G.R. No.

L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

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.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income
tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the
total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18,
1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the
same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented
to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any
action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought
to be served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of
the Commissioner of Internal Revenue with the Court of Tax Appeals. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as
a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a
request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request
deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of
distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest and the warrant was finally
served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period
had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was
not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
1
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
personal holding company income 12 but later conformed to the decision of the respondent court rejecting
this assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts of the
persons among whom it was distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale,
Algue received as agent a commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining
the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of the
same family in control of Algue. It is argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump
sum but periodically and in different amounts as each payee's need arose. 19 It should be remembered that
this was a family corporation where strict business procedures were not applied and immediate issuance
of receipts was not required. Even so, at the end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him or her, to make up the total of
P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from
the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This
finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed
as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance for
salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
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. This test and deductibility in
the case of compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application may be further stated
and illustrated as follows:

2
 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. . . . (Promulgated
Feb. 11, 1931, 30 O.G. No. 18, 325.)

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. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business requiring
millions of pesos. 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.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it
is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate,
as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time
with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed
deduction by the private respondent was permitted under the Internal Revenue Code and should therefore
not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur.

3
 THIRD DIVISION

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON.

FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial
Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor, HON.
TOMAS R. OSMEA, and EUSTAQUIO B. CESA,respondents.

DECISION
DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22
March 1995[1] of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition for
declaratory relief in Civil Case No. CEB-16900, entitled Mactan Cebu International Airport Authority vs.
City of Cebu, and its order of 4 May 1995[2]denying the motion to reconsider the decision.
We resolved to give due course to this petition for it raises issues dwelling on the scope of the taxing
power of local government units and the limits of tax exemption privileges of government-owned and
controlled corporations.
The uncontradicted factual antecedents are summarized in the instant petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to principally undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x (Sec. 3, RA
6958). It is also mandated to:

a) encourage, promote and develop international and domestic air traffic in the Central Visayas and
Mindanao regions as a means of making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and communication in the country; and,

b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards
of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the
City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner
(Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77
Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that
it is an instrumentality of the government performing governmental functions, citing Section 133 of the
Local Government Code of 1991 which puts limitations on the taxing powers of local government units:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:

a) x x x

4
 xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is
a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege. 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 local water districts,
cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code. (underscoring supplied)

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

xxx

(e) x x x

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was
compelled to pay its tax account under protest and thereafter filed a Petition for Declaratory Relief with
the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that
the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on
an instrumentality of the national government. Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the
national government by the very nature of its powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a
government-owned corporation performing proprietary functions. As such, all exemptions previously
granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the
Local Government Code when it took effect on January 1, 1992. [3]

The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in light of its findings, to wit:

A close reading of the New Local Government Code of 1991 or RA 7160 provides the express
cancellation and withdrawal of exemption of taxes by government-owned and controlled corporation per
Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]

Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted
from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section
14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city charters, decrees [sic],
executive orders, proclamations and administrative regulations, or part of parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. (/f/,
Section 534, RA 7160).

5
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in
RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government
Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1,
1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall objectives of the New
Local Government Code of 1991, RA 7160. It is hereby declared the policy of the State that the territorial
and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make them more effective partners in
the attainment of national goals. Toward this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization whereby local
government units shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the
petitioner filed the instant petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN
THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-owned or
controlled corporation, it is mandated to perform functions in the same category as an instrumentality of
Government. An instrumentality of Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the people. [6]Considering its task not merely
to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry
out the Government policies of promoting and developing the Central Visayas and Mindanao regions as
centers of international trade and tourism, and accelerating the development of the means of
transportation and communication in the country, [7] and that it is an attached agency of the Department of
Transportation and Communication (DOTC), [8] the petitioner may stand in [sic] the same footing as an
agency or instrumentality of the national government. Hence, its tax exemption privilege under Section 14
of its Charter cannot be considered withdrawn with the passage of the Local Government Code of 1991
(hereinafter LGC) because Section 133 thereof specifically states that the `taxing powers of local
government units shall not extend to the levy of taxes or fees or charges of any kind on the national
government, its agencies and instrumentalities.
As to the second assigned error, the petitioner contends that being an instrumentality of the National
Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in
accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement
and Gaming Corporation:[9]

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stock
are owned by the National Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an
instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local governments.

6
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2,
p. 140)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as a tool for
regulation (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the
power to destroy (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. (underscoring supplied)

It then concludes that the respondent Judge cannot therefore correctly say that the questioned
provisions of the Code do not contain any distinction between a government corporation performing
governmental functions as against one performing merely proprietary ones such that the exemption
privilege withdrawn under the said Code would apply to all government corporations. For it is clear from
Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities
of the national government from the taxing powers of the local government units.
In its comment, respondent City of Cebu alleges that as a local government unit and a political
subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power
is guaranteed by the Constitution[10] and enhanced further by the LGC. While it may be true that under its
Charter the petitioner was exempt from the payment of realty taxes, [11] this exemption was withdrawn by
Section 234 of the LGC. In response to the petitioners claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points
out that the petitioner is likewise a government-owned corporation, and Section 234 thereof does not
distinguish between government-owned or controlled corporations performing governmental and purely
proprietary functions. Respondent City of Cebu urges this Court to apply by analogy its ruling that the
Manila International Airport Authority is a government-owned corporation,[12]and to reject the application
of Basco because it was promulgated . . . before the enactment and the signing into law of R.A. No. 7160,
and was not, therefore, decided in the light of the spirit and intention of the framers of the said law.
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 are to pay it. Nevertheless,
effective limitations thereon may be imposed by the people through their Constitutions.[13] Our
Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress
shall evolve a progressive system of taxation.[14] So potent indeed is the power that it was once opined that
the power to tax involves the power to destroy. [15] Verily, 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. Accordingly, tax statutes must be construed strictly against the government
and liberally in favor of the taxpayer. [16] But since taxes are what we pay for civilized society, [17] or are the
lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.[18] A claim of exemption from tax payments must be clearly shown and based on language in
the law too plain to be mistaken. [19] Elsewise stated, taxation is the rule, exemption therefrom is the
exception.[20] However, if the grantee of the exemption is a political subdivision or instrumentality, the
rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce
the amount of money that has to be handled by the government in the course of its operations. [21]
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 virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the Constitution. [22] Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the Congress may provide
which, however, must be consistent with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions,
agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private parties based on material

7
consideration of a mutual nature, which then becomes contractual and is thus covered by the non-
impairment clause of the Constitution. [23]
The LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by
local government units of their power to tax, the scope thereof or its limitations, and the exemptions from
taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local government
units as follows:

SEC. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-
eight (R.A. No. 6938) otherwise known as the Cooperatives Code of the Philippines
respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT
UNITS. (emphasis supplied)
Needless to say, the last item (item o) is pertinent to this case. The taxes, fees or charges referred to are of
any kind; hence, they include all of these, unless otherwise provided by the LGC.The term taxes is well
understood so as to need no further elaboration, especially in light of the above enumeration. The term
fees means charges fixed by law or ordinance for the regulation or inspection of business or
activity, [24] while charges are pecuniary liabilities such as rents or fees against persons or property. [25]

8
 Among the taxes enumerated in the LGC is real property tax, which is governed by Section 232. It
reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan
Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and
other improvements not hereafter specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. It provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof had been granted, for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly,
and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
and
(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of the property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are
real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their character are:
(i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and
exclusive use to which they are devoted are: (i) all lands, buildings and improvements which
are actually directly and exclusively used for religious, charitable or educational purposes; (ii)
all machineries and equipment actually, directly and exclusively used by local water districts
or by government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power; and (iii) all machinery and
equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery
and equipment for pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are withdrawn upon the effectivity of the
Code.[26]

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It
provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
9
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as
they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local
government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the
exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section 133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in
Section 133 seems to be inaccurately worded. Instead of the clause unless otherwise provided herein, with
the herein to mean, of course, the section, it should have used the clause unless otherwise provided in this
Code. The former results in absurdity since the section itself enumerates what are beyond the taxing
powers of local government units and, where exceptions were intended, the exceptions are explicitly
indicated in the next. For instance, in item (a) which excepts income taxes when levied on banks and other
financial institutions; item (d) which excepts wharfage on wharves constructed and maintained by the
local government unit concerned; and item (1) which excepts taxes, fees and charges for the registration
and issuance of licenses or permits for the driving of tricycles. It may also be observed that within the
body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the
section interchangeably uses therein the clause except as otherwise provided herein as in items (c) and (i),
or the clause except as provided in this Code in item (j). These clauses would be obviously unnecessary or
mere surplusages if the opening clause of the section were Unless otherwise provided in this Code instead
of Unless otherwise provided herein. In any event, even if the latter is used, since under Section 232 local
government units have the power to levy real property tax, except those exempted therefrom under
Section 234, then Section 232 must be deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as
laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter
alia, taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities,
and local government units; however, pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real property owned by
the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person, as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons,
including government-owned and controlled corporations, Section 193 of the LGC prescribes the general
rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax. But the last paragraph of Section 234
further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the
Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234,
the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
10
granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but
not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections
232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of
the local government units cannot extend to the levy of:

(o) taxes, fees or charges of any kind on the National Government, its agencies or instrumentalities, and
local government units.

It must show that the parcels of land in question, which are real property, are any one of those enumerated
in Section 234, either by virtue of ownership, character, or use of the property.Most likely, it could only
be the first, but not under any explicit provision of the said section, for none exists. In light of the
petitioners theory that it is an instrumentality of the Government, it could only be within the first item of
the first paragraph of the section by expanding the scope of the term Republic of the Philippines to
embrace its instrumentalities and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

This view does not persuade us. In the first place, the petitioners claim that it is an instrumentality of
the Government is based on Section 133(o), which expressly mentions the word instrumentalities; and, in
the second place, it fails to consider the fact that the legislature used the phrase National Government, its
agencies and instrumentalities in Section 133(o), but only the phrase Republic of the Philippines or any of
its political subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not interchangeable. The former
is broader and synonymous with Government of the Republic of the Philippines which the Administrative
Code of 1987 defines as the corporate governmental entity through which the functions of government are
exercised throughout the Philippines, including, save as the contrary appears from the context, the various
arms through which political authority is made affective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local
government.[27] These autonomous regions, provincial, city, municipal or barangay subdivisions are the
political subdivisions.[28]
On the other hand, National Government refers to the entire machinery of the central government, as
distinguished from the different forms of local governments. [29] The National Government then is
composed of the three great departments: the executive, the legislative and the judicial. [30]
An agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein;[31] while an instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. This term includes regulatory agencies,
chartered institutions and government-owned and controlled corporations.[32]
If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from
payment of real property taxes under the last sentence of the said section to the agencies and
instrumentalities of the National Government mentioned in Section 133(o), then it should have restated
the wording of the latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope of the
exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the
government including government-owned and controlled corporations is further borne out by the fact that
the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property Tax
Code, which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned or controlled corporation so exempt by its charter: Provided, however, That this
exemption shall not apply to real property of the above-mentioned entities the beneficial use of which has
been granted, for consideration or otherwise, to a taxable person.

