Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-65773-74 April 30, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.
Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.
MELENCIO-HERRERA, J.:
Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of
the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set
aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways
Corporation (BOAC) for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its
Resolution of 18 November, 1983 denying reconsideration.
BOAC is a 100% British Government-owned corporation organized and existing under the laws of the
United Kingdom It is engaged in the international airline business and is a member-signatory of the
Interline Air Transport Association (IATA). As such it operates air transportation service and sells
transportation tickets over the routes of the other airline members. During the periods covered by the
disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the
Philippines, and was not granted a Certificate of public convenience and necessity to operate in the
Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and
partly in 1962, when it was granted a temporary landing permit by the CAB. Consequently, it did not
carry passengers and/or cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company,
Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengers
and cargoes.
G.R. No. 65773 (CTA Case No. 2373, the First Case)
On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the
aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This
was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated
16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new
assessment under protest.
On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was
denied by the CIR on 16 February 1972. But before said denial, BOAC had already filed a petition for
review with the Tax Court on 27 January 1972, assailing the assessment and praying for the refund of
the amount paid.
G.R. No. 65774 (CTA Case No. 2561, the Second Case)
On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the
fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional
amounts of P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring
the filing of corporation returns) penalized under Section 74 of the National Internal Revenue Code
(NIRC).
On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a
letter, dated 16 February 1972, however, the CIR not only denied the BOAC request for refund in the
First Case but also re-issued in the Second Case the deficiency income tax assessment for
P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74 of
the Tax Code. BOAC's request for reconsideration was denied by the CIR on 24 August 1973. This
prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for
deficiency income tax for the years 1969 to 1971.
This case was subsequently tried jointly with the First Case.
On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax
Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes
and Company, Ltd., and later by Qantas Airways, during the period in question, do not constitute
BOAC income from Philippine sources "since no service of carriage of passengers or freight was
performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine
income tax. The CTA position was that income from transportation is income from services so that the
place where services are rendered determines the source. Thus, in the dispositive portion of its
Decision, the Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel
the deficiency income tax assessments against BOAC in the amount of P534,132.08 for the fiscal years
1968-69 to 1970-71.
Hence, this Petition for Review on certiorari of the Decision of the Tax Court.
The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:
1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation
(BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights

here, constitute income of BOAC from Philippine sources, and, accordingly, taxable.
2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing
business in the Philippines or has an office or place of business in the Philippines.
3. In the alternative that private respondent may not be considered a resident foreign corporation but
a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five
per cent (35%) of its gross income received from all sources within the Philippines.
Under Section 20 of the 1977 Tax Code:
(h) the term resident foreign corporation engaged in trade or business within the Philippines or
having an office or place of business therein.
(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade
or business within the Philippines and not having any office or place of business therein
It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion
as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in
the light of its peculiar environmental circumstances. The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of commercial
gain or for the purpose and object of the business organization. 2 "In order that a foreign corporation
may be regarded as doing business within a State, there must be continuity of conduct and intention
to establish a continuous business, such as the appointment of a local agent, and not one of a
temporary character. 3
BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in
the Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing
tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to
a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating
to the various airline companies on the basis of their participation in the services rendered through
the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA
Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and
are in progressive pursuit of, the purpose and object of its organization as an international air carrier.
In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the
generation of sales being the paramount objective. There should be no doubt then that BOAC was
"engaged in" business in the Philippines through a local agent during the period covered by the
assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income
received in the preceding taxable year from all sources within the Philippines. 5
Sec. 24. Rates of tax on corporations. ...
(b) Tax on foreign corporations. ...
(2) Resident corporations. A corporation organized, authorized, or existing under the laws of any
foreign country, except a foreign fife insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)
Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC
in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our
income tax laws.
The Tax Code defines "gross income" thus:
"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for
personal service of whatever kind and in whatever form paid, or from profession, vocations, trades,
business, commerce, sales, or dealings in property, whether real or personal, growing out of the
ownership or use of or interest in such property; also from interests, rents, dividends, securities, or
the transactions of any business carried on for gain or profile, or gains, profits, and income derived
from any source whatever (Sec. 29[3]; Emphasis supplied)
The definition is broad and comprehensive to include proceeds from sales of transport documents.
