table taxes withheld in 1989 and whether petitioner applied
such creditable taxes withheld to its 1990 income tax
1ST SESSION
PASEO REALTY AND DEVELOPMENT CORP. vs.COURT OF
APPEALSG.R. No. 119286 October 13, 2004FACTS:
Paseo Realty and Development Corporation, a domestic
corporation engaged in the lease of two parcels of land at
Paseo de Roxas in Makati City. On April 16, 1990, petitioner
filed its Income Tax Return for the calendaryear1989
declaring a gross income of P1,855,000.00, deductions of
P1,775,991.00, net income of P79,009.00, an income tax
due thereon in the amount of P27,653.00, prior years
excess credit of P146,026.00, and creditable taxes withheld
in 1989 of P54,104.00 or a total tax credit of P200,130.00
and credit balance of P172,477.00.In a resolution dated
October 21, 1993 Respondent Court reconsidered its
decision of July 29, 1993 and dismissed the petition for
review, stating that it has
overlooked the fact that the petitioners 1989 Corporate
Income Tax Return
(Exh. A) indicated that the amount of P54,104.00 subject
of petitioners claim for refund has already been included
as part and parcel of the P172,477.00 which the petitioner
automatically applied as tax credit for the succeeding
taxable year 1990.
Petitioner filed a Motion for Reconsideration which was
denied by respondent Court on March 10,1994.Petitioner
filed a Petition for Review dated April 3, 1994 with the
Courtof Appeals. Resolving the twin issues of whether petiti
oner is entitled to a refund of P54,104.00 representingcredi
liability, the appellate court held that petitioner is not
entitled to a refund because it had already elected to apply
the total amount of P172,447.00, which includes the
P54,104.00 refund claimed, against its income tax liability
for 1990. The appellate court elucidated on the reason for
its dismissal of petitioners claim for refund.
ISSUE:
Whether or not the alleged excess taxes paid by a
corporation during a taxable year should be refunded or
credited against its tax liabilities for the succeeding year?
RULING:
The petition must be denied. As a matter of principle, it is
not advisable for this Court to set aside the conclusion
reached by an agency such as the CTA which is, by the very
nature of its functions, dedicated exclusively to the study
and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has
been an abuse or improvident exercise of its authority. This
interdiction finds particular application in this case since the
CTA, after careful consideration of the merits of the
Commissioner of Internal Revenues motion for
reconsideration, reconsidered its earlier decision which
ordered the latter to refund the amount of P54,104.00 to
petitioner. Its resolution cannot be successfully assailed
based, as it is, on the pertinent laws as applied to the facts.
Petitioners 1989 tax return indicates an aggregate
creditable tax of P172,477.00, representing its 1988 excess
credit of P146,026.00 and 1989 creditable tax of P54,104.00
less tax due for 1989, which it elected to apply as tax credit
for the succeeding taxable year. According to petitioner, it
successively utilized this amount when it obtained refunds
in CTA Case No. 4439 and CTA Case No. 4528 and applied
its1990 tax liability, leaving a balance of P54,104.00, the
amount subject of the instant claim for refund.
The confusion as to petitioners entitlement to a refund
could altogether have
Been avoided had it presented its tax return for 1990. Such
return would have shown whether petitioner actually
applied its 1989 tax credit of P172,477.00, which includes
the P54,104.00 creditable taxes withheld for 1989subject of
the instant claim for refund, against its 1990 tax liability as
it had elected in its 1989 return, or at least, whether
petitioners tax credit of P172,477.00 was applied to its
approved refunds as it claims. As clearly shown from the
above-quoted provisions, in case the corporation is entitled
to a refund of the excess estimated quarterly income taxes
paid, the refundable amount shown on its final adjustment
return maybe credited against the estimated quarterly
income tax liabilities for the taxable quarters of the
succeeding year. The carrying forward of any excess or
overpaid income tax for a given taxable year is limited to
the succeeding taxable year only. Taxation is a destructive
power which interferes with the personal and property
rights of the people and takes from them a portion of their
property for the support of the government. And since
taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are
thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. A claim of refund or
exemption from tax payments must be clearly shown and
be based on language in the law too plain to be mistaken.
Else wise stated, taxation is the rule, exemption therefrom
is the exception.
CREBA VS ROMULO
FACTS:
CREBA assails the imposition of the minimum corporate
income tax (MCIT) as being violative of the due process
clause as it levies income tax even if there is no realized
gain. They also question the creditable withholding tax
(CWT) on sales of real properties classified as ordinary
assets stating that (1) they ignore the different treatment of
ordinary assets and capital assets; (2) the use of gross
selling price or fair market value as basis for the CWT and
the collection of tax on a per transaction basis (and not on
the net income at the end of the year) are inconsistent with
the tax on ordinary real properties; (3) the government
collects income tax even when the net income has not yet
been determined; and (4) the CWT is being levied upon real
estate enterprises but not on other enterprises, more
particularly those in the manufacturing sector.
