Republic of the Philippines On July 23, 1963, the parties entered into a Stipulation of Facts, the material
SUPREME COURT portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-
appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R
Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor
Enrique M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its
Civil Case No. 3294, which was certified to Us by the Court of Appeals on
October 6, 1969, as involving only pure questions of law, challenging the
power of taxation delegated to municipalities under the Local Autonomy Act
(Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of
the Philippines, Inc., commenced a complaint with preliminary injunction
before the Court of First Instance of Leyte for that court to declare Section 2
of Republic Act No. 2264.1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
cover the same subject matter and the production tax rates imposed therein
are practically the same, and second, that on January 17, 1963, the acting
Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to
enforce compliance by the latter of the provisions of said Ordinance No. 27,
series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on
September 25, 1962, levies and collects "from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles produced and
corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun
company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as
"municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said
Ordinances; and to pay the costs."
1
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the
Court of Appeals, which, in turn, elevated the case to Us pursuant to Section
31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264 an undue delegation
of power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation
and impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without
being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the
theory of separation of powers. The exception, however, lies in the case of
municipal corporations, to which, said theory does not apply. Legislative
powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary
implication, the legislative power to create political corporations for purposes
of local self-government carries with it the power to confer on such local
governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: "Each
local government unit shall have the power to create its sources of revenue
and to levy taxes, subject to such limitations as may be provided by law."
Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated
from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said
that the taxing power may be delegated to municipalities and the like, it is
meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities may
be permitted to tax subjects which for reasons of public policy the State has
not deemed wise to tax for more general purposes. 10 This is not to say
though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing
power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a
private as distinguished from a public purpose; a tax is imposed on property
outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a tax does not
violate the due process clause, as applied to a particular taxpayer, although
the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or
the amount of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since 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.14 Double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or
municipality. 17
2
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute
double taxation, because these two ordinances cover the same subject matter
and impose practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally enforceable. This is not
so. As earlier quoted, Ordinance No. 23, which was approved on September
25, 1962, levies or collects from soft drinks producers or manufacturers a tax
of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the
volume contents of the bottle used. When it was discovered that the producer
or manufacturer could increase the volume contents of the bottle and still pay
the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle
corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a
plain substitute for the prior Ordinance No. 23, and operates as a repeal of
the latter, even without words to that effect. 18 Plaintiff-appellant in its brief
admitted that defendants-appellees are only seeking to enforce Ordinance
No. 27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance
by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of
1962. The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the Provincial
Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the
provisions of the latter are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27
imposes a percentage or a specific tax. Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law, the
same comes within the ambit of the general rule, pursuant to the rules
of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other
taxes in any form based thereon nor impose taxes on articles subject
to specific tax except gasoline, under the provisions of the National Internal
Revenue Code." For purposes of this particular limitation, a municipal
ordinance which prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and void for
being outside the power of the municipality to enact. 20 But, the imposition of
"a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio between the
volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented
liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive, unjust
and confiscatory. Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
3
Finally, the municipal license tax of P1,000.00 per corking machine with five
but not more than ten crowners or P2,000.00 with ten but not more than
twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of
1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of Ordinance
No. 27. Municipalities are empowered to impose, not only municipal license
taxes upon persons engaged in any business or occupation but also to levy
for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,

otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series
of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby
declared of valid and legal effect. Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz

Palma, Aquino and Concepcion, Jr., JJ., concur.

4
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
5
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 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:
6
 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:
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.
7

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21183 September 27, 1968
VICTORIAS MILLING CO., INC., plaintiff-appellant,
vs.
THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS
OCCIDENTAL, defendant-appellant.
Hilado & Hilado for plaintiff-appellant.
The Provincial Fiscal of Negros Occidental for defendant-appellant.
SANCHEZ, J.:
This case calls into question the validity of Ordinance No. 1, series of 1956, of
the Municipality of Victorias, Negros Occidental.
