TAXATION CASE DIGESTS (1-10)

1) CIR vs. PINEDA

GR No L-22734,
217 SCRA 105

September 15, 1957,

The CTA rendered judgment holding

Manuel Pineda liable for his share in the
deficiency income tax for 1945 and 1946 and the
real estate dealers tax all amounting to
P760.28. The decision was then appealed by the
CIR to the SC.
Issue:

Facts:
On May 23, 1945, Anastasio Pineda
died, survived by his wife and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate
proceedings were had in the CFI of Manila
resulting to the estate being divided among and
awarded to the heirs. Manuels share amounted
to about P 2,500.00.
After the estate proceedings were
closed, the Bureau of Internal Revenue (BIR)
investigated the income tax liability of the estate
for the years 1945, 1946, 1947 and 1948 and it
found that the corresponding income tax returns
were not filed. Thereupon, the representative of
the CIR issued the following assessments:
I. Deficiency Income Tax (1945, 1946,
1947) P 2,707.44
II. Additional Residence Tax for 1945 P
14.50
III. Real estate dealers tax for 4th qtr of
1946 and whole year 1947 P207.50
The assessment was contested by
Manuel Pineda. Thereafter, he appealed to the
CTA alleging that he was appealing only that
proportionate part or portion pertaining to him as
one of the heirs. Subsequently, the CTA
rendered judgment reversing the decision of the
CIR on the ground of prescription of his right to
assess and collect the aforementioned tax. On
appeal to the SC, the SC affirmed the ruling of
the CTA with respect to the assessment for the
year 1947 (income tax) but held that for the
years 1945 and 1946, the action for assessment
and collection has not yet prescribed.
Accordingly, the SC remanded the case to the
CTA for further appropriate proceedings.

WON Manuel Pineda can be held liable

for the payment of all the taxes found by the
CTA instead of only for his corresponding share
in the same
Held:
YES. The government can require
Manuel Pineda to pay the full amount of the
taxes assessed. The reason is that the
government has a lien on the P2, 500.00
received by him from the estate as his share in
the inheritance, for unpaid income taxes for
which said estate is liable, pursuant to Section
315 of the Tax Code.
By virtue of such lien, the government
has the right to subject the property in Pinedas
possession (the money amounting to P2,
500.00) to satisfy the income tax assessment.
After such payment, Manuel Pineda will have a
right of contribution from his co-heirs.
The government can collect the tax in
question in two ways. First, by going after all the
heirs and collecting from each one of them the
amount of the tax proportionate to the
inheritance received. The second remedy,
pursuant to the lien created by Section 315 of
the Tax Code upon all property and property
rights belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the
estate which is in the hands of the heir or
transferee to the payment of the tax due, the
estate. This second remedy is the option the
government took in this case to collect the tax.
The BIR should be given the necessary
discretion to avail itself of the most expeditious
way to collect the tax, because taxes are the
lifeblood of the government and their prompt and
certain availability is an imperious need.

2. COMMISSIONER OF INTERNAL REVENUE

vs. ALGUE, INC. AND THE COURT OF TAX
APPEALS
G.R. No. L-28896, February 17, 1988, 158
SCRA 9
By: Roman, single,living, Almalbis

Facts:
Algue, Inc., a domestic corporation
engaged in engineering, construction and other
allied activities, received a letter from petitioner
that it has delinquency taxes for the years 1958
and 1959. Algue filed a letter of protest, through
its counsel Atty. Guevara, Jr.. A warrant of
distraint and levy was issued by CIR, however
counsel refused to receive it on the ground of
pending protest. The letter of protest being
missing, BIR did not take any action on the
protest, only then that counsel received the
warrant. Petition for review of the decision of the
Commissioner of Internal Revenue was brought
to the Court of Tax Appeals and it ruled in favor
of Algue. Thus, CIR brought the case to the SC.
Issue:
WON the Collector of Internal Revenue
correctly disallowed the P75, 000.00 deduction
claimed by Algue as legitimate business
expenses in its income tax returns.
Held:
Petition WITHOUT merit. The claimed
deduction by the private respondent was
permitted under the Internal Revenue Code and
should therefore not have been disallowed by
the petitioner.
Taxation; nature of taxes; purpose of
taxation; collection of taxes should be made
in accordance with law

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.
The SC discussed the LIFEBLOOD
Theory, the rationale for taxation, to wit:
It is said that taxes are what we pay for
civilization
society.
Without
taxes,
the
government would be paralyzed for lack of the
motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part
of one's hard earned income to the taxing
authorities, every person who is able to must
contribute his 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.
On the substantive main issue:
Contrary to the allegations of the CIR,
that the payments were fictitious and suggest a
tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary
deduction; that the claimed deduction of P75,
000 was properly disallowed because it was not
an ordinary, reasonable or necessary business
expense, the Court viewed it differently.
Agreeing with Algue and the Court of Tax
Appeals, it held that the said amount had been
legitimately paid by Algue for actual services
rendered, in the form of promotional fees.
Nota Bene:
Tax assessment by tax examiners are
presumed correct and made in good faith.
Taxpayer has the duty to prove otherwise.