ISSUE:
Are the impositions of the MCIT on domestic corporations
and CWT on income from sales of real properties
classified as ordinary assets unconstitutional?
HELD:
NO. MCIT does not tax capital but only taxes income as
shown by the fact that the MCIT is arrived at by deducting
the capital spent by a corporation in the sale of its goods,
i.e., the cost of goods and other direct expenses from gross
sales. Besides, there are sufficient safeguards that exist for
the MCIT: (1) it is only imposed on the 4th year of
operations; (2) the law allows the carry forward of any
excess MCIT paid over the normal income tax; and (3) the
Secretary of Finance can suspend the imposition of MCIT in
justifiable instances.
The regulations on CWT did not shift the tax base of a real
estate business income tax from net income to GSP or FMV
of the property sold since the taxes withheld are in the
nature of advance tax payments and they are thus just
installments on the annual tax which may be due at the end
of the taxable year. As such the tax base for the sale of real
property classified as ordinary assets remains to be the net
taxable income and the use of the GSP or FMV is because
these are the only factors reasonably known to the buyer in
connection with the performance of the duties as a
withholding agent.
Neither is there violation of equal protection even if the
CWT is levied only on the real industry as the real estate
industry is, by itself, a class on its own and can be validly
treated different from other businesses.
PHIL. GUARANTY CO. VS. CIRFACTS:
The Philippine Guaranty Co., Inc., a domestic insurance company,
entered into reinsurance contracts, on various dates, with foreign
insurance companies not doing business in the Philippines. Petitioner
thereby agreed to cede to the foreign reinsurers a portion of the
premiums on insurance it has originally underwritten in the
Philippines, in consideration for the assumption by the latter of
liability on an equivalent portion of the risks insured.
Said reinsurrance contracts were signed by Philippine Guaranty Co.,
Inc. in manila and by the foreign reinsurers outside the Philippines.
Said premiums were excluded by Philippine Guaranty Co., Inc. from
its income when it file its income tax returns. It did not
withhold or pay tax on them. Consequently, the CIR assessed against
PETITIONER withholding tax on the ceded reinsurance premiums.
Petitioner protested the assessment on the that reinsurance
premiums ceded to foreign reinsurers not doing business in the
Philippines are not subject to withholding tax.
CTA:: IN FAVOR OF RESPONDENTR
ISSUE:
whether reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to tax
HELD:
Yes.
The reinsurance premiums are subject to tax. The reinsurance
contracts show that the transactions or activities that
constituted the undertaking to reinsure Philippine Guaranty
Co., Inc. against loses arising from the original insurances in the
Philippines were performed in the Philippines.
Section /4 of the Tax Code subjects foreign corporations to tax on
their income from sources within the Philippine.Sources means
the activity, property, or service giving rise to the income. The
original insurance undertakings too" place in the Philippines. It is not
required that the foreign corporation be engaged in business in the
Philippines. what is controlling is not the place of business, but the
place of activity that created the income. Thus, the income is
subject to income tax.
National Power Corporation vs City of Cabanatuan
FACTS:
NAPOCOR, the petitioner, is a government-owed and
controlled corporation created under Commonwealth Act
120. It is tasked to undertake the development of
hydroelectric generations of power and the production of
electricity from nuclear, geothermal, and other sources, as
well as, the transmission of electric power on a nationwide
basis.
For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75%
of 1% of the formers gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly
paid by the Philippine Government, refused to pay the tax
assessment. It argued that the respondent has no authority
to impose tax on government entities. Petitioner also
contend that as a non-profit organization, it is exempted
from the payment of all forms of taxes, charges, duties or
fees in accordance with Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the
assessed tax, plus surcharge equivalent to 25% of the
amount of tax and 2% monthly interest. Respondent
alleged that petitioners exemption from local taxes has
been repealed by Sec. 193 of RA 7160 (Local Government
Code). The trial court issued an order dismissing the case.
On appeal, the Court of Appeals reversed the decision of
the RTC and ordered the petitioner to pay the city
government the tax assessment.
ISSUES:
(1) Is the NAPOCOR excluded from the coverage of the
franchise tax simply because its stocks are wholly owned by
the National Government and its charter characterized is as
a non-profit organization?