"The words 'income from any source whatever' disclose a legislative policy to include all income not
expressly exempted within the class of taxable income under our laws." Income means "cash received
or its equivalent"; it is the amount of money coming to a person within a specific time ...; it means
something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in
our income tax law, "income" refers to the flow of wealth. 6
The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71
amounted to P10,428,368 .00. 7
Did such "flow of wealth" come from "sources within the Philippines",
The source of an income is the property, activity or service that produced the income. 8 For the source
of income to be considered as coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments for fares were also made
here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth
proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of wealth should share the

burden of supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes
the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser
of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger
upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the
traveling public in general embraces within its terms all the elements to constitute it a valid contract,
binding upon the parties entering into the relationship. 9
True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the
Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real
property, and (6) sale of personal property, does not mention income from the sale of tickets for
international transportation. However, that does not render it less an income from sources within the
Philippines. Section 37, by its language, does not intend the enumeration to be exclusive. It merely
directs that the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive
enumeration, and that no other kind of income may be so considered. "
BOAC, however, would impress upon this Court that income derived from transportation is income for
services, with the result that the place where the services are rendered determines the source; and
since BOAC's service of transportation is performed outside the Philippines, the income derived is
from sources without the Philippines and, therefore, not taxable under our income tax laws. The Tax
Court upholds that stand in the joint Decision under review.
The absence of flight operations to and from the Philippines is not determinative of the source of
income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the
time pertinent to this case. The test of taxability is the "source"; and the source of an income is that
activity ... which produced the income. Unquestionably, the passage documentations in these cases
were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued
within the Philippines. business a And even if the BOAC tickets sold covered the "transport of
passengers and cargo to and from foreign cities", it cannot alter the fact that income from the sale of
tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin,
and the origin of the income herein is the Philippines.
It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years
covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967,
1968-69 to 1970-71. For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972,
international carriers are now taxed as follows:
... Provided, however, That international carriers shall pay a tax of 2- per cent on their cross
Philippine billings. (Sec. 24[b] [21, Tax Code).
Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the
term "gross Philippine billings," thus:
... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by
any international carrier doing business in the Philippines of passage documents sold therein, whether
for passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ...
The foregoing provision ensures that international airlines are taxed on their income from Philippine
sources. The 2- % tax on gross Philippine billings is an income tax. If it had been intended as an
excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on
Business.
Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of
the appeal in JAL vs. Commissioner of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is
res judicata to the present case. The ruling by the Tax Court in that case was to the effect that the
mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render
the taxpayer therein subject to the common carrier's tax. As elucidated by the Tax Court, however, the
common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or
removing passengers and cargo from one place to another. It purports to tax the business of
transportation. 14 Being an excise tax, the same can be levied by the State only when the acts,
privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject
matter of the case under consideration is income tax, a direct tax on the income of persons and other
entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of
a different subject matter, the decision in one cannot be res judicata to the other.
WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private
respondent, the British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of
P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and
1% monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with
the Tax Code. The BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without
costs.
SO ORDERED.
Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.
Fernan, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-52019 August 19, 1988
ILOILO BOTTLERS, INC., plaintiff-appellee,
vs.
CITY OF ILOILO, defendant-appellant.
Efrain B. Trenas for plaintiff-appellee.
Diosdado Garingalao for defendant-appellant.
CORTES, J.:
The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in
Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5,
series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks.
On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court
of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly
constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended,
that the company paid under protest.
On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of
which state
xxx xxx xxx
2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola
And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca
Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant;
3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of
1960 which ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No.
15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows:
Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of
coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of
Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles;
PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per
bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles.
Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at
the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective
(of) where it would take place shall be covered by the operation of this Ordinance.
4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle
Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of
the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September
14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to
financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc.
5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up;
however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and
transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of
Iloilo, and which is outside the jurisdiction of the City of Iloilo;
6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the
Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the
above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then
still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax
(after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo
which is outside the jurisdiction of the City of Iloilo;
7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the
municipal license tax under the above-mentioned ordinance, a xerox copy of the said letter is attached
to the complaint as Annex "A" and made an integral part hereof by reference.
8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the
municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that
moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered
as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of
Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of
Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No.
L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and
made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant
did not anymore press the plaintiff to pay the said municipal license tax;
9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the
said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the

City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it
transferred its bottling plant to the Municipality of Pavia, Iloilo;
10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the
reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be
considered as distributor under the said ordinance although it sells its product directly to the
consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the
defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax
in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under
protest;
11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since
July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of
the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its
business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered
basis, which was acceded to by the defendant;
12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it
transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit:
No. of Cases sold
SEVEN-UP
PEPSI-COLA
TOTAL
1968
Jul to Dec
39,340
49,060
88,400
1969
Jan. to Dec.
