appeals. They submitted,
among others, the summary of the yearly rentals to show
the income derived from the
properties. Respondent City Assessor, on the other hand,
submitted three (3) deeds of sale
showing the different market values of the real property
situated in the same vicinity where
the subject properties of petitioners are located.
The crux of the controversy is in the method used in tax
assessment of the properties
in question. Petitioners maintain that the Income
Approach method would have been more
realistic for in disregarding the effect of the restrictions
imposed by P.D. 20 on the market value
of the properties affected. On the other hand, Board of Tax
Assessment Appeals maintains that
when income is affected by some sort of price control, the
same is rejected in the consideration
and study of land values as in the case of properties
affected by the Rent Control Law for they
do not project the true market value in the open market.
Thus, respondents opted instead
for the Comparable Sales Approach on the ground that
the value estimate of the properties
predicated upon prices paid in actual, market transactions
would be a uniform and a more
credible standards to use especially in case of mass
appraisal of properties
PAGE 243PAGE 244
HELD:
No. Under the Real Property Tax Code (P.D. 464 as
amended), it is declared that the
first Fundamental Principle to guide the appraisal and
assessment of real property for taxation
purposes is that the property must be appraised at its
current and fair market value. By
no strength of the imagination can the market value of
properties covered by P.D. No. 20 be
equated with the market value of properties not so
covered. The former has naturally a much
lesser market value in view of the rental restrictions.
In the case at bar, not even the factors determinant of the
assessed value of subject
properties under the comparable sales approach were
presented by the public respondents,
namely: (1) that the sale must represent a bonafide arms
length transaction between a willing
seller and a willing buyer and (2) the property must be
comparable property.

Consequently, it stands to reason that petitioners who are

burdened by the government by
its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20)
under the principle of social justice
should not now be penalized by the same government by
the imposition of excessive taxes
petitioners can ill afford and eventually result in the
forfeiture of their properties.
ISSUE:
Whether or not the respondent Board was correct in
adopting the Comparable Sales
Approach method in fixing the assessed value.Pecson v.
Court of Appeals
[G.R. No.105360. May 25, 1993]
Digest by: REY, Floyd Ericson M.
PONENTE: Quiason
FACTS:
Petitioner was the registered owner of a parcel of land in
Quezon City consisting of
256 sq. meters and covered by TCT No. 79912 of the
Registry of Deeds of Quezon City. For
non-payment of realty taxes, petitioners property was sold
at public auction on November
12, 1980 by respondent Regis. Notices of sale were sent to
petitioner at No. 79 Paquita Street,
Sampaloc, Manila, and were published in the Times
Journal on October 6, 13, and 30, 1980.
A final notice to exercise the right of redemption dated
September 14, 1981 was sent to
petitioner at No. 79 Paquita Street, Sampaloc, Manila.
There being no redemption made after
one-year from the date of the auction sale, a Final Bill of
Sale was executed on April 19, 1982
by respondent Regis in favor of respondent Nepomuceno.
The Regional Trial Court, Quezon City, consolidated title in
favor of respondent
Nepomuceno and directed the Register of Deeds of Quezon
City to cancel TCT No. 79912 and
issue a new one in lieu thereof, in the name of respondent
Nepomuceno. On October 25, 1983,
respondent Nepomuceno executed a Deed of Absolute Sale
on the subject property in favor of
respondents Tan and Nuguid for P103,000.00. On
December 8, 1983, the Register of Deeds of
Quezon City cancelled Nepomucenos title to the property
and issued TCT No. 308506 in the
names of respondents Tan and Nuguid.
Petitioner argues that respondent Regis sent the notices to
him at No. 79 Paquita St.,
Sampaloc, Manila which was not his address. He claims
that his correct Manila address is
No. 1009 Paquita St., Sampaloc and his correct Quezon
City address is No. 79, Kamias Road,
Quezon City. He admits that on the dates the notices were
mailed, he was no longer residing

in Manila but in Quezon City.

PAGE 245
ISSUE:
Whether or not the requirements of posting and
announcement of the sale under the
Real Property Tax Code were complied with.
HELD:
Yes. Under the said provisions of the law, notices of the
sale of the public auction
may be sent to the delinquent taxpayer, either (i) at the
address as shown in the tax rolls or
property tax record cards of the municipality or city where
the property is located or (ii) at his
residence, if known to such treasurer or barrio captain.
What appeared in the records of the Office of the City
Treasurer of Quezon City as the
address of petitioner was 1009 Paquita, Manila, and
below the number 1009 was the number
79. From this entry, one can deduce that the taxpayer
had transferred his residence to No.
79 Paquita, Sampaloc, Manila from No. 1009 Paquita,
Sampaloc, Manila. In the register for PAGE 246
the tax years starting from 1982 (Exh. S; also Exh. 3), the
address of petitioner was recorded
as 79 Paquita, Mla. The Court of Appeals advanced the
theory that the number 79 was
furnished by petitioner himself, basing its conclusion on
the address given by petitioner in his
complaint, which was No. 79 Kamias Road, Quezon City.
Petitioners contention that he would have received the
notices had they been sent to
No. 1009 Paquita, Sampaloc, Manila, because the
occupants thereof forwarded the letters
addressed to him to his Quezon City residence, loses force
when one considers that the Court
of First Instance of Quezon City sent him a notice, in
connection with the proceedings for the
consolidation of title, at No. 1009 Paquita St., Sampaloc,
Manila, which remained unclaimed.
The petitioner should know that if an owner fails to pay the
real estate taxes on
property, the said property shall be sold at public auction
to recover the delinquent taxes.
When petitioners property was sold at a public auction in
December 1980, the tax delinquency
must have accumulated for several years. It was only on
July 12, 1982 that the order for
consolidation of title in the name of respondent
Nepomuceno was issued and it was only on
December 8, 1983 that the title over the property was
transferred to respondents Tan and
Nuguid. All throughout these years, petitioner never
displayed an interest in paying the real
estate taxes on the property. Worse, he introduced
improvements thereon without reporting

the same for tax purposesMathay, Jr. v. Macalincag

[G.R. No. 97618. December 16, 1993]
Digest by: REY, Floyd Ericson M.
PONENTE: Narvasa
FACTS:
Petitioner Mathay, a member of Congress and registered
owner of lands in Quezon
City, sought the perpetual enjoinment, as unconstitutional
and void, of the schedule of
market values prepared by respondent City Assessor for all
classes of real property situated
in Quezon City and the oppressive and excessive real
estate tax increases being implemented
by respondents City Assessor and City Treasurer pursuant
to the illegal schedule of market
values and unlawful approval, all in violation of the
Constitution and laws.
The essential foundation of the petitioners thesis of the
nullity of the schedule of
market values is that it was prepared by the respondent
City Assessor alone, independently of
the other City Assessors within the Metropolitan Manila
Area, this being in patent violation of
the explicit requirement of Section 9 of Presidential decree
No. 921 which provides that the
Schedule of Values that will serve as the basis for the
appraisal and assessment for taxation
purposes of real properties located within the Metropolitan
Area shall be prepared jointly by
the City Assessors of the Districts created under Section
one hereof, with the City Assessor of
Manila acting as Chairman.
Similar actions were initiated before the Supreme Court by
Rufino S. Javier, registered
owner of real estate in the Municipality of Pasig, against
respondent Macalincag and the
Municipal Assessor and the Municipal Treasurer of Pasig,
Metro Manila and by Consuelo
Puyat Reyes, a registered owner of real estate property in
the Municipality of Makati, against
respondent
Secretary
of
Finance
acting
through
Macalincag, the Municipal Assessor and the
Municipal Treasurer of Makati.
The Supreme Court appointed the Central Board of
Assessment Appeals to take
cognizance of the factual issues raised in these cases by
virtue of referral by this Court in the
exercise of its extraordinary or certiorari jurisdiction which
should not be confused with its
appellate jurisdiction over appealed assessment cases
under Section 36 of P.D. 464 otherwise
known as the Real Property Tax Code. The Board is acting
as a Court-appointed fact-finding
commission to assist the Court in resolving the factual
issues raised.

