Churchill v Concepcion

Facts:

Section 100 of Act No. 2339, imposed an annual tax of P4 per square meter upon "electric signs,
billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not
occupied by buildings." This section was subsequently amended by Act No. 2432, effective January 1, 1915, by
reducing the tax to P2 per square meter or fraction thereof.

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 they instituted the present action under section 140 of Act No. 2339 against the
Collector of Internal Revenue to recover back the amount thus paid. Lower court dismissed the complaint
upon the merits, with costs, the plaintiffs appealed.

In their appeal they said that the trial court erred 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.

Issue:

Whether or not the tax imposed is void for lack of uniformity or because it is not graded according to
value

Ruling:

No. 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. "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. It does not
signify an intrinsic, but simply a geographic, uniformity. Uniformity does not require the same treatment; it simply
requires reasonable basis for classification. The only limitation, in so far as these questions are concerned,
placed upon the 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."

In the case, 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.

HONORABLE EXEC. SEC. v. SOUTHWING HEAVY INDUSTRIES

Facts:

President Gloria Macapagal Arroyo issued Executive Order 156 which prohibits the importation of all types of
used motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone,subject to a few
exceptions.

Consequently, three separate actions for declaratory relief were filed by the respondents praying that
judgment be rendered declaring Article 2, Section3.1 of the EO 156 unconstitutional and illegal.

The RTC rendered a summary judgment declaring that Article 2, Section 3.1 of EO 156 constitutes an unlawful
usurpation of legislative power vested by the Constitution with Congress. It held that the prohibition on the
importation of use motor vehicles is an exercise of police power vested on the legislature and absent any
enabling law, the exercise thereof by the President through an executive issuance is void.

Issue:

Whether or not Article2, Section 3.1 of EO 156 is a valid exercise of the President’s quasi-legislative power.

Ruling:

NO.

The fourth requisite, which is, it must be reasonable was not complied with. The Court finds that the issuance of
EO is unreasonable. Since the nature of EO 156 is to protect the domestic industry from the deterioration of the
local motor manufacturing firms, the Court however, finds no logic in all the encompassing application of the
assailed provision to the Freeport Zone which is outside the customs territory of the Philippines. As long as the
used motor vehicles do not enter the customs territory, the injury or harm sought to be prevented or remedied
will not arise.

1. Paseo Realty & Development Corporation vs. Court of Appeals G.R. No. 119286. October 13, 2004
Facts: Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two
parcels of land at Paseo de Roxas in Makati City. On April 16, 1990, petitioner filed its Income Tax Return for the
calendaryear1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of
P79,009.00, anincome tax due thereon in the amount of P27,653.00, prior year‘s excess credit of P146,026.00,
and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of
P172,477.00.In a resolution dated October 21, 1993 Respondent Courtreconsidered its decision of July 29, 1993
and dismissed the petition for review, stating that it has overlooked the fact that the petitioner‘s 1989 Corporate
Income Tax Return indicated that the amount of P54,104.00 subject of petitioner‘s claim for refund has already
been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit
for the succeeding taxable year 1990. Petitioner filed a Motion for Reconsideration which was denied by
respondent Court on March 10,1994.Petitioner filed a Petition for Review dated April 3, 1994with the Courtof
Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing
creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its
1990income tax liability, the appellate court held that petitioner is not entitled to a refund because it had
already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed,
against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of
petitioner‘s claim for refund.
Issue: Won excess taxes paid during a taxable year should be credited against its tax liabilities for the
succeeding year
Held: No. It is not advisable for this Court to set aside the conclusion reached by an agency such as the CTA
which is dedicated exclusively to the study and consideration of tax problems and has necessarily developed
an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.
Commissioner of Internal Revenue‘s reconsidered its earlier decision which ordered the latter to refund the
amount of P54,104.00 to petitioner. The carrying forward of any excess or overpaid income tax for a given
taxable year is limited to the succeeding taxable year only. 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. And since taxes are what we pay for civilized society, 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. A claim of refund or exemption
from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Else
wise stated, taxation is the rule,exemption therefrom is the exception.

2. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. HON. FERDINAND J. MARCOS, Presiding Judge of the
Regional Trial Court, Br. 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEÑA,
and EUSTAQUIO B. CESA
G.R. No. 120082 September 11, 1996

Facts: MCIAA was created by virtue of RA 6958. Under Section 14, it was granted exemption from realty taxes
that may be imposed by the National Government or any of its political subdivisions, agencies and
instrumentalities. However, on October 11, 1994, 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
MCIAA. The latter objected the demand, but when faced with warrant of levy against its properties, it paid the
taxes “under protest.” It later filed a petition for declaratory relief with the trial court which was dismissed. The
motion for reconsideration was also denied. MCIAA asserts that it is an instrumentality of the government
performing governmental functions, which is, according to Sec.133 of the Local Government Code, may not
be taxed. The City claims that MCIAA’s tax exemption has been withdrawn by Sections 193 and 234 of the
same LGC.

Issues:

1. WON MCIAA’s tax exemptions had been withdrawn by the LGC?

2. What is the power of taxation? May a legislative body enact laws to raise revenues in the absence of a
constitutional provision granting said body the power to tax? (Book)

Rulings:

1. Yes. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from real property taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its charter, R.A. No. 6958, has been withdrawn. Petitioner can seek refuge
under any of the exceptions provided in Section 234, but not under Section 133, as the said section is
qualified by Section 232 and 234.
2. The power of taxation is inherent in the State, being an attribute of sovereignty. As an incident of
sovereignty, the power to tax has been described as 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. (Book)

3. Pepsi-Cola Bottling Company of PH [Pepsi] v. Municipality of Tanauan, Leyte [69 SCRA 460, Feb. 27, 1976]

FACTS: Pepsi sought to declare Sec. 2 of the Local Autonomy Act [RA 2264] as unconstitutional and Ordinances
23 and 27 of the Municipality of Tanauan, Leyte as null and void for constituting undue delegation of taxing
authority. The Ordinance 23 levies and collects 1/16th of a centavo for every bottle of soft drink corked by soft
drink producers and manufacturers. And for the purpose of computing the taxes due, such manufacturers are
to submit a monthly report to the Mun. Treasurer of the total number of bottles produced and corked during
the month.

While Ordinance 27 levies and collects 1 centavo on each gallon [128 fluid ounces] of volume capacity on soft
drinks produced or manufactured within the territorial jurisdiction of the mun. [Monthly report to Mun. Treasurer
of total gallons produced.] Taxes from both ordinances are referred to as Municipal Production Tax.

CFI Leyte dismissed the complaint. Pepsi appealed to the CA, which elevated the case to the SC.

ISSUE: WON RA 2264 and Ordinances 23 and 27 constitute undue delegation of taxing authority.

HELD: No. The power of taxation 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.

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. Under
the New Constitution, local governments are granted the autonomous authority to create their own sources of
revenue and to levy taxes.

Note: In case Sir asks—the case mentions Double Taxation. Sabi ng Pepsi meron daw Double Taxation din to
support their complaint. Pero Double Taxation is generally not forbidden in our fundamental law kasi hindi natin
ni adopt yun injunction against double taxation sa US Constitution. And that double taxation doesn’t not occur
if one tax is imposed by the State and the other by the city or municipality.

4. Petron v. Pililla

Facts: Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels are
subject to specific tax. Respondent Municipality of Pililla, Rizal, enacted Municipal Tax Ordinance No. 1, S-1974
otherwise known as “The Pililla Tax Code of 1974”. Sections 9 and 10 of the said ordinance imposed a tax on
business, except for those for which fixed taxes are provided in the Local Tax Code. Petron refused to pay the
local tax because their oil products are subject to specific tax under the NIRC. The respondents then filed a
complaint for the collection.

Issue: W/N Petron whose oil products are subject to specific tax under the NIRC, is still liable to pay tax on
business unto the respondent Municipality of Pililla, Rizal

Ruling: YES, a tax on business is distinct from a tax on the article itself. While Section 2 of P.D. 436 prohibits the
imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231
as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of
manufacturers, importers, producers of any article of commerce of whatever kind or nature.

Book: The power of taxation is essentially a legislative function. The power to tax-includes the authörity to: (1)
determine the (a) nature (kind); (b) object (purpose); (c) extent (amount or rate); (d) coverage (subjects and
objects); (e) apportionment of the tax (general or limited application); (f) situs (place) of the imposition; and (g)
method of collection; (2) grant tax exemptions or condonations; and (3) specify or provide for the
administrative as well as judicial remedies that either the government or the taxpayers may avail themselves in
the proper implementation of the tax measure.

5. Camarines Norte Electric Cooperative v Torres

Facts:

Petitioner CANORECO is an electric cooperative. on 11 March 1995, the Board of Directors of

CANORECO approved Resolution No. 22 appointing its officials. However, on 28 May 1995, Antonio Obias et al
called a special meeting of the Board of Directors of CANORECO and conducted an election through secret
balloting and declared new officers.

The petitioners challenged the above resolutions and the election of officers by filing with the CDA a
Petition for Declaration of Nullity of Board Resolutions and Election of Officers, CDA ruled in favor of the
petitioners. On 3 December 1996, the President of the Philippines issued Memorandum Order No.
409 constituting an Ad Hoc Committee to temporarily take over and manage the affairs of CANORECO.

The petitioners assert that there is no provision in the Constitution or in a statute expressly, or even
impliedly, authorizing the President or his representatives to take over or order the take-over of electric
cooperatives. That the exercise thereof is generally limited to the regulation of the business or commerce and
that the power to regulate does not include the power to take over, control, manage, or direct the operation
of the business. Accordingly, the creation of the Ad Hoc Committee for the purpose of take-over was illegal
and void.

Issue:

Whether or not the Office of the President validly constitute an ad hoc committee to take over and
manage the affairs of an electric cooperative

Ruling:

No. Generally, Delegation of legislative powers to the President is permitted in sections 23(2) and 28(2)
of article VI of the constitution. By virtue of a valid delegation of legislative power, it may also be exercised by
the President and administrative boards, as well as lawmaking bodies of all municipal levels, including the
barangay. Such delegation confers upon the President quasi legislative power which may be defined as the
authority delegated by the lawmaking body to the administrative body to adopt rules and regulations
intended to carry out the provision of the law and implement legislative policy. However, the pertinent laws on
cooperatives, namely, R.A. No. 6938, R.A. No. 6939, and P.D. No. 269 as amended by P.D. No. 1645 do not
provide for the President or any other administrative body to take over the internal management of a
cooperative.

7. Cervantes vs. Auditor General

Facts:

Petitioner was general manager in 1949 of NAFCO with annual salary of P15,000. NAFCO Board of Directors
granted P400/month.

This allowance was disapproved by the Central Committee of the Government Enterprise Council under
Executive Order No. 93 upon recommendation by NAFCO auditor and concurred in by the Auditor General.

The petitioner challenged the action of the Council contending that EO 93 constitutes an undue delegation of
power.

Issue: Whether the power to tax may be delegated to executive department.

Ruling:

Yes. When the delegation relates merely to administrative implementation that may call for some degree of
discretionary powers under a set of sufficient standards expressed by law.

8. Maceda vs. Macaraig, 197 SCRA 771

FACTS: The petition seeks to nullify certain decisions, orders, ruling, and resolutions of the respondent for
exempting National Power Corporation (NPC) from indirect tax and duties. Commonwealth Act No. 120
created NPC as a public corporation to undertake the development of hydraulic power and the production of
power from other sources. The main source of funds for the NPC was the flotation of bonds in the capital
markets and such bonds were exempt from payment of all taxes in order for the corporation to facilitate
payment of its indebtedness RA 358 granted NAPOCOR tax and duty exemption privileges. RA 6395 revised the
charter of the NPC, tasking it to carry out the policy of the national electrification and provided in detail NPC’s
tax exceptions. PD 380 specified that NPC’s exemption includes all taxes, etc. imposed “directly or indirectly.”
PD 938 dated May 27, 1976 further amended the aforesaid provision by integrating the tax exemption in
general terms.
ISSUE:
Whether or not NPC is exempt from indirect tax.
RULING: Yes, it is still exempt. NPC is a non-profit public corporation created for the general good and welfare,
and wholly owned by the government of the Republic of the Philippines. NPC enjoyed preferential tax
treatment “to enable the corporation to pay the indebtedness and obligation” and effective implementation
of the policy enunciated. Income tax, estate tax and donor’s tax are considered as direct taxes. On the other
hand, value added tax, excise tax, percentage tax, and documentary stamp tax are indirect taxes. A direct
tax is demanded from the very person who, as intended should pay the tax which he cannot shift to another,
while an indirect tax is demanded in the first instance from one person with the expectation that he can shift the
burden to someone else, not as a tax but as part of the purchase price.
9. NPC vs Albay

Facts: On March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale involving
the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines, and similar
improvements standing on their offices at Tiwi, Albay. The amounts to be realized from this advertised auction
sale are supposed to be applied to the tax delinquencies claimed, as and for real property taxes. The back
taxes NAPOCOR has supposedly accumulated were computed at P214,845,184.76. NAPOCOR opposed the
sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB)
which granted the tax and duty exemption privileges of the National Power Corporation, including those
pertaining to its domestic purchases of petroleum and petroleum products, and Memorandum of Executive
Secretary Catalino Macaraig, which restores, subject to certain conditions prescribed therein, the tax and duty
exemption privileges of NPC as provided under Commonwealth Act No. 120 (the act creating NAPOCOR). the
Court resolved to issue a temporary restraining order directing the Albay provincial government "to CEASE AND
DESIST from selling and disposing of the NAPOCOR properties subject matter of this petition...” But Albay
continued the bidding process.

The provincial government of Albay now defends the auction sale in question on the theory that the various
FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under the
Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax
exemptions, the same is of no force and effect under the constitutional provision allowing the legislature alone
to accord tax exemption privileges.

Issue: WON the various FIRB issuances and the Executive Orders authorizing FIRB to grant tax exemptions
constitute an undue delegation of the taxing Power and hence, null and void, under the Constitution.

Ruling: Yes. Under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the
President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal,
modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax
exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only the legislature may accomplish. The FIRB, under its
charter, Presidential Decree No. 776, had been empowered merely to "recommend" tax exemptions. By itself, it
could not have validly prescribed exemptions or restore taxability. It is erroneous to say that taxes are levied by
the executive branch of the government. “Levy” refers to the act of imposition by the legislature which is don’t
through the enactment of a tax law. Levy is an exercise of the power to tax, which is exclusively legislative in
nature and character. Clearly, taxes are not levied by the executive branch of the government.

10. VALLEY TRADING CO. VS CFI (the mayor and the municipal treasurer are also defendants)

FACTS:

Petitioner sought a declaration of the supposed nullity of a section in an ordinance of the Revenue Code of,
which imposed a graduated tax on retailers, independent wholesalers and distributors. Petitioner likewise
prayed for the issuance of a writ of preliminary prohibitory injunction to enjoin the collection of said tax.

Petitioner contends that said ordinance imposes a "graduated fixed tax based on Sales" that "in effect imposes
a sales tax in contravention of the Local Tax Code " which prohibits a municipality from imposing a percentage
tax on sales. Respondents, claim that the tax is an annual fixed business tax, not a percentage tax on sales.

The court terminated the pre-trial and reset the hearing on the merits. In its’ order, the court also denied the
prayer for a writ of preliminary injunction on the ground that "the collection of taxes cannot be enjoined".

Petitioner moved for the reconsideration of the order, contending that a hearing is mandatory before action
may be taken on the motion for the issuance of a writ of preliminary injunction.

ISSUE: Whether or not an injuction may be obtained

RULING: NO

The issuance of a writ of preliminary injunction in the present case, is addressed to the sound discretion of the
court, conditioned on the existence of a clear and positive right of the movant which should be protected. It is
an extraordinary peremptory remedy available only on the grounds expressly provided by law, specifically
Section 3 of Rule 58 of the Rules of Court.

The circumstances required for the writ to issue do not obtain in the case at bar. The damage that may be
caused to the petitioner will not, of course, be irrepairable; where so indicated by subsequent events favorable
to it, whatever it shall have paid is easily refundable. Besides, the damage to its property rights must perforce
take a back seat to the paramount need of the State for funds to sustain governmental functions. Compared
to the damage to the State which may be caused by reduced financial resources, the damage to petitioner is
negligible. The policy of the law is to discountenance any delay in the collection of taxes because of the oft-
repeated but unassailable consideration that taxes are the lifeblood of the Government and their prompt and
certain availability is an imperious need.

11. Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals
GR No. L-28896 February 17, 1988

Facts: The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent,
authorizing it to sell its land, factories and oil manufacturing process. As such, the corporation worked for the
formation of the Vegetable Oil Investment Corporation, until they were able to purchase the PSEDC properties.
For this sale, Algue Inc., 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 Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith,
O'Farell, and Pablo Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing
with Algue Inc., 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.

Issue: Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed
by private respondent Algue Inc., as legitimate business expenses in its income tax returns.

Ruling: No, The Supreme Court agrees with the respondent court that the amount of the promotional fees was
not excessive. The 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.

The claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

12. McCulloch v. Maryland 17 U.S. (4 Wheat.) 316 (1819)

Facts: Congress passed an act in 1816, which incorporated the Bank of the U.S. A branch was opened in
Maryland, in 1817 and in 1818, the state legislature passed an act imposing a tax on all out of state banks doing
business in Maryland. The act, general in nature, only affected the U.S. Bank because it was the only bank
operating in Maryland. The head of the Maryland branch, James McCulloch, refused to pay the tax resulting in
a lawsuit later appealed to Maryland’s Court of Appeals. The court upheld Maryland’s claim that since the
Constitution was silent on whether the U.S. could charter a bank, establishing such a bank was unconstitutional.
McCulloch then appealed to the United States Supreme Court.
McCulloch brought suit against the state of Maryland. The state of Maryland prevailed and McCulloch
appealed to the Maryland Court of Appeals. The court affirmed the lower court’s decision. McCulloch then
appealed to the United States Supreme Court.

Issue: Whether or not the individual state tax the federal bank?

Ruling: No. Since the Bank was created by federal statute, Maryland may not tax the Bank because federal
laws have supremacy over state laws. As it follows, a federally created institution may not be inhibited by an
inferior state law. Since the Bank of the U.S. serves the entire nation, it is inappropriate for it to be controlled by a
single part of the nation, through a state tax.
Chief Marshall also determined that Maryland could not tax the bank without violating the constitution since, as
Marshall commented, "the power to tax is the power to destroy". The Court thus struck down the tax as an
unconstitutional attempt by a state to interfere with a federal institution, in violation of the Supremacy Clause.
13. Roxas y Cia v. CTA, 23 SCRA 276 (Definition of Taxation)
FACTS:
Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y Compania, inherited
from their grandparents several properties which included farmlands. The tenants expressed their desire to
purchase the farmland. The tenants, however, did not have enough funds, so the Roxases agreed to a
purchase by installment. Subsequently, the CIR demanded from the brothers the payment of deficiency
income taxes resulting from the sale, 100% of the profits derived therefrom was taxed. The brothers protested
the assessment but the same was denied. On appeal, the Court of Tax Appeals sustained the assessment.
Hence, this petition.

ISSUE: Is Roxas liable?

RULING:
No. It should be borne in mind that the sale of the farmlands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless.
In order to maintain the general public’s trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with the sense of justice for the Government to persuade the
taxpayer to lend it a helping hand and later on penalize him for duly answering the urgent call.
In fine, Roxas cannot be considered a real estate dealer and is not liable for 100% of the sale. Pursuant to
Section 34 of the Tax Code, the lands sold to the farmers are capital assets and the gain derived from the sale
thereof is capital gain, taxable only to the extent of 50%.

Taxation; Power of taxation to be exercised with caution.—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”.

14. REPUBLIC v. PHILIPPINE RABBIT BUS

FACTS: Plaintiff alleged that defendant, as registered owner of 238 motor vehicles, paid P78,636.17,
corresponding to the 2nd installment of registration fees for 1959, not in cash but in the form of negotiable
certificate of indebtedness, the defendant being merely an assignee and not the backpay holder itself. The
complaint sought the payment of such amount with surcharges plus the legal rate of interest from the filing
thereof and a declaration of the nullity of the use of such negotiable certificate of indebtedness to satisfy its
obligation. The defendant alleged that what it did was in accordance with law. It sought the dismissal of the
complaint. The lower court decided in favor of defendant & upheld the validity of such payment made and
dismissed the complaint holding that the National Treasurer upon whom devolves the function of administering
the Back Pay Law had approved the acceptance of negotiable certificates of indebtedness in payment of
registration fees of motor vehicles with the view that such certificates 'should be accorded with the same
confidence by other governmental instrumentalities as other evidences of public debt, such as bonds and
treasury certificates. The Republic of the Philippines appealed.

Issue: Is the registration fee a tax, and as such, its payment by backpay certificates valid?

Ruling: No. BOOK: TAXES are the enforced proportional contributions from persons and property levied by the
lawmaking body of the State by virtue of its sovereignty for the support of government and for all public needs.
A tax refers to a financial obligation imposed by a state on persons, whether natural or juridical, within its
jurisdiction, for property owned, income earned, business or profession engaged in, or any such activity
analogous in character for raising the necessary revenues to take care of the responsibilities of government.

A tax then is neither a penalty that must be satisfied nor a liability arising from contract. Much less can it be
confused or identified with a license or a fee as a manifestation of an exercise of the police power.

The registration fee which defendant had to pay was imposed by Section 8 of the Revised Motor Vehicle Law.
Its heading speaks of "registration fees." The term is repeated four times in the body thereof. Equally so, mention
is made of the "fee for registration." A subsection starts with a categorical statement "No fees shall be charged."
The conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment not of a tax but of a
registration fee under the police power. Hence the inapplicability of the section relied upon by defendant
under the Back Pay Law. It is not held liable for a tax but for a registration fee. It therefore cannot make use of a
backpay certificate to meet such an obligation

15. PANAY ELECTRIC CO. VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS
FACTS:
Petitioner Panay Electric Company Inc. is a grantee of a legislative franchise under ACT No. 2893 to
install, operate, and maintain an electric light, heat and power system in certain municipalities of Iloilo, for a
period of 50 years from the approval of its franchise on 1921. Under the franchise, it was required to pay a
franchise tax equal to 1 1/2 per cent of its gross earnings, during the first twenty years, and 2 per cent during the
remaining thirty years. Upon the promulgation of Republic Act No. 39, amending Section 259 of the National
Internal Revenue Code, respondent Collector of Internal Revenue required petitioner to pay a franchise tax of
5 per cent instead of 2 per cent of its gross earnings. Petitioner paid the franchise tax of 5 percent, as provided
for in Section 259 of the Revenue Code as amended, beginning January 19, 1947 and up to January 18, 1952,
in the total sum of P135,872.67, at the same time protesting the imposition and collection of the 5 per cent tax.
Petitioner appealed the decision of the Court of Tax Appeals, denying the refund to it of the amount of
P85,355.72, balance of P135,872.67, representing overpayment of franchise taxes from January 19, 1947 to
January 18, 1952.

ISSUE:
Whether or not tax is a forced charge
RULING:
YES. A tax is a forced charge, imposition or contribution; it operates in invitum, and is in no way
dependent upon the will or contractual assent, express or implied, of the person taxed. It is not contractual,
either express or implied, but positive acts of government.

*CASE 16 MISSING*

17. VERA v. FERNANDEZ

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the
estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed
arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the
Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the
last sickness of the decedent, and judgment for money against the decedent, must be filed within the time
limited in the notice; otherwise they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes?

RULING: NO. A perusal of the aforequoted provisions, shows that it makes no mention of claims for monetary
obligations of the decedent created by law, such as taxes which is entirely of different character from the
claims expressly enumerated therein. It is levied by the legislative body of the State. Taxes are obligations
created by law.

The reason for the more liberal treatment of claims for taxes against a decedent’s estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the
Government and their prompt and certain availability are imperious need.

18. REPUBLIC v PATANAO

FACTS: A complaint was files against the defendant alleging that the latter failed to file income tax returns for
1953 and 1954. He filed false and fraudulent returns for 1951, 1952, and 1955. The lower court dismissed the
complaint holding that the action is barred by prior judgment, defendant having been acquitted in criminal
cases of the same court, which were prosecutions for failure to file income tax returns and for non-payment of
income taxes.
ISSUE: Whether or not the action is barred by prior judgment.

RULING: NO. Since the taxpayer's civil liability is not included in the criminal action, his acquittal in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes
cannot be affected by his attempt to evade payment, Said obligation is not a consequence of the felonious
acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped
out by the judicial declaration of nonexistence of the criminal acts charged.
19. Sunio vs NLRC
note: Ruling in the book cannot be found in the case. The case has nothing to do with tax. There is only a slight
connection about liability of a stockholder

EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant, Inc. (CIPI), sister corporations, sold an ice plant to
Rizal Development and Finance, Corp. (RDFC). To secure RDFC’s payment of the purchase price, the ice plant
was mortgaged toEMRACO-CIPI. Because of the sale,EMRACO-CIPI terminated all of their employees,
including private respondents.Later, RDFC sold the ice plant, subject to the mortgage in favor of EMRACO-CIPI,
to petitioner Ilocos Commercial Corp. (ICC).When RDFC and ICC defaulted on the payment of the balance of
the purchase price, EMRACO-CIPI extrajudicially foreclosed the ice plant. It then sold it to Nilo Villanueva,
subject to RDFC’s right of redemption. Nilo Villanueva rehired private respondents.

When RDFC redeemend the ice plant, private respondents were again dismissed. Thus, the latter filed
complaints against the petitioner corporation, and its President and General manager, Alberto Sunio, for illegal
dismissal. The Assistance Regional Director of theMinistry of Labor and Employment ordered petitioners to
reinstate privaterespondents. NLRC affirmed. Petitioner Sunio, who owned ½ of ICC, was made jointly and
severally liable with ICC and CIPIf or the payment of backwages.

Issue: W/N Sunio should be made jointly and severally liable.