(2) Is the NAPOCORs exemption from all forms of taxes
repealed by the provisions of the Local Government Code
(LGC)?
HELD:
(1) NO. To stress, a franchise tax is imposed based not on
the ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner
was created as a separate and distinct entity from the
National Government. It can sue and be sued under its own
name, and can exercise all the powers of a corporation
under the Corporation Code.
To be sure, the ownership by the National Government of
its entire capital stock does not necessarily imply that
petitioner is no engage din business.
(2) YES. One of the most significant provisions of the LGC is
the removal of the blanket exclusion of instrumentalities
and agencies of the National Government from the
coverage of local taxation. Although as a general rule, LGUs
cannot impose taxes, fees, or charges of any kind on the
National Government, its agencies and instrumentalities,
this rule now admits an exception, i.e. when specific
provisions of the LGC authorize the LGUs to impose taxes,
fees, or charges on the aforementioned entities. The
legislative purpose to withdraw tax privileges enjoyed
under existing laws or charter is clearly manifested by the
language used on Sec. 137 and 193 categorically
withdrawing such exemption subject only to the exceptions
enumerated. Since it would be tedious and impractical to
attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions
or privileges. No more unequivocal language could have
been used.
Sison vs. Ancheta,
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer,
alleged that its provision (Section 1) unduly discriminated
against him by the imposition of higher rates upon his
income as a professional, that it amounts to class
legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as
well as the rule requiring uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held: There is a need for proof of such persuasive character
as would lead to a conclusion that there was a violation of
the due process and equal protection clauses. Absent such
showing, the presumption of validity must prevail. Equality
and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation. Where the differentitation conforms to the
practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within
the meaning of the clause and is therefore uniform.
Taxpayers may be classified into different categories, such
as recipients of compensation income as against
professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as
there is no practically no overhead expense, while
professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is
ample justification to adopt the gross system of income
taxation to compensation income, while continuing the
system of net income taxation as regards professional and
business income.
 Tio vs. Videogram Regulatory Board
Facts:
1. Petitioner on his own behalf and purportedly on behalf of
other videogram operators adversely affected assailed the
constitutionality of PD 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry. The Decree
promulgated on October 5, 1985, took effect on April 10,
1986, fifteen (15) days after completion of its publication in
the Official Gazette.
2. PD 1994 issued a month thereafter reinforced PD 1987 and
in effect amended the National Internal Revenue Code
(NIRC). Petitioner contended among others that the tax
provision of the decree is a rider.
ISSUE: Whether or not the PD 1987 is unconstitutional due
to the tax provision included
RULING: PD 1987 is constitutional.
1. The title of the decree, which calls for the creation of the
VRB is comprehensive enough to include the purposes
expressed in its Preamble and reasonably covered in all its
provisions. It is unnecessary to express all those objectives
in the title or that the latter be an index to the body of the
decree.
2. The foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of the
general object of the decree, which is the regulation of the
video industry through the VRB as expressed in its title. The
tax provision is not inconsistent with nor foreign to the
general subject and title. As a tool for regulation it is simply
one of the regulatory and control mechanisms scattered
throughout the decree.
3. The express purpose of PD 1987 to include taxation of the
video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videos is evident
from Preambles 2 and 5. Those preambles explain the
motives of the lawmaker in presenting the measure.
Philippine Airlines, Inc. vs. Edu
FACTS:
PAL is engaged in the air transportation business under a
legislative franchise (Act 4271), wherein it is exempt from
the
payment of taxes. On the strength of an opinion of the
Secretary of Justice, PAL was determined to have not been
paying motor vehicle registration fees since 1956. The Land
Transportation Commissioner required all tax-exempt
entities, including PAL, to pay motor vehicle registration
fees. PAL protested. The trial court dismissed PALs
complaint. Hence, this petition.
ISSUE:
Are motor vehicle registration fees taxes or regulatory
taxes?
RULING:
They are taxes. Tax are for revenue, whereas fees are
exactions for purposes of regulation and inspection, and are
for that reason limited in amount to what is necessary to
cover the cost of the services rendered in that connection.
It is the object of the charge, and not the name, that
determines whether a charge is a tax or a fee. The money
collected under the Motor Vehicle Law is not intended for
the expenditures of the Motor Vehicle Law is not intended
for the expenditures of the Motor Vehicles Office but
accrues to the funds for the construction and maintenance
of public roads, streets and bridges.
As the fees are not collected for regulatory purposes as an
incident to the enforcement of regulations governing the
operation of motor vehicles on public highways, but to
provide revenue with which the Government is to construct
and maintain public highways for everyones use, they are
veritable taxes, not merely fees.
