ICARD vs COUNCIL OF BAGUIO

Facts:
The City of Baguio has enacted the following ordinances:
1. No. 6-v, providing among other things for an amusement tax of
P0.20 for every person entering a night club licensed to do business in
the city;
2. No. 11-V, providing for a property tax on motor vehicles kept and
operated in the city; and
3. No. 12-V, imposing a graduated license fee on every admission
ticket sold by enterprises enumerated in said ordinance among them,
cinematographs.

Petitioner, a resident of the City of Baguio is holder of a municipal

license for the operation of a night club called "El Club Monaco. As such, he
has to pay to the National Government an amusement tax on its total gross
receipts under section 260 of the Internal Revenue Code, and to the City of
Baguio the annual license fee provided for in said Ordinance No. 6-V. But in
addition to said amusement tax and license fee, he has also been required to
pay the amusement tax imposed in that same ordinance which he paid under
protest.

As owner of a six-passenger automobile for private use a Chevrolet

Ford or Sedan kept and operated in the City of Baguio, he already paid
registration fee under the Revised Motor Vehicle Law, but pursuant to
Ordinance No. 11-V of said city he would also have to pay in addition an
annual property tax on the same automobile. He contends that the
ordinances above mentioned are unjust and ultra vires.
The lower court ruled in favor of petitioner.

Issue: Is the City of Baguio empowered to levy a property tax on motor and
an amusement tax on night clubs?

Held: No
It is settled that a municipal corporation unlike a sovereign state is
clothed with no inherent power of taxation. The charter or statute must
plainly show an intent to confer that power or the municipality, cannot
assume it. And the power when granted is to be construed in strictissimi
juris. Any doubt or ambiguity, that power must be resolved against the
municipality.

In this case, there is no legal provision authorizing its levy by the City
of Baguio. Thus, it is our conclusion that Ordinance No. 6-V, in so far as it
provides for an amusement tax of P0.20 for each person entering a night
club, and Ordinance No. 11-V, which provides for a property tax on motor
vehicles, should be declared illegal and void as beyond the authority of the
City of Baguio to enact.
COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT
COMPANY and COURT OF TAX APPEALS

G.R. No. L-29059 December 15, 1987

Facts:

Commissioner of Internal Revenue was ordered to refund to the Cebu

Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it after
October 1957. CIR claims that the refund should be charged against the tax
deficiency of the private respondent on the sales of cement under Section
186 of the Tax Code.

Private respondent disclaims liability for the sales taxes, on the ground that
cement is not a manufactured product but a mineral product. As such, it was
exempted from sales taxes under Section 188 of the Tax Code after the
effectivity of Rep. Act No. 1299 on June 16, 1955. Justice Eugenio Angeles
declared that "before the effectivity of Rep. Act No. 1299, amending Section
246 of the National Internal Revenue Code, cement was taxable as a
manufactured product under Section 186, in connection with Section 194(4)
of the said Code,"

Issue: Whether or not the sales tax was properly imposed.

Held: YES.

Our ruling is that the sales tax was properly imposed upon the private
respondent for the reason that cement has always been considered a
manufactured product and not a mineral product. The nature of cement as a
"manufactured product" (rather than a "mineral product") is well-settled. It
was enough for the Court to say in effect that even assuming Republic Act
No. 1299 had reclassified cement was a mineral product, the reclassification
could not be given retrospective application (so as to justify the refund of
sales taxes paid before Republic Act 1299 was adopted) because laws
operate prospectively only, unless the legislative intent to the contrary is
manifest, which was not so in the case of Republic Act 1266.

To require the petitioner to actually refund to the private respondent the

amount of the judgment debt, which he will later have the right to distrain
for payment of its sales tax liability is in our view an Idle ritual. We hold that
the respondent Court of Tax Appeals erred in ordering such a charade.

CIR vs Marubeni Corp

GR No 137377
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from
collecting the 1985 deficiency income, branch profit remittance and
contractors taxes from Marubeni Corp after finding the latter to have
properly availed of the tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export

trading, financing and construction, is duly registered in the Philippines with
Manila branch office. CIR examined the Manila branchs books of accounts for
fiscal year ending March 1985, and found that respondent had undeclared
income from contracts with NDC and Philphos for construction of a wharf/port
complex and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for
several deficiency taxes. CIR claims that the income respondent derived were
income from Philippine sources, hence subject to internal revenue taxes. On
Sept 1986, respondent filed 2 petitions for review with CTA: the first,
questioned the deficiency income, branch profit remittance and contractors
tax assessments and second questioned the deficiency commercial brokers
assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for
1981-85, and that taxpayers who wished to avail this should on or before Oct
31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and
donors taxes under Title 3 and business tax under Chap 2, Title 5 of NIRC,
extended the period of availment to Dec 15, 1986 and stated those who
already availed amnesty under EO 41 should file an amended return to avail
of the new benefits. Marubeni filed a supplemental tax amnesty return on
Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed
cancelled the deficiency taxes. CA affirmed on appeal.

Issue:
W/N Marubeni is exempted from paying tax

Held:
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls
under the exception in Sec 4b of EO 41:

Sec. 4. Exceptions.The following taxpayers may not avail themselves of

the amnesty herein granted: xxx b) Those with income tax cases already
filed in Court as of the effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty on
Oct 30, 1986, a case had already been filed and was pending before the CTA
and Marubeni therefore fell under the exception. However, the point of
reference is the date of effectivity of EO 41 and that the filing of income tax
cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency
was filed with CTA on Sept 26, 1986. When EO 41 became effective, the case
had not yet been filed. Marubeni does not fall in the exception and is thus,
not disqualified from availing of the amnesty under EO 41 for taxes on
income and branch profit remittance.

The difficulty herein is with respect to the contractors tax assessment

(business tax) and respondents availment of the amnesty under EO 64,
which expanded EO 41s coverage. When EO 64 took effect on Nov 17, 1986,
it did not provide for exceptions to the coverage of the amnesty for business,
estate and donors taxes. Instead, Section 8 said EO provided that:
Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not
contrary to or inconsistent with this amendatory Executive Order shall remain
in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41
and its date of effectivity. The general rule is that an amendatory act
operates prospectively. It may not be given a retroactive effect unless it is so
provided expressly or by necessary implication and no vested right or
obligations of contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is
still not liable for the deficiency tax because the income from the projects
came from the Offshore Portion as opposed to Onshore Portion. It claims
all materials and equipment in the contract under the Offshore
Portion were manufactured and completed in Japan, not in the
Philippines, and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government
corporations NDC and Philphos. In the contracts, the prices were broken
down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion and
financed either by OECF or by suppliers credit. The Japanese Yen Portion I
corresponds to the Foreign Offshore Portion, while Japanese Yen Portion II
and the Philippine Pesos Portion correspond to the Philippine Onshore
Portion. Marubeni has already paid the Onshore Portion, a fact that CIR does
not deny.)

CIR argues that since the two agreements are turn-key, they call for the
supply of both materials and services to the client, they are contracts for a
piece of work and are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services rendered were all done
and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondents entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine sources.
The total gross receipts covering both labor and materials should be
subjected to contractors tax (a tax on the exercise of a privilege of selling
services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work
was performed in the Philippines because some of them were completed in
Japan (and in fact subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering and
manufacture of the materials and equipment under Japanese Yen Portion I
were made and completed in Japan. These services were rendered
outside Philippines taxing jurisdiction and are therefore not subject
to contractors tax. Petition denied.