Ruling: No. A corporation is invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it maybe related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not itself
sufficient ground for disregarding the separate corporate personality.
BOOK!!!!!!
It (taxes) is personal to the taxpayer. A corporation’s tax delinquency cannot be enforced against its
stockholders. A corporation is vested by law with a personality that is separate and distinct from those of the
persons composing it as well as that of any other legal entity to which it may be related. Stockholders may be
held liable for unpaid taxes of a dissolved corporation, if it appears that the corporate assets have passed into
their hands without the payment of taxes. The creditor of a dissolved corporation may follow its assets once
they passed into the hands of the stockholders. The legal death of a corporation does not prevent such action
that would the physical death of an individual prevent the government from assessing and collecting taxes
from his administrator who holds the property which the decedent had formerly possessed.

20. Republic vs COCOFED

Facts:

The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of
allegedly ill-gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the United Coconut
Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called
Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco
Jr.
Upon Motion of Private Respondent COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the subject UCPB shares on the ground that herein private respondents – in particular,
COCOFED and the so-called CIIF companies – had not been impleaded by the PCGG as parties-defendants in
its 1987 Complaint for reconveyance, reversion, accounting, restitution and damages

On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside the Resolution
of the Sandiganbayan which lifted the sequestration of the subject UCPB shares.

ISSUE:
W/N the Coconut Levy Funds raised through the State’s police and taxing powers

RULING:
Yes. Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced
proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the
support of government and for all public needs.
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the
support of the government. The coconut levy funds fall squarely into these elements.
Taxation is done not merely to raise revenues to support the government, but also to provide means for
the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be
within the police power of the State.

22. Maceda vs. Macaraeg (Characteristics of Taxes)

Facts: Commonwealth Act 120 created National Power Corporation (NAPOCOR ) as a public corporation to
undertake the development of hydraulic power and the production of power from other sources. RA 358
granted NAPOCOR tax and duty exemption privileges. RA 6395 revised the charter of the NAPOCOR, tasking it
to carry out the policy of the national electrification and provided in detail NAPOCOR’s tax exceptions. PD 380
specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 dated
May 27, 1976 further amended the aforesaid provision by integrating the tax exemption in general terms under
one paragraph.

Issue: Whether or not the NAPOCOR still possessed indirect tax exemption after the repeal made in PD 938.

Ruling: Yes, NPC still possess the exemption to indirect taxes.

NPC laws show that it has been the lawmaker’s intention that the NPC was to be completely tax
exempt from all forms of taxes – direct and indirect.

One common theme in all these laws is that the NPC must be able to pay its indebtedness which, as of P.D. No.
938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any
one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. In
addition to this, the then President Marcos mandated that 200 Million pesos be appropriated annually to NPC,
such amount should be taken from the general fund of the government. It does not stand to reason that the
then President would order 200 million pesos to be taken partially or totally from the tax money to be used to
pay the government subscription in the NPC on one hand and order NPC to pay its indirect tax.

Furthermore, section 10 of PD 938 was intended to be in its general form, President Marcos must have
considered all the NPC statutes from C.A 120 up to its latest amendments, PD 380, PD 395 and PD 758 and
came up with a very simple Section 13, RA 6395, as amended by PD 938. When construing a series of statutes,
they shall be taken and construed together, as in statutes in pari materia. And in addition, repeal by implication
is not favoured unless it is manifest that the legislature so intended.

23. CALTEX PHILIPPINES vs COA G.R. No. 92585 May 8, 1992

FACTS:
COA sent a letter to Caltex Philippines directing the latter to remit to the Oil Price Stabilization Fund
(OPSF) its collection of the additional tax on petroleum products authorized under the aforesaid Section 8 of
P.D. No. 1956 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF
shall be held in abeyance. COA sent another letter to petitioner informing it that its unremitted collections of
the above tax is P1,287,668,820.00. Petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989,
invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of
national government agencies and GOCCs to which COA denied. Petitioner sent a proposal for payment and
recovery of claims since the outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the
processing of said claims against the OPSF will cause a very serious impairment of its cash position to which
COA accepted but prohibiting petitioner from further offsetting remittances and reimbursements for the current
and ensuing years. Caltex filed for reconsideration but the decision for disallowance for recovery of financing
charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of product sales or
those arising from export sales was affirmed. Hence this petition under Rule 44 of the Rules of Court questioning
the authority of the COA in disallowing petitioner's claims for reimbursement from the OPSF and seeking the
reversal of said Commission's decision denying its claims for recovery of financing charges from the Fund and
reimbursement of underrecovery arising from sales to the NPC, ATLAS and MAR-COPPER, preventing it from
exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims
which are still pending resolution before the OEA and DOF.

ISSUE: WON the OPSF contributions are not for a public purpose because they go to a special fund of the
government?

HELD:
No. We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to
raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to
provide means for the rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the state. 57 There can be no doubt that the oil industry is greatly
imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could
hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain
reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic
commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may
properly address. Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact. It is settled that a taxpayer may not offset
taxes due from the claims that he may have against the government. 58Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. We may
even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents
for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users –– the
consuming public. That compensation had been the practice in the past can set no valid precedent. Such a
practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against
their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price
Standby Fund to oil companies which have outstanding obligations with the government, without said
obligation being offset first subject to the rules on compensation in the Civil Code.

24. BALACUIT vs. COURT OF FIRST INSTANCE OF AGUSAN DEL NORTE AND BUTUAN CITY
G.R. No. L-38429; June 30, 1988

FACTS: This involves a Petition for Review questioning the validity and constitutionality of Ordinance No. 640
passed by the Municipal Board of the City of Butuan on April 21, 1969, penalizing any person, group of persons,
entity or corporation engaged in the business of selling admission tickets to any movie or other public
exhibitions, games, contests or other performances to require children between 7 and 12 years of age to pay
full payment for tickets intended for adults but should charge only one-half of the said ticket.

Petitioners who are managers of theaters, affected by the ordinance, filed a Complaint before the Court of
First Instance of Agusan del Norte and Butuan City docketed as Special Civil No. 237 on June 30, 1969, praying
that the subject ordinance be declared unconstitutional and, therefore, void and unenforceable. The Court
rendered judgment declaring Ordinance No. 640 of the City of Butuan constitutional and valid.

ISSUE: Whether or not Ordinance No. 640 passed by the Municipal Board of the City of Butuan is valid and
constitutional; and was the Ordinance a valid exercise of police power.
HELD: No. The City of Butuan tries to justify the challenged ordinance by invoking police power. The invocation
is improper. The definitions of police power, including its exercise based on the general welfare clause, are
emphasized to show that the respondents' arguments have no merit— "Police power is inherent in the State but
not in municipal corporations. For a municipal corporation to exercise police power, there must be a legislative
grant which necessarily also sets the limits for the exercise of the power.
"In the Philippines, the grant of authority to the municipality to exercise police power is embodied in Section
2238 of the Revised Administrative Code, otherwise known as the General Welfare Clause. Chartered cities are
granted similar authority in their respective charters. "The general welfare clause has two branches. The first
authorizes the municipal council to enact such ordinances and make such regulations not repugnant to law, as
may be necessary to carry into effect and discharge the powers and duties conferred upon the municipal
council by law. The second branch authorizes the municipality to enact such ordinances as may be necessary
and proper for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort,
and convenience of the municipality and inhabitants therjeof, and for the protection of property therein. (U.S.
v. Salaveria, 39 Phil. 103)."
This Court has generally been liberal in sustaining municipal action based on the general welfare clause. In the
case before us, however, there appears to be no basis for sustaining the ordinance even on a generous
interpretation of the general .

25. Phil Airlines Inc, vs. Edu

Facts:

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No. 4271, as amended by Republic
Act Nos. 2360 and 2667. Under its franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, appellee Commissioner Romeo F. Edu, issued a regulation requiring all tax exempt
entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid.

After paying under protest, PAL through counsel, wrote a letter dated May 19, 1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. where it was held that motor
vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative
franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit
Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory
exactions and not revenue measures and, therefore, do not come within the exemption granted to PAL under
its franchise.

Issue: Whether or not the motor vehicle registration fees are taxes

Ruling:

YES.

Section 73 of Commonwealth Act 123 andSec. 61 of the Land Transportation and Traffic Code requires owners of
vehicles to pay registration fee in the registration of their vehicle.

It appears clear from the above provisions that the legislative intent and purpose behind the law requiring
owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the administering agency.

It is quite apparent that vehicle registration fees were originally simple exactions intended only for regulatory
purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in
number and motor vehicles became absolute necessities without which modern life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising much needed revenues.
Without changing the earlier denomination of registration payments as "fees," their nature has become that of
"taxes."

26. Morcoin co ltd vs. City of Manila

Facts: Morcoin Co., Ltd., and Suter, Inc., are owners and operators of automatic phonograph machines, more
popularly known as juke boxes, in the City of Manila. As such owners and operators, they paid an annual permit
fee of P5 for each machine, and a similar amount whenever a juke box is transferred to a different location. In
compliance with Sections 773 and 774 of Ordinance No. 3347, they also paid an additional sum of P50 per
annum as license fee for the installation and use of each juke box machine.

On February 2, 1954, the Mayor of the City of Manila, in order to curb the use of pinball machines which "have
conduced to promote idleness among an increasing number of city residents", recommended to the Municipal
Board the further amendment of Sections 773 and 774 of Ordinance No. 1600 by restricting the operation or
maintenance of said machines within a specified radius from certain designated places and "by making the
rate of license fees more prohibitive." Emphasizing that "pinball machines contribute to moral delinquency".

The validity of the above ordinance was contested by a group of owners and operators of pinball machines
who call themselves "Recreation and Amusement Association of the Philippines" before the Court of First
Instance of Manila n the ground that the license fee of P300 imposed by the said ordinance upon juke box
machines is exorbitant, excessive, confiscatory and substantially disproportionate to the reasonable expenses
of issuing the license for and regulating the said machines.

Issue:

Whether or not the amount of license fees imposed is unreasonable.

Ruling: Yes. The amount of license fees that may be imposed upon the operation of slot machines, which
includes juke box, pinball and other coin-operated contrivances, based on an ordinance passed by the
Municipal Board of Manila for regulatory purposes, cannot be prohibitive, extortionate, confiscatory or in an
unlawful restraint of trade, but should be approximately commensurate with and sufficient to cover all the
necessary or portable expenses for issuing the license and of such inspection, regulation and supervision as
may be lawful.

It will be observed that the ordinance in question does not even provide for inspection and supervision of each
machine installed. And the Committees on Laws and Finance of the Municipal Board of the City of Manila
themselves — which conducted a public hearing in connection with the petition filed during the pendency of
this case by some juke box operators — found that juke box operators would not make any profit by paying the
license fee of P300, and that the said amount of P300 is "prohibitory and suppressive."

27 Lutz vs Araneta, GR No. L-7859. December 22, 1955

FACTS: Walter Lutz in his capacity as the Judicial Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of P 14, 666.40 paid by the
estate as taxes, under section 3 of Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for
the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an increase of the
existing tax on the manufacture of sugar on a graduated basis, on each picul of sugar manufacturer; while
section 3 levies on the owners or persons in control of the land devoted tot he cultivation of sugarcane and
ceded to others for consideration, on lease or otherwise - "a tax equivalent to the difference between the
money value of the rental or consideration collected and the amount representing 12 per centum of the
assessed value of such land. It was alleged that such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax
may be constitutionally levied. The action was dismissed by the CFI thus the plaintiff appealed directly to the
Supreme Court.
Issue: Whether or not the CA 567 is unconstitutional
Held: No. As the protection and promotion of the sugar industry is a matter of public concern, the Legislature
may determine within reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of Commonwealth Act No. 567 bear no relation to the
objective pursued or are oppressive in character. If objective and methods arealike constitutionally valid, no
reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement of the state’s police power
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that “inequalities which result from a singling out of one particular class for taxation or
exemption infringe constitutional limitation.

28. Quezon City v Ericta 122 SCRA 759

Facts:
The City Council of Quezon City enacted Ordinance No. 6118, S-64, regulating private memorial type
cemetery or burial ground within the jurisdiction of Quezon City. Section 9 thereof reads: “At least six (6) percent
of the total area of the memorial park cemetery shall be set aside for charity burial of deceased persons who
are paupers and have been residents of Quezon City for at least 5 years prior to their death, to be determined
by competent City Authorities. The area so designated shall immediately be developed and should be open
for operation not later than six months from the date of approval of the application.”
Seven years later, the same council passed a resolution requesting the the City Engineer, to stop any
further selling and/or transaction of memorial park lots in Quezon City whose owners have failed to donate the
required 6% space intended for paupers burial.
Himlayang Pilipino reacted by filing with the Court of First Instance of Rizal Branch XVIII at Quezon City, a
petition for declaratory relief, prohibition and mandamus with preliminary injunction. The trial court declared
Section 9 of the Ordinance Null and Void. Following denial of the motion for reconsideration, petitioners filed
this petition for review, arguing that the taking of Himlayang’s property is a valid a reasonable exercise of
police power.

Issue:
What is police power and is Sec. 9 of the ordinance is a valid exercise of the police power?

Ruling:
No. It seems to the court that Section 9 of Ordinance No. 6118, Series of 1964 of Quezon City is not a
mere police regulation but an outright confiscation. It deprives a person of his private property without due
process of law, nay, even without compensation. It was an exercise of eminent domain. (Book)
Police power is usually exercised in the form of mere regulation or restriction in the use of liberty or
property for the promotion of the general welfare. It does not involve the taking or confiscation of property with
the exception of a few cases where there is a necessity to confiscate private property in order to destroy it for
the purpose of protecting the peace and order and of promoting the general welfare as for instance, the
confiscation of an illegally possessed article, such as opium and firearms. In police power, the owner does not
recover from the government for injury sustained in consequence thereof.

29. Tomas Velasco, et al. v. Hon. Antonio J. Villegas [City Mayor of Manila] (120 SCRA 568, Feb. 14, 1983)

FACTS: This is an appeal from an order of the lower court dismissing their suit Velasco challenged the
constitutionality of Ordinance 4964 of Manila, alleging that it amounted to a deprivation of petitioners of their
means of livelihood. The assailed ordinance states: "It shall be prohibited for any operator of any barber shop to
conduct the business of massaging customers or other persons in any adjacent room or rooms of said barber
shop, or in any room or rooms within the same building where the barber shop is located as long as the
operator of the barber shop and the room where massaging is conducted is the same person."

ISSUE: WON Ordinance 4964 is unconstitutional for depriving petitioners of their means of livelihood.

HELD: No. The ordinance is a police power measure. The objectives behind its enactment are: "(1) To be able to
impose payment of the license fee for engaging in the business of massage clinic under Ordinance No. 3659 as
amended by Ordinance 4767, an entirely different measure than the ordinance regulating the business of
barbershops and, (2) in order to forestall possible immorality which might grow out of the construction of
separate rooms for massage of customers." The ordinance was passed for the protection of public morals.

30. Ortigas & Co. vs Feati Bank

Facts: Ortigas sold Lot 5 and 6, to Augusto Padilla y Angeles and Natividad Angeles. The latter transferred their
rights in favour of Emma Chavez, with the stipulation that the use of the lots are to be exclusive for residential
purposes only. Feati then acquired the lots. Feati started construction of a building on both lots to be devoted
for banking purposes but could also be for residential use. Ortigas sent a written demand to stop construction
but Feati continued contending that the building was being constructed according to the zoning regulations
as stated in Municipal Resolution 27 declaring the area along the West part of EDSA to be a commercial and
industrial zone.

Issue: Whether or not Resolution number 27 declaring Lot 5 and 6 to be part of an industrial and commercial
zone is valid.

Ruling: Yes. A zoning ordinance, reclassifying residential into commercial or light industrial area, is a valid
exercise of the police power.

Resolution No. 27 prevails over the contract stipulations. Section 3 of RA 2264 of the Local Autonomy Act
empowers a Municipal Council to adopt zoning and subdivision ordinances or regulations for the Municipality.
Although non-impairment of contracts is constitutionally guaranteed, it is not absolute since it has to be
reconciled with the legitimate exercise of police power.

31. Sangalang v Gaston

Facts:

Bel-Air Village was owned and developed into a residential subdivision in the 1950s by Makati
Development Corporation (hereinafter referred to as MDC), which in 1968 was merged with appellant Ayala
Corporation. On April 4, 1975, the municipal council of Makati enacted its ordinance No. 81, providing for the
zonification of Makati. Under this Ordinance, Bel-Air Village was classified as a Class A Residential Zone. On
January 17, 1977, the Office of the Mayor of Makati wrote Bel-Air Village Association (BAVA) directing that, in
the interest of public welfare and for the purpose of easing traffic congestion, some of the streets in Bel-Air
Village should be opened for public use:

Later, on June 17,1977, the Barangay Captain of Bel-Air Village was advised by the Office of the on
August 12, 1977, the municipal officials of Makati concerned allegedly opened, destroyed and removed the
gates constructed/located at the corner of Reposo Street and Jupiter Street.

Subsequently, the plaintiffs-appellees Jose D. Sangalang and Lutgarda D. Sangalang et al who are
residents of Jupiter street contended that said resolution cannot nullify the contractual obligations assumed by
Ayala referring to the restrictions incorporated in the deeds of sale i.e. the latter will build a wall for the
residents. Hence, invoking the non-impairment of contracts.

Issue:

Whether or not the said resolution is a valid exercise of police power and does not violate the non-
impairment of contracts

Ruling:

Yes. A zoning ordinance, reclassifying residential into commercial or light industrial area, is a valid
exercise of police power. Undoubtedly, the Ordinance represents a legitimate exercise of police power. The
petitioners have not shown why we should hold otherwise other than for the supposed "non-impairment"
guaranty of the Constitution, which, as we have declared, is secondary to the more compelling interests of
general welfare. The Ordinance has not been shown to be capricious or arbitrary or unreasonable to warrant
the reversal of the judgments so appealed.

32. BALACUIT v. CFI of AGUSAN DEL NORTE

Facts:
This involves a Petition for Review questioning the validity and constitutionality of Ordinance No.640 passed by
the Municipal Board of the City of Butuan penalizing any person, group of persons, entity or corporation
engaged in the business of selling admission tickets to any movie or other public exhibitions, games, contests or
other performances to require children between 7 and 12years of age to pay full payment for tickets intended
for adults but should charge only one-half of the said ticket. Petitioners who are managers of theaters, affected
by the ordinance, filed a Complaint before the Court of First Instance of Agusan del Norte and Butuan City
praying that the subject ordinance be declared unconstitutional and, therefore, void and unenforceable.

Issue:

Whether Ordinance No. 640 passed by the Municipal Board of the City of Butuan is valid andconstitutional and
was the Ordinance a valid exercise of police power.

Ruling:

NO.

The “lawful subjects” and “lawful means” tests are used to determine the validity of a law enacted under the
police power. While police power is inherent in the state, it is not in municipal corporations.

The exercise of police power by the local government is valid unless it contravenes the fundamental law of the
land, or an act of the legislature, or unless it is against public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right. For being unreasonable and an undue restraint of trade, it
cannot, under the guise of exercising police power, be upheld as valid.

While it is true that a business may be regulated, it is equally true that such regulation must be within the bounds
of reason, that is, the regulatory ordinance must be reasonable, and its provisions cannot be oppressive
amounting to an arbitrary interference with the business or calling subject of regulation. The proprietors of a
theater have a right to manage their property in their own way, to fix what prices of admission they think most
for their own advantage, and that any person who did not approve could stay away.

33. Sangalang vs. IAC

Facts:

the municipal officials of Makati, destroyed and removed the gates constructed/located at the corner of
Reposo Street and Jupiter Street as well as the gates/fences located/constructed at Jupiter Street and Makati
Avenue forcibly, and then opened the entire length of Jupiter Street to public traffic. Subsequently, Petitioners
brought the present action for damages against the defendant-appellant Ayala Corporation predicated on
both breach of contract and on tort or quasi-delict. A supplemental complaint was later filed by said
Petitioners seeking to augment the reliefs prayed for in the original complaint because of alleged supervening
events which occurred during the trial of the case. That the exclusivity of the said village was adversely
affected and diminished due to the opening of the said streets to the public. That the exclusivity of the said
village was guaranteed in the restrictions of TCT.

Issue:

Whether or not such act was a valid exercise of police power

Ruling:

Yes. The act of the Municipal Mayor in opening Jupiter and Orbit Streets, Bel-Air Subdivision, to the public was
deemed a valid exercise of police power. While non-impairment of contracts is constitutionally guaranteed,
the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power, i.e., “the
power to prescribe regulations to promote the health, morals, peace, education, good order or safety and
general welfare of the people.’

34. Francia vs. IAC

Facts:

Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property
was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate
taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City.
Francia filed a complaint to annual the auction sale. The lower court dismissed the complaint and the
Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review.
Francia contends that his tax delinquency of P 2,400 has been extinguished by legal compensation. He claims
that the government owed him P 4,116 when a portion of his land was expropriated on October 15, 1977.

Issue: Whether the expropriation payment compensate for the real estate taxes due?

Ruling:

No. The income tax liability cannot be compensated with the amount owed by the government as
compensation for his expropriated property. Taxes are of distinct kind, essence and nature than ordinary
obligations. Taxes and debts cannot be the subject of compensation because the government and “X” are not
mutually creditors and debtors of each other and a claim for taxes is not a debt, demand contract or judgment
as is allowable to be set off.

35. Victorias Milling Co. vs. Municipality of Victorias, Province of Negros Occidental
FACTS: This case questioned the validity of Ordinance No., 1, series of 1956 of the Municipality of Victorias,
Province of Negros Occidental. The Ordinance was approved by the municipal Council of Victorias by way of
an amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals
and sugar refineries. 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.
Plaintiff Victorias Milling Co. filed a suit to ask for judgment declaring the said ordinance null and void as 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; and that it constitutes double taxation.
ISSUES:
Whether license tax refer solely to a license for regulation.
RULING:
1. No. 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." It does not refer solely to a license for
regulation. In many instances, it refers to "revenue-raising exactions on privileges or activities." On the other
hand, license fees are commonly called taxes but in contrast to the former which are imposed “in the exercise
of police power for purposes of regulation.” Accordingly, 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.
36. Progressive Development Corporation vs Quezon City

Facts: The City Council of Quezon City passed an ordinance known as the Market Code of QC, which imposed
a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC. In case of
failure of the owners of the market spaces to pay the tax for three consecutive months, the City shall revoke the
permit of the privately-owned market to operate. Progressive Development Corp (PDC), owner and operator
of Farmer’s Market, filed a petition for prohibition against QC on the ground that the tax imposed by the Market
Code was in reality a tax on income, which the municipal corporation was prohibited by law to impose, the
same being expressly prohibited by Republic Act No. 2264, as amended.

Respondent QC contended that it had authority to enact the questioned ordinances, maintaining that the tax
on gross receipts imposed therein is not a tax on income. It argued that petitioner, not having paid the 10%
supervision fee prescribed by Ordinance No. 7997, had no personality to question, and was estopped from
questioning, its validity; that the tax on gross receipts was not a tax on income but one imposed for the
enjoyment of the privilege to engage in a particular trade or business which was within the power of
respondent to impose.

Issue: WON the supervision fee is considered as a license fee.

Ruling: Yes. It is a license fee. A License fee is imposed in the exercise of the police power primarily for purposes
of regulation, while Tax is imposed under the taxing power primarily for purposes of raising revenues.

Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidental revenue is also obtained does not make the
imposition a tax. To be considered a license fee, the imposition questioned must relate to an occupation or
activity that so engages the public interest in health, morals, safety and development as to require regulation
for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to
the probable expenses of regulation, taking into account not only the costs of direct regulation but also its
incidental consequences as well. When an activity, occupation or profession is of such a character that
inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of
public health, morals and safety, or the general welfare, the legislature may provide that such inspection or
supervision or other form of regulation shall be carried out at the expense of the persons engaged in such
occupation or performing such activity, and that no one shall engage in the occupation or carry out the
activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been
paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power.

37. LTO VS CITY OF BUTUAN

FACTS:
Respondent City of Butuan asserts that one of the salient provisions introduced by the Local Government Code
is in the area of local taxation which allows LGUs to collect registration fees or charges along with, in its view,
the corresponding issuance of all kinds of licenses or permits for the driving of tricycles.

Relying on the foregoing provisions of the law, the Sangguniang Panglungsod(“SP”) of Butuan, passed an
ordinance which provided for, among other things, the payment of franchise fees for the grant of the
franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the
driving thereof.

Petitioner LTO explains that one of the functions of the national government that, indeed, has been transferred
to local government units is the franchising authority over tricyclesfor-hire of the Land Transportation Franchising
and Regulatory Board (“LTFRB”) but not, it asseverates, the authority of LTO to register all motor vehicles and to
issue to qualified persons of licenses to drive such vehicles.

ISSUE: Whether LTO has the power issue license and permit and collect fees for the operation of tricycle.

RULING: YES

The registration and issuing of licenses are within the LTO’s exclusive power.

The reliance made by the respondents on the broad taxing power of local government units, specifically under
section 133 of the local government code, is tangential. Police power and taxation, along with eminent
domain, are inherent powers of sovereignty which the state might share with local government units by
delegation or given under a constitutional or a statutory fiat. Taxation, in its case, focuses on the power of
government to raise revenue in order to support its existence and carry out its legitimate objectives.

If the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes, then the
exaction is called a tax.

38. Product v. Fertiphil Corp. G.R. No. 166006 March 14, 2008
Facts: President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among
others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers
which resulted in having Fertiphil paying P 10/bag sold to the Fertilizer and Perticide Authority (FPA). FPA remits
its collection to Far East Bank and Trust Company who applies to the payment of corporate debts of Planters
Products Inc. (PPI) After the EDSA Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon
return of democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for collection and
damages against FPA and PPI with the RTC on the ground that LOI No. 1465 is unjust, unreaonable oppressive,
invalid and unlawful resulting to denial of due process of law. FPA answered that it is a valid exercise of the
police power of the state in ensuring the stability of the fertilizing industry in the country and that Fertiphil did
NOT sustain damages since the burden imposed fell on the ultimate consumers. RTC and CA favored Fertiphil
holding that it is an exercise of the power of taxation ad is as such because it is NOT for public purpose as PPI is
a private corporation.