PAGE 247
ISSUE:
Whether or not the Schedule of Market Values prepared by
respondent City Assessor
is void.
HELD:
Yes. The Board held that Section 9 of P.D. 921 is specific
and mandatory. The undisputed
fact that the City Assessor of Quezon City solely prepared
the Schedule of Market Values in
question, without the participation of the other City
Assessors of Metropolitan Manila, with the PAGE 248
City Assessor of Manila acting as Chairman, indicates that
the said Schedule of Market Values
was prepared contrary to and unauthorized under Section
9 of P.D. 921 and its implementing
rule on Section 1.02 of AR No. 7-77.
The conclusion is, therefore, inevitable that the said
Schedule of Market Values,
having been prepared by the respondent City Assessor
contrary to the express provision of
and without authority under Section 9 is illegal and
therefore void. An illegal act confers no
rights, creates no duties, and in the eyes of the law, it is as
if the same had never existed. It
can be slain at sight. Such is the case of the questioned
Schedule of Market Values, which is
hereby declared void and without force and effect.
Therefore, the realty tax rates based on the
Schedule of Market Values are likewise void and
unenforceable.
The Supreme Court agrees with the Boards conclusion that
the Schedules of Market
Values for real properties located in Quezon City, the
Municipality of Pasig and the Municipality
of Makati, respectively prepared solely by the City Assessor
of Quezon City, and the Municipal
Assessors of Pasig and Makati, failed to comply with the
explicit requirements of Presidential
Decree No. 921 in relation to the corresponding
Administrative Regulations promulgated by
the Department of Finance (No. 7-77) on July 25, 1977, and
are on that account illegal and
void.Patalinghug v. Court of Appeals
[G.R. No. 104786. January 27, 1994]
Digest by: REY, Floyd Ericson M.
PONENTE: Romero
FACTS:
On November 17, 1982, the Sangguniang Panlungsod of
Davao City enacted Ordinance
No. 363, series of 1982 otherwise known as the Expanded
Zoning Ordinance of Davao City,
which states that A C-2 District shall be dominantly for
commercial and compatible industrial

uses as provided xxx Funeral Parlors/Memorial Homes with

adequate off street parking space
and provided that they shall be established not less than
50 meters from any residential
structures, churches and other institutional buildings.
Acting on the complaint of several residents of Barangay
Agdao, Davao City that the
construction of petitioners funeral parlor violated
Ordinance No. 363, since it was allegedly
situated within a 50-meter radius from the Iglesia ni Kristo
Chapel and several residential
structures, the Sangguniang Panlungsod conducted an
investigation and found that the
nearest residential structure, owned by Wilfred G. Tepoot is
only 8 inches to the south. . . . . A
case was filed by the private respondents for the
declaration of nullity of a building permit.
The lower court found that the residential building owned
by Cribillo and Iglesia ni
Kristo chapel are 63.25 meters and 55.95 meters away,
respectively from the funeral parlor
and that although the residential building owned by certain
Mr. Tepoot is adjacent to the
funeral parlor, and is only separated therefrom by a
concrete fence, said residential building
is being rented by a certain Mr. Asiaten who actually
devotes it to his laundry business
with machinery thereon. However, on appeal, the Court of
Appeals ruled that although the
buildings owned by Cribillo and Iglesia ni Kristo were
beyond the 50-meter residential radius
prohibited by Ordinance 363, the construction of the
funeral parlor was within the 50-meter
radius measured from the Tepoots building.
The Appellate Court disagreed with the lower courts
determination that Tepoots
building was commercial and ruled that although it was
used by Mr. Tepoots lessee for laundry
business, it was a residential lot as reflected in the tax
declaration.
PAGE 249
ISSUE:
Whether or not the declaration for taxation purposes
should be binding even though
the property has been declared as a commercial area.
HELD:
No. A tax declaration is not conclusive of the nature of the
property for zoning
purposes. A property may have been declared by its owner
as residential for real estate
taxation purposes but it may well be within a commercial
zone. A discrepancy may thus exist
in the determination of the nature of property for real
estate taxation purposes vis-a-vis the
determination of a property for zoning purposes.PAGE 250

A tax declaration only enables the assessor to identify the

same for assessment levels.
In fact, a tax declaration does not bind a provincial/city
assessor, for under Sec. 22 of the
Real Estate Tax Code, appraisal and assessment are based
on the actual use irrespective of
any previous assessment or taxpayers valuation
thereon, which is based on a taxpayers
declaration. In fact, a piece of land declared by a taxpayer
as residential may be assessed by
the provincial or city assessor as commercial because its
actual use is commercial.
Even if Tepoots building was declared for taxation
purposes as residential, once a local
government has reclassified an area as commercial that
determination for zoning purposes
must prevail.Ty, et. al. vs. Trampe
[G.R. No. 117577; December 1, 1995]
Digest by: RUAYA, Ronald S.
PONENTE: Panganiban
FACTS:
Herein petitioners Ty and MVR Picture Tube Inc. both own
lands and buildings in
the municipality of Pasig. On January 1994, the Municipal
Assessor of Pasig sent a notice of
assesment with respect to the petitioners properties within
the municipality. Finding the new
assessment to be higher than previous assessments,
petitioners sought the reconsideration of
the assessor. At the same time, petitioners sought before
the Regional Trial presided by public
respondent Judge Trampe for a Petition for Prohibition with
prayer for a restraining order
and/or writ of preliminary injunction to declare null and
void the new schedule of values
and the corresponding assessments and to enjoin the
collection of real estate taxes based on
said assessments. However respondent denied the petition
and the subsequent motion for
reconsideration.
Petitioners averred in the said petition that the new
schedule of values and tax
assessment be declared void as it was solely done by the
municipal assessor hence it did
not comply with PD 921 requiring a jointly agreed schedule
of values for assessment of the
municipal assessor and the assessors within the
Assessment District. Moreover, they aver
that the stark increase in the new assessment reaching as
high as 500% was oppressive and
confiscatory. In denying the petition, respondent judge
ruled that the new schedule of values
for assessment was valid since PD 921 was already
repealed by RA 7160 or Local Government

Code and that the petitioners have also failed to exhaust

all administrative remedies in
accordance to Sec. 226 and 252 of RA 7160 before filing a
suit before the courts.
Thus the petitioners filed a Petition for Review before the
Supreme Court.
PAGE 251
ISSUE:
Whether or not PD 921 was repealed by RA 7160, whether
petitioners failed to exhaust
all administrative remedies before going to court and
whether the new assessment can be
deemed oppressive and confiscatory?
HELD:
The Supreme Court found that PD 921 was neither
expressly nor impliedly repealed
by RA 7160, the respondent failed to harmonize the
provisions of PD 921 and RA 7160; the
latter law sought to provide autonomy and efficient
functioning of the local governments
while PD 921 ensured efficiency and effectiveness in the
assessment of real property in the
Assessment Districts of Metro Manila by requiring a jointly
agreed schedule of values by all
of the assessors in the district. As such, it would be
apropos to harmonize the two laws in line
with the intent of these laws where the autonomy of local
governments may be enhanced as
intended by RA 7160 by grouping themselves together as
is the case in PD 921 with regard
to real estate assessments. By this harmonization, both the
preamble of P.D. 921 decreeing PAGE 252
that the real estate taxes shall not unduly burden the
taxpayer and the operative principle
of decentralization provided under Sec. 3, R.A. 7160
encouraging local government units to
consolidate or coordinate their efforts, services and
resources shall be fulfilled.
As such, PD 921 still being an existing law, it is thus
required that any schedule of
values for new assessment as proposed by a municipal
assessor must be jointly agreed upon
by other municipal, city assessors of the Assessment
District and any new schedule of values
made solely by a municipal assessor is illegal and void.
As to the issue of failure of petitioner to exhaust all
administrative remedies, the
Supreme Court ruled that such requirement was not
absolutely necessary in the case at bar
since it was from the start, purely a question of law and is
thus within the ambit of the courts
to remedy.
Having already decided upon the two prior issues, the SC
no longer decided whether