Davao Gulf Lumber vs. CIR

GR No. 117359, July 23, 1998
293 SCRA 77

FACTS:

Petitioner is a licensed forest concessionaire possessing a Timber

License Agreement granted by the Ministry of Natural Resources (now
Department of Environment and Natural Resources). petitioner purchased,
from various oil companies, refined and manufactured mineral oils as well as
motor and diesel fuels, which it used exclusively for the exploitation and
operation of its forest concession. Said oil companies paid the specific taxes
imposed, under Sections 153 and 156[7] of the 1977 National Internal
Revenue Code (NIRC), on the sale of said products.

Republic Act No. 1435 entitles miners and forest concessioners to the
refund of 25% of the specific taxes paid by the oil companies, which were
eventually passed on to the user, the petitioner in this case, in the purchase
price of the oil products. Petitioner filed before respondent Commissioner of
Internal Revenue (CIR) a claim for refund in the amount representing 25% of
the specific taxes actually paid on the above-mentioned fuels and oils that
were used by petitioner in its operations. However petitioner asserts that
equity and justice demands that the refund should be based on the increased
rates of specific taxes which it actually paid, as prescribed in Sections 153
and 156 of the NIRC. Public respondent, on the other hand, contends that it
should be based on specific taxes deemed paid under Sections 1 and 2 of RA
1435.

ISSUE:

Whether or not petitioner is entitled under Republic Act No. 1435 to

the refund of 25% of the amount of specific taxes it actually paid on various
refined and manufactured mineral oils and other oil products, and not on the
taxes deemed paid and passed on to them, as end-users, by the oil
companies.

HELD: No.
According to an eminent authority on taxation, "there is no tax
exemption solely on the ground of equity." Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax exemption, it
must be construed strictissimi juris against the grantee. Petitioners claim of
refund on the basis of the specific taxes it actually paid must expressly be
granted in a statute stated in a language too clear to be mistaken.
Thus, the tax refund should be based on the taxes deemed paid.
Because taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax
must be clearly stated in the language of the law; it cannot be merely
implied therefrom.

COCONUT OIL REFINERS ASSOCIATION, INC. vs. TORRES

G.R. No. 132527. July 29, 2005
Facts:
On April 3, 1993, President Fidel V. Ramos issued Executive Order No.
80, which declared, among others, that Clark shall have all the applicable
incentives granted to the Subic Special Economic and Free Port Zone under
Republic Act No. 7227. On June 10, 1993, the President issued Executive
Order No. 97, Clarifying the Tax and Duty Free Incentive within the Subic
Special Economic Zone Pursuant to R.A. No. 7227. Nine days after, on June
19, 1993, Executive Order No. 97-A was issued, further clarifying the Tax
and Duty-Free Privilege within the Subic Special Economic and Free Port
Zone.

Petitioners claim that the assailed issuances constitute executive

legislation, in violation of the rule on separation of powers. Petitioners argue
that the Executive Department, by allowing through the questioned issuances
the setting up of tax and duty-free shops and the removal of consumer goods
and items from the zones without payment of corresponding duties and
taxes, arbitrarily provided additional exemptions to the limitations imposed
by Republic Act No. 7227.

Issue
Whether or not the assailed issuances are null and void for being an
executive legislation.

Held: NO.

Republic Act No. 7227, and consequently Executive Order No. 97-A,
cannot be said to be distinctively arbitrary against the welfare of businesses
outside the zones. The mere fact that incentives and privileges are granted to
certain enterprises to the exclusion of others does not render the issuance
unconstitutional for espousing unfair competition. Said constitutional
prohibition cannot hinder the Legislature from using tax incentives as a tool
to pursue its policies.

Suffice it to say that Congress had justifiable reasons in granting

incentives to the private respondents, in accordance with Republic Act No.
7227s policy of developing the SSEZ into a self-sustaining entity that will
generate employment and attract foreign and local investment. If petitioners
had wanted to avoid any alleged unfavorable consequences on their profits,
they should upgrade their standards of quality so as to effectively compete in
the market. In the alternative, if petitioners really wanted the preferential
treatment accorded to the private respondents, they could have opted to
register with SSEZ in order to operate within the special economic zone.

Francis Churchill et al vs. Venancio Concepcion

Section 100 of Act No. 2339, imposed an annual tax of P4 per square
meter upon "electric signs, billboards, and spaces used for posting or
displaying temporary signs, and all signs displayed on premises not occupied
by buildings." This section was subsequently amended by Act No. 2432, by
reducing the tax on such signs, billboards, etc., to P2 per square meter or
fraction thereof. The taxes imposed by Act No. 2432, as amended, were
ratified by the Congress of the United States.

Francis A. Churchill and Stewart Tait, copartners doing business under

the firm name and style of the Mercantile Advertising Agency, owners of a
sign or billboard containing an area of 52 square meters constructed on
private property in the city of Manila were taxes thereon was P104. The tax
was paid under protest and the plaintiffs having exhausted all their
administrative remedies instituted the present action under section 140 of
Act No. 2339 against the Collector of Internal Revenue to recover back the
amount thus paid. From a judgment dismissing the complaint upon the
merits, with costs, the plaintiffs appealed.

Issue: WON the statute and the tax imposed is void for lack of uniformity;
constitutes double taxation.
Ruling:

No. Sec. 5 of the Philippine Bill declared that the rule of taxation in
said Islands shall be uniform.

Uniformity in taxation means that all taxable articles or kinds of

property, of the same class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries, shall all be assessed at the same rate.
Different articles may be taxed at different amounts, provided the rate is
uniform on the same class everywhere, with all people, and at all times.

The statute under consideration imposes a tax of P2 per square meter

or fraction thereof upon every electric sign, bill-board, etc., wherever found
in the Philippine Islands. Or in other words, "the rule of taxation" upon
such signs is uniform throughout the Islands.

The rule, which we have just quoted from the Philippine Bill, does not
require taxes to be graded according to the value of the subject or subjects
upon which they are imposed, especially those levied as privilege or
occupation taxes. We can hardly see wherein the tax in question constitutes
double taxation. The fact that the land upon which the billboards are located
is taxed at so much per unit and the billboards at so much per square meter
does not constitute "double taxation."

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own

respective behalf and as judicial co-guardians of JOSE
ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents

G.R. No. L-25043 April 26, 1968

FACTS:

Antonio, Eduardo and Jose Roxas, brothers and at the same time
partners of the Roxas y Compania, inherited from their grandparents several
properties namely:

(1) Agricultural lands with a total area of 19,000 hectares, situated in

the municipality of Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila;
and

(3) Shares of stocks in different corporations.

The tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase the farmland. The tenants,
however, did not have enough funds, so the Roxases agreed to a purchase
by installment.

During their bachelor days the Roxas brothers lived in the residential
house at Wright St., Malate, Manila, which they inherited from their
grandparents. After Antonio and Eduardo got married, they resided
somewhere else leaving only Jose in the old house. In fairness to his
brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of
P8,000.00 a year.