Issue: Whether or not LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

Ruling: Yes. Police power and the power of taxation are inherent powers of the state but distinct and have
different tests for validity. Police power is the power of the state to enact the legislation that may interfere with
personal liberty on property in order to promote general welfare, while the power of taxation is the power to
levy taxes as to be used for public purpose. The main purpose of police power is the regulation of a behavior
or conduct, while taxation is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.

In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and use the funds
generation for a private purpose. Public purpose does NOT only pertain to those purpose which are
traditionally viewed as essentially governmental function such as building roads and delivery of basic services,
but also includes those purposes designed to promote social justice. Thus, public money may now be used for
the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

39. Villanueva vs city of iloilo

FACTS:

Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960,
imposing a municipal license tax on tenement houses in accordance with the schedule of payment provided
by therein. Villanueva and the other appellees are apartment owners from whom the city collected license
taxes by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264 does not
empower cities to impose apartment taxes; that the same is oppressive and unreasonable for it penalizes those
who fail to pay the apartment taxes; that it constitutes not only double taxation but treble taxation; and, that it
violates uniformity of taxation.

Issue: Does the ordinance impose double taxation?

Ruling: No. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under
Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the
national government as well as by the local government. The contention that appellees are doubly taxed
because they are paying real estate taxes and the tenement tax is also devoid of merit. 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. In order to constitute double taxation, both taxes must be the same kind or character. Real estate
taxes and tenement taxes are not of the same character.

40. Serafica v. City Treasurer of Ormoc, L-24813 (1969) Double Taxation

FACTS:
Serafica seeks to nullify Ordinance 13 imposing a tax on every 1,000 board feet of lumber. He contends that the
charter of Ormoc authorizes it to regulate and not tax. He alleges that the tax on the lumber constitutes double
taxation, because the business of lumber yard is already regulated under said Charter and the sale of lumber is
“a mere incident to the business of lumber yard”.

ISSUE: Is the city authorized to tax?

RULING:
Yes. Under the Local Autonomy Act, the power is broad and sufficiently plenary to cover everything, except
those mentioned. Regulation and taxation are two different things, the first being an exercise of police power
and the latter is not. Double taxation is not prohibited in the Philippines.
Altho lumber is a forest product, this limitation has no application to the case at bar, the tax in question being
imposed, not upon lumber, but upon its sale. Said tax is not levied upon the lumber in plaintiff’s sawmill and
does not become due until after the lumber has been sold.

41. Commissioner vs. Hawaiian-Philippine Co. (1964)

Facts: A petition was filed by the Commissioner of Internal Revenue for the review of the decision of the Court
of Tax Appeals ordering him to refund to respondent for taxes assessed against it and which the latter had
deposited with the City Treasurer of Silay, Occidental Negros.

HPC is operating a sugar central. It produces centrifugal sugar from sugarcane supplied by planters. The
processed sugar is divided between the planters and the petitioner in the proportion stipulated in the milling
contracts and thereafter is deposited in the warehouses of the latter.

For the sugar deposited by the planters, the petitioner issues the corresponding warehouse receipts of
"quedans". It does not collect storage charges on the sugar deposited in its warehouse during the first 90-day
period counted from the time it is extracted from the sugarcane. Upon the lapse of the first 90 days and up to
the beginning of the next milling season, it collects a fee of P0.30 per picul a month.

Upon investigation conducted by the Bureau, it was found that during the years 1949 to 1957, the petitioner
realized from collected storage fees a total gross receipts of P212,853.00, on the basis of which the respondent
determined the petitioner's liability for fixed and percentage taxes, 25% surcharge, and administrative penalty
in the aggregate amount of P8,411.99.The petitioner deposited the amount of P8,411.99 with the Office of the
City Treasurer of Silay. After due hearing, the CTA ordered the refund to HPC.

Issue: Whether it amounts to double taxation which will exempt HPC from paying the assessed tax of the BIR?

Ruling: NO. Book: A warehouseman is one who receives and stores goods of another for compensation. The
fact that Hawaiian-Philippine Co. (HPC) stores the planters’ sugar for free for the first 90 days does not exempt it
from liability. If this were the case, the law imposing the tax would be rendered ineffectual. Neither is the fact
that HPC’s warehousing business is carried on in addition to or in relation to the operation of its sugar central
sufficient to exempt it. Under Section 178 of the old Tax Code, the tax on business is payable for every separate
or distinct establishment or place where the business subject to the tax is conducted, and one line of business
or occupation does not become exempt by being conducted with some other business or occupation for
which such tax has been paid. There can be no double taxation where the State merely imposes a tax on
every separate and distinct business in which a party is engaged in.

42. COMPANIA DE GENERAL DE TABACOS de FILIPINAS vs. CITY OF MANILA

FACTS:
Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the fixed license fees
prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordinance 3634 and 3816 were passed;
where the term “general merchandise” found therein included all articles in Sections 123 to 148 of the Tax
Code (thus, also liquor under Sections 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s taxes. In
1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor dealers paying
the annual wholesale and retail fixed tax under Ordinance 3358 are not subject to the wholesale and retail
dealers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera, upon learning of said
stopped including quarterly sworn declaratons required by the latter ordinances, and in 1957, demanded
refund of the alleged overpayment. The claim was disallowed.
ISSUE:
Whether or not there is a violation of the rule against double taxation.
Ruling:
No. That Tabacalera is being subjected to double taxation is more apparent than real. What is
collected under Ordinance 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in
which not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may
endanger public health and morals. On the other hand, what the three ordinances impose is a tax for revenue
purposes based on the sales made of the same article or merchandise. Both a license fee and a tax may be
imposed on the same business or occupation, or for selling the same article, this not being in violation of the
rule against double taxation.

*CASE 43 MISSING*

44. Commissioner v Bank of Commerce

FACTS: Bank of Commerce derived passive income in the form of interests or discounts from its investments in
government securities and private commercial papers, it paid 5% gross receipts tax on its income, as reflected
in its quarterly percentage tax returns. Included therein were the respondent bank’s passive income from the
said investments amounting to P85,384,254.51, which had already been subjected to a final tax of 20%.

Meanwhile, the CTA rendered judgment in Asia Bank Corporation v. Commissioner of Internal Revenue, holding
that the 20% final withholding tax on interest income from banks does not form part of taxable gross receipts for
Gross Receipts Tax (GRT) purposes. The CTA relied on Section 4(e) of Revenue Regulations (Rev. Reg.) No. 12-80.

The respondent bank then filed an administrative claim for refund, claimed that it had overpaid its gross
receipts tax for 1994 to 1995 by P853,842.54. Granted.

ISSUE: Is there double taxation?

RULING: NONE. Subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would NOT result in
double taxation. The taxes herein are imposed on two different subject matters. The subject matter of the FWT is
the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a
tax on business rather than on the property; hence, it is an excise rather than a property tax.

These two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the
GRT is a percentage tax not subject to withholding. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither
deducted nor withheld, but is paid only after every taxable quarter in which it is earned. The bare fact that the
final withholding tax is a special trust fund belonging to the government and that the respondent bank did not
benefit from it while in custody of the borrower does not justify its exclusion from the computation of interest
income.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the
same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory.

46. PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN
69 SCRA 460
GR No. L-31156, February 27, 1976

FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare Section 2
of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated as "municipal
production tax" of the Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies and collects from soft
drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked, and Ordinance 27 levies and collects on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. Aside from the undue delegation of authority, appellant contends that it allows double taxation, and
that the subject ordinances are void for they impose percentage or specific tax.
ISSUE: Whether or not the delegation of taxing power to local governments may be assailed on the ground of
double taxation.

RULING: NO. There is no validity to the assertion that the delegated authority can be declared unconstitutional
on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. Moreover, double taxation, in general, is
not forbidden by our fundamental law, 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. Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the
other by the city of municipality.

47. Villanueva vs City of Iloilo

Facts:

Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of
1960, imposing a municipal license tax on tenement houses in accordance with the schedule of payment
provided by therein. Villanueva and the other appellees are apartment owners from whom the city
collected license taxes by virtue of Ordinance. Appellees aver that the said ordinance is unconstitutional
for RA 2264 does not empower cities to impose apartment taxes; that the same is oppressive and
unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double
taxation but treble taxation; and, that it violates uniformity of taxation.

Issue: W/N the ordinance impose double taxation

Ruling:

No. While it is true that appellees are taxable under the NIRC as real estate dealers and taxable
under Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by
the national government as well as by the local government. The contention that appellees are doubly taxed
because they are paying real estate taxes and the tenement tax is also devoid of merit. 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. In order to constitute double taxation, both taxes must be the same kind or character. Real estate
taxes and tenement taxes are not of the same character.

Book: There is no double taxation. Double taxation means taxing for the same tax period the same thing or
activity twice, when it should be taxed but once, by the same taxing authority for the same purpose and with
the same kind or character of tax. The real estate tax is a tax on property; the real estate dealer’s tax is a tax on
the privilege to engage in business; while the income tax is a tax on the privilege to earn an income. These
taxes are imposed by different taxing authorities and are essentially of different kind and character.
48. Greenfield v. Meer (Exemption from Taxation)

Facts:

Since the year 1933, the plaintiff has been continuously engaged in the embroidery business. In 1935,
the plaintiff began engaging in buying and selling mining stocks and securities for his own exclusive account
and not for the account of others. The plaintiff has not been a dealer in securities as defined in section 84 (t) of
Commonwealth Act No. 466; he has no established place of business for the purchase and sale of mining
stocks and securities; and he was never a member of any stock exchange. The plaintiff filed an income tax
return where he claims a deduction of P67,307.80 representing the net loss sustained by him in mining stocks
securities during the year 1939. The defendant disallowed said item of deduction on the ground that said losses
were sustained by the plaintiff from the sale of mining stocks and securities which are capital assets, and that
the loss arising from the sale of the same should be allowed only to the extent of the gains from such sales,
which gains were already taken into consideration in the computation of the alleged net loss of P67,307.80.

Issue:
 Whether or not the personal and additional exemptions granted by section 23 of Commonwealth Act
No. 466 should be considered as a credit against or be deducted from the net income.

Held:

Yes.

Personal and additional exemptions claimed by appellant should be credited against or deducted
from the net income. "Exception is an immunity or privilege; it is freedom from a charge or burden to which
others are subjected." (If the amounts of personal and additional exemptions fixed in section 23 are exempt
from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said
section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation)
should first be fixed, and then deducted from the tax on the net income.

49. Philippine Petroleum Corporation vs. Pililla (Exemption from Taxation)

Facts: PPC is a business enterprise engaged in the manufacture of petroleum product, with its refinery plant at
Malaya, Pililla, Rizal, conducting its business activities w/in the territorial jurisdiction of the Municipality of Pililla,
Rizal.

Under Section 142 of the NIRC of 1939, manufactured oils and other fuels are subject to specific tax.

Respondent Municipality of Pililla, Rizal, through Municipal Council Res No. 25 S-1974 enacted Municipal Tax
Ordinance NO. 1 known as “The Pililla Tax Code of 1974”. Sections 9 and 10 imposed tax on businesses, except
those for which fixed taxes are provided in the local tax code.

Respondents then filed a compliant for the collection of business tax, storage permit fees, mayor’s permit and
sanitary inspection fees.

Issues:

1. W/N PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay TAX on
BUSINESS unto the respondent Municipality? – YES
2. W/N PPC is still liable to pay the STORAGE FEE? – NO
3. W/N PPC is still liable to pay the PERMIT FEES? – YES
4. W/N the Mayor has the authority to waive payment of the mayor’s permit and sanitary inspection fees?
NO.

Rulings:

1. Yes, a tax on business is distinct from tax on the article itself. While Section 2 of PD 436 prohibits the
imposition of local taxes in petroleum products, said decree did not amend Sections 19 and 10 (a) of PD
231 as amended by PD 426, wherein the municipality is granted the right to levy taxes on businesses of
manufacturers, importers, producers of any article of commerce of whatever kind or nature.
The exercise of by local govts of the power to tax is ordained by the present Constitution. To allow the
continuous effectivity of the prohibition set forth in PC No 26-73(1) would be tantamount to restricting
their power to tax by mere administrative issuances. Under Section 5, Art. X of the Consti, only guidelines
and limitations that may be established by Congress can define and limit such power of local gvt.
2. No, Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the
so called storage fee on flammable or combustible materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the payment of the storage fee. The storage permit fee
being imposed by Pililla’s tax ordinance is a fee for the installation and keeping in storage of any
flammable, combustible or explosive substances. Inasmuch as said storage make use of tanks owned
not by the Municipality but by the petitioner PPC, same is obviously not charged for any service
rendered by the municipality as what is envisioned in Sec 37 of the same code.
3. Yes, Section 10(z) (13) of Pililla’s Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee
allowed under Sec 36 of the amended code.
4. No, He does not. It is the law making body, and not the executive like the mayor, who can make an
exemption. Since the power to tax includes the power to exempy thereof which is essentially a
 legislative prerogative, it follows that a municipal mayor may not unilaterally withdraw such an
expression of a policy thru the enactment of a tax.

50. FLORO CEMENT CORPORATION vs HON. BENJAMIN K. GOROSPE G.R. No. L-46787 August 12, 1991
FACTS:
The municipality of Lugait province of Misamis Oriental filed a verified complaint for collection of taxes
against the defendant Floro Cement Corporation. The taxes sought to be collected by the plaintiff specifically
refers to "manufacturers" and' exporter's "taxes for the period from January 1, 1974 to September 30, 1975.
Plaintiff alleged that the imposition and collection of these taxes" is based on its Municipal Ordinance No. 5,
otherwise known as the Municipal Revenue Code of 1974, which was passed pursuant to Presidential Decree
No. 231 and also Municipal Ordinance No. 10 pursuant to Presidential Decree No. 426 dated March 30,1974,
amending Presidential Decree No. 231. The defendant, in its answer, sets up the defense it is not liable to pay
manufacturer's and exporter's taxes alleging among others that the plaintiffs power to levy and collect taxes,
fees, rentals, royalties or charges of any kind whatsoever on defendant has been limited or withdrawn by
Section 52 of Presidential Decree No. 463. Also, defendant was granted by the Secretary of Agriculture and
Natural Resources a Certificate of Qualification for Tax Exemption entitling defendant to exemption for a period
of five (5) years from April 30,1969 to April 29, 1974 from payment of all taxes, except income tax, and which
Certificate was amended on November 5, 1974 CQTE P.D. 463-22), entitling defendant to exemption from all
taxes, duties and fees except income tax, for five (5) years from the first date of actual commercial production
of saleable mineral products that is from May 17, 1974 to January 1, 1978; and that Republic Act No. 3823, as
implemented by Mines Administrative Order No. V-25, and P.D. No. 463 which are the basis for the exemption
granted to defendant are special laws whereas, the municipal ordinance mentioned in the complaint which
are based on P.D. No. 231 and P.D No. 426, respectively, are general laws; and that it is axiomatic that a
special law cannot be amended and/or repealed by a general law unless there is an express intent to repeal
or abrogate the provisions of the special law.

ISSUE: WON Floro Cement should be exempt from paying the taxes sought by the Municipality of Lugait?

HELD:
No. On the exemption claimed by petitioner, this Court has laid down the rule that as the power of
taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or
diminution thereof with respect to its mode or its rate, must be strictly construed, and the same must be
coached in clear and unmistakable terms in order that it may be applied. More specifically stated, the general
rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer (Luzon
Stevedoring Corporation vs. Court of Appeals, 163 SCRA 647 [1988]). He who claims an exemption must be able
to point out some provision of law creating the right; it cannot be allowed to exist upon a mere vague
implication or inference. It must be shown indubitably to exist, for every presumption is against it, and a well-
founded doubt is fatal to the claim (Manila Electric Company vs. Ver, 67 SCRA 351 [1975]). The petitioner failed
to meet this requirement. As held by the lower court, the exemption mentioned in Sec. 52 of P.D. No. 463 refers
only to machineries, equipment, tools for production, etc., as provided in Sec. 53 of the same decree. The
manufacture and the export of cement does not fall under the said provision for it is not a mineral product (CFI
Decision, Rollo, p. 62). It is not cement that is mined only the mineral products composing the finished product
(Commissioner of Internal Revenue vs. Republic Cement Corporation, supra). Furthermore, by the parties' own
stipulation of facts submitted before the court a quo, it is admitted that Floro Cement Corporation is engaged
in the manufacturing and selling, including exporting of cement (CFI Decision, Rollo, p. 57). As such, and since
the taxes sought to be collected were levied on these activities pursuant to Sec. 19 of P.D. No. 231, Ordinances
Nos. 5 and 10, which were enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, properly apply to
petitioner Floro Cement Corporation.

51. MERALCO vs VERA (BIR Commissioner)

G.R. No. L-23847; October 22, 1975

FACTS: This is a petition for review of the decision of the Court of Tax Appeals which upheld the decision of the
BIR to deny the claim of refund of MERALCO over the collected compensating tax on imported goods,
namely: poles, wires, transformers, and insulators by it for the use in the operation of its electric light, heat and
power system. In deciding against petitioner, the Court of Tax Appeals held that following the ruling of the
Supreme Court in the cases of Panay Electric Co. vs. Collector of Internal Revenue, Manila Gas Corp. vs.
Collector of Internal Revenue, and Borja vs. Collector of Internal Revenue, MERALCO is not exempt from
paying the compensating tax provided for in Section 190 of the National Internal Revenue Code, the purpose
of which is to “place casual importers, who are not merchants on equal putting with established merchants who
pay sales tax on articles imported by them.” The court further stated that MERALCO’s claim for exemption from
the payment of the compensating tax is not clear or expressed, contrary to the cardinal rule in taxation that
“exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his
claim by the clearest grant of organic or statute law.” (pp. 10-11, L-23847, rollo)

MERALCO argues that the claim for refund and tax exemption is based on Sec. 9 of its municipal franchise.
Thus, “PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant
(not including poles, wires, transformers, and insulators), machinery, and personal property as other persons are
or may be hereafter required by law to pay.

ISSUE: Whether or not MERALCO is exempt from payment of a compensating tax.

RULING: NO. We find no merit in petitioner’s cause. One who claims to be exempt from the payment of a
particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly
construed against the taxpayer, they being highly disfavored and may almost be said “to be odious to the
law.” He who claims an exemption must be able to point to some positive provision of law creating the right; it
cannot be allowed to exist upon a mere vague implication or inference.3 The right of taxation will not be held
to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken, for
the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous
language, be deprived of this highest attribute of sovereignty. So, when exemption is claimed, it must be shown
indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim.

52. Commissioner vs. Guererro

(Doctrine: Tax exemptions are strictly construed against the one claiming the exemption)

Facts:

Antonio G. Guerrero was, during the years 1949 and 1950, a dealer in logs, which he used to sell to the Aparri
Lumber Company, hereinafter referred to as the company.

On April 2, 1954, the then Collector of Internal Revenue made an assessment and demand requiring Guerrero
to pay the sum of P4,014.91, representing fixed and percentage taxes and forest charges, as well as surcharges
and penalties, in connection with his aforementioned business transactions with the company.

Guerrero maintains that he is not liable therefor because he bought the logs in question for the company, as
agent thereof and with money belonging thereto.

However according to the Commissioner these charges "are liens on the products and collectible from
whomsoever is in possession" thereof, "unless he can show that he has the required auxiliary and official invoice
and discharge permit" — which Guerrero has not shown — it follows that he is bound to pay the
aforementioned forest charges and surcharges, in the sum of P3,775.66.

Issue: Whether Guererro is exempted from paying taxes?

Ruling:

No.
No exemption shall be allowed against the internal revenue taxes in any case." In other words, the National
Internal Revenue Code makes a distinction between taxes, on the other hand, and fees or charges, on the
other; but as used in Title IX of said Code, the term "tax" includes "any national internal revenue tax, fee or
charge imposed by" the Code. And it is in this sense only that we sustained the view taken in the
aforementioned concurring-dissenting opinion in Collector of Internal Revenue vs. Lacson (supra). As a
consequence, the original sale, as contemplated in Section 189 of the Internal Revenue Code, is made by the
concessionaire or whoever cuts or removes forest products from public forests or forest reserves — in the case
at bar, Guerrero, who is accordingly, bound to pay said sum of P1,192.51.

(and also given the fact that when he claimed the exemption he wasn’t able to show the necessary documents
which are the discharge permit and official invoice)

53 Meralco vs Vera, No. L-29987. October 22, 1975

Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat, and
power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from
abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of
Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating
tax. Meralco claimed for refund for the said years, but such claims were either not acted upon or denied by
the Commissioner.

Issue: Whether or not Meralco is exempt from payment of a compensating tax on poles, wires, transformers and
insulators imported by it for use in the operation of its electric light, heat, and power system.

Held: No. One who claims to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being
highly disfavored and may almost be said “to be odious to the law.” He who claims an exemption must be able
to point to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague
implication or inference. Meralco is not exempt from paying the compensation tax provided for in Section 190
of the Tax Code, the purpose of which is to “place casual importers, who are not merchants on equal footing
with established merchants who pay sales tax on articles imported by them.” Meralco’s claim for exemption
from payment of the compensating tax is not clear or expressed, contrary to the rule that “exemptions from
taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the
clearest grant of organic or statute law.” Tax exemption are strictly construed against the taxpayer, they being
highly disfavored and may almost be said to be “odious to the law.” When exemption is claimed, it must be
shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim.

54. Marli Plywood and Veneer Corporation v Aranas 109 Phil. 664
Facts:
Marli Plywood and Veneer corporation, holder of a certificate of exemption as a new and necessary
industry (plywood manufacturing business), seeks the review of the decision of the Court of Tax Appeals
denying its petition for refund of the sum of P4,774.58 paid by it to the respondent Collector of Internal Revenue
as compensating tax in connection with its importation of a "Yanmar" marine diesel engine and air compressor.
The machinery used exclusively to transport its manufactured products from its factory in Bayawan, Negros
Oriental, which is not a port of call, to Cebu or Manila, and to bring, in its return trips, fuels and stocks for use in
the factory.
Having been declared a new and necessary industry, it was exempted from payment of certain internal
revenue taxes. The tax-exemption certificate issued by the Secretary of Finance in favor of petitioner, among
others, provides: "3. The compensating tax on machinery and equipment to be used exclusively in the new
and necessary industry.”
Issue:
WON the importation of the Yanmar machinery should have been exempted from tax
Ruling:
No. The petitioner cannot avail of the privilege with respect to the imported machinery since it was
found to be not directly necessary, but merely incidental, to the operation industry itself. With or without
petitioner’s owning any transportation facility, the tax-exempt industry could be operated. As a matter of fact,
the transportation activity was commenced only in 1956 although petitioner was already in the business since
1953. In other words, the operations of the transportation, while it may bring convenience and economy to
petitioner, is not indispensable to, or form a part of the business of, manufacturing plywood. For the privilege to
be availed of, it must be shown that the imported machinery or equipment is directly necessary, not merely
incidental, to the operation of the industry itself.
55. E. Rodriguez, Inc. v. Collector of Internal Revenue (GR. L-23041, July 31, 1969)

FACTS: Congress enacted RA 333, pursuant to which, the Republic of PH sued petitioner for the expropriation of
1.36m sqm of land owned by it. Petitioner was to receive just compensation of P1.4m. Petitioner then entered
into a compromise agreement with the government, where the government will only pay petitioner P1.2m, 625k
of which were in government bonds. In 1951, when filing its income tax return for 1950, petitioner did not include
the 625k it received from the government in the belief that it was exempt from taxation. The BIR examined the
return and assessed against petitioner a deficiency income tax [DIT] of P63.8k. Petitioner then sought the
cancellation of the DIT, the Collector maintained the accuracy of the assessment and demanded payment. In
June 8, 1960, petitioner offered to pay P30k to settle its DIT which was rejected by the Collector. On June 24,
petitioner filed for the review of the tax assessment with the Court of Tax Appeals [CTA]. CTA affirmed the
assessment. Petitioner appealed.

ISSUE: WON the purchase price paid in the form of tax-exempt bonds should be included in determining the
profit realized from the payment of the expropriated property for income tax purposes.

HELD: Yes. The fact that a portion of the purchase price of the property was paid by the Government in the
form of tax-exempt bonds does not operate to exempt said income from income tax. The income from the sale
of the land in question and the bond are two different and distinct taxable items so that the exemption of one
does not operate to exempt the other, unless the law expressly so provides.

It is argued that since RA 1400 and RA 333 are in pari materia, it should be construed together. However, RA
1400 exempts income derived from the sale of agricultural land to the Government under said Act because RA
1400 contains an exemption from taxation. But in RA 333, there is no provision expressing such exemption, which
indicates that the Congress did not intend to grant such exemption to landowners under RA 333.

Therefore the government bonds issued are taxable.

56. City Gov't of San Pablo v. Reyes

Facts: Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to maintain and

operate an electric light and power system in the City of San Pablo.

Presidential Decree No. 551 was enacted imposing two percent (2%) franchise tax in lieu of all taxes and
assessments. The local government code took effect on January 1, 1992. Subsequently, the Sangguniang
Panglunsod of San Pablo City enacted Ordinance No. 56, imposing a tax on business enjoying franchise, at a
rate of fifty percent (50%) of one percent (1%) of the gross annual receipts. The private respondent
subsequently filed this action before the Regional Trial Court to declare Ordinance No. 56 null and void insofar
as it imposes the franchise tax upon private respondent MERALCO

Issue: Whether the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila

Electric Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes.

