Caltex Philippines, Inc.

v COA (1992)
Caltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil
Price Stabilization Fund (OPSF), excluding that unremitted for the years 1986
and 1988, of the additional tax on petroleum products authorized under the PD
1956. Pending such remittance, all of its claims for reimbursement from the
OPSF shall be held in abeyance. The grant total of its unremitted collections of
the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims.
COA approved the proposal but prohibited Caltex from further offsetting
remittances and reimbursements for the current and ensuing years. Caltex moved
for reconsideration but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against
Caltexs outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of government. Taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and stabilization of a threatened
industry which is affected with public interest as to be within the police power of
the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is
taxation. A taxpayer may not offset taxes due from the claims he may have
against the government. Taxes cannot be subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand,, contract or judgment as is
allowed to be set-off.
Hence, COA decision is affirmed except that Caltexs claim for reimbursement
of underrecovery arising from sales to the National Power Corporation is
allowed.

Engracio Francia vs Intermediate Appellate Court

162 SCRA 753 Taxation Law General Principles Set-off of Taxes
Engracio Francia was the owner of a 328 square meter land in Pasay City. In
October 1977, a portion of his land (125 square meter) was expropriated by the
government for P4,116.00. The expropriation was made to give way to the
expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963
amounting to P2,400.00. So in December 1977, the remaining 203 square meters
of his land was sold at a public auction (after due notice was given him). The
highest bidder was a certain Ho Fernandez who paid the purchase price of
P2,400.00 (which was lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the
selling price was grossly inadequate. He further argued that his land should have
never been auctioned because the P2,400.00 he owed the government in taxes
should have been set-off by the debt the government owed him (legal
compensation). He alleged that he was not paid by the government for the
expropriated portion of his land because though he knew that the payment
therefor was deposited in the Philippine National Bank, he never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off by the debt
owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for
the contention. 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). This is not applicable in taxes. 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.

The Supreme Court emphasized: 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.
Further, the government already Francia. All he has to do was to withdraw the
money. Had he done that, he could have paid his tax obligations even before the
auction sale or could have exercised his right to redeem which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the
same is not tenable. The Supreme Court said: alleged gross inadequacy of price
is not material when the law gives the owner the right to redeem as when a sale
is made at public auction, upon the theory that the lesser the price, the easier it is
for the owner to effect redemption. If mere inadequacy of price is held to be a
valid objection to a sale for taxes, the collection of taxes in this manner would be
greatly embarrassed, if not rendered altogether impracticable. Where land is
sold for taxes, the inadequacy of the price given is not a valid objection to the
sale. This rule arises from necessity, for, if a fair price for the land were
essential to the sale, it would be useless to offer the property. Indeed, it is
notorious that the prices habitually paid by purchasers at tax sales are grossly out
of proportion to the value of the land.

PHILEX
GR
No.
294 SCRA 687

MINING
125704,

CORP.
August

v.
28,

CIR
1998

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals affirming the Court of TaxAppeals decision ordering it to pay the
amount of P110.7 M as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994
until fully paid pursuant toSections 248 and 249 of the Tax Code of 1977. Philex
protested the demand for payment of the tax liabilitiesstating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991
inthe amount of P120 M plus interest. Therefore these claims for tax
credit/refund should be applied against thetax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of
tax refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of thegovernment and so should be collected
without unnecessary hindrance. Evidently, to countenance Philex'swhimsical
reason would render ineffective our tax collection system. Too simplistic, it finds
no support in law or injurisprudence. To be sure, Philex cannot be allowed to
refuse the payment of its tax liabilities on the ground that it has apending tax
claim for refund or credit against the government which has not yet been
granted.Taxes cannot besubject to compensation for the simple reason that the
government and the taxpayer are not creditors anddebtors of each other. There is
a material distinction between a tax and debt. Debts are due to the Governmentin
its corporate capacity, while taxes are due to the Government in its sovereign
capacity. xxx There can be nooff-setting of taxes against the claims that the
taxpayer may have against the government. A person cannotrefuse to pay a tax
on the ground that the government owes him an amount equal to or greater than
the taxbeing collected. The collection of a tax cannot await the results of a
lawsuit against the government.

Progressive Development Corporation vs. Quezon City

Post under case digests, Taxation at Sunday, February
by Schizophrenic Mind

05,

2012 Posted

development as to require regulation for the protection and promotion of such

Facts: The City Council of QC passed an ordinance known as the Market Code
of QC, which imposed a 5% supervision fee on gross receipts on rentals or lease
of

privately-owned

market

spaces

in

QC.

In case of failure of the owners of the market spaces to pay the tax for three
consecutive months, the City shall revoke the permit of the privately-owned
market

to

operate.

Progressive Development Corp, owner and operator of Farmers Market, filed a

petition for prohibition against QC on the ground that the tax imposed by the
Market Code was in reality a tax on income, which the municipal corporation
was

prohibited

by

law

to

impose.

Issue: Whether or not the supervision fee is an income tax or alicense fee.

Held: It is a license fee. A LICENSE FEE is imposed in the exercise of the

police power primarily for purposes of regulation, while TAX is imposed under
the

taxing

power

primarily

for

purposes

of

raising

revenues.

If the generating of revenue is the primary purpose and regulation is

merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that incidentally, revenue is also obtained does not make the
imposition

activity that so engages the public interest in health,morals, safety, and

tax.

To be considered a license fee, the imposition must relate to an occupation or

public interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the costs
of direct regulation

but

also

its incidental consequences.

In this case, the Farmers Market is a privately-owned market established for the
rendition of service to the general public. It warrants close supervision and
control by the City for the protection of the health of the public by insuring the
maintenance of sanitary conditions, prevention of fraud upon the buying public,
etc.

