CIR v.
ALGUE (1988)
Petitioner: Commissioner of Internal Revenue
Respondents: Algue, Inc., CTA
Author: Plan
Topic: Life Blood Theory
Doctrine: Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
Facts: (Substantive part)
- Algue, a domestic corporation engaged in engineering, construction and
other allied activities, (Contention of the Respondent) claims a tax
deduction of P75,000 during the years 1958-1959.
- (Contention of the Petitioner) CIR disallowed because it was not an
ordinary reasonable or necessary business expense.
- (Contention of the Respondent) CTA agreed with Algue and held that the
said amount had been legitimately paid by Algue for actual services
rendered. The payment was in the form of promotional fees. These were
collected for the creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company (PSEDC). PSEDC appointed
Algue as its agent, authorized to sell its land, factories and oil
manufacturing process. Algue received a commission of P126,000, P75,000
were given as promotional fees to the payees who really did the work.
There was no dispute that the respective shares were duly reported in
their respective income taxes.
- CIR claims that those payments were fictitious.
Issue: W/N CIR correctly disallowed the P75,000 tax deduction – NO.
Held: NO
- Ordinary and necessary expenses are allowable deductions from gross
income. Among others, it includes reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service
- SC held that Algue sufficiently proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees
in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
- It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender
part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
Other Notes:
- Test of deductibility in case of compensation of payments: Any amount
paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation
may be a distribution of a dividend on stock. This is likely to occur in the
case of a corporation having few stockholders, practically all of whom draw
salaries. If in such a case the salaries are in excess of those ordinarily paid
for similar services, and the excessive payment correspond or bear a close
relationship to the stockholdings of the officers of employees, it would
seem likely that the salaries are not paid wholly for services rendered, but
the excessive payments are a distribution of earnings upon the stock. . . .
- It is worth noting at this point that most of the payees were not in the
regular employ of Algue nor were they its controlling stockholders.
1
TIO v. VIDEOGRAM REGULATORY BOARD (1987)
Petitioner: Valentin Tio (Omi Enterprises)
Respondents: Videogram Regulatory Board, Minister of Finance, et al.
Author: Plan
- The levy of the 30% tax is for a public purpose. It was imposed primarily to
Topic: Purpose of Taxation; Regulatory
Doctrine: The tax levy on videogram operators is for a public purpose. It was
imposed primarily to answer the need for regulating and protecting the video
industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes.
public viewing. It is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting
the tax burden on the buying or the viewing public. It is a tax that is
imposed uniformly on all videogram operators.
answer the need for regulating the video industry, particularly because of
the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was
also an objective to protect the movie industry, the tax remains a valid
imposition.

Facts:
- PD 1987 was passed with broad powers to regulate and supervise the
videogram industry. It requires a collection of an annual tax of P5 on each
processed video-tape cassette, ready for playback, regardless of length,
provided that locally manufactured or imported blank video tapes shall be
subject to sales tax. It also requires provinces to collect a tax of 30% of the
purchase price or rental rate.
- (Contention of the Petitioner) Tio challenges the constitutionality of PD
1987. Among others, Tio contends that the tax imposed is harsh,
confiscatory, oppressive and/or in unlawful restraint of trade in violation of
the due process clause of the Constitution.

Issue: W/N PD 1987 is constitutional – YES.

Held: YES
- The SC ruled that PD 1987 is allied and germane to, and is reasonably
necessary for the accomplishment of its general objective. The tax
provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation, it is simply one of the regulatory and control
mechanisms. The express purpose to include taxation of the video industry
in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms.
- The tax imposed not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of
around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is an end-
user tax, imposed on retailers for every videogram they make available for
2
PHILIPPINE HEALTH CARE PROVIDERS v. CIR (2009)
Petitioner: Philippine Health Care Providers
Respondents: Commissioner of Internal Revenue
Author: Plan
Topic: Purpose of Taxation; Regulatory
Doctrine: Tax impositions must be strictly construed against the taxing authorities
because of its destructive power. Hence, it may not be extended beyond the clear
implication of the language of the law. It is not the purpose of the government to
throttle with private business. On the contrary, the government ought to encourage
private enterprise. HMOs, just like any concern organized for a lawful economic
activity have a right to maintain legitimate business. HMOs should not be arbitrarily
and unjustly included in the DST coverage.
Facts:
- Petitioner is a domestic corporation whose primary purpose is to establish,
maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the
sick and disabled persons enrolled in the health care plan and to provide
for the admin, legal, and financial responsibilities of the organization.
- CIR assessed the petitioner and found a tax deficiency because of the
imposed Documentary Stamp Tax (DST) – construing sec 185 of the 1997
Tax Code, and that the petitioner is engaged in insurance business.
- CA held that the health care agreement was in the nature of a non-life
insurance contract subject to DST. SC initially held for the CIR. It also held
that DST is not a tax on the business transacted but an excise on the
privilege, opportunity or facility offered at exchanges for the transaction of
the business; Petitioners filed a Motion for Reconsideration.
Issue: W/N the petitioners are included in the DST coverage – NO.
Held: NO
- The SC ruled sec 185 of the 1997 Tax Code should be strictly construed.
- Petitioner is admittedly an HMO. Under RA 7875 (or The National Health
Insurance Act of 1995), an HMO is an entity that provides, offers or
arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium. The payments do not vary with the
extent, frequency or type of services provided.
- The fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is
received therefore, shall not be deemed conclusive to show that the
making thereof does not constitute the doing or transacting of an
insurance business.
- An incidental element of risk distribution or assumption may be present
should not outweigh all other factors. If attention is focused only on that
feature, the line between insurance or indemnity and other types of legal
arrangement and economic function becomes faint, if not extinct.
- As an HMO, it is its obligation to maintain the good health of its members.
Accordingly, its health care programs are designed to prevent or to
minimize the possibility of any assumption of risk on its part. Thus, its
undertaking is not to indemnify its members against any loss or damage
arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.
- Petitioner appears to provide insurance-type benefits but these are
incidental to the principal activity of providing them medical care. The
insurance-like aspect of petitioners business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health
care services rather than insurance services, it cannot be considered as
being in the insurance business.
- In construing sec 185 of the 1997 Tax Code, we should be guided by the
principle that tax statutes are strictly construed against the taxing
authority. This is because taxation is a destructive power which interferes
with the personal and property rights of the people and takes from them a
portion of their property for the support of the government. Hence, tax
laws may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not
specifically provided.
- As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay it.[51]
So potent indeed is the power that it was once opined that the power to
tax involves the power to destroy
- 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.
3
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. MARCOS (1996) owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.
(Reversed) ~2010 MIAA
- While MCIAA insisted that while it is indeed a GOCC, it nonetheless stands
Petitioner: Mactan Cebu International Airport Authority (MCIAA)
on the same footing as an agency or instrumentality of the national
Respondents: Judge Ferdinand Marcos, RTC Cebu
government by the very nature of its powers and functions.
Author: Plan
- Respondent judge dismissed the Declaratory Relief filed by MCIAA.
Topic: Limitations of Taxing Power; Inherently Legislative
Issue: W/N the MCIAA should be exempted to pay realty taxes – NO.
Doctrine: The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely by
Held: NO
virtue of a valid delegation as before, but pursuant to direct authority conferred by
- There can be no question that under sec 14 of RA 6958 the petitioner is
sec 5, art X of the Constitution. Under the latter, the exercise of the power may be
exempt from the payment of realty taxes imposed by the National
subject to such guidelines and limitations as the Congress may provide which,
Government or any of its political subdivisions, agencies, and
however, must be consistent with the basic policy of local autonomy.
instrumentalities. Nevertheless, since taxation is the rule and exemption
GOCC’s may be subject to local government tax. LGU’s power to impose tax is not
therefrom the exception, the exemption may thus be withdrawn at the
inherent.
pleasure of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material
Facts:
consideration of a mutual nature, which then becomes contractual and is
- MCIAA was created by virtue of RA 6958, mandated to principally
thus covered by the non-impairment clause of the Constitution.
undertake the economical, efficient and effective control, management
- Since the last paragraph of Section 234 unequivocally withdrew, upon the
and supervision of the Mactan International Airport in the Province of
effectivity of the LGC, exemptions from payment of real property taxes
Cebu and the Lahug Airport in Cebu City.
granted to natural or juridical persons, including government-owned or
- Since the time of its creation, MCIAA enjoyed the privilege of exemption
controlled corporations, except as provided in the said section, and the
from payment of realty taxes in accordance with Section 14 of its Charter
petitioner is, undoubtedly a GOCC, it necessarily follows that its exemption
- However, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer
from such tax granted it in sec 14 of its Charter, has been withdrawn.
of the City of Cebu, demanded payment for realty taxes on several parcels
- Moreover, the petitioner cannot claim that it was never a taxable person
of land belonging to MCIAA.
under its Charter. It was only exempted from the payment of real property
- MCIAA contended that sec 14 of RA 6958 exempts it from payment of
taxes. The grant of the privilege only in respect of this tax is conclusive
realty taxes. It was also asserted that it is an instrumentality of the
proof of the legislative intent to make it a taxable person subject to all
government performing governmental functions, citing sec 133 (o) of the
taxes, except real property tax.
LGC of 1991 – Common Limitations on the Taxing Power of Local
Government Units. (o) Taxes, fees or charges of any kind on the national
government, its agencies and instrumentalities, and LGUs.
- Respondent insisted that MCIAA is a GOCC whose tax exemption privilege
has been withdrawn by virtue of secs 193 and 234 of the LGC that took
effect on January 1, 1992. Moreover, sec 234 provides that any exemption
from payment of real property tax previously granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-