Ruling: Yes. Section 193 of the Code prescribes the general rule: tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the Code, except with
respect to those entities expressly enumerated in this code. By stating that unless otherwise provided in this
Code, tax exemptions or incentives granted are withdrawn upon the effectivity of this code. in the absence of
any provision of the Code to the contrary. private respondents tax exemption privileges under existing law was
clearly intended to be withdrawn.

57. Manila Electric Company v Province of Laguna

Facts:

On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local Government Code of
1991," was enacted enjoining local government units to create their own sources of revenue and to levy taxes,
fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local
autonomy.

Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance No.
01-92 which imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent
(1%) of the gross annual receipts. On the basis of the above ordinance, respondent Provincial Treasurer sent a
demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then
amounted to P19,520,628.42 under protest. A formal claim for refund was thereafter sent by MERALCO to the
Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax
Ordinance. However, it was denied which prompted the petitioner to file with the RTC of Laguna a complaint
for refund premise on the argument that imposition of a franchise tax as per Provincial Ordinance No. 01-92,
insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of
Presidential Decree No. 551

Issue:

Whether or not the tax exemption invoked by MERALCO is contractual in nature, hence non-impairment
clause can be used

Ruling:

No. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises
as being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless are far from being strictly contractual in nature. Contractual tax exemptions, in the
real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of contracts. These contractual tax exemptions,
however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the
nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed,
Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions,
is explicit that no franchise for the operation of a public utility shall be granted except under the condition that
such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common
good so requires.

58. ASIATIC PETROLEUM CO. v. LLANES

Facts:

Asiatec Petroleum appealed at the Supreme Court against Llanes for the purpose of recovering the sum of
P3,523.02 it paid for local tax on improvements from the Provincial Treasurers of Cebu. Accordingly, the
improvements it made on the reclaimed land it leased from the Government is tax exempt in pursuant to
Section 344 of Administrative Code. Under section 344 of the Administrative Code especially exempts from
local taxation property owned by the United States of America or by the Government of the Philippine Islands.

Issue:

Whether the plaintiff was liable for the tax assessed against it upon the value of the improvements which it
placed upon Shell Island

Ruling:

YES.

Upon examining the provisions of Act No. 1654 relative to the leasing of lands reclaimed by the Government, it
will be noted that, by section 4, all lands leased under the preceding sections of the Act, "and all improvements
thereon" shall be subject to the local taxation.
A tax exemption is construed in strictissimi juris and it cannot be permitted to exist upon vague implications.
Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the
law. He who claims an exemption must be able to point to some positive provision of law creating the right. It
cannot be allowed to exist upon a vague implication.

Further, the said improvements are not public improvements, but are, of a private nature, constructed for the
use of the lessee in conducting its business as a purveyor of coal oil. Said improvements belong to the lessee
and will remain its property until the termination of the lease, when, under subsection (c) of section 6 of Act No.
1654, the title to the same will vest in the Government of the Philippine Islands. The fact that the improvements
will thus ultimately belong to the Government in no wise alters the liability of the lessee of taxes thereon, so long
as the property belongs to it. Under section 343 of the Administrative Code the tax on improvements on real
property is assessable against the owner of such improvements whether he is also the owner of the land, on
which they are placed or not. The case not infrequently happens that the land is assessed to one person and
the improvements to another; and as it should be, when the titles to the two different sorts of property are
vested in different persons.

59. Collector vs. Fireman

Facts:

This is an appeal from the decision of the respondent Court of Tax Appeals which reversed the decision of
petitioner Commissioner of Internal Revenue holding private respondent liable for the payment of the amount
of P81,406.87 as documentary stamp taxes and compromise penalties for the years 1952 to 1958. Private
respondent is a resident foreign insurance corporation organized under the laws of the United States,
authorized and duly licensed to do business in the Philippines. It is a member of the American Foreign Insurance
Association, through which its business is cleared. It entered into various insurance contracts involving casualty,
fire and marine risks, for which the corresponding insurance policies were issued. From January, 1952 to 1956,
documentary stamps were bought and affixed to the monthly statements of policies issues; and from 1957 to
1958 documentary stamps were bought and affixed to the corresponding pages of the policy register, instead
of on the insurance policies issued.

Issue:

Whether or not respondent company may be required to pay again the documentary stamps it has actually
purchased, affixed and cancelled.

Ruling:

No. It is the general rule in the interpretation of statues levying taxes or duties, that in case of doubt, such
statutes are to be construed most strongly against the government and in favor of the subjects or citizens,
because burdens are not to be imposed, nor presumed to be imposed beyond what the statues expressly and
clearly import. The purpose of imposing documentary stamp taxes is to raise revenue and the corresponding
amount has already been paid and has become part of the revenue of the government. There is no
justification for the government which has already realized the revenue to require the payment of the same tax
for the same documents.

60. Hilado vs. Collector

Facts:

Petitioner filed his income tax return with the treasurer of Bacolod City wherein he claimed, among other things,
a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of
Internal Revenue. Meanwhile, the Secretary of Finance, through the Collector of Internal Revenue, issued
General Circular No. V-139 which not only revoked and declared void his general Circular No. V- 123 but laid
down the rule that losses of property which occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or
destruction of said property. As a consequence, the amount of claimed was disallowed as a deduction from
the gross income of Petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment
for deficiency income tax for said year.

Issue: Whether Petitioner can claim compensation for destruction of his property during the war under the laws
in effect at that time.

Ruling:

No. The power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view
of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in
revoking it and approving in lieu thereof General Circular No. V-139. It cannot be denied, however, that the
Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his
predecessor in office because the construction of a statute by those administering it is not binding on their
successors if thereafter the latter become satisfied that a different construction should be given.

61. TAÑADA VS TUVERA

FACTS: Due process was invoked by the petitioners in demanding the disclosure of a number of presidential
decrees which they claimed had not been published as required by law. Invoking the right of the people to be
informed on matters of public concern as well as the principle that laws to be valid and enforceable must be
published in the Official Gazette, petitioners filed for writ of mandamus to compel respondent public officials to
publish and/or cause to publish various presidential decrees, letters of instructions, general orders,
proclamations, executive orders, letters of implementations and administrative orders. The Solicitor General,
representing the respondents, moved for the dismissal of the case, contending that petitioners have no legal
personality to bring the instant petition.
ISSUE: Whether or not a tax law that is retroactive is invalid.
HELD: No. As a rule, taxing statutes must be applied prospectively, except by express provision of the law. The
mere fact that a tax law is retroactive does not make it invalid or against due process because retroactivity
must be so harsh and oppressive in its application in order to invalidate the law. The above situation created
some significant tax issues for lawyers who became exempt from the value added tax beginning January 1,
2004, pursuant to the express provision of the amendatory law, which was published in a newspaper of general
circulation only on February 16, 2004. Some tax practitioners believe that said law became effective only after
its publication on February 16, 2004. This legal issue if when R.A. 9238 became effective became moot and
academic when the Secretary of Finance, upon the recommendation of the Commissioner of Internal
Revenue, promulgated Revenue Regulations No. 7-2004 on May 7, 2004, specifically providing that lawyers
became exempt form value added tax on January 1, 2004, confirming what has been previously declared by
the Commissioner of Internal Revenue in RMC 9-04 and 10-04 dated February 2004. This position finds support
from the provision of Article 2 of the New Civil Code (R.A.386), which states “that laws shall take effect after 15
days following the completion of their publication in the Official Gazette or newspaper of general circulation,
unless it is otherwise provided.” Since the law itself expressly provides for its date of effectivity, it shall take effect
on January 1, 2004.

62. Accenture vs Commissioner of Internal Revenue (CIR)

Facts: Petitioner Accenture, a VAT registered entity, is a corporation engaged in the business of providing
management consulting, business strategies development, and selling and/or licensing of software. The
monthly and quarterly VAT returns of Accenture show that, notwithstanding its application of the input VAT
credits earned from its zero-rated transactions against its output VAT liabilities, it still had excess or unutilized
input VAT credits in the amount of P37,038,269.18. Thus, Accenture filed with the Department of Finance (DoF)
an administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). When the DoF did not
act on the claim, Accenture filed a Petition for Review with CTA praying for the issuance of a TCC in its favour.

The CIR answered that the sale by Accenture of goods and services to its clients are not zero-rated transactions
and that Accenture has failed to prove that it is entitled to a refund, because its claim has not been fully
substantiated or documented. Ruling that Accenture’s services would qualify for zero-rating under the 1997
National Internal Revenue Code of the Philippines (Tax Code) only if the recipient of the services was doing
business outside of the Philippines, the Division of the CTA against Accenture, ruling that since Accenture had
failed to present evidence to prove that the foreign clients to which the former rendered services did business
outside the Philippines, it was not entitled to refund. Accenture’s services would qualify for zero-rating under the
Tax Code (1997) only if the recipient of the services was doing business outside of the Philippines. Accenture
questions the Division’s application to this case of the pronouncements made in Burmeister. According to
petitioner, the provision applied to the present case was Section 102(b) of the 1977 Tax Code, and not Section
108(B) of the 1997 Tax Code, which was the law effective when the subject transactions were entered into and
a refund was applied for. On appeal before the CTA en banc, Accenture argued that because the case
pertained to the third and the fourth quarters of taxable year 2002, the applicable law was the 1997 Tax Code,
and not R.A. 9337 and that prior to the amendment introduced by (R.A.) 9337, there was no requirement that
the services must be rendered to a person engaged in business conducted outside the Philippines to qualify for
zero-rating. The CTA en banc affirmed the decision of the division, stating that Accenture cannot invoke the
non-retroactivity of the rulings of the Supreme Court, whose interpretation of the law is part of that law as of the
date of its enactment.

Issue: WON the application of the Supreme Court decision is proper.

Ruling: Yes. The recipient of the service must be doing business outside the Philippines for the transaction to
qualify for zero-rating under Section 108(B) of the Tax Code. When the supreme court decides a case, it does
not pass a new law, but merely interprets an existing one. – Even though the taxpayer’s petition was filed before
the decision in case of CIR v. BWSC (Burmeister case) Mindanao was promulgated, the pronouncement made
in that case may be applied to the present case without violating the rule against retroactive application. When
the court interpreted Sec. 102(b) of the 1977 Tax Code in the Burmeister case, this interpretation became part of
the law from the moment it became effective. It is elementary that the interpretation of a law by the Court
constitutes part of that law from the date it was originally passed, since the Court’s construction merely
establishes the contemporaneous legislative intent that the interpreted law carried into effect.

63. SAGUIGUIT VS PEOPLE as used in Gulf Air Co., Philippine Branch vs CIR

FACTS:
Petitioner (GF) is a foreign corporation which availed of the Voluntary Assessment Program on 3 quarters
of 2000. Thereafter, GF received its Preliminary Assessment Notice for deficiency percentage tax and a letter
denying its claim for tax credit or refund of excess percentage tax remittance.
GF filed a petition for review with the CTA who dismissed the petition based on revenue regulation no. 6-
66 and noted that GF failed to include in its gross receipts the special commissions on passengers and cargo.
Finally, it ruled that revenue regulation no. 6-66 allowing the use of the net rate in determining the gross
receipts, could not be given any or a retroactive effect.
GF elevated the case to the CTA En Banc which affirmed the decision of the CTA Division. It found that
Revenue Regulations No. 6-66 was the applicable rule because the period involved in the assessment covered
the quarters of 2000. Revenue Regulations No. 15-2002, which took effect on October 26, 2002, could not be
given retroactive effect since it was declarative of a new right for providing a different rule in determining gross
receipts.
ISSUE: Whether the use of Revenue Regulation NO. 6-66 is proper

RULING: YES

As such, absent any showing of inconsistency of Revenue Regulations No. 6-66 with the provisions of the NIRC,
its stipulations shall be upheld and applied accordingly regardless of our reservations as to the wisdom or the
perceived ill-effects of a particular legislative enactment. As aptly stated in Saguiguit v. People:
xxx Even with the best of motives, the Court can only interpret and apply the law and cannot, despite doubts
about its wisdom, amend or repeal it. Courts of justice have no right to encroach on the prerogatives of
lawmakers, as long as it has not been shown that they have acted with grave abuse of discretion. And while
the judiciary may interpret laws and evaluate them for constitutional soundness and to strike them down if they
are proven to be infirm, this solemn power and duty does not include the discretion to correct by reading into
the law what is not written therein.

The validity of the questioned rules can be sustained by the application of the principle of legislative approval
by re-enactment. Under the aforementioned legal concept, “where a statute is susceptible of the meaning
placed upon it by a ruling of the government agency charged with its enforcement and the Legislature
thereafter re-enacts the provisions without substantial change, such action is to some extent confirmatory that
the ruling carries out the legislative purpose.” Thus, there is tacit approval of a prior executive construction of a
statute which was re-enacted with no substantial changes.

64. CIR vs. Burroughs G.R. No. L-66653 June 19, 1986

Facts: Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines
through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila.
March 1979: The branch office of Burroughs Limited, a foreign corporation, applied with the Central Bank for
authority to remit to its parent company abroad, branch profit. Amount Applied for: Php 7,647,058.00 15%
Branch Profit Remittance Tax: Php 1,147,048.70 Amount Actually Remitted: Php 6,499,999.30, 24 December
1980: Burroughs claims a tax refund/credit of Php 172,058.90. Claiming that the 15% profit remittance tax should
have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount
before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for
the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance
tax.

Private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No. 3204 for the
recovery of the above-mentioned amount of P172,058.81. CTA granted the tax credit. However CIR stated
Burroughs is no longer entitled to refund because MemorandumCircular No. 8-82 dated 17 March 1982 had
revoked and/or repealed the BIR ruling of 21 Jan 1980.

Issue: WON Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can be given retroactive effect?

Ruling: NO. Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the
Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be
given retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides Sec.
327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA,
108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does
not fall under any of them.

65. Walter E. Olsen vs. Vicente Aldanese, as Insular Collector of Customs of the Philippine Islands, and W.
Trinidad, as Collector of Internal Revenue

43 Phil 64 / GR No. L-18740, 28 April 28, 1922, J. Johns

FACTS: The Philippine Legislature passed on February 4, 1916, Act No. 2613 entitled "an act to improve the
methods of production and the quality of tobacco in the Philippine and to develop the export trade therein."
They empower the Collector of Internal Revenue to establish certain general and local rules respecting the
classification, marking, and parking of tobacco for domestic sale or for exportation to the United States. Under
the provisions of Act No. 2613, the Collector of Internal Revenue of the Philippine Islands promulgated
Administrative Order No. 35, known as "Tobacco Inspections Regulations."

The petitioner applied to the Collector of Internal Revenue for a certificate of origin covering a consignment of
10,000 machine-made cigars to San Francisco, and represented that the cigars were made from short-filler
tobacco which was not the product of Cagayan, Isabela, and Nueva Vizcaya. The Collector of Internal
Revenue did not deem it necessary to make an actual examination and inspection of said cigars, and stated
to the petitioner that he did not see his way clear to the granting of petitioner's request, in view of the fact that
the cigars which the petitioner was seeking to export were not made with long-filler nor were they made from
tobacco exclusively the product of any of the three provinces, as provided in Administrative Order No. 35,
known as "Tobacco Inspection Regulations," and the said cigars were neither inspected nor examined by the
said officer.

Respondents allege that under section 11 of Act No. 2613 and section 5 of the Administrative Code of 1917, the
Collector of Internal Revenue has discretionary power to decide whether the manufactured tobacco that the
petitioner seeks to export to the United States fulfills the requisites prescribed by Administrative Order No. 35.
That it is not within the jurisdiction of this court to order the Collector of Internal Revenue to issue a certificate to
the petitioner to the effect that the manufactured tobacco that the petitioner seeks to export is a product of
the Philippine Islands, but it is for the Collector of Internal Revenue to exercise the power of issuing said
certificate if after an inspection of said tobacco, he should find that "it conforms to the conditions required by
Administrative order No. 35 with the exclusion of those conditions which, according to the said decision of the
Supreme Courts, the Collector of Internal Revenue is not authorized to require under Act No. 2613."

ISSUES: 1.Whether the decision of the Collector of Internal Revenue is wrong

RULING: YES. It appears from the whole purport and tenor of the answer that, in their refusal, the defendants
were acting under, and relying upon, those portions of Administrative Order No. 35, known as "Tobacco
Inspection Regulations," which this court has held in a former opinion to be null and void.

By the express terms and provisions of such rules and regulations promulgated by the Collector of Internal
Revenue, it was his duty to refuse petitioner's request, and decline the certificate or origin, because the cigars
tendered were not of the specified kind, and we have a right to assume that he performed his official duty as
the understood it. After such refusal and upon such grounds, it would indeed, have been a vain and useless
thing for the Collector of Internal Revenue to his examined or inspected the cigars.

Having refused to issue the certificate of origin for the reason above assigned, it is very apparent that a request
thereafter made examine or inspect the cigars would also have been refused.

66. Public School District Supervisors Association v. Hon. Edilberto de Jesus G.R. 157286 (2006) Regulations
FACTS: RA 9155, otherwise known as the “Governance of Basic Education Act of 2001” became a law on
August 11, 2001 in accordance with Sec. 27 (1), Art. VI of the Constitution. Under the law the office of the
schools district supervisor shall have no administrative, management, control or supervisory functions over the
schools and learning centers within their respective districts but shall be limited to (1) providing professional and
instructional advice and support to the school heads and teachers/facilitators of schools and learning centers
in the district or cluster; (2) curricula supervision; and (3) performing such other functions as may be assigned by
proper authorities.
Before DepEd could issue the appropriate implementing rules and regulations, petitioner PSDSA sought the
legal assistance of the Integrated Bar of the Philippines National Committee on Legal Aid to make
representations for the resolution of the following administrative issues: (1) restoration of the functions, duties,
responsibilities, benefits, prerogatives and position level of Public School District Supervisor; and (2) upgrading of
Salary Grade Level of Public School District Supervisors from Salary Grade Level 19 to Salary Grade Level 24.
DepEd Sec. Edilberto C. De Jesus issued DECS Office Order No. 1 which constitutes the IRR of R.A. 9155. PSDSA
filed a petition for prohibition and mandamus alleging that the act of the DepEd in removing petitioner’s
administrative supervision over elementary schools and its principals within his/her district and converting his/her
administrative function to that of performing staff for the division is a gross violation of R.A. 9155. Petitioners also
allege that the IRR of R.A. 9155 expanded and included provisions which are diametrically opposed to the
letter and spirit of the subject law. They argue that the said law should be read in harmony with the existing
educational laws.
ISSUE: W/N DECS Office Order No. 1 issued by DepEd expanded R.A. 9155.
HELD: No. It must be stressed that the power of administrative officials to promulgate rules in the implementation
of a statute is necessarily limited to what is provided for in the legislative enactment. The implementing rules
and regulations of a law cannot extend the law or expand its coverage, as the power to amend or repeal a
statute is vested in the legislature. It bears stressing, however, that administrative bodies are allowed under their
power of subordinate legislation to implement the broad policies laid down in a statute by “filling in” the details.
All that is required is that the regulation be germane to the objectives and purposes of the law; that the
regulation does not contradict but conforms with the standards prescribed by law. Moreover, as a matter of
policy, this Court accords great respect to the decisions and/or actions of administrative authorities not only
because of the doctrine of separation of powers but also for their presumed knowledgeability and expertise in
the enforcement of laws and regulations entrusted to their jurisdiction.
67. Commissioner of Customs vs. Hypermix Feeds

Facts: Petitioner Commissioner of Customs issued CMO 27-2003, which for tariff purposes, wheat was classified
according to: (1) importer or consignee; (2) country of origin (3) port of discharge. The regulation provided an
exclusive list of corporations, ports of discharge, commodity descriptions, and countries of origin. Depending on
these factors, wheat would be classified as either as food grade or feed grade. The corresponding tariff for
food grade wheat was 3%, for feed grade 7%

Issue: Whether CMO 27-2003 met the requirements of equal protection clause?

Ruling: No. CMO 27-2003 is unconstitutional for being violative of the equal protection clause.

Rules and regulations, which are the product of a delegated power to create new and additional legal
provisions that have the effect of law, should be within the scope of the stature authority granted by the
legislature to the administrative agency. It is required that the regulation be germane to the objects and
purposes of the law, and that it be not in contravention to, but in conformity with, the standards prescribed by
law.

In this case, the Commissioner of Customs went beyond his powers when the regulation (CMO 23-2007) limited
the customs officer’s duties mandated by Section 1403 of the tariff and customs law, as amended. The provision
mandates the customs officer must first assess and determine the classification of the imported article before
tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article, even before the customs
officer had the chance to examine it.

68. NEGROS CONSOLIDATED FARMERS ASSOCIATION MULTI PURPOSE COOP VS. CIR (2012)
FACTS:
Petitioner is a multi-purpose agricultural cooperative duly organized and existing under Philippine laws.
Petitioner was issued a Certificate of Good Standing by the Cooperative Development Authority. It was
granted a tax exemption under Article 61 of R.A 6938 and from VAT pursuant to Section 109 of RA 8424.
Petitioner seeks a tax refund in the amount of 7M, allegedly representing advance value added tax
(VAT) on 71,480 LKG bags of refined sugar, erroneously or illegally collected during the period covering May 12,
2009 to July 22, 2009.
ISSUE: Whether or not petitioner is exempted from the payment of VAT.
RULING: YES
Section 109 (L) of RA 9337 as well as in the documentary evidence presented that petitioners’ sale of
sugar produce made by petitioner to its members as well as non-members is exempt from the payment of VAT.
In declaring that in order to be exempt from VAT, a cooperative must be the agricultural producer of its sugar
produce, the Commissioner has not engaged in mere interpretation, but has gone into unauthorized
modification or amendment of the law. Only Congress can do this. Sections 3 and 4 of Revenue Regulations
No. 13 -2018 insofar as it imposes this requirement is, therefore, ultra vires and invalid.
*CASE 69 MISSING*
70. Tañada vs. Tuvera

FACTS: In procuring the enforcement of public duty, a petition was sought by Tañada, Sarmiento, and
Movement of Attorneys for Brotherhood Integrity and Nationalism, Inc. (MABINI) seeking a writ of mandamus to
compel respondent public officials to publish, and or cause the publication in the Official Gazette of various
presidential decrees, letters of instructions, general orders, proclamations, executive orders, letter of
implementation and administrative orders. There is a need for Publication of Laws to strengthen its binding force
and effect: giving access to legislative records, giving awareness to the public of the law promulgated. The
Official Gazette, however, does not contain publications of administrative and executive orders that affect
only a particular class of persons. The Official Gazette, as mandated by law, presents all presidential issuances
“of a public nature” or “of general applicability.” Also, Article 2 of the Civil Code expressly recognized that the
rule as to laws takes effect after 15 days unless it is otherwise (for some do specify the date of effectivity)
following the completion of the publication in the Official Gazette. However, the decree has been misread by
many; for it has no juridical force, but a mere legislative enactment of RA 386.

ISSUE: Whether or not all laws shall be published in the official gazette

RULING: YES. It must be published in the Official Gazette or in a newspaper of general circulation, as provided in
EO 200. However, Interpretative regulations and those merely internal in nature, that is, regulating only the
personnel of the administrative agency and not the public, need not be published. Neither is publication
required of the so-called letters of instructions issued by administrative superiors concerning the rules or
guidelines to be followed by their subordinates in the performance of their duties. These may be posted in
conspicuous places in the agency itself. Such posting already requires the publication requirement.

Publication must be in full, or it is no publication at all.

71. People vs Maceren

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito del
Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz, Laguna with having
violated Fisheries Administrative Order No. 84-1.

It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to electro fishing
in the waters of Barrio San Pablo Norte, Sta. Cruz. The lower court held that electro fishing cannot be penalized
because electric current is not an obnoxious or poisonous substance as contemplated in Section 11 of the
Fisheries Law and that it is not a substance at all but a form of energy conducted or transmitted by substances.
The lower court further held that, since the law does not clearly prohibit electro fishing, the executive and
judicial departments cannot consider it unlawful. It is noteworthy that the Fisheries Law does not expressly
punish electro fishing. Notwithstanding the silence of the law, the Secretary of Agriculture and Natural
Resources, upon the recommendation of the Commissioner of Fisheries, promulgated Fisheries Administrative
Order No. 84, prohibiting electro fishing in all Philippine waters. On June 28, 1967 the Secretary of Agriculture
and Natural Resources, upon the recommendation of the Fisheries Commission, issued Fisheries Administrative
Order No. 84-1, amending section 2 of Administrative Order No. 84, by restricting the ban against electro fishing
to fresh water fisheries.

Issue: W/N regulations can impose penal sanctions

Ruling: Yes.

Where the regulations impose penal sanctions, the law itself must declare as punishable the violation of the
administrative rule or regulation, and the law should fix or define the penalty for the violation of the rule of
regulation

72. Commissioner of lnternal Revenue vs. Court of Appeals

FACTS: ‘Champion,’ ‘Hope,’ and ‘More’ were classified as foreign brands since they were listed in the World
Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of
‘Hope’ to ‘Hope Luxury’ and ‘More’ to ‘Premium More,’ thereby removing the said brands from the foreign
brand category and registered as a local brand.” Ad Valorem taxes were imposed on these brands.

RMC 37-93, Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR which aims to collect
deficiencies on ad valorem taxes against Fortune Tobacco following their reclassification as foreign branded
cigarettes.

“HOPE,” “MORE” and “CHAMPION” being manufactured by Fortune Tobacco Corporation were considered
locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes
under RA 7654.
Fortune Tobacco filed a petition for review with the CTA. RMC 37-93 is found to be defective, invalid and
unenforceable. The CA sustained the decision of the CTA. Hence, this appeal.

ISSUE: RMC 37–93 can be viewed simply as a corrective measure or merely as construing Section 142(c)(1) of
the NIRC.

RULING: NO. A reading of RMC 37–93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process
the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place “Hope Luxury,” “Premium More”
and “Champion” within the classification of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing
foreign brands. Prior to the issuance of the questioned circular, “Hope Luxury,” “Premium More,” and
“Champion” cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax. Hence, without RMC 37–93, the enactment of RA 7654, would have had no new
tax rate consequence on private respondent’s products.