The CIR demanded from Roxas y Cia the payment of real estate
dealers tax and tax for dealers of securities @P150.00 each plus P10.00
compromise penalty for late payment. The assessment was based on the
fact that Roxas y Cia. received house rentals from Jose Roxas in the amount
of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real
estate who derives a yearly rental income therefrom in the amount of
P3,000.00 or more is considered a real estate dealer and is liable to pay the
corresponding fixed tax.

Subsequently, the CIR demanded from the brothers the payment of

deficiency income taxes resulting from the sale of the farmlands to its
tenants, 100% of the profits derived therefrom was taxed. The brothers
protested the assessment but the same was denied. On appeal, the Court of
Tax Appeals sustained the assessment. Hence, this petition.

ISSUE:

1. Is the gain derived from the sale of the Nasugbu farm lands an ordinary
gain, hence 100% taxable?

2. Is Roxas y Cia. liable for the payment of the fixed tax on real estate
dealers?

RULING:

1. No. It should be borne in mind that the sale of the farmlands to the
very farmers who tilled them for generations was not only in consonance
with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless.

In order to maintain the general publics trust and confidence in the

Government this power must be used justly and not treacherously. It does
not conform with the sense of justice for the Government to persuade the
taxpayer to lend it a helping hand and later on penalize him for duly
answering the urgent call.

In fine, Roxas cannot be considered a real estate dealer and is not

liable for 100% of the sale. Pursuant to Section 34 of the Tax Code, the lands
sold to the farmers are capital assets and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.

2. Yes. Section 194 of the Tax Code, in considering as real estate dealers
owners of real estate receiving rentals of at least P3,000.00 a year, does not
provide any qualification as to the persons paying the rentals. The law, which
states:

"Real estate dealer" includes any person engaged in the business of

buying, selling, exchanging, leasing or renting property on his own account
as principal and holding himself out as a full or part-time dealer in real estate
or as an owner of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a year xxx. is too
clear and explicit to admit construction. The findings of the Court of Tax
Appeals or, this point is sustained.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V. FERDINAND

J. MARCOS (Presiding Judge of RTC Cebu)
Davide, 1996

FACTS
Mactan Cebu International Airport Authority was created by virtue of RA 6958
to manage the Mactan International Airport and the Lahug Airport. Since the
time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes. In Section 14 of its Charter provides that the
Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and
instrumentalities.

In 1994, however, the Office of the Treasurer of the City of Cebu demanded
payment for realty taxes on several parcels of land belonging to petitioner.
Petitioner objected to such demand, citing Sec. 14. It asserted that it is an
instrumentality of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts limitations on the
taxing powers of local government units. Sec. 133, LGC provides that the
exercise of the taxing powers of provinces, cities, municipalities and
barangays shall not extend to the levy of... taxes, fees or charges of any kind
on the National government, its agencies and instrumentalities and local
government units.

The Respondent City refused to cancel and set aside the realty tax account,
insisting that the MCIAA is a GOCC whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the LGC. Sec. 193 provides
that tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs except local water
districts, cooperatives duly registered under RA 6938, non-stock and non-
profit hospitals and educational institutions are hereby withdrawn upon the
effectivity of this Code. Section 234 meanwhile provides that exemption from
payment of real property tax previously granted to or presently enjoyed by
all persons, whether natural or juridical, including GOCCs are hereby
withdrawn upon the effectivity of the LGC.

Because the City of Cebu was about to issue a warrant of levy against the
properties of MCIAA, the latter was compelled to pay its tax account under
protest. MCIAA likewise filed a petition for declaratory relief with the RTC of
Cebu, contending that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an instrumentality of the
national government. MCIAA insisted that while it is indeed a GOCC, it
nontheless stands on the same footing as an agency or instrumentality of the
national government by the very nature of its powers and functions. The City
however maintained that MCIAA is not an instrumentality of the government
but merely a GOCC performing proprietary functions, and hence, the
exemptions granted to it were deemed withdrawn by virtue of Secs. 193 and
234 of the LGC.

The trial court dismissed the petition. MR denied. Hence this petition.
Petitioner asserts that although it is a GOCC, it is mandated to perform
functions in the same category as an instrumentality of the government. An
instrumentality of the Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people. Petitioner further contends that being an instrumentality of the
National Government, respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with Sec. 133 of the LGC. In Basco
v. PAGCOR, the SC said the local governments have no power to tax
instrumentalities of the National Gov't like PAGCOR, which has a dual role (its
role to regulate gambling casinos is governmental, placing it in the category
of an agency or instrumentality of the Government which should be exempt
from local taxes. Petitioner thus concludes that there is a distinction in the
LGC between a GOCC performing gov't functions as against one performing
merely proprietary ones, and it is clear from Secs. 133 and 234, LGC that the
legislature meant to exclude instrumentalities of the national government
from the taxing powers of LGUs.

ISSUE
Whether petitioner is exempted from payment of taxes or not

RULING
No. Taxation is the rule and exemption is the exception. Thus, the exemption
may be withdrawn at the pleasure of the taxing authority. The only exception
to this rule is where the exemption was granted to private parties based on
material consideration of a mutual nature, which then becomes contractual
and is thus covered by the non-impairment clause of the Constitution.

The general rule, as laid down in Section 133 of the LGC is that the taxing
powers of LGUs cannot extend to the levy of, inter alia, taxes, fees and
charges of any kind on the National Government, its agencies, and
instrumentalities, and LGUs. However, pursuant to Section 232, provinces,
cities and municipalities in the Metro Manila Area MAY impose real property
taxes except on inter alia, real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted for consideration or otherwise, to a taxable person
(Sec. 234a).

As to tax exemptions/incentives granted to or presently enjoyed by natural or

juridical persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn upon the
effectivity of the LGC
EXCEPTION: Those granted to local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals and
educ institutions, and unless otherwise provided in the LGC. This latter
proviso could refer to Section 234 enumerating the properties exempt
from real property tax. The last paragraph of Section 234 further
qualifies the retention of the exemption insofar as real property taxes
are concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration therefore lost the
privilege upon the effectivity of the LGC. Even as to real property
owned by the Rep. Of the Philippines or any of its political subdivisions
 covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property has been
granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes
granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it by its charter has been
withdrawn.

Wenceslao Pascual

vs.

Secretary of Public Works and Communications, et.al

GR No. L-10405 December 29,1960

Facts:

In 1954, petitioner Wenceslao instituted this action challenging the

passage of Republic Act No. 920. This law appropriated P85,000.00 for the
construction, reconstruction, repair, extension and improvement Pasig feeder
road terminals. He claimed that the appropriation was actually going to be
used for private use for the terminals sought to be improved were part of the
Antonio Subdivision. The said Subdivision is owned by Senator Jose Zulueta
who was a member of the same Senate that passed and approved the same
law. Pascual claimed that Zulueta misrepresented in Congress the fact that
he owns those terminals and that his property would be unlawfully enriched
at the expense of the taxpayers if the said law would be upheld. Pascual
then prayed that the Secretary of Public Works and Communications be
restrained from releasing funds for such purpose. Zulueta, on the other hand,
perhaps as an afterthought, donated the said property to the City of Pasig.