4
NAPOCOR v. CITY OF CABANAUAN (2003)
Petitioner: National Power Corporation
Respondents: City of Cabanatuan
Author: Plan
Topic: Limitations of Taxing Power; Inherently Legislative
Doctrine: Power to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other charges pursuant
to Article X, section 5 of the 1987 Constitution, viz:
"Section 5. Each Local Government unit shall have the power to create its own
sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."
Facts:
- Petitioner is a GOCC created under CA 120. For many years, NAPOCOR sells
electric power to the residents of Cabanatuan City, posting a gross income
of P107,814,187.96 in 1992. Pursuant to sec 37 of Ordinance No. 165-92,8
the Respondent assessed NAPOCOR a franchise tax representing the
latter's gross receipts for the preceding year.
- NAPOCOR argued that the Respondent has no authority to impose tax on
government entities. NAPOCOR also contended that as a non-profit
organization, it is exempted from the payment of all forms of taxes,
charges, duties or fees in accordance with sec 13 of RA 6395, as amended.
- Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160
- Respondent filed a case against NAPOCOR. RTC denied but CA reversed.
Issue: W/N Respondent LGU has the power to impose tax on NAPOCOR – YES.
Held: YES
- Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being
of the people.
- In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit.
- In the case at bar, sec 151 in relation to sec 137 of the LGC clearly
authorizes the respondent LGU to impose on the petitioner the franchise
tax (Ordinance No. 165-92). In its general signification, a franchise is a
privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right.
- Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with
the provisions of this Code.
- Moreover, as a rule, tax exemptions are construed strongly against the
claimant. Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions. In the case at bar, the petitioner's sole
refuge is sec 13 of RA 6395 exempting from, among others, "all income
taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government
agencies and instrumentalities." However, sec 193 of the LGC withdrew,
subject to limited exceptions, the sweeping tax privileges previously
enjoyed by private and public corporations. Contrary to the contention of
petitioner, sec 193 of the LGC is an express, albeit general, repeal of all
statutes granting tax exemptions from local taxes.
- Sec 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations
except (1) local water districts, (2) cooperatives duly registered under R.A.
6938, (3) non-stock and non-profit hospitals and educational institutions,
are withdrawn upon the effectivity of this code, the obvious import is to
limit the exemptions to the three enumerated entities.
5
ABAKADA v. ERMITA (2005)
(consolidated cases)
Petitioner: Abakada Guro Partylist, et. al.
Respondent: Secretary Eduardo Ermita
Author: Aguilar
Topic: Constitutional Limitations of Taxation; Art VI Sec 28 (1-2)
Doctrine:
- Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times. The rule of uniform taxation does not deprive Congress
of the power to classify subjects of taxation, and only demands uniformity within
the particular class.
- RA 9337 is also equitable. The said law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and
agricultural food products in their original state are still not subject to the tax, thus
ensuring that prices at the grassroots level will remain accessible. It is admitted that
RA 9337 puts a premium on businesses with low profit margins, and unduly favors
those with high profit margins.
Ruling + Ratio: YES
- Uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. Different articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere
with all people at all times. In this case, the tax law is uniform as it provides a
standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of
RA 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for
a rate of 10% (or 12%) on sale of goods and properties, importations of goods, and
sale of services and use or lease of properties. These same sections also provide for
a 0% rate on certain sales and transactions. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.
- RA 9337 is also equitable. The said law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and
agricultural food products in their original state are still not subject to the tax, thus
ensuring that prices at the grassroots level will remain accessible. It is admitted that
RA 9337 puts a premium on businesses with low profit margins, and unduly favors
those with high profit margins.
Disposition: Supreme Court upheld the constitutionality of RA 9337.

Facts: Petitioners herein filed a petition for prohibition questioning the

constitutionality of Sections 4, 5 and 6 of RA 9337, amending Sections 106, 107 and
108, respectively, of the NIRC. Section 4 imposes a 10% VAT on sale of goods and
properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use of lease of properties. The
questioned provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12% after the
following conditions have been satisfied:

I. VAT collection as a percentage of GDP of the previous year exceeds two and four-
fifth percent
II. National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent.

Hence, this petition.

Issue: Whether or not RA 9337 is uniform and equitable.

6
TOLENTINO v. SECRETARY OF FINANCE
Petitioners: Arturo M. Tolentino, et. al.
Respondents: Secretary of Finance, et. al.
Author: Alfonso
Topic: Constitutional Limitations of Taxation; Art VI Sec 28 (1)
Doctrine: Equality and uniformity of taxation means that all taxable articles or kinds
of property of the same class be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
To satisfy this requirement it is enough that the statute or ordinance applies equally
to all persons, forms and corporations placed in similar situation.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to
taxpayers’ ability to pay.
because it is only imposed on sales of goods or services by persons
engaged in business with an aggregate annual sales exceeding P200,
000.00.
- The CREBA claims that VAT is regressive because it imposes a flat rate of
tax and thus places the tax burden on all taxpayers without regard to their
ability to pay. The Court held, however, that the Constitution does not
really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall “evolve a
progressive system of taxation.” The constitutional provision has been
interpreted to mean simply that “direct taxes are to be preferred and as
much as possible, indirect taxes should be minimized.”
Disposition: SC upheld the constitutionality of R.A. No. 7716. SC denied the motions
for reconsideration with finality and the TRO previously issued was lifted.

Facts:
- There are motions filed seeking reconsideration of the decision of the
Supreme Court dismissing the petitions for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. Arturo Tolentino et. al. are assailing the
constitutionality of EVAT Law on different grounds.
- (Contention of the Petitioner) The Chamber of Real Estate and Builders
Association (CREBA), one of the petitioners, contends that the VAT will
reduce the mark up of its members by as much as 85% to 90%. CREBA
asserts, inter alia, that R.A. No. 7716 violates the rule that taxes should be
uniform and equitable and that Congress shall “evolve a progressive
system of taxation.”

Issue: W/N R.A. 7716 violates Article VI, Section 28(1) of the Constitution which
provides that “The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.” – NO

Ruling + Ration: NO
- The SC ruled that R.A. No. 7716 is not violative of Art. VI, Section 28(1) of
the Constitution. Indeed the VAT was already provided in E.O. No. 273 long
before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base
of the tax. The validity of the original VAT Law was questioned on grounds
similar to these cases. Rejecting the challenge to the law, the Court held
that E.O. 273 satisfies the requirements of a valid tax. It is uniform because
it is applied similarly on all goods or services which are not exempt, at the
constant rate of 0% or 10%. The disputed sales tax is also equitable
7
HENARES VS. ST. PAUL COLLEGE OF MAKATI (March 8, 2017)

Petitioners: Kim Jacinto-Henares, as Commissioner of BIR

Respondents: St. Paul Collage Makati
Author: Balasta

Topic: Constitutional Limitations of Taxation; Art VI Sec 28 (3); RMO 20-2013; RMO
34-2014
Facts:
1. Respondent, a non-stock non-profit educational institution, is questioning
the constitutionality of RMO 20-2013, issued by then Commissioner Kim
Henares which requires non-stock nonprofit institutions to submit an
application for tax exemption to the BIR subject to approval by CIR in the
form of a Tax Exemption Ruling, which is valid for 3 years and subject to
renewal, it further adds that failure to file an annual information return a
ground for a non-stock, non-profit educational institution to "automatically
lose its income tax-exempt status.
2. Petitioner contends that the RMO is unconstitutional, in violation of the
below provision Art VI, Sec 28(3), for it imposes a prerequisite to the
enjoyment of a constitutional privilege, which is otherwise not provided.
3. The RTC ruled in favor of St. Paul finding that the RMO, by imposing the
prerequisites, if not complied with, would serve as a diminution of the
constitutional privilege, which even Congress cannot diminish by
legislation, much more the CIR.

Issue: W/N the RMO is unconstitutional.

Held: The RMO is unconstitutional, however the court denied the petition for being
moot and academic, as the new CIR, in July 2016 issued RMO 44-2016, clarifying
that the RMO in question excludes non-stock non-profit educational institutions.
The constitutional exemption, as stated in past ruling only requires 1) The school
must be non-stock non profit and 2) the income is actually, directly, and exclusively
used for educational purposes.

Notes: Topic is constitutional limitation. Article VI Sec 28 (3) – Charitable

institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or educational purposes, shall be
exempt from taxation.