11
Note that as reproduced in Section 234(a), the phrase and any government-owned or controlled
corporation so exempt by its charter was excluded. The justification for this restricted exemption in
Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general
provision on withdrawal of tax exemption privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These
policy considerations are consistent with the State policy to ensure autonomy to local governments [33] and
the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them effective partners in the attainment
of national goals.[34] The power to tax is the most effective instrument to raise needed revenues to finance
and support myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It
may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other units of government were that
such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises, and there was a need for these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them. [35]
The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the
Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a taxable person.
Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests and privileges relating on airport
works or air operations, including all equipment which are necessary for the operations of air navigation,
aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control of all equipment necessary for the operation of
radio aids to air navigation, airways communication, the approach control office, and the area control
center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by
the Air Transportation Office from Mactan without the concurrence of the Authority. The Authority may
assist in the maintenance of the Air Transportation Office equipment.

The airports referred to are the Lahug Air Port in Cebu City and the Mactan International Airport in
the Province of Cebu,[36] which belonged to the Republic of the Philippines, then under the Air
Transportation Office (ATO).[37]
It may be reasonable to assume that the term lands refer to lands in Cebu City then administered by
the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a transfer of the lands, among other things, to the petitioner and not
just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the
Philippines.
This transfer is actually an absolute conveyance of the ownership thereof because the petitioners
authorized capital stock consists of, inter alia, the value of such real estate owned and/or administered by
the airports.[38] Hence, the petitioner is now the owner of the land in question and the exception in Section
234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real
property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in
light of the foregoing disquisitions, it had already become, even if it be conceded to be an agency or
instrumentality of the Government, a taxable person for such purpose in view of the withdrawal in the last
paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier
adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine
Amusement and Gaming Corporation[39] is unavailing since it was decided before the effectivity of the
LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
12
 WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional
Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

13
G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and
as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession the following properties:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu,
Batangas province;

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

(3) Shares of stocks in different corporations.

To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and
Jose Roxas, formed a partnership called Roxas y Compania.

AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually
occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big
landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part
with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the
Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a
price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount
of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers.
Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by
installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds
of the yearly amortizations paid by the farmers.

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of
capital asset held for more than one year pursuant to Section 34 of the Tax Code.

RESIDENTIAL HOUSE

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

ASSESSMENTS

On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of
real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late
payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late
payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received
house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an
owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is
considered a real estate dealer and is liable to pay the corresponding fixed tax.
14
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities
against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of
securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers
for the years 1953 and 1955, as follows:

1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50%
of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and
the disallowance of deductions from gross income of various business expenses and contributions claimed
by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm
lands and sold them to the farmers on installment, the Commissioner considered the partnership as
engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed.

The following deductions were disallowed:

ROXAS Y CIA.:
1953
Tickets for Banquet in honor of P
S. Osmeña 40.00
Gifts of San Miguel beer 28.00
Contributions to —
Philippine Air Force Chapel 100.00
Manila Police Trust Fund 150.00

Philippines Herald's fund for

Manila's neediest families 100.00
1955
Contributions to Contribution to
Our Lady of Fatima Chapel,
FEU 50.00
ANTONIO ROXAS:
1953
Contributions to —
Pasay City Firemen Christmas Fund 25.00
Pasay City Police Dept. X'mas fund 50.00
1955
Contributions to —
Baguio City Police Christmas fund 25.00
Pasay City Firemen Christmas fund 25.00
Pasay City Police Christmas fund 50.00
EDUARDO ROXAS:
1953
Contributions to —
15
 Hijas de Jesus' Retiro de Manresa 450.00
Philippines Herald's fund for
Manila's neediest families 100.00
1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00
JOSE ROXAS:
1955
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an
appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered
judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax
on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force
Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:

WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio
Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent
Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00,
respectively, as deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and 1%
monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to
the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's
tax. With costs against petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal
Revenue did not appeal.

The issues:

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

(2) Are the deductions for business expenses and contributions deductible?

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

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate
dealer because it engaged in the business of selling real estate. The business activity alluded to was the act
of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. To
bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of
partnership, quoted below:

4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella
en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo
aquellas que a juicio de sus gerentes no deben conservarse;

The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue
cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of
the fact that there were hundreds of vendees. Although they paid for their respective holdings in
installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate
dealer during the ten-year amortization period.

It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and pursuant to the
policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to
16
pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently
subdivide them among the farmers at very reasonable terms and prices. However, the Government could
not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden,
went out of its way and sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself. For this magnanimous act, the municipal
council of Nasugbu passed a resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the
general public's trust and confidence in the Government this power must be used justly and not
treacherously. It does not conform with Our sense of justice in the instant case for the Government to
persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent
call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to
Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the
sale thereof is capital gain, taxable only to the extent of 50%.

DISALLOWED DEDUCTIONS

Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor
of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were
claimed as representation expenses. Representation expenses are deductible from gross income as
expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the
taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection
with his business. In the case at bar, the evidence does not show such link between the expenses and the
business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained.

The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and
Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's
neediest families and Our Lady of Fatima chapel at Far Eastern University.

The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City
Police are not deductible for the reason that the Christmas funds were not spent for public purposes but as
Christmas gifts to the families of the members of said entities. Under Section 39(h), a contribution to a
government entity is deductible when used exclusively for public purposes. For this reason, the
disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an
allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be
used exclusively for its public functions.

The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the
ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of
the Tax Code. It should be noted however that the contributions were not made to the Philippines Herald
but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes.
There is no question that the members of this group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a group of citizens may be classified as an
association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code.

Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel
at the Far Eastern University on the ground that the said university gives dividends to its stockholders.
Located within the premises of the university, the chapel in question has not been shown to belong to the
Catholic Church or any religious organization. On the other hand, the lower court found that it belongs to
the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code
for the reason that the net income of said university injures to the benefit of its stockholders. The
disallowance should be sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although
it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one
of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate
receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying
the rentals. The law, which states: 1äwphï1.ñët
17
 . . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding himself out as
a full or part-time dealer in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or more a year: . . . (Emphasis
supplied) .

is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1äwphï1.ñët

To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose
Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00,
respectively, computed as follows: *

ANTONIO ROXAS
Net income per return P315,476.59
Add: 1/3 share, profits in Roxas y
P 153,249.15
Cia.
Less amount declared 146,135.46

Amount understated P 7,113.69

Contributions disallowed 115.00

P 7,228.69
Less 1/3 share of contributions
amounting to P21,126.06
disallowed from partnership but
allowed to partners 7,042.02 186.67

Net income per review P315,663.26

Less: Exemptions 4,200.00

Net taxable income P311,463.26

Tax due 154,169.00
Tax paid 154,060.00

Deficiency P 109.00
==========
EDUARDO ROXAS
P
Net income per return
304,166.92
Add: 1/3 share, profits in Roxas y
P 153,249.15
Cia
Less profits declared 146,052.58

Amount understated P 7,196.57

Less 1/3 share in contributions
amounting to P21,126.06
disallowed from partnership but
allowed to partners 7,042.02 155.55
18
 Net income per review P304,322.47
Less: Exemptions 4,800.00

Net taxable income P299,592.47

Tax Due P147,250.00
Tax paid 147,159.00

Deficiency P91.00
===========
JOSE ROXAS
Net income per return P222,681.76
Add: 1/3 share, profits in Roxas y
P153,429.15
Cia.
Less amount reported 146,135.46

Amount understated 7,113.69

Less 1/3 share of contributions
disallowed from partnership but
allowed as deductions to partners 7,042.02 71.67

Net income per review P222,753.43

Less: Exemption 1,800.00

Net income subject to tax P220,953.43

Tax due P102,763.00
Tax paid 102,714.00

Deficiency P 49.00
===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of
P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are
ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income
tax all corresponding for the year 1955. No costs. So ordered.

G.R. No. 101273 July 3, 1992

CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,

vs.
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL
ECONOMIC AND DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE
SECRETARY OF FINANCE, and THE ENERGY REGULATORY BOARD, respondents.

FELICIANO, J.:

On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any
other duties, taxes and charges imposed by law on all articles imported into the Philippines, an additional
19
duty of five percent (5%) ad valorem. This additional duty was imposed across the board on all imported
articles, including crude oil and other oil products imported into the Philippines. This additional duty was
subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the
promulgation of Executive Order No. 443, dated 3 January 1991.

On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process
required by the Tariff and Customs Code for the imposition of a specific levy on crude oil and other
petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and
Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in
Section 401 of the Tariff and Customs Code, scheduled a public hearing to give interested parties an
opportunity to be heard and to present evidence in support of their respective positions.

Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of
additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except in
the cases of crude oil and other oil products which continued to be subject to the additional duty of nine
percent (9%)ad valorem.

Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on
Special Duty on Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate
action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which
levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other
existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil
and P1.00 per liter of imported oil products.

In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of
Executive Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of
Section 24, Article VI of the 1987 Constitution which provides as follows:

Sec. 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.

He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are in
the nature of revenue-generating measures.

Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and
Customs Code, which Section authorizes the President, according to petitioner, to increase, reduce or
remove tariff duties or to impose additional duties only when necessary to protect local industries or
products but not for the purpose of raising additional revenue for the government.

Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475
and 478, and asks us to restrain the implementation of those Executive Orders. We will examine these
questions in that order.

Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 507 did
not render the instant Petition moot and academic. Executive Order No. 517 which is dated 30 April 1992
provides as follows:

Sec. 1. Lifting of the Additional Duty. — The additional duty in the nature of ad
valorem imposed on all imported articles prescribed by the provisions of Executive Order
No. 443, as amended, is hereby lifted; Provided, however, that the selected articles covered
by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs Code, as
amended, subject of Annex "A" hereof, shall continue to be subject to the additional duty
of nine (9%) percent ad valorem.