Since the purpose of the ordinance is primarily regulation and not revenue
generation, the tax is a license fee. The use of the gross amount of stall rentals as
basis for determining the collectible amount of license tax does not, by
itself, convert the

license

tax

into

prohibited

tax

on

income.

Such basis actually has a reasonable relationship to the probable costs of

regulation and supervision of Progressives kind of business, since ordinarily, the
higher the amount of rentals, the higher the volume of items sold.

The higher the volume of goods sold, the greater the extent and frequency of
supervision and inspection may be required in the interest of the buying public.

Apostolic Prefect of Mountain Province v City Treasurer of Baguio City

(1941)

RENATO V. DIAZ and G.R. No. 193007

AURORA MA. F. TIMBOL,
Petitioners, Present:
CORONA, C.J.,

Apostolic Prefect of Mountain Province v City Treasurer of Baguio City GR No

47252, April 18, 1941
FACTS:
The Apostolic Prefect is a corporation sole, of religious character, organized
under the Philippine laws, and with residence
in Baguio. The City imposed a special assessment against properties within its
territorial jurisdiction, including those of the Apostolic Prefect, which benefits
from its drainage and sewerage system. The Apostolic Prefect contends that its
properties should be free from tax.

CARPIO,

ISSUE:
Is the Apostolic Prefect exempt from paying?

Respondents. July 19, 2011

RULING:
No, it is liable.
In its broad meaning, tax includes both general taxes and special assessment. Yet
actually, there is a recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of the cost of public
improvements in its immediate vicinity and levied with reference to special
benefits to the property assessed.
A special assessment is not, strictly speaking, a tax; and neither the decree nor
the Constitution exempt the Apostolic Prefect from payment of said special
assessment.

THE SECRETARY OF FINANCE

and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,

x ---------------------------------------------------------------------------------------- x

DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?

Furthermore, arguendo that exemption may encompass such assessment, the

Apostolic Prefect cannot claim exemption as it has not proven the property in
question is used exclusively for religious purposes; but that it appears that the
same is being used to other non-religious purposes.
Thus, the Apostolic Prefect is required to pay the special assessment.

The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed
this petition for declaratory relief[1] assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR)
on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees,

On August 23, 2010 the Office of the Solicitor General filed the governments

they have an interest as regular users of tollways in stopping the BIR

comment.[4] The government avers that the NIRC imposes VAT on all kinds of

action. Additionally, Diaz claims that he sponsored the approval of Republic Act

services of franchise grantees, including tollway operations, except where the

7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the

law provides otherwise; that the Court should seek the meaning and intent of the

1997 National Internal Revenue Code or the NIRC) at the House of

law from the words used in the statute; and that the imposition of VAT on

Representatives. Timbol, on the other hand, claims that she served as Assistant

tollway operations has been the subject as early as 2003 of several BIR rulings

Secretary of the Department of Trade and Industry and consultant of the Toll

and circulars.[5]

Regulatory Board (TRB) in the past administration.

The government also argues that petitioners have no right to invoke the

Petitioners allege that the BIR attempted during the administration of

non-impairment of contracts clause since they clearly have no personal interest

President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition

in existing toll operating agreements (TOAs) between the government and

was deferred, however, in view of the consistent opposition of Diaz and other

tollway operators. At any rate, the non-impairment clause cannot limit the States

sectors to such move. But, upon President Benigno C. Aquino IIIs assumption of

sovereign taxing power which is generally read into contracts.

office in 2010, the BIR revived the idea and would impose the challenged tax on
toll fees beginning August 16, 2010 unless judicially enjoined.

Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT. In

Petitioners hold the view that Congress did not, when it enacted the

any event, it cannot be claimed that the rights of tollway operators to a

NIRC, intend to include toll fees within the meaning of sale of services that are

reasonable rate of return will be impaired by the VAT since this is imposed on

subject to VAT; that a toll fee is a users tax, not a sale of services; that to impose

top of the toll rate. Further, the imposition of VAT on toll fees would have very

VAT on toll fees would amount to a tax on public service; and that, since VAT

minimal effect on motorists using the tollways.

was never factored into the formula for computing toll fees, its imposition would
violate the non-impairment clause of the constitution.

In their reply[6] to the governments comment, petitioners point out that

tollway operators cannot be regarded as franchise grantees under the NIRC since

On August 13, 2010 the Court issued a temporary restraining order

they do not hold legislative franchises. Further, the BIR intends to collect the

(TRO), enjoining the implementation of the VAT. The Court required the

VAT by rounding off the toll rate and putting any excess collection in an escrow

government, represented by respondents Cesar V. Purisima, Secretary of the

account. But this would be illegal since only the Congress can modify VAT rates

Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal

and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-

Revenue, to comment on the petition within 10 days from notice. [2] Later, the

2010 (BIR RMC 63-2010), which directs toll companies to record an

Court issued another resolution treating the petition as one for prohibition.

