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Keywords: Free Port Association of Subic Bay Freeport Inc. praying that judgment be rendered declaring
Article 2, Section3.1 of the EO 156 unconstitutional and illegal.
Ynares-Santiago, J.: The RTC rendered a summary judgment declaring that Article 2, Section 3.1 of EO 156
constitutes an unlawful usurpation of legislative power vested by the Constitution with
The Consolidated Cases of: Congress and that the proviso is contrary to the mandate of Republic Act 7227(RA 7227)
G.R. No. 164171 February 20, 2006 or the Bases Conversion and Development Act of 1992 which allows the free flow of
ASSISTANT SECRETARY, LAND TRANSPORTATION OFFICE (LTO), COLLECTOR OF The petitioner appealed in the CA but was denied on the ground of lack of any statutory
CUSTOMS, SUBIC BAY FREE PORT ZONE, AND CHIEF OF LTO, SUBIC BAY FREE PORT basis for the President to issue the same. It held that the prohibition on the importation
ZONE, Petitioners, of use motor vehicles is an exercise of police power vested on the legislature and absent
vs. any enabling law, the exercise thereof by the President through an executive issuance is
SOUTHWING HEAVY INDUSTRIES, INC., represented by its President JOSE T. DIZON, void.
UNITED AUCTIONEERS, INC., represented by its President DOMINIC SYTIN, and
MICROVAN, INC., represented by its President MARIANO C. SONON, Respondents. ISSUES:
1. Whether or not the Private Respondents have the legal standing in
G.R. No. 164172 February 20, 2006 questionaing the said law?
HON. EXECUTIVE SECRETARY, SECRETARY OF THE DEPARTMENT OF 2. Whether or not Article2, Section 3.1 of EO 156 is a valid exercise of the
ZONE, Petitioners, 1. YES. Petitioners argue that respondents will not be affected by the importation
vs. ban considering that their certificate of registration and tax exemption do not
SUBIC INTEGRATED MACRO VENTURES CORP., represented by its President authorize them to engage in the importation and/or trading of used cars.
The established rule that the constitutionality of a law or administrative issuance can be
G.R. No. 168741 February 20, 2006 challenged by one who will sustain a direct injury as a result of its enforcementhas been
HON. EXECUTIVE SECRETARY, HON. SECRETARY OF FINANCE, THE CHIEF OF THE satisfied in the instant case. The broad subject of the prohibited importation is all
LAND TRANSPORTATION OFFICE, THE COMMISSIONER OF CUSTOMS, and THE types of used motor vehicles. Respondents would definitely suffer a direct injury from
COLLECTOR OF CUSTOMS, SUBIC SPECIAL ECONOMIC ZONE, Petitioners, the implementation of EO 156 because their certificate of registration and tax exemption
vs. authorize them to trade and/or import new and used motor vehicles and spare parts,
MOTOR VEHICLE IMPORTERS ASSOCIATION OF SUBIC BAY FREEPORT, INC., except used cars. Other types of motor vehicles imported and/or traded by
represented by its President ALFREDO S. GALANG, Respondent. respondents and not falling within the category of used cars would thus be subjected to
the ban to the prejudice of their business. Undoubtedly, respondents have the legal
FACTS: This instant consolidated petitions seek to annul the decisions of the Regional standing to assail the validity of EO 156.
Trial Court which declared Article 2, Section 3.1 of Executive Order 156
unconstitutional. Said EO 156 prohibits the importation of used vehicles in the country 2. YES BUT
inclusive of the Subic Bay Freeport Zone. Police power is inherent in a government to enact laws, within constitutional limits, to
promote the order, safety, health, morals, and general welfare of society. It is lodged
On December 12, 2002, President Gloria Macapagal Arroyo issued Executive Order 156 primarily with the legislature. By virtue of a valid delegation of legislative power, it may
entitled "Providing for a comprehensive industrial policy and directions for the motor also be exercised by the President and administrative boards, as well as the lawmaking
vehicle development program and its implementing guidelines." The said provision bodies on all municipal levels, including the barangay. Such delegation confers upon the
prohibits the importation of all types of used motor vehicles in the country including the President quasi-legislative power which may be defined as the authority delegated by the
Subic Bay Freeport, or the Freeport Zone, subject to a few exceptions. law-making body to the administrative body to adopt rules and regulations intended to
carry out the provisions of the law and implement legislative policy provided that it must
Consequently, three separate actions for declaratory relief were filed by Southwing comply with the following requisites:
Heavy Industries Inc, Subic Integrated Macro Ventures Corp, and Motor Vehicle Importers
(1) Its promulgation must be authorized by the legislature;
(2) It must be promulgated in accordance with the prescribed procedure; John Hay Peoples Alternative Coalition, et al. vs. Victor Lim, President, Bases
(3) It must be within the scope of the authority given by the legislature; and Conversion Development Authority (BCDA); John Hay Poro Point Development
(4) It must be reasonable. Corp, City of Baguio, Tuntex Co., Ltd., Asiaworld Internationale Group, Inc., DENR

The first requisite was actually satisfied since EO 156 has both constitutional and G.R. No. 119775, October 24, 2003
statutory bases.