The disputed ordinance was approved by the municipal Council of Victorias
on September 22, 1956 by way of an amendment to two municipal ordinances
separately imposing license taxes on operators of sugar centrals 1 and sugar
refineries. 2 The changes were: with respect to sugar centrals, by increasing
the rates of license taxes; and as to sugar refineries, by increasing the rates
of license taxes as well as the range of graduated schedule of annual output
capacity.
Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25,
Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by
Increasing the Rates on Sugar Refinery Mill by Increasing the Range of
Graduated Schedule on Capacity Annual Output Respectively". It was, as the
ordinance itself states, enacted pursuant to the taxing power conferred by
Commonwealth Act 472. By Section 1 of the Ordinance: "Any person,
corporation or other forms of companies, operating sugar central or engage[d]
in the manufacture of centrifugal sugar shall be required to pay the following
annual municipal license tax, payable quarterly, to wit: . . ." Section 1 referred
to prescribes a wide range of schedule. It starts with a sugar central with mill
having an annual output capacity of not less than 50,000 piculs of centrifugal
sugar, in which case an annual municipal license tax of P1,000.00 is
provided. Depending upon the annual output capacity the schedule of taxes
continues with P2,000.00 progressively upward in twelve other grades until an
output capacity of 1,500,001 piculs or more shall have been reached. For this,
the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated
with similar rates. It also starts with P1,000.00 for a refinery with mill having
an annual output capacity of not less than 25,000 bags of 100 lbs. of refined
sugar. Then, it continues with the second bracket of from 25,001 bags to
75,000 bags of 100 lbs. Here, the municipal license tax is P1,500.00. Then
follow the other rates in the graduated scale with the ceiling placed at a
capacity of 1,750,001 bags or more. The annual municipal license tax for the
last mentioned output capacity is P40,000.00.
Of importance are the provisions of Section 1(m) relating to sugar centrals
and Section 2(m) covering sugar refineries with specific reference to the
maximum annual license tax, viz:
Section No. 1 — Any person, corporation or other forms of Companies,
operating Sugar Central or engage[d] in the manufacture of centrifugal
sugar shall be required to pay the following annual municipal license
tax, payable quarterly, to wit:
xxx xxx xxx
(m) Sugar Central with mill having a capacity of producing an annual
output of from 1,500,001 piculs or more shall be required to pay an
annual municipal license tax of — P40,000.00.
8
 Section No. 2 — Any person, corporation or other forms of Companies
shall be required to pay an annual municipal license tax for the
operation of Sugar Refinery Mill at the following rates:
xxx xxx xxx
(m) Sugar Refinery with mill having a capacity of producing an annual
output of from 1,750,001 bags of 100 lbs. or more shall be required to
pay an annual municipal license tax of — P40,000.00.
For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar
central and its sugar refinery located in the Municipality of Victorias comes
within these items in the schedule.
Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series
of 1956, null and void; ordering the refund of all license taxes paid and to be
paid under protest; directing the officials of Victorias and the Province of
Negros Occidental to observe, during the pendency of the action, the
provisions of section 357 of the Revised Manual of Instructions to Treasurers
of Provinces, Cities and Municipalities, 1954 edition, 5 regarding the treatment
of license taxes paid under protest by virtue of a disputed ordinance; and
other reliefs. 6
The reasons put forth by plaintiff are that: (a) the ordinance exceeds the
amounts fixed in Provincial Circular 12-A issued by the Finance Department
on February 27, 1940; (b) it is discriminatory since it singles out plaintiff which
is the only operator of a sugar central and a sugar refinery within the
jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d)
the national government has preempted the field of taxation with respect to
sugar centrals or refineries.