3.
THE
YOUNG
MEN'S
CHRISTIAN
ASSOCIATION
OF
MANILA vs.
THE
COLLECTOR OF INTERNAL REVENUE

institution. The chief secretary and his assistant

receive no salary from the institution. Whatever
they are paid comes from the United States.

G.R. No. L-7988, January 19, 1916298, SCRA

83

The contention that the institution is run as a

business in that it keeps a lodging and boarding
house is without merit. It may be admitted that
there are 64 persons occupying rooms in the
main building as lodgers or roomers and that
they take their meals at the restaurant below.
But the purpose is not for profit but instead to
keep the membership continually within the
sphere of influence of the institution.

Facts:
The city of Manila, contending that the property
of Young Men's Christian Association (YMCA) is
taxable, assessed it and levied a tax thereon. It
was paid under protest and this action begun to
recover it on the ground that the property was
exempt from taxation under the charter of the
city of Manila. The decision was for the city and
the association appealed.
Issue:
Whether or not the building and grounds of the
Young Men's Christian Association of Manila are
subject to taxation (property tax), under section
48 of the charter of the city of Manila

The Young Men's Christian Association of Manila

cannot be said to be an institution used
exclusively for religious purposes, or an
institution used exclusively for charitable
purposes, or an institution devoted exclusively to
educational purposes; but the Court believes
that it is an institution used exclusively for all
three purposes, and that, as such, it is entitled to
be exempted from taxation.

Held:
Yes.
YMCA as an educational department is not
denied. It is undisputed that the aim of this
department is to furnish, at much less than cost,
instruction in subjects that will greatly increase
the mental efficiency and wage-earning capacity
of young men, prepare them in special lines of
business and offer them special lines of study. It
offers various courses to its students.
YMCA is preeminently religious; and the
fundamental basis and groundwork is the
Christian religion. All of the officials of the
association are devoted Christians, members of
a church, and have dedicated their lives to the
spread of the Christian principles and building of
Christian character.
The institution also has charitable features. It
makes no profit on any of its activities. The
professors and instructors in all departments
serve without pay and freely give of their time
and ability to further the purposes of the

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COMMISSIONER OF INTERNAL REVENUE vs

CA, CTA, YMCA
Facts:
Private Respondent YMCA is a non-stock, nonprofit 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.
Private respondent earned, among others, an
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.
The
commissioner of internal revenue (CIR) issued
an assessment to private respondent, including
surcharge and interest, for deficiency income
tax, deficiency expanded withholding taxes on
rentals and professional fees and deficiency
withholding tax on wages. Private respondent
formally protested the assessment and, as a
supplement to its basic protest.
The CTA issued this ruling in favor of the YMCA.
CA initially ruled in favor of CIR but affirmed
CTAs decision on reconsideration.
Issue:
W/N YMCA is exempt from the payment of taxes
Held:
No. Section 27 (now Section 26) of the NIRC
states that:
SEC. 27.Exemptions from tax on
corporations.
-The
following
organizations shall not be taxed under
this Title in respect to income received
by them as such -(g) Civic league or organization
not organized for profit but
operated exclusively for the
promotion of social welfare;

(h)
Club organized and
operated
exclusively
for
pleasure, recreation, and other
non-profitable purposes, no part
of the net income of which
inures to the benefit of any
private stockholder or member;
Notwithstanding the provision in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organization 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 this Code. (as
amended by Pres. Decree No. 1457)
Respondent Court of Appeals committed
reversible error when
it
allowed,
on
reconsideration, the tax exemption claimed by
YMCA on income it derived from renting out its
real property, on the solitary but unconvincing
ground that the said income is not collected for
profit but is merely incidental to its operation.
The law does not make a distinction. The rental
income is taxable regardless of whence such
income is derived and how it used or disposed
of.
Private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution,
exempts charitable institutions from the
payment not only of property taxes but also of
income tax from any source. However, what is
exempted is not the institution itself; the
exemption pertains only to property taxes.Thus,
YMCA is exempt from the paymentof property
tax, but not income tax on the rentals from its
property.
Private respondent also invokes Article XIV, Section 4,
par. 3 of the Charter, claiming that the YMCA 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 on its properties and income. However, the
Court founds nothing in them that even hints that it is
a school or an educational institution
Petition is GRANTED.