Carpio-Morales, J.:
Anent the second requisite, that the order must be issued or promulgated in accordance
with the prescribed procedure, the presumption is that the said executive issuance duly FACTS: Herein petitioners assail the validity of Presidential Decree No. 420, Series of
complied with the procedures and limitations imposed by law since the respondents 1994, CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE
never questioned the procedure that paved way for the issuance of EO 156 but instead, FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT
what they challenged was the absence of substantive due process in the issuance of the TO REPUBLIC ACT NO. 7227. R.A. 7227 is AN ACT ACCELERATING THE CONVERSION
In the third requisite, the Court held that the importation ban runs afoul with the third FUNDS THEREFOR AND FOR OTHER PURPOSES.
requisite as administrative issuances must not be ultra vires or beyond the limits of the R.A. 7227 provides for the conversion into alternative productive uses of former military
authority conferred. In the instant case, the subject matter of the laws authorizing the bases in the Philippines, such as Clark and Subic military reservations and their
President to regulate or forbid importation of used motor vehicles, is the domestic extensions including John Hay Station (Camp John Hay). RA 7227 created BCDA to carry
industry. EO 156, however, exceeded the scope of its application by extending the out the objectives of the law, and the Subic Special Economic (and Free Port) Zone (Subic
prohibition on the importation of used cars to the Freeport, which RA 7227, considers to SEZ), the metes and bounds of which were to be delineated in a Presidential
some extent, a foreign territory. The domestic industry which the EO seeks to protect is Proclamation.
actually the "customs territory" which is defined under the Rules and Regulations Subic SEZ was granted by R.A. 7227 incentives ranging from tax and duty-free
Implementing RA 7227 which states: "the portion of the Philippines outside the Subic Bay importations, exemption of businesses therein from local and national taxes, to other
Freeport where the Tariff and Customs Code of the Philippines and other national tariff hallmarks of a liberalized financial and business climate. R.A. No. 7227 expressly gave
and customs laws are in force and effect." authority to the President to create, through executive proclamation, subject to the
concurrence of the local government units directly affected, other SEZs in areas such as
Regarding the fourth requisite, the Court finds that the issuance of EO is unreasonable. Camp John Hay.
Since the nature of EO 156 is to protect the domestic industry from the deterioration of BCDA entered into a Joint Venture Agreement with private respondents Tuntex and
the local motor manufacturing firms, the Court however, finds no logic in all the Asiaworld for the development of Poro Poin in La Union and Camp John Hay as premier
encompassing application of the assailed provision to the Freeport Zone which is tourist destinations and recreation centers. The Baguio City government passed several
outside the customs territory of the Philippines. As long as the used motor vehicles do resolutions regarding the actions taken by BCDA. Among these involve the exclusion of
not enter the customs territory, the injury or harm sought to be prevented or remedied barangays located within the camp from BCDAs development programs, a development
will not arise. program that affords protection to the environment, family-oriented tourist
destinations, priority for Baguio residents in employment opportunities, and liability for
The Court finds that Article 2, Section 3.1 of EO 156 is VOID insofar as it is made local taxes of businesses to be established within the camp. The Sangguniang
applicable within the secured fenced-in former Subic Naval Base area but is declared Panlungsod of Baguio finally passed a resolution supporting P.D. 420 issued by President
VALID insofar as it applies to the customs territory or the Philippine territory outside the Ramos, declaring a portion of the camp as a SEZ.
presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO P.D. 420 also declared among others that Camp John Hay SEZ is likewise entitled to all
97-A (an EO executed by Pres. Fidel V. Ramos in 1993 providing the Tax and Duty Free applicable incentives of SEZ under Section 12 of RA 7227 such as the tax exemptions
Privilege within the Subic Freeport Zone). Hence, used motor vehicles that come into the aforementioned. Herein petitioners challenged among others this provision of PD 420
Philippine territory via the secured fenced-in former Subic Naval Base area may be on tax exemption for being invalid as it is an unconstitutional exercise by the president
stored, used or traded therein, or exported out of the Philippine territory, but they of a power granted only to the legislature, and that it violates the rule that taxes should
cannot be imported into the Philippine territory outside of the secured fenced-in former be uniform and equitable. Hence, this application to the Supreme Court for temporary
Subic Naval Base area. restraining order and/or writ of preliminary injunction against respondents for
implementation of PD 420.
Petitions are PARTIALLY GRANTED provided that said provision is declared VALID
insofar as it applies to the Philippine territory outside the presently fenced-in former ISSUES: Whether or not PD 420 is constitutional by providing for national and local tax
Subic Naval Base area and VOID with respect to its application to the secured fenced-in exemption within and granting other economic incentives to John Hay SEZ.
former Subic Naval Base area.
RULING: NO. The Court observed that nowhere in RA 7227 is there a grant of tax 3. Where part of a statute is void as contrary to the Constitution, while another part is
exemption to SEZs yet to be established in base areas. The tax exemption provision of valid, the valid portion, if separable from the invalid, may stand and be enforced.
Section 12 of RA 7227 only applies exclusively to Subic SEZ, as confirmed by the
deliberations of the Senate during the reading of the bill of RA 7227 with respect to
investment policies that would govern Subic SEZ.