73. Gonzales vs Land Bank

Facts:

A deed of assignment was executed by Ramos Plantation Company, Inc. (referred as the corporation)
through its President, Zulueta, assigning its rights under Land Transfer Claim unto petitioner Gonzales (plaintiff).
The latter filed an action before the RTC entitled "Ramon A. Gonzales, plaintiff vs. Land Bank of the Philippines
and Ramos Plantation Company, Inc., defendants" to compel public respondent Land Bank of the Philippines
to issue Land Bank Bonds in the name of petitioner instead of in the name of the aforesaid corporation as the
original and registered owner of the property.

Defendant corporation was declared in default for failure to file its answer within the reglementary
period while defendant Land Bank filed an answer alleging that the complaint states no cause of action since
there is no privity of contract between plaintiff and itself and that it deals only with the landowner whose land
was subjected to operation land transfer of the government.

Issue: W/N Land Bank may be compelled to honor the subject deed of assignment

Ruling: No.

Petitioner stepped into the shoes of his assignor, the defendant corporation. But petitioner overlooked
the fact that when the corporation assigned its rights to him under Land Transfer Claim, the same was subject
to the rules and restrictions imposed by respondent Land Bank on the matter of assignment of rights.

Thus, when Ramos Plantation Company, Inc. assigned its lights, title and interest in Land Transfer Claim in
favor of petitioner Ramon A. Gonzales, the latter acquired the same subject to the restrictions on assignment of
rights embodied in Resolution No. 75-68 assed by the Board of respondent Land Bank of the Philippines, the
pertinent provision of which reads:

In Assignment of Rights entered into by landowners vesting upon the Assignee the right to receive full or
partial payment from the Land Bank pursuant to land transfer, the same, if found valid in form and substance,
shall be recognized by the Land Bank. Whenever practicable, Land Bank bonds issued therefor must be made
payable to the Assignor-Landowner who shall be required to make the necessary indorsement of said bonds to
the Assignee. In case the cash portion is the one assigned, the check in payment thereof shall be issued to the
original landowner who shall be required to make the indorsement to the Assignee. Thus, for record purposes, it
will appear that payment was directly to the landowner concerned and who, by reason of the Assignment, has
caused the necessary indorsement of the bonds and/or check, as the case may be, to the Assignee.

The rules and regulations construing or interpreting the provisions of a statute to be enforced are binding
on all concerned until they are changed. They have the effect of law and are entitled to a great respect.
74. Manila Jockey Club vs CA
Facts:
Petitioners Manila Jockey Club, Inc. and Philippine Racing Club, Inc. were granted franchises to operate
and maintain race tracks for horse racing in the City of Manila and Province of Rizal by virtue of RA Nos. 6631
and 6632 and were allowed to hold races, with bets.

Subsequently, Philippine Racing Commission (PHILRACOM) was created by virtue of PD 420, giving it
exclusive jurisdiction and control over every aspect of the conduct of horse racing, including the framing and
scheduling of races. By virtue of this power, the PHILRACOM authorized the holding of races on Wednesdays.

Petitioners made a joint query regarding the ownership of breakages accumulated during Wednesday
races. In response, PHILRACOM declared that the breakages belonged to the racing clubs concerned.

President Corazon Aquino amended certain provisions Sec. 4 of R.A. 8631 and Sec. 6 of R.A. 6632
through Executive Orders No. 88 and 89.
PHILRACOM itself addressed a query to the Office of the President asking which agency is entitled to
dispose of the proceeds of the "breakages" derived from the Tuesday and Wednesday races. The Office of the
President replied that "the disposition of the breakages rightfully belongs to PHILRACOM, not only those derived
from the Saturday, Sunday and holiday races, but also from the Tuesday and Wednesday races in accordance
with the distribution scheme prescribed in said Executive Orders".
PHILRACOM sent a letter of demand to petitioners MJCI and PRCI asking them to remit PHILRACOM's share in
the "breakages" derived from midweek races.

Issue:
Whether or not petitioners are the rightful beneficiaries of the breakages derived from mid-week races.
Held:
NO.

Petitioners should therefore remit the proceeds of breakages to those benefactors designated by the
aforesaid laws.

While herein petitioners might have relied on a prior opinion issued by an administrative body, the well-
entrenched principle is that the State could not be estopped by a mistake committed by its officials or
agents. Well-settled also is the rule that the erroneous application of the law by public officers does not prevent
a subsequent correct application of the law. Although there was an initial interpretation of the law by
PHILRACOM, a court of law could not be precluded from setting that interpretation aside if later on it is shown to
be inappropriate.

75. Corona vs. United Harbor Pilots Assoc. of the Phil. (Necessity of a Hearing)

Facts: PPA-AO No. 04-92 provides that all appointments to harbor pilot positions in all pilotage districts shall,
henceforth, be only for a term of one year from date of effectivity subject to yearly renewal or cancellation by
the Authority after conduct of a rigid evaluation of performance.

PPA General Manager Rogelio Dayan issued PPA-AO No. 04-92 whose avowed policy was to instill effective
discipline and thereby afford better protection to the port users through the improvement of pilotage services.

On Aug 12, 1992, respondent, through Capt. Alberto C. Compas, questioned PPA-AO No. 04-92 before the
Dept of Transportation and Communication.

On December 23, 1992, the Office of the President (OP) issued an order directing the PPA to hold abeyance
the implementation of the said administrative order. PPA countered that the said order was issued in the
exercise of its administrative control and supervision over harbor pilots under Section 6, Article I of P.D. 857.

On March 17, 1993, the OP, through Assistant Executive Secretary Renato Corona, dismissed the appeal and
lifted the restraining order issued. He concluded that the said order applied to all harbor pilots and, for all
intents and purposes, was not an act of Dayan, but of the PPA, which was merely implementing P.D. 857,
mandating it to control, regulate and supervise pilotage and conduct of pilots in any port district.
Respondents filed a petition for certiorari, prohibition and injunction with prayer for the issuance of a temporary
restraining order and damages before the Regional Trial Court.

Issue: W/N Administrative Order No.04-92 is constitutional

Ruling: NO.
The Court is convinced that PPA No. 04-92 was issued in stark disregard of respondents’ right against
deprivation of property without due process law. The Supreme Court said that in order to fall within the aegis of
the provision, two conditions must concur, namely, that there is a deprivation and that such deprivation is done
without proper observance of due process.

Neither does that the pilots themselves were not consulted in any way taint the validity of the administrative
order. As general rule, notice and hearing, as the fundamental requirement of procedural due process, are
essential only when administrative body exercises its quasi-judicial function. In the performance of its executive
or legislative functions, such as issuing rules and regulations, an Administrative body needs to comply with the
requirement of notice and hearing.

There is no dispute that pilotage as a profession has taken on the nature of a property right. It is readily
apparent that the said administrative order unduly restricts the right of harbour pilots to enjoy their profession
before their right of harbor pilots to enjoy their respective profession before their compulsory retirement.

76. REVIEW CENTER ASSOCIATION OF THE PHILIPPINES vs EXECUTIVE SECRETARY EDUARDO ERMITA G.R. No. 180046
April 2, 2009
FACTS:
The Professional Regulation Commission conducted the Nursing Board Examinations on June 11, and 12
2006. After the results were released, it was confirmed by the PRC that there was a leakage from two board
members. Hence, the oath-taking by the successful examinees were cancelled. President Arroyo replaced all
the members of the PRC’s Board of Nursing, and also ordered the examinees to retake the board exam.
President Arroyo issued EO 566 which authorized the CHED to supervise the establishment and operation of all
review centers and similar entities in the Philippines. The CHED through its then Chairman Carlito S. Puno
approved its IRR. The Review Center Association of the Philippines (petitioner), an organization of independent
review centers, asked the CHED to "amend, if not withdraw" the IRR arguing, among other things, that giving
permits to operate a review center to Higher Education Institutions (HEIs) or consortia of HEIs and professional
organizations will effectively abolish independent review centers. Chairman Puno wrote petitioner, through its
President Jose Antonio Fudolig (Fudolig), that to suspend the implementation of the IRR would be inconsistent
with the mandate of EO 566. Chairman Puno wrote that the IRR was presented to the stakeholders during a
consultation process prior to its finalization and publication on 13 November 2006. Chairman Puno also wrote
that petitioner’s comments and suggestions would be considered in the event of revisions to the IRR.

ISSUE: WON EO 566 is an unconstitutional exercise by the Executive of legislative power as it expands the
CHED’s jurisdiction?

HELD:
Yes. There was undue exercise of legislative power by President Arroyo. The OSG argues that President
Arroyo was exercising her residual powers under Executive Order No. 292. However, Section 20, Title I of Book III
of EO 292 speaks of other powers vested in the President under the law. The exercise of the President’s residual
powers under this provision requires legislation, as the provision clearly states that the exercise of the President’s
other powers and functions has to be "provided for under the law." There is no law granting the President the
power to amend the functions of the CHED. The President may not amend RA 7722 through an Executive Order
without a prior legislation granting her such power. The President has no inherent or delegated legislative power
to amend the functions of the CHED under RA 7722. Legislative power is the authority to make laws and to alter
or repeal them and this power is vested with the Congress under Section 1, Article VI of the 1987 Constitution.
While Congress is vested with the power to enact laws, the President executes the laws. The executive power is
vested in the President. It is generally defined as the power to enforce and administer laws. It is the power of
carrying the laws into practical operation and enforcing their due observance. Just like AO 308 in Ople v.
Torres, EO 566 in this case is not supported by any enabling law. The Court further stated in Ople: “Many
regulations however, bear directly on the public. It is here that administrative legislation must be restricted in its
scope and application. Regulations are not supposed to be a substitute for the general policy-making that
Congress enacts in the form of a public law. Although administrative regulations are entitled to respect, the
authority to prescribe rules and regulations is not an independent source of power to make laws." Since EO 566
is an invalid exercise of legislative power, the RIRR is also an invalid exercise of the CHED’s quasi-legislative
power.
77. LA SUERTE CIGAR & CIGARETTE FACTORY vs COMMISSIONER
G. R. L-36131; January 17, 1985

FACTS: This is a petition for certiorari on the decision of the Court of Tax Appeals on the denial claim for refund
on inspection fees on cigars and cigarettes manufactured for domestic sale and/or consumption.

The Commissioner of the Internal Revenue issued MC 30-67 requiring the inspection of all locally produced leaf
tobacco and partially manufactured tobacco intended for domestic sale, for factory use or for export.
Pursuant to the MC 30-67, BIR collected from the petitioners, over the latter’s vehement objection inpection
fees. The basis of the issuance of MC 30-67 was so stated in the MC of which it was based on General Cicular V-
27. The Petitioners assailed the validity and efficacy of Revenue MC 30-67 since the BIR failed to publish the said
MC in the official gazette as required by the Civil Code and the Revised Administrative Code.

ISSUE: Whether or not the publication of Revenue Memorandum Circular 30-67 in the official gazette is
necessary in order for MC to be valid and enforceable.

RULING: NO. When an administrative agency renders an opinion by means of a circular or Memorandum, it
merely interprets a preexisting law, and no publication is necessary for its validity. 4 Construction by an executive
branch of government of a particular law although not binding upon courts must be given weight as the
construction come from the branch of the government called upon to implement the law.

The promulgation of Revenue Memorandum Circular No. 30-67 being in accordance with the Revised
Administrative Code, having been issued by the Commissioner of Internal Revenue with the approval of the
Secretary (now Minister) of Finance for the implementation of the Tobacco Inspection Law, has therefore the
force and effect of law.

78.Tanada vs. Tuvera

Facts:

Invoking the people's right to be informed on matters of public concern, a right recognized in Section 6, Article
IV of the 1973 Philippine Constitution, 1 as well as the principle that laws to be valid and enforceable must be
published in the Official Gazette or otherwise effectively promulgated, petitioners seek a writ of mandamus to
compel respondent public officials to publish, and or cause the publication in the Official Gazette of various
presidential decrees, letters of instructions, general orders, proclamations, executive orders, letter of
implementation and administrative orders.

Respondents further contend that publication in the Official Gazette is not a sine qua non requirement for the
effectivity of laws where the laws themselves provide for their own effectivity dates. It is thus submitted that
since the presidential issuances in question contain special provisions as to the date they are to take effect,
publication in the Official Gazette is not indispensable for their effectivity

Issue: Whether or not publication is necessary to make the laws effective for implementation

Ruling:

Yes.

The publication of all presidential issuances "of a public nature" or "of general applicability" is mandated by law.
Obviously, presidential decrees that provide for fines, forfeitures or penalties for their violation or otherwise
impose a burden on the people, such as tax and revenue measures, fall within this category. Other presidential
issuances which apply only to particular persons or class of persons such as administrative and executive orders
need not be published on the assumption that they have been circularized to all concerned. 6

It is needless to add that the publication of presidential issuances "of a public nature" or "of general
applicability" is a requirement of due process. It is a rule of law that before a person may be bound by law, he
must first be officially and specifically informed of its contents

79 Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue No. L-23611. April 24, 1967.
Facts: Petitioner filed for a tax refund in the Commission of Internal Revenue as it paid the 5% rate as imposed in
the Tax Code, instead of paying a lower rate as provided in its franchise. The CIR denied such prayer claiming
that it had already refunded P16,593.87, and that the period to claim refunds has already prescribed.
Consequently, respondent sought to recover the amount refunded due to re-assessment of their tax due.
Petitioner now claims that the government is precluded f rom recovering the sum of P16,593.87 representing the
amount refunded to it on grounds of prescription.
Issue: Whether or not the Civil Code shall prevail
Held: No. Where the Commissioner of Internal Revenue seeks to recover from the taxpayer an amount which
was erroneously ref unded to the latter as excess f ranchise tax, said amount is in effect an assessment for
deficiency franchise tax. And being so, the right to assess or collect it is governed by Section 331 of the Tax
Code rather than by Article 1145 of the New Civil Code. A special law (Tax Code) prevails over a general law
(New Civil Code).

80. Pascual v Secretary of Public works 110 Phil 331

Facts: Wenceslao Pascual as Provincial Governor of Rizal, instituted an action for declaratory relief,
with injunction, praying for the nullification of an item in Republic Act No. 920 (An Act Appropriating Funds for
Public Works), approved on June 20, 1953. An item containing P85,000.00 "for the construction, reconstruction,
repair, extension and improvement" of Pasig feeder road terminals which were, at the time of its passage, were
nothing but projected and planned subdivision roads, not yet constructed, within the Antonio Subdivision
situated at Pasig, Rizal." Moreover, the projected feeder roads "do not connect any government property or
any important premises to the main highway."

The said subdivision and the lands on which the feeder roads were to be constructed were properties of
Jose C. Zulueta, then a senator. On December 1953, Zulueta executed an alleged Deed of Donation of the
said lands in favour of the Republic of the Philippines. It was accepted by the Executive Secretary subject to an
onerous condition: “to be used for street purposes only.”

The appropriation is being questioned because the properties where the feeder roads would be
constructed are private property. As such, it is Mr. Zulueta, and not the public who will be benefited by the
85,000php appropriation.

Issues:

1. May a law be nullified at the instance of the taxpayer?

2. When may a taxpayer’s suit be allowed? (From book)

Ruling:

1. Yes. Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance
of taxpayers, laws providing for the disbursement of public funds, upon the theory that "the expenditure
 of public funds by an officer of the State for the purpose of administering an unconstitutional act
constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer.
Petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its
Provincial Governor, is our most populated political subdivision, and, the taxpayers therein bear a
substantial portion of the burden of taxation, in the Philippines. Hence, it is our considered opinion that
the circumstances surrounding this case sufficiently justify petitioner’s action in contesting the
appropriation and donation in question.
2. A taxpayer’s suit may only be allowed when an act complained of, which may include a legislative
enactment, directly involves the illegal disbursement of public funds derived from taxation. (From Book)

81. RP v. Mambulao Lumber Company, et al. (GR. L-17725, Feb. 28, 1962)

FACTS: Mambulao owed RP P4.8k for forest charges. And on July 31, 1948-Dec. 29, 1956, Mambulao paid RP
P8.2k for 'reforestation charges'; and for the period commencing from April 30, 1947-June 24, 1948, said
defendant paid RP P927.08. These reforestation charges were paid to RP pursuant to Sec. 1 of RA 115, which
provides that there shall be collected, in addition to the regular forest charges provided under Sec. 264 of the
National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed
from any public forest for commercial purposes. The amount collected shall be expended by the director of
forestry, with the approval of the secretary of agriculture and commerce, for reforestation and afforestation of
watersheds, denuded areas ... and other public forest lands, which upon investigation, are found needing
reforestation or afforestation .... The total amount of the reforestation charges paid by Mambulao is P9.1k.
Mambulao contended that since the sum of P9.1k, not having been used in the reforestation of the area
covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37
due from it as forest charges. In line with this thought, Mambulao wrote the director of forestry, requesting "that
our account with your bureau be credited with all the reforestation charges that you have imposed on us from
July 1, 1947 - June 14, 1956, amounting to around P2.9k". This letter was answered by the director of forestry in
which the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no
discretion to extend the time for paying the reforestation charges and also explained why not all denuded
areas are being reforested.

ISSUE: WON the sum of P9.1k paid by Mambulao as forest charges may be applied to the sum of P4.8k
Mambulao owed RP.

HELD: No. Taxes cannot be the subject of set-off or compensation for the following reasons: 1.) taxes are of
distinct kind, essence and nature, and these impositions cannot be classed in merely the same category as
ordinary obligations; 2.) the applicable laws and principles governing each are peculiar, not necessarily
common, to each; and 3.) public policy is better subserved, if the integrity and independence of taxes are
maintained. [ Book]

If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim
against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await
and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into
great confusion. [Case]

82. Domingo v Garlitos

Facts: In the 1960 case of Domingo v Moscoso, the Supreme Court declared as final and executory the order
for the payment by the estate of the late Walter Scott Price of estate and inheritance taxes, charges and
penalties, amounting to P40,058.55 issued by the CFI Instance – Leyte. The fiscal then presented a petition for
the execution of the judgment before the CFI Instance – Leyte.

The petition was denied as the execution is not justifiable as the government is indebted to the estate under
administration in the amount of P 262,200. Hence, the present petition for certiorari and mandamus.

Issue: Whether or not tax and debt may be compensated

Ruling: Yes. if the obligation to pay taxes and taxpayer's claim against the government are both overdue,
demandable, as well as fully liquidated, compensation takes place by operation of law and both obligations
are extinguished to their concurrent amounts.
83. Francia v IAC

Facts:

Engcio Francia is the registered owner of a residential lot and a two-story house built upon it situated at
Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square
meters. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the
assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,
his property was sold at public auction by the City Treasurer of Pasay City to satisfy a tax delinquency of
P2,400.00. On March 20, 1979, Francia filed a complaint to annul the auction sale. Lower court did not favor
Francia which decision was affirmed as well by Intermediate appellate Court (IAC). Hence this present petition
for review stating that IAC committed grave error of law in not holding petitioner’s obligation to pay 2,400 for
supposed tax delinquency was set off by the amount of P 4,116 which the government indebted to the former.

Issue:

Whether or not the assessment for a local tax be the subject of set-off or compensation against a final
judgement for a sum of money obtained by the taxpayer against the local Govt which made the assessment

Ruling:

No. Taxes and debts are of different nature and character; hence, no set-off or compensation between
the 2 different classes of obligation is allowed. The taxes assessed are the obligations of the taxpayer arising
from law, while the money judgement against the Govt is an obligation arising from contract, whether
expressed or implied. Inasmuch as taxes are not debts, it follows that the 2 obligations are not susceptible to
set-off or legal compensation

84. HONGKONG AND SHANGHAI BANKING CORP. v. COMMISSIONER

Facts:

Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the firm of Pujalte & Co. which the latter
assigned to it after it was unable to pay a large sum of money it then owed to HSBC. The firm of Pujalte & Co. is
engaged in the business of timber, and it was shown that prior to the assignment of the railroad ties to HSBC it
owed to the BIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed a
bond of P2000 to secure the payment of the forest charges and was allowed to remove the timber from the
public forests. More than a year later, when some of the timber were already made into railroad ties and
transferred to third parties like HSBC, the Collector instituted collection proceedings agains Pujalte. To enforce
collection, the CIR wenta fter thee property of Pujalte & Co. including that which were already in the
possession of HSBC, who at the time it acquired the property had no notice of the lien nor of the delinquent tax
due from Pujalte.

Issue:

WON the lien follow the property subject to the tax even though transferred to a third party who had no notice
of the existence of the lien so as to make this property respond for the specific unpaid internal revenue taxes
due on it.

Ruling:

NO.

Taxation is an attribute of sovereignty. The power to tax is the strongest of all the powers of government. If
approximate equality in taxation is to be attained, all property subject to a tax must respond, or there is
resultant inequality.
Under the law of taxation however, the tax lien does not establish itself upon property which has been
transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into
operation. Furthermore, in order that the lien may follow the property into the hands of a third party, it is
essential that the latter should have notice, either actual or constructive. The reason behind this is the
benevolence of our Constitution which prohibits the taking of property without due process of law. The policy of
the law is against upholding secret liens and charges against property of innocent purchasers or
encumbrances for value. At the time HSBC acquired the property there was nothing to show that Pujalte & Co.
were deliquent taxpayers nor were there any public records that may be consulted to protect itfrom loss by
reason of the existence of a secret lien.

85. Roxas vs. CTA

FACTS:

In consonance with the constitutional mandate to acquire big landed estates and apportion them among
landless tenant farmers, the government succeeded in persuading Roxas y Compana to sell 13,500 hectares to
the government for distribution to actual occupants. However, as it turned out, the government did not have
sufficient funds to pay for the purchase price. Roxas Y Compania obligingly sold the lands directly to the
farmers with the purchase price payable in installments in the course of ten (10) years.

On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to P150.00 plus
P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus P10.00 compromise
penalty for late payment.

Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that 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

The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955, resulting
from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits 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.

ISSUE: whether the direct sale of real property made by Roxas y compania to the tenant farmers shall be
subject to tax

RULING:

No. The SC held that although the buyers paid for their respective holdings in installment for a period of ten (10 )
years, it would not make the seller, Roxas Y Compania, a real estate dealer in this isolated transaction with its
peculiar circumstance

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 constitution.

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 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.

86. Loan Association vs. Topeka

Facts:
The Citizens' Savings and Loan Association of Cleveland brought their action in the court below, against the
City of Topeka, on coupons for interest attached to bonds of the City of Topeka.

The bonds on their face purported to be payable to the King Wrought-Iron Bridge Manufacturing and Iron-
Works Company, of Topeka, to aid and encourage that company in establishing and operating bridge shops in
said City of Topeka.

The city issued one hundred of these bonds for $1,000 each, as a donation (and so it was stated in the
declaration), to encourage that company in its design of establishing a manufactory of iron bridges in that city.

The declaration also alleged that the interest coupons first due were paid out of a fund raised by taxation for
that purpose, and that after this payment the plaintiff became the purchaser of the bonds and the coupons on
which suit was brought, for value.

Issue: Whether the statute were not of a public character; that this was a perversion of the right of taxation,
which could only be exercised for a public use, to the aid of individual interests and personal purposes of profit
and gain?

Ruling:

Yes. A statute which authorizes a town to issue its bonds in aid of the manufacturing enterprise of individuals is
void, because the taxes necessary to pay the bonds would, if collected, be a transfer of the property of
individuals to aid in the projects of gain and profit of others, and not for a public use, in the proper sense of that
term.

87. Lutz vs Araneta

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate
of Antonio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Commonwealth Act of 567 or the Sugar Adjustment Act there by assailing its constitutionality,
for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is
not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry
thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an
imminent threat of loss and needed to be stabilized by imposition of emergency measures. The action having
been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to this Court
ISSUE: Whether CA No. 567 was constitutional and a valid exercise of police power of the State.
RULING: Yes. CA No. 567 was constitutional and a valid exercise of police power of the State. Since the
protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Thus,
the increase in the existing tax of the manufacture of sugar and the levying of tax on lands devoted to the
production of sugar is considered as a public purpose.

88. Bagatsing v. Ramirez

Facts: The Municipal Board of Manila enacted Ordinance No. 7522, “An Ordinance Regulating the Operation
of Public Markets and Prescribing Fees for the Rentals of Stalls and Providing Penalties for Violation thereof and
for other Purposes.” Respondent were seeking the declaration of nullity of the Ordinance for the reason that a)
the publication requirement under the Revised Charter of the City of Manila has not been complied with, b)
the Market Committee was not given any participation in the enactment, c) Sec. 3(e) of the Anti-Graft and
Corrupt Practices Act has been violated, and d) the ordinance would violate P.D. 7 prescribing the collection
of fees and charges on livestock and animal products.

The Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the
exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating Contract."

Issue: WON the provisions on market stall fees imposed in the disputed ordinance is void for being diverted for
the exclusive use of private corporations.
Ruling: No, the fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522
was not made for the corporation but for the purpose of raising revenues for the city. That is the object it
serves. The entrusting of collection fees does not destroy the public purpose of the ordinance. So long as the
purpose is public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It does
not depend on the nature and character of the person or corporation whose intermediate agency is to be used
in applying it. The people may be taxed for public purpose although it is under the direction of an individual or
private corporation.

89. TOLENTINO VS COMELEC (this case does not mention taxpayers’ suit specifically)

FACTS

The 1971 Constitutional Convention came into being by virtue of two resolutions of the Congress approved in its
capacity as a constituent assembly convened for the purpose of calling a convention to propose amendments
to the Constitution. After election of delegates, the Convention held its inaugural session. The Convention
approved Organic Resolution No. 1 which amended Section 1 Of Article V Of The Constitution so as to lower
The Voting Age To 18." On September 30, 1971, the COMELEC "resolved" to follow the mandate of the
Convention, that it will hold the said plebiscite together with the senatorial elections on November 8, 1971 .