4) THE PHILIPPINE GUARANTY CO., INC. vs

THE
COMMISSIONER
OF
INTERNAL
REVENUE AND THE COURT OF TAX
APPEALS
G.R. No. L-22074, April 30, 1965, 13 SCRA 775
Facts:
The Philippine Guaranty Co., Inc., a domestic
insurance company, entered into reinsurance
contracts with foreign insurance companies not
doing business in the Philippines, thereby
ceding to the foreign reinsurers a portion of the
premiums on insurances it has originally
underwritten in the Philippines. Philippine
Guaranty Co., Inc. ceded to the foreign
reinsurers the premiums for 1953 and 1954.
Said premiums were excluded by Philippine
Guaranty Co., Inc. from its gross income when it
filed its income tax returns for 1953 and 1951.
Furthermore, it did not withhold or pay tax on
them. Consequently, the Commissioner of
Internal Revenue assessed Philippine Guaranty
Co., Inc. against withholding tax on the ceded
reinsurance premiums. Philippine Guaranty Co.,
Inc. protested the assessment on the ground
that the premiums are not subject to tax for the
premiums did not constitute income from
sources within the Philippines because the
foreign reinsurers did not engage in business in
the Philippines, and CIR's previous rulings did
not require insurance companies to withhold
income tax due from foreign companies.

foreign reinsurance companies to reinsure

Philippine Guaranty Co., Inc. against liability for
loss
under
original
insurances.
Such
undertaking, as explained above, took place in
the Philippines. These insurance premiums
therefore came from sources within the
Philippines and, hence, are subject to corporate
income tax.

The power to lax is an attribute of sovereignty. It

is a power emanating from necessity. It is a
necessary burden to preserve the State's
sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend
its shores from invasion, a corps of civil servants
to serve, public improvements designed for the
enjoyment of the citizenry and those which come
within the State's territory, and facilities and
protection which a government is supposed to
provide. Considering that the reinsurance
premiums in question were afforded protection
by the government and the recipient foreign
reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance
premiums and reinsurers should share the
burden of maintaining the state.

Issue:
WON insurance companies required to withhold
tax on reinsurance premiums ceded to foreign
insurance companies
Held:
Yes. The reinsurance contracts however show
that the transactions or activities that constituted
the undertaking to reinsure Philippine Guaranty
Co., Inc. against losses arising from the original
insurances in the Philippines were performed in
the Philippines. The reinsurance premiums were
income created from the undertaking of the

5. MCCULLOCH vs MARYLAND

U.S 4 Wheat, 316

Facts:
Maryland (P) enacted a statute imposing a tax
on all banks operating in Maryland not chartered
by the state. The statute provided that all such
banks were prohibited from issuing bank notes
except upon stamped paper issued by the state.
The statute set forth the fees to be paid for the
paper and established penalties for violations.
The Second Bank of the United States was
established pursuant to an 1816 act of
Congress. McCulloch (D), the cashier of the
Baltimore branch of the Bank of the United
States, issued bank notes without complying
with the Maryland law. Maryland sued
McCulloch for failing to pay the taxes due under
the Maryland statute and McCulloch contested
the constitutionality of that act. The state court
found for Maryland and McCulloch appealed.
Issues :
(1) Does Congress have the power under
the Constitution to incorporate a bank,
even though that power is not
specifically enumerated within the
Constitution?
(2) Does the State of Maryland have the
power to tax an institution created by
Congress pursuant to its powers under
the Constitution?
Holding and Rule (Marshall):
(1)