8
LUNG CENTER OF THE PHILIPPINES v. QUEZON CITY
Petitioner: Lung Center of the Philippines
Respondents: Quezon City and Constantino P. Rosas, in his capacity as City Assessor
of Quezon City
Author: Balbastro
Topic: Constitutional Limitations of Taxation; Art VI Sec 28 (3)
Doctrine: 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.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to
the purposes for which the charitable institution is organized.
Facts:
- The petitioner Lung Center of the Philippines is a nonstock and non-profit
entity established by virtue of Presidential Decree No. 1823. It is the
registered owner of a parcel of land. Erected in the middle of the aforesaid
lot is a hospital known as the Lung Center of the Philippines.
- A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients
whom they charge for their professional services.Almost one-half of the
entire area on the left side of the building is vacant and idle, while a big
portion on the right side is being leased for commercial purposes.
- 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.
- Both the land and the hospital building of the petitioner were assessed for
real property taxes in the amount of P4,554,860 by the City Assessor of
Quezon City. Accordingly, tax Declarations were issued for the land and the
hospital building, respectively.
- The petitioner filed a Claim for Exemption from real property taxes with
the City Assessor, predicated on its claim that it is a charitable institution.
(DENIED)
- Petition was filed before the Local Board of Assessment Appeals of Quezon
City (QC-LBAA) for the reversal of the resolution. (DISMISSED)
- Central Board of Assessment Appeals of Quezon City (CBAA) affirmed QC-
LBAA decision.
- CA affirmed the decision of the CBAA. Hence, this petition.
- Contention: The petitioner avers that it is a charitable institution within the
context of Section 28(3), Article VI of the 1987 Constitution. It asserts that
its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases
portions of the land to private parties, and rents out portions of the
hospital to private medical practitioners from which it derives income to be
used for operational expenses.
Issues: (a) W/N the petitioner is a charitable institution
(b) W/N the real properties of the petitioner are exempt from real
property taxes
Ruling + Ratio:
(a) Yes
- The test whether an enterprise is charitable or not is whether it exists to
carry out a purpose reorganized in law as charitable or whether it is
maintained for gain, profit, or private advantage.
- The elements which should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and bylaws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
- Under P.D. No. 1823, the petitioner is a nonprofit and non-stock
corporation organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines. Thus, the medical services of the petitioner are
to be rendered to the public in general in any and all walks of life including
those who are poor and the needy without discrimination.
- 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
9
 receives subsidies from the government, so long as the money received is being leased to a private individual for her business enterprise under the
devoted or used altogether to the charitable object which it is intended to business name “Elliptical Orchids and Garden Center.”
achieve; and no money inures to the private benefit of the persons - SC hold that the portions of the land leased to private entities as well as
managing or operating the institution. those parts of the hospital leased to private individuals are not exempt
- Under P.D. No. 1823, the petitioner is entitled to receive donations. The from such taxes. On the other hand, the portions of the land occupied by
petitioner does not lose its character as a charitable institution simply the hospital and portions of the hospital used for its patients, whether
because the gift or donation is in the form of subsidies granted by the paying or non-paying, are exempt from real property taxes.
government.
Disposition: Petition is PARTIALLY GRANTED.
(b) Those portions of its 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.
- Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly and exclusively used for religious, charitable
or educational purposes shall be exempt from taxation.
- The tax exemption under this constitutionsal provision covers property
taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the
1986 Constitutional Commission, explained: “. . . what is exempted is not
the institution itself . . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes.”
- In order to be entitled to the exemption, the petitioner is burdened to
prove, that (a) it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
- What is meant by actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual application of
the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.
- The petitioner failed to discharge its burden to prove that the entirety of
its real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of
patients and the dispensation of medical services to them, whether paying
or non-paying, other portions thereof are being leased to private
individuals for their clinics and a canteen. Further, a portion of the land is

10
CIR v. COURT OF APPEALS whatever source and wherever used are TAXABLE. The court noted that while YMCA
is exempt from real property tax, it is not exempt from income tax on rentals from
Petitioner: Commissioner of Internal Revenue its property.
Respondents: Court of Appeals and Young Men’s Christian Association of the Furthermore, the tax exemption claimed by the respondent has no basis in
Philippines, Inc. Article VI Section 28 (3) of the Constitution because it failed to prove that it was a
Author: Barba non-stock non-profit educational institution under Article XIV Section 4 (3) of the
Constitution.
Topic: Constitutional Limitations of Taxation; Art VI Sec 28 (3)
Doctrine: Because taxes are lifeblood of the nation, the court has always applied Disposition: Petition is granted. Resolutions of CA is reversed and set aside.
the doctrine of strict interpretation in construing tax exemptions. Furthermore, a
claim of statutory exemption from taxation should be manifest and unmistakable
from the language of the law on which it is based. Thus, the claimed exemption
must expressly be granted in a statute stated in a language too clear to be
mistaken.

Facts:
1. Private respondent is a non-stock non-profit institution which conducts
various programs and activities that are beneficial to public, especially
people pursuant to religious, educational and charitable objectives.
2. In 1980, respondent earned an income from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators and
parking fees collected from non-members.
3. Petitioner CIR issued an assessment for surcharge and interest, deficiency
income tax, withholding taxes on rentals and professional fees and
withholding tax on wages.
4. Private respondent protested but its claims were denied.
5. Court of Tax Appeals dismissed the assessments with respect to deficiency
tax, deficiency contractor’s tax and deficiency income tax while the
assessments on deficiency withholding tax and deficiency withholding tax
on wages, surcharge and interest re hereby sustained.
6. Dissatisfied, petitioner CIR elevated the case to the Court of Appeals.
7. Court of Appeals reversed the decision. YMCA asked for reconsideration
which was granted and affirmed the CTA’s decision.
Issue: Whether or not the CIR can tax the leased premises of YMCA’s property.

Ruling: Yes
The Supreme Court ruled that the income from the lease and parking fees
were not exempt. The last paragraph of Section 27 of the NIRC clearly provides that
profits realized by exempt organizations (non-profit clubs) from real property of
11
CIR VS ST. LUKES (September 26, 2012)
Petitioner: COMMISSIONER OF INTERNAL REVENUE
Respondent: ST. LUKE'S MEDICAL CENTER, INC
Author: Cabuso
Topic: Constitutional Limitations (Article VI Section 28(3))
Doctrine:
Both the organization and operations of the charitable institution must be devoted
"exclusively" for charitable purposes. The organization of the institution refers to its
corporate form, as shown by its articles of incorporation, by-laws and other
constitutive documents. The operations of the charitable institution generally refer
to its regular activities. Section 30(E) of the NIRC requires that these operations be
exclusive to charity. There is also a specific requirement that "no part of [the] net
income or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person."
Thus, even if the charitable institution must be "organized and operated
exclusively" for charitable purposes, it is nevertheless allowed to engage in
"activities conducted for profit" without losing its tax exempt status for its not-for-
profit activities. The only consequence is that the "income of whatever kind and
character" of a charitable institution "from any of its activities conducted for profit,
regardless of the disposition made of such income, shall be subject to tax."
Facts:
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and
non-profit corporation. On 16 December 2002, the Bureau of Internal Revenue
(BIR) assessed St Luke’s deficiency taxes amounting to ₱76,063,116.06 for 1998,
comprising deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. The BIR reduced the amount to
₱63,935,351.57 during trial in the First Division of the Court of Tax Appeals (CTA).
This petition was a review on certiorari under Rule 45 of the Rules of Court of the
Decision of 19 November 2010 of the CTA and its Resolution of 1 March 2011 in CTA
Case No. 6746. The Supreme Court resolved this case on a pure question of law,
which involved the interpretation of sub-section 27(B) and its interaction with sub-
sections 30(E) and (G) of the National Internal Revenue Code of the Philippines
(NIRC), on the income tax treatment of proprietary nonprofit hospitals.
The BIR had argued before the CTA that section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary nonprofit hospitals, should
be applicable to St Luke’s. According to the BIR, section 27(B), introduced in 1997,
‘is a new provision intended to amend the exemption on non-profit hospitals that
were previously categorized as non-stock, non-profit corporations under Section 26
of the 1997 Tax Code…’. It is a specific provision which prevails over the general
exemption on income tax granted under sub-sections 30(E) and (G) for non-stock,
non-profit charitable institutions and civic organisations promoting social welfare.
The BIR contended that St Luke’s was not really operating for charitable purposes,
but was for profit, on the basis that only 13% of its revenues came from its
charitable purposes.
St Luke’s took the position that the BIR should not consider its total revenues,
because its free services to patients amounted to ₱218,187,498 or 65.20% of its
1998 operating income (i.e. total revenues less operating expenses) of
₱334,642,615. St Luke’s also claimed that its income did not inure to the benefit of
any individual, and that its making a profit did not affect its status as exempt from
taxation under sub-sections 30(E) and (G) of the NIRC.
Issue:
W/N St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC, which imposes a preferential tax rate of 10% on the income of proprietary
non-profit hospitals
Ruling:
Yes, St. Lukes is liable for deficiency income tax in 1998. However, it is not liable for
surcharges and interest on such deficiency income tax.
The court held that the effect of the introduction of Section 27(B) is to subject the
taxable income of two specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate under Section 27(B) instead of
the ordinary 30% corporate rate under the last paragraph of Section 30 in relation
to Section 27(A)(1).
"Non-profit" does not necessarily mean "charitable." On the other hand, charity is
essentially a gift to an indefinite number of persons which lessens the burden of
government. In other words, charitable institutions provide for free goods and
services to the public which would otherwise fall on the shoulders of government.
Thus, as a matter of efficiency, the government forgoes taxes which should have
been spent to address public needs, because certain private entities already assume
a part of the burden. This is the rationale for the tax exemption of charitable
institutions. The loss of taxes by the government is compensated by its relief from
doing public works which would have been funded by appropriations from the
Treasury.
12
Charitable institutions, however, are not ipso facto entitled to a tax exemption.
However, when already granted tax exemption and such institution has earned
income coming from “for-profit” activities (must co-exist with its main activities
being for non-profit), it also does not automatically remove the tax exemption. Such
income from for-profit activities, under the last paragraph of Section 30, is merely
subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).