Petitioner, Arturo Tolentino, filed a petition for prohibition, its main thrust being that Organic Resolution No. 1 and
the necessary implementing resolutions subsequently approved have no force and effect as laws in so far as
they provide for the holding of a plebiscite co-incident with the senatorial elections, on the ground that the
calling and holding of such a plebiscite is, by the Constitution, a power lodged exclusively in Congress as a
legislative body and may not be exercised by the Convention, and that, under Article XV Section 1 of the 1935
Constitution, the proposed amendment in question cannot be presented to the people for ratification
separately from each and all other amendments to be drafted and proposed by the Constitution.

ISSUE: Whether or not a taxpayer has locus standing in the said case.

RULING: NO

BOOK: A taxpayer or group of taxpayers is proper to question the validity of a law appropriating public funds.

90. Sanidad vs. Comelec G.R. No. L-44640 October 12, 1976

FACTS: On September 2, 1976, President Ferdinand E. Marcos issued Presidential Decree No. 991 to call for a
national referendum on October 16, 1976 through the so-called Citizens Assemblies (“barangays”). Its primary
purpose is to resolve the issues of martial law (as to its existence and length of effectivity). The president issued
another proclamation (P.D. 1033) to specify the questions that are to be asked during the referendum on
October 16. The first question is whether or not the citizen wants martial law to continue, and the second one
asks for the approval on several proposed amendments to the existing Constitution.

Father and son, Pablo and Pablito Sanidad filed for prohibition with preliminary injunction to enjoin the
COMELEC from holding and conducting the Referendum Plebiscite on October 16, and to declare without
force and effect Presidential Decree Nos. 991 and 1033, insofar as they propose amendments to the
Constitution.

The Solicitor General contends that petitioners have no standing to sue, and that the issue raised is political in
nature – and thus it cannot be reviewed by the court. The Solicitor General also asserts that at this state of the
transition period, only the incumbent President has the authority to exercise constituent power; the referendum-
plebiscite is a step towards normalization.
Issue: Whether or not petitioners have legal standing to question proposed amendments to be declared by the
President Marcos.

Ruling: Yes. As a preliminary resolution, We rule that the petitioners in L-44640 (Pablo C. Sanidad and Pablito V.
Sanidad) possess locus standi to challenge the constitutional premise of Presidential Decree Nos. 991, 1031, and
1033. It is now an ancient rule that the valid source of a stature Presidential Decrees are of such nature-may be
contested by one who will sustain a direct injuries as a in result of its enforcement. At the instance of taxpayers,
laws providing for the disbursement of public funds may be enjoined, upon the theory that the expenditure of
public funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a
misapplication of such funds. 4 The breadth of Presidential Decree No. 991 carries all appropriation of Five
Million Pesos for the effective implementation of its purposes. 5 Presidential Decree No. 1031 appropriates the
sum of Eight Million Pesos to carry out its provisions. 6 The interest of the aforenamed petitioners as taxpayers in
the lawful expenditure of these amounts of public money sufficiently clothes them with that personality to
litigate the validity of the Decrees appropriating said funds. Moreover, as regards taxpayer's suits, this Court
enjoys that open discretion to entertain the same or not. 7 For the present case, We deem it sound to exercise
that discretion affirmatively so that the authority upon which the disputed Decrees are predicated may be
inquired into.

91. Chavez v PEA and AMARI G.R. No. 133250. July 9, 2002.
FACTS: President Marcos through a presidential decree created PEA, which was tasked with the
development, improvement, and acquisition, lease, and sale of all kinds of lands. The then president also
transferred to PEA the foreshore and offshore lands of Manila Bay under the Manila-Cavite Coastal Road and
Reclamation Project.

Thereafter, PEA was granted patent to the reclaimed areas of land and then, years later, PEA entered
into a JVA with AMARI for the development of the Freedom Islands. These two entered into a joint
venture in the absence of any public bidding.

Later, a privilege speech was given by Senator President Maceda denouncing the JVA as the
grandmother of all scams. An investigation was conducted and it was concluded that the lands that PEA was
conveying to AMARI were lands of the public domain; the certificates of title over the
Freedom Islands were void; and the JVA itself was illegal. This prompted Ramos to form an investigatory
committee on the legality of the JVA.

Petitioner now comes and contends that the government stands to lose billions by the conveyance or
sale of the reclaimed areas to AMARI. He also asked for the full disclosure of the renegotiations happening
between the parties.
Issue: Whether petitioner has locus standi;
Ruling: Yes. Ordinary taxpayers have a right to initiate and prosecute actions questioning the validity of acts or
orders of government agencies or instrumentalities, if the issues raised are of 'paramount public interest,' and if
they 'immediately affect the social, economic and moral wellbeing of the people.'

We rule that since the instant petition, brought by a citizen, involves the enforcement of constitutional rights
— to information and to the equitable diffusion of natural resources — matters of transcendental public
importance, the petitioner has the requisite locus standi.
92. Tatad v. Garcia, 243 SCRA 436 (Taxpayer’s suit)
FACTS: In 1989, the government planned to build a railway transit line along EDSA. No bidding was made but
certain corporations were invited to prequalify. The only corporation to qualify was the EDSA LRT Consortium
which was obviously formed for this particular undertaking. An agreement was then made between the
government, through the Department of Transportation and Communication (DOTC), and EDSA LRT
Consortium. The agreement was based on the Build-Operate-Transfer scheme provided for by law (RA 6957,
amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the facilities, i.e., railways, and
shall supply the train cabs. Every phase that is completed shall be turned over to the DOTC and the latter shall
pay rent for the same for 25 years. By the end of 25 years, it was projected that the government shall have fully
paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell the facilities to the government for $1.00.
However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the implementation of said
agreement as they averred that EDSA LRT Consortium is a foreign corporation as it was organized under
Hongkong laws; that as such, it cannot own a public utility such as the EDSA railway transit because this falls
under the nationalized areas of activities. The petition was filed against Jesus Garcia, Jr. in his capacity as
DOTC Secretary.
ISSUE: W/N the petitioners had standing to bring the suit as citizens.
HELD: No, Petitioners have no standing to bring the suit as citizens. In the cases in which citizens were authorized
to sue, this Court found standing because it thought the constitutional claims pressed for decision to be of
“transcendental importance,” as in fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. In the case at bar, the Court precisely finds the opposite by
finding petitioners’ substantive contentions to be without merit. To the extent therefore that a party’s standing is
affected by a determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in
the case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a Better
Philippines v. Aquino and In re Bermudez where we dismissed citizens’ actions on the ground that petitioners
had no personality to sue and their petitions did not state a cause of action. The holding that petitioners did not
have standing followed from the finding that they did not have a cause of action.
In order that citizens’ actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to
the challenged action; and the injury is likely to be redressed by a favorable action.
93. INFORMATION TECHNOLOGY FOUNDATION V COMELEC

Facts: President Arroyo issued EO No. 172, which allocated P2.5 billion to fund the Automated Election System.
Upon the request of Comelec, she authorized the release of an additional P500 million. The Commission issued
an "Invitation to Apply for Eligibility and to Bid".5 individuals and entities (including the herein Petitioners
Information Technology Foundation of the Philippines, represented by its president, Alfredo M. Torres; and Ma.
Corazon Akol) wrote a letter to Comelec and protested the award of the Contract to Respondent MPC "due to
irregularities in the manner the bidding process had been conducted." Citing noncompliance with eligibility
and procedural requirements (many of which have been discussed at length in the Petition), they sought a re-
bidding.

Issue: Whether the petitioner has standing?

Ruling: YES. Petitioners — suing in their capacities as taxpayers, registered voters and concerned citizens —
respond that the issues central to this case are "of transcendental importance and of national interest."
Allegedly, Comelec's flawed bidding and questionable award of the Contract to an unqualified entity would
impact directly on the success or the failure of the electoral process. Thus, any taint on the sanctity of the ballot
as the expression of the will of the people would inevitably affect their faith in the democratic system of
government. Petitioners further argue that the award of any contract for automation involves disbursement of
public funds in gargantuan amounts; therefore, public interest requires that the laws governing the transaction
must be followed strictly.

Moreover, this Court has held that taxpayers are allowed to sue when there is a claim of "illegal disbursement of
public funds," or if public money is being "deflected to any improper purpose"; or when petitioners seek to
restrain respondent from "wasting public funds through the enforcement of an invalid or unconstitutional law."

BOOK: TAX PAYER’S SUIT – A taxpayer, or group of tax payers, is proper to question the validity of a law
appropriating public funds.

94. Jumamil vs. Café, et al.

FACTS:
Vivencio V. Jumamil filed before the RTC of Panabo, Davao Del Norte a petition for declaratory relief
with prayer for preliminary injunction and writ of restraining order against Mayor Jose J. Cafe and the members
of the SB. He questioned the constitutionality of Municipal Resolution 7, Series of 1989, enacting Appropriation
Ordinance 111, provided for an initial appropriation of P765,000 for the construction of stalls around a proposed
terminal fronting the Panabo Public Market which was destroyed by fire. Subsequently, the petition was
amended due to the passage of Resolution 49, series of 1989, denominated as Ordinance 10, appropriating a
further amount of P1,515,000 for the construction of additional stalls in the same public market. Prior to the
passage of these resolutions, Mayor Cafe had already entered into contracts with those who advanced and
deposited (with the municipal treasurer) from their personal funds the sum of P40,000 each. Some of the parties
were close friends and/or relatives of Cafe. The RTC dismissed Jumamil’s petition and ordered Jumamil to pay
attorney’s fees in the amount of P1,000 to each of the 57 private respondents. On appeal, the CA affirmed the
decision of the trial court. Jumamil filed the petition for review on certiorari.
ISSUE: Whether Jumamil had the legal standing to bring the petition for declaratory relief.
RULING: NO. Legal standing or locus standi is a party’s personal and substantial interest in a case such that he
has sustained or will sustain direct injury as a result of the governmental act being challenged. It calls for more
than just a generalized grievance. The term “interest” means a material interest, an interest in issue affected by
the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. Unless a
person’s constitutional rights are adversely affected by the statute or ordinance, he has no legal standing..
Jumamil did not seasonably allege his interest in preventing the illegal expenditure of public funds or the
specific injury to him as a result of the enforcement of the questioned resolutions and contracts. It was only in
the “Remark to Comment” he filed in the Supreme Court did he first assert that “he (was) willing to engage in
business and (was) interested to occupy a market stall.” Such claim was obviously an afterthought.
*CASE 95 MISSING*
96. White Plains Association v. CA

FACTS: Respondent Quezon City Development & Financing Corporation (QCDFC) was the owner and
developer of White Plains Subdivision in Quezon City prior to the sale of the lots therein to the residents of the
subdivision who comprised the petitioner White Plains Association, Inc. (Association). The disputed area of the
land was set aside and dedicated to the proposed Highway 38 of Quezon City. As subdivision owner and
developer, respondent QCDFC represented to the lot buyers that there would be a thoroughfare known as
Katipunan Avenue and that the width of the land allotted to said road was 38 meters. Of the 38 meters,
respondent QCDFC developed only 20 meters. The undeveloped strip of land, 18 meters in width, of the
proposed Katipunan Avenue has been and still is the subject of court litigation.

As early as April 14, 1970, QCDFC filed a petition with the then Court of First Instance of Rizal for the conversion
into residential lots of this undeveloped strip of land. The controversy reached this Court. On November 14,
1985, this Court en banc dismissed the petition. In the said decision this Court ruled that “Road Lot 1 is
withdrawn from the commerce of man and should be developed for the use of the general public.”

ISSUE: Who owns the Road Lot 1?

RULING: QCDFC. Even assuming that in spite of its dimensions, the 18-meter wide and 1 kilometer long
undeveloped area may be used for public purpose other than C-5, QCDFC contends in this petition that just
compensation will have to be paid for it. As stated by QCDFC, this is because the area has never been
donated; title remains with the developer; the purpose for which the reservation was made can no longer be
implemented; and under the law, even indisputably, subdivision streets belong to the owner until donated to
the government or until expropriated upon payment of just compensation.

97. Abon vs Fernando

In May 1999, the City of Marikina undertook a public works project to widen,clear andrepair the existing
sidewalks of Marikina Greenheights Subdivision. It was undertaken by the city government pursuant to
Ordinance No. 59. Subsequently, petitioner Albon filed a taxpayer’s suit for certiorari, prohibition and injunction
with damages against respondents City Engineer Alfonso Espirito, Assistant City Engineer Anaki Maderal and
City Treasurer Natividad Cabalquinto. According to the petitioner it was unconstitutional and unlawful for
respondents to use government equipment and property, and to disburse public funds, of the City of Marikina
for the grading, widening, clearing,repair and maintenance of the existing sidewalks of Marikina Greenheights
Subdivision. He alleged that the sidewalks were private property because Marikina Greenheights Subdivision
was owned by V.V. Soliven, Inc.Hence, the city government could not use public resources on them.

In undertaking the project, therefore, respondents allegedly violated the constitutional proscription against the
use of public funds for private purposesas well as Sections 335 and 336 of RA 7160 and the Anti-Graft and
CorruptPractices Act.The trial court ruled in favor of the respondents. Ordinance No. 59is a valid enactment.The
court recognized the inherent police power of the municipality and with this it is allowed to carry out the
contested works. TheCourt of Appeals sustained the decision of the trial court stating that sidewalks of Marikina
Greenheights Subdivision were public in nature and ownership thereof belonged to the City of Marikina or the
Republic of the Philippines following the 1991White Plains Association decision. Thus, the improvement and
widening of the sidewalks pursuant to Ordinance No. 59 of 1993 was well within the LGU’s powers

Issue: W/N the use of LGU funds for the widening and improvement of privately-owned sidewalks is unlawful
Ruling: Yes.

The use of LGU funds for the widening and improvement of privately-owned sidewalks is unlawful as it directly
contravenes Section 335 of RA 7160. This conclusion finds further support from the language of Section 17 of RA
7160 which mandates LGUs to efficiently and effectively provide basic services and facilities

98. Gaston vs. Republic Planters Bank

FACTS: To provide means for rehabilitation and stabilization of the sugar industry so as to prepare it for the
eventuality of the loss of the quota allocated to the Philippines resulting from the lifting of U.S. sanctions against
an African country, Congress passes a law increasing the existing tax on the manufacture of sugar on a
graduated basis. All collections made under the law are to accrue to a special fund to be spent only for the
purposes enumerated therein, among which are to place the sugar industry in a position to maintain itself and
ultimately to insure its continued existence despite the loss of that quota, and to afford labourers employed in
the industry a living wage and to improve their working conditions.

A sugar planter files a suit questioning the constitutionality of the law alleging that the tax is not for a public
purpose as the same is being levied exclusively for the aid and support of the sugar industry.

ISSUE: Whether or not the suit filed by the sugar planter will prosper.

RULING: NO. Taxation is no longer merely for raising revenue to support the existence of the government; the
power may also be exercised to carry out legitimate objects of the government. It is a legitimate object of
government to protect its local industries on which the national economy largely depends. Where the aim of
the tax measure is to achieve such a governmental objective, the tax imposition can be said to be for a public
purpose.

99. Manila Electric Company vs Yatco

Facts:

Plaintiff Manila Electric Company, a corporation organized and existing under the laws of the
Philippines, with its principal office and place of business in the City of Manila, insured with the city of New York
Insurance Company and the United States Guaranty Company, certain real and personal properties situated in
the Philippines. The insurance was entered into in behalf of said plaintiff by its broker in New York City. The
insurance companies are foreign corporations not licensed to do business in the Philippines and having no
agents therein. The policies contained provisions for the settlement and payment of losses upon the occurence
of any risk insured against, a sample of which is policy No. 20 of the New York insurance Company attached to
and made an integral part of the agreed statement of facts.

Plaintiff through its broker paid, in New York, to said insurance company premiums in the sum of P91,696.
The Collector of Internal Revenue, under the authority of section 192 of act No. 2427, as amended, assessed
and levied a tax of one per centum on said premiums, which plaintiff paid under protest. The protest having
been overruled, plaintiff instituted the present action to recover the tax. The trial court dismissed the complaint,
and from the judgment thus rendered, plaintiff took the instant appeal.

Issue: W/N the disputed tax is one imposed by the Commonwealth of the Philippines upon a contract beyond
its jurisdiction

Ruling:

Yes. Where the insured against also within the Philippines, the risk insured against also within the
Philippines, and certain incidents of the contract are to be attended to in the Philippines, such as, payment of
dividends when received in cash, sending of an unjuster into the Philippines in case of dispute, or making of
proof of loss, the Commonwealth of the Philippines has the power to impose the tax upon the insured,
regardless of whether the contract is executed in a foreign country and with a foreign corporation. Under such
circumstances, substantial elements of the contract may be said to be so situated in the Philippines as to give
its government the power to tax.

And, even if it be assumed that the tax imposed upon the insured will ultimately be passed on the
insurer, thus constituting an indirect tax upon the foreign corporation, it would still be valid, because the foreign
corporation, by the stipulations of its contract, has subjected itself to the taxing jurisdiction of the Philippines.
After all, Commonwealth of the Philippines, by protecting the properties insured, benefits the foreign
corporation, and it is but reasonable that the latter should pay a just contribution therefor. It would certainly be
a discrimination against domestic corporations to hold the tax valid when the policy is given by them and
invalid when issued by foreign corporations]

100. Philippine Guaranty Co. vs Commissioner of Internal Revenue

Facts:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts,
on various dates, with foreign insurance companies not doing business in the Philippines. Petitioner thereby
agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in
the Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks
insured.

Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines.

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it filed its
income tax returns. It did not withhold or pay tax on them. Consequently, the CIR assessed against petitioner.
withholding tax on the ceded reinsurance premiums.

Petitioner protested the assessment on the ground that reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are not subject to withholding tax.

Issue:

Whether or not the reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to tax

Held:

Yes.

Reinsurance premiums are taxable in the Philippines. Foreign corporations are taxable on their income from
sources within the Philippines. "Sources" has been interpreted as the activity, property or service giving rise to
the income.

The foreign insurers' place of business should not be confused with their place of activity. Business implies
continuity and progression of transactions, while activity may consist of only a single transaction. An activity
may occur outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to
engage in the Philippines subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines. What is controlling, therefore is not the place of business but the place of
activity.
101. Commissioner vs. British Overseas Airways Corp (Territorial Jurisdiction)

Facts: BOAC is a British Government-owned corporation organized and existing under the laws of the United
Kingdom.It is engaged in the international airline business. It did not carry passengers or cargo to or from the
Philippines, although during the period covered by the assessments, it maintained a general sales agent in the
Philip. — Wamer Barnes and Company, Ltd., and later Qantas Airways — which was responsible for selling
BOAC tickets covering passengers and cargoes.

It is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a
Certificate of public convenience, except for a nine-month period, partly in 1961 and partly in 1962, when it
was granted a temporary landing permit.

Petitioner assessed BOAC for deficiency income taxes covering the years 1959 to 1963. BOAC paid the
assessment under protest.

CTA Decision: The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines do not
constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was
performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine income tax.

Respondent’s Main Argument: BOAC's service of transportation is performed outside the Philippines, the
income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws.

Issue: Whether the revenue derived by BOAC from sales of tickets in the Philippines for air transportation, while
having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable.

Ruling: YES. Sales of tickets in the Philippines is taxable.

The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines. The absence of flight operations to and from the Philippines is not determinative of the
source of income or the site of income taxation.
In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income:
1. The tickets exchanged hands and payments for fares were also made in Philippine currency.
2. The site of the source of payments is the Philippines.
3. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government.
4. In consideration of such protection, the flow of wealth should share the burden of supporting the
government.

The definition of gross income under section 32 of tax code is broad and comprehensive to include proceeds
from sales of transport documents.

Pursuant to Presidential Decree No. 69, international carriers are now taxed of 2-½ per cent on their cross
Philippine billings.

102. ANTERO M. SISON vs RUBEN B. ANCHETA G.R. No. L-59431 July 25, 1984
FACTS:
 The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The
assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for
rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net
profits of taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleges that by virtue thereof,
"he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-à-vis those which are imposed upon fixed income or salaried individual
taxpayers. He characterizes the above section as arbitrary amounting to class legislation, oppressive and
capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses of the Constitution as well as of the rule requiring uniformity in taxation. The facts as alleged
were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." The
answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities
and cases cited while correctly quoted or paragraph do not support petitioner's stand."

ISSUE: WON the above section cited by petitioner is a transgression of both the equal protection and due
process clauses of the Constitution?

HELD:
No. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the
power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting
as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all
petitioner does, to invalidate in appropriate cases a revenue measure. The difficulty confronting petitioner is
thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual
foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as
void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the
due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather
broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.

103. PROVINCE OF ABRA vs. HERNANDO, THE ROMAN CATHOLIC BISHOP OF BANGUED, INC.
107 SCRA 104

FACTS: The Province of Abra sought to tax the properties of The Roman Catholic Bishop of Bangued, Inc.
Desirous of being exempted from a real estate tax, the latter filed a petition for declaratory relief on the ground
that other than being exempted from payment of real estate taxes, its properties are also “being actually,
directly and exclusively used for religious or charitable purposes as sources of support for the bishop, the parish
priest and his helpers.” After conducting a summary hearing, respondent Judge Hernando granted the
exemption without hearing the side of petitioner. The petitioner then filed a motion to dismiss but the same was
denied. Hence, this present petition for certiorari and mandamus alleging denial of procedural due process.

ISSUE: Whether or not the properties of the church in this case is exempt from taxes.

HELD: No, they are not tax exempt. It is true that the Constitution provides that “charitable institutions, mosques,
and non-profit cemeteries” are required that for the exemption of “lands, buildings, and improvements,” they
should not only be “exclusively” but also “actually” and “directly” used for religious or charitable purposes.
There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation. It has been the constant and uniform holding that
the exemption from taxation is not favored and is never presumed, so that if granted it must be strictly
construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an
exempting provision should be construed strictissimijuris. However, in this case, there is no showing that the said
properties are actually and directly used for religious or charitable uses. Respondent Judge would not have
erred so grievously had he merely compared the provisions of the present Constitution with that appearing in
the 1935 Charter on the tax exemption of “lands, buildings, and improvements.” There is a marked difference.
Under the 1935 Constitution: “Cemeteries, churches, and parsonages or convents appurtenant thereto, and all
lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be
exempt from taxation.” The present Constitution added “charitable institutions, mosques, and non-profit
cemeteries” and required that for the exemption of “lands, buildings, and improvements,” they should not only
be “exclusively” but also “actually” and “directly” used for religious or charitable purposes. The Constitution is
worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on
past decisions would have sufficed were the words “actually” as well as “directly” not added. There must be
proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable
purposes to be exempt from taxation.

104. Commissioner of Customs vs. Hypermix Feeds Corporation

Facts:

On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003. Under this regulation the
corresponding tariff for food grade wheat was 3%, for feed grade, 7%.

A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed a Petition for Declaratory
Relief with the Regional Trial Court (RTC) of Las Piñas City.

Respondent also alleged that the regulation summarily adjudged it to be a feed grade supplier without the
benefit of prior assessment and examination; thus, despite having imported food grade wheat, it would be
subjected to the 7% tariff upon the arrival of the shipment, forcing them to pay 133% more than was proper.

Furthermore, respondent claimed that the equal protection clause of the Constitution was violated when the
regulation treated non-flour millers differently from flour millers for no reason at all.

The trial court ruled in favor of respondent.

Issue: Whether or not the regulation was in violation of equal protection clause of the Constitution

Ruling:

Yes.

The equal protection clause means that no person or class of persons shall be deprived of the same protection
of laws enjoyed by other persons or other classes in the same place in like circumstances. Thus, the guarantee
of the equal protection of laws is not violated if there is a reasonable classification. For a classification to be
reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose of the
law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members of the same
class.[22]

Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat is
affected by who imports it, where it is discharged, or which country it came from.

Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade wheat, the
product would still be declared as feed grade wheat, a classification subjecting them to 7% tariff. On the other
hand, even if the importers listed under CMO 27-2003 have imported feed grade wheat, they would only be
made to pay 3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not become
disadvantageous to respondent only, but even to the state.

105 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan No. L-81311. June 30,1988
FACTS:The four consolidated cases questions the validity of the VAT (Executive Order 273) for being
unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other
provisions of the 1987 Constitution.The Solicitor General prays for the dismissal of the petitions on the ground
that the petitioners have failed to show justification for the exercise of its judicial powers. He also questions the
legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court,
there being no justiciable controversy for resolution.
Issue: Whether or not the imposition of VAT is unconstitutional
Held: No. It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution sole
legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states: "Sec. 1
Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise
legislative powers." On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for
the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII,
sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides: "Sec. 6. The incumbent
President shall continue to exercise legislative powers until the first Congress is convened." The framers of EO 273
claim that it is principally aimed to rationalize the system of taxing goods and services; simplify tax
administration; and make the tax system more equitable, to enable the country to attain economic recovery.
Lastly, petitioners also failed to prove that EO 273 is oppressive, discriminatory, unjust and regressive, in violation
of the equal protection clause. Petitioners merely rely upon newspaper articles which are actually hearsay and
have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of
the Constitution, not a doubtful and argumentative implication. As the Court sees it, EO 273 satisfies all the
requirements of a valid tax.
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and
relief from the political branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was
enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to
make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in
this regard, the Court finds no reason to impede its application or continued implementation.
106. Uy Matiao & Co., Inc., v City of Cebu 93 Phil 100

Facts: Plaintiff is a domestic corporation who paid under protest storage fees to the City of Cebu for
storing copra/hemp in its warehouse in Cebu and for buying and/or selling copra/hemp in the said city. This is
pursuant to the provisions of Ordinance No. 38, series of 1948, as amended by Ordinance No. 46, series of 1947,
of the City of Cebu. Plaintiff seeks for a refund of the P4,019.07 it paid from Dec. 1948 to Nov. 1949 as well as
other fees that may be paid by virtue of the said ordinances. The grounds relied upon are: that the fee
imposed by said ordinance is unauthorized; constitutes a specific tax prohibited by commonwealth Act No.
472; and is unjust and unfair.