the new schedule of values for tax assesment were

oppressive or confiscatory amounting to
being unconstitutional. It is axiomatic that the
constitutionality of a law, regulation, ordinance
or act will not be resolved by courts if the controversy can
be, as in this case it has been, settled
on other grounds.
The Supreme Court ordered that the Decision and Order of
respondent Judge be
reversed and set aside. And to declare as null and void the
questioned Schedule of Market
Values for properties in Pasig prepared by respondent
Assessor, as well as the corresponding
assessments and real estate tax increases based thereon;
and enjoining the respondent
Treasurer from collecting the real estate tax increases
made on the basis of said Schedule and
assessments.Talento vs. Escalada
[G.R. No. 180884; June 27, 2008]
Digest by: RUAYA, Ronald S.
PONENTE: Ynares-Santiago
FACTS:
Private respondent Petron Corporation operates several
machineries and equipment
in Lamao, Limay, Bataan. On June of 2007 the Provincial
Assessors Office of Bataan delivered
a notice of revised assessment over the corporations
machineries and equipment totalling to a
tax liability of Php 1, 731, 025, 403 for the period from
1994 to 2006. Petron sought an appeal
with the Local Board of Assessment Appeals on August 17,
2007 averring that the revised
assessment included items already declared and that the
period covered by the assessment
exceeded 10 years, which is prohibited by the Local
Government Code (LGC). Together with
the said petition, Petron sought approval of a surety bond
amounting to some Php 1.2 billion.
However on August 22, 2008, Petron received from the
Provincial Treasurers Office a letter
of final notice of delinquent real property tax with a
warning that should Petron be unable to
settle its tax liabilities, its properties shall be levied and
sold at public auction. Thus Petron
sent a letter to the Provincial Treasurer stating that any
levy on thier property pending the
LBAA would be premature, but the treasurer replied by
citing Sections 231 and 252 of the LGC
whereby on a payment under protest by Petron will bar the
levy and sale of its property.
On September 2008, a warrant for levy was issued
prompting Petron to seek its lifting
with the LBAA and posted the surety bond of Php 1.2 billion
but the treasurer subsequently

issued a notice of sale of petrons properties prompting

Petron to seek for a TRO with the
RTC. The RTC granted a TRO provided Petron add some
Php 500 million to the bond to be
equivalent to its outstanding tax liability. Treasure sought
the TRO dissolution but was denied,
hence petitioner treasurer sought recourse before the
Supreme Court through Rule 65 of the
Rules of Court questionaing the issuance of the TRO.
PAGE 253
ISSUE:
Whether or not Provincial Treasurer acted accordingly in
not supending the collection
of the tax liability of Petron and whether the TRO was
properly issued?
HELD:
As to the issuance of the TRO, the Supreme Court found it
to be an appropriate relief
for Petron. As established by law, a TRO may be issued if
and when the conditions for its
issuance are met as required under Rule 58 Section 3 of
the Rules of Court enumerating
the grounds and also when the following requisites are
met: (1) the existence of a clear and
unmistakable right that must be protected; and (2) an
urgent and paramount necessity for the
writ to prevent serious damage. From the facts shown,
clearly the entire operation of Petron in
Bataan hinges on the actions of the provincial Treasurer
since the value of the property sought
to be levied amounted to Php 1.7 billion, a significant
amount that could undoubtedly hamper
Petrons existence in the area. PAGE 254
Moreover, the recourse sought by petitioner before the
Supreme Court was improper;
resort to Rule 65 is only available when all means of appeal
are already availed of or are
not available, in this case, the petitioner has not sought
reconsideration before the RTC that
ordered the TRO nor did the petitioner seek the proper
remedy before the Court of Appeals
through Rule 45. Although litigation is not a battle of
technicalities, the SC emphasized that
that procedure must be followed for the orderly and
efficient administration of justice and is a
matter of jurisdiction. In fact, petitioner was also beyond
the reglementary period to question
the order.
With regard to the Provincial Treasurers continued
enforcement of the levy despite
the LBAA appeal, the SC gave focus to the LBAA Rules of
Procedure whereby it is stated in
Section 7, Rule V that:
An appeal shall not suspend the collection of the
corresponding realty taxes

on the real property subject of the appeal as assessed by

the Provincial, City
or Municipal
Assessor, x x x. An appeal may be
entertained but the hearing
thereof shall be deferred until the corresponding taxes
due on the real
property subject of the appeal shall have been paid under
protest or
the petitioner shall have given a surety bond, x x x.
Corollarily, Section 11 of Republic Act No. 9282, which
amended Republic Act No.
1125 (The Law Creating the Court of Tax Appeals)
provides:
No appeal taken to the Court of Appeals from the Collector
of Internal
Revenue x x x shall suspend the payment, levy, distraint,
and/or sale of any
property for the satisfaction of his tax liability as provided
by existing
law. Provided, however, That when in the opinion of the
Court the collection
by the aforementioned government agencies may
jeopardize the interest of
the Government and/or the taxpayer the Court at any
stage of the
processing may suspend the collection and require the
taxpayer either
to deposit the amount claimed or to file a surety bond for
not more t h a n
double the amount with the Court.
Thus, although it is true that the LBAA or the courts
generally cannot suspend the
payment of taxes even on appeal, however should a bond
be posted, it is proper to suspend. FELS Energy Inc. vs.
Province of Batangas
[G.r. No. 168557; February 16, 2007]
Digest by: RUAYA, Ronald S.
PONENTE: Callejo Sr.
FACTS:
POLAR Energy Inc., an electric company entered into a 5year lease agreement with
the National Power Corporation (NPC), a GOCC, for the
former to provide and operate diesel
power barges to be moored at Balayan Bay in Calaca,
Batangas. In the said agreement, there is
a stipulation whereby the NPC shall be responsible for the
payment of all taxes, import duties,
fees, charges and other levies imposed by the National
Government of the Republic of the
Philippines or any agency or instrumentality... Thereafter,
the rights of POLAR were assigned
to petitioner company FELS Energy Inc. On August 1995
FELS received an assessment of real
property taxes for their power barges from the Provincial
Assessor of Batangas, thus prompting