PAL is, thus, exempt from paying such fees, except for the
period between June 27, 1968 to April 9, 1979, where its
tax exception in the franchise was repealed.
Lutz vs. Araneta,
FACTS: Plaintiff Walter Lutz, in his capacity as judicial
administrator of the intestate estate of Antionio Ledesma,
sought to recover from the CIR the sum of P14,666.40 paid
by the estate as taxes, under section 3 of the CA 567 or the
Sugar Adjustment Act thereby assailing its constitutionality,
for it provided for an increase of the existing tax on the
manufacture of sugar, alleging that such enactment is not
being levied for a public purpose but solely and exclusively
for the aid and support of the sugar industry thus making it
void and unconstitutional. The sugar industry situation at
the time of the enactment was in an imminent threat of
loss and needed to be stabilized by imposition of
emergency measures.
ISSUE: Is CA 567 constitutional, despite its being allegedly
violative of the equal protection clause, the purpose of
which is not for the benefit of the general public but for the
rehabilitation only of the sugar industry?
HELD: Yes. The protection and promotion of the sugar
industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what
is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed
to fully play, subject only to the test of reasonableness; and
it is not contended that the means provided in the law bear
no relation to the objective pursued or are oppressive in
character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the
state's police power.
Osmea vs. Orbos
FACTS: Senator John Osmea assails the constitutionality of
paragraph 1c of PD 1956, as amended by EO 137,
empowering the Energy Regulatory Board (ERB) to approve
the increase of fuel prices or impose additional amounts on
petroleum products which proceeds shall accrue to the Oil
Price Stabilization Fund (OPSF) established for the
reimbursement to ailing oil companies in the event of policy of the law to protect the local consumer by stabilizing
sudden price increases. The petitioner avers that the and subsidizing domestic pump rates, P.D. 1956 expressly
collection on oil products establishments is an undue and authorizes the ERB to impose additional amounts to
invalid delegation of legislative power to tax. Further, the augment the resources of the Fund.
petitioner points out that since a 'special fund' consists of
monies collected through the taxing power of a State, such
2ND SESSION
amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was 1. Chavez v Ongpin (1990)
created. It thus appears that the challenge posed by the
petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, Chavez v Ongpin
partake of the nature of the taxation power of the State. GR No 76778, June 6, 1990

ISSUE: Is there an undue delegation of the legislative power FACTS:

of taxation? Section 21 of Presidential Decree 464 provides that every 5
years starting calendar year 1978, there shall be a provincial
HELD: None. It seems clear that while the funds collected or city general revision of real property assessments. The
may be referred to as taxes, they are exacted in the general revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued
exercise of the police power of the State. Moreover, that
EO 73 stating that beginning January 1, 1987, the 1984
the OPSF as a special fund is plain from the special
assessments shall be the basis of real property taxes.
treatment given it by E.O. 137. It is segregated from the Francisco Chavez, a taxpayer and landowner, questioned the
general fund; and while it is placed in what the law refers to constitutionality of EO 74. He alleges that it will bring
as a "trust liability account," the fund nonetheless remains unreasonable increase in real property taxes.
subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the ISSUE:
constitutional description of a "special fund." With regard Is EO 73 constitutional?
to the alleged undue delegation of legislative power, the
Court finds that the provision conferring the authority upon RULING:
the ERB to impose additional amounts on petroleum Yes. Without EO 73, the basis for collection of real property
products provides a sufficient standard by which the taxes will still be the 1978 revision of property values.
authority must be exercised. In addition to the general 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 revenue must be
adequate to meet government expenditures and their
variations.
2. Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
Algue Inc. is a domestic corp engaged in engineering,
construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR
regarding its delinquency income taxes from 1958-1959,
amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue
Inc on Jan 18
On March 12, a warrant of distraint and levy was
presented to Algue Inc. thru its counsel, Atty. Guevara, who
refused to receive it on the ground of the pending protest
Since the protest was not found on the records, a file
copy from the corp was produced and given to BIR Agent
Reyes, who deferred service of the warrant
On April 7, Atty. Guevara was informed that the BIR
was not taking any action on the protest and it was only then
that he accepted the warrant of distraint and levy earlier
sought to be served
On April 23, Algue filed a petition for review of the
decision of the CIR with the Court of Tax Appeals
CIR contentions:
- the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or
necessary business expense
- payments are fictitious because most of the payees are
members of the same family in control of Algue and that
there is not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for
actual services rendered in the form of promotional fees.
These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of
the Philippine Sugar Estate Development Company.