Upon the complaint as supplemented and amended, and the answer thereto,
and following hearing on the merits, the trial court rendered its judgment. After
declaring that "[t]here is no doubt that" the ordinance in question refers to
license taxes or fees," and that "[i]t is settled that a license tax should be
limited to the cost of licensing, regulating and surveillance," 7 the trial court
ruled that said license taxes in dispute are unreasonable, 8 and held that: "If
the defendant has the power to tax the plaintiff for purposes of revenue, it
may do so by proper municipal legislation, but not in the guise of a license
tax." 9 The court added: "The Court is not, however, prepared to order the
refund of all the license taxes paid by the plaintiff under protest and
amounting, up to the second quarter of 1960, to P280,000.00, considering
that the plaintiff appears to have agreed to the payment of the license taxes at
the rates fixed prior to Ordinance No. 1, series of 1956; that the defendant
had evidently not complied with the provisions of Section 357 of the Revised
Manual of Instructions to Treasurers of Provinces, Cities and Municipalities,
1954 Edition, as the plaintiff herein seeks an order enjoining the defendant
and its appropriate officials to carry out said provisions; that the financial
position of the defendant would surely be disrupted if ordered to refund, while
the plaintiff may perhaps easily forego or forget what it had already parted
with". 10 It disposes of the suit in the following manner:
WHEREFORE, judgment is rendered (a) declaring that Ordinance No.
1, series of 1956, of the municipality of Victorias, Negros Occidental, is
invalid; (b) ordering all officials of the defendant to observe the
provisions of Section 357 of the Revised Manual of Instructions to
Treasurers of Provinces, Cities and Municipalities, 1954 Edition, with
particular reference to any license taxes paid by the plaintiff under said
Ordinance No. 1, series of 1956, after notice of this decision; and (c)
ordering the defendant to refund to the plaintiff any and all such license
taxes paid under protest after notice of this decision. 11
Both plaintiff and defendant appealed direct to this Court. Plaintiff questions
that portion of the decision denying the refund of the license taxes paid under
protest in the amount of P280,000 covering the period from the first quarter of
1957 to the second quarter of 1960; and balked at the court's order limiting
refund to "any and all such license taxes paid under protest after notice of this
decision." Defendant, upon the other hand, challenges the correctness of the
court's decision invalidating Ordinance No. 1, series of 1956.
The questions raised in the appeals will be discussed in their proper
sequence.
9
1. We first grapple with the threshold question: Was Ordinance No. 1, series
of 1956, passed by defendant's municipal council as a regulatory enactment
or as a revenue measure?
The trial court says, and plaintiff seconds, that the amounts set forth in the
ordinance in question did exceed the cost of licensing, regulating and
surveillance, and that defendant cannot impose a tax — for revenue — in the
guise of a police or a regulatory measure. Our finding, however, is the other
way.1awphîl.nèt
The ordinance itself recites that its source of taxing power emanates from
Commonwealth Act 472, Section 1 of which reads:
Section 1. A municipal council or municipal district council shall have
authority to impose municipal license taxes upon persons engaged in
any occupation or business, or exercising privileges in the municipality
or municipal district, by requiring them to secure licenses at rates fixed
by the municipal council, or municipal district council, and to collect
fees and charges for services rendered by the municipality or municipal
district and shall otherwise have power to levy for public local
purposes, and for school purposes, including teachers' salaries, just
and uniform taxes other than percentage taxes and taxes on specified
articles.
Under the statute just quoted and pertinent jurisprudence, a municipality is
authorized to impose three kinds of licenses: (1) license for regulation of
useful occupations or enterprises; (2) license for restriction or regulation of
non-useful occupations or enterprises; and (3) license for revenue. 12 The first
two easily fall within the broad police power granted under the general welfare
clause. 13 The third class, however, is for revenue purposes. It is not a license
fee, properly speaking, and yet it is generally so termed. It rests on the taxing
power. That taxing power must be expressly conferred by statute upon the
municipality. 14 It is so granted under Commonwealth Act 472.
To be recalled at this point is that Ordinance No. 1, series of 1956, is but an
amendment of Ordinance No. 18, series of 1947, in reference to refineries,
and Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No.