FELS to refer the matter to NPC and reminded the latter of

their supposed agreement for NPC
to pay such taxes, at the same time, FELS authorized NPC
to represent it with regard to the
assessment of the Provincial Assessor.
NPC sought a reconsideration with the Provincial Assessor
which was denied, NPC
petitioned the Local Board of Assessment Appeals (LBAA)
to set aside the Provincial Assessors
assessment and to declare the barges as non-taxable, but
the LBAA declared they were real
property for purposes of taxation since they are installed at
a specific location with a character
of permanency. The LBAA also pointed out that the owner
of the bargesFELS, a private
corporationis the one being taxed, not NPC. A mere
agreement making NPC responsible for
the payment of all real estate taxes and assessments will
not justify the exemption of FELS;
such a privilege can only be granted to NPC and cannot be
extended to FELS. Finally, the LBAA
also ruled that the petition was filed out of time.
NPC now sought recourse from the Central Board of
Assessment Appeals (CBAA)
seeking to set aside and lift the levy made upon the
barges, initially the CBAA ruled favorably
for NPC but reversed itself and affirmed the LBAA decision
prompting NPC as well as FELS to
seek remedy before the Court of Appeals who also affirmed
the the CBAAs decision primarily
on the basis that the period with which to file an appeal
before the LBAA had lapsed and
thus the right of the local government to collect the taxes
due with respect to the taxpayers
property had become absolute.
PAGE 255
ISSUE:
Whether or not FELS is liable to pay the real property taxes
due for the power barges?
HELD:
Yes, FELS remains liable for the payment of the real
property taxes for their power
barges. On the matter of prescription to appeal before the
LBAA, it is clear in RA 7160 Sec.
226 that upon the receipt of the notice of assessment, the
60-day period to appeal should the PAGE 256
taxpayer wish to, begins and will run uninterrupted. It is
not on the receipt of the denial of the
Provicial Assessor as claimed by petitioners since
a
recourse before the provncial assessor
is not the remedy sanctioned by law. The taxpayers failure
to question the assessment in the
LBAA renders the assessment of the local assessor final,
executory and demandable, thus,

precluding the taxpayer from questioning the correctness

of the assessment, or from invoking
any defense that would reopen the question of its liability
on the merits.
Moreover, contrary to FELS argument that the mistake of
NPC in seeking recourse
before the provincial assessor instead of the LBAA does not
bind them, their act of authorizing
NPC to represent them means they are bound and any
subsequent action by FELS on the same
matter is barred by res judicata and forum-shopping. Thus
the SC denied FELS petition and
affirmed the CAs decision.
Nevertheless, the SC expounded on the taxability of the
subject property-- the power
barges are deemed to be real property as defined in
Article 415 (9) of the New Civil Code:
docks and structures which, though floating, are intended
by their nature and object to
remain at a fixed place on a river, lake, or coast are
considered immovable property. Thus,
power barges are categorized as immovable property by
destination, being in the nature of
machinery and other implements intended by the owner
for an industry or work which may
be carried on in a building or on a piece of land and which
tend directly to meet the needs of
said industry or work.
As to the contention that the power barges being leased by
NPC are excempt from
real propery tax according RA7160, the SC explained that
for such provision of RA 7160 to
apply, the machinery must be actually, directly and
exclusively used by the government or
its instrumentalities which is not the situation in this case
since it is still FELS who operate
the power barges according to the agreement. Moreover,
the excemption contemplated in RA
7160 as can be applied in the case at bar pertains only to
excemption that NPC enjoys, such
previlege does not extend to FELS which is a private entity.
Lastly, the rule on tax excemption
applies; that there should be strict construction of laws
granting exemptions. Mactan Cebu Intl Airport Authority
vs. Marcos
[G.R. No. 120082; September 11, 1996]
Digest by: RUAYA, Ronald S.
PONENTE: Davide, Jr.
FACTS:
Herein petitioner Mactan Cebu International Airport
Authority (MCIAA) was created
by RA 6958 to introduce a body that would undertake the
operations and administration of
airports in the Province of Cebu. As provided in its charter;
MCIAA is mandated to principally

undertake the economical, efficient and effective control,

management and supervision of
the Mactan International Airport in the Province of Cebu
and the Lahug Airport in Cebu City,
x x x and such other airports as may be established in the
Province of Cebu x x x. In line
with its creation, Sec. 14 of RA 6958 provides: The
Authority shall be exempt from realty
taxes imposed by the National Government or any of its
political subdivisions, agencies
and instrumentalities x x x. However, in October 1994, the
Office of the Treasurer of Cebu
demanded from MCIAA the payment of real estate taxes
from its parcels of lands amounting
to Php 2.2 million, and when a warrant for levy was issued,
MCIAA was forced to pay under
protest. MCIAA argues that Sec. 14 of RA 6958 or its
original charter expressly provides that it
is excempt form payment of real estate taxes. Moreover,
MCIAA further avers that RA 7160 or
the Local Government Code (LGC) in particular Sec. 133
provides that:
Unless otherwise provided herein, the exercise of the
taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the
levy of the following:
x x x (o) Taxes, fees or charges of any kind on the national
government, its agencies a n d
instrumentalities and local government units.
Hence,
MCIAA
avers
that being
a
government
intrumentality performing governmental
functions, then it falls under the exemption provided under
Sec. 133. But such argument
was to no avail when it sought a Petition for Declaratory
Relief before the respondent Judge
Marcos of RTC Cebu City. When MCIAA sought for
reconsideration, the same was denied by
respondent, primarily on the premise that MCIAA does not
qualify as an instrumentality of the
government, hence it does not qualify for excemption, and
that the excemption granted to it by
its charter was repealed by RA 7160 through Sections 193,
232 and 234 of the LGC.
PAGE 257
ISSUE:
Whether or not MCIAA is excempted from paying real
estate taxes in the city of Cebu
based on its charter and based on RA 7160s excemptions?
HELD:
No, the Supreme Court held that the excemption granted
by the legislature to MCIAA
through its charter has already been revoked. Such is the
power to tax that it is unlimited
but through legislature, certain limitations may be imposed
as well as certain prviliges such

as excemptions. However it is always subject to the

decision of the legislature. In the case
at bar, when legislature enacted RA 7160, it intended to
further increase the autonomy of PAGE 258
local governments. One such autonomy is fiscal autonomy,
thus the legislature has deligated
it the power to tax, in particular real estate taxes upon the
properties within its jurisdiction.
In giving local governments autonomy in imposing taxes,
it expressly revoked the previous
excemptions granted to various agencies and GOCCs,
such as the provisions of Sec. 193,
232 and 234, which upon closer scrutiny of the Supreme
Court clearly shows that MCIAAs
excemption was revoked.
Section 133 provides the general excemptions while 193,
232 and 234 further specify
those agencies and instrumentalities that are specified to
continue to enjoy excemptions,
unfortunately for MCIAA it is not one of those; the provision
that previously included GOCCs
with tax excemptions in its charters was no longer
retained, nor does MCIAA qualify as an
instrumentality as it merely is a GOCC exerciseing
proprietary functions.
This is further shown in the fact that in its charter, MCIAA is
deemed a taxable person
merely enjoying excemption as per the provisions of its
charter, but since it has been revoked,
being a taxable person still, MCIAA is thus subject to real
estate tax.
The rule is that strict construction is used when it comes to
tax excemption, clearly,
had the legislature intended MCIAA to continue to be
excempted, it would have expressed
so. Instead, legislature intended to increase local fiscal
autonomy, as such, it can only be the
legislatures intention to revooke the excemption so that
the local government may benefit
from the additional income that it can gain from these
entities such as MCIAA within their
territory.
Thus, MCIAAs petition is denied, the RTCs decision is
affirmed. SESBREO vs. CENTRAL BOARD OF ASSESSMENT
APPEALS
[G.R. No. 106588. March 24, 1997]
Digest by: SANTOS, Maricar J.
PONENTE: Panganiban
FACTS:
Petitioner purchased from Estrella Benedicto Tan two (2)
parcels of land.The
conveyance included a residential house of strong
materials constructed on the lots abovementioned located
in Cebu City.