Issue: W/N the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by Algue as
legitimate business expenses in its income tax returns
Ruling:
Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance, made in
accordance with law.
RA 1125: the appeal may be made within thirty days
after receipt of the decision or ruling challenged
During the intervening period, the warrant was premature
and could therefore not be served.
Originally, CIR claimed that the 75K promotional fees to
be personal holding company income, but later on
conformed to the decision of CTA
There is no dispute that the payees duly reported their
respective shares of the fees in their income tax returns and
paid the corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends
was involved
 CIR suggests a tax dodge, an attempt to evade a
legitimate assessment by involving an imaginary deduction
Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of
receipts was not required. at the end of the year, when the
books were to be closed, each payee made an accounting of
all of the fees received by him or her, to make up the total of
P75,000.00. This arrangement was understandable in view
of the close relationship among the persons in the family
corporation
The amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate
Development Co. to Algue Inc. was P125K. After deducting
the said fees, Algue still had a balance of P50,000.00 as
clear profit from the transaction. The amount of P75,000.00
was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of
the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net
income Expenses - All the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal
services actually rendered xxx
the burden is on the taxpayer to prove the validity of the
claimed deduction
In this case, Algue Inc. has proved that the payment of
the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business
requiring millions of pesos.
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
Taxation must be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer
has a right to complain and the courts will then come to his
succor
Algue Inc.s appeal from the decision of the CIR was filed
on time with the CTA in accordance with Rep. Act No.
1125. And we also find that the claimed deduction by Algue
Inc. was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the CIR.
3. Hydro Resources Contractors Corporation v CTA
Facts:
National Irrigation Administration (NIA) entered into an
agreement with Hydro Resources for the construction of the
Magat River Multipurpose Project in Isabela. Under their
contract, Hydro was allowed to procure new construction
equipment, the payment for which will be advanced by NIA.
Hydro shall repay NIA the costs incurred and the manner of
repayment shall be through deductions from each monthly
payment due to Hydro. Hydro shall repay NIA the full value
of the construction before the eventual transfer of
ownership.
Upon transfer, Hydro was assessed an additional 3% ad
valorem duty which it paid under protest. The Collector of
Customs then ordered for the refund of the ad valorem duty
in the form of tax credit. This was then reversed by the
Deputy Minister of Finance.
Issue:
Whether or not the imposition of the 3% ad valorem tax on
importations is valid.
Held:
No. EO 860 which was the basis for the imposition of the ad
valorem duty took effect December 1982. The importations
were effected in 1978 and 1979 by NIA. It is a cardinal rule
that laws shall have no retroactive effect unless contrary is
provided. EO 860 does not provide for its retroactivity. The
Deputy Minister of Finance even clarified that letters of
credit opened prior to the effectivity of EO 860 are not
subject to its provisions.
In the case, the procurement of the equipment was not on a
tax exempt basis as the import liabilities have been secured
to paid under a financial scheme. It is a matter of
implementing a pre-existing agreement, hence, the imported
articles can only be subject to the rates of import duties
prevailing at the time of entry or withdrawal from the
customs custody.
4. Commissioner of Internal Revenue v Ayala
Securities Corporation
Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their
accumulated surplus so Ayala was charged with 25% surtax
by the Commissioner of internal Revenue. The CTA (Court
of Tax Appeals) reversed the Commissioners decision and
held that the assessment made against Ayala was beyond the
5-yr prescriptive period as provided in section 331 of the
National Internal Revenue Code. Commissioner now files a
motion for reconsideration of this decision. Ayala invokes
the defense of prescription against the right of the
Commissioner to assess the surtax.
Issue:
Whether or not the right to assess and collect the 25% surtax
has prescribed after five years.
Held:
No. There is no such time limit on the right of the
Commissioner to assess the 25% surtax since there is no
express statutory provision limiting such right or providing
for its prescription. Hence, the collection of surtax is
imprescriptible. The underlying purpose of the surtax is to
avoid a situation where the corporation unduly retains its
surplus earnings instead of declaring and paying dividends
to its shareholders. SC reverses the ruling of the CTA.
3RD SESSION
1. Victorias Milling Co. vs. Municipality of Victorias
GR L-21183, 27 September 1968 En Banc, Sanchez
(J): 9 concur
 Facts: Ordinance 1 (1956) was approved by the municipal
council of Victorias by way of an amendment to 2 municipal
ordinances separately imposing license taxes on operators of
sugar centrals and sugar refineries. The changes were: (1)
with respect to sugar centrals, by increasing the rates of
license taxes; and (2) as to sugar refineries, by increasing the
rates of license taxes as well as teh range of graduated
schedule of annual output capacity. Victorias Milling
questioned the validity of Ordinance 1 as it, among others,
allegedly singled out Victorias Milling Co. since it is the
only operator of a sugar central and a sugar refinery within
the jurisdiction of the municipality.