Under the above quoted provision, crude oil and other oil products continue to be subject to the
additional duty of nine percent (9%) ad valorem under Executive Order No. 475 and to the special
duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under
Executive Order No. 478.

20
Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the
enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of
the Legislative rather than the Executive Department. It does not follow, however, that therefore
Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are
prohibited to the President, that they must be enacted instead by the Congress of the Philippines. Section
28(2) of Article VI of the Constitution provides as follows:

(2) The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose,tariff rates, import and export
quotas, tonage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government. (Emphasis supplied)

There is thus explicit constitutional permission 1 to Congress to authorize the President "subject to such
limitations and restrictions is [Congress] may impose" to fix "within specific limits" "tariff rates . . . and
other duties or imposts . . ."

The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104
and 401, the pertinent provisions thereof. These are the provisions which the President explicitly invoked
in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code
provides in relevant part:

Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import
duty under Section 104 of Presidential Decree No. 34 and all subsequent amendments
issued under Executive Orders and Presidential Decrees are hereby adopted and form part
of this Code.

There shall be levied, collected, and paid upon all imported articles the rates of duty
indicated in the Section under this section except as otherwise specifically provided for in
this Code: Provided, that, the maximum rate shall not exceed one hundred per cent ad
valorem.

The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred
One of this Code shall be subject to periodic investigation by the Tariff Commission
and may be revised by the President upon recommendation of the National Economic and
Development Authority.

xxx xxx xxx

(Emphasis supplied)

Section 401 of the same Code needs to be quoted in full:

Sec. 401. Flexible Clause. —

a. In the interest of national economy, general welfare and/or national security, and
subject to the limitations herein prescribed, the President, upon recommendation of the
National Economic and Development Authority (hereinafter referred to as NEDA), is
hereby empowered: (1) to increase, reduce or remove existing protective rates of import
duty (including any necessary change in classification). The existing rates may be
increased or decreased but in no case shall the reduced rate of import duty be lower than
the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty be
higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import
quota or to ban imports of any commodity, as may be necessary; and (3) to impose an
additional duty on all imports not exceeding ten (10) per cent ad valorem, whenever
necessary; Provided, That upon periodic investigations by the Tariff Commission and
recommendation of the NEDA, the President may cause a gradual reduction of protection
levels granted in Section One hundred and four of this Code, including those subsequently
granted pursuant to this section.

b. Before any recommendation is submitted to the President by the NEDA pursuant to the
provisions of this section, except in the imposition of an additional duty not exceeding ten
(10) per cent ad valorem, the Commission shall conduct an investigation in the course of
21
 which they shall hold public hearings wherein interested parties shall be afforded
reasonable opportunity to be present, produce evidence and to be heard. The Commission
shall also hear the views and recommendations of any government office, agency or
instrumentality concerned. The Commission shall submit their findings and
recommendations to the NEDA within thirty (30) days after the termination of the public
hearings.

c. The power of the President to increase or decrease rates of import duty within the limits
fixed in subsection "a" shall include the authority to modify the form of duty. In modifying
the form of duty, the corresponding ad valorem or specific equivalents of the duty with
respect to imports from the principal competing foreign country for the most recent
representative period shall be used as bases.

d. The Commissioner of Customs shall regularly furnish the Commission a copy of all
customs import entries as filed in the Bureau of Customs. The Commission or its duly
authorized representatives shall have access to, and the right to copy all liquidated customs
import entries and other documents appended thereto as finally filed in the Commission on
Audit.

e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions
of this section.

f. Any Order issued by the President pursuant to the provisions of this section shall take
effect thirty (30) days after promulgation, except in the imposition of additional duty not
exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the
President. (Emphasis supplied)

Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and
401 of the Tariff and Customs Code, by contending that the President is authorized to act under the Tariff
and Customs Code only "to protect local industries and products for the sake of the national economy,
general welfare and/or national security." 2 He goes on to claim that:

E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local
industries and products for the sake of national economy, general welfare and/or national
security. On the contrary, they work in reverse, especially as to crude oil, an essential
product which we do not have to protect, since we produce only minimal quantities and
have to import the rest of what we need.

These Executive Orders are avowedly solely to enable the government to raise government
finances, contrary to Sections 24 and 28 (2) of Article VI of the Constitution, as well as to
Section 401 of the Tariff and Customs Code. 3 (Emphasis in the original)

The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of
401 of the Tariff and Customs Code that suggest such a sharp and absolute limitation of authority. The
entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1):
"existing protectiverates of import duty," and the second in the proviso found at the end of Section 401
(a): "protection levels granted in Section 104 of this Code . . . . " We believe that the words "protective"
and ''protection" are simply not enough to support the very broad and encompassing limitation which
petitioner seeks to rest on those two (2) words.

In the second place, petitioner's singular theory collides with a very practical fact of which this Court may
take judicial notice — that the Bureau of Customs which administers the Tariff and Customs Code, is one
of the two (2) principal traditional generators or producers of governmental revenue, the other being the
Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that generates lower but
still comparable levels of revenue for the government — The Philippine Amusement and Games
Corporation [PAGCOR].)

In the third place, customs duties which are assessed at the prescribed tariff rates are very much like taxes
which are frequently imposed for both revenue-raising and for regulatory purposes. 4 Thus, it has been
held that "customs duties" is "the name given to taxes on the importation and exportation of commodities,
the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country." 5 The
levying of customs duties on imported goods may have in some measure the effect of protecting local
22
industries — where such local industries actually exist and are producing comparable goods.
Simultaneously, however, the very same customs duties inevitably have the effect of producing
governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to achieve
one policy objective only. Most commonly, customs duties, which constitute taxes in the sense of
exactions the proceeds of which become public funds 6 — have either or both the generation of revenue
and the regulation of economic or social activity as their moving purposes and frequently, it is very
difficult to say which, in a particular instance, is the dominant or principal objective. In the instant case,
since the Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil consumed here, the
imposition of increased tariff rates and a special duty on imported crude oil and imported oil products
may be seen to have some "protective" impact upon indigenous oil production. For the effective, price of
imported crude oil and oil products is increased. At the same time, it cannot be gainsaid that substantial
revenues for the government are raised by the imposition of such increased tariff rates or special duty.

In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs
law, is a stiflingly narrow one. Section 401 of the Tariff and Customs Code establishes general standards
with which the exercise of the authority delegated by that provision to the President must be consistent:
that authority must be exercised in "the interest of national economy, general welfare and/or national
security." Petitioner, however, insists that the "protection of local industries" is the only permissible
objective that can be secured by the exercise of that delegated authority, and that therefore "protection of
local industries" is the sum total or the alpha and the omega of "the national economy, general welfare
and/or national security." We find it extremely difficult to take seriously such a confined and closed view
of the legislative standards and policies summed up in Section 401. We believe, for instance, that the
protection of consumers, who after all constitute the very great bulk of our population, is at the very least
as important a dimension of "the national economy, general welfare and national security" as the
protection of local industries. And so customs duties may be reduced or even removed precisely for the
purpose of protecting consumers from the high prices and shoddy quality and inefficient service that
tariff-protected and subsidized local manufacturers may otherwise impose upon the community.

It seems also important to note that tariff rates are commonly established and the corresponding customs
duties levied and collected upon articles and goods which are not found at all and not produced in the
Philippines. The Tariff and Customs Code is replete with such articles and commodities: among the more
interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5,
5.14); Olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree roots (Chapter
7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88,
88.0l); special diagnostic instruments and apparatus for human medicine and surgery (Chapter 90,
Notes); X-ray generators; X-ray tubes;
X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed
either for revenue purposes purely or perhaps, in certain cases, to discourage any importation of the items
involved. In either case, it is clear that customs duties are levied and imposed entirely apart from whether
or not there are any competing local industries to protect.

Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to
be substantially moved by the desire to generate additional public revenues, are not, for that reason alone,
either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code.
Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those
Executive Orders are entitled. 7

The conclusion we have reached above renders it unnecessary to deal with petitioner's additional
contention that, should Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal, there
should be a roll back of prices of petroleum products equivalent to the "resulting excess money not be
needed to adequately maintain the Oil Price Stabilization Fund (OPSF)." 8

WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby
DISMISSED for lack of merit. Costs against petitioner.

SO ORDERED.

23
G.R. No. 11572 September 22, 1916

FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-appellants,

vs.
VENANCIO CONCEPCION, as Acting Collector of Internal Revenue, defendant-appellee.

Aitken and De Selms for appellants.

Attorney-General Avanceña for appellee.

TRENT, J.:

Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of
P4 per square meter upon "electric signs, billboards, and spaces used for posting or displaying temporary
signs, and all signs displayed on premises not occupied by buildings." This section was subsequently
amended by Act No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards, etc.,
to P2 per square meter or fraction thereof. Section 26 of Act No. 2432 was in turn amended by Act No.
2445, but this amendment does not in any way affect the questions involved in the case under
consideration. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the
United States on March 4, 1915. The ratifying clause reads as follows:

The internal-revenue taxes imposed by the Philippine Legislature under the law enacted by that
body on December twenty-third, nineteen hundred and fourteen (Act No. 2432), as amended by
the law enacted by it on January sixteenth, nineteen hundred and fifteen (Act No. 2445), are
hereby legalized and ratified, and the collection of all such taxes heretofore or hereafter is hereby
legalized, ratified and confirmed as fully to all intents and purposes as if the same had by prior Act
of Congress been specifically authorized and directed.

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

It is now urged that the trial court erred:

(1) In not holding that the tax as imposed by virtue of Act No. 2339, as amended by Act No. 2432,
as amended by Act No. 2445, constitutes deprivation of property without compensation or due
process of law, because it is confiscatory and unjustly discriminatory and (2) in not holding that
the said tax is void for lack of uniformity, because it is not graded according to value; because the
classification on which it is based on any reasonable ground; and furthermore, because it
constitutes double taxation.

We will first inquire whether the tax in question is confiscatory as to the business of the plaintiff Upon
this point the lower court, in accepting the testimony of the plaintiff, Churchill, to the effect that "the
billboard in question cost P300 to construct, that its annual gross earning power is P268, and that the
annual tax is P104," found "that for a five years' period the gross income from the billboard would be
P1,340, and that the expenditures for original construction and taxes would amount to P820, leaving a
balance of P520," held that "unless the tax equals or exceeds the gross income, the court would hardly be
justified in declaring the tax confiscatory." These findings of fact and conclusions of law are attacked
upon the ground that the court failed to take into-consideration the pertinent facts that the annual
depreciation of the billboard is 20 per cent; that at the end of five years the capital of P300 would be
completely lost; that the plaintiffs are entitled to receive a reasonable rate of interest on this capital; and
that there should be charged against the billboard its proportion of the overhead charges such as labor,
management, maintenance, rental of office premises, rental or purchase of ground space for board, repair,
paints, oils, etc., resulting in an actual loss per year on the business, instead of an apparent profit of P520

24
for five years, or P44 for one year. If these contentions rested upon a sound basis it might be said that the
tax is, in a sense, confiscatory; but they do not, as we will attempt to show from the evidence of record.