[3]

accumulated input VAT of zero balance in their books as of August 16, 2010,
contravenes Section 111 of the NIRC which grants entities that first become

liable to VAT a transitional input tax credit of 2% on beginning inventory. For

when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol

this reason, the VAT on toll fees cannot be implemented.

has a plain, speedy, and adequate remedy in the ordinary course of law against

The Issues Presented

The case presents two procedural issues:

the BIR action in the form of an appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that

1. Whether or not the Court may treat the petition for declaratory relief
as one for prohibition; and

need to be resolved for the public good. [8] The Court has also held that a petition

2. Whether or not petitioners Diaz and Timbol have legal standing to file
the action.

that amount to usurpation of legislative authority.[9]

for prohibition is a proper remedy to prohibit or nullify acts of executive officials

Here, the imposition of VAT on toll fees has far-reaching

The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT
coverage by including tollway operators and tollway operations in the terms
franchise grantees and sale of services under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a)
amounts to a tax on tax and not a tax on services; b) will impair the tollway
operators right to a reasonable return of investment under their TOAs; and c) is
not administratively feasible and cannot be implemented.

implications. Its imposition would impact, not only on the more than half a
million motorists who use the tollways everyday, but more so on the
governments effort to raise revenue for funding various projects and for reducing
budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged
VAT has been imposed, could cause more mischief both to the tax-paying public
and the government. A belated declaration of nullity of the BIR action would
make any attempt to refund to the motorists what they paid an administrative

The Courts Rulings

nightmare with no solution.Consequently, it is not only the right, but the duty of
A. On the Procedural Issues:

the Court to take cognizance of and resolve the issues that the petition raises.

On August 24, 2010 the Court issued a resolution, treating the petition

Although the petition does not strictly comply with the requirements of

as one for prohibition rather than one for declaratory relief, the characterization

Rule 65, the Court has ample power to waive such technical requirements when

that petitioners Diaz and Timbol gave their action. The government has sought

the legal questions to be resolved are of great importance to the public. The same

[7]

reconsideration of the Courts resolution, however, arguing that petitioners

may be said of the requirement of locus standi which is a mere procedural

allegations clearly made out a case for declaratory relief, an action over which

requisite.[10]

the Court has no original jurisdiction. The government adds, moreover, that the
petition does not meet the requirements of Rule 65 for actions for prohibition
since the BIR did not exercise judicial, quasi-judicial, or ministerial functions

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as
amended. VAT is levied, assessed, and collected, according to Section 108, on
the gross receipts derived from the sale or exchange of services as well as from
the use or lease of properties. The third paragraph of Section 108 defines sale or
exchange of services as follows:
The phrase sale or exchange of services means the
performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including
those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal
or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on
their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods
or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines; sales of
electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of
electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees
except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or

not the performance thereof calls for the exercise or use of

the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on all kinds of
services rendered in the Philippines for a fee, including those specified in the
list. The enumeration of affected services is not exclusive. [11] By qualifying
services with the words all kinds, Congress has given the term services an allencompassing meaning. The listing of specific services are intended to illustrate
how pervasive and broad is the VATs reach rather than establish concrete limits
to its application. Thus, every activity that can be imagined as a form of service
rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.)
1112 or the Toll Operation Decree establishes the legal basis for the services that
tollway operators render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators expense. Tollways
serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for
this reason slow-moving. In consideration for constructing tollways at their
expense, the operators are allowed to collect government-approved fees from
motorists using the tollways until such operators could fully recover their
expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latters use of the tollway facilities over which the operator enjoys private
proprietary rights[12]that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:

Section 119[13] spares from the payment of VAT. The word franchise broadly
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;

covers government grants of a special right to do an act or series of acts of public

concern.[14]
Petitioners of course contend that tollway operators cannot be
considered franchise grantees under Section 108 since they do not hold

4. Proprietors, operators or keepers of hotels, motels,

resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);

legislative franchises. But nothing in Section 108 indicates that the franchise
grantees it speaks of are those who hold legislative franchises. Petitioners give
no reason, and the Court cannot surmise any, for making a distinction between

6. Transportation contractors on their transport of

goods or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; and

franchises granted by Congress and franchises granted by some other

7. Common carriers by air and sea relative to their

transport of passengers, goods or cargoes from one place in
the Philippines to another place in thePhilippines.

made by Congress itself.[15] The term franchise has been broadly construed as

government agency. The latter, properly constituted, may grant franchises.

Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had been
referring, not only to authorizations that Congress directly issues in the form of a
special law, but also to those granted by administrative agencies to which the

It does not help petitioners cause that Section 108 subjects to VAT all
kinds of services rendered for a fee regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. This
means that services to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of
human knowledge and skills.

power to grant franchises has been delegated by Congress.[16]

Tollway operators are, owing to the nature and object of their business,
franchise grantees. The construction, operation, and maintenance of toll facilities
on public improvements are activities of public consequence that necessarily
require a special grant of authority from the state. Indeed, Congress granted
special franchise for the operation of tollways to the Philippine National

And not only do tollway operators come under the broad term all kinds of

Construction Company, the former tollway concessionaire for the North and

services, they also come under the specific class described in Section 108 as all

South Luzon Expressways. Apart from Congress, tollway franchises may also be

other franchise grantees who are subject to VAT, except those under Section 119

granted by the TRB, pursuant to the exercise of its delegated powers under P.D.

of this Code.

1112.[17] The franchise in this case is evidenced by a Toll Operation Certificate.[18]

Tollway operators are franchise grantees and they do not belong to

exceptions (the low-income radio and/or television broadcasting companies with
gross annual incomes of less than P10 million and gas and water utilities) that

Petitioners contend that the public nature of the services rendered by

tollway operators excludes such services from the term sale of services under
Section 108 of the Code.But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering public
service for a fee to the imposition of VAT. Businesses of a public nature such as
public utilities and the collection of tolls or charges for its use or service is a
franchise.[19]
Nor can petitioners cite as binding on the Court statements made by
certain lawmakers in the course of congressional deliberations of the would-be
law. As the Court said inSouth African Airways v. Commissioner of Internal
[20]

Revenue,

statements made by individual members of Congress in the

consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law. The congressional will
is ultimately determined by the language of the law that the lawmakers voted
on. Consequently, the meaning and intention of the law must first be sought in
the words of the statute itself, read and considered in their natural, ordinary,
commonly accepted and most obvious significations, according to good and
approved usage and without resorting to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on
toll fees is tantamount to taxing a tax.[21] Actually, petitioners base this argument
on the following discussion in Manila International Airport Authority (MIAA) v.
Court of Appeals:[22]
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil Code,
like roads, canals, rivers, torrents, ports and bridges
constructed by the State, are owned by the State. The term
ports
includes
seaports
and
airports.