RTC Ruling: The appropriation is question was upheld and the case
dismissed.

ISSUE: Whether or not the appropriation is valid.

HELD: No, the appropriation is void for being an appropriation for a private
purpose. The subsequent donation of the property to the government to
make the property public does not cure the constitutional defect. The fact
that the law was passed when the said property was still a private property
cannot be ignored. In accordance with the rule that the taxing power
must be exercised for public purposes only, money raised by taxation
can be expanded only for public purposes and not for the advantage
of private individuals. Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then to Zulueta, the result is
that said appropriation sought a private purpose, and, hence, was null and
void.

PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air
transportation business under a legislative franchise, Act No. 42739. Under
its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner
Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8,
Republic Act 4136, otherwise known as the Land and Transportation and
Traffic Code, requiring all tax exempt entities, among them PAL to pay motor
vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor
vehicles unless the amounts imposed under Republic Act 4136 were paid.
PAL thus paid, under protest, registration fees of its motor vehicles. After
paying under protest, PAL through counsel, wrote a letter dated May
19,1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding
a refund of the amounts paid. Edu denied the request for refund. Hence, PAL
filed a complaint against Edu and National Treasurer UbaldoCarbonell
(Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of
Appeals which in turn certified the case to the Supreme Court.

ISSUE:
Whether or not motor vehicle registration fees are considered as
taxes.

RULING:
They are taxes. Taxes 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.

Lung Center of the Philippines vs. Quezon City and Constantino Rosas

G.R. No. 144104 June 29, 2004

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of land in

Quezon City. Erected in the middle of the aforesaid lot is a hospital known as
the Lung Center of the Philippines. The ground floor is being leased to a
canteen, medical professionals whom use the same as their private clinics, as
well as to other private parties. The right portion of the lot is being leased
for commercial purposes to the Elliptical Orchids and Garden Center. The
petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income
from paying patients, the petitioner receives annual subsidies from the
government.

Petitioner filed a Claim for Exemption from realty taxes amounting to about
Php4.5 million, predicating its claim as a charitable institution. The city
assessor denied the Claim. When appealed to the QC-Local Board of
Assessment, the same was dismissed. The decision of the QC-LBAA was
affirmed by the Central Board of Assessment Appeals, despite the Petitioners
claim that 60% of its hospital beds are used exclusively for charity.

ISSUE:Whether or not the Petitioner is entitled to exemption from realty

taxes notwithstanding the fact that it admits paying clients and leases out a
portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on
its charter and articles of incorporation. As a general principle, a charitable
institution does not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, whether out-patient
or confined in the hospital, or receives subsidies from the government, so
long as the money received is devoted or used altogether to the charitable
object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.

Despite this, the Court held that the portions of real property that are leased
to private entities are not exempt from real property taxes as these are not
actually, directly and exclusively used for charitable purposes.
(strictissimijuris) Moreover, P.D. No. 1823 only speaks of tax exemptions as
regards to:

income and gift taxes for all donations, contributions, endowments

and equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the
Philippines for the actual use and benefit of the Lung Center; and
 taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases (expression uniusest exclusion
alterius/expressiumfacitcessaretacitum).

GR. NO 96541 (August 24, 1993)

DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA SIGUION

REYNA, PROF. RICARTE M. PURUGANAN, IRMA POTENCIANO,
ADRIAN CRISTOBAL, INGRID SANTAMARIA, CORAZON FIEL,
AMBASSADOR E. AGUILAR CRUZ, FLORENCIO R. JACELA, JR., MAURO
MALANG, FEDERICO AGUILAR ALCUAZ, LUCRECIA R. URTULA,
SUSANO GONZALES, STEVE SANTOS, EPHRAIM SAMSON, SOLER
SANTOS, ANG KIU KOK, KERIMA POLOTAN, LUCRECIA KASILAG,
LIGAYA DAVID PEREZ, VIRGILIO ALMARIO, LIWAYWAY A. ARCEO,
CHARITO PLANAS, HELENA BENITEZ, ANNA MARIA L. HARPER,
ROSALINDA OROSA, SUSAN CALO MEDINA, PATRICIA RUIZ, BONNIE
RUIZ, NELSON NAVARRO, MANDY NAVASERO, ROMEO SALVADOR,
JOSEPHINE DARANG, and PAZ VETO PLANAS, petitioners,

vs.

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG),

CATALINO MACARAIG, JR., in his official capacity, and/or the
Executive Secretary, and CHAIRMAN MATEO A.T.

FACTS:

On August 15,1990, Chairman Caparas of the PCGG, signed the

Consignment Agreement with the authority given by the President Aquino on
August 14,1990, through former Executive Secretary Catalino Macaraig, Jr.,
allowing Christie's of New York to auction off (82) Old Masters Paintings
seized from Malacaang and the Metropolitan Museum of Manila and the
(71) cartons of antique silverware in the custody of the Central Bank of the
Philippines, and such other property as may subsequently be identified by
PCGG and accepted by CHRISTIE'S to be subject to the provisions of the
agreement which were alleged to be part of the ill-gotten wealth of the late
President Marcos, his relatives and cronies for and in behalf of the Republic of
the Philippines scheduled January 11,1991.

On October 26,1990, Chairman Eufemio C. Domingo of COA

submitted to President Aquino the audit result on the Consignment
Agreement that: (a) the authority of former PCGG Chairman Caparas to
enter into the Consignment Agreement was of doubtful legality; (b) the
contract was highly disadvantageous to the government; (c) PCGG had a
poor track record in asset disposal by auction in the U.S.; and, (d) the assets
subject of auction were historical relics and had cultural significance, hence,
their disposal was prohibited by law. Then the new PCGG Chairman David M.
Castro, defended the contract made and refuting the allegations of Chairman
Domingo on November 15,1990. On that same date , Director of National
Museum Gabriel S. Casal issued a certification that the items subject of the
Consignment Agreement did not fall within the classification of protected
cultural properties and did not specifically qualify as part of the Filipino
cultural heritage. Hence the petition was filed on January 7,1991. Petitioners,
as taxpayers and citizens, seek to enjoin the PCGG from proceeding with a
previously held auction sale of the Old Masters Paintings and 18 th and 19 th
century silverware seized from Malacanang and the Metropolitan Museum of
Manila and placed in custody of the Central Bank.

ISSUE: Will the suit prosper?

RULING:

There are certain instances however when the Court has allowed
exceptions to the rule on legal standing, as when a citizen brings a case for
mandamus to procure the enforcement of a public duty for the fulfillment of a
public right recognized by the Constitution, and when a taxpayer questions
the validity of a governmental act authorizing the disbursement of public
funds.

Petitioners claim that as Filipino citizens, taxpayers and artists deeply

concerned with the preservation and protection of the country's artistic
wealth, they have the legal personality to restrain respondents Executive
Secretary and PCGG from acting contrary to their public duty to conserve the
artistic creations as mandated by the 1987 Constitution, particularly Art. XIV,
Secs. 14 to 18, on Arts and Culture, and R.A. 4846 known as "The Cultural
Properties Preservation and Protection Act," governing the preservation and
disposition of national and important cultural properties. Petitioners also
anchor their case on the premise that the paintings and silverware are public
properties collectively owned by them and by the people in general to view
and enjoy as great works of art. They allege that with the unauthorized act of
PCGG in selling the art pieces, petitioners have been deprived of their right to
public property without due process of law in violation of the Constitution.