Thereafter, petitioner declared the real property

constructed on the said lots for
purpose of tax assessment as a residential house of strong
materials with a floor area of
sixty (60) square meters. Effective in the year 1980, the
declared property was assessed by
Respondent City Assessor of Cebu City under Tax
Declaration No. 02-20454 at a market value
of P60,000.00 and an assessed value of P36,900.00. The
field inspectors of the Cebu City
Assessor discovered that the real property declared and
assessed under Tax Declaration No.
02-20454 was actually a residential building consisting of
four (4) storeys with a fifth storey
used as a roof deck. These findings were confirmed by the
Board of Commissioners in an
ocular inspection conducted on the subject property.
Petitioner protested the new assessment for being
excessive and unconscionable, 8
contending that it was increased by more than 1,000% as
compared to its previous market
value of P60,000.00. He questioned the new assessment
before the Local Board of Assessment
Appeals of Cebu City, which however dismissed petitioners
appeal. Hence, petitioner elevated
his case to Respondent Central Board of Assessment
Appeals which ordered some modification.
Petitioner then filed a motion for reconsideration. During
the hearing on said motion, the
parties submitted a joint manifestation or compromise
agreement. The same was assailed by
petitioner.
PAGE 259
ISSUE:
Wheteher or not Respondent CBAA gravely erred in
resolving the matter of back taxes
which was never raised in issue in the Local Board of
Assessment Appeals of Cebu City or in
the appeal by the petitioner before the Central Board of
Assessment Appeals (CBAA).
HELD:
The petition has no merit. The CBAA decision dared
September 30, 1991 and the
assailed Resolution dated July 28, 1992 show that
petitioner failed to pay under protest the
tax assessed against his property. This is a violation of
Section 64 of Presidential Decree No.
464 20 which requires that, before a court may entertain
any suit assailing the validity of a tax
assessment, the taxpayer must first pay under protest the
tax assessed against him. The said
section provides:
Sec. 64.Restriction upon power of court to impeach tax.
No court shall

entertain any suit assailing the validity of tax assessed

under this Code until the PAGE 260
taxpayer shall have paid, under protest, the tax assessed
against him nor shall
any court declare any tax invalid by reason of irregularities
or informalities in
the proceedings of the officers charged with the
assessment or collection of
taxes, or of failure to perform their duties within this time
herein specified for
their performance unless such irregularities, informalities
or failure shall have
impaired the substantial rights of the taxpayer; nor shall
any court declare any
portion of the tax assessed under the provisions of Code
invalid except upon
condition that the taxpayer shall pay the just amount of
the tax, as determined
by the court in the pending proceeding. For the foregoing
lapses, if for no other,
this case ought to be dismissed.
As a rule, no issue may be raised on appeal unless it has
been brought before the
lower tribunal for its consideration. 21 The Court has held
in several cases, however, that an
appellate court has an inherent authority to review
unassigned errors (1) which are closely
related to an error properly raised, or (2) upon which the
determination of the error properly
assigned is dependent, or (3) where the Court finds that
consideration of them is necessary in
arriving at a just decision of the case.
In the present case, we hold that Respondent CBAA did not
err in considering the
issue of back taxes, the same being closely related to an
error properly raised. Petitioner
himself assailed the subject assessment before the
Respondent CBAA for being excessive
and unconscionable. In resolving this issue, Respondent
CBAA was duty-bound to review the
factual antecedents of the case and to apply thereon the
pertinent provisions of law. In the
process, Respondent CBAA applied Section 25 of PD 464
which had authorized the imposition
of back taxes. In any event, consideration of the question
of the back taxes is essential to a just
decision on the case, as will be shown below.
Section 24 merely lays down the general rule that
assessments under PD 464 are to
be given prospective application. It cannot be construed in
such a manner as to eliminate the
imposition of back taxes. If Section 24, instead of Section
25, were made to apply as suggested
by petitioner, he would in effect be excused from the
payment of back taxes on the undeclared

excess area of his property. The Court, clearly, cannot

allow a taxpayer evade his obligation
to the government by letting him pay taxes on property
based on its gross undervaluation at
P60,000.00, when the same had then a current market
value of P449,860.00.LOPEZ vs. CITY OF MANILA
[G.R. No. 127139. February 19, 1999]
Digest by: SANTOS, Maricar J.
PONENTE: QUISUMBING, J.:
FACTS:
Sec. 219 of Republic Act 7160 (R.A. 7160) or the Local
Government Code of 1991
requires the conduct of the general revision of real
property as follows:
General Revision of Assessment 2 and Property
Classification The provincial,
city or municipal assessor shall undertake a general
revision of real property
assessments within two (2) years after the effectivity of
this Code and every
three (3) years thereafter.
Mrs. Lourdes Laderas, the newly appointed City Assessor of
Manila, received
Memorandum Circular No. 04-95 , from the Bureau of Local
Government Finance, Department
of Finance. This memorandum relates to the failure of most
of the cities and municipalities
of Metropolitan Manila, including the City of Manila, to
conduct the general revision of real
property.
In the year 1995, the increase in valuation of real
properties compared to the year1979 market values ranges from 600% to 3,330%, but the
City Assessors office initially
fixed the general average of increase to 1,700%. Mrs.
Laderas felt that the increase may have
adverse reactions from the public, hence, she ended up
reducing the increase in the valuation
of real properties to 1,020%. With the implementation of
Manila Ordinance No. 7894, the tax
on the land owned by the petitioner was increased by five
hundred eighty percent (580%).
With respect to the improvement on petitioners property,
the tax increased by two hundred
fifty percent (250%).
As a consequence of these increases, petitioner Jaime C.
Lopez, filed a special proceeding
for the declaration of nullity of the City of Manila Ordinance
No. 7894 with preliminary
injunction and prayer for temporary restraining order
(TRO). The petition alleged that Manila
Ordinance No. 7894 appears to be unjust, excessive,
oppressive or confiscatory.
As a result, Manila Ordinance No. 7905 reduced the tax
increase of petitioners

residential land to one hundred fifty-five percent (155%),

while the tax increase for residential
improvement was eighty-two percent (82%). The maximum
tax increase on classified
commercial estates is three hundred percent (300%) but
the tax increase on commercial
land was only, two hundred eighty-eight percent (288%),
and seventy-two percent (72%) on
commercial portion of the improvement.
The court directed the issuance of a writ of injunction and
denied, in the meanwhile,
the motion to dismiss by the respondent.
PAGE 261On October 24, 1996, the trial court granted the
motion to dismiss filed by the
respondent. The dismissal order was justified by
petitioners failure to exhaust the
administrative remedies and that the petition had become
moot and academic when Manila
Ordinance No. 7894 was repealed by Manila Ordinance No.
7905.
PAGE 262
ISSUE:
Whether or not the tax is excessive, oppressive or
confiscatory.
HELD:
As a general rule, where the law provides for the remedies
against the action of an
administrative board, body, or officer, relief to courts can
be sought only after exhausting all
remedies provided. The reason rests upon the presumption
that the administrative body, if
given the chance to correct its mistake or error, may
amend its decision on a given matter
and decide it properly. Therefore, where a remedy is
available within the administrative
machinery, this should be resorted to before resort can be
made to the courts, not only to give
the administrative agency the opportunity to decide the
matter by itself correctly, but also
to prevent unnecessary and premature resort to courts. 9
This rule, however, admits certain
exceptions.
With regard to question on the legality of a tax ordinance,
the remedies available to
the taxpayers are provided under Section 187, 226, and
252 of R.A. 7160.
Sec. 187 of R.A. 7160 provides, that the taxpayer may
question the constitutionality
or legality of tax ordinance on appeal within thirty (30)
days from effectivity thereof, to the
Secretary of Justice. The petitioner after finding that his
assessment is unjust, confiscatory, or
excessive, must have brought the case before the
Secretary of Justice for question of legality or
constitutionality of the city ordinance.