The MIAA Airport Lands and Buildings constitute a port

constructed by the State. Under Article 420 of the Civil
Code,
the MIAA Airport Lands and
Buildings
are
properties of public dominion and thus owned by the State
or the Republic of the Philippines.
x x x The operation by the government of a tollway
does not change the character of the road as one for public
use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the
government, or only those among the public who actually
use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance
of public roads.
The charging of fees to the public does not
determine the character of the property whether it is for
public dominion or not. Article 420 of the Civil Code defines
property of public dominion as one intended for public
use. Even if the government collects toll fees, the road is still
intended for public use if anyone can use the road under the
same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that
can use the road, the speed restrictions and other conditions
for the use of the road do not affect the public character of
the road.
The terminal fees MIAA charges to passengers, as
well as the landing fees MIAA charges to airlines, constitute
the bulk of the income that maintains the operations of
MIAA.The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees
are often termed users tax. This means taxing those among
the public who actually use a public facility instead of
taxing all the public including those who never use the
particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987 Constitution.
[23]
(Underscoring supplied)

Petitioners assume that what the Court said above, equating terminal

In sum, fees paid by the public to tollway operators for use of the tollways, are

fees to a users tax must also pertain to tollway fees. But the main issue in

not taxes in any sense. A tax is imposed under the taxing power of the

the MIAA case was whether or not Paraaque City could sell airport lands and

government principally for the purpose of raising revenues to fund public

buildings under MIAA administration at public auction to satisfy unpaid real

expenditures.[27] Toll fees, on the other hand, are collected by private tollway

estate taxes. Since local governments have no power to tax the national

operators as reimbursement for the costs and expenses incurred in the

government, the Court held that the City could not proceed with the auction

construction, maintenance and operation of the tollways, as well as to assure

sale. MIAA forms part of the national government although not integrated in the

them a reasonable margin of income. Although toll fees are charged for the use

department framework.[24] Thus, its airport lands and buildings are properties of

of public facilities, therefore, they are not government exactions that can be

public dominion beyond the commerce of man under Article 420(1)

[25]

of the

Civil Code and could not be sold at public auction.

As can be seen, the discussion in the MIAA case on toll roads and toll

properly treated as a tax. Taxes may be imposed only by the government under
its sovereign authority, toll fees may be demanded by either the government or
private individuals or entities, as an attribute of ownership.[28]

fees was made, not to establish a rule that tollway fees are users tax, but to make

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to

the point that airport lands and buildings are properties of public dominion and

the nature of VAT as an indirect tax. In indirect taxation, a distinction is made

that the collection of terminal fees for their use does not make them private

between the liability for the tax and burden of the tax. The seller who is liable for

properties. Tollway fees are not taxes.Indeed, they are not assessed and collected

the VAT may shift or pass on the amount of VAT it paid on goods, properties or

by the BIR and do not go to the general coffers of the government.

services to the buyer. In such a case, what is transferred is not the sellers liability

It would of course be another matter if Congress enacts a law imposing

but merely the burden of the VAT.[29]

a users tax, collectible from motorists, for the construction and maintenance of

Thus, the seller remains directly and legally liable for payment of the

certain roadways.The tax in such a case goes directly to the government for the

VAT, but the buyer bears its burden since the amount of VAT paid by the former

replenishment of resources it spends for the roadways. This is not the case

is added to the selling price. Once shifted, the VAT ceases to be a tax [30] and

here. What the government seeks to tax here are fees collected from tollways that

simply becomes part of the cost that the buyer must pay in order to purchase the

are constructed, maintained, and operated by private tollway operators at their

good, property or service.

own expense under the build, operate, and transfer scheme that the government
has adopted for expressways. [26] Except for a fraction given to the government,
the toll fees essentially end up as earnings of the tollway operators.

Consequently, VAT on tollway operations is not really a tax on the

tollway user, but on the tollway operator. Under Section 105 of the Code, [31] VAT
is imposed on any person who, in the course of trade or business, sells or renders
services for a fee. In other words, the seller of services, who in this case is the
tollway operator, is the person liable for VAT. The latter merely shifts the burden
of VAT to the tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if
toll fees were deemed as a users tax. VAT is assessed against the tollway

logistical nightmare. Thus, according to them, the VAT on tollway operations is

not administratively feasible.[33]

operators gross receipts and not necessarily on the toll fees. Although the tollway
operator may shift the VAT burden to the tollway user, it will not make the latter
directly liable for the VAT. The shifted VAT burden simply becomes part of the
toll fees that one has to pay in order to use the tollways. [32]

Administrative feasibility is one of the canons of a sound tax system. It

simply means that the tax system should be capable of being effectively
administered and enforced with the least inconvenience to the taxpayer. Nonobservance of the canon, however, will not render a tax imposition invalid except

Three. Petitioner Timbol has no personality to invoke the non-impairment of

to the extent that specific constitutional or statutory limitations are impaired.

contract clause on behalf of private investors in the tollway projects. She will

[34]

neither be prejudiced by nor be affected by the alleged diminution in return of

burdensome to implement, it is not necessarily invalid unless some aspect of it is

investments that may result from the VAT imposition. She has no interest at all in

shown to violate any law or the Constitution.

the profits to be earned under the TOAs. The interest in and right to recover
investments solely belongs to the private tollway investors.