Yes. Congress has power under the

Constitution to incorporate a bank
pursuant to the Necessary and Proper
clause (Article I, section 8).
(2) No. The State of Maryland does not
have the power to tax an institution
created by Congress pursuant to its
powers under the Constitution. The
Government of the Union, though limited
in its powers, is supreme within its
sphere of action, and its laws, when
made in pursuance of the Constitution,
form the supreme law of the land. There
is nothing in the Constitution which

excludes incidental or implied powers. If

the end be legitimate, and within the
scope of the Constitution, all the means
which are appropriate and plainly
adapted to that end, and which are not
prohibited, may be employed to carry it
into effect pursuant to the Necessary
and Proper clause.
The power of establishing a corporation is
not a distinct sovereign power or end of
Government, but only the means of carrying
into effect other powers which are
sovereign. It may be exercised whenever it
becomes an appropriate means of
exercising any of the powers granted to the
federal government under the U.S.
Constitution. If a certain means to carry into
effect of any of the powers expressly given
by the Constitution to the Government of the
Union be an appropriate measure, not
prohibited by the Constitution, the degree of
its necessity is a question of legislative
discretion, not of judicial cognizance.
The Bank of the United States has a right to
establish its branches within any state. The
States have no power, by taxation or
otherwise, to impede or in any manner
control any of the constitutional means
employed by the U.S. government to
execute its powers under the Constitution.
This principle does not extend to property
taxes on the property of the Bank of the
United States, nor to taxes on the
proprietary interest which the citizens of that
State may hold in this institution, in common
with other property of the same description
throughout the State.

6. KAPATIRAN NG MGA NAGLILINGKOD SA

PAMAHALAAN NG PILIPINAS vs TAN

G.R. No. L-81311, June 30, 1988, 163 SCRA

371
Facts:
These four (4) petitions seek to nullify Executive
Order No. 273 issued by the President of the
Philippines, and 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
allegedly 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.
The VAT is a tax levied on a wide range
of goods and services. It is a tax on the value,
added by every seller, with aggregate gross
annual sales of articles and/or services,
exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed
at the rate of 0% or 10% of the gross selling
price of goods or gross receipts realized
from the sale of services.
The VAT is said to have eliminated privilege
taxes, multiple rated sales tax on manufacturers
and producers, advance sales tax, and
compensating tax on importations. The framers
of EO 273 that it is principally aimed to
rationalize the system of taxing goods and
services; simplify tax administration; and make
the tax system more equitable, to enable the
country to attain economic recovery.
The VAT is not entirely new. It was already in
force, in a modified form, before EO 273 was
issued. As pointed out by the Solicitor General,
the Philippine sales tax system, prior to the
issuance of EO 273, was essentially
a single stage value added tax system
computed under the "cost subtraction method"
or "cost deduction method" and was imposed
only on original sale, barter or exchange of
articles by manufacturers, producers, or
importers. Subsequent sales of such articles
were not subject to sales tax. However, with the

issuance of PD 1991 on 31 October 1985, a 3%

tax was imposed on a second sale, which was
reduced to 1.5% upon the issuance of PD 2006
on 31 December 1985, to take effect 1 January
1986. Reduced sales taxes were imposed not
only on the second sale, but on every
subsequent sale, as well. EO 273 merely
increased the VAT on every sale to 10%, unless
zero-rated or exempt.
Issue:
WON EO 273 is unconstitutional
Held:
No. 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 these framers and
other government agencies involved in its
implementation, even under the past
administration. As the Solicitor General correctly
stated: "The signing of E.O. 273 was merely the
last stage in the exercise of her 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."
Next, the petitioners claim that EO 273 is
oppressive, discriminatory, unjust and
regressive.
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.

7. CHAVEZ vs ONGPIN
As the Court sees it, EO 273 satisfies all the
requirements of a valid tax. It is uniform. A tax is
considered uniform when it operates with the
same force and effect in every place where the
subject may be found." The sales tax adopted in
EO 273 is applied similarly on all goods and
services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is
imposed only on sales of goods or services by
persons engage in business with an aggregate
gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt
from the tax are sales of farm and marine
products, spared as they are from the incidence
of the VAT, are expected to be relatively lower
and within the reach of the general public.
The Court likewise finds no merit in the
contention of the petitioner Integrated Customs
Brokers Association of the Philippines that EO
273, more particularly the new Sec. 103 (r) of
the National Internal Revenue Code, unduly
discriminates against customs brokers.
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.