The plaintiff Churchill testified in part as follows:

Q. In your opinion, Mr. Churchill, state what you would think of the rates that are charged
by you for advertising purposes in connection with this board; could they be raised? —

A. No.

Q. Why? —

A. The business wouldn't allow it; the business wouldn't afford it; and otherwise it would
mean bankruptcy to try to increase it.

Q. Who couldn't afford it? Explain it fully Mr. Churchill? —

A. The merchants couldn't afford to pay more. On cross-examination:

Q. It is a fact, it is not, Mr. Churchill, that since the passage of Act No. 2339 you have
never made any attempt to raise the advertising rates? —

A. It would be impossible to raise them.

Q. My question is: You have never made any attempt to raise them? —

A. We have talked it over with the merchants and talked over the price on the event of a tax
being put at a reasonable amount, about putting up some increase.

Q. But you have never made an actual attempt to increase your rates? —

A. I would consider that an actual attempt.

Q. You have never fixed the rate higher than it is now? —

A. No; no.

It was agreed that Tait, the other plaintiff, would testify to the same effect. The parties, plaintiffs and
defendant, further agreed "that a number of persons have voluntarily and without protest paid the taxes
imposed by section 100 of Act No. 2339, as amended by Act No. 2432, and in turn amended by Act No.
2445."

It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely
hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and that the
plaintiffs themselves admit that a number of other persons have voluntarily and without protest paid the
tax herein complained of. Under these circumstances, can it be held as a matter of fact that the tax is
confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of the taxing power of
the Legislature dependent upon and restricted by the opinion of two interested witnesses? There can be
but one answer to these questions, especially in view of the fact that others are paying the tax and
presumably making a reasonable profit from their business.

In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S., 339), a question similar to the one now
under consideration was raised and decided by the Supreme Court of the United States. The principal
contention made in that case was that an Act of the Legislature of Michigan fixing the amount per mile to
be charged by railways for the transportation of a passenger was unconstitutional, on the ground that the
rate so fixed was confiscatory. It was agreed in the pleadings that the total earnings and income of the
company from all sources for a given year were less than the expenses for the same period. In addition to
this agreed statement of facts, two witnesses were called, one the traffic manager and the other the
treasurer of the company. Their testimony was to the effect that in view of the competition prevailing at
Chicago for through business, it was impossible to increase the freight rates then charged by the company
because it would throw the volume of business into the hands of competing roads. In overruling the

25
contention of the company that the act in question was unconstitutional on the ground that the rate fixed
thereby was confiscatory, the court said:

Surely, before the courts are called upon to adjudge an act of the legislature fixing the maximum
passenger rates for railroad companies to be unconstitutional, on the ground that its enforcement
would prevent the stockholders from receiving any dividends on their investments, or the
bondholders any interest on their loans, they should be fully advised as to what is done with the
receipts and earnings of the company; for if so advised, it might clearly appear that a prudent and
honest management would, within the rates prescribed, secure to the bondholders their interest,
and to the stockholders reasonable dividends. While the protection of vested rights of property is a
supreme duty of the courts, it has not come to this, that the legislative power rests subservient to
the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or
in some other improper way, transfer its earnings into what it is pleased to call `operating
expenses.'

It is further alleged that the tax in question is unconstitutional because "the law herein complained of was
enacted for the sole purpose of destroying billboards and advertising business depending on the use of
signs or billboards." If it be conceded that the Legislature has the power to impose a tax upon signs,
signboards, and billboards, then "the judicial cannot prescribed to the legislative department of the
Government limitation upon the exercise of its acknowledge powers." (Veazie Bank vs. Fenno, 8 Wall.,
533, 548.) That the Philippine Legislature has the power to impose such taxes, we think there can be no
serious doubt, because "the power to impose taxes is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest
in the discretion of the authority which exercises it. It reaches to every trade or occupation; to every object
of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case of
failure to discharge it, may be followed by seizure and sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point does the power of the government affect more constantly
and intimately all the relations of life than through the exactions made under it." (Cooley's Constitutional
Limitations, 6th Edition, p. 587.)

In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely to the contention that a federal tax on
oleomargarine artificially colored was void because the real purpose of Congress was not to raise revenue
but to tax out of existence a substance not harmful of itself and one which might be lawfully
manufactured and sold, said:

Whilst, as a result of our written constitution, it is axiomatic that the judicial department of the
government is charged with the solemn duty of enforcing the Constitution, and therefore, in cases
property presented, of determining whether a given manifestation of authority has exceeded the
power conferred by that instrument, no instance is afforded from the foundation of the government
where an act which was within a power conferred, was declared to be repugnant to the
Constitution, because it appeared to the judicial mind that the particular exertion of constitutional
power was either unwise or unjust. To announce such a principle would amount to declaring that,
in our constitutional system, the judiciary was not only charged with the duty of upholding the
Constitution, but also with the responsibility of correcting every possible abuse arising from the
exercise by the other departments of their conceded authority. So to hold would be to overthrow
the entire distinction between the legislative, judicial, and executive departments of the
government, upon which our system is founded, and would be a mere act of judicial usurpation.

If a case were presented where the abuse of the taxing power of the local legislature was to extreme as to
make it plain to the judicial mind that the power had been exercised for the sole purpose of destroying
rights which could not be rightfully destroyed consistently with the principles of freedom and justice upon
which the Philippine Government rests, then it would be the duty of the courts to say that such an
arbitrary act was not merely an abuse of the power, but was the exercise of an authority not conferred.
(McCray vs. U.S., supra.) But the instant case is not one of that character, for the reason that the tax
herein complained of falls far short of being confiscatory. Consequently, it cannot be held that the
Legislature has gone beyond the power conferred upon it by the Philippine Bill in so far as the amount of
the tax is concerned.

Is the tax void for lack of uniformity or because it is not graded according to value or constitutes double
taxation, or because the classification upon which it is based is mere arbitrary selection and not based on
any reasonable grounds? The only limitation, in so far as these questions are concerned, placed upon the

26
Philippine Legislature in the exercise of its taxing power is that found in section 5 of the Philippine Bill,
wherein it is declared "that the rule of taxation in said Islands shall be uniform."

Uniformity in taxation — says Black on Constitutional Law, page 292 — means that all taxable
articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean
that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and
luxuries, shall all be assessed at the same rate. Different articles may be taxed at different
amounts, provided the rate is uniform on the same class everywhere, with all people, and at all
times.

A tax is uniform when it operates with the same force and effect in every place where the subject of it is
found (State Railroad Tax Cases, 92 U.S., 575.) The words "uniform throughout the United States," as
required of a tax by the Constitution, do not signify an intrinsic, but simply a geographical, uniformity,
and such uniformity is therefore the only uniformity which is prescribed by the Constitution. (Patton vs.
Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform, within the constitutional requirement, when it
operates with the same force and effect in every place where the subject of it is found. (Edye vs.
Robertson, 112 U.S., 580; 28 L. Ed., 798.) "Uniformity," as applied to the constitutional provision that all
taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. (Adams
vs. Mississippi State Bank, 23 South, 395, citing Mississippi Mills vs Cook, 56 Miss., 40.) The statute
under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-
board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such
signs is uniform throughout the Islands. The rule, which we have just quoted from the Philippine Bill,
does not require taxes to be graded according to the value of the subject or subjects upon which they are
imposed, especially those levied as privilege or occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land upon which the billboards are located is taxed
at so much per unit and the billboards at so much per square meter does not constitute "double taxation."
Double taxation, within the true meaning of that expression, does not necessarily affect its validity. (1
Cooley on Taxation, 3d ed., 389.) And again, it is not for the judiciary to say that the classification upon
which the tax is based "is mere arbitrary selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for taxation and it must be presumed that it, in so
doing, acted with a full knowledge of the situation.

For the foregoing reasons, the judgment appealed from is affirmed, with costs against the appellants. So
ordered.

27
G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,

vs.
CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring
illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On
Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the
plaintiffs-appellees the sums of collected from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax
fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or
wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per
apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per
apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio
Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments.
This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23,
1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the City of Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power
to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance
11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN

THE BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic
Act No. 2264, otherwise known as the Autonomy Law of Local Government, that:

Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with
the schedule of payment herein provided.

Section 2. — Tenement house as contemplated in this ordinance shall mean any building or
dwelling for renting space divided into separate apartments or accessorias.

Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to

business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.

28
 V. Tenement houses at the streets surrounding the super market
as soon as said place is declared commercial P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.

Section 5. — Any person found violating this ordinance shall be punished with a fine note
exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or
both at the discretion of the Court.

Section 6 — This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S.
Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street
and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the
second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment
buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to
him, do not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and
Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian
Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00.
Eusebio Villanueva has likewise been paying real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended
complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11,
series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of
Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to
refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds
that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is
"oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay
the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of
uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities
and municipal districts shall have authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges in chartered cities, municipalities
or municipal districts by requiring them to secure licences at rates fixed by the municipal board or
city council of the city, the municipal council of the municipality, or the municipal district council
of the municipal district; to collect fees and charges for services rendered by the city, municipality
or municipal district; to regulate and impose reasonable fees for services rendered in connection
with any business, profession or occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles
29
 subject to specific tax, except gasoline, under the provisions of the National Internal Revenue
Code; Provided, however, That no city, municipality or municipal district may levy or impose any
of the following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular intervals and having fixed prices for for
subscription and sale, and which is not published primarily for the purpose of publishing
advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric
light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses
or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by the national government,
tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall
provide otherwise: Provided, however, That the Secretary of Finance shall have authority to
suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if,
in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or
confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance
shall be suspended.