Thus, even if the imposition of VAT on tollway operations may seem

Here, it remains to be seen how the taxing authority will actually

implement the VAT on tollway operations. Any declaration by the Court that the

Besides, her allegation that the private investors rate of recovery will be

manner of its implementation is illegal or unconstitutional would be premature.

adversely affected by imposing VAT on tollway operations is purely speculative.

Although the transcript of the August 12, 2010 Senate hearing provides some

Equally presumptuous is her assertion that a stipulation in the TOAs known as

clue as to how the BIR intends to go about it, [35] the facts pertaining to the matter

the Material Adverse Grantor Action will be activated if VAT is thus imposed.

are not sufficiently established for the Court to pass judgment on. Besides, any

The Court cannot rule on matters that are manifestly conjectural. Neither can it

concern about how the VAT on tollway operations will be enforced must first be

prohibit the State from exercising its sovereign taxing power based on uncertain,

addressed to the BIR on whom the task of implementing tax laws primarily and

prophetic grounds.

exclusively rests. The Court cannot preempt the BIRs discretion on the matter,

Four. Finally, petitioners assert that the substantiation requirements for

absent any clear violation of law or the Constitution.

claiming input VAT make the VAT on tollway operations impractical and

For the same reason, the Court cannot prematurely declare as illegal,

incapable of implementation. They cite the fact that, in order to claim input VAT,

BIR RMC 63-2010 which directs toll companies to record an accumulated input

the name, address and tax identification number of the tollway user must be

VAT of zero balance in their books as of August 16, 2010, the date when the VAT

indicated in the VAT receipt or invoice. The manner by which the BIR intends to

imposition was supposed to take effect. The issuance allegedly violates Section

implement the VAT by rounding off the toll rate and putting any excess

111(A)[36] of the Code which grants first time VAT payers a transitional input

collection in an escrow account is also illegal, while the alternative of giving

VAT of 2% on beginning inventory.

change to thousands of motorists in order to meet the exact toll rate would be a

In this connection, the BIR explained that BIR RMC 63-2010 is actually

the tax statute. Thus, any unwarranted burden that may be perceived to result

the product of negotiations with tollway operators who have been assessed VAT

from enforcing such policy must be properly referred to Congress. The Court has

as early as 2005, but failed to charge VAT-inclusive toll fees which by now can

no discretion on the matter but simply applies the law.

no longer be collected. The tollway operators agreed to waive the 2% transitional

input VAT, in exchange for cancellation of their past due VAT liabilities. Notably,
the right to claim the 2% transitional input VAT belongs to the tollway operators
who have not questioned the circulars validity. They are thus the ones who have
a right to challenge the circular in a direct and proper action brought for the
purpose.

The VAT on franchise grantees has been in the statute books since 1994
when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only
now, however, that the executive has earnestly pursued the VAT imposition
against tollway operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax laws. Consequently, the
executive is more properly suited to deal with the immediate and practical

Conclusion

consequences of the VAT imposition.

In fine, the Commissioner of Internal Revenue did not usurp legislative

WHEREFORE, the Court DENIES respondents Secretary of Finance

prerogative or expand the VAT laws coverage when she sought to impose VAT on

and Commissioner of Internal Revenues motion for reconsideration of its August

tollway operations. Section 108(A) of the Code clearly states that services of all

24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma.

other franchise grantees are subject to VAT, except as may be provided under

F. Timbols petition for lack of merit, and SETS ASIDE the Courts temporary

Section 119 of the Code.Tollway operators are not among the franchise grantees

restraining order dated August 13, 2010.

subject to franchise tax under the latter provision. Neither are their services
among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as
petitioners so strongly allege, then it would have been well for the law to clearly
say so. Tax exemptions must be justified by clear statutory grant and based on
language in the law too plain to be mistaken. [37] But as the law is written, no such
exemption obtains for tollway operators. The Court is thus duty-bound to simply
apply the law as it is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is

within the exclusive prerogative of Congress. The Courts role is to merely
uphold this legislative policy, as reflected first and foremost in the language of

SO ORDERED.

Ernesto Maceda vs Executive Secretary Catalino Macaraig, Jr.

Hydro Resources Contractors Corporation v CTA

Facts:The National Power Corporation (NAPOCOR) was created by

Facts:

Commonwealth Act No. 120. In 1949, it was given tax exemption by Republic

National Irrigation Administration (NIA) entered into an agreement with Hydro

Resources for the construction of the Magat River Multipurpose Project in
Isabela. Under their contract, Hydro was allowed to procure new construction
equipment, the payment for which will be advanced by NIA. Hydro shall repay
NIA the costs incurred and the manner of repayment shall be through deductions
from each monthly payment due to Hydro. Hydro shall repay NIA the full value
of the construction before the eventual transfer of ownership.

Act No. 358. In 1984, Presidential Decree No. 1931 was passed removing the
tax exemption of NAPOCOR and other government owned and controlled
corporations (GOCCs). There was a reservation, however, that the president or
the Minister of Finance, upon recommendation by the Fiscal Incentives Review
Board (FIRB), may restore or modify the exemption.
In 1985, the tax exemption was revived. It was again removed in 1987 by virtue
of Executive Order 93 which again provided that upon FIRB recommendation it
can again be restored. In the same year, FIRB resolved to restore the exemption.
The same was approved by President Corazon Aquino through Executive
Secretary Catalino Macaraig, Jr. acting as her alter ego. Ernesto Maceda
assailed the FIRB resolution averring that the power granted to the FIRB is an

Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it

paid under protest. The Collector of Customs then ordered for the refund of the
ad valorem duty in the form of tax credit. This was then reversed by the Deputy
Minister of Finance.
Issue:

undue delegation of legislative power. Macedas claim was strengthened by

Whether or not the imposition of the 3% ad valorem tax on importations is valid.