G.R. No. 76778, June 6, 1990, 186 SCRA 33

Facts:
Section 21 of Presidential Decree No. 464
provides that every five years starting calendar
year 1978, there shall be a provincial or city
general revision of real property assessments.
The revised assessment shall be the basis for
the computation of real property taxes for the
five succeeding years. On the strength of the
aforementioned law, the general revision of
assessments was completed in 1984. However,
Executive Order No. 1019 was issued, which
deferred the collection of real property taxes
based on the 1984 values to January 1, 1988
instead of January 1, 1985.On November 25,
1986, President Corazon Aquino issued
Executive order No.73. It states that beginning
January 1, 1987, the 1984 assessments shall be
the basis of the real property collection. Thus, it
effectively repealed Executive Order No.
1019.Francisco Chavez, a taxpayer and a landowner, questioned the constitutionality of
Executive Order No. 73. He alleges that it will
bring unreasonable increase in real property
taxes. In fact, according to him, the application
of the assailed order will cause an excessive
increase in real property taxes by 100% to 400%
on improvements and up to 100% on land.
Issue:
Whether or not Executive Order no. 73 imposes
unreasonable increase in real property taxes,
thus, should be declared unconstitutional.
Held:
The attack on Executive Order No. 73 has no
legal basis as the general revision of
assessments is a continuing process mandated
by Section 21 of Presidential Decree No. 464. If
at all, it is Presidential Decree No. 464 which

should be challenged as constitutionally infirm.

However, Chavez failed to raise any objection
against said decree. Without Executive Order
No. 73, the basis for collection of real property
taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real
property taxes based on valuations arrived at
several years ago, in disregard of the increases
in the value of real properties that have occurred
since then, is not in consonance with a sound
tax system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires
that sources of revenues must be adequate to
meet government expenditures and their
variations

8) REPUBLIC OF THE PHILIPPINES vs

MAMBULAO LUMBER COMPANY
G.R. No. L-17725, February 28, 1962, 4 SCRA
622
Facts:
Mambulao Lumber Co. has an aggregate forest
charges liability of PhP 4, 802.37 in favor of the
Republic of the Philippines . It appears,
however, that from 1947 to 1956, said company
paid the Republic the amount of PhP 9,127.00
as reforestation charges in pursuance of Section
1 of RA 155 which provides that there shall be
collected in addition to the regular forest, the
amount of Php.50 on each cubic meter of timber
cut from any public forest for commercial
purposes. The amount collected shall be
expanded for reforestation and afforestation.
It is the contention of the Company that since
the Republic has not made use of the
reforestation charges collected from it for
reforesting the denuded area of the land
covered by its license, the Republic should
refund the said amount or if it cannot be
refunded, at least, it should be compensated
with what Mambulao Lumber Comapany has
owed the Republic of the Philippines for
Reforestation charges.
The CFI of Manila ordered the Company to pay
the sum of PhP 4,802.37 with 6% interest.
Hence, this appeal.

Issue:
Whether or not the sum of PhP9,127.50 paid by
the Company to the Republic as reforestation
charges may be set off or applied to the
payment of the PhP4,802.37 as forest charges
due and owing from the company to the
Republic.

Ruling:
NO. Internal revenue taxes such as forest
charges cannot be subject of set off or
compensation. It is because taxes are not in the
nature of contracts between the parties but grow
out of duty to, and are positive acts of the
government to the making and enforcing of
which the personal consent of individual
taxpayer is not required. The amount paid by a
licensee as reforestation charges is in the nature
of a tax which form part of the Reforestation
fund, payable by him irrespective of whether the
area covered by the license is reforested or not.
Moreover, the company and the government are
not mutually creditors and debtors of each other,
hence, the law on compensation is inapplicable.

9. PHILEX MINING CORP. v. CIR

G.R. No. 125704, August 28, 1998, 294 SCRA
687
Facts:
On August 5, 1992, the BIR sent a letter to
Philex asking it to settle its tax liabilities from the
2nd quarter of 1991 to the 2nd quarter of 1992 in
the total amount of P123,821,982.52 plus 20%
annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the
Tax Code of 1977.
Philex refused to pay alleging that it has
pending claims from 1989 to 1991 for VAT input
credit/refund for the taxes it paid for the years
1989 to1991 in the amount of P119, 977, 037.02
plus interest. Therefore, these claims for tax
credit/refund should be applied against or used
to offset the tax liabilities.
The BIR denied the offsetting of Philexs claim
since said claims are still unliquidated and since
its amount is undetermined, it cannot be subject
to legal compensation. Philex raised the issue in
the Court of Tax appeals but was denied for the
same reason that for legal compensation to
take place, both obligations must be liquidated
and demandable. "Liquidated" debts are those
where the exact amount has already been
determined. The claims of Philex for VAT refund
are still pending litigation and still have to be
determined.
Issue:
WON compensation or offsetting can be applied
Held:
No. Philex's claim is an outright disregard of the
basic principle in tax law that taxes are the
lifeblood of the government and so should be

collected without unnecessary hindrance.