St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC. However, St. Luke's has good reasons to rely on the letter dated 6 June
1990 by the BIR, which opined that St. Luke's is "a corporation for purely charitable
and social welfare purposes” and thus exempt from income tax. In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that "good faith
and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest.

13
PEPSI COLA BOTTLING COMPANY V. MUNICIPALITY OF TANAUAN
Petitioner: PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.
Respondents: MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL.
Author: Jay T. Dedicatoria
Topic: Constitutional Limitations; Art. III Sec. 1 (Due Process)
Facts:
On February 14, 1963, Pepsi-Cola Bottling Company of the Philippines, Inc.
commenced a complaint with preliminary injunction before the Court of First
Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
series of 1962, of the municipality of Tanauan, Leyte, null and void.
In 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the
same, and second, the acting Municipal Treasurer of Tanauan, Leyte, as per his
letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, levies and collects "from soft drinks
producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked." For the purpose of computing the taxes due, the
person, firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced and
corked during the month.
On the other hand, Municipal Ordinance No. 27,levies and collects on soft drinks
produced or manufactured within the territorial jurisdiction of this municipality a
tax of ONE CENTAVO (P0.01) on each gallon. For the purpose of computing the
taxes due, the person, fun company, partnership, corporation or plant producing
soft drinks shall submit to the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the month.
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional.
Issues:
1. WON Section 2, Republic Act No. 2264 an undue delegation of power,
confiscatory and oppressive?
2. WON Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. WON Ordinances Nos. 23 and 27 unjust and unfair?
Ruling:
1. Under the New Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes. Section 5, Article
XI provides: "Each local government unit shall have the power to create its sources
of revenue and to levy taxes, subject to such limitations as may be provided by
law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern.
The plenary nature of the taxing power thus delegated, contrary to petitioner’s
pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. Thus, municipalities may be permitted to tax subjects which for reasons
of public policy the State has not deemed wise to tax for more general purposes.
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. Moreover, double taxation, in general, is not
forbidden by our fundamental law.
14
2. The petitioner submits that Ordinance No. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose
practically the same tax rate. This is not so. As earlier quoted, Ordinance No. 23,
which was approved to levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked,
irrespective of the volume contents of the bottle used. When it was discovered that
the producer or manufacturer could increase the volume contents of the bottle and
still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
imposing a tax of one centavoon each gallonof volume capacity. The intention of
the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a
repeal of the latter, even without words to that effect.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
case,cannot be considered unjust and unfair. Municipal corporations are allowed
much discretion in determining the rates of imposable taxes.
Municipalities are empowered to impose, not only municipal license taxes upon
persons engaged in any business or occupation but also to levy for public purposes,
just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within
the second power of a municipality. The constitutionality of Section 2 of Republic
Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby
upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte,
series of 1962, re-pealing Municipal Ordinance No. 23, is hereby declared of valid
and legal effect.

15
JOHN HAY v. LIM (2003)
Petitioner: John Hay
Respondent: BCDA, TUNTEX and ASIAWORD
Author: Fabi
Topic: Constitutional Limitations; Art. III Sec. 1 (Equal Protection)
Doctrine: Tax exemptions must be strictly and expressly provided for and that the
power to grant exemption is only within Congress.
Facts:
R.A. No. 7227, otherwise known as the Bases Conversion and Development
Act of 1992, set out the policy of the government to accelerate the sound and
balanced conversion into alternative productive uses of the former military bases
under the 1947 Philippines-United States of America Military Bases Agreement,
namely, the Clark and Subic military reservations as well as their extensions
including the John Hay Station.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port]
Zone (Subic SEZ) the metes and bounds of which were to be delineated in a
proclamation to be issued by the President of the Philippines.
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free
importations, exemption of businesses therein from local and national taxes, to
other hallmarks of a liberalized financial and business climate.
BCDA, TUNTEX and ASIAWORD executed a Joint Venture Agreement whereby
they bound themselves to put up a joint venture company known as the Baguio
International Development and Management Corporation which would lease areas
within Camp John Hay and Poro Point.
The sanggunian passed a resolution requesting the Mayor to order the
determination of realty taxes which may otherwise be collected from real
properties of Camp John Hay.[13] The resolution was intended to intelligently guide
the sanggunian in determining its position on whether Camp John Hay be declared
a SEZ, it (the sanggunian) being of the view that such declaration would exempt the
camps property and the economic activity therein from local or national taxation.
On July 5, 1994 then President Ramos issued Proclamation No. 420, the title of
which was earlier indicated, which established a SEZ on a portion of Camp John Hay.
The issuance of Proclamation No. 420 spawned the present petition for
prohibition, mandamus and declaratory relief which was filed on April 25, 1995
challenging, in the main, its constitutionality or validity as well as the legality of the
Memorandum of Agreement and Joint Venture Agreement between public
respondent BCDA and private respondents TUNTEX and ASIAWORLD.
Issue: Whether or not tax incentives should be uniform for all SEZ?
Ruling: NO.
It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was
granted by Congress with tax exemption, investment incentives and the like. There
is no express extension of the aforesaid benefits to other SEZs still to be created at
the time via presidential proclamation.
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 the John Hay SEZ cannot
be sustained. The incentives under R.A. No. 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 same grant of privileges to the John Hay SEZ find support in the
other laws specified under Section 3 of Proclamation No. 420, which laws were
already extant before the issuance of the proclamation or the enactment of R.A. No.
7227.
More importantly, the nature of most of the assailed privileges is one of tax
exemption. It is the legislature, unless limited by a provision of the state
constitution, that has full power to exempt any person or corporation or class of
property from taxation, its power to exempt being as broad as its power to
tax.Other than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from
local taxesS
The challenged grant of tax exemption would circumvent the Constitutions
imposition that a law granting any tax exemption must have the concurrence of a
majority of all the members of Congress. In the same vein, the other kinds of
privileges extended to the John Hay SEZ are by tradition and usage for Congress to
legislate upon.
If it were the intent of the legislature to grant to the John Hay SEZ the same tax
exemption and incentives given to the Subic SEZ, it would have so expressly
provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the
government on either of two grounds infringement of the Constitution or grave
abuse of discretion.
This Court then declares that the grant by Proclamation No. 420 of tax exemption
and other privileges to the John Hay SEZ is void for being violative of the
Constitution. This renders it unnecessary to still dwell on petitioners claim that the
same grant violates the equal protection guarantee.
16
BRITISH AMERICAN TOBACCO CORPORATION v. FINANCE SECRETARY CAMACHO, Net Retail 2005 Tax 2007 Tax 2009 Tax 2011 Tax Supreme
BIR COMMISSIONER PARAYNO (2008) Price Court
(excluding Classification
Petitioner: BRITISH AMERICAN TOBACCO excise tax
Respondents: JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the and VAT
Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Less than P2/pack P2.23/pack P2.47/pack P2.72/pack Low-priced
Commissioner of the Bureau of Internal Revenue P5 per
pack
Bet P5- P6.35/pack P6.74/pack P7.14/pack P7.56/pack Medium-
Topic: Limitations on Taxing Power – Equal Protection
P6.50 priced
Doctrine: The rational basis test was properly applied to gauge the constitutionality
Bet P6.50- P10.35/pack P10.88/pack P11.43/pack P12/pack High-priced
of the assailed law in the face of an equal protection challenge. The classification is P10
considered valid and reasonable provided that: (1) it rests on substantial Above P25/pack P26.06/pack P27.16/pack P28.30/pack Premium-
distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things P10 priced
being equal, to both present and future conditions; and (4) it applies equally to all
those belonging to the same class.  New brands shall be classified according to current net retail price
 New brands are the ones registered after January 1, 1997
Facts:  In 2001, Lucky Strike was introduced in the market
 British American Tobacco is the distributor of Lucky Strike Cigarette in the  Lucky Strike was classified as premium-priced hence was imposed the
Philippines Above P10 tax rate
 The company is questioning the constitutionality of RA 8240, entitled "An  Lucky Strike protested the P22.77M tax assessment pegged at P25/pack
Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended  Lucky Strike interposes that the legislative freeze is discriminatory against
and For Other Purposes," which took effect on January 1, 1997 new brands and poses barrier to entry in the cigarette industry
 The law provided a legislative freeze on brands of cigarettes introduced o Legislative freeze means: existing or "old" brands shall be taxed
between the periods January 2, 1997 to December 31, 2003, such that said based on their net retail price as of October 1, 1996.
cigarettes shall remain in the classification under which the BIR has o Hence, the classification based on pricing is lower for older brands
determined them to belong as of December 31, 2003, until revised by compared to new entrants
Congress.  Lucky Strike found it unfair that Philip Morris and Marlboro are classified
 In effect: older brands or existing brands will have, in the long term, lower only as High-priced while it is classified as Premium Priced.
price and tax rate as inflation and price appreciation were not factored in.
o Their tax rate shall remain until Congress changes it
o Hence, a legislative freeze in the class of cigarettes

17
Issue: The pertinent portions of RA 8240, as amended by RA 9334, discriminates
against new cigarette brands and favors old cigarette brands?

Ruling +Ratio: NO.

