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MAMBULAO LUMBER G.R. No. L-17725, February 28, 1962
FACTS: Defendant-appellant ( Mambulao Lumber) company paid P9,127.50 to plaintiff-appellee
(Republic of the Philippines) as reforestation charges from 1947 to 1956. It seeks to set off or
applied to the payment of the sum ofP4,802.37 as forest charges due and owing from appellant
to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may be applied in
compensation of said sum of P4,802.37 due from it as forest charges. Appellant maintains that
the principle of a compensation in Article 1278 of the new Civil Code is applicable, such that the
sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to
appellee in the sum of P4,802.37 as forest charges.
ISSUE: Whether set off or compensation is admissible against demand for taxes levied.
HELD: In this case, appellant and appellee are not mutually creditors and debtors of each other.
And therefore, the law on compensation is inapplicable. Under Article 1278, NCC,
compensation should take place when two persons in their own right are creditors and
debtors of each other. With respect to the forest charges which the defendant Mambulao
Lumber Company has paid to the government, they are in the coffers of the government
as taxes collected, and the government does not owe anything, crystal clear that the
Republic of the Philippines and the Mambulao Lumber Company are not creditors and
debtors of each other, because compensation refers to mutual debts. The general rule,
based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and party but
grow out of a duty to, and are the positive acts of the government, to the making and enforcing
of which, the personal consent of individual taxpayers is not required. If a taxpayer can properly
refuse to pay his tax when called upon by the Collector, because he has a claim against the
governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the
tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion. In addition, under Section 1 of Republic Act
No. 115, provides:
SECTION 1. There shall be collected, in addition to the regular forest charges provided
for under Section two hundred and sixty-four of Commonwealth Act Numbered
Four Hundred Sixty-six, known as the National Internal Revenue Code, the amount
of fifty centavos on each cubic meter of timber for the first and second groups and forty
centavos for the third and fourth groups cut out and removed from any public forest for
commercial purposes. The amount collected shall be expended by the Director of
Forestry, with the approval of the Secretary of Agriculture and Natural Resources
(commerce), for reforestation and afforestation of watersheds, denuded areas and
cogon and open lands within forest reserves, communal forest, national parks, timber
lands, sand dunes, and other public forest lands, which upon investigation, are found
needing reforestation or afforestation, or needing to be under forest cover for the
growing of economic trees for timber, tanning, oils, gums, and other minor forest

products or medicinal plants, or for watersheds protection, or for prevention of erosion

and floods and preparation of necessary plans and estimate of costs and for
reconnaisance survey of public forest lands and for such other expenses as may be
deemed necessary for the proper carrying out of the purposes of this Act.
All revenues collected by virtue of, and pursuant to, the provisions of the preceding
paragraph and from the sale of barks, medical plants and other products derived from
plantations as herein provided shall constitute a fund to be known as Reforestation
Fund, to be expended exclusively in carrying out the purposes provided for under this
Act. All provincial or city treasurers and their deputies shall act as agents of the Director
of Forestry for the collection of the revenues or incomes derived from the provisions of
this Act.
Under this provision, it seems quite clear that the amount collected as reforestation charges
from a timber licenses or concessionaire shall constitute a fund to be known as the
Reforestation Fund, and that the same shall be expended by the Director of Forestry, with the
approval of the Secretary of Agriculture and Natural Resources for the reforestation or
afforestation, among others, of denuded areas which, upon investigation, are found to be
needing reforestation or afforestation. Note that there is nothing in the law which requires
that the amount collected as reforestation charges should be used exclusively for the
reforestation of the area covered by the license of a licensee or concessionaire, and that
if not so used, the same should be refunded to him. Observe too, that the licensee's area
may or may not be reforested at all, depending on whether the investigation thereof by the
Director of Forestry shows that said area needs reforestation. The conclusion seems to be that
the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a
part of the Reforestation Fund, payable by him irrespective of whether the area covered by his
license is reforested or not. Said fund, as the law expressly provides, shall be expended in
carrying out the purposes provided for thereunder, namely, the reforestation or afforestation,
among others, of denuded areas needing reforestation or afforestation.

Apostolic Prefect v Treasurer of Baguio, 71 Phil. 547

FACTS: In 1937, an ordinance (Ordinance No. 137: Special Assessment List, City of Baguio)
was passed in the City of Baguio. The said ordinance sought to assess properties of property
owners within the defined city limits. The Apostolic Prefect, a corporation of religious character
residing in Baguio, organized under the Philippine laws, is included to those which benefits from
its drainage and sewerage system. The Apostolic Prefect contends that its properties should be
free of tax being of religious in character.
ISSUE: Is the Apostolic Prefect exempt from paying?
RULING: No. In the first place, the ordinance was in the nature of an assessment and not
taxation. The test of exemption from taxation is the use of the property for purposes mentioned
in the Constitution. Based on Justice Cooleys words: While the word tax in its broad meaning,
includes both general taxes and special assessments, and in a general sense a tax is an
assessment, and an assessment is a tax, yet there is a recognized distinction between them in
that assessment is confined to local impositions upon property for the payment of the
cost of public improvements in its immediate vicinity and levied with reference to special
benefits to the property assessed. The differences between a special assessment and a tax
are that:
(1) a special assessment can be levied only on land;
(2) a special assessment cannot (at least in most states) be made a personal liability of
the person assessed;
(3) a special assessment is based wholly on benefits; and
(4) a special assessment is exceptional both as to time and locality.
The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and
not an assessment, although the purpose is to make a local improvement on a street or
highway. A charge imposed only on property owners benefited is a special assessment rather
than a tax notwithstanding the statute calls it a tax. In the case, the Prefect cannot claim
exemption because the assessment is not taxation per se but rather a system for the benefits of
the inhabitants of the city.

NDC v. CIR 151 SCRA 472

Facts: NDC entered into contracts in Tokyo with several Japanese shipbuilding companies for
the construction of twelve ocean-going vessels. NDC remitted to the shipbuilders in Tokyo the
total amount of US$4,066,580.70 as interest on the balance of the purchase price. No tax was
withheld. The Commissioner then held the NDC liable on such tax in the total sum of
P5,115,234.74. Negotiations followed but failed. The BIR thereupon served on the NDC a
warrant of distraint and levy to enforce collection of the claimed amount. The NDC went to the
Court of Tax Appeals. The BIR was sustained by the Court of Tax Appeals. The petitioner argues
that the Japanese shipbuilders were not subject to tax under the above provision because all
the related activities the signing of the contract, the construction of the vessels, the payment
of the stipulated price, and their delivery to the NDC were done in Tokyo. The law, however,
does not speak of activity but of "source," which in this case is the NDC. This is a domestic and
resident corporation with principal offices in Manila
ISSUE: Whether NDC liable for the tax?

Held: Yes. Although NDC is not the one taxed since it was the Japanese shipbuilders who were
liable on the interest remitted to them under Section 37 of the Tax Code, still, the imposition is
The imposition of the deficiency taxes on NDC is a penalty for its failure to withhold the same
from the Japanese shipbuilders. Such liability is imposed by Section 53c of the Tax Code.
NDC was remiss in the discharge of its obligation as the withholding agent of the government
and so should be liable for the omission.
Section 53(c). Return and Payment. Every person required to deduct and withhold any tax
under this section shall make return thereof, in duplicate, on or before the fifteenth day of April
of each year, and, on or before the time fixed by law for the payment of the tax, shall pay the
amount withheld to the officer of the Government of the Philippines authorized to receive it.
Every such person is made personally liable for such tax, and is indemnified against the claims
and demands of any person for the amount of any payments made in accordance with the
provisions of this section.