Under Section 226 of R.A. 7160, an owner of real property

who in not satisfied with
the assessment of his property may, within sixty (60) days
from notice of assessment, appeal
to the Board of Assessment Appeals.
Should the taxpayers question the excessiveness of the
amount of tax, he must first
pay the amount due, in accordance with Section 252 of
R.A. 7160. Then, he must request
the annotation of the phrase paid under protest and
accordingly appeal to the Board of
Assessment Appeals by filing a petition under oath
together with copies of the tax declarations
and affidavits or documents to support his appeal. 12
We have carefully scrutinized the record of this case and
we found no cogent reason to
depart from the findings made by the trial court on this
point. As correctly found by the trial
court, the petition does not fall under any of the exceptions
to excuse compliance with the rule
on exhaustion of administrative remedies, to wit:
One of the reasons for the doctrine of exhaustion is the
separation of powers which
enjoins upon the judiciary a becoming policy of noninterference with matters coming PAGE 263
primarily within the competence of other department. . . .
Sec. 212. Preparation of Schedule of Fair Market Values
Before any general revision
of property assessment is made pursuant to the provisions
of this Title, there shall be prepared
a schedule of fair market values by the provincial, city and
the municipal assessors of the
municipalities within the Metropolitan Manila Area for the
different classes of real property
situated in their respective local government units [LGU]
for enactment by ordinance of the
sanggunian concerned. The schedule of fair market values
shall be published in a newspaper
of general circulation in the province, city or municipality
concerned, or in the absence thereof,
shall be posted in the provincial capitol, city or municipal
hall and in two other conspicuous
public places therein.
Sec. 221. Date of Effectivity of Assessment of
Reassessment All assessments or
reassessments made after the first (1st) day of January of
any year shall take effect on the first
(1st) day of January of the succeeding year: Provided,
however, That the reassessment of real
property due to its partial or total destruction, or to a major
change in its actual use, or to any
great and sudden inflation or deflation of real property
values, or to the gross illegality of the
assessment when made or to any other abnormal causes,
shall be made within ninety (90)

days from the date any such cause or causes occurred, and
shall take effect at the beginning of
the quarter next following assessment.
The preparation of fair market values as a preliminary step
in the conduct of general
revision was set forth in Section 212 of R.A. 7160, to wit:
(1) The city or municipal assessor shall
prepare a schedule of fair market values for the different
classes of real property situated in
their respective Local Government Units for the enactment
of an ordinance by the sanggunian
concerned. (2) The schedule of fair market values shall be
published in a newspaper of general
circulation in the province, city or municipality concerned
or the posting in the provincial
capitol or other places as required by law.
It was clear from the records that Mrs. Lourdes Laderas,
the incumbent City Assessor,
prepared the fair market values of real properties and in
preparation thereof, she considered
the fair market values prepared in the calendar year 1992.
Upon that basis, the City Assessors
Office updated the schedule for the year 1995. In fact, the
initial schedule of fair market values
of real properties showed an increase in real estate costs,
which rages from 600% 3,330 %
over the values determined in the year 1979. However,
after a careful study on the movement
of prices, Mrs. Laderas eventually lowered the average
increase to 1,020%. Thereafter, the
proposed ordinance with the schedule of the fair market
values of real properties was published
in the Manila Standard on October 28, 1995 and Balita on
November 1, 1995. 18 Under the
circumstances of this case, was compliance with the
requirement provided under Sec. 212
of R.A. 7160. Thereafter, on January 1, 1996, the
Sanggunian approved Manila Ordinance No.
7894. The schedule of values of real properties in the City
of Manila, which formed an integral
part of the ordinance, was likewise approved on the same
date.
Coming down to specifics, we find it desirable to lay down
the procedure in computing
the real property tax. With the introduction of assessment
levels, tax rates could be maintained, PAGE 264
although tax payments can be made either higher or lower
depending on their percentage
(assessment level) applied to the fair market value of
property to derive its assessed value
which is subject to tax. Moreover, classes and values of
real properties can be given proper
consideration, like assigning lower assessment levels to
residential properties and higher
levels to properties used in business.

Although, we are in full accord with the ruling of the trial

court, it is likewise necessary
to stress that Manila Ordinance No. 7905 is favorable to
the taxpayers when it specifically
states that the reduced assessment levels shall be applied
retroactively to January 1, 1996. The
reduced assessment levels multiplied by the schedule of
fair market values of real properties,
provided by Manila Ordinance No. 7894, resulted to
decrease in taxes. To that extent, the
ordinance is likewise, a social legislation intended to soften
the impact of the tremendous
increase in the value of the real properties subject to tax.
The lower taxes will ease, in part, the
economic predicament of the low and middle-income
groups of taxpayers.CAGAYAN ROBINA SUGAR MILLING CO.
vs. COURT OF APPEALS
[G. R. No. 122451. October 12, 2000]
Digest by: SANTOS, Maricar J.
PONENTE: QUISUMBING, J.:
FACTS:
The Assets Privatization Trust (APT) offered for sale all the
assets and properties
of the Cagayan Sugar Corporation (CASUCO), which had
been foreclosed and transferred
to APT by the Development Bank of the Philippines. The
APT set the floor bid price for the
said properties at three hundred fifty five million pesos
(P355,000,000.00). Petitioner, as the
highest bidder, acquired the aforesaid properties for a total
price of P464,000,000.00.
Among the properties bought by petitioner were sugar mill
machineries located at
the CASUCO millsite in Sto. Domingo, Piat, Cagayan. The
market value of these machineries
was pegged at P391,623,520.00 and the assessed value
was set at P313,298,820.00 under Tax
Declaration No. 5355. The Provincial Assessor of Cagayan
issued a Notice of Assessment of
Real Property to petitioner covering the machineries
installed at the CASUCO millsite based
on the market value of P391,623,520.00 and the assessed
value thereof at P313,298,820.00.
Petitioner appealed the assessment to the LBAA, on the
ground that it was excessive, erroneous,
and unjust. The LBAA resolved that the basis of the market
value for assessment purposes of
the properties acquired by petitioner should be the APT
floor bid price of P355,000,000.00.
The LBAA then deducted from this amount the value of the
land (P4,721,130.00), the total
market value of the buildings (P17,605,340.00), to derive
the market value of the machineries,
amounting to P332,673,530.00. By further deducting the
value of machineries not subject

to real property tax, the LBAA fixed the market value of the
petitioners machineries at
P260,327,060.00 for assessment purposes. The LBAA
ordered the Provincial Assessor of
Cagayan to make the necessary amendments, as a result
of which Declaration No. 5514 was
issued, putting the assessed value of petitioners
machineries at P208,261,650.00.
The petitioner filed with the CBAA an Appeal of
Assessment identical with its earlier
appeal. The CBAA dismissed petitioners appeal on the
ground that it was time-barred.
PAGE 265
ISSUE:
Whether or not the Court of Appeals err in finding the
assessment of petitioners
machineries proper and correct under the Real Property
Tax Code.
HELD:
We note that the real property tax being assessed and
collected against petitioners
machineries is for 1990. Hence, in this case, the applicable
law is the Real Property Tax Code
(P.D. No. 464), and not the Local Government Code of 1991
(R.A. No. 7160).
We agree with petitioner that Section 28 of the Real
Property Tax Code provides for
a formula for computing the current market value of
machineries. However, Section 28 must PAGE 266
be read in consonance with Section 3 of the said law,
which defines market value. Under the
latter provision, the LBAA and CBAA were not precluded
from adopting various approaches to
value determination, including adopting the APT floor bid
price for petitioners properties.
As correctly pointed out by the CBAA and affirmed by the
court a quo:Valuation on the basis
of a floor bid price is not bereft of any basis in law. One of
the approaches to value is the
Sales Analysis Approach or the Market Data Approach
where the source of market data for
valuation is from offer of sales or bids of real property.
Valuation based on the floor bid price
belongs to this approach, pursuant to Section 3(n)
Tax assessments by tax examiners are presumed correct
and made in good faith, with
the taxpayer having the burden of proving otherwise.[10]
In the instant case, petitioner failed
to show that the use by the LBAA and CBAA of the APT
floor bid price, pursuant to Section 3
(n) of the Real Property Tax Code was incorrect and done
in bad faith. The method used by the
LBAA and CBAA cannot be deemed erroneous since there
is no rigid rule for the valuation of