18 imposes "municipal taxes on persons, firms or
corporations operating refinery mills in this municipality." 15 Ordinance No. 25
speaks of municipal taxes "relative to the output of the sugar centrals." 16
What are these taxes for? Resolution No. 60 of the municipal council of
Victorias, 17 adopted also on September 22, 1956 in conjunction with
Ordinance No. 1, series of 1956, furnishes a ready answer. It reads in part:
WHEREAS, the Municipal Treasurer informed the Municipal Council of
the revenue of the Municipality and the heavy obligations which
confront it because of the implementation of Minimum Wage Law on
the salaries and wages it pays to its municipal employees and laborers
thus greatly draining the Municipal Treasury;
WHEREAS, this local administration is committed to the plan of
ameliorating the deplorable situation existing in the barrios, sitios and
rural areas by giving them essential and necessary facilities calculated
to improve conditions thereat thru improvements of roads and feeder
roads;
WHEREAS, one of the causes of the municipality's financial difficulty is
low rates of municipal taxes imposed by some of the ordinances
enacted by the local legislative body;
WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series
of 1953, dealing on the operationof Sugar Central, and Ordinance No.
18, Series of 1947, which exclusively deals with the operation of Sugar
Refinery Mill, the rates so given are rates suggested and determined
by the Provincial Circular No. 12-A, dated February 27, 1940 issued by
the Department of Finance as regards to Sugar Centrals;
WHEREAS, the Municipal Council has come to the conclusion that the
rates provided for in such ordinances are no longer adequate if made
in keeping with the present high cost of living;
10
 WHEREAS, the Municipal Council has also taken cognizance of the
fact that the price of sugar per picul today is more than twice its pre-
war average price; . . . . 18
Given the purposes just mentioned, we find no warrant in logic to give our
assent to the view that the ordinance in question is solely for regulatory
purpose. Plain is the meaning conveyed. The ordinance is for raising money.
To say otherwise is to misread the purpose of the ordinance.1awphîl.nèt
We should not hang so heavy a meaning on the use of the term "municipal
license tax". This does not necessarily connote the idea that the tax is
imposed — as the lower court would want it — to mean a revenue measure in
the guise of a license tax. For really, this runs counter to the declared purpose
to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often
"used indiscriminately to designate impositions exacted for the exercise of
various privileges." 19 It does not refer solely to a license for regulation. In
many instances, it refers to "revenue-raising exactions on privileges or
activities." 20 On the other hand, license fees are commonly called taxes. But,
legally speaking, the latter are "for the purpose of raising revenues," in
contrast to the former which are imposed "in the exercise of police power for
purposes of regulation." 21
We accordingly say that the designation given by the municipal authorities
does not decide whether the imposition is properly a license tax or a license
fee. The determining factors are the purpose and effect of the imposition as
may be apparent from the provisions of the ordinance. 22 Thus, "[w]hen no
police inspection, supervision, or regulation is provided, nor any standard set
for the applicant 23 to establish, or that he agrees to attain or maintain, but any
and all persons engaged in the business designated, without qualification or
hindrance, may come, and a license on payment of the stipulated sum will
issue, to do business, subject to no prescribed rule of conduct and under no
guardian eye, but according to the unrestrained judgment or fancy of the
applicant and licensee, the presumption is strong that the power of taxation,
and not the police power, is being exercised." 24
Precisely because of these considerations the present imposition must be
treated as a levy for revenue purposes. A quick glance at the big amount of
maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals,
and P40,000.00 for sugar refineries, will readily convince one that the tax is
really a revenue tax. And then, we read in the ordinance nothing which would
as much as indicate that the tax imposed is merely for police inspection,
supervision or regulation.
Our view that the tax imposed by the ordinance is for revenue purposes finds
support in judicial pronouncements which have gained foothold in this
jurisdiction. In Standard Vacuum vs. Antigua, 25 this Court had occasion to
pass upon a similar ordinance. In categorical terms, we there stated: "We are
satisfied that the graduated license tax imposed by the ordinance in question
is an occupation tax, imposed not under the police or regulatory power of the
municipality but by virtue of its taxing power for purposes of revenue, and is in
accordance with the last part of Section 1 of Commonwealth Act No. 472. It is,
therefore, valid." 26
The present case is not to be analogized with Panaligan vs. City of
Tacloban cited in the decision below. 27 For there, the inspection fee sought to
be collected — upon every head of specified animals to be transported out of
the City of Tacloban (P2.00 per hog, P10.00 per cow and 20.00 per carabao)
— was in reality an export tax specifically withheld from municipal taxing
power under Section 2287 of the Revised Administrative Code.