In applying the rational basis test, the Court found the questioned law
Constitutional.
 A legislative classification that is reasonable does not offend the
constitutional guaranty of the equal protection of the laws.
 The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions;
(2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and future conditions;
and
(4) it applies equally to all those belonging to the same class.
 Classification freeze provision uniformly applies to all newly introduced
brands in the market,
 Finding that the assailed law seems to derogate, to a limited extent, one of
its avowed objectives (i.e. promoting fair competition among the players in
the industry) would suggest that, by Congress’s own standards, the current
excise tax system on sin products is imperfect. But the Court cannot
declare a statute unconstitutional merely because it can be improved or
that it does not tend to achieve all of its stated objectives.

Disposition: WHEREFORE, the petition is PARTIALLY GRANTED and the decision of

the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is
AFFIRMED with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is
CONSTITUTIONAL; and that
(2)Section 4 (B) (e) (c), 2nd paragraph of Revenue Regulations No. 1-97, as
amended by Section 2 of Revenue Regulations 9-2003, and Sections II (1)
(b), II (4) (b), II (6), II (7), III (Large Tax Payers Assistance Division II) II (b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to
cigarettes packed by machine, are INVALID insofar as they grant the BIR
the power to reclassify or update the classification of new brands every
two years or earlier.

18
REPUBLIC v. ABLAZA - Under the former law, the right of the Government to collect the tax does
Petitioner: Republic of the Philippines not prescribe. However, in fairness to the taxpayer, the Government
Respondents: Luis G. Ablaza should be estopped from collecting the tax where it failed to make the
Author: Felix necessary investigation and assessment within 5 years after the filing of
the return and where it failed to collect the tax within 5 years from the
Topic: Doctrines in Taxation; Prospectivity of Tax Laws; Prescription date of assessment thereof. Just as the government is interested in the
Doctrine: The law prescribing a limitation of actions for the collection of the income stability of its collections, so also are the taxpayers entitled to an assurance
tax is beneficial both to the Government and to its citizens, to the government that they will not be subjected to further investigation for tax purposes
because tax officers would be obliged to act properly in the making' of assessments after the expiration of a reasonable period of time.
and to citizens because after the lapse of the period of prescription citizens would - In this case, the reinvestigation was allowed on October 1, 1951 and on
have a feeling of security against unscrupulous tax agents who will always find an October 16, 1951. During March 1954, the tax payer supposed or expected
excuse to inspect the books of taxpayers, not to determine the latter's real liability that the reinvestigation was about to finished and he wanted a copy of the
but to take advantage of every opportunity to molest peaceful law abiding citizens. reassessment order but the final assessment was released on February 11,
Without such a legal defense taxpayers would furthermore be under obligation to 1957. Nowhere does the letter indicate that they were asking for a
always keep their books and keep them open for inspection subject to harassment different reinvestigation from that already requested and therefore, the
by unscrupulous tax agents. said letter may not be interpreted to authorize or justify the continuance
of the suspension of the period of limitations. Hence, the income tax are
The law of prescription being a remedial measure should be interpreted in a way no longer collectible by reason of prescription
conducive to bringing about the beneficient purpose of affording protection to the
taxpayer within the contemplation of the Commission which recommend the
approval of the law. Disposition: The court dismissed the appeal and affirmed the decision of the lower
court dismissing the action.
Facts:
- On October 3, 1951, the Collector of Internal Revenue assessed the income
taxes of Luis G. Ablaza for the years 1945, 1946, 1947 and 1948 amounting
to P5,254.70.
- On October 16, 1951, the respondent together with his accountants
requested for a reinvestigation of tax liability which was granted by the
Collector of Internal Revenue.
- On March 10, 1954, respondent wrote a letter asking for a copy of the
reassessment order
- On February 11, 1957, the Collector of Internal Revenue made a final
assessment of the income taxes of Ablaza, fixing the said taxes for the said
years mentioned at P2,066.56
- Respondent protested the assessment contending that the income tax are
no longer collectible for the reason that they have already prescribed.

Issue/s: W/N the claim of prescription by the respondent is valid. - YES

Ruling+Ratio: Yes

19
CIR v. SOLIDBANK CORP Tax based on receipts is a tax on business rather than on the property hence it is an
excise rather than a property. It is not an income tax, unlike FWT.
Petitioner: Commission of Internal Revenue
Respondents: Solid Bank Corporation Second, the although both taxes are national in scope because they are imposed by
Author: Lampa the same taxing authority the national government under the Tax Code – and
operate within the same Philippine jurisdiction for the same purpose of raising
revenue, the taxing period they affect are different. FWT is deducted and withheld
Topic: Doctrines in Taxation; Double Taxation
as soon as the income is earned and paid after every calendar quarter in which it
Doctrine : “Direct duplicate taxation” Two taxes must be imposed on the same
was earned, On the other hand the GRT is neither deducted nor withheld but it is
subject matter for the same purpose; by the same taxing authority; within the same
paid only after every taxable quarter in which it is earned.
jurisdiction; during the same taxing period; and they must be of the same kind or
character
Third, the two taxes are of different kinds or character. FWT is income tax subject to
withholding, while the GRT is percentage tax not subject to withholding.
Facts:
Solidbank Corporation is claiming a tax refund or credit before the Bureau of
Therefore, no double taxation.
Internal Revenue amounting to P 3,508,078.75, which was paid Arguing that the
20% Final Withholding Tax deducted from from interest income should not form
part of the Gross Receipt Tax (5%).

Issue: Whether the 20% FWT forms part of the Taxable Gross Receipts?

Secondary issue: Whether or not the Imposition of FWT to TGR is a form of double
taxation?

Ruling:
The Court held no. Before a tax can be held as double taxation it must:

1. Two taxes must be imposed on the same subject matter for the same
purpose;
2. by the same taxing authority;
3. within the same jurisdiction;
4. during the same taxing period;
5. and they must be of the same kind or character

In this case, the Court differentiates the two taxes being litigated. According to the
Court FWT is a passive income generated in the form of interest on deposits and
yield on deposit while the GRT is the privilege of engaging in the business of
banking.

20
COMPANIA GENERAL DE TABACOS vs. CITY OF MANILA 8 SCRA 367 (1963) improvements and essential services of the City government, the benefits of which
are enjoyed, and being enjoyed by the plaintiff.
PLAINTIFF: COMPAÑIA GENERAL DE TABACOS DE FILIPINAS
DEFENDANT: CITY OF MANILA, ET AL. Issue: WON Tabacalera is subjected to double taxation, thus entitled for refund. –
Author: Manzano NO.

Topic: Doctrines in Taxation; Double Taxation Ruling + Ratio : NO. What is collected under Ordinance No. 3358 is a license fee for
Doctrine: Tabacalera is not subjected to double taxation. It is already settled in this the privilege of engaging in the sale of liquor, a calling in which — it is obvious —
connection that both a license fee and a tax may be imposed on the same business not anyone or anybody may freely engage, considering that the sale of liquor
or occupation, or for selling the same article, this not being in violation of the rule indiscriminately may endanger public health and morals. On the other hand, what
against double taxation the three ordinances mentioned heretofore impose is a tax for revenue purposes
based on the sales made of the same article or merchandise.
FACTS: The term "tax" applies — generally speaking — to all kinds of exactions which
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the become public funds. The term is often loosely used to include levies for revenue as
City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to well as levies for regulatory purposes. Thus license fees are commonly called taxes.
1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while
paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.1äwphï1.ñët
the latter is imposed under the taxing power for the purpose of raising revenues
The license fees imposed by it are essentially for purposes of regulation, while
On 1954, the City, addressed a letter to SGV & Co, expressing the view that liquor Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general
dealers paying the annual wholesale and retail fixed tax under City Ordinance No. merchandise, wholesale or retail, and are revenue measures enacted by the
3358 are not subject to the wholesale and retail dealers' taxes prescribed by City Municipal Board of Manila by virtue of its power to tax dealers for the sale of such
Ordinances Nos. 3634, 3301, and 3816. Upon learning of this, appellee stopped merchandise.
including its sales of liquor in its quarterly sworn declarations and sent a letter to Disposition: the decision appealed from is reversed, with the result that this case
the City Treasurer demanding refund of the alleged overpayment. As the claim was should be, as it is hereby dismissed, with costs.
disallowed, the present action was instituted.
Tabacalera's action for refund is based on the theory that, in connection with
its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but
not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816;
and since it already paid the license fees, the sales taxes paid by it — amounting to
the sum of P15,208.00 — under the three ordinances mentioned is an overpayment
made by mistake, and therefore refundable.
On the other hand, the city contends that, the license fees prescribed by Ordinance
3358 is the permit to engage in the sale of alcoholic beverage, different form
the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; it also contends
that, even if the Tabacalera is not subject to the payment of the sales taxes, it is not
entitled to the refund demanded because the plaintiff voluntarily and without
protest; the alleged overpayment was made by mistake, such mistake was one of
law and arose from the plaintiff's neglect of duty; said amount had been added by
the plaintiff to the selling price of the liquor sold by it and passed to the consumers;
and said amount had been already expended by the defendant City for public
21
CITY OF BAGUIO v. DE LEON Disposition:
The decision of the RTC is affirmed.
Petitioner: City of Baguio
Respondents: De Leon, Fortunato
Author: Marayan

Topic: Doctrines in Taxation; Double Taxation

Doctrine: The argument against double taxation may not be invoked where one tax
is imposed by the State and the other is imposed by the City.