81,240
87,660
168,900
1970
Jan. to Dec.
79,389
89,211
168,600
1971
Jan. to Dec.
80,670
88,480
169,150
TOTAL
280,639
314,411
595,050
13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo
from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its
products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers
in the different towns of the Province of Iloilo as well as the City of Iloilo;
14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as
manufacturer's sales tax on all the softdrinks it manufactures as follows:
O.R. No. 4683995 - January, 1972 Sales P17,222.90
O.R. No. 5614767 - February " " 17,024.81
O.R. No. .5614870 - March " " 17,589.19
O.R. No. 5614891 - April " " 18,726.77
O.R. No. 5614897 - May " " 16,710.99
O.R. No. 5614935 - June " " 14,791.20
O.R. No. 5614967 - July " " 13,952.00
O.R. No. 5614973 - August " " 15,726.16
O.R. No. 56'L4999 - September " " 19,159.54
and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P
l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of
Pavia in its amount of P2,000.00 every year.
xxx xxx xxx
[Rollo, P. 10 (Record on Appeal, pp. 25-31)]
On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in
favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the
City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15,
1973, so as to include the amounts paid by the company after the filing of the complaint. The City of
Iloilo appealed to the Court of Appeals which certified the case to this Court.
The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of:
1. distribution of soft-drinks
2. manufacture of soft-drinks, and
3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.
There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no
longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling
under the second or the third type of business. The resolution of this case therefore hinges on
whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even
after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance.
Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in
the independent business of distributing soft-drinks, but that its activity of selling is merely an
incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT
liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their
plants inside the territorial jurisdiction of the city are covered by the ordinance.
The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of
activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person
engaged in any or all of these activities is subject to the tax.

The first ground, however, merits serious consideration.

This Court has always recognized that the right to manufacture implies the right to sell/distribute the
manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil.
627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969,
28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in
the separate business of selling simply because it sells the products it manufactures. In certain cases,
however, a manufacturer may also be considered as engaged in the separate business of selling its
products.
To determine whether an entity engaged in the principal business of manufacturing, is likewise
engaged in the separate business of selling, its marketing system or sales operations must be looked
into.
In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu
Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex
(Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two
marketing systems:
Under the first system, the manufacturer enters into sales transactions and invoices the sales at its
main office where purchase orders are received and approved before delivery orders are sent to the
company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor
are separate stores maintained where products may be sold independently from the main office. The
warehouses only serve as storage sites and delivery points of the products earlier sold at the main
office. Under the second system, sales transactions are entered into and perfected at stores or
warehouses maintained by the company. Any one who desires to purchase the product may go to the
store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling
centers.
Entities operating under the first system are NOT considered engaged in the separate business of
selling or dealing in their products, independent of their manufacturing business. Entities operating
under the second system are considered engaged in the separate business of selling.
In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in lloilo province. Sales transactions with customers
were entered into and sales were perfected and consummated by route salesmen. Truck sales were
made independently of transactions in the main office. The delivery trucks were not used solely for the
purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what
were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the
stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the
second category above. That is, the corporation was engaged in the separate business of selling or
distributing soft-drinks, independently of its business of bottling them.
The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only
when the acts, privileges or businesses are done or performed within the jurisdiction of said authority
[Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos.
65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling
or manufacturing softdrinks must be within city limits, before an entity engaged in any of the
activities may be taxed in Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to
declare the company liable under the tax ordinance.
With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the
parties.
WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is
ordered DISMISSED. No Costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26379
December 27, 1969
WILLIAM C. REAGAN, ETC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner.Office of the Solicitor General Antonio P.
Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special
Attorney Gamaliel H. Mantolino for respondent.
FERNANDO, J.:
A question novel in character, the answer to which has far-reaching implications, is raised by
petitioner William C. Reagan, at one time a civilian employee of an American corporation providing

technical assistance to the United States Air Force in the Philippines. He would dispute the payment
of the income tax assessed on him by respondent Commissioner of Internal Revenue on an amount
realized by him on a sale of his automobile to a member of the United States Marine Corps, the
transaction having taken place at the Clark Field Air Base at Pampanga. It is his contention, seriously
and earnestly expressed, that in legal contemplation the sale was made outside Philippine territory
and therefore beyond our jurisdictional power to tax.