So also do we say that the cases of Pacific Commercial Co. vs.
Romualdez, 28 Lacson vs. City of Bacolod, 29 and Santos vs. Municipal
Government of Caloocan, 30 used by plaintiff as references, are entirely
inopposite. In Pacific Commercial, the tax involved — on frozen meat — was
nullified because tax measures on cold stores were not then within the
legislative grant to the City of Manila. In Lacson, the City of Bacolod taxed
every admission ticket sold in the moviehouses. And justification for this
imposition was moored to the general welfare clause of the city charter. This
Court held the ordinance ultra vires for the reason that the authority to tax
cannot be derived from the general welfare clause. In Santos, the taxes in
controversy were internal organs fees, meat inspection fees and corral fees,
separate from the slaughter or slaughterhouse fees. In annulling the taxes
there questioned, this Court declared: "[W]hen the Council ordained the
11
payment of internal organs fees, meat inspection fees and corral fees, aside
from the slaughter or slaughterhouse fees, it overstepped the limits of its
statutory grant [Sec. 1, C.A. 655]. Only one fee was allowed by that law to be
charged and that was slaughter or slaughterhouse fees."
In the cases cited then, the tax ordinances did not find plain and clear
statutory prop. Such infirmity is not present here.
We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality
of Victorias, was promulgated not in the exercise of the municipality's
regulatory power but as a revenue measure — a tax on occupation or
business. The authority to impose such tax is backed by the express grant of
power in Section 1 of Commonwealth Act 472.
2. Not that the disputed ordinance lacks the imprimatur of the Secretary of
Finance required in paragraph 2, Section 4, of Commonwealth Act 472. This
legal provision necessitates such approval "[w]henever the rate of fixed
municipal license taxes on businesses not excepted in this Act or otherwise
covered by the preceding paragraph and subject to the fixed annual tax
imposed in section one hundred eighty-two of the National Internal Revenue
Law, is in excess of fifty pesos per annum; . . . ."
The ordinance here challenged was recommended by the Provincial Board of
Negros Occidental in its resolution (No. 1864) of October 26, 1956. 31 And, the
Undersecretary of Finance in his letter to the municipal council of Victorias on
December 18, 1956 approved said ordinance. But considering that it is
amendatory in nature, that approval was coupled with the mandate that the
ordinance "should take effect at the beginning of the ensuing calendar year
[1957] pursuant to Section 2309 of the Revised Administrative Code." 32
3. Plaintiff argues that the municipality is bereft of authority to enact the
ordinance in question because the national government "had preempted it
from entering the field of taxation of sugar centrals and sugar
refineries." 33 Plaintiff seeks refuge in Section 189 of the National Internal
Revenue Code which subjects proprietors or operators of sugar centrals or
sugar refineries to percentage tax.
The implausibility of this position is at once apparent. We are not dealing here
with percentage tax. Rather, we are concerned with a tax specifically for
operators of sugar centrals and sugar refineries. The rates imposed are
based on the maximum annual output capacity. Which is not a percentage.
Because it is not a share. Nor is it a tax based on the amount of the proceeds
realized out of the sale of sugar, centrifugal or refined. 34
What can be said at most is that the national government has preempted the
field of percentage taxation. Section 1 of Commonwealth Act 472, while
granting municipalities power to levy taxes, expressly removes from them the
power to exact "percentage taxes".
It is correct to say that preemption in the matter of taxation simply refers to an
instance where the national government elects to tax a particular area,
impliedly withholding from the local government the delegated power to tax
the same field. This doctrine primarily rests upon the intention of
Congress. 35 Conversely, should Congress allow municipal corporations to
cover fields of taxation it already occupies, then the doctrine of preemption
will not apply.
In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and
specifically allows municipal councils to tax persons engaged in "the same
businesses or occupation" on which "fixed internal revenue privilege taxes"
are "regularly imposed by the National Government." With certain exceptions
specified in Section 3 of the same statute. Our case does not fall within the
exceptions. It would therefore be futile to argue that Congress exclusively
reserved to the national government the right to impose the disputed taxes.