Evidently, to countenance Philex's whimsical
reason would render ineffective our tax
collection system. Too simplistic, it finds no
support in law or in jurisprudence.
10) ABAKADA GURO PARTY LIST vs ERMITA
Philex cannot be allowed to refuse the payment
of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the
government which has not yet been granted.
Taxes cannot be subject to compensation for
the simple reason that the government and
the taxpayer are not creditors and debtors of
each other. There is a material distinction
between a tax and debt. Debts are due to the
Government in its corporate capacity, while
taxes are due to the Government in its sovereign
capacity. 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.

G.R. No. 168056, September 1, 2005, 469

SCRA 1
Facts:
On May 24, 2005, the President signed into law
Republic Act 9337 or the VAT Reform Act. Before the
law took effect on July 1, 2005, the Court issued a
TRO enjoining government from implementing the law
in response to a slew of petitions for certiorari and
prohibition questioning the constitutionality of the new
law.
The challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6: That the
President, upon the recommendation of the Secretary
of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to 12%, after any of the
following conditions have been satisfied:
(i)

Petition is DISMISSED.
(ii)

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 allege that the grant of stand-by authority

to the President to increase the VAT rate is an
abdication by Congress of its exclusive power to tax
because such delegation is not covered bySection 28
(2), Article VI Constitution. They argue that VAT is a
tax levied on the sale or exchange of goods and
services which cant be included within the purview of
tariffs under the exemption delegation since this
refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed
on imported/exported goods. They also said that the
President has powers to cause, influence or create
the conditions provided by law to bring about
the conditions precedent. Moreover, they allege that

no guiding standards are made by law as to how the

Secretary of Finance will make the recommendation.
Issue:
WON the RA 9337's stand-by authority to the
Executive to increase the VAT rate, especially on
account of the recommendatory power granted to the
Secretary of Finance, constitutes undue delegation of
legislative power
Held:
No. The powers which Congress is prohibited from
delegating are those which are strictly, or inherently
and exclusively, legislative. Purely legislative power
which can never be delegated is the authority to make
a complete law- complete as to the time when it shall
take effect and as to whom it shall be applicable, and
to determine the expediency of its enactment. It is the
nature of the power and not the liability of its use or
the manner of its exercise which determines the
validity of its delegation.
The EXCEPTIONS are:
(a) delegation of tariff powers to President under
Constitution
(b) delegation of emergency powers to President
under Constitution
(c) delegation to the people at large
(d) delegation to local governments
(e) delegation to administrative bodies
For the delegation to be valid, it must be complete
and it must fix a standard. A sufficient standard is one
which defines legislative policy, marks its limits, maps
out its boundaries and specifies the public agency to
apply it.
In this case, it is not a delegation of legislative power
BUT a delegation of ascertainment of facts upon
which enforcement and administration of the
increased 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 nonoperation of the 12% rate upon factual matters
outside of the control of the executive. No discretion
would be exercised by the President. Highlighting the
absence of discretion is the fact that the word SHALL
is used in the common proviso. The use of the word

SHALL connotes a mandatory order. Its use in a

statute denotes an imperative obligation and is
inconsistent with the idea of discretion.
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. It is
a clear directive to impose the 12% VAT rate when the
specified conditions are present.
Congress just granted the Secretary of Finance the
authority to ascertain the existence of a fact--whether by December 31, 2005, the VAT collection as
a percentage of GDP of the previous year exceeds 2
4/5 % or the national government deficit as
a percentage of GDP of the previous year exceeds
one and 1%. If either of these two instances has
occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the
President.
In making his recommendation to the President on the
existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of
the President or even her subordinate. He is acting as
the agent of the legislative department, to determine
and declare the event upon which its expressed will is
to take effect. The Secretary of Finance becomes the
means or tool by which legislative policy is
determined and implemented, considering that he
possesses all the facilities to gather data and
information and has a much broader perspective to
properly evaluate them. His function is to gather and
collate statistical data and other pertinent information
and verify if any of the two conditions laid out by
Congress is present.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently
the only way in which the legislative process can go
forward.
There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This
is constitutionally permissible. Congress did not
delegate the power to tax but the mere
implementation of the law.

Correction sa case ko. Petition WITHOUT merit. the

claimed deduction by the private respondent was

permitted under the Internal Revenue Code and

should therefore not have been disallowed by the

petitioner. Sorry sa confusion miski ako man

naconfuse hehe (ALGUE)