Such a plea, far-fetched and implausible, on its face betraying no kinship with reality, he would justify
by invoking, mistakenly as will hereafter be more fully shown an observation to that effect in a 1951
opinion, 1 petitioner ignoring that such utterance was made purely as a flourish of rhetoric and by way
of emphasizing the decision reached, that the trading firm as purchaser of army goods must respond
for the sales taxes due from an importer, as the American armed forces being exempt could not be
taxed as such under the National Internal Revenue Code. 2 Such an assumption, inspired by the
commendable aim to render unavailing any attempt at tax evasion on the part of such vendee, found
expression anew in a 1962 decision,3 coupled with the reminder however, to render the truth
unmistakable, that "the areas covered by the United States Military Bases are not foreign territories
both in the political and geographical sense."
As thus clarified, it is manifest that such a view amounts at most to a legal fiction and is moreover
obiter. It certainly cannot control the resolution of the specific question that confronts us. We declare
our stand in an unequivocal manner. The sale having taken place on what indisputably is Philippine
territory, petitioner's liability for the income tax due as a result thereof was unavoidable. As the Court
of Tax Appeals reached a similar conclusion, we sustain its decision now before us on appeal.
In the decision appealed from, the Court of Tax Appeals, after stating the nature of the case, started
the recital of facts thus: "It appears that petitioner, a citizen of the United States and an employee of
Bendix Radio, Division of Bendix Aviation Corporation, which provides technical assistance to the
United States Air Force, was assigned at Clark Air Base, Philippines, on or about July 7, 1959 ... . Nine
(9) months thereafter and before his tour of duty expired, petitioner imported on April 22, 1960 a taxfree 1960 Cadillac car with accessories valued at $6,443.83, including freight, insurance and other
charges."4 Then came the following: "On July 11, 1960, more than two (2) months after the 1960
Cadillac car was imported into the Philippines, petitioner requested the Base Commander, Clark Air
Base, for a permit to sell the car, which was granted provided that the sale was made to a member of
the United States Armed Forces or a citizen of the United States employed in the U.S. military bases in
the Philippines. On the same date, July 11, 1960, petitioner sold his car for $6,600.00 to a certain
Willie Johnson, Jr. (Private first class), United States Marine Corps, Sangley Point, Cavite, Philippines,
as shown by a Bill of Sale . . . executed at Clark Air Base. On the same date, Pfc. Willie (William)
Johnson, Jr. sold the car to Fred Meneses for P32,000.00 as evidenced by a deed of sale executed in
Manila."5
As a result of the transaction thus made, respondent Commissioner of Internal Revenue, after
deducting the landed cost of the car as well as the personal exemption to which petitioner was
entitled, fixed as his net taxable income arising from such transaction the amount of P17,912.34,
rendering him liable for income tax in the sum of P2,979.00. After paying the sum, he sought a refund
from respondent claiming that he was exempt, but pending action on his request for refund, he filed
the case with the Court of Tax Appeals seeking recovery of the sum of P2,979.00 plus the legal rate of
interest.
As noted in the appealed decision: "The only issue submitted for our resolution is whether or not the
said income tax of P2,979.00 was legally collected by respondent for petitioner." 6 After discussing the
legal issues raised, primarily the contention that the Clark Air Base "in legal contemplation, is a base
outside the Philippines" the sale therefore having taken place on "foreign soil", the Court of Tax
Appeals found nothing objectionable in the assessment and thereafter the payment of P2,979.00 as
income tax and denied the refund on the same. Hence, this appeal predicated on a legal theory we
cannot accept. Petitioner cannot make out a case for reversal.
1. Resort to fundamentals is unavoidable to place things in their proper perspective, petitioner
apparently feeling justified in his refusal to defer to basic postulates of constitutional and
international law, induced no doubt by the weight he would accord to the observation made by this
Court in the two opinions earlier referred to. To repeat, scant comfort, if at all is to be derived from
such an obiter dictum, one which is likewise far from reflecting the fact as it is.
Nothing is better settled than that the Philippines being independent and sovereign, its authority may
be exercised over its entire domain. There is no portion thereof that is beyond its power. Within its
limits, its decrees are supreme, its commands paramount. Its laws govern therein, and everyone to
whom it applies must submit to its terms. That is the extent of its jurisdiction, both territorial and
personal. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a diminution of its
sovereignty.