property, which is affected by a multitude of circumstances

and which rules could not foresee
nor provide for. Worthy of note, petitioner has not shown
that the current market value of its
properties would be significantly lower if its proposed
formula is adopted. A party challenging
an appraisers finding of value is required not only to prove
that the appraised value is
erroneous but also what the proper value is. Factual
findings of administrative agencies,
which have acquired expertise in their field, are generally
binding and conclusive upon the
Court. The Court will not presume to interfere with the
intelligent exercise of the judgment of
men specially trained in appraising property.LIGHT RAIL
TRANSIT AUTHORITY v. CENTRAL BOARD OF
ASSESSMENT APPEALS
[G.R. No. 12716. October 12, 2000]
Digest by: SANTOS, Maricar J.
PONENTE: PANGANIBAN
FACTS:
The LIGHT RAIL TRANSIT AUTHORITY (LRTA) is a
government-owned and controlled
corporation created and organized under Executive Order
No. 603, dated July 12, 1980 x x x
primarily responsible for the construction, operation,
maintenance and/or lease of light rail
transit system in the Philippines, giving due regard to the
reasonable requirements of the
public transportation of the country. LRTA acquired real
properties x x x constructed structural
improvements, such as buildings, carriageways, passenger
terminal stations, and installed
various kinds of machinery and equipment and facilities for
the purpose of its operations. It
entered into a Contract of Management with the Meralco
Transit Organization (METRO) in
which the latter undertook to manage, operate and
maintain the Light Rail Transit System
owned by the LRTA subject to the specific stipulations
contained in said agreement, including
payments of a management fee and real property taxes.
Respondent-Appellee City Assessor of Manila assessed the
real properties of
[petitioner], consisting of lands, buildings, carriageways
and passenger terminal stations,
machinery and equipment which he considered real
property under the Real Property Tax
Code, to commence with the year 1985. Petitioner paid its
real property taxes on all its real
property holdings, except the carriageways and passenger
terminal stations including the
land where it is constructed on the ground that the same
are not real properties under the

Real Property Tax Code, and if the same are real property,
these are for public use/purpose,
therefore, exempt from realty taxation, which claim was
denied by the Respondent-Appellee
City Assessor of Manila.
Aggrieved by the action of the Respondent-Appellee City
Assessor, filed an appeal with
the Local Board of Assessment Appeals of Manila. Appellee,
herein, after due hearing , denied
petitioners appeal.The Court of Appeals held that
petitioners carriageways and passenger
terminal
stations
constituted
real
property
or
improvements thereon and, as such, were
taxable under the Real Property Tax Code.
PAGE 267
ISSUE:
Whether or not the Honorable Court of Appeals erred in not
holding that the
carriageways and terminal stations of petitioner are not
improvements for purposes of the
Real Property Tax Code.
HELD:
The Petition has no merit. The Real Property Tax Code,[6]
the law in force at the time of
the assailed assessment in 1984, mandated that there
shall be levied, assessed and collected PAGE 268
in all provinces, cities and municipalities an annual ad
valorem tax on real property such as
lands, buildings, machinery and other improvements
affixed or attached to real property not
hereinafter specifically exempted.[7]
The character of tax as a property tax must be determined
by its incidents, and form
the natural and legal effect thereof. It is irrelevant to
associate the carriageways and/or the
passenger terminals as accessory improvements when the
view of taxability is focused on
the character of the property. The latter situation is not a
novel issue as it has already been
resolved by this Honorable Court in the case of City of
Manila vs. IAC (GR No. 71159, November
15, 1989) wherein it was held:
The New Civil Code divides the properties into property for
public and patrimonial
property (Art. 423), and further enumerates the property
for public use as provincial road, city
streets, municipal streets, squares, fountains, public
waters, public works for public service
paid for by said [provinces], cities or municipalities; all
other property is patrimonial without
prejudice to provisions of special laws. (Art. 424, Province
of Zamboanga v. City of Zamboanga,
22 SCRA 1334 [1968])
The foregoing enumeration in law does not specify or
include carriageway or

passenger terminals as inclusive of properties strictly for

public use to exempt petitioners
properties from taxes. Precisely, the properties of
petitioner are not exclusively considered as
public roads being improvements placed upon the public
road, and this separability nature of
the structure in itself physically distinguishes it from a
public road. Considering further that
carriageways or passenger terminals are elevated
structures which are not freely accessible
to the public, viz-a-viz roads which are public
improvements openly utilized by the public, the
former are entirely different from the latter.
Though the creation of the LRTA was impelled by public
service -- to provide mass
transportation to alleviate the traffic and transportation
situation in Metro Manila -- its
operation undeniably partakes of ordinary business.
Petitioner is clothed with corporate status
and corporate powers in the furtherance of its proprietary
objectives.[9] Indeed, it operates
much like any private corporation engaged in the mass
transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations
are patrimonial property subject to tax, notwithstanding its
claim of being a governmentowned or controlled
corporation.
Basis of Assessment Is Actual Use of Real Property. Under
the Real Property Tax Code,
real property is classified for assessment purposes on the
basis of actual use,[10] which is
defined as the purpose for which the property is
principally or predominantly utilized by the
person in possession of the property.Part II:
Tariff & Customs LawsRODOLFO V. JAO V. COURT OF
APPEALS
[G.R. No. 128314. May 29, 2002]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
Rodolfo and Perico were the sons and heirs of Spouses
Ignacio Jao Tayag and Andrea
v. Jao who died intestate on 1988 and 1989, respectively.
The decedents left real estate, cash,
shares of stock and other personal properties. Perico then
instituted a petition in RTC Quezon
City (QC) for the issuance of letters of administration over
the estate of their parents, alleging
among other things, that his brother Roberto was
dissipating the estates assets and was
receiving rentals from several properties without rendering
the necessary accounting and
forcibly opening vaults and disposing of the cash and
valuables therein. Rodolfo moved to

dismiss (MTD) the petition on the ground of improper

venue. He alleged that the petition
should have been instituted in Angeles City, Pampanga
(AC) where their mother used to run
a bakery and truly reside. He submitted documentary
evidence previously executed by their
parents such as income tax returns, voters affidavits,
statement of assets and liabilities, real
estate tax payments, vehicle registration and passports, all
indicating that their residence was
in AC. Perico countered that the residence at the time of
death was in QC, as their parents who
were already undergoing medical treatment in the Medical
City in Mandaluyong have been
staying in Rodolfos house in QC for four years and that in
their death certificates, Rodolfo
himself, filled in as place of residence, his address in QC
and thereafter, affixed his signature.
Rodolfo filed a rejoinder and asserted that he only put his
address as reference and that he did
so by mistake and in good faith and further maintaining
that it is AC and not QC that should be
the proper venue. Upon the failure of both parties to
nominate for the estates administrator,
the court appointed Carlos Sundiam and denied Rodolfos
MTD, further ruling that he cannot
disown his own representations by taking an inconsistent
position on his own admission. Via
petition for Certiorari, Rodolfo appealed and the CA
affirmed the denial. MFR was also denied.
PAGE 269
ISSUE:
Where should the settlement proceedings be had.
HELD:
The estate of an inhabitant of the Philippines shall be
settled or letters of administration
granted in the proper court located in the province where
the decedent resides at the time of
his death. (Sec. 1, Rule 73, RoC). Rodolfos contention
invoking the case of Eusebio v. Eusebio
was misplaced as the facts therein differed from the case
at bar. Unlike in Eusebio, there is
substantial proof that the decedents have transferred to
Rs QC residence and other factors
indicate that their stay was more than temporary. Rodolfo
failed to sufficiently refute Pericos
assertion that their elderly parents stayed in Rs house for
some three to four years before
they died in the late 1980s. Furthermore, the decedents
respective death certificates state
that they were both residents of Quezon City at the time of
their demise. Significantly, it was
Rodolfo himself who filled up his late mothers death
certificate. To the SC, this unqualifiedly