Facts:
The City of Baguio passed an ordinance imposing a license fee on any
person, entity or corporation doing business in the City. Said ordinance sourced its
authority from RA 329, thereby amending the city charter of the subject city and
empowering it to fix the license fee and regulate “businesses, trades, and
occupations as may be established or practiced in the City. “ Herein respondent was
held liable as a real estate dealer with a property therein worth more than
PhP10,000 but not in excess of PhP50, 000, and therefore obligated to pay under
such ordinance the PhP50 annual fee.
The RTC upheld the validity of the ordinance.

Issue:
Whether or not RA 329 is unconstitutional for imposing double taxation,
which is violative of due process.

Ruling and Ratio:

No, RA 329 is not unconstitutional.

As to why double taxation is not violative of due process, where congress

has clearly expressed its intention, the statute must be sustained even though
double taxation results.

The argument against double taxation may not be invoked where one tax
is imposed by the State and the other is imposed by the City, it being widely
recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions thereof.

22
ASIA INTERNATIONAL AUCTIONEERS, INC. V. COMMISSIONER OF INTERNAL goods before reaching the consumer who ultimately pays for it. On the other hand,
REVENUE in case of withholding taxes, the incidence and burden of taxation fall on the same
entity, the statutory taxpayer. The burden of taxation is not shifted to the
Petitioner: Asia International Auctioneers, Inc (AIA) withholding agent who merely collects, by withholding, the tax due from income
Respondent: CIR payments to entities arising from certain transactions and remits the same to the
Author: Masangcay government directly. Due to this difference, the deficiency VAT and excise tax
cannot be "deemed" as withholding taxes merely because they constitute indirect
Topic: Doctrines in Taxation; Direct v. Indirect Taxes taxes. Moreover, records support the conclusion that AIA was assessed not as a
withholding agent but, as the one directly liable for the said deficiency taxes.
Facts: Hence, AIA cannot be considered as a withholding agent with respect to the
- Petitioner AIA is a duly organized corporation operating within the Subic withholding tax liabilities under this definition and was not disqualified from
Special Economic Zone and engaged with the importation of used motor availing the tax amnesty under RA 9840
vehicles and heavy equipment which it sells to the public through auction. Disposition: The petition is DENIED for being MOOT and ACADEMIC in view of the
- On August 2004, AIA received from CIR a Formal Letter of Demand availment of tax amnesty as the outstanding deficiency taxes of AIA are deemed
containing an assessment for deficiency value added tax and excise tax. fully settled.
Thereafter, AIA filed a protest letter with regard to the demand letter
through a registered mail.
- CIR failed to act on the protest prompting the AIA to file a petition for
review before the CTA which was then countered by a motion to dismiss by
the CIR. CTA granted the motion to dismiss on the basis that the protest
was not timely filed. A motion for reconsideration by the petitioner was
also denied by the CTA, hence this petition.
- Relevantly, on January 2008 AIA filed a Manifestation and Motion with
Leave of Court to Defer or Suspend Further Proceeding on the ground that
it availed of the Tax Amnesty Program under RA 9480 and later on
submitted to the Court a Certification of Qualification issued by the BIR
stating that AIA has availed and is qualified for Tax Amnesty for the Taxable
Year 2005 and prior years.
- The CIR contends that AIA is disqualified under Section 8(a) of RA 9840,
which provides that tax amnesty shall not extend to withholding agents
with respect to their withholding tax liabilities, because it is deemed a
withholding agent for the deficiency taxes.

ISSUE: W/N AIA is considered a withholding agent, hence, disqualified from availing
tax amnesty under RA 9840.

RULING: NO.
The Court ruled that indirect taxes, like VAT and excise tax (in which the petitioner
is liable for), are different from withholding taxes. Indirect taxes, like VAT and
excise tax, are different from withholding taxes.1âwphi1 To distinguish, in indirect
taxes, the incidence of taxation falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon
23
REPUBLIC v. CAGUIOA (2007) modified or withdrawn at will by the granting authority. To state otherwise
is to limit the power of the State, which is unlimited, plenary,
Petitioner: Republic of the Philippines comprehensive and supreme. The power to impose taxes is one so
Respondents: Hon. Ramon S. Caguioa, Indigo Distribution et al. unlimited in force and so searching in extent, it is subject only to
Author: Mercado restrictions which rest on the discretion of the authority exercising it.
- By subsequently enacting RA 9334, Congress expressed its intention to
Topic: Doctrines in Taxation; Tax Exemption withdraw private respondents’ tax exemption privilege on their
Doctrine: There is no vested right in a tax exemption and more so when the latest importations of cigars, cigarettes, distilled spirits, fermented liquors and
expression of legislative intent renders it continuance doubtful. wines.
As a general rule, tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Dispositon: Writ of preliminary injunction issued by Judge Caguioa was declared
null and void.
Facts:
- In !992, Congress enacted RA 7227 or the Bases Conversion and
Development Act of 1992 which, among other things, created the Subic
Special Economic and Freeport Zone (SBF) and the Subic Bay Metropolitan
Authority (SBMA). Said law granted private domestic corporations doing
business in the Subic SEZ tax exemption from local and national taxes,
including excise taxes, on their importations of general merchandise.
- Pursuant to the law, Indigo et. al applied for and were granted Certificates
of Registration and Tax Exemption by the SBMA.
- Congress subsequently passed RA 9334 in 2005 declaring that all
importations of cigars, cigarettes, distilled spirits, fermented liquors and
wines into the SBF including those intended to be transshipped to other
free ports In the Philippines, shall be treated as ordinary importations
subject to all applicable taxes, duties and charges, including excise taxes.
- Private respondents request for a reconsideration of the directives on the
imposition of taxes but the same was not granted which prompt them to
file a special civil action for declaratory relief to have some provisions of RA
9334 declared as unconstitutional and prayed for the issuance of a writ of
preliminary injunction which was subsequently granted by Judge Caguioa.

ISSUE: W/N the implementation of RA 9334 violates the right of the private
respondents to tax exemption granted to them by virtue of RA 7227 – NO.

Ruling + Ratio: NO.

- The Court ruled that there is no vested right in a tax exemption and more
so when the latest expression of legislative intent renders it continuance
doubtful. Being a mere statutory privilege, a tax exemption may be
24
CIR VS GOULDS PUMPS (PHILS.) INC.

Petitioner: Commissioner of Internal Revenue

Respondent: Gould Pumps Phils Inc.
Author: Paddayuman

Topic: Doctrines in Taxation; Compensation and set-off

Facts:
Respondent (Gould Pumps) received from petitioner (CIR) a final assessment notice
amounting to P133,787,590.14. Respondent claimed that it was entitled to the
immunities from the deficiency income tax, value-added tax, and documentary
stamp tax assessments, including increments thereon for the taxable year 2000 in
the total amount of P122,954,106.47. Respondent erroneously paid its final
withholding tax in the year 1997 and the remaining overpayment was applied
against tax due dividends declared in the year 1999.

Issue:
Whether or not the erroneous payment of withholding tax in the preceding year
can be treated as an advance tax payment which can be used in the succeeding
year.

Held:
No. respondent erroneously paid a final withholding tax in 1997, but instead of
filing or claiming a refund respondent just offset and credited the same for the final
withholding tax on dividends declared in 1999 and paid in 2000, which should not
be allowed. Under the final withholding tax system, the amount of income tax
withheld by the withholding agent is constituted as a full and final payment of the
income tax due from the payee on the said income. It is not creditable. In case of
overpayment or erroneous payment thereon, the withholding agent has the right to
file the claim for refund. Furthermore, 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. Evidently, the alleged erroneous payment of
the final withholding tax by respondent in 1997 cannot be used to offset or be
treated as advance tax payment for taxation purposes to the succeeding final
withholding tax which respondent may be held liable.

25
FILINVEST DEVELOPMENT CORPORATION v. CIR function is not merely to receive the claims for refund but it is also given the
positive duty to determine the veracity of such claim.
Petitioner: Filinvest Development Corporation
Respondents: Commissioner of Internal Revenue and Court of Tax Appeals
Author: Passion

Topic: Doctrines in Taxation; Solutio indebiti

Doctrine: No one shall unjustly enrich oneself at the expense of another. This
applies not only to individuals but to the State as well. Thus, the State must likewise
deal with taxpayers with fairness and honesty. The harsh power of taxation must be
tempered with evenhandedness.

Facts:
Petitioner, Filinvest Development Corporation applied for a claim of tax refund or
the issuance of tax credit (TCC) with the BIR representing the excess/unutilized
creditable withholding taxes for the year 1994, 1995 and 1996.

The Court of Tax Appeals (CTA) dismissed the case on the ground of insufficiency of
evidence. The CA affirmed the CTA’s decision.

CTA Contention: Petitioner in its 1996 Income Tax Return (ITR), opted to carry over
excess income tax paid to succeeding year. However, in its 1997 ITR, the petitioner
failed to show vital documents which would show whether or not the petitioner has
applied or credited the refundable amount sought.

Petitioner Contention: They had complied all the requirements to sustain a claim
for tax refund hence its failure to present evidence in its 1997 ITR is not substantial.

ISSUE: Whether or not the petitioner is entitled for a tax refund.

HELD: YES.
Upon the filing of his request, the taxpayer’s income tax return showing the excess
expanded withholding tax credits shall be examined. The excess expanded
withholding tax, if any, shall be determined and refunded/credited to the taxpayer-
applicant.