It is clear that under said Section 12, it is only the Subic SEZ which was granted G.R. No. L-69259 January 26, 1988
by Congress with tax exemption, investment incentives and the like. There is no express DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs.
extension of the aforesaid benefits to other SEZs still to be created at the time via INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC.,
presidential proclamation. respondents.
While the grant of economic incentives may be essential to the creation and success of
SEZs, free trade zones and the like, the grant thereof to John Hay SEZ cannot be GUTIERREZ, JR., J.:
sustained. The incentives under R.A. 7227 are exclusive only to the Subic SEZ, hence, the
extension of the same to the John Hay SEZ finds no support therein. Neither does the Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters
same grant of privileges to the John Hay SEZ find support in the other laws specified of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now
under Section 3 of Proclamation No. 420. Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer
Petitioners are correct in concluding that the grant of tax exemption to John Hay SEZ Certificate of Title No. T-4240 of the Bulacan land registry.
contravenes Article VI, Section 28 (4) of the Constitution which provides that No law The said co-owners leased to Construction Components International Inc. the same
granting any tax exemption shall be passed without the concurrence of a majority of all property and providing that during the existence or after the term of this lease the
the members of Congress. It is the legislature, unless limited by a provision of the state lessor should he decide to sell the property leased shall first offer the same to the lessee
constitution, that has full power to exempt any person or corporation or class of and the letter has the priority to buy under similar conditions.
property from taxation, its power to exempt being as broad as its power to tax. Other The lessee Construction Components International, Inc. assigned its rights and
than Congress, the Constitution may itself provide for specific tax exemptions, or local obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the
governments may pass ordinances on exemption only from local taxes. The challenged signed conformity and consent of lessors.
grant of tax exemption would circumvent the Constitutions imposition that a law In January, 1976, a deed of exchange was executed between lessors Delfin and Pelagia
granting any tax exemption must have the concurrence of a majority of all the members Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to
of Congress. the latter the leased property together with another parcel of land also located in
The claimed statutory exemption of the John Hay SEZ from taxation should be manifest Malinta Estate, Valenzuela, Metro Manila for 2,500 shares of stock of defendant
and unmistakable from the language of the law on which it is based; it must be expressly corporation with a total value of P1,500,000.
granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot On the ground that it was not given the first option to buy the leased property pursuant
be implied as it must be categorically and unmistakably expressed. If it were the intent to the proviso in the lease agreement, respondent Hydro Pipes filed an amended
of the legislature to grant to the John Hay SEZ the same tax exemption and incentives complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to
given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227. those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco
In view of the foregoing, the second sentence of Section 3 of PD 420 is declared NULL and Delphin Pacheco.
AND VOID and of no legal force and effect. The remaining provisions thereof remains After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff.
valid and effective. The judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property. The lower court's decision was
OTHER THINGS to note in the case (baka maitanong ni sir): affirmed on appeal by the Intermediate Appellate Court.
1. When questions of constitutional significance are raised, the court can exercise its The defendants-appellants, now the petitioners, filed a petition for certiorari to review
power of judicial review only if the following requisites are present: (1) the existence of the appellate court's decision.
an actual and appropriate case; (2) a personal and substantial interest of the party The court initially denied the petition but upon motion for reconsideration, the court set
raising the constitutional question; (3) the exercise of judicial review is pleaded at the aside the resolution denying the petition and gave it due course.
earliest opportunity; and (4) the constitutional question is the lis mota of the case. The petitioners allege that:
These are present in the case, thus, SC has jurisdiction to try and decide the case, despite The denial of the petition will work great injustice to the petitioners, in that:
the fact that that RA 7227 actually gives it the jurisdiction to enjoin or restrain 1. Respondent Hydro Pipes Philippines, Inc, will acquire from petitioners a parcel of
implementation of projects for conversion of the base areas. Petitioners also have locus industrial land consisting of 27,169 square meters or 2.7 hectares for only P14/sq.
standi to institute this action as they have real interest over the subject matter. meter, or a total of P380,366, although the prevailing value thereof is approximately
2. The SC can void an act or policy of the political departments of the government on P300/sq. meter or P8.1 Million;
either of two groundsinfringement of the Constitution or grave abuse of discretion. 2. Private respondent is allowed to exercise its right of first refusal even if there is no
"sale" or transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests, A no-par value share does not purport to represent any stated proportionate interest
private respondent will acquire the land not under "similar conditions" by which it was in the capital stock measured by value, but only an aliquot part of the whole number of
transferred to petitioner Delpher Trades Corporation. such shares of the issuing corporation. The holder of no-par shares may see from the
certificate itself that he is only an aliquot sharer in the assets of the corporation. But this
ISSUE: Whether or not the "Deed of Exchange" of the properties executed by the character of proportionate interest is not hidden beneath a false appearance of a given
Pachecos on the one hand and the Delpher Trades Corporation on the other was meant sum in money, as in the case of par value shares. The capital stock of a corporation
to be a contract of sale which, in effect, prejudiced the private respondent's right of first issuing only no-par value shares is not set forth by a stated amount of money, but
refusal over the leased property included in the "deed of exchange." instead is expressed to be divided into a stated number of shares, such as, 1,000 shares.