Petitioners' arguments are devoid of merit. They lack basis in fact and
in law. They themselves allege that the paintings were donated by private
persons from different parts of the world to the Metropolitan Museum of
Manila Foundation, which is a non-profit and non-stock corporations
established to promote non-Philippine arts. The foundation's chairman was
former First Lady Imelda R. Marcos, while its president was Bienvenido R.
Tantoco. On this basis, the ownership of these paintings legally belongs to
the foundation or corporation or the members thereof, although the public
has been given the opportunity to view and appreciate these paintings when
they were placed on exhibit.

Having failed to show that they are the legal owners of the artworks or
that the valued pieces have become publicly owned, petitioners do not
possess any clear legal right whatsoever to question their alleged
unauthorized disposition.

Also, Neither can this petition be allowed as a taxpayer's suit. Not

every action filed by a taxpayer can qualify to challenge the legality of official
acts done by the government. A taxpayer's suit can prosper only if the
governmental acts being questioned involve disbursement of public funds
upon the theory that the expenditure of public funds by an officer of the state
for the purpose of administering an unconstitutional act constitutes a
misapplication of such funds, which may be enjoined at the request of a
taxpayer. Obviously, petitioners are not challenging any expenditure
involving public funds but the disposition of what they allege to be public
properties. It is worthy to note that petitioners admit that the paintings and
antique silverware were acquired from private sources and not with public
money.

PHILEX MINING vs CIR & CA G.R. No. 125704. August 28, 1998
Facts: On August 5, 1992, the BIR sent a letter to Philex asking it to settle
its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st
and 2nd quarter of 1992 in the total amount of P123,821,982.52.
Philex protested the demand for payment of the tax liabilities stating that it
has pending claims for VAT input credit/refund for the taxes it paid for the
years 1989 to 1991 in the amount of P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the
tax liabilities, citing our ruling in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. BIR rejected the claim for set off and said since
these pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place. Hence, BIR
reiterated its demand that Philex settle the amount plus interest within 30
days from the receipt of the letter.

Philex thus raised the issue to the Court of Tax Appeals. In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the
amount of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52 effectively lowered the latters tax obligation
of P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still
ordered Philex to pay the remaining balance of P110,677,688.52 plus interest
because for legal compensation to take place, both obligations must
be liquidated and demandable.CTA said liquidated debts are those where the
exact amount has already been determined. Since the claims of the
Petitioner for VAT refund is still pending litigation, and still has to be
determined, the liquidated debt of the Petitioner to the government cannot,
therefore, be set-off against the unliquidated claim which Petitioner
conceived to exist in its favour. Moreover, the Court of Tax Appeals ruled
that taxes cannot be subject to set-off on compensation since claim for taxes
is not a debt or contract.
Philex brought the case to the COURT OF APPEALS who affirmed the CTA
ruling. An MR filed by Philex was also denied. But prior to that, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989
to 1991 but also for 1992 and 1994.
In view of the grant of its VAT input credit/refund, Philex now
contends that the same should, ipso jure, off-set its excise tax
liabilities since both had already become due and demandable, as
well as fully liquidated; hence, legal compensation can properly take
place. Also, Philex asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time
prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise liabilities within the prescribed period
since, after all, it still has pending claims for VAT input credit/refund
with BIR. Finally, Philex asserts that the BIR violated Section
106(e)[30] of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days,[31] when it took
five years for the latter to grant its tax claim for VAT input
credit/refund.
Issues: Can the VAT input credit/refund be set-off against the tax liabilities
of petitioner? Can the petitioner be charged for surcharge and interest for the
non-payment of the excise taxes while its claim for refund is pending? Is the
BIR liable for not granting the tax claim for VAT input credit/refund within 60
days and if so, should the petitioners liability be extinguished by reason
thereof?

Held:

1. No. Taxes cannot be subject to compensation for the simple reason

that the government and the taxpayer are not creditors and debtors
of each other. There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity.

In Francia v. Intermediate Appellate Court, we categorically held that taxes

cannot be subject to set-off or compensation:

We have consistently ruled that there can be no off-setting of

taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected. The collection of tax cannot await the results of a lawsuit against
the government.

Philexs reliance on our holding in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set
off against an existing tax liability even though the refund has not yet
been approved by the Commissioner,is no longer without any support in
statutory law. When the National Internal Revenue Code of 1977 was
enacted, the same provision upon which the Itogon-Suyoc pronouncement
was based was omitted.
2. No. It is a basic principle in tax law that taxes are the lifeblood of
the government and so should be collected without unnecessary
hindrance. Evidently, to countenance Philexs whimsical reason would render
ineffective our tax collection system. Too simplistic, it finds no support in law
or in jurisprudence. To be sure, we cannot allow Philex to refuse the payment
of its tax liabilities on the ground that it has a pending tax claim for refund or
credit against the government which has not yet been granted.
A distinguishing feature of a tax is that it is compulsory rather than a
matter of bargain. Hence, a tax does not depend upon the consent of
the taxpayer. If any payer can defer the payment of taxes by raising
the defense that it still has a pending claim for refund or credit, this
would adversely affect the government revenue system. A taxpayer
cannot refuse to pay his taxes when they fall due simply because he
has a claim against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the
government.
Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving
the government of authority over the manner by which taxpayers credit and
offset their tax liabilities.Corollarily, the fact that Philex has pending claims
for VAT input claim/refund with the government is immaterial for the
imposition of charges and penalties prescribed under Section 248 and 249 of
the Tax Code of 1977. The payment of the surcharge is mandatory and the
BIR is not vested with any authority to waive the collection thereof.[28] The
same cannot be condoned for flimsy reasons,[29] similar to the one advanced
by Philex in justifying its non-payment of its tax liabilities.
3. No. Once a claimant has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch. After
all, since taxpayers owe honesty to government it is but just that
government render fair service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to 1991 but
the refund of these erroneously paid taxes was only granted in 1996.
Obviously, had the BIR been more diligent and judicious with their duty, it
could have granted the refund earlier.
Simple justice requires the speedy refund of wrongly-held taxes. Fair
dealing and nothing less, is expected by the taxpayer from the BIR in
the latter's discharge of its function. The power of taxation is
sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of
a taxpayer. It must be exercised fairly, equally and uniformly, lest
the tax collector kill the 'hen that lays the golden egg.' And, in the
order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.

But it is a settled rule that in the performance of governmental

function, the State is not bound by the neglect of its agents and
officers. Nowhere is this more true than in the field of
taxation. Again, while we understand Philex's predicament, it must
be stressed that the same is not valid reason for the non- payment of
its tax liabilities.
This, however, does not mean that the taxpayer is devoid of remedy against
public servants or employees especially BIR examiners who, in investigating
tax claims are seen to drag their feet needlessly. First, if the BIR takes time
in acting upon the taxpayer's claims for refund, the latter can seek judicial
remedy before the Court of Tax Appeals in the manner prescribed by law.
Second, if the inaction can be characterized as wilful neglect of duty, then
recourse under the Civil Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:"Art. 27. Any person suffering
material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an action for
damages and other relief against the latter, without p rejudice to any
disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of
1997 states:"xxx xxx (c) wilfully neglecting to give receipts, as by law
required for any sum collected in the performance of duty
SEA-LAND SERVICE, INC. v. COURT OF APPEALS, G.R. No. 122605.
April 30, 2001

Sea-Land Service Incorporated (SEA-LAND), an American international

shipping company 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.