shows that at that time, at least, R recognized his

deceased mothers residence to be QC.TRANSGLOBE
INTERNATIONAL, INC. V CA
G.R. No. 126634. January 25, 1999
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: BELLOSILLO, J.
FACTS:
A shipment from Hong Kong arrived at the port of Manila,
aboard the S/S Seadragon.
Its inward foreign manifest indicated that it contained
various hand tools. Acting on an
information that the shipment violated provisions of tariff
and customs code, the Economic
Intelligence and Investigation Bureau (EIIB) agents seized
the shipment while in transit to the
container yard. The EIIB recommended seizure of the
shipment, and for which a warrant of
seizure and distraint was issued by the District Collector.
For failure of petitioner, to appear during the hearing
despite due notice, collector
decreed the forfeiture of the shipment in favor of the
government.
PAGE 270
ISSUE:
Whether or not Transglobe is allowed to redeem the
forfeited shipments.
HELD:
As a means of settlement under Sec. 2307, TCC,
redemption of forfeited property is
unavailing in 3 instances:
1. Where there is fraud;
2. Where the importation is absolutely prohibited;
3. Where the release of the property is contrary to law.
The fraud contemplated by law must be actual and not
constructive. It must be
intentional,
consisting
of
deception
willfully
and
deliberately done or resorted to in order to
induce
another
to
give
up
same
right.ACTING
COMMISSIONER OF CUSTOMS vs. COURT OF TAX
APPEALS
[G.R. No. 128314. May 29, 2002]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
On 20 February 1980, Andrulis representing himself as an
American businessman on
joint ventures with his Filipino counterparts, arrived in
Manila and checked in at the Century
Park Sheraton Hotel. Two days later, or on 22 February
1980, he left the hotel surreptitiously
without paying for his bills in the amount of P2,000.00. Col.
Felix Zerrudo, Chief Security
Officer of the Hotel, timely discovered the scheduled
departure of Andrulis on that same

day, and immediately tipped-off the Customs authorities on

Andrulis intention to abscond.
At the Manila International Airport (MIA), the Customs
authorities looked for Andrulis from
among the passengers who were already on board
Philippine Airlines Flight No. 501 bound
for Singapore. Apprehensive, Andrulis locked himself inside
the airplanes comfort room. In
the course of negotiations for him to come out, he slipped
through an opening bills worth
US$300.00. Andrulis finally yielded to the authorities and
surrendered the luggage he was
carrying which, when opened by the authorities, contained
various foreign currencies
consisting of US$59,639.00; 53,100 Indonesian Rupiah,
and Singapore $308.00. A criminal
charge was filed before the Office of the City Fiscal, Pasay
City, for violation of CB Circular
No. 534 in relation to RA 265, the Central Bank Charter.
The Assistant City Fiscal dismissed
the charge on the rationalization that the Government had
failed to present evidence that the
currencies were not brought in by Andrulis.
PAGE 271
ISSUE:
Who has the burden of proof in seizure or forfeiture
proceedings..
HELD:
The requirement of the law that the existence of probable
cause should first be shown
before firing of the forfeiture proceedings, had been fully
met. When Andrulis was apprehended
at the MIA and was found to have in his possession the
various foreign currencies, he could
not produce the required Central Bank authorization
allowing him to bring them out of the
country. This constituted prima facie evidence of
infringement of the provisions of CB Circular
No. 534 and provided sufficient basis for the seizure of the
said foreign exchange. Probable
cause having been shown, the burden of proof was upon
Andrulis to establish that he fell within
the purview of the exception prescribed in the second
paragraph of the aforequoted Section 3
of CB Circular No. 534 in that he actually brought into the
country the foreign currencies and
was just taking them out. 7 This burden, Andrulis had failed
to satisfactorily discharge. The
legal presumption in Section 5(j), Rule 131 of the Rules of
Court and Article 541 of the Civil
Code, relied upon by respondent Court, are of a general
character and cannot prevail over the
specific
provisions
of
the
Tariff
and
Customs
Code.CHEVRON PHILIPPINES, INC v. COMMISSIONER OF
THE

BUREAU OF CUSTOMS
[G.R. No. 178759, August 11, 2008]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: Corona, J.
FACTS:
The importations subject of this case arrived from March 8,
1996 to April 10, 1996 but
were unloaded from the carrying vessels onto petitioner
Chevron Philippines oil tanks over a
period of three days from the date of their arrival.
Subsequently, the import entry declarations
(IEDs) were filed and 90% of the total customs duties were
paid. The import entry and internal
revenue declarations (IEIRDs) of the shipments were from
May 10, 1996 to June 21, 1996.
Petitioner paid the import duties at the rate of 3% as
provided under RA 8180 (Downstream
Oil Industry Deregulation Act of 1996).
Prior to the
effectivity of RA 8180 on April 16, 1996,
the rate of duty on imported crude oil was 10%.
Respondent demanded payment of the difference between
the 10% and 3% tariff rates
on the shipments but petitioner objected contending that
the 3% tariff rate is applicable. It
likewise raised the defense of prescription against the
assessment pursuant to Section 1603 of
the Tariff and Customs Code (TCC). However in the CTA en
banc decision on 2007, it was held
that it was the filing of the IEIRDs that constituted entry
under the TCC and since these were
filed beyond the 30-day period, they were not seasonably
entered in accordance with Section
1301 in relation to Section 205 of the TCC. Consequently,
they were deemed abandoned under
Sections 1801 and 1802 of the TCC. It was also held that
petitioner committed fraud when
it failed to file the IEIRD within the 30-day period with the
intent to evade the higher rate.
Thus, petitioner was ordered to pay respondent the total
dutiable value of the oil shipments.
PAGE 272
ISSUE:
1. Whether or not the term entry under Section 1301 in
relation to Section 1801 of
the TCC refers to the IED or the IEIRD;
2. Whether or not the importations can be considered
abandoned under Section 1801.
HELD:
1. BOTH. The term entry in customs law has a triple
meaning. It means (1) the
documents filed at the customs house; (2) the submission
and acceptance of the documents
and (3) the procedure of passing goods through the
customs house. The IED serves as basis

for the payment of advance duties on importations

whereas the IEIRD evidences the final
payment of duties and taxes. The operative act that
constitutes entry of the imported articles
at the port of entry is the filing and acceptance of the
specified entry form together with
the other documents required by law and regulations.
There is no dispute that the specified
entry form refers to the IEIRD. Section 205 defines the
precise moment when the imported
articles are deemed entered. Under the relevant
provisions of the TCC (Sec 205, 1301, 1802),
both the IED and IEIRD should be filed within 30 days from
the date of discharge of the last PAGE 273
package from the vessel or aircraft. As a result, the
position of petitioner, that the import entry
to be filed within the 30-day period refers to the IED and
not the IEIRD, has no legal basis.
2. YES. The law is clear and explicit. It gives a nonextendible period of 30 days for the
importer to file the entry which we have already ruled
pertains to both the IED and IEIRD.
Thus under Section 1801 in relation to Section 1301, when
the importer fails to file the entry
within the said period, he shall be deemed to have
renounced all his interests and property
rights to the importations and these shall be considered
impliedly abandoned in favor of the
government.