This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of
HELD: NO. Eduardo Neria, a certified public accountant and son-in-law of the late the corporation, no matter what value they may have, to the extent of 100/1,000 or
Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that 1/10. Thus, by removing the par value of shares, the attention of persons interested in
the corporation was organized by the children of the two spouses (spouses Pelagia the financial condition of a corporation is focused upon the value of assets and the
Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who amount of its debts.
owned in common the parcel of land leased to Hydro Pipes Philippines in order to Moreover, there was no attempt to state the true or current market value of the real
perpetuate their control over the property through the corporation and to avoid taxes; estate. Land valued at P300.00 a square meter was turned over to the family's
that in order to accomplish this end, two pieces of real estate, which had been leased to corporation for only P14.00 a square meter.
Hydro Pipes Philippines, were transferred to the corporation; that the leased property It is to be stressed that by their ownership of the 2,500 no par shares of stock, the
was transferred to the corporation by virtue of a deed of exchange of property; that in Pachecos have control of the corporation. Their equity capital is 55% as against 45% of
exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value the other stockholders, who also belong to the same family group.
shares of stock which are equivalent to a 55% majority in the corporation because the In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
other owners only owned 2,000 shares; and that at the time of incorporation, he knew they really did was to invest their properties and change the nature of their ownership
all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the from unincorporated to incorporated form by organizing Delpher Trades Corporation to
petitioners' motion for reconsideration, they refer to this scheme as "estate planning." take control of their properties and at the same time save on inheritance taxes.
Under this factual backdrop, the petitioners contend that there was actually no transfer As explained by Eduardo Neria:
of ownership of the subject parcel of land since the Pachecos remained in control of the xxx xxx xxx
property. The transfer of ownership, if anything, was merely in form but not in ATTY. LINSANGAN:
substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
co-owners; hence the corporation and the co-owners should be deemed to be the same, Hernandez and Pacheco in connection with their execution of a deed of exchange on the
there being in substance and in effect an Identity of interest." properties for no par value shares of the defendant corporation?
The petitioners maintain that the Pachecos did not sell the property. They argue that A Yes, sir.
there was no sale and that they exchanged the land for shares of stocks in their own COURT:
corporation. Q What do you mean by "point of view"?
On the other hand, the private respondent argues that Delpher Trades Corporation is a A To take advantage for both spouses and corporation in entering in the deed of
corporate entity separate and distinct from the Pachecos. Thus, it contends that it exchange.
cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or ATTY. LINSANGAN:
conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as Q (What do you mean by "point of view"?) What are these benefits to the spouses of this
such a separate and distinct corporate entity, is not a party who may allege that this deed of exchange?
separate corporate existence should be disregarded. It maintains that there was actual A Continuous control of the property, tax exemption benefits, and other inherent
transfer of ownership interests over the leased property when the same was transferred benefits in a corporation.
to Delpher Trades Corporation in exchange for the latter's shares of stock. Q What are these advantages to the said spouses from the point of view of taxation in
We rule for the petitioners. entering in the deed of exchange?
After incorporation, one becomes a stockholder of a corporation by subscription or by A Having fulfilled the conditions in the income tax law, providing for tax free exchange of
purchasing stock directly from the corporation or from individual owners thereof. In the property, they were able to execute the deed of exchange free from income tax and
case at bar, in exchange for their properties, the Pachecos acquired 2,500 original acquire a corporation.
unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, Q What provision in the income tax law are you referring to?
the Pachecos became stockholders of the corporation by subscription "The essence of A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2)
the stock subscription is an agreement to take and pay for original unissued shares of a Exceptions regarding the provision which I quote: "No gain or loss shall also be
corporation, formed or to be formed." It is significant that the Pachecos took no par recognized if a person exchanges his property for stock in a corporation of which as a
value shares in exchange for their properties.
result of such exchange said person alone or together with others not exceeding four actual value of said shares, represented by its book value, was P19,307,500.
persons gains control of said corporation." Documentary stamp taxes were paid based only on the par value of P5,000,000 and not
Q Did you explain to the spouses this benefit at the time you executed the deed of on the book value. Subsequently, petitioner issued deficiency documentary stamps tax
exchange? assessment for the year 1984 in the amounts of (a) P464,898.75, corresponding to the
A Yes, sir amount of automatic increase of the sum assured on the policy issued by respondent,
Q You also, testified during the last hearing that the decision to have no par value share and (b) P78,991.25 corresponding to the book value in excess of the par value of the
in the defendant corporation was for the purpose of flexibility. Can you explain flexibility stock dividends. Private respondent questioned the deficiency assessments and sought
in connection with the ownership of the property in question? their cancellation in a petition filed in the Court of Tax Appeals which found no valid
A There is flexibility in using no par value shares as the value is determined by the board basis for the deficiency tax assessment on the stock dividends, as well as on the
of directors in increasing capitalization. The board can fix the value of the shares insurance policy. Petitioner appealed the CTAs decision to the Court of Appeals which
equivalent to the capital requirements of the corporation. affirmed the CTAs decision insofar as it nullified the deficiency assessment on the
Q Now also from the point of taxation, is there any flexibility in the holding by the insurance policy, but reversed the same with regard to the deficiency assessment on the
corporation of the property in question? stock dividends. A motion for reconsideration of the decision having been denied, both
A Yes, since a corporation does not die it can continue to hold on to the property the Commissioner of Internal Revenue and private respondent appealed to this Court.
indefinitely for a period of at least 50 years. On the other hand, if the property is held by
the spouse the property will be tied up in succession proceedings and the consequential Issue: WON the "automatic increase clause" is separate and distinct from the main
payments of estate and inheritance taxes when an owner dies. agreement and involves another transaction, hence, a deficiency assessment based on
Q Now what advantage is this continuity in relation to ownership by a particular person the additional insurance not covered in the main policy is in order.
of certain properties in respect to taxation?