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.

"Claiming that it paid the aforementioned income tax by mistake, a written

claim for refund was filed with the BIR. 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, 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.

Issue:

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.

Ruling:

No.

The RP-US Military Bases Agreement provides:

"No national of the United States, or corporation organized under the laws of
the United States, resident in 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."

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." 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."
Virt

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." 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.

Delpher Trades vs. International Court of Appeals, G.R. No. L-69259.

January 26, 1988

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169
square meters of real estate.

The said co-owners leased to Construction Components International Inc. the

same property and providing that during the existence or after the term of
this lease the lessor should he decide to sell the property leased shall first
offer the same to the lessee and the letter has the priority to buy under
similar conditions.

Lessee Construction Components International, Inc. assigned its rights and

obligations under the contract of lease in favor of Hydro Pipes Philippines.

"On January 3, 1976, a deed of exchange was executed between lessors

Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property.

Respondent contend that a contract of sale had been executed between

lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased property.
Petitioner on the other hand contend that ther is no contract of sale, and that
the purpose of the deed of exchange was to invest their properties and
change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their
properties and at the same time save on inheritance taxes.

On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent Hydro
Pipes Philippines, Inc., filed an amended complaint for reconveyance of
property in its favor.

Issue:

WON the action filed by the respondent is meritorious?

Ruling:

No.

The "Deed of Exchange" of property between the Pachecos and Delpher

Trades Corporation cannot be considered a contract of sale. There was no
transfer of actual ownership interests by the Pachecos to a third party. The
Pacheco family merely changed their ownership from one form to another.
The ownership remained in the same hands. Hence, the private respondent
has no basis for its claim of a right of first refusal under the lease contract.

It is to be stressed that by their ownership of the 2,500 no par shares of

stock, the Pachecos have control of the corporation. Their equity capital is
55% as against 45% of the other stockholders, who also belong to the same
family group. In effect, the Delpher Trades Corporation is a business conduit
of the Pachecos. What they really did was to invest their properties and
change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their
properties and at the same time save on inheritance taxes.

After incorporation, one becomes a stockholder of a corporation by

subscription or by purchasing stock directly from the corporation or from
individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil. 649,
citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange
for their properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription. "The
essence of the stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed." (Rohrlich 243,
cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws
of the Philippines, Vol. III, 1980 Edition, p. 430).

The records do not point to anything wrong or objectionable about this

"estate planning" scheme resorted to by the Pachecos. "The legal right of a
taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted."
(Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing
Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
Commissioner of Internal Revenue vs. Estate of Toda, G.R. NO.
147188 : September 14, 2004

On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner
of 99.991% of its issued 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.4

On 30 August 1989, Toda purportedly sold the property for P100

million to Rafael A. Altonaga, who, in turn, sold the same 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 same notary public.5

For the sale of the property to RMI, Altonaga paid capital gains tax in the
amount of P10 million.6

On 16 April 1990, CIC filed its corporate annual income tax return7 for the
year 1989, declaring, among other things, its gain from the sale of real
property in the amount of P75,728.021. After crediting withholding taxes
of P254,497.00, it paid P26,341,2078 for its net taxable income
of P75,987,725.

On 12 July 1990, 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.9 Three and a half years later, or on 16 January 1994, Toda died.

On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment

notice10 and demand letter to the CIC for deficiency income tax for the year
1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC, which is
owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all
tax liabilities for the fiscal years 1987-1989.11

On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by

special co-administrators Lorna Kapunan and Mario Luza Bautista, received a
Notice of Assessment12 dated 9 January 1995 from the Commissioner of
Internal Revenue for deficiency income tax for the year 1989 in the amount
of P79,099,999.22.

The Estate thereafter filed a letter of protest.13

In the letter dated 19 October 1995,14 the Commissioner dismissed the

protest, stating that a fraudulent scheme was deliberately perpetuated by the
CIC wholly owned and controlled by Toda by covering up the additional gain
of P100 million, which resulted in the change in the income structure of the
proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of
35%.
On 15 February 1996, the Estate filed a Petition for Review 15 with the CTA
alleging that the Commissioner erred in holding the Estate liable for income
tax deficiency; that the inference of fraud of the sale of the properties is
unreasonable and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.

Issue:

1. Is this a case of tax evasion or tax avoidance?

2. Has the period for assessment of deficiency income tax for the year
1989 prescribed? and

3. Can respondent Estate be held liable for the deficiency income tax
of CIC for the year 1989, if any?

Ruling:

No.

1. Is this a case of tax evasion or tax avoidance?

Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is
a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.23

Tax evasion connotes the integration of three factors:

(1) the end to be achieved, i.e., the payment of less than that known by the
taxpayer to be legally due, or the non-payment of tax when it is shown that
a tax is due;

(2) an accompanying state of mind which is described as being "evil," in "bad

faith," "willfull," or "deliberate and not accidental"; and

(3) a course of action or failure of action which is unlawful.24

All these factors are present in the instant case. This would show that the
real buyer of the properties was RMI, and not the intermediary Altonaga.

The investigation conducted by the BIR disclosed that Altonaga was a close
business associate and one of the many trusted corporate executives of
Toda.

Petitioner, however, claims there was a "change of structure" of the proceeds

of sale. Admitted one hundred percent. But isn't this precisely the definition
of tax planning? Change the structure of the funds and pay a lower tax.
Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax free transfers of
property for stock, changing the structure of the property and the tax to be
paid. As long as it is done legally, changing the structure of a transaction to
achieve a lower tax is not against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether, a tax.
Surely petitioner [sic] cannot be faulted for wanting to reduce the tax
from 35% to 5%.29 [Underscoring supplied].

The scheme resorted to by CIC in making it appear that there were two sales
of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga
to RMI cannot be considered a legitimate tax planning. Such scheme is
tainted with fraud.

Fraud in its general sense, "is deemed to comprise anything calculated to

deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another."30

Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax. Altonaga's sole purpose of acquiring and
transferring title of the subject properties on the same day was to create a
tax shelter. Altonaga never controlled the property and did not enjoy the
normal benefits and burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR
with the end in view of reducing the consequent income tax
liability.chanroblesvirtua1awlibrary

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which

was prompted more on the mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion.31

Generally, a sale or exchange of assets will have an income tax incidence

only when it is consummated.32 The incidence of taxation depends upon the
substance of a transaction. The tax consequences arising from gains from a
sale of property are not finally to be determined solely by the means
employed to transfer legal title. Rather, the transaction must be viewed as a
whole, and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot be
transformed for tax purposes into a sale by another by using the latter as a
conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to alter
tax liabilities, would seriously impair the effective administration of the tax
policies of Congress.33

To allow a taxpayer to deny tax liability on the ground that the sale was
made through another and distinct entity when it is proved that the latter
was merely a conduit is to sanction a circumvention of our tax laws. Hence,
the sale to Altonaga should be disregarded for income tax purposes.34 The
two sale transactions should be treated as a single direct sale by CIC to RMI.