In such event, the municipal board or city council in the case of cities and the municipal council or
municipal district council in the case of municipalities or municipal districts may appeal the
decision of the Secretary of Finance to the court during the pendency of which case the tax levied
shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad
taxing authority which extends to almost "everything, excepting those which are mentioned therein,"
provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any
constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax, levied under the
authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned,
the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio
alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in
section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the
tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax
on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege
tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons
engaged in the business of operating tenement houses," while section 1 thereof states that a
"municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which
the appellees base their contention that the tax involved is a real estate tax which, according to them,

30
makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax
allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax.
Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment
Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City
Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements
thereon, not specially exempted,8 and is payable regardless of whether the property is used or not,
although the value may vary in accordance with such factor.9 The tax is usually single or indivisible,
although the land and building or improvements erected thereon are assessed separately, except when the
land and building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed
value of the property taxed, and requires, therefore, the intervention of assessors. 12 It is collected or
payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on
the land on which the tenement houses are erected, although both land and tenement houses may belong
to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and
does not require the intervention of assessors or appraisers. It is not payable at a designated time or date,
and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in
question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks
less to its words and more to the context, subject-matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the letter thereof, while that which is in
the letter, although not within the spirit, is not within the ordinance."15 It is within neither the letter nor the
spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter
would have been not merely tenement houses. On the contrary, it is plain from the context of the
ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a
form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof,
designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction
on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a
privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in the statute
creating it, but such words must be taken in the connection in which they are used and the true
character is to be deduced from the nature and essence of the subject."17 The subject-matter of the
ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which
defines a tenement house as "any building or dwelling for renting space divided into separate
apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et
al., L-12695, March 23, 1959, adopted the definition of a tenement house18 as "any house or
building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as
the home or residence of three families or more living independently of each other and doing their
cooking in the premises or by more than two families upon any floor, so living and cooking, but
having a common right in the halls, stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease by their very nature and essence,
therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or
the operation of lodging houses or boarding houses. This is precisely one of the reasons why this
Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared
Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants,
refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses,
pawnshops, theaters, cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the
aforesaid case, this Court explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among those clearly
and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be
assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement
house such as those belonging to defendants." .

31
The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment
tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act.
On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of
operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that
chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges within their respective territories, and "otherwise to levy
for public purposes, just and uniform taxes, licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of
the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what
the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in
section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals or as owners of rental property or
properties," are considered "real estate dealers" and are taxed according to the amount of their annual
income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes
and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule
that a license tax may be levied upon a business or occupation although the land or property used in
connection therewith is subject to property tax. The State may collect an ad valorem tax on property used
in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of
tax being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax."23 It has been shown that a real estate tax and the
tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of
the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is
something not favored, but is permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only
oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if
the owner or owners of the tenement buildings divided into apartments do not pay the tenement or
apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement
houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The
lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that
"no person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary, however, that
"a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is
not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment
for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is
not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed
amount upon all persons, or upon all persons of a certain class, resident within a specified territory,
without regard to their property or the occupations in which they may be engaged. 28 Therefore, the tax in
question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed
a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each
offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of
the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising

32
various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its
violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income taxes the
ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted
that in the assessment of real estate tax all parts of the building or buildings are included so that
the corresponding real estate tax could be properly imposed. If aside from the real estate tax the
owner or owners of the tenement buildings should pay apartment taxes as required in the
ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity"
and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on
their tenement houses, while citizens of other cities, where their councils do not enact a similar tax
ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has already ruled that
tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and
equal when imposed upon all property of the same class or character within the taxing authority." 31 The
fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes
imposed by the ordinance in question is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not
imposed in other cities, for the same rule does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time. 32 So long as the burden of the tax falls
equally and impartially on all owners or operators of tenement houses similarly classified or situated,
equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement
houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed
among them, to overthrow the presumption that tax statutes are intended to operate uniformly and
equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere
reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra,
as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or
should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no
identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an
ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was
enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted
pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in
the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its
charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which
took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695
which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local
Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the
enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the
Local Autonomy Act the taxes that could be legally levied by local governments were only those
specifically authorized by law, and their power to tax was construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the
complaint is hereby dismissed. No pronouncement as to costs..

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano,
JJ., concur..

Footnotes
1
The record discloses that the delay caused in the lower court was due to the loss of the original
record while the same was in the possession of the late Judge Perfecto Querubin. The record was
later reconstituted under Judge Ramon Blanco..
33
2
Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per
Concepcion, J.: .

"Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance
in question comes under any of the foregoing exceptions. Hence, under the rule -
"expressio unius est exclusio alterius", the ordinance should be deemed to come within the
purview of the general rule. Indeed, the sponsor of the bill, which upon its passage became
Republic Act No. 2264, explicitly informed the House of Representatives when he urged
the same to approve it, that, under its provisions, local governments would be "able to do
everything, excepting those things which are mentioned therein." ..." .

C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per
Castro, J.: .

"... Heretofore, we have announced the doctrine that the grant of the power to tax to
chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to cover
"everything, excepting those which are mentioned therein," subject only to the limitation
that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Co. vs.
Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing,
and we do not believe it is possible to show, that the tax levied, called by any name -
percentage tax or sales tax - comes under any of the specific exceptions listed in Section 2
of the Local Autonomy Act. Not being excepted, it must be regarded as coming within the
purview of the general rule. As the maxim goes, "Exceptio firmat regulum in casibus non
excepti." Since its public purpose, justness and uniformity of application are not disputed,
the tax so levied must be sustained as valid." (Re: Ordinance imposing a tax on sales or
real estate property situated in the City of Iloilo, of 1/2% of 1% of the contract price or
consideration.).

Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per
Fernando, J.: .

"In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963,
to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing authority has been
implemented and vitalized by this Court.

"... The question before this Court is one of power. From and after June 19, 1959, when the
Local Autonomy Act was enacted, the sphere of autonomy of a chartered city in the
enactment of taxing measures has been considerably enlarged.

"... In the absence of a clear and specific showing that there was a transgression of a
constitutional provision or repugnancy to a controlling statute, an objection of such a
generalized character deserves but scant sympathy from this Court. Considering the
indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a
talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever
did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing tax on all
productions of centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per
picul, etc.].
3
"Taxes on property are taxes assessed on all property or on all property of a certain class located
within a certain territory on a specified date in proportion to its value, or in accordance with some
other reasonable method of apportionment, the obligation to pay which is absolute and
unavoidable and it is not based upon any voluntary action of the person assessed. A property tax is
ordinarily measured by the amount of property owned by the taxpayer on a given day, and not on
the total amount owned by him during the year. It is ordinarily assessed at stated periods
determined in advance, and collected at appointed times, and its payment is usually enforced by
sale of the property taxed, and, occassionally, by imprisonment of the person assessed." (51 Am.
Jur. 57) .

"A "real estate tax" is a tax in rem against realty without personal liability therefor on part
of owner thereof, and a judgment recovered in proceedings for enforcement of real estate
tax is one in rem against the realty without personal liability against the owner." (36 Words

34
 and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164,
171, 229 Minn. 263).
4
"The term "license tax" or "license fee" implies an imposition or exaction on the right to use or
dispose of a property, to pursue a business, occupation, or calling, or to exercise a privilege." (33
Am. Jur. 325-v26) .

"The term "excise tax" is synonymous with "privilege tax", and the two are often used
interchangeably, and whether a tax is characterized in the statute imposing it as a privilege
tax or an excise tax is merely a choice of synonymous words, for an excise tax is a
privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter, 149 Tenn.
569, 260 SW 144) .

"Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the
enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur. 61) .
5
"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one
per centum on the assessed value of all real estate in the city subject to taxation shall be levied by
the city treasurer..." .
6
Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the
Assessment Law. `.

`SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied,
assessed, and collected an annual ad valorem tax on real property, including land,
buildings, machinery and other improvements not hereinafter specially exempted.".
7
Com. Act 158, sections 28 to 53.
8
Com. Act 158, sec. 29.
9
51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property,
and is payable regardless of whether the property is used or not, although of course the value may
vary in accordance with such factor." .
10
"Real estate, for purposes of taxation, includes all land within the district by which the tax is
levied, and all rights and interests in such land, and all buildings and other structures affixed to the
land, even though as between the landlord and the tenant they are the property of the tenant and
may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec. 31 of Com. Act
158 provides: "When it shall appear that there are separate owners of the land and the
improvements thereon, a separate assessment of the property of each shall be made." .
11
Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed value of
all real estate in the city subject to taxation shall be levied by the city treasurer." .
12
Secs. 28 to 34, Com. Act 158.
13
Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and
payable on the first day of January and from this date such taxes together with all penalties
accruing thereto shall constitute a lien on the property subject to such taxation." .
14
Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or
incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the
possession of the delinquent or any subsequent owner, and can only be removed by the payment of
the tax and penalty.".
15
62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88
Phil. 60.
16
51 Am. Jur. 59-60; 33 Am. Jur. 325-326..

35
17
51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367.
18
Webster's New International Dictionary, 2nd Ed., p. 2601.
19
City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be seen
from the definition of each establishment hereunder quoted, a tenement house is different from
hotel, lodging house, or boarding house. These are different business enterprises. They have been
established for different purposes.
20
National Internal Revenue Code: .

"SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed
taxes shall be collected as follows, the amount stated being for the whole year, when not
otherwise specified: .

XXX XXX XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial
brokers, customs brokers, and immigration brokers, one hundred and fifty pesos: Provided,
however, That in the case of real estate dealers, the annual fixed tax to be collected shall be
as follows: .

"One hundred and fifty pesos, if the annual income from buying, selling, exchanging,
leasing, or renting property (whether on their own account as principals or as owners of
rental property or properties) is four thousand pesos or more but not exceeding ten
thousand pesos; .

"Three hundred pesos, if such annual income exceeds ten thousand pesos but does not
exceed thirty thousand pesos; and .

"Five hundred pesos, if such annual income exceeds thirty thousand pesos."
21
Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46,
per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of
Manila, approved on July 25, 1950, imposing a municipal occupation tax on persons exercising
various professions (lawyers, medical practitioners, public accountants, dental surgeons,
pharmacists, etc.), in the city and penalizes non-payment of the tax by a fine of not more than
P200.00 or by imprisonment of not more than 6 months, or by both such fine and imprisonment in
the discretion of the court, although section 201 [now sec. 182(B)] of the National Internal
Revenue Code requires the payment of taxes on occupation or professional taxes. Said Justice
Reyes: "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 (1 Cooley on Taxation, 4th ed., p. 492), it being
widely recognized that there is nothing obnoxious in the requirement thatlicense fees or taxes be
exacted with respect to the same occupation, calling or activity by both the state and the political
subdivision thereof. (51 Am. Jur., 341.)" .