A The property is not subjected to taxes on succession as the corporation does not die. Held: Yes. It is clear from Section 173 that the payment of documentary stamp taxes is
Q So the benefit you are talking about are inheritance taxes? done at the time the act is done or transaction had and the tax base for the computation
A Yes, sir. of documentary stamp taxes on life insurance policies under Section 183 is the amount
The records do not point to anything wrong or objectionable about this "estate fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary
planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease measurement. Logically, we believe that the amount fixed in the policy is the figure
the amount of what otherwise could be his taxes or altogether avoid them, by means written on its face and whatever increases will take effect in the future by reason of the
which the law permits, cannot be doubted." "automatic increase clause" embodied in the policy without the need of another
The "Deed of Exchange" of property between the Pachecos and Delpher Trades contract. In the instant case, the additional insurance that took effect in 1984 was an
Corporation cannot be considered a contract of sale. There was no transfer of actual obligation subject to a suspensive obligation, but still a part of the insurance sold to
ownership interests by the Pachecos to a third party. The Pacheco family merely which private respondent was liable for the payment of the documentary stamp tax.
changed their ownership from one form to another. The ownership remained in the Finally, it should be emphasized that while tax avoidance schemes and arrangements are
same hands. Hence, the private respondent has no basis for its claim of a light of first not prohibited, tax laws cannot be circumvented in order to evade the payment of just
refusal under the lease contract. taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of
WHEREFORE, the instant petition is hereby GRANTED. the automatic increase clause incorporated into the policy at the time of issuance)
should not be included in the computation of the documentary stamp taxes due on the
policy would be a clear evasion of the law requiring that the tax be computed on the
basis of the amount insured by the policy.

G.R. No. 119176 March 19, 2002

and THE COURT OF APPEALS, respondents. G.R. No. 147188 September 14, 2004
Facts: In the years prior to 1984, private respondent issued a special kind of life
insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature COMMISSIONER OF INTERNAL REVENUE vs.THE ESTATE OF BENIGNO P. TODA, JR.,
of which is a clause providing for an automatic increase in the amount of life insurance Represented by Special Co-administrators Lorna Kapunan and Mario Luza
coverage upon attainment of a certain age by the insured without the need of issuing a Bautista
new policy. Documentary stamp taxes due on the policy were paid by petitioner only on
the initial sum assured. In 1984, private respondent also issued 50,000 shares of stock FACTS: CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued
dividends with a par value of P100 per share or a total par value of P5,000,000. The and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on
which the building stands for an amount of not less than P90 million. Toda purportedly described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental";
sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same and (3) a course of action or failure of action which is unlawful. 24
property on the same day to Royal Match Inc. (RMI) for P200 million. These two
transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the All these factors are present in the instant case. It is significant to note that as early as 4
same notary public. For the sale of the property to RMI, Altonaga paid capital gains tax in May 1989, prior to the purported sale of the Cibeles property by CIC to Altonaga on 30
the amount of P10 million. August 1989, CIC received P40 million from RMI, and not from Altonaga. That P40
million was debited by RMI and reflected in its trial balance as "other inv. Cibeles
CIC filed its corporate annual income tax return for the year 1989, declaring, among Bldg." Also, as of 31 July 1989, another P40 million was debited and reflected in RMIs
other things, its gain from the sale of real property in the amount of P75,728.021. After trial balance as "other inv. Cibeles Bldg." This would show that the real buyer of the
crediting withholding taxes ofP254,497.00, it paid P26,341,207 for its net taxable properties was RMI, and not the intermediary Altonaga.
income of P75,987,725. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa
for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Three and a half Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely
years later, Toda died. Subsequently, Bureau of Internal Revenue (BIR) sent an petitioner cannot be faulted for wanting to reduce the tax from 35% to 5%. The
assessment notice and demand letter to the CIC for deficiency income tax for the year scheme resorted to by CIC in making it appear that there were two sales of the subject
1989. The new CIC asked for a reconsideration, asserting that the assessment should be properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be
directed against the old CIC, and not against the new CIC, which is owned by an entirely considered a legitimate tax planning. Such scheme is tainted with fraud. Fraud in its
different set of stockholders; moreover, Toda had undertaken to hold the buyer of his general sense, "is deemed to comprise anything calculated to deceive, including all acts,
stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989. The omissions, and concealment involving a breach of legal or equitable duty, trust or
estate of Toda then received a Notice of Assessment for the deficiency of income tax in confidence justly reposed, resulting in the damage to another, or by which an undue and
the amount of P79,099,999.22. The Estate thereafter filed a letter of protest. unconscionable advantage is taken of another."