It is to be admitted that any state may, by its consent, express or implied, submit to a restriction of its
sovereign rights. There may thus be a curtailment of what otherwise is a power plenary in character.
That is the concept of sovereignty as auto-limitation, which, in the succinct language of Jellinek, "is
the property of a state-force due to which it has the exclusive capacity of legal self-determination and
self-restriction."7 A state then, if it chooses to, may refrain from the exercise of what otherwise is

illimitable competence.
Its laws may as to some persons found within its territory no longer control. Nor does the matter end
there. It is not precluded from allowing another power to participate in the exercise of jurisdictional
right over certain portions of its territory. If it does so, it by no means follows that such areas become
impressed with an alien character. They retain their status as native soil. They are still subject to its
authority. Its jurisdiction may be diminished, but it does not disappear. So it is with the bases under
lease to the American armed forces by virtue of the military bases agreement of 1947. They are not
and cannot be foreign territory.
Decisions coming from petitioner's native land, penned by jurists of repute, speak to that effect with
impressive unanimity. We start with the citation from Chief Justice Marshall, announced in the leading
case of Schooner Exchange v. M'Faddon,8 an 1812 decision: "The jurisdiction of the nation within its
own territory is necessarily exclusive and absolute. It is susceptible of no limitation not imposed by
itself. Any restriction upon it, deriving validity from an external source, would imply a diminution of its
sovereignty to the extent of the restriction, and an investment of that sovereignty to the same extent
in that power which could impose such restriction." After which came this paragraph: "All exceptions,
therefore, to the full and complete power of a nation within its own territories, must be traced up to
the consent of the nation itself. They can flow from no other legitimate source."
Chief Justice Taney, in an 1857 decision, 9 affirmed the fundamental principle of everyone within the
territorial domain of a state being subject to its commands: "For undoubtedly every person who is
found within the limits of a government, whether the temporary purposes or as a resident, is bound by
its laws." It is no exaggeration then for Justice Brewer to stress that the United States government "is
one having jurisdiction over every foot of soil within its territory, and acting directly upon each
[individual found therein]; . . ."10
Not too long ago, there was a reiteration of such a view, this time from the pen of Justice Van
Devanter. Thus: "It now is settled in the United States and recognized elsewhere that the territory
subject to its jurisdiction includes the land areas under its dominion and control the ports, harbors,
bays, and other in closed arms of the sea along its coast, and a marginal belt of the sea extending
from the coast line outward a marine league, or 3 geographic miles." 11 He could cite moreover, in
addition to many American decisions, such eminent treatise-writers as Kent, Moore, Hyde, Wilson,
Westlake, Wheaton and Oppenheim.
As a matter of fact, the eminent commentator Hyde in his three-volume work on International Law, as
interpreted and applied by the United States, made clear that not even the embassy premises of a
foreign power are to be considered outside the territorial domain of the host state. Thus: "The ground
occupied by an embassy is not in fact the territory of the foreign State to which the premises belong
through possession or ownership. The lawfulness or unlawfulness of acts there committed is
determined by the territorial sovereign. If an attache commits an offense within the precincts of an
embassy, his immunity from prosecution is not because he has not violated the local law, but rather for
the reason that the individual is exempt from prosecution. If a person not so exempt, or whose
immunity is waived, similarly commits a crime therein, the territorial sovereign, if it secures custody
of the offender, may subject him to prosecution, even though its criminal code normally does not
contemplate the punishment of one who commits an offense outside of the national domain. It is not
believed, therefore, that an ambassador himself possesses the right to exercise jurisdiction, contrary
to the will of the State of his sojourn, even within his embassy with respect to acts there committed.
Nor is there apparent at the present time any tendency on the part of States to acquiesce in his
exercise of it."12
2. In the light of the above, the first and crucial error imputed to the Court of Tax Appeals to the effect
that it should have held that the Clark Air Force is foreign soil or territory for purposes of income tax
legislation is clearly without support in law. As thus correctly viewed, petitioner's hope for the
reversal of the decision completely fades away. There is nothing in the Military Bases Agreement that
lends support to such an assertion. It has not become foreign soil or territory. This country's
jurisdictional rights therein, certainly not excluding the power to tax, have been preserved. As to
certain tax matters, an appropriate exemption was provided for.