The Commissioner may, even without a written claim therefor, refund or credit any
tax where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. Evidently, the commissioner
26
MANILA RAILROAD COMPANY v. INSULAR COLLECTOR OF CUSTOMS (1929)
Petitioner: Manila Railroad Company
Respondent: Insular Collector of Customs (appellant)
Author: Plan
Topic: Construction of tax statues; Liberal construction in favor of taxpayers
Doctrine: It is the general rule in the interpretation of statutes levying taxes or
duties not to extend their provisions beyond the clear import of the language used.
In every case of doubt, such statutes are construed most strongly against the
Government and in favor of the citizen, because burdens are not to be imposed, nor
presumed to be imposed, beyond what the statutes expressly and clearly import.
only such cases within its general language as are not within the
provisions of the particular enactment. (statcon)
In this case, par 141 is a general provision, while par 197 is a special
provision. Taking into account the purpose of the article and
acknowledging that dust shields is in reality used as a detached part or
railways vehicles, it shall be classified under par 197.
- It is the general rule in the interpretation of statutes levying taxes or
duties not to extend their provisions beyond the clear import of the
language used. In every case of doubt, such statutes are construed most
strongly against the Government and in favor of the citizen, because
burdens are not to be imposed, nor presumed to be imposed, beyond
what the statutes expressly and clearly import.

The burden is upon the importer to overcome the presumption of a legal collection Disposition: SC upheld the judgement of the CFI. Appeal was denied.
of duties by proof that their exaction was unlawful. The question to be decided is
not whether the Collector was wrong but whether the importer was right.

Facts:
- In 1929, dust shields, made if mixed wool and hair, are used by the
Petitioner on all of its railway wagons. The purpose of the dust shield is to
cover the axle box in order to protect from dust the oil deposited therein
which serves to lubricate the bearings of the wheel.
- The Respondent contended that dust shields should be classified as
"manufactures of wool, not otherwise provided for" (par 141. Tariff Law
1909). Moreover, they contended that the burden was upon the importer
to overcome the presumption of a legal collection of duties by proof that
their exaction was unlawful, and that the question to be decided is not
whether the Collector was wrong but whether the importer was right.
- On the contrary, CFI ruled that dust shields are should be classified as
"detached parts" of vehicles for the use on railways (par 197. Tariff Law
1909).

Issue: W/N dust shields should be classified under par 197 – YES.

Ruling + Ratio: YES

- Where there is in the same statute a particular enactment and also a
general one which is embraced in the former, the particular enactment
must be operative, and the general enactment must be taken to effect

27
COMMISSIONER OF CUSTOMS V. HYPERMIX FEEDS CORPORATION
Petioner: Commissioner of Customs
Respondent: Hypermix Feeds Corporation
Author: Daniela
Topic: Construction of Tax Statutes; Liberal Construction
Doctrine: In case of doubt, tax statutes are construed against the Government and
liberally in favour of the citizen.
Facts:
- For tariff purposes, Commissioner of Customs issued a memorandum-
CMO 27- 2003 which classifies wheat according to the following: a.
Importer or consignee; b. Country of origin; and c. Port of discharge.
Wheat can also be classified as food grade with 3% tariff or feed grade with
7% tariff.
- The regulation also provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin.
- A month after the issuance of said memorandum, Hypermix filed a petition
for declaratory relief with the RTC contending that CMO 27-2003 was
issued without the mandate of the Revised Administrative Code, that they
are classified as feed grade supplier without the benefit of prior
assessment and examination, violated the equal protection clause when it
treated non flour millers differently from flour millers for no reason at all
and its retroactive application.
- The RTC issued a TRO effective for 20 days. Petitioner filed a motion to
dismiss stating that it doesn’t have jurisdiction over the subject matter of
the case, declaratory relief was an improper action, CMO 27-2003 was
internal administrative rule and not legislative in nature and claim of
Hypermix is premature and speculative.
- RTC ruled in favour of respondent and declared CMO 27-2003 invalid and
of no force and effect. Explained that it has jurisdiction over the subject
matter and the issue raised is concerned about quasi legislative powers of
the commissioner, declaratory relief was the proper remedy and Hypermix
is the proper party to file it and that Hypermix is a regular importer and
would be greatly affected by it. Petitioner dissatisfied appealed to the CA,
but the appellate court dismissed the appeal.
Issue: W/N the Commissioner of Customs acted beyond his powers when he issued
CMO 27-2003?
Ruling + Ratio: YES.
- Under Section 1403 of the Tariff and Customs Law, custom officers must
first assess and determine the classification of the product before tariff
may be imposed. In CMO 27-2003 has already classified the product even
before the officer had the chance to examine it, it diminished the powers
granted by the Tariff and Customs Law.
- It is a well-settled that rules and regulations, which are the product of a
delegated power to create new and legal provisions that have the effect of
law, should be within the scope of statutory authority granted by the
legislature to the administrative agency. It is required that the regulation
be germane to the objects and purposes of the law; and that it be not in
contradiction to, but in conformity with, the standards prescribed by law.
Disposition: The Commissioner of Customs acted beyond his powers when he
issued CMO 27-2003.
Other Notes:
- Classification – Even if other millers excluded from CMO 27-2003 have
imported food grade wheat, the product would still be declared as feed
grade wheat, a classification subjecting them to 7% tariff. On the other
hand, even if the importers listed under CMO 27-2003 have imported feed
grade wheat, they would only be made to pay 3% tariff, thus depriving the
state of the taxes due. The regulation, therefore, does not become
disadvantageous to respondent only, but even to the state.
- The application of the regulation forecloses the possibility that other
corporations that are excluded from the list import food grade wheat; at
the same time, it creates an assumption that those who meet the criteria
do not import feed grade wheat. In the first case, importers are
unnecessarily burdened to prove the classification of their wheat imports;
while in the second, the state carries that burden.
28
- In summary, petitioners violated respondents right to due process in the
issuance of CMO 27-2003 when they failed to observe the requirements
under the Revised Administrative Code. Petitioners likewise violated
respondents right to equal protection of laws when they provided for an
unreasonable classification in the application of the regulation. Finally,
petitioner Commissioner of Customs went beyond his powers of delegated
authority when the regulation limited the powers of the customs officer to
examine and assess imported articles.

29
MERALCO v. VERA assessments, which reads: “upon the privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee.”
Petitioner: Manila Electric Company Disposition: The Supreme Court held that MERALCO cannot claim exemption from
Respondent: Misael Vera, in his capacity as Commissioner of Internal Revenue (CIR) compensating tax based on the its franchise.
Author: Reyes

Topic: Construction of tax statues; Liberal construction in favor of taxpayers

Doctrine: (1) Tax exemptions are strictly construed against the tax payer. One who
claims to be exempt from the payment of a particular tax must do so under clear
and unmistakable terms found in a statute. (2) The right of taxation will not be held
to have been surrendered unless the intention to surrender is manifested by words
too plain to be mistaken, for the state cannot strip itself of the most essential
power of taxation by doubtful words; it cannot, by ambiguous language, be
deprived of the highest attribute of sovereignty.

Facts:
- MERALCO imported and received from abroad on various dates copper
wires, transformers, and insulators for use in the operation of its business
on which, the CIR, levied and collected a compensating tax. MERALCO filed
a claim for refund but no action was taken by the CIR.
- (claim of petitioner MERALCO) MERALCO bases its claims for exemption
from compensating tax on its purchases abroad on par. 9 of its franchise,
which reads:
“Said percentage tax shall be due and payable… and shall be in lieu of all
taxes and assessment of whatsoever nature, and by whatsoever authority
upon the privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby exempted.”

Issue: Whether petitioner MERALCO can validly claim exemption from

compensating tax on the basis of par. 9 of its franchise.

Ruling + Ration: NO.

- Tax exemptions are strictly construed against the tax payer, one who
claims to be exempt from the payment of a particular tax must do so under
clear and unmistakable terms found in a statute.
- In this case, the phrase “all taxes and assessments of whatsoever nature
and by whatsoever authority” cannot be construed so broad and sweeping
as to include compensating tax because there is an immediately
succeeding phrase which limits the scope of exemption to taxes and