The Commissioner dismissed the protest. The Estate filed a petition for review with the Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale
CTA. CTA held that the Commissioner failed to prove that CIC committed fraud to transactions should be treated as a single direct sale by CIC to RMI. Accordingly, the tax
deprive the government of the taxes due it. The CTA also denied the motion for liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27
reconsideration. The Court of Appeals affirmed the decision of the CTA. (A) of the Tax Reform Act of 1997). CIC is therefore liable to pay a 35% corporate tax for
its taxable net income in 1989. The 5% individual capital gains tax provided for in
ISSUES: Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax
Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency income tax
1. Is this a case of tax evasion or tax avoidance? issued by the BIR must be upheld.

2. Has the period for assessment of deficiency income tax for the year 1989 2. No. (Legal basis: Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform
prescribed? and Act of 1997).

3. Can respondent Estate be held liable for the deficiency income tax of CIC for Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade
the year 1989, if any? tax; and (3) failure to file a return, the period within which to assess tax is ten years
from discovery of the fraud, falsification or omission, as the case may be. The
prescriptive period to assess the correct taxes in case of false returns is ten years from
HELD: 1. Tax evasion. Tax avoidance and tax evasion are the two most common ways the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity
used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device thereof was claimed to have been discovered only on 8 March 1991.The assessment for
within the means sanctioned by law. This method should be used by the taxpayer in the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the
good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside issuance of the correct assessment for deficiency income tax was well within the
of those lawful means and when availed of, it usually subjects the taxpayer to further or prescriptive period.
additional civil or criminal liabilities.
3. Yes. A corporation has a juridical personality distinct and separate from the persons
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the owning or composing it. Thus, the owners or stockholders of a corporation may not
payment of less than that known by the taxpayer to be legally due, or the non-payment generally be made to answer for the liabilities of a corporation and vice versa. There are,
of tax when it is shown that a tax is due; (2) an accompanying state of mind which is however, certain instances in which personal liability may arise. It has been held in a
number of cases that personal liability of a corporate director, trustee, or officer along, incentive, advantage or exemption granted under existing franchises shall ipso facto
albeit not necessarily, with the corporation may validly attach when: become part of previously granted-telecommunications franchise. SMART contends that
by virtue of Section 23, tax exemptions granted by the legislature to other holders of
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith telecommunications franchise may be extended to and availed of by SMART.
or gross negligence in directing its affairs, or (c) conflict of interest, resulting in Petitioner denied SMARTs protest citing the failure of SMART to comply with
damages to the corporation, its stockholders, or other persons; Section 252 or R.A. 7160 or the Local Government Code (LGC) before filing the protest
against the assessment. Section 252 of the LGC requires payment of the tax before any
protest against the tax assessment can be made.
2. He consents to the issuance of watered down stocks or, having knowledge SMART instituted a case against petitioner before the RTC of Iloilo City. The
thereof, does not forthwith file with the corporate secretary his written trial court ruled in favor of SMART and declared the telecommunications firm exempt
objection thereto; from the payment of local franchise and business taxes; it agreed with SMARTs claim of
exemption under Section 9 of its franchise and Section 23 of the Public Telecoms Act.
3. He agrees to hold himself personally and solidarily liable with the Petitioner files this petition for review on certiorari.
corporation; or
Issue: Whether or not SMART is exempt from the payment of local franchise and
4. He is made, by specific provision of law, to personally answer for his business taxes.
corporate action.38
Ruling: NO.
SMART relies on two provisions of law to support its claim for tax exemption:
When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any Section 9 of SMARTs franchise and Section 23 of the Public Telecoms Act.
all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby
voluntarily held himself personally liable therefor. Respondent estate cannot, therefore, Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay
deny liability for CICs deficiency income tax for the year 1989 by invoking the separate the same taxes on their real estate buildings and personal property, exclusive of this
corporate personality of CIC, since its obligation arose from Todas contractual franchise, as other persons or corporations which are now or hereafter may be required
undertaking, as contained in the Deed of Sale of Shares of Stock. by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the business
transacted under the said percentage shall be in lieu of all taxes on this franchise
or earnings thereof; xxxxxxxxxxx

CITY OF ILOILO, Mr. Romeo V. Manikan (Treasurer of Iloilo City) vs. SMART Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in
COMMUNICATIONS, INC. this Code, tax exemptions or incentives granted to, or presently enjoyed by all
G.R. No. 167260. February 27, 2009 persons, whether natural or juridical, xxxxxxx, are hereby withdrawn upon the
Brion, J. effectivity of this Code.