Issue: WON the tax imposed by the ordinances are prohibited and unfair.

Ruling: No. The tax or license fee in question is not specific because it does not subject directly the
produce or goods to tax but indirectly as an incident to, or in connection with, the business to be taxed.
Section 4 of Ordinance No. 38 provides that a person, firm or corporation engaged in the business of buying or
selling copra and at the same time of keeping, holding or storing it at his place of business, bodega or
elsewhere before disposing of it, shall pay only the license for engaging in the business of buying and selling it.
Such tax or license fee becomes uniform by making the weight the basis thereof as provided for in the
ordinances in question. A P0.05 tax or license fee for 100 kilos of fraction thereof per month is not arbitrary but
reasonable. The tax or license fee provided for in the ordinance in question is imposed on every person, firm, or
corporation engage in the City of Cebu in business of buying and selling and storing copra in his or its
warehouse located within the city. It, as well as the exemption, applies equally to all persons, firm and
corporations place in similar situation. Market fluctuation in the value of price of the merchandise, article, or
good subject to tax or license fee does not make ununiform the rate of such tax or license fee. The fact that the
price of copra has been steadily going down, whereas that of going up, does not render the tax arbitrary.
107. Conrado L. Tiu v. CA [301 SCRA 278, Jan. 20, 1999]

FACTS: Congress, with approval of the president passed into law RA 7227—purpose of which is to accelerate
the conversion of military reservations into other productive uses. Sec. 12 thereof created the Subic Special
Economic Zone [SSEZ]. Pres. Fidel V. Ramos executed EO 97 which granted tax and duty incentives. It states
that tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in
by business enterprises into the SSEZ. Importation of other goods into the SSEZ, whether by business enterprises
or resident individuals, are subject to taxes and duties under relevant Philippine laws. The exportation or
removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be
subject to duties and taxes under relevant Philippine laws. Later on EO 97-A was executed specifying the area
w/in w/c the tax and duty free privilege shall be operative. “The Secured Area consisting of the presently
fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ [Subic
Special Economic and Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing
within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax
and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw
materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ
registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein.”
Petitioners alleged that the EO 97-A violated their right to equal protection of the laws.

ISSUE: WON EO 97-A violates the equal protection clause of the Constitution for confining the application of RA
7227 w/in the secure area and excluding the residents of the zone outside of the secured area.

HELD: No. The fundamental right of equal protection of the laws is not absolute but is subject to reasonable
classification. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose
of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class.
It does not demand absolute equality among residents; it merely requires that all persons shall be treated alike,
under like circumstances and conditions both as to privileges conferred and liabilities enforced.

Certainly, there are substantial differences between the big investors who are being enticed to establish and
operate their industries in the so-called "secured area" and the present business operators outside that are in
accord with the equal protection clause that does not require territorial uniformity of the laws. The classification
applies equally to all the resident individuals and businesses within the "secured area." The residents, being in
like circumstances or contributing directly to the achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated, both in privileges granted and in obligations required.

108. Concepcion Parayno vs. Jose Jovellanos

Facts: Petitioner was the owner of a gasoline filling station in Calasiao, Pangasinan. In Resolution No. 50, it
declared that the existing gasoline station is a blatant violation and disregard of existing law.

According to the Resolution, 1) the gasoline filling station is in violation of The Official Zoning Code of Calasiao,
Art. 6, Section 44, it is less than 100 meters from the nearest public school and church. the nearest school
building which is San Miguel Elementary School and church, the distances are less than 100 meters.

Petitioner moved for the reconsideration of the resolution but was denied by the SB. Hence she filed a case
before the RTC claiming that the gasoline filling station was not covered under Sec 44 of the mentioned law.

Issue: Whether or not the closure/transfer of her gasoline filling station by respondent municipality was an invalid
exercise of the latter’s police powers

Ruling: Yes. The Sangguniang Bayan resolution ordering the closure or the transfer of petitioner's gasoline station
was not a valid exercise of the police power. The Court found that there was a failure by the municipal officials
to comply with the due process clause. Respondent municipality failed to comply with the due process clause
when it passed Resolution No. 50. While it maintained that the gasoline filling station of petitioner was less than
100 meters from the nearest public school and church, the records do not show that it even attempted to
measure the distance, notwithstanding that such distance was crucial in determining whether there was an
actual violation of Section 44

110. SHELL CO. OF PHIL. ISLAND v. MUN. OF CORDOVA

Facts:

The Municipal Council of Cordova, Cebu adopted Ordinance 10 which imposes an annual tax on occupation
or the exercise of the privilege of installation manager and Ordinance 11 imposing an annual tax on tin can
factories having a maximum output capacity of 30,000 tin cans. Shell, a foreign corporation, disputed the
ordinances and contended that: first, “installation manager” is a designation made by the company and such
designation cannot be deemed to be a “calling” as defined in Sec 178 of NIRC and that the installation
manager employed by Shell is a salaried employee which may not be taxed by the municipal council under
the provisions of NIRC; second, the ordinance is discriminatory and hostile because there is no other person in
the locality who exercises such designation or calling; and third, the imposition of tax on tin can factories
having a 30,000 maximum output capacity is unlawful because it is a percentage tax and falls under the
exceptions provided in the Tax Code.

Issue:

W/N the ordinance is unconstitutional because it is hostile and discriminatory

Ruling:

NO.

Shell’s installation manager is still classified as an occupation, even if he is a salaried employee. The mere fact
that there is no other person who exercises the privilege of an installation manager does not make the
ordinance discriminatory inasmuch as it is and will be applicable to any person or firm who exercises such
occupation.

111. Punzalan vs. Municipal Board

FACTS:

The Municipal Board of Manila passed Ordinance no. 3398 pursuant to its city charter, imposing occupation tax
on persons exercising various professions in Manila and penalizes non-payment thereof. Punzalan filed a suit, in
behalf of other professionals for the annulment of the ordinance, claiming the ordinance is class legislation,
because the legislature withheld this power to tax from other chartered cities and it is unjust and oppressive
because it creates discrimination within the class (i.e professionals in Manila have to pay the tax; non-Manila
professional do not).

ISSUE:

Whether or not the ordinance is invalid and violative of the rule of uniformity and equality in taxation.

Ruling:

No. Punzalan makes a distinction that is unfounded. It should be noted that the ordinance impose tax upon
every person ‘exercising’ or ‘pursuing’ in Manila any one the occupations named, but does not say that such
person must have his office in Manila. What constitutes exercise or pursuit of profession in the city is a matter of
judicial determination.

112. Association of Customs Brokers vs. City of Manila

Facts:

The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor
vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service
operator of the trucks in said City, challenge the validity of said ordinance on the ground that (1) while it levies
a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City
of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double
taxation.

Issue: Whether the ordinance violates the rule of uniformity.

Ruling:

Yes. The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a
motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to
Manila and uses its streets and public highways. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City of Manila as may be inferred from the word
"operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under
the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary
stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of
the streets and public highway. The fact that they are benefited by their use they should also be made to share
the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance,
and which renders it offensive to the Constitution.

113. Mactan Cebu International Airport Authority vs Marcos

FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of RA 6958. MCIAA enjoyed
the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. However,
the Office of the Treasurer of Cebu demanded for the payment of realty taxes on several parcels of land
belonging to the petitioner. Petitioner objected to such demand for payment as baseless and unjustified. The
City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government
controlled corporation whose tax exemption privilege has been withdrawn by virtue of Section 193 and 234 of
the Local Government Code (LGC), and not an instrumentality of the government but merely a government
owned corporation performing proprietary functions. MCIAA paid its tax account “under protest” when City is
about to issue a warrant of levy against the MCIAA’s properties.
MCIAA contended that the taxing power of LGUs do not extend to the levy of taxes or fees on an
instrumentality of the national government and that by the nature of its powers and functions, it has the footing
of an agency or instrumentality of the national government which claim the City rejects. The trial court
dismissed the petition, citing that close reading of the LGC provides the express cancellation and withdrawal of
tax exemptions of Government Owned and Controlled Corporations.
ISSUE: Whether or not petitioner is exempt from taxation under its charter?
HELD: NO. 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 of 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 exempting statutes are both granted
unilaterally by Congress in the exercise of taxing powers. Since taxation is the rule and tax exemption, the
exception, any tax exemption unilaterally granted can be withdrawn at the pleasure of the taxing authority
without violating the Constitution.

114. Cagayan Electric Power & Light Co. vs Commissioner of Internal Revenue (CIR)

Facts: This is about the liability of petitioner for income tax amounting to P75,149.73 for the more than seven-
month period of the year 1969 in addition to franchise tax. Petitioner is the holder of a legislative franchise,
Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is
"in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is
hereby expressly exempted" (Sec. 3, RA 3247). Later, Republic Act No. 5431 amended section 24 of the Tax
Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph (c) (1)
of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general
laws to the contrary". Thus, franchise companies were subjected to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by
authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in
addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The
amendment reenacted the tax exemption in its original charter or neutralized the modification made by
Republic Act No. 5431 more than a year before. By reason of the amendment, the CIR required the petitioner
to pay deficiency income taxes for 1968-to 1971. The petitioner contested the assessments and filed a petition
for review with the Tax court, stating it is exempted from paying income tax under Sec 3, RA 3247.

Issue: WON Congress could impair petitioner’s legislative franchise by making it liable for income tax.

Ruling: Yes. We hold that Congress could impair petitioner's legislative franchise by making it liable for income
tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.
The Constitution provides that franchise is subject to amendment, alteration, or repeal by the Congress when
the public interest so requires. Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is
subject to the provisions of the Constitution and to the terms and conditions established in Act No. 3636 whose
section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress. Republic Act
No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not
expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's
exemption from income tax.

115. PHILIPPINE POWER & DEVELOPMENT CO. VS COMMISSIONER

FACTS:

Petitioner, a corporation duly organized and existing under the laws of the Philippines, is engaged in the
business of supplying electric light, heat and power in municipalities pursuant to the municipal franchises
granted under Act No. 667 of the Philippine Commission.
The field corporation auditor of the General Auditing Office made a recomputation of the franchise tax
liability of petitioner based on the gross earnings of its operation.
Auditor General furnished a letter to respondent stating ''Pursuant to the provisions of Section 259 of the
Tax Code, as amended, the utility ·had been paying its franchise tax at the rate of 5% on its gross receipts up to
March 31, 1955. The utility' s franchise tax rate was declared to be 2% and not 5% in conformity with its franchise
authorized under Act 667. Accordingly, the utility requested the refund of its tax payment for the and the
Collector of Internal Revenue in its letter dated June 15 and July 12, 1955, granted a tax Credit for the said
periods. Since April 1. 1955, therefore, the utility had been paying franchise tax at the rate of 2%. 11
This assessment was received by petitioner then protested and requested the cancellation and
withdrawal thereof. Petitioner Claims that it is only liable for 2% (now 3%) of the franchise tax rate.

ISSUE: Whether the correct rate of franchise tax payable by petitioner is the 2% prescribed in its municipal
franchises

RULING: NO

Petitioner Claims that it is only liable for 2% (now 3%) of the franchise tax rate is without merit. Nowhere in the
franchise of the petitioner can a provision that the franchise tax prescribed therein “shall be in lieu of all other
taxes” be found. It is thus subject to the 5% (now 3%) as provided in the Tax Code. Having accepted said
franchise subject to the condition that it may be amended, altered or repealed by the Congres, petitioner
cannot now assert that the imposition and collection of the higher rate of % is in violation of the impairment
clause of our Consitution.

In as much as said franchises do not preclude the imposition of a higher franchise tax, petitioner- grantee is
subject to 5% franchise tax provided in Section 259 of the Tax Code, as amended, and not to the lower rate of
franchise tax prescribed in the franchises in question. This doctrine has been consistently upheld in previous
cases involving similar franchises.
116. Christ Church vs. Philadelphia 24 How. 300

Facts: In 1833, the Legislature of Pennsylvania enacted that "the real property, including ground rents, now
belonging and payable to Christ Church Hospital, in the City of Philadelphia, so long as the same shall continue
to belong to the said hospital, shall be and remain free from taxes."

In 1851, they enacted that all property, real or personal, belonging to any association or incorporated
company which is now by law exempt from taxation, other than that which is in the actual use and occupation
of such association or incorporated company, and from which an income or revenue is derived by the owners
thereof, shall hereafter be subject to taxation in the same manner and for the same purposes as other property
is now by law taxable, and so much of any law as is hereby altered and supplied be and the same is hereby
repealed. The plaintiffs claim that the exemption conceded by the act of 1833 is perpetual, and that the act
itself is in effect a contract. This concession of the legislature was spontaneous, and no service or duty, or other
remunerative condition, was imposed on the corporation. It belongs to the class of laws denominated privilegia
favorabilia. It attached only to such real property as belonged to the corporation, and while it remained as its
property; but it is not a necessary implication from these facts that the concession is perpetual, or was designed
to continue during the corporate existence.
Issue: Whether or not their contention was correct

Ruling: No. The exemption granted is in the nature of a unilateral tax exemption. Since the exemption given is
spontaneous on the part of the legislature and no service or duty or other remunerative conditions have been
imposed on the taxpayers receiving the exemption, it may be revoked at will by the legislature.

117. CASANOVAS VS HORD GR No. 3473, March 22, 1907

FACTS:
In January 1897, the Spanish Government, in accordance with the provisions of the royal decree of May 14,
1867, granted J. Casanovas certain mines in the Province of Ambos Camarines. They were so considered by
the Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189
which imposes an annual tax and an ad valorem tax on all valid perfected mining concessions granted prior to
April 11th, 1899. The Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section
134, which Casanovas paid under protest.

ISSUE: Whether or not Section 134 is valid?

RULING:
No, the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the
parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore
void as to them.
The deed constituted a contract between the Spanish Government and Casanovas. Furthermore, the section
conflicts with Section 60 of the Act of Congress of July 1, 1902, which indicate that concessions can be
cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply
with the conditions prescribed as requisites for their retention in the laws under which they were granted. The
grounds were not shown nor claimed in the case.
118. Manila Railroad Company v. Insular Collector of Customs, 32 Phil 146 (1915) Constitutional limitations
*Act No. 1510, the charter of the railway company, in its section 10 provides for the admission free of duty of all
materials necessary for the construction and equipment of the railroad lines covered by the charter.
*Section 12 of the Tariff Act of 1909 provides for the free entry of all articles, except rice, the growth, product, or
manufacture of the United States or its possessions to which the customs in force in the United States is applied
and upon which no drawback has been allowed.

FACTS: The plaintiff Manila Road Company imported into the Philippine Islands ten locomotive engines, to be
used upon its railroad. The said locomotives were admitted into the Philippine Islands free of duty by virtue of
the provisions of section 10 of Act No. 1510. Later the Collector of Customs canceled said free entry of said
parts which had been manufactured in England and admitted the same free of duty under section 12 of the
Philippine Tariff Law of 1909, instead of section 10 of Act No. 1510.
Against the order of cancellation the plaintiff protested, which protest was overruled by the Collector of
Customs on the 23rd of December, 1913. From that decision of the Collector of Customs the plaintiff appealed
to the Court of First Instance. The CFI Ruled in favor of the plaintiff, thereby reversing the decision of the Insular
Collector of Customs. The defendant appealed to this Court.

ISSUE: Was the Collector of customs correct in cancelling the free entry of the imported materials?

HELD: No. The Court affirmed the ruling of the CFI and ruled that the railroad company had a perfect right to
stand upon its charter and to demand that the entry of materials for construction and equipment should be
allowed thereunder; the Collector of Customs had no authority, over the railroad company's protest, to compel
the entry under another law. The Collector of Customs, in his amended order, admitted the same under section
12 of the Tariff Law of 1909. Said section of said law provides for the free entry of all articles, except rice, the
growth, product, or manufacture of the United States, or its possessions, to which the customs in force in the
United States is applied and upon which no drawback has been allowed. Clearly, therefore, the material in
question could not have been admitted under section 12 of the Philippine Tariff Law of 1909. The Collector of
Customs properly admitted said material, which had been admittedly manufactured in England, under section
10 of Act No. 1510. He committed an error when he cancelled said entry and admitted said articles under
section 12 of Tariff Act of 1909.

119. American Bible Society v City of Manila

Facts: American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered
and doing business in the Philippines, with its principal office in Manila. They distribute and sell bibles throughout
the country. The City Treasurer of Manila informed American Bible Society that it violated Ordinance No. 3000 and 2529
as it was conducting business of general merchandise since November 1945, without the necessary Mayor’s permit and
municipal license and required them to secure the permit and license within three days together with compromise
in the sum of P5,821.45. To avoid the closure of their business, they paid under protest. They filed a complaint
and prayed that the ordinance be declared illegal and unconstitutional as it infringes religious freedom.

Issue: Whether Ordinance No. 3000 and 2529 are unconstitutional because it provides for religious censorship and the
free exercise of its religious profession through the distribution and sale of bibles and other religious literature in
the Philippines.

Ruling: (BOOK)
Ordinance 2529, imposing a tax on sale of Bibles and other religious literature, CANNOT be applied to the
plaintiff, for in doing so it would impair its Constitutional right to free exercise and enjoyment of its religious
profession and worship as well as its right of dissemination of religious beliefs. Such ordinance if applied, would
provide for religious censorship by restraining the free distribution and sale of Bibles and other religious literature.

But with respect to Ordinance 3000, requiring a person to secure a Mayor’s permit before he can engage in
business, trade or occupation, the Court held that it does not impair the plaintiff’s Constitutional right.

120. PHILIPPINE PRESS INSTITUTE VS. CHATO (1994)

FACTS:
Various suits for certiorari and prohibition were filed challenging the constitutionality of Republic Act No.
7716 (E-Vat Law) on various grounds. Petitioners contended that Congress violated the Constitution because,
although H. No. 11197 had originated in the House of Representatives, it was not passed by the Senate but was
simply consolidated with the Senate version [S. No. 1630] in the Conference Committee to produce the bill
which the President signed into law.

ISSUE:
DOES R.A 7716 violate Article VI, Section 24 of the Constitution?
(Art. VI, Section 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.)
RULING: NO
To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. At
this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute and not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to "propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact make the House superior to the Senate.
*CASE 121 MISSING*
122. Prairie Du Chien Sanitarium Co. v. City of Prairie Du Chien

FACTS: Action begun September 18, 1941, by the Prairie du Chien Sanitarium Company, Inc., against the city of
Prairie du Chien to recover taxes paid under protest.

The plaintiff, successor to a private corporation, was reorganized and incorporated in 1940 under ch. 180, Stats.,
to maintain a hospital and sanitarium. The property was acquired from its predecessor by purchase. The
doctors receive no salaries from the hospital but they are provided with heated, unfurnished offices in the
hospital rent free and one meal a day. They use all the facilities of the hospital without paying. In return they
supervise the hospital and its personnel without compensation. The hospital cares for county and municipal
patients for a contract price which is less than cost. These patients comprise about thirty per cent of the total
and are treated by Dr. Sattot and Dr. Dessloch without charge. The other patients in the hospital are the private
patients of these two doctors and other doctors. They are charged at regular rates, though about ten per cent
of the total number of all accounts are not collected. The patients of Dr. Satter and Dr. Dessloch pay the
hospital a fee for the use of the operating room, and they are billed by the doctors for their services. The
hospital allegedly takes all patients applying for admittance except mental cases and people suffering from
contagious diseases. Except for the two medical directors, all of the employees of the hospital are paid regular
wages.

Appellant paid the personal property and real-estate taxes under protest and sues to recover them, alleging
that it is exempt under sec. 70.11(4), Stats., as a "benevolent association."

ISSUE: W/N the hospital, in this case, is a benevolent association

RULING: NO. The admission of pay patients does not detract from the charitable character of a hospital if all its
funds are devoted exclusively to the maintenance of the institution as a public charity. Where rendering charity
is its primary object, and the funds derived from payments made by patients able to pay are devoted to the
benevolent purposes of the institution, the mere fact that profit has been made will not deprive the hospital of its
benevolent character.

However, in this case, an association or corporation claiming to be benevolent, in order to qualify its property
for exemption from taxation, must use it so free from connection with profits accruing to those owning it as
clearly to be a charitable institution. Hence the personal property, grounds, and buildings of a hospital are not
exempt when members of the owner association are using the hospital as an adjunct to their private business in
such a way that it becomes a source of substantial help in the matter of earnings to be derived from the
practice of their profession. Even if we assume that the hospital is a benevolent association, the property is used
as much to advance the individual fortunes of the surgeons who manage it as it is for charitable purposes.
There can be little doubt that the hospital is maintained primarily for the greater convenience and profit of the
managing doctors in the practice of their profession. The doctors may, and under their management and
control of the hospital did, give without recovering pay therefor of their time and skill in caring for people who
did not pay for such care, but by reason of the use of the hospital in relation to their private practice the
benefits extended were those of the doctors and not a contribution to public welfare by a benevolent
association.

123. Herrera vs QC Board of Assessment Appeals

The Director of Bureau of Hospitals authorized the petitioners to establish and operate the St. Catherine’s
Hospital. Petitioners sent a letter to the QC Assessor requesting exemption from payment of real estate tax on
the lot, building and other improvement comprising the hospital on the ground that it was established for
charitable and humanitarian purposes, not for commercial gain. Exemption was granted for the years 1953 to
1955.

Subsequently, the QC Assessor notified the petitioners that the said properties were reclassified from exempt to
taxable as it was ascertained that out 32 beds in the hospital, 12 of which are for pay-patients. A school of
midwifery is also operated within the premises of the hospital. QC Assessor assessed them for real property
taxes. Petitioner appealed the assessment to the respondent, which affirmed the decision of the Assessor.

Issue: W/N St. Catherine’s Hospital should be exempt from realty tax.
Ruling: Yes.

The exemption 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

124. Commissioner of Internal Revenue vs. Court of Appeals

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and
activities that are beneficial to the public, especially the young people, pursuant to its religious, educational
and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees
collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment
to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its
basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.

Private respondent claims that the YMCA “is a non-stock, non-profit educational institution whose revenues and
assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its
properties and income.”

ISSUE: Whether or not PR’s claim is tenable.

RULING: NO. The Court reiterated that private respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the payment of income tax.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation
in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly
be granted in a statute stated in a language too clear to be mistaken.”

125. Lung Center of the PH vs Quezon City

Facts:

The petitioner Lung Center is a non-stock and non-profit entity. It is the registered owner of a parcel of
land. Erected in the middle lot is a hospital known as the Lung Center of the Philippines. A big space at the
ground floor is being leased to private parties, for canteen and small store spaces, and to medical or
professional practitioners who use the same as their private clinics for their patients whom they charge for their
professional services.

Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and
idle, while a big portion on the right side, at the corner, is being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual
subsidies from the government.Both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.

The petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim
that it is a charitable institution. The petitioner’s request was denied,

Issue: W/N the property is tax exempt under the 1987 Constitution.

Ruling: Only the hospital is exempt from property tax.

The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized
in law as charitable or whether it is maintained for gain, profit, or private advantage. As a general principle, a
charitable institution does not lose its character as such and its exemption from taxes simply because it derives
income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons managing or operating the
institution.

However, under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
Accordingly, only those portions of the hospital used for patients whether paying or non-paying are exempt
from real property taxes. Those portions of its real property that are leased to private entities are not exempt
from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

126. Lladoc vs Commissioner of Internal Revenue

Facts:
In 1957, the M.B. Estate, Inc. in Bacolod City donated P10,000 in case to Rev. Fr. Crispin Ruiz, the then
parish priest of Victorias, Negros Occidental and the predecessor of Rev. Fr. Casimiro Lladoc, for the
construction of a new Catholic Church. The total amount was actually spent for the purpose intended.

On March 1958, M.B. Estate filed a donor’s gift tax return. Subsequently, on April 1960, the CIR issued an
assessment for donee’s gift tax in the amount of P1,370 including surcharges, interest of 1% monthly from May
1958 to June 1960 and the compromise for the late filing of the return against the Catholic Parish of Victorias,
Negros Occidental of which Lladoc was a priest.

Lladoc protested and moved to reconsider but it was denied. He then appealed to the CTA, in his
petition for review, he claimed that at the time of the donation, he was not the parish priest, thus, he is not
liable. Moreover, he asserted that the assessment of the gift tax, even against the Roman Catholic Church,
would not be valid, for such would be a clear violation of the Constitution. The CTA ruled in favor of the CIR.
Hence, the present petition.

Issue: Whether or not the donee’s gift tax should be paid.

Held: Yes.
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed
on such properties enumerated, as property taxes, as contra distinguished from excise taxes.

In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the
properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the
properties, upon the exercise of the privilege of receiving the properties. Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed
on the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively for
religious purposes, does not constitute an impairment of the Constitution.

As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in
the Constitution should not be interpreted to mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of Lladoc, the exemption herein must be denied.

However, the Court noted the merit of Lladoc’s claim, and held as liable the Head of Deocese for being
the real party in interest instead of Lladoc who was held to be not personally liable; the former manifested that
it was submitting himself to the jurisdiction and orders of the Court and he presented Lladoc’s brief, by
reference, as his own and for all purposes.

127. Arturo Tolentino vs. Secretary of Finance and Commissioner (Tax Exemption of Properties for Religious,
Charitable and Educational Purposes)

Facts: The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions
for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax
Law. The motions, of which there are 10 in all, have been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, “even
nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”, citing in support of the
case of Murdock v. Pennsylvania.

Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A. No. 7716
(1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable
basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a
progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would, therefore, be to infringe a constitutional policy.

Issue: W/N sales tax on bible sales violative of religious freedom?