Issue: Whether Ordinance 1 is discriminatory.
Held: The ordinance does not single out Victorias as the
only object of the ordinance but is made to apply to any
sugar central or sugar refinery which may happen to operate
in the municipality. The fact that Victorias Milling is
actually the sole operator of a sugar central and a sugar
refinery does not make the ordinance discriminatory. The
ordinance is unlike that in Ormoc Sugar Company vs.
Municipal Board of Ormoc City, which specifically spelled
out Ormoc Sugar as the subject of the taxation, the name of
the company herein was never mentioned in the ordinance.
2. Villanueva vs. Iloilo City GR L-26521, 28
December 1968 En Banc, Castro (J): 8 concur
Facts: On 30 September 1946, the Municipal Board of
Iloilo City enacted Ordinance 86 imposing license tax
fees upon tenement house (P25); tenemen house partly
engaged or wholly engaged in and dedicated to business
in Baza, Iznart, and Aldeguer Streets (P24 per
apartment); and tenement house, padtly or wholly
engaged in business in other streets (P12 per apartment).
The validity of such ordinance was challenged by
Eusebio and Remedios Villanueva, owners of four
tenement houses containing 34 apartments. The Supreme
Court held the ordinance to be ultra vires. On 15 January
1960, however, the municipal board, believing that it
acquired authority to enact an ordinance of the same
nature pursuant to the Local Autonomy Act, enacted
Ordinance 11 (series of 1960), Eusebio and Remedios
Villaniueva assailed the ordinance anew.
Issue: Whether Ordinance 11 violate the rule of
uniformity of taxation.
Held: The Court has ruled that tenement houses
constitute a distinct class of property; and that taxes are
uniform and equal when imposed upon all property of the
same class or character within the taxing authority. The
fact that the owners of the other classes of buildings in
Iloilo are not imposed upon by the ordinance, or that
tenement taxes are imposed in other cities do not violate
the rule of equality and uniformity. The rule does not
require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same
 time. So long as the burden of tax falls equally and
impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity is
accomplished. The presumption that tax statutes are
intended to operate uniformly and equally was not
overthrown herein.
4th SESSION
G.R. No. 122605 April 30, 2001
SEA-LAND SERVICE, INC., petitioner,
vs.
COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
PARDO, J.:
The Case
Appeal via certiorari from the decision of the Court of
Appeals affirming in toto that of the Court of Tax Appeals
which denied petitioners claim for tax credit or refund of
income tax paid on its gross Philippine billings for taxable
year 1984, in the amount of P870,093.12.1
The Facts
The facts, as found by the Court of Appeals, are as follows:
"Sea-Land Service Incorporated (SEA-LAND),
an American international shipping company
licensed by the Securities and Exchange
Commission to do business in the Philippines
entered into a contract with the United States
Government to transport military household
goods and effects of U.S. military personnel
assigned to the Subic Naval Base.
"From the aforesaid contract, SEA-LAND
derived an income for the taxable year 1984
amounting to P58,006,207.54. During the
taxable year in question, SEA-LAND filed with
the Bureau of Internal Revenue (BIR) the
corresponding corporate Income Tax Return
(ITR) and paid the income tax due thereon of
1.5% as required in Section 25 (a)(2) of the
National Internal Revenue Code (NIRC) in
relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.
"Claiming that it paid the aforementioned
income tax by mistake, a written claim for
refund was filed with the BIR on 15 April 1987.
However, before the said claim for refund could
be acted upon by public respondent
Commissioner of Internal Revenue, petitioner-
appellant filed a petition for review with the
CTA docketed as CTA Case No. 4149, to
judicially pursue its claim for refund and to stop
the running of the two-year prescriptive period
under the then Section 243 of the NIRC.
 "On 21 February 1995, CTA rendered its
decision denying SEA-LANDs claim for
refund of the income tax it paid in 1984."2
On March 30, 1995, petitioner appealed the decision of the
Court of Tax Appeals to the Court of Appeals.3
After due proceedings, on October 26, 1995, the Court of
Appeals promulgated its decision dismissing the appeal and
affirming in toto the decision of the Court of Tax Appeals.4
Hence, this petition.5
The Issue
The issue raised is whether or not the income that petitioner
derived from services in transporting the household goods
and effects of U.S. military personnel falls within the tax
exemption provided in Article XII, paragraph 4 of the RP-
US Military Bases Agreement.