Doctrine: A tax exemption cannot arise from vague inference tax exemptions must be By virtue of Section 193 of the LGC, all tax exemption privileges then enjoyed
clear an unequivocal; A taxpayer claiming a tax exemption must point to a specific by all persons, save those expressly mentioned, have been withdrawn effective January
provision of law conferring on the taxpayer, in clear and plain terms, exemption from a 1, 1992 the date of effectivity of the LGC. However, the withdrawal of exemptions
common burden. pertains only to those already existing when the LGC was enacted. The intention of the
legislature was to remove all tax exemptions or incentives granted prior to the LGC. As
Facts: SMART received a letter of assessment dated February 2, 2002 from petitioner SMARTs franchise was made effective on March 27, 1992 after the effectivity of the
requiring it to pay deficiency local franchise and business taxes in the amount of LGC Section 193 will therefore not apply in this case
P764,545.29, plus interests and surcharges, which it incurred for the years 1997 to
2001. SMART protested the assessment claiming exemption from local franchise and SMART additionally invokes the equality clause under Section 23 of the Public
business taxes based on Section 9 of its legislative franchise under Republic Act No. Telecoms Act:
7294. Under SMARTs franchise, it was required to pay a franchise tax equivalent to 3% Section 23. Equality of Treatment in the Telecommunications Industry. Any
of all gross receipts, which amount shall be in lieu of all taxes. SMART contends that the advantage, favor, privilege, exemption, or immunity granted under existing
in lieu of all taxes clause covers local franchise and business taxes. franchises, or may hereafter be granted, shall ipso facto become part of previously
SMART similarly invoked R.A. 7295 or the Public Telecommunications Policy granted telecommunications franchise and shall be accorded immediately and
Act (Public Telecoms Act) whose Section 23 declares that any existing privilege, unconditionally to the grantees of such franchises: XXXX
The term exemption in Section 23 of the Public Telecoms Act does not mean tax 2.08 From the date hereof until the Transfer Date,
exemption; rather, it refers to exemption from certain regulatory or reporting CONTRACTOR shall, directly or indirectly, own the Power
requirements imposed by government agencies such as the National Station and all the fixtures, fittings, machinery, and
Telecommunications Commission. The thrust of the Public Telecoms Act is to promote equipment on the Site or used in connection with the
the gradual deregulation of entry, pricing and operations of all public Power Station which have been supplied by it or at its
telecommunications entities, and thus to level the playing field in the cost and it shall operate and manage the Power Station
telecommunications industry. for the purpose of converting fuel of NAPOCOR into
The Court finds SMARTs claim for exemption to be unfounded. He who claims an
exemption from his share of the common burden of taxation must justify his claim by 2.09 Until the Transfer Date, NAPOCOR shall, at its own
showing that the Legislature intended to exempt him by words too plain to be beyond cost, supply and deliver all Fuel for the Power Station and
doubt or mistake. The burden therefore is on SMART to prove that, based on its shall take all electricity generated by the Power Station
franchise and the Public Telecoms Act, it is entitled to exemption from the local franchise at the request of NAPOCOR which shall pay to
and business taxes being collected by the petitioner. CONTRACTOR fees as provided in Clause 11.

The OIC of the Municipal Assessors Office of Bauang, La Union initially issued
Petition is granted.
Declaration of Real Property Nos. 25016 and 25022 to 25029 declaring BPPCs
machineries and equipment as tax-exempt. On the initiative of the Bauang Vice Mayor,
the municipality questioned before the Regional Director of the Bureau of Local
NATIONAL POWER CORPORATION vs. CENTRAL BOARD OF ASSESSMENT APPEALS Government Finance (BLGF) the declared tax exemption; later, the issue was elevated to
(CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, the Deputy Executive Director and Officer-in-Charge of the BLGF, Department of Finance,
PROVINCIAL TREASURER, LA UNION and MUNICIPAL ASSESSOR OF BAUANG, LA who ruled that BPPCs machineries and equipments are subject to real property tax and
UNION directed the Assessors Office to take appropriate action.
G.R. No. 171470
January 30, 2009 The Provincial/Municipal Assessors thereupon issued Revised Tax Declaration Nos.
BRION, J.: 30026 to 30033 and 30337, and cancelled the earlier issued Declarations of Real
Property. The Municipal Assessor of Bauang then issued a Notice of Assessment and Tax
FACTS: The National Power Corporation (NAPOCOR) claims in this case that the Bill to BPPC assessing/taxing the machineries and equipments in the total sum of
machineries and equipment used in a project covered by a BOT agreement, to which it is P288,582,848.00 for the 1995-1998 period, sans interest of two percent (2%) on the
a party, should be accorded the tax-exempt status it enjoys. The Local Board of unpaid amounts. BPPCs Vice-President and Plant Manager received the Notice of
Assessment Appeals of the Province of La Union (LBAA), the Central Board of Assessment and Tax Bill on August 1998.
Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting
NAPOCORs claim. In October 1998, NAPOCOR filed a petition (styled In Re Petition to Declare Exempt the
Revised and Retroactive to 1995 Tax Declaration Nos. 30026 to 30033 and 30037) with
Hence, the present petition for review on certiorari filed under Rule 45 of the Rules of the LBAA. The petition asked that, retroactive to 1995, the machineries covered by the
Court by NAPOCOR challenges this uniform ruling and seeks the reversal of the CTAs tax declarations be exempt from real property tax under Section 234(c) of Republic Act
Decision. No. 7160 (the Local Government Code or LGC); and, that these properties be dropped
from the assessment roll pursuant to Section 206 of the LGC. Section 234(c) of the LGC
In 1993, First Private Power Corporation (FPPC) entered into a BOT agreement with provides:
NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in
Payocpoc, Bauang, La Union. The BOT Agreement provided, via an Accession Section 234. Exemptions from Real Property Tax. The
Undertaking, for the creation of the Bauang Private Power Corporation (BPPC) that will following are exempted from the payment of real property
own, manage and operate the power plant/station, and assume and perform FPPCs tax:
obligations under the BOT agreement. For a fee, BPPC will convert NAPOCORs supplied
diesel fuel into electricity and deliver the product to NAPOCOR. xxxx

The pertinent provisions of the BOT agreement, as they relate to the submitted issues in (c) All machineries and equipment that are actually, directly
the present case, read: and exclusively used by local water districts and government-
owned or controlled corporations engaged in the supply The records show that NAPOCOR, no less, admits BPPCs ownership of the machineries
and distribution of water and/or generation and and equipment in the power plant. Likewise, the provisions of the BOT agreement cited
transmission of electric power. above clearly show BPPCs ownership. Thus, ownership is not a disputed issue.