A month after the promulgation of the above decision, Congress passed Rep. Act 1166,
approved on June 18, 1954, providing as follows: "Any provisions of existing laws, city
charters and ordinances, executive orders and regulations, or parts thereof, to the contrary
notwithstanding, every professional legally authorized to practice his profession, who has
paid the corresponding annual privilege tax on professions required by Sec. 182 of the
NIRC, Com. Act No. 466,shall be entitled to practice the profession for which he has been
duly qualified under the law, in all parts of the Philippines without being subject to any
other tax, charge, license or fee for the practice of such profession; Provided, however,
That they have paid to the office concerned the registration fees required in their respective
professions." .
22
People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista
Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees were convicted
by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the
occupation tax imposed by a municipal ordinance on owners of fishponds on lands of private
ownership. The Supreme Court, in sustaining the validity of the ordinance, held:.
36
 "The ground on which the trial court declared the municipal ordinance invalid would seem
to be that, since the land on which the fishpond is situated is already subject to land tax, it
would be unfair and discriminatory to levy another tax on the owner of the fishpond
because that would amount to double taxation. This view is erroneous because it is a well-
settled rule that a license tax may be levied upon a business or occupation although the
land or property used therein is subject to property tax. It was also held that "the state may
collect an ad valorem tax on property used in a calling, and at the same time impose a
license tax on the pursuit of that calling." The imposition of this kind of tax is in no sense
called a double tax." .

Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil.
687, per Reyes, J.B.L., J.

"Considering that appellant constructed her four-door "accessoria" purposely for rent or
profit; that she has been continuously leasing the same to third persons since its
construction in 1947; that she manages her property herself; and that said leased holding
appears to be her main source of livelihood, she is engaged in the leasing of real estate, and
is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)(3)(s)] of the Internal
Revenue Code, as amended by Rep. Act No. 42.

"Appellant argues that she is already paying real estate taxes on her property, as well as
income tax on the income derived therefrom, so that to further subject its rentals to the
"real estate dealers" tax amounts to double taxation. This argument has already been
rejected by this Court in the case of People vs. Mendaros et al., L-6975, promulgated May
27, 1955, wherein we held that it is a well-settled rule that license tax may be levied upon a
business or occupation although the land or property used therein is subject to property tax,
and that"the state may collect an ad valorem tax on property used in a calling, and at the
same time impose a license tax on the pursuit of that calling", the imposition of the latter
kind of tax being in no sense a double tax." ".
23
84 C.J.S. 131-132.
24
Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs.
Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs. Hawaiian-
Philippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines vs. City of
Butuan, et al., L-22814, Aug. 28, 1968.

Pepsi-Cola Bottling Co. vs. City of Butuan, supra: .

"The second and last objections are manifestly devoid of merit. Indeed -- independently of
whether or not the tax in question, when considered in relation to the sales tax prescribed
by Acts of Congress, amounts to double taxation, on which we need not and do not express
any opinion -- double taxation, in general, is not forbidden by our fundamental law. We
have not adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and some States of the Union. Then, again, the general
principle against delegation of legislative powers, in consequence of the theory of
separation of powers is subject to one well-established exception, namely; legislative
powers may be delegated to local governments - to which said theory does not apply - in
respect of matters of local concern." .
25
84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of
express or implied constitutional prohibition.

"Double taxation should not be permitted unless the legislature has authority to impose it.
However, since the taxing power is exclusively a legislative function, and since, except as
it is limited or restrained by constitutional provisions, it is absolute and unlimited, it is
generally held that there is nothing, in the abscence of any express or implied
constitutional prohibition against double taxation, to prevent the imposition of more than
one tax on property within the jurisdiction, as the power to tax twice is as ample as the
power to tax once. In such case whether or not there should be double taxation is a matter
within the discretion of the legislature.

37
 "In some states where double taxation is not expressly prohibited, it is held that double
taxation is permissible, or not invalid or unconstitutional, or necessarily unlawful, provided
some other constitutional requirement is not thereby violated, as a requirement that taxes
must be equal and uniform." .

The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation
shall be uniform." .
26
Art. III, sec. 1, par. 12, Constitution.
27
51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v.
State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE
754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an excise tax
levied in pursuance of such ordinance a misdemeanor punishable by fine not in violation of the
constitutional prohibition against the imprisonment of any person for "debt in a civil action, or
mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep.
961.

26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the
municipality to which the tax is payable is not a creditor of the person assessed. A debt is a
sum of money due by certain and express agreement. It originates in, and is founded upon,
contract express or implied. Taxes, on the other hand, do not rest upon contract, express or
implied. They are obligations imposed upon citizens to pay the expenses of government.
They are forced contributions, and in no way dependent upon the will or contract, express
or implied, of the persons taxed." .
28
51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or
upon all the persons of a certain class, resident within a specified territory, without regard to their
property or the occupations in which they may be engaged. Taxes of a specified amount upon each
person performing a certain act or engaging in a certain business or profession are not, however,
poll taxes." .
29
Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section
21: "Except as otherwise provided by law, and subject to the conditions and limitations thereof,
the Municipal Board shall have the following legislative powers: .

"(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of
two hundred pesos or six months' imprisonment, or both such fine and imprisonment, for
each offense." .
30
"To begin with the defendants' appeal, we find that the lower court was in error in saying that
the imposition of the penalty provided for in the ordinance was without the authority of law. The
last paragraph (kk) of the very section that authorizes the enactment of the ordinance (section 18
of the Manila Charter) in express terms also empowers the Municipal Board to "fix penalties for
the violation of ordinances which not exceed to [sic] two hundred pesos fine or six months'
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the
pronouncement below that the ordinance in question is illegal and void because it imposes a
penalty not authorized by law is clearly without legal basis." .
31
51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and
equal when imposed upon all property of the same character within the taxing authority." Manila
Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case
of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G. Supp. to No. 11, p.
303, it was said that there is equality and uniformity in taxation if all articles or kinds of property
of the same class are taxed at the same rate. Thus, it was held in that case, that "the fact that some
places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is no argument at all against equality and uniformity of the tax imposition."
Applying this criterion to the present case, there would be discrimination if some boarding stables
of the class used for the same number of horses were not taxed or were made to pay less or more
than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes,

38
J.B.L., J.: "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.".
32
Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. — One requirement with
respect to taxation imposed by provisions relating to equality and uniformity, which has been
introduced into some state constitutions in express language, is that taxation must be uniform
throughout the political unit by or with respect to which the tax is levied. This means, for example,
that a tax for a state purpose must be uniform and equal throughout the state, a tax for a county
purpose must be uniform and equal throughout the county, anda tax for a city, village, or township
purpose must be uniform and equal throughout the city, village, or township. It does not mean,
however, that the taxes levied by or with respect to the various political subdivisions or taxing
districts of the state must be at the same rate, or, as one court has graphically put it, that a man in
one county shall pay the same rate of taxation for all purposes that is paid by a man in an adjoining
county. Nor does the rule require that taxes for the same purposes shall be imposed in different
territorial subdivisions at the same time. It has also been said in this connection that the omission
to tax any particular individual who may be liable does not render the whole tax illegal or void."
33
84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally and
impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W.
859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is imposed on one
person or species of property than on others similarly situated or of like character."

84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and
character and similarly situated, and a tax, in order to be uniform, must operate alike on all
persons, things, or property, similarly situated. So the requirement is complied with when
the tax is levied equally and uniformly on all subjects of the same class and kind and is
violated if particular kinds, species or items of property are selected to bear the whole
burden of the tax, while others, which should be equally subjected to it, are left untaxed."
34
84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and
equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a
liberal construction will be indulged in order to accomplish fair and equal taxation of all property
within the state."
35
Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167, Sept.
27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein.

39
G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-
appellees.

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's
complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the
members of its municipal board and its City Treasurer. Plaintiff — seeks to recover the sums paid by it to
the City of Butuan — hereinafter referred to as the City and collected by the latter, pursuant to its
Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case
for decision in the lower court upon a stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-
Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the
Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to
the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all
municipalities of Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of
Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A"
and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10
per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30,
1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination of this case
on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has
prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of the
form is enclosed herewith as Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July
30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5".
In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased
from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation which the
company claims to be P3,052.62. This is in accordance with the findings of the representative of
the undersigned City Attorney who verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased
to P1.92 which price is uniform throughout the Philippines. Said increase was made due to the
increase in the production cost of its manufacture.

40
 8. That the parties reserve the right to submit arguments on the constitutionality and illegality of
Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview
thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in
selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of
P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft
drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for
purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar
month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill o f
lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or
carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for
failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful
refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City
Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated
drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated
drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the revenue
derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General
Fund and 20% for the School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an
import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is
highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which
it was enacted, is an unconstitutional delegation of legislative powers.

The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not
the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts
to double taxation, on which we need not and do not express any opinion - double taxation, in general, is
not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and of some States of the Union. 1 Then, again, the
general principle against delegation of legislative powers, in consequence of the theory of separation of
powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local
governments — to which said theory does not apply3 — in respect of matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks — in the production and sale of which plaintiff is engaged — or less than P0.0042 per
bottle, is manifestly too small to be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the
intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the
tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section
3-A, which was inserted by said Ordinance No. 122:

... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee
of agent shall mean any person, association, partnership, company or corporation who acts in the
place of another by authority from him or one entrusted with the business of another or to whom is
consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month
for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the
tax,unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be
one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo manifest or bill of lading ...
showing the number of cases" — not sold — but "received" by the taxpayer, the intention to limit the
application of the ordinance to soft drinks and carbonated drinks brought into the City from outside

41
thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which
is beyond defendant's authority to impose by express provision of law. 4

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still
be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the
law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax.
Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said agents or consignees of producers or merchants
established outside the City of Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of
taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.7

These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely to
levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by
sealers other than agents or consignees of producers or merchants established outside the City of Butuan
should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling
Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to
plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the
legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants
herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as
amended. It is so ordered.

42
G.R. No. L-14878 December 26, 1963

SURIGAO CONSOLIDATED MINING CO., INC., petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

Leido, Angeles and Valladolid for petitioner.

Office of the Solicitor General for respondents.

REGALA, J.:

This is a petition to review the decision of the Court of Tax Appeals in Manila Civil Case No. 4770
dismissing for lack of merit the action of the Surigao Consolidated Mining Company for the refund of the
total amount of P17,051.14 allegedly representing overpayment of ad valorem tax for the fourth quarter of
1941.