The Courts Ruling
We deny the petition.
The RP-US Military Bases Agreement provides:
"No national of the United States, or
corporation organized under the laws of the
United States, shall be liable to pay income tax
in the Philippines in respect of any profits
derived under a contract made in the United
States with the government of the United States
in connection with the construction,
maintenance, operation and defense of the
bases, or any tax in the nature of a license in
respect of any service or work for the United
States in connection with the construction,
maintenance, operation and defense of the
bases."6
Petitioner Sea-Land Service, Inc. a US shipping company
licensed to do business in the Philippines earned income
during taxable year 1984 amounting to P58,006,207.54, and
paid income tax thereon of 1.5% amounting to P870,093.12.
The question is whether petitioner is exempted from the
payment of income tax on its revenue earned from the
transport or shipment of household goods and effects of US
personnel assigned at Subic Naval Base.
"Laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing power. Taxation is the rule and
exemption is the exception."7 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."8
Under Article XII (4) of the RP-US Military Bases
Agreement, the Philippine Government agreed to exempt
from payment of Philippine income tax nationals of the
United States, or corporations organized under the laws of
the United States, residents in the United States in respect of
any profit derived under a contract made in the United States
with the Government of the United States in connection with
the construction, maintenance, operation and defense of
the bases.
It is obvious that the transport or shipment of household
goods and effects of U.S. military personnel is not included
in the term "construction, maintenance, operation and
defense of the bases." Neither could the performance of this
service to the U.S. government be interpreted as directly
related to the defense and security of the Philippine
territories. "When the law speaks in clear and categorical
language, there is no reason for interpretation or
construction, but only for application."9 Any interpretation
that would give it an expansive construction to encompass
petitioners exemption from taxation would be unwarranted.
The avowed purpose of tax exemption "is some public
benefit or interest, which the lawmaking body considers
sufficient to offset the monetary loss entailed in the grant of
the exemption."10 The hauling or transport of household
goods and personal effects of U. S. military personnel would
not directly contribute to the defense and security of the
Philippines.
We see no reason to reverse the ruling of the Court of
Appeals, which affirmed the decision of the Court of Tax
Appeals. The Supreme "Court will not set aside lightly the
conclusion reached by the Court of Tax Appeals which, by
the very nature of its function, is dedicated exclusively to the
consideration of tax problems and has necessarily developed
an expertise on the subject, unless there has been an abuse or
improvident exercise of authority."11
Hence, the Court of Appeals did not err or gravely abuse its
discretion in dismissing the petition for review. We can not
grant the petition.1wphi1.nt
The Judgment
WHEREFORE, the Court DENIES the petition for lack of
merit.
No costs.
SO ORDERED.
5TH SESSION
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the
public advantage or benefit, derived from such expenditure,
is merely incidental in the promotion of a particular
enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted
this action for declaratory relief, with injunction, upon the
ground that RA No. 920, which apropriates funds for public
works particularly for the construction and improvement of
Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached
to the petition, were nothing but projected and planned
subdivision roads, not yet constructed within the Antonio
Subdivision, belonging to private respondent Zulueta,
situated at Pasig, Rizal; and which projected feeder roads do
not connect any government property or any important
premises to the main highway. The respondents' contention
is that there is public purpose because people living in the
subdivision will directly be benefitted from the construction
of the roads, and the government also gains from the
donation of the land supposed to be occupied by the streets,
made by its owner to the government.
ISSUE: Should incidental gains by the public be considered
"public purpose" for the purpose of justifying an expenditure
of the government?
HELD: No. It is a general rule that the legislature is without
power to appropriate public revenue for anything but a
public purpose. It is the essential character of the direct
object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interest to
be affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of
the advantage of individuals, although each advantage to
individuals might incidentally serve the public.
6th SESSION
Tolentino v. Secretary of Finance
ntino v. Secretary of Finance
Facts:
The value-added tax (VAT) is levied on the sale,
barter or exchange of goods and properties as well
as on the sale or exchange of services. RA 7716
seeks to widen the tax base of the existing VAT
system and enhance its administration by
amending the National Internal Revenue Code.
There are various suits challenging the
constitutionality of RA 7716 on various grounds.
One contention is that RA 7716 did not originate
exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution,
because it is in fact the result of the consolidation
of 2 distinct bills, H. No. 11197 and S. No. 1630.
There is also a contention that S. No. 1630 did not
pass 3 readings as required by the Constitution.