Petitioner could not have been unaware that to maintain the contrary would be to defy reality and
would be an affront to the law. While his first assigned error is thus worded, he would seek to impart
plausibility to his claim by the ostensible invocation of the exemption clause in the Agreement by
virtue of which a "national of the United States serving in or employed in the Philippines in connection
with the construction, maintenance, operation or defense of the bases and residing in the Philippines
only by reason of such employment" is not to be taxed on his income unless "derived from Philippine
source or sources other than the United States sources." 13 The reliance, to repeat, is more apparent
than real for as noted at the outset of this opinion, petitioner places more faith not on the language of
the provision on exemption but on a sentiment given expression in a 1951 opinion of this Court, which
would be made to yield such an unwarranted interpretation at war with the controlling constitutional
and international law principles. At any rate, even if such a contention were more adequately pressed
and insisted upon, it is on its face devoid of merit as the source clearly was Philippine.
In Saura Import and Export Co. v. Meer,14 the case above referred to, this Court affirmed a decision
rendered about seven months previously, 15 holding liable as an importer, within the contemplation of

the National Internal Revenue Code provision, the trading firm that purchased army goods from a
United States government agency in the Philippines. It is easily understandable why. If it were not
thus, tax evasion would have been facilitated. The United States forces that brought in such
equipment later disposed of as surplus, when no longer needed for military purposes, was beyond the
reach of our tax statutes.
Justice Tuason, who spoke for the Court, adhered to such a rationale, quoting extensively from the
earlier opinion. He could have stopped there. He chose not to do so. The transaction having occurred
in 1946, not so long after the liberation of the Philippines, he proceeded to discuss the role of the
American military contingent in the Philippines as a belligerent occupant. In the course of such a
dissertion, drawing on his well-known gift for rhetoric and cognizant that he was making an as if
statement, he did say: "While in army bases or installations within the Philippines those goods were in
contemplation of law on foreign soil."
It is thus evident that the first, and thereafter the controlling, decision as to the liability for sales taxes
as an importer by the purchaser, could have been reached without any need for such expression as
that given utterance by Justice Tuason. Its value then as an authoritative doctrine cannot be as much
as petitioner would mistakenly attach to it. It was clearly obiter not being necessary for the resolution
of the issue before this Court.16 It was an opinion "uttered by the way." 17 It could not then be
controlling on the question before us now, the liability of the petitioner for income tax which, as
announced at the opening of this opinion, is squarely raised for the first time. 18
On this point, Chief Justice Marshall could again be listened to with profit. Thus: "It is a maxim, not to
be disregarded, that general expressions, in every opinion, are to be taken in connection with the case
in which those expressions are used. If they go beyond the case, they may be respected, but ought not
to control the judgment in a subsequent suit when the very point is presented for decision." 19
Nor did the fact that such utterance of Justice Tuason was cited in Co Po v. Collector of Internal
Revenue,20 a 1962 decision relied upon by petitioner, put a different complexion on the matter. Again,
it was by way of pure embellishment, there being no need to repeat it, to reach the conclusion that it
was the purchaser of army goods, this time from military bases, that must respond for the advance
sales taxes as importer. Again, the purpose that animated the reiteration of such a view was clearly to
emphasize that through the employment of such a fiction, tax evasion is precluded. What is more, how
far divorced from the truth was such statement was emphasized by Justice Barrera, who penned the
Co Po opinion, thus: "It is true that the areas covered by the United States Military Bases are not
foreign territories both in the political and geographical sense." 21
Justice Tuason moreover made explicit that rather than corresponding with reality, what was said by
him was in the way of a legal fiction. Note his stress on "in contemplation of law." To lend further
support to a conclusion already announced, being at that a confirmation of what had been arrived at
in the earlier case, distinguished by its sound appreciation of the issue then before this Court and to
preclude any tax evasion, an observation certainly not to be taken literally was thus given utterance.
This is not to say that it should have been ignored altogether afterwards. It could be utilized again, as
it undoubtedly was, especially so for the purpose intended, namely to stigmatize as without support in
law any attempt on the part of a taxpayer to escape an obligation incumbent upon him. So it was
quoted with that end in view in the Co Po case. It certainly does not justify any effort to render futile
the collection of a tax legally due, as here. That was farthest from the thought of Justice Tuason.