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 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
issued by the BIR must be upheld.

2. Has the period of assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act
of 1997) read:

Sec. 269. Exceptions as to period of limitation of assessment and collection

of taxes. - (a) In the case of a false or fraudulent return with intent to evade
tax or of failure to file a return, the tax may be assessed, or a proceeding in
court after the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for collection thereof'.

Put differently, in cases of

(1) fraudulent returns;

(2) false returns with intent to evade 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.

As stated above, the prescriptive period to assess the correct taxes in case of
false returns is ten years from the discovery of the falsity. The false return
was filed on 15 April 1990, and the falsity thereof was claimed to have been
discovered only on 8 March 1991.37 The assessment for the 1989 deficiency
income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the
correct assessment for deficiency income tax was well within the prescriptive
period.

3. Is respondent Estate liable for the 1989 deficiency income tax of Cibeles
Insurance Corporation?

A corporation has a juridical personality distinct and separate from the

persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, 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, albeit not
necessarily, with the corporation may validly attach when:

1. He assents to the (a) patently unlawful act of the corporation, (b) bad
faith or gross negligence in directing its affairs, or (c) conflict of interest,
resulting in damages to the corporation, its stockholders, or other persons;

2. He consents to the issuance of watered down stocks or, having knowledge

thereof, does not forthwith file with the corporate secretary his written
objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or

4. He is made, by specific provision of law, to personally answer for his

corporate action.38

It is worth noting that when the late Toda sold his shares of stock to Le Hun
T. Choa, he knowingly and voluntarily held himself personally liable for all the
tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989.
Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:

When the late Toda undertook and agreed "to hold the BUYER and Cibeles
free from any 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, deny liability for CIC's
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Toda's contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.

Republic vs. Mambulao Lumber, G.R. No. L-17725. February 28, 1962

In a case filed by the Republic against the Mambulao Lumber Company

before the CFI Manila (Civil Case 34100), the company admitted that they
have a liability of P587.37 in favor of the government for forest charges
covering the period from 10 September 1952 to 24 May 1953, which liability
is covered by a bond executed by General Insurance & Surety Corporation for
Mambulao Lumber Company, jointly and severally in character, on 29 July
1953, in favor of the Republic. It also admitted liability in the sum of P286.70
in favor of the Republic, covered by a bond dated 27 November 1953; and
another amount of P3,928.30, covered by a bond dated 20 July 1954.

These three liabilities aggregate to P4,802.37. As a defense, the company

claimed to have paid to the Republic of the Philippines P8,200.52 for
reforestation charges for the period commencing from 21 July 1948 to 29
December 1956; and another P927.08 as reforestation charges for the
period commencing from 30 April 1947 to 24 June 1948. These reforestation
charges were paid to the Republic in pursuance of Section 1 of RA 115 which
provides that there shall be collected, in addition to the regular forest
charges provided under Section 264 of Commonwealth Act 466 known as the
National Internal Revenue Code, the amount of P0.50 on each cubic meter of
timber cut out and removed from any public forest for commercial purposes.

The amount collected shall be expended by the director of forestry, with the
approval of the secretary of agriculture and commerce, for reforestation and
afforestation of water sheds, denuded areas and other public forest lands,
which upon investigation, are found needing reforestation or afforestation.
The total amount of the reforestation charges paid by Mambulao Lumber
Company is P9,127.50, and it is its contention since the Republic has not
made use of those reforestation charges collected from it for reforesting the
denuded area of the land covered by its license, the Republic should refund
said amount, or, if it cannot be refunded, at least it should be compensated
with what the company owed the Republic for reforestation charges.

In line with this thought, the company wrote the Director of Forestry, on 21
February 1957, a letter where it requested that its account with the bureau
be credited with all the reforestation charges that it have imposed on them
from 1 July 1947 to 14 June 1956, amounting to around P2,988.62.

This letter was answered by the Director of Forestry on 12 March 1957, in

which the Director quoted an opinion of the Secretary of Justice, to the effect
that he has no discretion to extend the time for paying the reforestation
charges and also explained why not all denuded areas are being reforested.
The trial court ordered the company to pay the Republic the sum of
P4,802.37 with 6% interest thereon from the date of the filing of the
complaint until fully paid, plus costs. The lumber company interposed the
appeal.

Issue:

WON the respondent should be refunded of those reforestation charges

collected from it?

Ruling:

No.

Section 1 provides that there shall be collected, in addition to the regular

forest charges provided for under section 264 of Commonwealth Act 466,
known as the National Internal Revenue Code.

It seems quite clear that the amount collected as reforestation charges from
a timber licensee or concessionaire shall constitute a fund to be known as the
Reforestation Fund, and that the same shall be expended by the Director
of Forestry, with the approval of the Secretary of Agriculture and Natural
Resources for the reforestation or afforestation, among others, of denuded
areas which, upon investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which requires that the
amount collected as reforestation charges should be used exclusively for the
reforestation of the area covered by the license of a licensee or
concessionaire, and that if not so used, the same should be refunded to him.
The licensees area may or may not be reforested at all, depending on
whether the investigation thereof by the Director of Forestry shows that said
area needs reforestation.

The amount paid by a licensee as reforestation charges is in the nature

of a tax which forms a part of the Reforestation Fund, payable by him
irrespective of whether the area covered by his license is reforested
or not. Said fund, as the law expressly provides, shall be expended in
carrying out the purposes provided for thereunder, namely, the reforestation
or afforestation, among others, of denuded areas needing reforestation or
afforestation.

Under Article 1278, NCC, compensation should take place when two persons
in their own right are creditors and debtors of each other. With respect to
the forest charges which the company has paid to the government,
they are in the coffers of the government as taxes collected, and the
government does not owe anything to the company. The Republic and
the company are not creditors and debtors of each other, because
compensation refers to mutual debts. In short, the law on compensation is
inapplicable and the sum of P9,127.50 paid by the company as reforestation
charges may not be compensated for its indebtedness to the Government in
the sum of P4,802.37 as forest charges.

Internal revenue taxes, such as forest charges, cannot be the subject

of set-off or compensation. A claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness
of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on (80 C.J.S.
73-74.).

Rationale for the rule that tax cannot be subject of set-off: Tax not in
the nature of contracts

Based on grounds of public policy, no set-off is admissible against demands

for taxes levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of a duty to, and are the
positive acts of the government, to the making and enforcing of which, the
personal consent of individual taxpayers is not required. If the taxpayer can
properly refuse to pay his tax when called upon by the Collector, because he
has a claim against the governmental body which is not included in the tax
levy, it is plain that some legitimate and necessary expenditure must be
curtailed. If the taxpayers claim is disputed, the collection of the tax must
await and abide the result of a lawsuit, and meanwhile the financial affairs of
the government will be thrown into great confusion. (47 Am. Jur. 766-767.)