Issue:
Whether or not RA 7716 violates Art. VI, Secs. 24
and 26(2) ofthe Constitution
Held:
The argument that RA 7716 did not originate
exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution will
not bear analysis. To begin with, it is not the law
but the revenue bill which is required by the
Constitution to originate exclusively in the House
of Representatives. To insist that a revenue statute
and not only the bill which initiated the legislative
process culminating in the enactment of the law
must substantially be the same as the House bill
would be to deny the Senates power not only to
concur with amendments but also to propose
amendments. Indeed, what the Constitution simply
means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local
application must come from the House of
Representatives on the theory that, elected as they
are from the districts, the members of the House
can be expected to be more sensitive to the local
needs and problems. Nor does the
Constitutionprohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the
bill from the House, so long as action by the
Senate as a body is withheld pending receipt of the
House bill.
The next argument of the petitioners was that S.
No. 1630 did not pass 3 readings on separate days
as required by the Constitution because the
second and third readings were done on the same
day. But this was because the President had
certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not
only of printing but also that of reading the bill on
separate days. That upon the certification of a
billby the President the requirement of 3 readings
on separate days and of printing and distribution
can be dispensed with is supported by the
weightof legislative practice.
American Bible Society v City of Manila GR No.
L-9637, April 30, 1957
FACTS:
In the course of its ministry, the Philippine agency of American Bible
Society (a foreign, non-stock, non-profit, religious,
missionary corporation) has been distributing and selling bibles and/or
gospel portions thereof throughout the Philippines. The acting City
Treasurer of Manila informed plaintiff that it was conducting the
business of general merchandise since November 1945, without
providing itself with the necessary Mayors permit and municipal
license, in violation of Ordinance No. 3000, as amended, and
Ordinances Nos. 2529, 3028 and 3364. The society paid such under
protest and filed suit questioning the legality of the ordinances under
which the fees are being collected.
ISSUES:
1. Whether or not the ordinances of the City of Manila are
constitutional and valid
2. Whether the provisions of said ordinances are applicable or not
to the case at bar
RULING:
1. Yes, they are constitutional. The ordinances do not deprive
defendant of his constitutional right of the free exercise and enjoyment
of religious profession and worship, even though it prohibits him from
introducing and carrying out a scheme or purpose which he sees fit to
claim as part of his religious system. It seems clear, therefore, that
Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff society.
 ISSUE: Whether or not there has been a violation of equal protection.
2. The ordinance is inapplicable to said business, trade or occupation HELD: The SC held in favor of Ormoc Sugar. The SC noted that even
of the plaintiff. Even if religious groups and the press are not if Sec 2287 of the RAC had already been repealed by a latter statute
altogether free from the burdens of the government, the act of (Sec 2 RA 2264) which effectively authorized LGUs to tax goods and
distributing and selling bibles is purely religious and does not fall merchandise carried in and out of their turf, the act of Ormoc City is
under Section 27e of the Tax Code (CA 466). The fact that the price of still violative of equal protection. The ordinance is discriminatory for
it taxes only centrifugal sugar produced and exported by the Ormoc
bibles, etc. are a little higher than actual cost of the same does not
Sugar Company, Inc. and none other. At the time of the taxing
necessarily mean it is already engaged in business for profit. Thus, the ordinances enactment, Ormoc Sugar Company, Inc., it is true, was the
Ordinances are not applicable to the Society. only sugar central in the city of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to
exclude any subsequently established sugar central, of the same class
Ormoc Sugar vs Treasurer of Ormoc City (1968) as plaintiff, from the coverage of the tax. As it is now, even if later a
similar company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc Sugar Company, Inc. as the
entity to be levied upon.
Equal Protection
Facts: In 1964, Ormoc City passed a bill which read: There shall be
paid to the City Treasurer on any and all productions of centrifugal
sugar milled at the Ormoc Sugar Company Incorporated, in Ormoc
City a municipal tax equivalent to one per centum (1%) per export sale
to the United States of America and other foreign countries. Though
referred to as a production tax, the imposition actually amounts to a
tax on the export of centrifugal sugar produced at Ormoc Sugar
Company, Inc. For production of sugar alone is not taxable; the only
time the tax applies is when the sugar produced is exported. Ormoc
Sugar paid the tax (P7,087.50) in protest averring that the same is
violative of Sec 2287 of the Revised Administrative Code which
provides: It shall not be in the power of the municipal council to
impose a tax in any form whatever, upon goods and merchandise
carried into the municipality, or out of the same, and any attempt to
impose an import or export tax upon such goods in the guise of an
unreasonable charge for wharfage, use of bridges or otherwise, shall be
void. And that the ordinance is violative to equal protection as it
singled out Ormoc Sugar As being liable for such tax impost for no
other sugar mill is found in the city.