The record shows that before the outbreak of World War II, the Surigao Consolidated Mining Company
(called SURIGAO CONSOLIDATED, for short), a domestic corporation which then had its principal
office in the City of Iloilo, was operating its mining concessions in Mainit, Surigao. Pursuant to section
246 of the Internal Revenue Code, which prescribes the time and manner of payment of royalties or ad
valorem taxes, it filed a bond and had been regularly filing its returns for minerals removed from its mines
during each calendar quarter and paying ad valoremtax thereon within 20 days after the close of every
quarter. In each case, computation of the ad valorem tax was based on the market value of the minerals
set forth in the returns, subject to adjustment upon the receipt of the smelter showing the actual market
value of the minerals to the United States.

Due to the interruption, of the communications outbreak of the war, the principal office of Surigao
Consolidated lost contact with its mines and never received the production reports for the fourth quarter of
1941. In order to avoid incurring any tax penalty, said company, on January 19, 1942, deposited a check
amount of P27,000.00 payable to and "indorsed in favor of the City Treasurer (of Iloilo) in payment of
the ad valorem taxes (approximate adjustment to be made when circumstances allow it) for the fourth
quarter of 1941."

After the termination of the war, Commonwealth Act No. 722 was enacted, which provided for the filing
of returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and the payment
of ad valorem tax on said minerals to February 28, 1946.

Availing of the provisions of the aforementioned Act, the Surigao Consolidated, on December 28,
1945, ad valoremtax returns for the fourth quarter declaring as its tax liability the amount of P43,486.54.
Applying the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, the returns
indicated an unpaid balance of P16,486.54 as the " tax subject to revision."

However, on February 26, 1946, the Surigao Consolidated filed an amended ad valorem tax returns under
which amendment it declared a reduced ad valorem tax in the amount of P37,189.00. And crediting itself
with the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, it paid the
remaining balance of P10,189.00.

On September 24, 1946, the Surigao Consolidated again filed a statement of adjustment allegedly
containing figures and data of the complete smelter returns for minerals shipped to the United States. In
the accompanying letter, a request was made, this time not only for the reduction of tax, but for the refund
of the amount of P18,107.87. On October 19, 1946, another statement of adjustment was filed reducing
the claim for refund to P17,158.01. Finally, on March 15, 1947, a third statement of adjustment was
submitted further reducing the claim for refund to the amount of P 17,051.14.

As the Collector of Internal Revenue denied the request for the refund of the said P17,051.14 on the
ground that the money already paid as ad valorem tax was legally due to the Government, the Surigao
Consolidated instituted with the Court of First Instance of Manila civil action for its recovery. However,
upon the enactment of Republic Act No. 1125 creating the Court of Tax Appeals, the case was remanded
to the latter court for proper disposition.

After hearing, the Court of Tax Appeals, on July 16, 1958, finding that the amount sought to be refunded
been lawfully collected, rendered its decision denying the claim for refund. The Surigao Consolidated in
43
due time filed a motion for new trial on the ground that the decision was "not justified by the
overwhelming weight of evidence" and that it was contrary to law. The tax court, however, denied the
motion. Hence, this petition for review.lawphil.net

The question to be resolved is whether or not Surigao Consolidated, petitioner herein, is entitled to the
refund of ad valorem tax in the total amount of P17,051.14, itemized as follows:

1. Ad valorem tax on minerals removed from P1,191.46

the mines but allegedly lost in transit on
account of war
2. Ad valorem tax on minerals extracted from 15,609.73
the mines but allegedly looted during the
Japanese occupation
3. Alleged overpayment of ad valorem tax on 249.95
minerals shipped to the United States

P17,051.14

The first, item in petitioner's claim for refund in the amount of P1,191.46 represents the amount of ad
valorem tax paid on minerals removed from the mines but alleged to have been lost in transit on account
of the war. The refund is sought under section 1 (d) of Republic Act No. 81, which provides as follows:

SECTION 1. Any provision of existing law to the contrary notwithstanding:

xxx xxx xxx

(d) All unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or
concessions existing and in force on January first, nineteen hundred and forty-two, and which
minerals were lost by reason of the war or circumstances arising therefrom, are hereby
condoned: Provided, That if said minerals had been or shall be recovered by the miner or
producer, such royalties, ad valorem or specific taxes on the same shall be immediately due and
demandable.

Petitioner argues that since the law condones the taxes due from taxpayers who failed to pay their taxes, it
would be unfair to deny this benefit to those taxpayers who had been prompt in paying theirs. The
argument merits careful consideration. At first it would seem to be sound and logical. But the aforequoted
section clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is
equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in
explicit terms, and it can not be extended beyond the plain meaning of those terms. It is the universal rule
that he who claims an exemption from his share of the common burden of taxation must justify his claim
by showing that the Legislature intended to exempt him by words too plain to be mistaken. (Statutory
Construction by Francisco, citing Government of P. I. v. Monte de Piedad, 25 Phil. 42.)

The application of a statute creating an exemption for taxation to taxes already assessed depends
upon whether it is retrospective in its operation. Such a statute has no retrospective operation,
unless by the terms thereof it clearly appears to be the intention of the legislature that the
exemption shall relate back to taxes which have already become fixed, as a statute which releases
a person or corporation from a burden common to the whole community should be strictly
(Louisville Water Co. v. Hamilton, 81 Ky. 517, ... cited 6 American and English Ann. Cases, p.
438).

Petitioner having failed to point to Us any portion of the law that explicitly provides for a refund of those
taxpayers who had paid their taxes on the items and under circumstances mentioned in the abovequoted
provision, We are constrained to hold that the benefits of said provision does not extend to it.

Even assuming arguendo that the provisions of Republic Act No. 81 authorizes the refund of taxes
already paid by petitioner, the latter would not still be entitled to the refund sought for under the first item.
It is to be noted that petitioner's evidence of the alleged loss in transit as observed by the Court of Tax
Appeals, merely of testimony of witnesses who did not have personal knowledge of the circumstances
44
which gave rise to the loss. Such evidence cannot, of course be considered sufficient to establish that the
minerals were in fact lost. Judge Luciano of the Court of Tax Appeals during the trial, would be to create
a dangerous precendent.

Under the second item, petitioner seeks to recover the amount of P15,609.73 representing the ad
valorem tax paid on minerals extracted from its mines but alleged to have been looted during the enemy
occupation. In connection with the alleged looting of the minerals, the Tax Court has this to say:

We are again confronted with the case where plaintiff has, to our mind, failed to present adequate
evidence to prove such loss. The evidence, if at all, is merely limited to the general and
uncorroborated statements of plaintiff's officers that the same were lost in the mines. These
testimonies cannot be taken on their full face value, especially because they had no direct
supervision over the handling of such minerals at the time of the alleged loss. Much less had these
officers have personal knowledge of the loss. Under the circumstances, we can not make the
finding that the minerals were in fact lost.

Going over the record, We find no reason to disturb the above findings of the Court of Tax Appeals, there
being no showing that they are not substantiated by the evidence. With this observation, it would be
useless ceremony to delve into the issue of whether ad valorem tax should be or should not be paid on
minerals extracted from the mines but not removed therefrom.

One more item in petitioner's claim is the alleged overpayment of ad valorem tax in the amount of
P249.95 on the minerals shipped to the United States. It is that an ad valorem tax in the amount of
P20,387.81 was originally paid on the minerals shipped to the United States with a gross value of
P410,299.49; that the smelter returns from the United States show that the actual market value of the
minerals shipped to the States was P416,895.28; and that after deducting all allowable deductions
amounting in all to P1,828,34, the true and correct amount of ad valoremtax on said minerals was
P20,137.86. Petitioner, therefore, claims difference between the amount of P20,387.81 and P20,137.86 is
an overpayment.

It is not disputed that, as indicated above, the amount of ad valorem tax on the minerals shipped to the
United States is subject to adjustment upon the receipt of the smelter returns showing their actual market
value Petitioner contends that the statements of adjustment alleged to contain the figures and data set forth
in the smelter returns are adequate evidence of the actual market value of the minerals shipped to the
United States.

The best evidence of the actual market value minerals shipped to the United States are the smelter returns
themselves. These returns are admittedly petitioner's possession, but for unknown reasons, petitioner
failed to produce them during the trial. As there is no credible and satisfactory explanation for the non-
production of said returns, there arises the presumption that if produced they would be adverse to
petitioner. Under the circumstances, the Court of Tax Appeals cannot be said to have committed error,
much less abused its discretion, in refusing to give any probative value statements of adjustment.

It is a settled doctrine that in a suit for the recovery of the payment of taxes or any portion thereof as
having been illegally or erroneously collected, the burden is upon the taxpayer to establish the facts which
show the illegality of the tax or that the determination thereof is erroneous. In this case, petitioner failed to
show that the amount of taxes sought to be refunded have been erroneously collected.

Conformably to the above, We are of the opinion that the Court of Tax Appeals did not commit any error
in denying petitioner's claim.

WHEREFORE, the decision appealed from is hereby affirmed. Costs against petitioner.

45
G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,

vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial
Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF
PATERNO MILLARE,respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra,
Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc.,
represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar
V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal
portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the
Provincial Treasurer of said province against the lot and building of the Abra Valley Junior
College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay all back
taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of
this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be
confiscated to apply for the payment of the back taxes and for the redemption of the
property in question, if the amount is less than P6,000.00, the remainder must be returned
to the Director of Pedro Borgonia, who represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial
must be returned to said Municipal Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the
Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and
declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued,
Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure"
of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the
name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of
Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale
at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno
Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly
accepted. The certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to
dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of
Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex
"3," ibid, Rollo, pp. 101-103) on August 31, 1972.