Opinion 77 issued by then DOJ Secretary Sedfrey Ordoez. Macaraig however

Held:

did not give credence to the opinion issued by the DOJ secretary.
ISSUE: Whether or not the Executive Secretary can validly ignore the legal
opinion of the Justice Secretary.
HELD: Yes. The Supreme Court first ruled that there is no undue delegation of
legislative power. First of all, since the NAPOCOR is a GOCC and is non-profit
it can be exempt from taxation. Also, Opinion 77 issued by DOJ Secretary
Ordoez was validly overruled by Macaraig. This action by Macaraig is valid
because the Executive Secretary, by authority of the President, has the power to
modify, alter or reverse the construction of a statute given by a department
secretary pursuant to the presidents control power.

No. EO 860 which was the basis for the imposition of the ad valorem duty took
effect December 1982. The importations were effected in 1978 and 1979 by
NIA. It is a cardinal rule that laws shall have no retroactive effect unless contrary
is provided. EO 860 does not provide for its retroactivity. The Deputy Minister
of Finance even clarified that letters of credit opened prior to the effectivity of
EO 860 are not subject to its provisions.
In the case, the procurement of the equipment was not on a tax exempt basis as
the import liabilities have been secured to paid under a financial scheme. It is a
matter of implementing a pre-existing agreement, hence, the imported articles
can only be subject to the rates of import duties prevailing at the time of entry or
withdrawal from the customs custody.

Commissioner of Internal Revenue v Ayala Securities Corporation

Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus
so Ayala was charged with 25% surtax by the Commissioner of internal Revenue.
The CTA (Court of Tax Appeals) reversed the Commissioners decision and held
that the assessment made against Ayala was beyond the 5-yr prescriptive period
as provided in section 331 of the National Internal Revenue Code. Commissioner
now files a motion for reconsideration of this decision. Ayala invokes the defense
of prescription against the right of the Commissioner to assess the surtax.

Villanueva
GR
No

v
L-26521,

City
December

Iloilo
1968

28,

Issue:

FACTS:
On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86
imposing
license
tax
fees
upon
tenement houses. The validity of such ordinance was challenged by Eusebio and
Remedios Villanueva, owners of four tenement houses containing 34 apartments.
The Supreme Court held the ordinance to be ultra views. On January 15, 1960,
however, the municipal board, believing that it acquired authority to enact an
ordinance of the same nature pursuant to the Local Autonomy Act, enacted
Ordinance 11, Eusebio and Remedios Villanueva assailed the ordinance anew.

Whether or not the right to assess and collect the 25% surtax has prescribed after
five years.

ISSUE:
Does Ordinance

Held:

RULING:
No. The Court has ruled the tenement houses constitute a distinct class of property
and that taxes are uniform and equal when imposed upon all property of the same
class
or
character
within
the
taxing
authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed
upon by the ordinance, or that tenement taxes are imposed in other cities do not
violate the rule of equality and uniformity. The rule does not require that taxes for the
same purpose should be imposed in different territorial subdivisions at the same time.
So long as the burden of tax falls equally and impartially on all owners or operators of
tenement houses similarly classified or situated, equality and uniformity is
accomplished. The presumption that tax statutes are intended to operate uniformly
and equally was not overthrown therein.

No. There is no such time limit on the right of the Commissioner to assess the
25% surtax since there is no express statutory provision limiting such right or
providing for its prescription. Hence, the collection of surtax is imprescriptible.
The underlying purpose of the surtax is to avoid a situation where the
corporation unduly retains its surplus earnings instead of declaring and paying
dividends to its shareholders. SC reverses the ruling of the CTA.

G.R. No. L-7521

11

violate

the

October 18, 1955

rule

of

uniformity

of

taxation?

VERONICA SANCHEZ, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Benjamin C. Yatco for appellant.
Office of the Solicitor General Ambrocio Padilla and Solicitors Esmeraldo
Umali and Roman Cansino, Jr. for appellee.
REYES, J.B.L., J.:
Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria"
building at 181 Libertad Street, Pasay City, which she constructed in 1947. The
building has an assessed value of P21,540 and the land is assessed at P7,980, or a
total value of P29,540 (Exhibit 2). While appellant lives in one of the
apartments, she is renting the rest to other persons. In 1949, she derived an
income therefrom of P7,540 (Exhibit 1). Appellant also runs a small dry goods
store in the Pasay market, from which she derives an annual income of about
P1,300 (also Exhibit 1).
In the early part of 1951, the Collector of Internal Revenue made demand upon
appellant for the payment of P163.51 as income tax for the year 1950, and P637
as real estate dealer's tax for the year 1946 to 1950, plus the sum of P50 as
compromise (Exhibit 4). Appellant paid the taxes demanded under protest, and
on October 16, 1951 filed action in the Court of First Instance of Manila (C. C.
No. 14957) against the Collector of Internal Revenue for the refund of the taxes
paid, claiming that she is not a real estate dealer. The lower Court, after trial,
found appellant to be such a dealer, as defined by section 194 (s) of the National
Internal Revenue Code, as amended by Republic Act Nos. 42 and 588, and
declared the collection of the taxes in question legal and in accordance with said
provision. Wherefore, Veronica Sanchez appealed to this Court.
At the outset, it should be noted that while appellant claims the refund of the
amount of P825 allegedly paid by her to the Collector of Internal Revenue as real
estate dealer's tax, it appears that the sum of P163.31 thereof corresponds to her
income tax for the year 1949 (Exhibit 4), so that the amount of tax actually
involved herein is only P687, paid by appellant as real estate dealer's tax for the
year 1946 to 1950. We notice also that the lower Court, in deciding this case,
applied the definition of "real estate dealer" in section 194 (s) of the National
Internal Revenue Code, as amended by Republic Acts Nos. 42 and 588. Republic
Act No. 588 took effect only on September 22, 1950, while the tax in question
was paid by appellant for the year 1946 to 1950. Hence, the law applicable to
this case is section 194 (s) of the Tax Code before it was amended by Republic
Act No. 588, which defines real estate dealers as follows:

"Real estate dealers" includes all persons who for their own account
are engaged in the sale of lands, buildings or interests therein or in
leasing real estate. (R. A. No. 42)
Does appellant fall within the above definition? We are of the opinion that she
does. The kind of nature of the building constructed by herwhich is a fourdoor "accessoria"shows that it was from the beginning intended for lease as a
source of income or profit to the owner; and while appellant resides in one of the
apartments, it appears that she always rented the other apartments to other
persons from the time the building was constructed up to the time of the filing of
this case.
The case of Argellies vs. Meer* G. R. No. L-3730, promulgated on April 25,
1952, cited by appellant in support of her appeal, is not in point. In that case,
Argellies had always resid d outside the Philippines, and his properties in Manila
were administered and managed by a local real estate company. We held that
Argellies could not be considered as engaged in business of letting real estate,
because he did not appear to have reinvested the rents received by him from this
country, nor to have taken part in the management of his local holdings. In the
case at bar, however, it was appellant who had the apartment in question
constructed, purposely for lease or profit, and she manages the property herself.
While she runs a small store in Pasay market, it is unlikely and the evidence does
not show, that she devotes all her personal time and labor to such store,
considering its size and the fact that she derives little income therefrom. On the
other hand, the work of attending to her leased property and her tenants would
not take much of her time and attention, especially since she lives in the premises
herself. And the leasing of her apartment appears to be her principal means of
livelihood, for the income she derives therefrom amounts to more than five times
that which she makes from her store.
Considering, therefore, that appellant constructed her four-door "accesoria"
purposely for rent or profit; that she has been continuously leasing the same to
third persons since its construction in 1947; that she manages her property
herself; and that said leased holding appears to be her main source of livelihood,
we conclude that appellant is engaged in the leasing of real estate, and is a real
estate dealer as defined by section 194 (s) of the Internal Revenue Code, as
amended by Republic Act No. 42.
Appellant argues that she is already paying real estate taxes on her property, as
well as income tax on the income derive therefrom, so that to further subject its
rentals to the "real estate dealers' tax" amounts to double taxation. This argument
has already been rejected by this Court in the case of People vs. Mendaros, et
al., L-6975, promulgated May 27, 1955, wherein we held that "it is a well settled
rule that license tax may be levied upon a business or occupation although the

land or property used there in is subject to property tax", and that "the state may
collect an ad valorem tax on property used in a calling, and at the same time
impose a license tax on the pursuit of that calling", the imposition of the latter
kind of tax being in no sense a double tax.
The evidence shows, however, that the apartment house in question was
constructed only in 1947, while the real estate dealer's tax demanded of and paid
by appellant was for the year 1946 to 1950 (see Exhibit 4). Wherefore, appellant
is entitled to a refund of the tax paid for the year 1946, amounting to P37.50.
With the modification that the appellee Collector of Internal Revenue is ordered
to refund to appellant Veronica Sanchez the amount of P37.50 paid as real estate
dealer's tax for the year 1946, the decision appealed from is, in all other respects,
affirmed. Costs against appellants. So ordered.

Saturday, January 31, 2009 Posted by Coffeeholic Writes

Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398
together with the law authorizing it (Section 18 of the Revised Charter of the
City of Manila). The ordinance imposes a municipal occupation tax on persons
exercising various professions in the city and penalizes non-payment of the
same. The law authorizing said ordinance empowers the Municipal Board of the
city to impose a municipal occupation tax on persons engaged in various
professions. Petitioners, having already paid their occupation tax under section
201 of the National Internal Revenue Code, paid the tax under protest as
imposed by Ordinance No. 3398. The lower court declared the ordinance invalid
and affirmed the validity of the law authorizing it.
Issue: Whether or Not the ordinance and law authorizing it constitute class
legislation, and authorize what amounts to double taxation.
Held: The Legislature may, in its discretion, select what occupations shall be
taxed, and in its discretion may tax all, or select classes of occupation for
taxation, and leave others untaxed. It is not for the courts to judge which cities
or municipalities should be empowered to impose occupation taxes aside from
that imposed by the National Government. That matter is within the domain of
political departments. The argument against double taxationmay not be invoked
if one tax is imposed by the state and the other is imposed by the city. It is widely
recognized that there is nothing inherently terrible in the requirement that taxes
be exacted with respect to the same occupation by both the state and the political
subdivisions thereof. Judgment of the lower court is reversed with regards to
the ordinance and affirmed as to the law authorizing it.

PUNSALAN VS. MUNICIPAL BOARD OF MANILA [95 PHIL 46; NO.L4817; 26 MAY 1954]

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.CTA, Double Taxation

or until 30 May 2007, to file their Petition for Review was, in reality, only the
first Motion for Extension of petitioners. Thus, when Petitioner filed their
Petition via registered mail their Petition for Review on 30 May 2007, they were
able to comply with the period for filing such a petition.