30
QUEZON CITY vs ABSCBN (2008)
Petitioner: Quezon City and the City Treasurer of Quezon City
Respondent: ABS CBN Broadcasting Corporation
Author: Valencia
Topic: Construction of Tax Statutes; Liberal Construction
Doctrine: Taxes are what civilized people pay for civilized society. They are the
lifeblood of the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing authority. A
claim of tax exemption must be clearly shown and based on language in law too
plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the
exception.The burden of proof rests upon the party claiming the exemption to
prove that it is in fact covered by the exemption so claimed.
Facts:Petitioner is a Local Government Unit (LGU) duly organized and existing by
virtue of RA 537. The petitioner city treasurer is primarily responsible for the
imposition and collection of taxes within the territorial jurisdiction of Quezon City.
ABS CBN was granted the franchise to install and operate radio and television
broadcasting station in the Philippines under RA 7966. However, in view of the
provision of the said law that it shall pay a franchise tax in lieu of all other taxes, the
corporation developed an opinion that it is not liable to pay the local franchise tax
imposed by Quezon City. ABS CBN filed a written claim for refund for local franchise
tax paid to the city for 1996 and for the first quarter of 1997. For failure to obtain
any response from Quezon City Treasurer, ABS CBN filed a complaint before the RTC
of Quezon City seeking the declaration of nullity of the imposition of local franchise
tax by the CIty Government for being unconstitutional. The RTC rendered judgment
declaring as invalid the imposition on and collection from ABS CBN of local franchise
tax and ordered refund of all payments made. The City Treasurer filed a motion for
reconsideration which was subsequently denied by the RTC. The CA dismissed the
petition of Quezon City and its Treasurer. Accdg to the appellate court, the issues
raised were purely legal questions cognizable only by the Supreme Court.
ISSUE: W/N the phrase “in lieu of all taxes” indicated in the franchise of the
respondent appellee serves to exempt it from payment of the local franchise taxes
imposed by the petitioner -appellants.
Ruling + Ratio: The “in lieu of all taxes” provision in its franchise does not exempt
ABS CBN from payment thereof.
Petitioners argue that the in lieu of all taxes provision in ABS-CBNs franchise does
not expressly exempt it from payment of local franchise tax. They contend that a
tax exemption cannot be created by mere implication and that one who claims tax
exemptions must be able to justify his claim by clearest grant of organic law or
statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of
the nation. Thus, statutes granting tax exemptions are construed stricissimi juris
against the taxpayer and liberally in favor of the taxing authority. A claim of tax
exemption must be clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the exception.The
burden of proof rests upon the party claiming the exemption to prove that it is in
fact covered by the exemption so claimed.
The basis for the rule on strict construction to statutory provisions granting tax
exemptions or deductions is to minimize differential treatment and foster
impartiality, fairness and equality of treatment among taxpayers. He who claims an
exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from
taxation are not favored in law, nor are they presumed. They must be expressed in
the clearest and most unambiguous language and not left to mere implications. It
has been held that exemptions are never presumed, the burden is on the claimant
to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since
taxation is the rule and exemption the exception, the intention to make an
exemption ought to be expressed in clear and unambiguous terms.
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three
(3) percent of all gross receipts of the radio/television business transacted under
the franchise and the franchise tax shall be in lieu of all taxes on the franchise or
earnings thereof.
31
The in lieu of all taxes provision in the franchise of ABS-CBN does not expressly
provide what kind of taxes ABS-CBN is exempted from. It is not clear whether the
exemption would include both local, whether municipal, city or provincial, and
national tax. What is clear is that ABS-CBN shall be liable to pay three (3) percent
franchise tax and income taxes under Title II of the NIRC. But whether the in lieu of
all taxes provision would include exemption from local tax is not unequivocal.

As adverted to earlier, the right to exemption from local franchise tax must be
clearly established and cannot be made out of inference or implications but must be
laid beyond reasonable doubt. Verily, the uncertainty in the in lieu of all taxes
provision should be construed against ABS-CBN. ABS-CBN has the burden to prove
that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in
this regard.

Disposition: SC reversed and set aside the decision of RTC ordering the refund of
the local franchise tax paid by ABS CBN.

32
PBCOM vs. CIR (1999)
Petitioner: PHILIPPINE BANK OF COMMUNICATIONS
Respondent: COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and
COURT OF APPEALS
Author: Villanueva
Topic: Doctrines in Taxation; Non-retroactive application
Doctrine: Basic principle is that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the citizenry and
to advance the common weal. Due process of law under the Constitution does not
require judicial proceedings in tax cases. This must necessarily be so because it is
upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as
possible.
From the same perspective, claims for refund or tax credit should be exercised
within the time fixed by law because the BIR being an administrative body enforced
to collect taxes, its functions should not be unduly delayed or hampered by
incidental matters.
Facts:
Philippine Bank of Communications (PBCom) filed its quarterly income tax
returns for the first and second quarters of 1985, reported profits, and paid
the total income tax. However, PBCom suffered losses, when it filed its
Annual Income Tax Returns for the year-ended December 31, 1986, the
petitioner likewise reported a net loss and thus declared no tax payable for
the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes in year 1985 and 1986.
Petitioner requested the CIR for a tax credit representing the overpayment
of taxes in the first and second quarters of 1985 and a claim for refund of
creditable taxes withheld by their lessees from property rentals in year
1985 and in 1986.
Pending the investigation of the respondent CIR, petitioner instituted a
Petition for Review on November 18, 1988 before CTA.
The CTA denied the request of petitioner for a tax refund or credit on the
ground that it was filed beyond the two-year reglementary period
provided for by law.
Petitioner argues that its claims for refund and tax credits are not yet
barred by prescription relying on the applicability of Revenue
Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states
that overpaid income taxes are not covered by the two-year prescriptive
period under the tax Code and that taxpayers may claim refund or tax
credits for the excess quarterly income tax with the BIR within ten (10)
years under Article 1144 of the Civil Code. Petitioner argues that the
government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers and claims that rulings
and circulars promulgated by the CIR have no retroactive effect if it would
be prejudicial to taxpayers.
Issue: WON the CA erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioner's reliance on RMC No. 7-85,
changing the prescriptive period of two years to ten years.
Ruling + Ratio: No.
The RMC no. 7-85 is inconsistent with Sec. 230 of the NIRC. Thus, the
principle of non-retroactivity of rulings under Sec. 246 of the NIRC is not
applicable to the case.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected.
The rule states that the taxpayer may file a claim for refund or credit with
the CIR, within two (2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be
computed from the time of filing the Adjustment Return and final payment
of the tax for the year.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the
BIR did not simply interpret the law; rather it legislated guidelines contrary
to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
33
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially found
to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony
with the law they seek to apply and implement.
Therefore, the Court ruled that the RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an administrative interpretation
which is out of harmony with or contrary to the express provision of a
statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to
do so would in effect amend the statute.

34
COMMISSIONER OF INTERNAL REVENUE VS ESTATE OF BENIGNO P. TODA JR. GR
NO. 147188
PETITIONER: CIR
RESPONDENT: ESTATE OF TODA
AUTHOR: ZABARTE
TOPIC: TAX AVOIDANCE VS. TAX EVASION
DOCTRINE:
Tax avoidance and tax evasion are two most common ways used by taxpayers n
escaping from taxation. Tax avoidance is the tax saving device within the means
sanctioned by law. This method is used by taxpayer in good faith. Tax evasion on
the other hand, is a scheme used outside of those lawful means and when availed
of, it subjects the taxpayer to further or additional civil or criminal liability.
FACTS:
-Benigno Toda was the owner of CIC with a 99.991% of share and
outstanding capital stock. He was authorized to sell the Cibeles Bldg., owned by CIC,
for an amount of not less than Php 90 million.
-Toda purportedly sold the property to one Alontaga for an amount of Php
100 million, who in turn, sold on the same day the same property to RMI for Php
200 million.
-CIC filed its corporate annual income tax return for the year 1989. CIC was
taxed at the rate of 5% as capital gains for the sale from Alontaga. On 1990, Toda
then sold his entire shares of stocks in CIC to Le Hun Choa for Php 12.5 million.
Three and a half years later, Toda died.
-On 1994, BIR sent an assessment notice and demand letter to CIC for
deficiency income tax for the year 1989 for the amount of Php 79,099,999.22. CIC
asked for reconsideration asserting that the assessment should be directed against
the old CIC.
-The estate of Toda received the assessment. The estate filed a petition for
review alleging that the commissioner erred in holding the estate liable; 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.
-The commissioner argued that the two transactions of sale of the Cibeles
Bldg. was actually a single sale; that the sale to Alontaga was fraudulent and
showed to circumvent the law; that there was an intent to evade payment of tax;
the assessment is within the prescriptive period as prescribed by law as such was
within the 10 year period from the discovery of fraud; and that since Toda was the
registered owner of CIC on 1989 and he is already dead, his estate shall answer for
his liability.
ISSUE: IS THIS A CASE OF TAX EVASION OR TAX AVOIDANCE?
RULING:
-SC ruled that this is a case of tax evasion.
-Tax avoidance and tax evasion are two most common ways used by
taxpayers n escaping from taxation. Tax avoidance is the tax saving device within
the means sanctioned by law. This method is used by taxpayer in good faith. Tax
evasion on the other hand, is a scheme used outside of those lawful means and
when availed of, it subjects the taxpayer to further or additional civil or criminal
liability.
-Three factors for tax evasion are: (1) The end to be achieved, i.e., the
payment of that less than what is legally known, or non-payment of tax when due;
(2) a state of mind which is “evil” or in “bad faith”; (3) a course of action which is
unlawful.
-All factors are present in this case. It is significant to note that as early as 4
May 1989, CIC received Php 40 million from RMI and not from Alontaga and such
were reflected on RMI’s balance as “other inv – Cibeles.” Another Php 40 million
was received on July, 1989 represented as well on RMI’s balance. The real buyer of
the property is RMI and not Alontaga.
-The scheme resorted by CIC in making it appear that there were two sales
cannot be considered tax planning or tax avoidance as such scheme was tainted
with fraud.
DISPOSITION: SC ruled that what Toda as owner of CIC has done is clearly a tax
evasion. The court further ruled that the issuance of assessment for deficiency of
income tax was well within the prescriptive period. Lastly, the court ordered
respondent estate of Benigno Toda Jr. to pay Php 79,099,999.22 as deficiency
income tax of Cibeles for the year 1989 plus legal interest from 1 May 1994 until
amount is fully paid.
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