46
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-
108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent
Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid;
Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court
the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia,
deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in
its questioned decision. Said Stipulations reads:

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully
enter into the following agreed stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint
is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted,
however, by anyone who is actually holding the position of Provincial Treasurer of the
Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings
thereon located in Bangued, Abra under Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused
to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property
of said school under Original Certificate of Title No. 0-83 for the satisfaction of real
property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one
attached to the complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was
sold at public auction for the satisfaction of the unpaid real property taxes thereon and the
same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a
Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts
will be the subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this
stipulation of facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes

Typ AGRIPINO BRILLANTES
Attorney for Plaintiff

Sgd. Loreto Roldan

Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra

Sgd. Demetrio V. Pre

Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)

47
Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school
is recognized by the government and is offering Primary, High School and College Courses, and has a
school population of more than one thousand students all in all; (b) that it is located right in the heart of
the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance
building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the
high school and college students are housed in the main building; (e) that the Director with his family is in
the second floor of the main building; and (f) that the annual gross income of the school reaches more
than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is
whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p.
20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero,
filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May
7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and
jurisprudence, the school building and school lot used for educational purposes of the Abra Valley
College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-
49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner
school for residential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its
appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of
the instant petition for review on certiorari with prayer for preliminary injunction before this Court,
which petition was filed on August 17, 1974 (Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo,
p. 58). Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE
COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF
THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY
BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF
THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING
PETITIONER TO PAY P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT
MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See
Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational
purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the
incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary
48
thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which were
subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the
college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and
his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground
floor of the college building is being used and rented by a commercial establishment, the Northern
Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22,
paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from
realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No.
409, otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court
ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a
restaurant for its members, still these do not constitute business in the ordinary acceptance of the word,
but an institution used exclusively for religious, charitable and educational purposes, and as such, it is
entitled to be exempted from taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this
Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a
cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent includes, not only the land actually occupied
by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot
which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for
exemption because this constitutes incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases
of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable or

educational purposes is 'not limited to property actually indispensable' therefor (Cooley on
Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as in the case of hospitals, "a
school for training nurses, a nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as
"Athletic fields" including "a firm used for the inmates of the institution. (Cooley on
Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution
(Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

49
It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation
of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22,
paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that
exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment
of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main
building in the case at bar for residential purposes of the Director and his family, may find justification
under the concept of incidental use, which is complimentary to the main or primary purpose—
educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any
stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this
Court. That the matter was not taken up in the to court is really apparent in the decision of respondent
Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school
building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to
determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-
23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this
Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on
appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not
squarely raised below, still in the interest of substantial justice, this Court is not prevented from
considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just
decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as
well as the lot where it is built, should be taxed, not because the second floor of the same is being used by
the Director and his family for residential purposes, but because the first floor thereof is being used for
commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that
half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby
AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.

50
GR No. L-47252 April 18, 1941

THE APOSTOLIC PREFECT OF THE MOUNTAIN PROVINCE, plaintiff-appellant,

vs. THE TREASURER OF THE CITY OF BAGUIO, defendant-appellee.

Messrs. Cavanna, Jasmines and Tianco for appellant.

The Attorney General for appellee.

IMPERIAL, J. :

The plaintiff army this action to recover the defendant the sum of P1,019.37 that payment under protest as
special tax on their properties in Baguio City for the year 1937. I appeal from the judgment of the Court
of First Instance dismissed this city He demands, without costs.

The parties submitted the matter through the following partial stipulation of facts:

1st The applicant is a corporation sole religious, organized according to the Philippine Leye,
residing in Baguio City;

2nd The defendant is a public civil servant of the city of Baguio and acts as treasurer and collector
of that city;

3rd That the defendant demanded and collection of the applicant on 25 June 1937 the sum of one
thousand pesos nineteen thirty seven cents (P1,019.37), Philippine currency, under the provisions
of Ordinance No. 137, as has been reformed and amended by Ordinance No. 263, 277, 283, 297,
311, 325, 348, 367, 387, 419, 471, 45, 455, 466, 512, 552, 591, 592, and Council resolution
Baguio City No. 10 dated January 22, 1918. All such ordinances, and resolution No. 10, series of
1918, become an integral part of this agreement.

4th That payment made by the applicant p1,019.37 for the year 1937 and was made under protest
in a letter dated 25 June 1937 in which it explained the reasons for the portesta and favorable
resolution to be asked protest and return of the amount paid;

5th That the defendant rejected the protest;

6th The land affected with paying P1,019.37 grounds of the property are the property of the
applicant dedicated to worship and teaching during the year 1937 and in previous years;

That 7th Baguio City built according to the ordinances cited above in paragraph 2 ° of this
provision a system of drainage and sewerage;

That the applicant came 8th paying in previous years to 1937, without protest, the sums demanded
that the city according to the ordinances and referred; and for the first time 1937 protest, protest
that is the subject of this litigation;

9th which was included in Ordinance No. 137 a relationship of properties valued in the city of
Baguio and that relationship became part of the Ordinance No. 137 and was called and turned into
"SPECIAL ASSESSMENT LIST, CITY OF BAGUIO" for the purposes of that ordinance and that
the properties affected in the protest were paying the applicant and are included in this list and
have not been excluded so far by virtue of any post ordinance No. 137;

10th that the construction of drainage and sewerage system has benefited and is benefiting directly
and especially to all owners whose lots and land are included in the "SPECIAL ASSESSMENT
LIST, CITY OF BAGUIO" including the grounds of the applicant affected here that list and the
payment under protest and that this system of drainage and sewerage has promoted clean and
sanitary condition of the grounds of that list.

11th That the parties the right to practice additional tests are reserved.

The appellant contends in his remarks error the following propositions: (1) its real estate and its mojoras
in Baguio City for be exempted from payment of all taxes by the Constitution and existing laws must be

51
equally exempt from the special contribution that the respondent been charged and paid under protest; (2)
Ordinance No. 137 and its amendments, under which the special tax has been charged, excluded from its
provisions their properties exenas payment of all taxes; (3) assuming that those ordinances do not exclude
their property from paying the special tax, they are null and ineffective; and (4) in the event that the
aforementioned ordinances were legal the respondent, as Treasurer of the City of Baguio, illegally
charging the special contribution that the appellant payment under protest, for the reason that on the date
of payment the appellant had already satisfied their participation in the costs of drainage and sewerage
system that caused the imposition of the special tax.

The first proposal involves the question of whether the properties on which the special tax is charging are
effectively exempt from such payment. The expecial contribution claimed by the respondent under the
provisions of Articles 2 and 5 of the Ordinance No. 137 provides:

It Having heretofore Been ascertained That Said work will benefit each and all owners or
possessors or property subject to taxation situated, lying and being Within the corporate limits of
the City, it is hereby Declared That benefit will accrue from Said work to each and all Said
Personalities, and Said persons Shall pay compensation for Said to benefit.

The City Assessor Having heretofore compiled from the City Assessment and Valuation aforesaid
and certified to the City Treasurer to list container containing and setting forth the total amount of
property Within the corporate limits of the City subject to assessment and levy for the purposes In
This Ordinance recited, the total amount of properties individually owned and possessed, and the
name of each single owner and possessor, the rate per centum, to wit: ONE pER cENTUM ad
valorem of Saeed Total value Which is Necessary for the purposes in September forth in Section
III hereof, is hereby made the amount to be paid individually by each owner or possessor as his
share, and the above-Mentioned list is hereby made part hereof and named "SPECIAL
ASSESSMENT lIST," and Said list is hereby Declared to be, and made the City official list and
basis for Assessing, levying and collecting the rate of compensation aforesaid from the above-
Referred owners and possessors, and each owner or possessor is required to, and Shall pay the
amount in Said list Stated as His single share to the City Treasurer on or after the first of March
and not later than June 30th, 1914.

The appellant sostien that their properties are exempt from the special contribution both as provided in
Article 2 of the Ordinance No. 137 as so estatuve Article 14 (3), Title VI, of the Constitution of the
Philippines it reads as follows:

(3) The cemeteries, churches, parishes and convents attached to these, and all lands, buildings and
used exclusively for religious, charitable or educational purposes improvements, shall be exempt
from taxation.

It is alleged that under Article 2 of Ordinance No. 137 should pay special contribution only properties that
are not exentes payment of a tax and that in accordance with the constitutional provision cited appellant
properties are exempt from paying the special contribution be devoted to religious purposes. This claim
requires resolution, first, whether the special tax imposed by Ordinance No. 13 is a tax in its legal
acceptation. It is a rule well established in the field of tax that espeicales contributions that are created and
charge to amortize extraodinarios expense incurred works such as the drainage system and sewage, which
benefit from a special way to the people is not a tax on their sense legal. According to the ordinance the
special contribution that charging properties located in Baguio City, was created to amortize the extra
costs that caused the drainage system and sewerage was built, work that benefit special way to all
propietarior is the city. The Judge Cooley, to draw the distinction between taxes and special contributions
on your tax treaty is expressed in these terms:

While the word "tax" in Its broad meaning, includes Both General taxes and special assessments,
and in general sense to tax is an assessment, and an assessment is a tax, yet there is a Recognized
Distinction Between them in That assessment is confined to the local impositions upon property
for the payment of the cost of public improvements in Its immediate vicinity and levied With
reference to special benefits to the Property Assessed. The Differences Between a special
assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special
assessment can not (at Least in MOST states) be made a personal liability of the person
Assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is
exceptional as to time and Both locality. The imposition of a charge on all property, real personal
and, in a prescribed area, is a tax and not an assessment, purpose, Although the local is to make
52
 improvement on a street or highway. A charge imposed on property owners benefited only is a
special assessment rather than a tax notwithstanding the statute calls it a tax.

If the special tax collection that the appellant is not strictly speaking a tax exempt whose payment it is
evident that neither under the ordinance or the Constitution the appellant referred this exeptuado payment
of the special tax.

In addition, according to the stipulation of facts, the appellant could not successfully invoke the
exemption established by the Constitution because it has not been admitted or proven their porpiedades
who paid the special contribution were used exclusively for religious purposes. True, it was stipulated that
the properties were devoted to religious purposes, but not agreed nor proved that such use was exclusive
and can therefore happen that the properties more to be dedicated to religious purposes are earmarked and
also will use for other purposes nonreligious.

As for the validity of Ordinance No. 137 and its amendments, it is undeniable that the City of Baguio is
authorized by Article 8 (1) of Law No. 1963, today article 2553 (1) of the Revised Administrative Code,
for create the special contribution discussed in order to amortize the cats caused by drainage and sewerage
system that was built for the benefit of all the inhabitants of that city.

The appellant ultama pretension is valid assuming Ordinance No. 137 and its amendments were not
already required to pay special contribution in view of already met in previous years to 1937 the aliquot
part that corresponded with that particular contribution. Equalmente the claim is unfounded because it's
Exhibit 1 that the cost of drainage and sewerage system amounts to P502,750.75 and the city only charges
for special tax until the year 1937 the sum of P291,290.08; with the result that the cost of the system, in
1937, was not yet totally satisfied.

Finding himself in accordance with law the judgment under appeal, it confirmed in its entirety, the costs
of this instance against the appellant. So it is ordered.

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