We rule that there is no preemption.
4. Petitioner advances the theory that the ordinance is excessive.
An ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to
the discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be
prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. 36 A rule
12
which has gained acceptance is that factors relevant to such an inquiry are
the municipal conditions as a whole and the nature of the business made
subject to imposition. 37
Plaintiff has however not sufficiently proven that, taking these factors
together, the license taxes are unreasonable. The presumption of validity
subsists. For, plaintiff has limited itself to insisting that the amounts levied
exceed the cost of regulation and that the municipality has adequate funds for
the alleged purposes as evidenced by the municipality's cash surplus for the
fiscal year ending 1956.
The cost of regulation cannot be taken as a gauge, if the municipality really
intended to enact a revenue ordinance. For, "if the charge exceeds the
expense of issuance of a license and costs of regulation, it is a tax." 38 And if it
is, and it is validly imposed, as in this case, "the rule that license fees for
regulation must bear a reasonable relation to the expense of the regulation
has no application." 39
And then, a cash surplus alone cannot stop a municipality from enacting a
revenue ordinance increasing license taxes in anticipation of municipal needs.
Discretion to determine the amount of revenue required for the needs of the
municipality is lodged with the municipal authorities. Again, judicial
intervention steps in only when there is a flagrant, oppressive and excessive
abuse of power by said municipal authorities. 40
Not that defendant municipality was without reason. On February 27, 1940,
the Secretary of Finance, later President, Manuel A. Roxas, issued Provincial
Circular 12-A. In that circular, the then Finance Secretary stated that his
"Department has reached the conclusion that a tax on the basis of one
centavo for every picul of annual output capacity of sugar centrals ... would be
just and reasonable." At that time, the price of sugar was around P6.00 per
picul. Sixteen years later — 1956 — when Ordinance No. 1 was approved,
the market quotation for export sugar ranged from P12.00 to P15.00 per
picul. 41 And yet, since then the rate per output capacity of a sugar central in
Ordinance No. 1 was merely from one centavo to two centavos. There is a
statement in the municipality's brief 42 that thereafter the price of sugar had
never gone below P16.00 per picul; instead it had gone up.
The reasonableness of the ordinance may not be disputed. It is not
confiscatory.
There was misapprehension in the decision below in its statement that the
increase of rates for refineries was 2,000%. We should not overlook the fact
that the original maximum rate covering refineries in Ordinance No. 18, series
of 1947, was P2,000.00; but that was only for a refinery with an output
capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1,
series of 1956, where the refineries have an output capacity of from 75,001
bags to 100,000 bags, the tax remains at P2,000.00. From here on, the
ordinance provides for ten more scales for the graduation of the tax
depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00,
P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, P35,000.00
and P40,000.00). But it is only where a refinery has an output capacity of
1,750,001 or more bags that the present ordinance imposes a tax of
P40,000.00. The happenstance that plaintiff's refinery is in the last bracket
calling upon it to pay P40,000.00 per annum does not make the ordinance in
question unreasonable.
Neither may we tag the ordinance with excessiveness if we consider the
capital invested by plaintiff in both its sugar central and sugar refinery and its
annual income from both. Plaintiff's capital investment in the sugar central
and sugar refinery is more or less P26,000,000.00. 43 And here are its annual
net income: for the year 1956 — P3,852,910; for the year 1957 —
P3,854,520; for the year 1958 — P7,230,493; for the year 1959 —
P5,951,187; and for the year 1960 — P7,809,250. 44 If these figures mean
anything at all, they show that the ordinance in question is neither
confiscatory nor unjust and unreasonable.
5. Upon the averment that in the Municipality of Victorias plaintiff is the only
operator of a sugar central and sugar refinery, plaintiff now presses its
argument that Ordinance No. 1, series of 1956, is discriminatory. The
ordinance does not single out Victorias as the only object of the ordinance.