What is more, the statement on its face is, to repeat, a legal fiction. This is not to discount the uses of
a fictio juris in the science of the law. It was Cardozo who pointed out its value as a device "to advance
the ends of justice" although at times it could be "clumsy" and even "offensive". 22 Certainly, then, while
far from objectionable as thus enunciated, this observation of Justice Tuason could be misused or
misconstrued in a clumsy manner to reach an offensive result. To repeat, properly used, a legal fiction
could be relied upon by the law, as Frankfurter noted, in the pursuit of legitimate ends. 23 Petitioner
then would be well-advised to take to heart such counsel of care and circumspection before invoking
not a legal fiction that would avoid a mockery of the law by avoiding tax evasion but what clearly is a
misinterpretation thereof, leading to results that would have shocked its originator.
The conclusion is thus irresistible that the crucial error assigned, the only one that calls for discussion
to the effect that for income tax purposes the Clark Air Force Base is outside Philippine territory, is
utterly without merit. So we have said earlier.
3. To impute then to the statement of Justice Tuason the meaning that petitioner would fasten on it is,
to paraphrase Frankfurter, to be guilty of succumbing to the vice of literalness. To so conclude is,
whether by design or inadvertence, to misread it. It certainly is not susceptible of the mischievous
consequences now sought to be fastened on it by petitioner.
That it would be fraught with such peril to the enforcement of our tax statutes on the military bases
under lease to the American armed forces could not have been within the contemplation of Justice
Tuason. To so attribute such a bizarre consequence is to be guilty of a grave disservice to the memory
of a great jurist. For his real and genuine sentiment on the matter in consonance with the imperative
mandate of controlling constitutional and international law concepts was categorically set forth by
him, not as an obiter but as the rationale of the decision, in People v. Acierto24 thus: "By the [Military
Bases] Agreement, it should be noted, the Philippine Government merely consents that the United
States exercise jurisdiction in certain cases. The consent was given purely as a matter of comity,

courtesy, or expediency over the bases as part of the Philippine territory or divested itself completely
of jurisdiction over offenses committed therein."
Nor did he stop there. He did stress further the full extent of our territorial jurisdiction in words that
do not admit of doubt. Thus: "This provision is not and can not on principle or authority be construed
as a limitation upon the rights of the Philippine Government. If anything, it is an emphatic recognition
and reaffirmation of Philippine sovereignty over the bases and of the truth that all jurisdictional rights
granted to the United States and not exercised by the latter are reserved by the Philippines for
itself."25
It is in the same spirit that we approach the specific question confronting us in this litigation. We hold,
as announced at the outset, that petitioner was liable for the income tax arising from a sale of his
automobile in the Clark Field Air Base, which clearly is and cannot otherwise be other than, within
our territorial jurisdiction to tax.
4. With the mist thus lifted from the situation as it truly presents itself, there is nothing that stands in
the way of an affirmance of the Court of Tax Appeals decision. No useful purpose would be served by
discussing the other assigned errors, petitioner himself being fully aware that if the Clark Air Force
Base is to be considered, as it ought to be and as it is, Philippine soil or territory, his claim for
exemption from the income tax due was distinguished only by its futility.
There is further satisfaction in finding ourselves unable to indulge petitioner in his plea for reversal.
We thus manifest fealty to a pronouncement made time and time again that the law does not look with
favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too
plain to be mistaken and too categorical to be misinterpreted. 26 Petitioner had not done so. Petitioner
cannot do so.
WHEREFORE, the decision of the Court of Tax Appeals of May 12, 1966 denying the refund of
P2,979.00 as the income tax paid by petitioner is affirmed. With costs against petitioner.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.
FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge
Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the
dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents,
declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is made
permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge 1
The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES
TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF
TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING
AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and
paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of
foreign countries, or in the technical assistance programs of both the Philippine Government and any
foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six
(6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and
imprisonment, upon conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a
petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797,

praying for the issuance of the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null
and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is
discriminatory and violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and non-useful occupations,
imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and
that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the
fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of
their rights to life, liberty and property and therefore, violates the due process and equal protection
clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17,
1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ
of preliminary injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed
by respondent Judge in the latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING
THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF
LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the
ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation
applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being principally a regulatory measure
in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which requires that the
alien shall secure an employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for employment permits and
therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the
equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of
his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to
set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building
permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the Supreme
Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer
an arbitrary discretion to be exercised without a policy, rule, or standard from which it can be
measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits
of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled

discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide
the mayor in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may
withhold or refuse it at will is tantamount to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the means of livelihood. The shelter of protection
under the due process and equal protection clause is given to all persons, both aliens and citizens.
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.