Remulla vs. Maliksi, GR No. 171633, Sep 18, 2013

On May 7, 1957, Marietta O'Hara de Villa (de Villa), in her personal capacity
and as administratrix of the estate of her late husband Guillermo, ceded,
through a deed of donation (1957 deed of donation), 134,957 square meters
(sq. m.) (donated portion) of their 396,622 sq. m. property (subject
property) in favor of the Province of Cavite, on which now stands various
government offices and facilities.
On December 28, 1981 and February 1, 1982,[6] the Province of Cavite
respectively filed a Complaint and an Amended Complaint, before the then
Court of First Instance of Cavite seeking to expropriate, for the amount of
P215,050.00, the remaining 261,665 sq. m. of the subject property which
the former intends to develop as the Provincial Capitol Site. Accordingly, the
Province of Cavite made a preliminary deposit of the amount of P21,505.00
and, on January 4, 1982, the RTC issued a Confirmatory Writ of Immediate
Possession in its favor, by virtue of which the Province of Cavite took
possession of the entire property.

For her part, de Villa, through her Answer,[9] opposed the expropriation
proceedings, claiming that there are still areas within the donated portion
which the Province of Cavite failed to develop.[10] She also alleged that the
fair market value of the subject property should be pegged at the amount of
P11,272,500.00, or at P45.00 per sq. m.[11] On June 9, 1989, while the
expropriation case was still pending, de Villa sold, for the amount of
P2,000,000.00,[12] the 261,665 sq. m. portion of the subject property to
Goldenrod, Inc. (Goldenrod), a joint venture company owned by Sonya G.
Mathay (Mathay) and Eleuterio M. Pascual, Jr. (Pascual).[13] Subsequently,
Mathay and Pascual intervened in the expropriation case.[14]

On November 4, 2003, respondent then Cavite Governor Erineo S. Maliksi

(Maliksi) issued Executive Order No. 004[15] authorizing the creation of a
committee which recommended the terms and conditions for the proper
settlement of the expropriation case. The said committee thereafter
submitted its Committee Report[16] dated November 24, 2003 recommending
that: (a) the just compensation be pegged at the amount of P495.00 per sq.
m. plus 6% annual interest for 22 years,[17] for a total net consideration of
P50,000,000.00, which amount shall be equally shouldered by the Province
of Cavite and Trece Martires City; (b) the total area to be expropriated be
limited to only 116,287 sq. m. and the donated portion be reduced to 48,429
sq. m.; and (c) 193,662 sq. m. of the subject property be reverted to
Goldenrod which include a fenced stadium, one-half of the Trece Martires
Cemetery, the forest park; a residential area, and some stalls; in turn,
Goldenrod will construct a commercial/business center, an art/historical
museum, and an educational institution within five years from the signing of
the compromise agreement, among others.

The foregoing recommendations were then adopted/embodied in a

Compromise Agreement[18] dated December 8, 2003 (subject compromise)
entered into by and between Maliksi and then Trece Martires City Mayor
Melencio De Sagun, Jr., both assisted by respondent Cavite Provincial Legal
Officer Atty. Renato A. Ignacio (Ignacio), and, on the other hand, Mathay and
Pascual, in their capacity as owners of Goldenrod. On February 28, 2004,
Goldenrod sold its landholdings to Mathay and Pascual for the amount of
P400,000.00.[19]

Thereafter, the subject compromise was approved by the RTC in a

Decision[20] dated March 18, 2004 and an Amended Decision[21] dated March
25, 2004 (compromise judgment), both of which were ratified by the
Sangguniang Panlalawigan of the Province of Cavite and the Sangguniang
Panlungsod of Trece Martires City per Resolution Nos. 195-S-2004[22] and
2004-049,[23] respectively.

The Proceedings Before The CA

On September 21, 2004, Remulla, in his personal capacity as taxpayer

and as then Vice-Governor and, hence, Presiding Officer of the
Sangguniang Panlalawigan of the Province of Cavite,[24] filed a petition for
annulment of judgment under Rule 47 of the Rules of Court before the CA,
arguing that the subject compromise is grossly disadvantageous to the
government because: (a) the agreed price for the subject property was
excessive as compared to its value at the time of taking in 1981;[26] (b) the
government stands to lose prime lots;[27] and (c) it nullifies/amends the 1957
deed of donation.[28] Moreover, Maliksi entered into the subject compromise
without authority from the Sangguniang Panlalawigan of the Province of
Cavite and sans any certification on the availability of funds as required by
law.[29] Remulla claimed that extrinsic fraud tainted the expropriation
proceedings considering that there was collusion between the parties and
that respondent Ignacio deliberately withheld crucial information regarding
the property valuation and certain incidents prior to the expropriation case
when he presented the subject compromise for ratification before the
Sangguniang Panlalawigan of the Province of Cavite.[30]

On motion of respondents, however, the CA rendered a Resolution[31] dated

May 18, 2005, dismissing Remulla's petition for annulment of judgment
based on the following grounds: (a) there was yet no disbursement of public
funds at the time of its filing; thus, it cannot be considered as a taxpayer's
suit; and (b) Remulla was not a real party in interest to question the
propriety of the subject compromise as he was not a signatory thereto.[32]

Aggrieved, Remulla filed a motion for reconsideration which was, however,

denied by the CA in a Resolution[33] dated February 16, 2006. Hence, the
instant petition.

Issue:

WON the CA is correct indenying Remulla's petition for annulment of

judgment due to his lack of legal standing.

Ruling:

No.

Records bear out that Remulla filed his petition for annulment of judgment in
two capacities: first, in his personal capacity as a taxpayer; and, second, in
his official capacity as then presiding officer of the Sangguniang Panlalawigan
of the Province of Cavite.

With respect to the first, jurisprudence dictates that a taxpayer may be

allowed to sue where there is a claim that public funds are illegally disbursed
or that public money is being deflected to any improper purpose, or that
public funds are wasted through the enforcement of an invalid or
unconstitutional law or ordinance. In this case, public funds of the Province of
Cavite stand to be expended to enforce the compromise judgment. As such,
Remulla being a resident-taxpayer of the Province of Cavite has the
legal standing to file the petition for annulment of judgment and,
therefore, the same should not have been dismissed on said ground.
Notably, the fact that there lies no proof that public funds have already been
disbursed should not preclude Remulla from assailing the validity of the
compromise judgment. Lest it be misunderstood, the concept of legal
standing is ultimately a procedural technicality which may be relaxed by the
Court if the circumstances so warrant.

As observed in Mamba v. Lara, the Court did not hesitate to give standing
to taxpayers in cases where serious legal issues were raised or where public
expenditures of millions of pesos were involved. Likewise, it has also been
ruled that a taxpayer need not be a party to the contract in order to
challenge its validity, or to seek the annulment of the same on the ground of
extrinsic fraud. Indeed, for as long as taxes are involved, the people have a
right to question contracts entered into by the government, as in this case.

Anent the second, Remulla equally lodged the petition for annulment of
judgment in his official capacity as then Vice-Governor and Presiding Officer
of the Sangguniang Panlalawigan of the Province of Cavite. As such, he
represents the interests of the province itself which is, undoubtedly, a real
party in interest since it stands to be either benefited or injured[40] by the
execution of the compromise judgment.

For these reasons, the CA should not have dismissed the petition for
annulment of judgment on account of Remulla's lack of legal standing.
Consequently, the case should be remanded to the said court for further
proceedings.