Said ordinance is made to apply to any sugar central or sugar refinery which
may happen to operate in the municipality. So it is, that the fact that plaintiff is
actually the sole operator of a sugar central and a sugar refinery does not
make the ordinance discriminatory. Argument along the same lines was
rejected in Shell Co. of P.I., Ltd. vs. Vaño, 45 this Court holding that the
13
circumstance "that there is no other person in the locality who exercises" the
occupation designated as installation manager "does not make the ordinance
discriminatory and hostile, inasmuch as it is and will be applicable to any
person or firm who exercises such calling or occupation." And in Ormoc
Sugar Company, Inc. vs. Municipal Board of Ormoc City, 46 declaratory relief
was sought to test the validity of a municipal ordinance which provides a city
tax of twenty centavos per picul of centrifugal sugar and one per centum on
the gross sale of its derivatives and by-products "produced by the Ormoc
Sugar Company, Incorporated, or by any other sugar mill in Ormoc City." Mr.
Justice Enrique Fernando, delivering the opinion of this Court, declared that
the ordinance did not suffer "from a constitutional or statutory infirmity." And
yet, in Ormoc, it is to be observed that Section 1 of the ordinance spelled out
Ormoc Sugar Company, Incorporated specifically by name. Not even the
name of plaintiff herein was ever mentioned in the ordinance now disputed.
No discrimination exists.
6. As infirm is plaintiff's stand that its business is not confined to the
Municipality of Victorias. It suffices that plantiff engages in a business or
occupation subject to an exaction by the municipality — within the territorial
boundaries of that municipality. Plaintiff's sugar central and sugar refinery are
located within the Municipality of Victorias. In this central and refinery, plaintiff
manufactures centrifugal sugar and refined sugar, respectively.
But plaintiff insists that plaintiff's sugar milling and refining operations are not
wholly performed within the territorial limits of Victorias. According to plaintiff,
transportation of canes from plantation to the mill site, operation and
maintenance of telephone system, inspection of crop progress and other
related activities, are conducted not only in defendant's municipality but also
in the municipalities of Cadiz, Manapla, Sagay and Saravia as well. 47 We fail
to see the relevance of these facts. Because, if we follow plaintiff's
ratiocination, neither Victorias nor any of the municipalities just adverted to
would be able to impose the tax. One thing certain, of course, is that the tax is
imposed upon the business of operating a sugar central and a sugar refinery.
And the situs of that business is precisely the Municipality of Victorias.
7. Plaintiff finally impleads double taxation. Its reason is that in computing the
amount of taxes to be paid by the sugar refinery the cost of the raw sugar
coming from the sugar central is not deducted; ergo, plaintiff is taxed twice on
the raw sugar.
Double taxation has been otherwise described as "direct duplicate
taxation." 48 For double taxation to exist, "the same property must be taxed
twice, when it should be taxed but once." 49 Double taxation has also been
"defined as taxing the same person twice by the same jurisdiction for the
same thing." 50 As stated in Manila Motor Company, Inc. vs. Ciudad de
Manila, 51 there is double taxation "cuando la misma propiedad se sujeta a
dos impuestos por la misma entidad o Gobierno, para el mismo fin y durante
el mismo periodo de tiempo."
With the foregoing precepts in mind, we find no difficulty in saying that
plaintiff's argument on double taxation does not inspire assent. First. The two
taxes cover two different objects. Section 1 of the ordinance taxes a person
operating sugar centrals or engaged in the manufacture of centrifugal sugar.
While under Section 2, those taxed are the operators of sugar refinery mills.
One occupation or business is different from the other. Second. The disputed
taxes are imposed on occupation or business. Both taxes are not on sugar.
The amount thereof depends on the annual output capacity of the mills
concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps
could make out a point if the object of taxation here were the sugar it
produces, not the business of producing it.
There is no double taxation.
For the reasons given —
The judgment under review is hereby reversed; and
Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance
No. 1, series of 1956, of the Municipality of Victorias, Province of Negros
Occidental; and (b) dismissing plaintiff's complaint as supplemented and
amended. Costs against plaintiff. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles,
Fernando and Capistrano, JJ., concur.
14