The LBAA denied NAPOCORs petition for exemption. NAPOCOR appealed the LBAA Rather than ownership, NAPOCORs use of the machineries and equipment is the critical
ruling to the CBAA. BPPC moved to intervene on the ground that it has a direct interest issue, since its claim under Sec. 234(c) of the LGC is premised on actual, direct and
in the outcome of the litigation. CBAA subsequently dismissed the appeal based on its exclusive use. To support this claim, NAPOCOR characterizes the BOT Agreement as a
finding that the BPPC, and not NAPOCOR, is the actual, direct and exclusive user of the mere financing agreement where BPPC is the financier, while it (NAPOCOR) is the actual
equipment and machineries; thus, the exemption under Section 234(c) does not apply. user of the properties.
NAPOCOR then filed with the CTA a petition for review. BPPC filed its own petition for
review of the CBAA decision with the CTA. The two petitions were subsequently In a BOT agreement, it is the project proponent who constructs the project at its own
consolidated. The CTA rendered on February 2006 a decision dismissing the cost and subsequently operates and manages it. The proponent secures the return on
consolidated petitions. Hence, this petition for reviews by BPPC and NAPOCOR before its investments from those using the projects facilities through appropriate tolls, fees,
the SC. rentals, and charges not exceeding those proposed in its bid or as negotiated. At the end
of the fixed term agreed upon, the project proponent transfers the ownership of the
ISSUE: facility to the government agency.
Under the terms of the BOT Agreement, can the GOCC be deemed the actual, direct, and
exclusive user of machineries and equipment for tax exemption purposes? If not, can it BPPC has complete ownership both legal and beneficial of the project, including the
pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT machineries and equipment used, subject only to the transfer of these properties
agreement? without cost to NAPOCOR after the lapse of the period agreed upon. Notably, BPPC as
owner-user is responsible for any defect in the machineries and equipment.
Otherwise put, whether NAPOCOR was able to convincingly show the factual basis for its
claimed tax exemption? The arrangement, however, goes beyond the simple provision of funds, since the private
sector proponent not only constructs and buys the necessary assets to put up the
HELD: project, but operates and manages it as well during an agreed period that would allow it
NO, it failed to convincingly show the factual basis for its claimed tax exemption. The to recover its basic costs and earn profits. In other words, the private sector proponent
Court found the petition devoid of merit. NAPOCOR failed to sufficiently show that the goes into business for itself, assuming risks and incurring costs for its account. If it
CTA committed any reversible error in its ruling. NAPOCORs basis for its claimed receives support from the government at all during the agreed period, these are pre-
exemption Section 234(c) of the LGC is clear and not at all ambiguous in its terms. agreed items of assistance geared to ensure that the BOT agreements objectives both
Exempt from real property taxation are: (a) all machineries and equipment; (b) [that for the project proponent and for the government are achieved. In this sense, a BOT
are] actually, directly, and exclusively used by; (c) [local water districts and] government- arrangement is sui generis and is different from the usual financing arrangements where
owned or controlled corporations engaged in the [supply and distribution of water funds are advanced to a borrower who uses the funds to establish a project that it owns,
and/or] generation and transmission of electric power. subject only to a collateral security arrangement to guard against the nonpayment of the
loan. It is different, too, from an arrangement where a government agency borrows
The Court notes, in the first place, that the present case is not the first occasion where funds to put a project from a private sector-lender who is thereafter commissioned to
NAPOCOR claimed real property tax exemption for a contract partner under Sec. 234 (c) run the project for the government agency. In the latter case, the government agency is
of the LGC. In FELS Energy, Inc. v. The Province of Batangas, the Province of Batangas the owner of the project from the beginning, and the lender-operator is merely its agent
assessed real property taxes against FELS Energy, Inc. the owner of a barge used in in running the project.
generating electricity under an agreement with NAPOCOR. Their agreement provided
that NAPOCOR shall pay all of FELS real estate taxes and assessments. We concluded in BPPCs ownership and use of the machineries and equipment are actual, direct, and
that case that we could not recognize the tax exemption claimed, since NAPOCOR was immediate, while NAPOCORs is contingent and, at this stage of the BOT Agreement, not
not the actual, direct and exclusive user of the barge as required by Sec. 234 (c). sufficient to support its claim for tax exemption. Thus, the CTA committed no reversible
error in denying NAPOCORs claim for tax exemption.
The Court also recognized this strictissimi juris standard in NAPOCOR v. City of
Cabanatuan. Under this standard, the claimant must show beyond doubt, with clear
and convincing evidence, the factual basis for the claim. Thus, the real issue in a tax
exemption case such as the present case is whether NAPOCOR was able to convincingly
show the factual basis for its claimed exception.

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