FACTS:

(2) YES. There is indeed double taxation if respondent is subjected to the taxes
under both Sections 14 and 21 of the tax ordinance since these are being
imposed: (1) on the same subject matter the privilege of doing business in the
City of Manila; (2) for the same purpose to make persons conducting business
within the City of Manila contribute to city revenues; (3) by the same taxing
authority petitioner City of Manila; (4) within the same taxing jurisdiction
within the territorial jurisdiction of the City of Manila; (5) for the same taxing
periods per calendar year; and (6) of the same kind or character a local
business tax imposed on gross sales or receipts of the business.

Respondent paid the local business tax only as a manufacturers as it was

expressly exempted from the business tax under a different section and which
applied to businesses subject to excise, VAT or percentage tax under the Tax
Code. The City of Manila subsequently amended the ordinance by deleting the
provision exempting businesses under the latter section if they have already paid
taxes under a different section in the ordinance. This amending ordinance was
later declared by the Supreme Court null and void. Respondent then filed a
protest on the ground of double taxation. RTC decided in favor of Respondent
and the decision was received by Petitioner on April 20, 2007. On May 4, 2007,
Petitioner filed with the CTA a Motion for Extension of Time to File Petition for
Review asking for a 15-day extension or until May 20, 2007 within which to file
its Petition. A second Motion for Extension was filed on May 18, 2007, this time
asking for a 10-day extension to file the Petition. Petitioner finally filed the
Petition on May 30, 2007 even if the CTA had earlier issued a resolution
dismissing the case for failure to timely file the Petition.

ISSUES:
(1) Has Petitioners the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute
double taxation?

HELD:
(1) NO. Petitioner complied with the reglementary period for filing the petition.
From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within
which to file their Petition for Review with the CTA. The Motion for Extension
filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period
on 20 May 2007, in which they prayed for another extended period of 10 days,

CIR V SC JOHNSON INC. June 25, 1999

Monday, January 26, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Taxation

refund of the overpaid withholding tax on royalty payments from July 1992 to
May

1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and
Facts: Respondent is a domestic corporation organized and operating under the
Philippine Laws, entered into a licensed agreement with the SC Johnson and
Son, USA, a non-resident foreign corporation based in the USA pursuant to

ordered the CIR to issue a tax credit certificate in the amount of P163,266.00
representing overpaid withholding tax on royalty payments beginning July 1992
to

May

1993.

which the respondent was granted the right to use thetrademark, patents and
technology owned by the later 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 USA.

For the use of trademark or technology, respondent was obliged to pay SC

The CIR thus filed a petition for review with the CA which rendered the decision
subject of this appeal on November 7, 1996 finding no merit in thepetition and
affirming

in

toto

the

CTA

ruling.

Issue: Whether or not tax refunds are considered as tax exemptions.

Johnson and Son, USA royalties based on a percentage of net sales and subjected
the same to 25% withholding tax on royalty payments which respondent paid for
the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.

Held: It bears stress that tax refunds are in the nature of tax exemptions. As such
they are registered as in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption. The burden

On October 29, 1993, respondent filed with the International Tax Affairs
Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that, the antecedent facts attending respondents case fall
squarely within the same circumstances under which said MacGeorge
andGillette rulings were issued. Since the agreement was approved by the
Technology Transfer Board, the preferential tax rate of 10% should apply to the
respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is
only

subject

to

10% withholding

tax.

The Commissioner did not act on said claim for refund. Private respondent SC
Johnson & Son, Inc. then filed a petition for review before the CTA, to claim a

of proof is upon him who claims the exemption in his favor and he must be able
to justify his claim by the clearest grant of organic or statute law. Private
respondent is claiming for a refund of the alleged overpayment of tax on
royalties; however there is nothing on record to support a claim that the tax on
royalties under the RP-US Treaty is paid under similar circumstances as the tax
on royalties under the RP-West Germany Tax Treaty.

CIR vs Lednicky
Principle/s:
- Alien residents deduction of Income Taxation from Gross
Income paid in their home country
- Double Taxation
Commissioner of Internal Revenue vs W.E. Lednicky and
Maria Lednicky
GR Nos. L-18262 and L-21434, 1964
FACTS:
Spouses are both American citizens residing in the
Philippines and have derived all their income from Philippine
sources for taxable years in question.
On March, 1957, filed their ITR for 1956, reporting gross
income of P1,017,287.65 and a net income of P
733,809.44. On March 1959, file an amended claimed
deduction of P 205,939.24 paid in 1956 to the United States
government as federal income tax of 1956.
ISSUE:
Whether a citizen of the United States residing in the
Philippines, who derives wholly from sources within the
Philippines, may deduct his gross income from the income
taxes he has paid to the United States government for the
said taxable year?
HELD:
An alien resident who derives income wholly from sources
within the Philippines may not deduct from gross income the
income taxes he paid to his home country for the taxable

year. The right to deduct foreign income taxes paid given

only where alternative right to tax credit exists.

Section 30 of the NIRC, Gross Income Par. C (3): Credits

against tax per taxes of foreign countries.
If the taxpayer signifies in his return his desire to have the
benefits of this paragraph, the tax imposed by this shall be
credited with: Paragraph (B), Alien resident of the Philippines;
and, Paragraph C (4), Limitation on credit.
An alien resident not entitled to tax credit for foreign income
taxes paid when his income is derived wholly from sources
within the Philippines.
Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental
entity. In the present case, although the taxpayer would have
to pay two taxes on the same income but the Philippine
government only receives the proceeds of one tax, there is
no obnoxious double taxation.