Ruling: No

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon. "The VAT is, however, different.
It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on
the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its
right any more than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution

128. THE PHILIPPINE JUDGES ASSOCIATION vs HON. PETE PRADO G.R. No. 105371 November 11, 1993
FACTS:
Petitioners assailed the validity of Sec 35 R.A. No. 7354 which withdraw the franking privilege from the
Supreme Court, the Court of Appeals, the Regional Trial Courts, the Metropolitan Trial Courts, the Municipal Trial
Courts, and the Land Registration Commission and its Registers of Deeds, along with certain other government
offices. The petition assails the constitutionality of R.A. No. 7354 on the grounds that: (1) its title embraces more
than one subject and does not express its purposes; (2) it did not pass the required readings in both Houses of
Congress and printed copies of the bill in its final form were not distributed among the members before its
passage; and (3) it is discriminatory and encroaches on the independence of the Judiciary.

ISSUE: WON the assailed provision is constitutional?

HELD:
No. Article VI, Sec. 26(l), of the Constitution providing that "Every bill passed by the Congress shall
embrace only one subject which shall be expressed in the title thereof." The title of the bill is not required to be
an index to the body of the act, or to be as comprehensive as to cover every single detail of the measure. It
has been held that if the title fairly indicates the general subject, and reasonably covers all the provisions of the
act, and is not calculated to mislead the legislature or the people, there is sufficient compliance with the
constitutional requirement. We are convinced that the withdrawal of the franking privilege from some agencies
is germane to the accomplishment of the principal objective of R.A. No. 7354, which is the creation of a more
efficient and effective postal service system. Our ruling is that, by virtue of its nature as a repealing clause,
Section 35 did not have to be expressly included in the title of the said law.

The petitioners maintain that the second paragraph of Sec. 35 covering the repeal of the franking
privilege from the petitioners and this Court under E.O. 207, PD 1882 and PD 26 was not included in the original
version of Senate Bill No. 720 or House Bill No. 4200. As this paragraph appeared only in the Conference
Committee Report, its addition, violates Article VI, Sec. 26(2) of the Constitution. The petitioners also invoke Sec.
74 of the Rules of the House of Representatives, requiring that amendment to any bill when the House and the
Senate shall have differences thereon may be settled by a conference committee of both chambers. Casco
Philippine Chemical Co. v. Gimenez laid down the rule that the enrolled bill, is conclusive upon the Judiciary
(except in matters that have to be entered in the journals like the yeas and nays on the final reading of the bill).
The journals are themselves also binding on the Supreme Court. Applying these principles, we shall decline to
look into the petitioners' charges that an amendment was made upon the last reading of the bill that
eventually became R.A. No. 7354 and that copies thereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26(2) of the Constitution. We are bound by such official
assurances from a coordinate department of the government, to which we owe, at the very least, a becoming
courtesy. SC annuls Section 35 of the law as violative of Article 3, Sec. 1, of the Constitution providing that no
person shall "be deprived of the equal protection of laws." It is worth observing that the Philippine Postal
Corporation, as a government-controlled corporation, was created and is expected to operate for the
purpose of promoting the public service. While it may have been established primarily for private gain, it
cannot excuse itself from performing certain functions for the benefit of the public in exchange for the
franchise extended to it by the government and the many advantages it enjoys under its charter. 14 Among
the services it should be prepared to extend is free carriage of mail for certain offices of the government that
need the franking privilege in the discharge of their own public functions.

129. JOHN HAY PEOPLES ALTERNATIVE COALITION vs. LIM (BCDA President)
G. R. No. 119775, October 24, 2003
FACTS: R.A. No. 7227 otherwise known as the "Bases Conversion and Development Act of 1992," which was
enacted setting out the policy of the government to accelerate the sound and balanced conversion into
alternative productive uses of the former military bases under the 1947 Philippines-United States of America
Military Bases Agreement, namely, the Clark and Subic military reservations as well as their extensions including
the Camp John Hay Station in the City of Baguio. The Baguio City government passed a number of resolutions,
one of which is Resolution No. 255, seeking and supporting the issuance by then President Ramos of a
presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ in accordance with the
provisions of R.A. No. 7227. On July 5, 1994 then President Ramos issued Proclamation No. 420 which
established a SEZ on a portion of Camp John Hay, and in effect, granted tax exemptions pursuant to R.A. No.
7227 to Subic SEZ extends to other SEZs. The petitioners now allege that nowhere in R. A. No. 7227 is there a
grant of tax exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of
tax exemption and investment incentives to the therein established Subic SEZ. The grant of tax exemption to the
John Hay SEZ, petitioners conclude, thus contravenes Article VI, Section 28 (4) of the Constitution which
provides that "No law granting any tax exemption shall be passed without the concurrence of a majority of all
the members of Congress." On the other hand, respondents contend that by extending to the John Hay SEZ
economic incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No. 7227, the
proclamation is merely implementing the legislative intent of said law to turn the US military bases into hubs of
business activity or investment. They underscore the point that the government's policy of bases conversion can
not be achieved without extending the same tax exemptions granted by R.A. No. 7227 to Subic SEZ to other
SEZs.

ISSUE: Whether or not Proclamation No. 420 (particularly Sec. 3) is UNCONSTITUTIONAL since it provides for
national and local tax exemption and grants other economic incentives to the John Hay SEZ

RULING: Yes. The SC ruled in favor of the Petitioners. It is clear that under Section 12 of R.A. No. 7227 it is only the
Subic SEZ which was granted by Congress with tax exemption, investment incentives and the like. There is no
express extension of the aforesaid benefits to other SEZs still to be created at the time via presidential
proclamation. While the grant of economic incentives may be essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under
R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no
support therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other laws
specified under Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the
proclamation or the enactment of R.A. No. 7227. More importantly, the nature of most of the assailed privileges
is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has full
power to exempt any person or corporation or class of property from taxation, its power to exempt being as
broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions,
or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax
exemption would circumvent the Constitution's imposition that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress. In the same vein, the other kinds of privileges
extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon. If it were the intent of
the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it
would have so expressly provided in the R.A. No. 7227. Thus, the second sentence of Section 3 of Proclamation
No. 420 is hereby declared NULL AND VOID and is accordingly declared of no legal force and effect.

130. Philippine Airlines vs. Secretary of Finance

Facts:

Philippine Airlines, Inc., petitioner in G.R. No. 11582, . Republic Act No. 7716 namely, that it violates Art. IV, §
26(1) which provides that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of
exemption of PAL transactions from the payment of the VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716 without reflecting this fact in its title.

Issue: Whether or not Republic Act No. 7716 is unconstitutional for violating Art. IV, § 26(1)

Ruling:

NO. The question is whether this amendment of § 103 of the NIRC is fairly embraced in the title of Republic Act
No. 7716, although no mention is made therein of P.D. No. 1590 as among those which the statute amends. We
think it is, since the title states that the purpose of the statute is to expand the VAT system, and one way of doing
this is to widen its base by withdrawing some of the exemptions granted before. To insist that P.D. No. 1590 be
mentioned in the title of the law, in addition to § 103 of the NIRC, in which it is specifically referred to, would be
to insist that the title of a bill should be a complete index of its content.

The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall
be expressed in its title is intended to prevent surprise upon the members of Congress and to inform the people
of pending legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar, petitioner did
not know before that its exemption had been withdrawn, it is not because of any defect in the title but perhaps
for the same reason other statutes, although published, pass unnoticed until some event somehow calls
attention to their existence. Indeed, the title of Republic Act No. 7716 is not any more general than the title of
PAL's own franchise under P.D. No. 1590, and yet no mention is made of its tax exemption.

Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590) by specifically excepting from the
grant of exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within the power of Congress to
do under Art. XII, § 11 of the Constitution, which provides that the grant of a franchise for the operation of a
public utility is subject to amendment, alteration or repeal by Congress when the common good so requires.

131 MIAA vs CA G.R. No. 155650. July 20, 2006

FACTS: MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable
years 1992 to 2001. MIAA’s real estate tax delinquency was estimated at P624 million. The City of Parañaque
issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
filed with the Court of Appeals an original petition sought to restrain the City of Parañaque from imposing real
estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. Paranaque’s
Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges of
“government-owned and-controlled corporations” upon the effectivity of the Local Government Code.
Respondents also argue that a basic rule of statutory construction is that the express mention of one person,
thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193
of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax. MIAA’s contention: Airport Lands and Buildings are owned by the
Republic. The government cannot tax itself. The reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.
Issue: Whether or not MIAA should be taxed by the Local Government of Paranaque
Held: No. MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax. There is no dispute that a government-owned
or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or
controlled corporation. When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock
or non-stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees andcorporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or,
where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its
capital stockMIAA is not organized as a stock or non-stock corporation. There is also no reason for local
governments to tax national government instrumentalities for rendering essential public services to inhabitants
of local governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy considerations.
There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

132. Basco v PAGCOR 197 SCRA 52

Facts: Petitioners seek to annul the Philippine Amusement and Gaming Corporation Charter-PD 1869 on the
following grounds:
A. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law;
B. Said charter has intruded into the local government's right to impose local taxes and license fees. This, in
contravention of the constitutionally enshrined principle of local autonomy;

Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of
any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National
or Local."

Issues:
1. WON the City of Manila had an inherent right to impose taxes, particularly license fees on gambling
2. WON Local Governments may tax instrumentalities of the National Government such as PAGCOR

Ruling:
1. No. The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. The
Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations
are mere creatures of Congress, which has the power of control over Local governments. And if Congress can
grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back
the power.
The City of Manila cannot impose license fees on gambling. As early as 1975, the power of local
governments to regulate gambling was withdrawn by P.D. No. 771 and was vested exclusively on the National
Government. Therefore, only the National Government has the power to issue "licenses or permits" for the
operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of
the issuance of "licenses or permits" is no longer vested in the City of Manila.

2. No. 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. This doctrine emanates from the "supremacy" of the National Government over local
governments. 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."

Note: This case was decided before the LGC of 1991 took effect.

1. Mercury Drug Corporation v. Commissioner of Internal Revenue [GR 164050, July 20, 2011]

FACTS: RA 7432 granted qualified senior citizens a 20% discount on their purchases of medicines. For taxable
years 1993 and 1994, petitioner claimed the amounts representing the 20% sales discount as tax deductions.
Later they realized that RA 7432 allowed tax credits for sales discounts granted to senior citizens. They filed for a
refund with the CIR. CIR treated it as a deduction. Appealed to CTA. CTA granted refund, but the basis of the
refund was the acquisition cost of the medicine by petitioner, and not the whole amount of the 20% discount
granted to senior citizens. Petitioner contended that the basis for computation of tax credit should be the
actual discount granted to the senior citizens. CTA denied. CA affirmed CTA. Hence this petition.

ISSUE: WON the claim for tax credit should be based on the full amount of the 20% discount extended to senior
citizens.

HELD: Yes. It is worthy to mention that RA No. 7432 had undergone two (2) amendments; first in 2003 by RA. 9257
and most recently in 2010 by RA No. 9994. The 20% sales discount granted by establishments to qualified senior
citizens is now treated as tax deduction and not as tax credit. However, the case covered the taxable years
1993 and 1994, thus, RA 7432 applies. Therefore, the court held that the petitioner is entitled to refund based on
the actual amount of the discount extended to senior citizens.

2. COMMISSIONER V TOURS SPECIALIST

Facts: Tours Specialist(TS) and its counterpart tourist agencies abroad have agreed to offer a package fee for
the tourists (hotel room accommodations, food and other expenses). By arrangement, the foreign tour agency
entrusts to TS the fund for hotel room accommodation, which in turn paid by the latter to the local hotel when
billed. CIR assessed private respondent for deficiency 3% contractor’s tax as independent contractor. CIR
contends that the tax under Section 191 of the Tax Code is a tax on the exercise of the privilege to engage in
business as a contractor and collectible from the person exercising the privilege. TS General Manager stated
that the payment through them “is only an act of accommodation on (its) part” and “the agent abroad
instead of sending several telexes and saving on bank charges they take the option to send the money to (TS)
to be held in trust to be endorsed to the hotel.”’

Issue: W/N amounts received form part of gross receipts subject to 3% contractor's tax.

Ruling: No. Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; the room charges
entrusted by the foreign travel agencies to the private respondents do not form part of its gross receipts within
the definition of the Tax Code. The said receipts never belonged to the private respondent. The private
respondent never benefited from their payment to the local hotels. This arrangement was only to
accommodate the foreign travel agencies.

Book: Income tax is a "direct tax" because the tax burden is borne by the income recipient upon whom the tax
is imposed. It is a tax demanded from the very person who, it is intended or desired, should pay it, while
"indirect tax" is a tax demanded in the first instance from one person in the expectation and intention that he
can shift the burden to someone else.

Note: (the discussion on indirect tax) The contractor’s tax is shifted by the contractor to the owner as a matter
of self-preservation. Thus, it is an indirect tax. If the hotel room charges entrusted to petitioner will be subjected
to 3% contractor’s tax, that would in effect do indirectly what P.D. 31 would not like hotel room charges of
foreign tourists to be subjected to hotel room tax.

3. Ernesto Maceda v Macaraig ( direct tax v indirect tax)

Facts:

Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development
of hydraulic power and the production of power. Republic Act No. 358 granted NPC tax and duty exemption
privileges. Republic Act No. 6395 revised the charter of the NPC wherein Congress declared as a national
policy the total electrification of the Philippines. Presidential Decree No. 380 provides the exemption of NPC
from such taxes, duties, fees, imposts and other charges imposed "directly or indirectly," on all petroleum
products used by NPC in its operation. Presidential Decree No. 938 further amended the aforesaid provision by
integrating the tax exemption in general terms under one paragraph.
 Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of
GOCCs. However, said law empowered the President and/or the then Minister of Finance, upon
recommendation of the FIRB to restore, partially or totally, the exemption withdrawn, pursuant to said law the
FIRB issued Resolution No. 10-85 restoring the tax and duty exemption privileges of NPC. Petitioner as a taxpayer
seeks to nullify such resolution exempting the National Power Corporation (NPC) from indirect tax and duties
under the principle that tax exemptions are construed stricissimi juris against the taxpayer

Issue: distinction between a direct tax and an indirect tax

Ruling: A direct tax is one in which the taxpayer who pays the tax is directly liable therefor; that is, the burden of
paying the tax falls directly on the person paying the tax. The impact and incidence of taxation remain with the
person upon whom the tax was imposed. Examples are the custom duties and ad valorem taxes paid by the oil
companies to the Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes
they pay to the Bureau of Internal Revenue after converting the crude oil into petroleum products.

Indirect tax is one paid by a person who is not directly liable thereof, and who may therefore shift or pass on the
tax to another person or entity, which ultimately assumes the tax burden. In this case the impact of taxation is
with the taxable seller of goods or service while the incidence of taxation rests with the consumer. For example,
the excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of
petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash"
and/or "selling price."

Addl info

NPC is exempted from indirect tax as per Presidential Decree No. 938 amended the tax exemption by
simplifying the same law in general terms. It succinctly exempts NPC from “all forms of taxes, duties, fees,
imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings.” The use of the phrase “all forms” of taxes demonstrate the intention of the law to
give NPC all the tax exemptions it has been enjoying before. The rationale for this exemption is that being non-
profit the NPC “shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy.

4. GARRISON v. CA

Facts:

Petitioners, John Garrison, Frank Robertson, Robert Cathey, James Robertson, Felicitas de Guzman and Edward
McGurk (PETITIONERS) are US Citizens who entered the country through the Philippine Immigration Act of 1940
and are employed in the US Naval Base in Olongapo City. They earn no Philippine source income and it is also
their intention to return to the US as soon as their employment has ended. The BIR sent notices to Petitioners
stating that they did not file their Income Tax Returns (ITR) for 1969. The BIR claimed that they were resident
aliens and required them to file their returns. Under then then Internal Revenue Code resident aliens may be
taxed regardless of whether the gross income was derived from Philippine sources. Petitioners refused stating
that they were not resident aliens but only special temporary visitors sinve they have the intention to return to
US. Hence, they were not required to file ITRs.

Issue:

Whether or not Petitioners can be considered resident aliens.

Ruling:

YES.

None of them may be considered a non-resident alien, "a mere transient or sojourner," who is not under
any legal duty to file an income tax return under the Philippine Tax Code. This is made clear by Revenue
Relations No. 2 of the Department of Finance of February 10, 1940, 9 which lays down the relevant standards on
the matter:” An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of
the Philippines for purposes of income tax. Whether he is a transient or not is determined by his intentions with
regards to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another
country is not sufficient to constitute him as transient. If he lives in the Philippines and has no definite intention as
to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be
promptly accomplished is a transient. But if his purpose is of such a nature that an extended stay may be
necessary to its accomplishment, and to that end the alien makes his home temporarily in the Philippines, he
becomes a resident, though it may be his intention at all times to return to his domicile abroad when the
purpose for which he came has been consummated or abandoned.”

What the law requires for an alien to be considered as a resident of the Philippines is merely physical or
bodily presence in a given place for a period of time, not the intention to make it a permanent place of abode.

5. Commissioner v. Visayan Electric Co., 23 SCRA 715

Facts:

Respondent company is engaged to operate and maintain an electric light, heat, and power system in the
City of Cebu, certain municipalities in the Province of Cebu, and other surrounding places.

It established a pension fund, known as the "Employees' Reserve for Pensions." Said fund is for the benefit of its
"present and future" employees, in the event of retirement, accident or disability. Every month thereafter an
amount has been set aside for this purpose. It is taken from the gross operating receipts of the company. This
reserve fund was later invested by the company in stocks of San Miguel Brewery, Inc., for which dividends have
been regularly received. But these dividends were not declared for tax purposes.

Issue: Whether or not the respondent company, in its capacity as fiduciary of its employees' reserve fund, is
liable for the payment of individual income tax set forth under the NIRC.

Ruling:

Yes. If the trust were an employee’s trust, which forms part of an employer’s pension, stock or profit-sharing plan
that complies with the requirements of tax exemption under Section 60 (b) of the 1997 Tax Code, as
implemented by Revenue Regulation No. 1-68, as amended, its income would be exempt from income tax.
Since said provision grants tax exemption, the requirements of Section 60 (B) are mandatory and should strictly
be construed.

The absence of such plan prevents us from taking a view which fits the purpose of the statute. Coming into play
then is the specific provision in paragraph (a), Section 56, heretofore transcribed, which directs that the "taxes
imposed by this Title upon individuals shall apply to the income ... of any kind of property held in trust." For which
reason, the income received by the employees' trust fund from January 1, 1957 is subject to the income tax
prescribed for individuals under Section 21 of the Tax Code.

6. Ona vs Commissioner, 45 SCRA 74

Facts: Bunales died living as heirs her spouse Lorenzo and 5 children. Lorenzo was appointed as administrator of
the estate. A partition was made and because 3 of the children were still minors, Lorenzo was appointed as
guardian of the persons of property of minors. The heirs have undivided ½ interest in 10 parcels of land, 6
houses, and money from the War Damage Commission. The properties were not divided and remained under
management of Lorenzo who used said properties in business by leasing or selling them and investing the
income and proceeds from the sales.
CIR decided that petitioners formed an unregistered partnership and should be subject to corporate income
tax, pursuant to Section 24 of Tax Code. Accordingly, assessment was made for 1955 and 1956. Petitioners
protested and asked for reconsideration. CIR denied.
Issue: Whether or not petitioners are subject to income tax?
Ruling: Yes. Should the co-owners invest the income of the co-ownership in any income producing properties
after the extrajudicial partition of the estate, they would be constituting themselves into an unregistered
partnership which is consequently subject to income tax as corporation. For tax purpose, the co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for
the heirs in proportion to their respective shares in the inheritance as determined in a project partition either
duly executed in an extra-judicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of
as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common
with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for
tax purpose, at least an unregistered partnership is formed.

7. Pascual v Commissioner (166 SCRA 560)

Facts: On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et al.and on May
28, 1966, they bought anotherthree (3) parcels of land from Juan Roque. Thefirst two parcels of land were sold
by petitionersin 1968 to Marenir Development Corporation,while the three parcels of land were sold
bypetitioners to Erlinda Reyes and Maria Samsonon March 19,1970. Petitioner realized a netprofit in the sale
made in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970.
Thecorresponding capital gains taxes were paid bypetitioners in 1973 and 1974 . However, in a letter dated
March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a
total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.

Respondent Commissioner informed petitionersthat in the years 1968 and 1970, petitioners asco-owners in the
real estate transactions formedan unregistered partnership or joint venturetaxable as a corporation under
Section 20(b)and its income was subject to the taxesprescribed under Section 24, both of theNational Internal
Revenue Code; that theunregistered partnership was subject tocorporate income tax as distinguished
fromprofits derived from the partnership by themwhich is subject to individual income tax, and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency income tax assessed.

ISSUE: Whether petitioners formed an unregisteredpartnership subject to corporate income tax.

RULING: No. The Petitioners are simply under the regime of co-ownership and not under unregistered
partnership. By the contract of partnership two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits among themselves (Art. 1767, Civil Code
of the Philippines). In the present case, there is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they intended to divide the profits among
themselves. The sharing of returns does not in itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the individual partners, and the freedom of
each party to transfer or assign the whole property. Hence, there is no adequate basis to support the
proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they
purchased properties and sold the same a few years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the
tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

8. OBILLOS VS COMMISSIONER
FACTS:
Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd on two lots. The next day he transferred his rights to
his four children, the petitioners, to enable them to build their residences. The company sold the two lots to
them. Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots. After
having held the two lots for more than a year, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda. They treated the profit as a capital gain and paid an income tax thereof.

One day before the expiration of the five-year prescriptive period, the respondent required petitioners to
pay corporate income tax on the total profit in addition to individual income tax on their shares. Also, he
considered the share of the profits of each petitioner taxable and required them to pay deficiency income
taxes Thus, the petitioners are being held liable for deficiency income taxes in addition to the tax on capital
gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint
venture within the meaning of the Tax Code
ISSUE: Whether or not it was correct for the commissioner to consider that petitioners formed a partnership.
RULING: NO
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should
be obviated.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to
build their residences on the lots because of the high cost of construction, then they had no choice but to resell
the same to dissolve the coownership. The division of the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later.
Mere sharing of gross income from an isolated transaction does not establish a partnership. Article 1769(3)
of' the Civil Code provides that ''the sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any property from which the returns are
derived". There must be an unmistakable intention to form a partnership or joint venture.

10. COMMISSIONER vs. BOAC

"The source of an income is the property, activity or service that produced the income. For such source to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the
Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of deficiency
income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1971.
BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United
Kingdom, and is engaged in the international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines. Consequently,
it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines — Wamer Barnes and Company, Ltd., and
later Qantas Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. The
CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC income from
Philippine sources since no service of carriage of passengers or freight was performed by BOAC within the
Philippines and, therefore, said income is not subject to Philippine income tax. The CTA position was that
income from transportation is income from services so that the place where services are rendered determines
the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no landing
rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income. For the source
of income to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces
the income. The tickets exchanged hands here and payments for fares were also made here in Philippine
currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of supporting the government.
11. Collector vs. Batangas Transportation Co., 102 Phil 822
FACTS: Respondent companies are two distinct and separate corporations engaged in the business of land
transportation by means of motor buses, and operating distinct and separate lines.
To economize their overhead expenses and to recoup losses incurred during the war, BTC (Batangas
Transportation Company) and LTBC (Laguna Tayabas Bus Company) entered into a joint management
contract called “Joint Emergency Operation” which allowed the two companies to save on salaries for one
manager, on assistance manager, fifteen inspectors, special agents and an entire office worth of clerical
workers. The savings in one year amounting to about P200,000 or about P100,000 for each company.
Under the theory that the two companies had pooled their resources in the establishment of the Joint
Emergency Operation, thereby forming a joint venture, the Collector wrote the bus companies that there was
due from them the amount of P422,210.89 as deficiency income tax and compromise for the years 1946 to
1949, inclusive.
Collector contended that the Joint Emergency Operation was a corporation distinct from the two respondent
companies, as defined in section 84 (b), and so liable to income tax under section 24, both of the National
Internal Revenue Code. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency
Operation or joint management of the two companies "is not a corporation within the contemplation of section
84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and
therefore was not subject to the income tax under the provisions of section 24 of the same Code
ISSUE: Whether the two transportation companies herein involved are liable to the payment of income tax as a
corporation on the theory that the Joint Emergency Operation organized and operated by them is a
corporation within the meaning of Section 84 of the Revised Internal Revenue Code
HELD: Yes. The Tax Code defines the term "corporation" as including partnership no matter how created or
organized, thereby indicating a joint venture need not be undertaken in any of the standards forms, or in
conformity with the usual requirements of the law on partnership, in order that one could be deemed
constituted for the purposes of the tax on corporations. In the case at bar, while the two respondent
companies were registered and operating separately, they were placed under one sole management called
the "Joint Emergency Operation" for the purpose of economizing in overhead expenses. Although no legal
personality may have been created by the Joint Emergency Operation, nevertheless, said joint management
operated the business affairs of the two companies as though they constituted a single entity, company or
partnership, thereby obtaining substantial economy and profits in the operation. The joint venture, therefore,
falls under the provisions of section 84 (b) of the Internal Revenue Code, and consequently, it is liable to income
tax provided for in Section 24 of the same Code.

12. Evangelista vs. Collector

Facts: The three Evangelista bought 24 real properties. They appointed their brother to manage their properties
with full power to lease and to collect and receive rents. Collector demanded of them a payment of income
tax on corporations from the year 1945 to 1949 (P6, 157). Dissatisfied, the 3 sisters appealed to the CTA insisting
that they were co-owners, not co-partners, for the reason that their acts did not create a personality
independent of them, and that some of the characteristics of partnerships were absent. Court decided in favor
of the Collector stating that the they had the purpose to engage in real estate transactions for monetary gain
and then divide the same among themselves, that they contributed to a common fund which they invested in
a series of transactions; and that the said sisters had the intention to constitute a partnership within the meaning
of the tax law.

Issue: Whether their partnership is taxable.

Ruling: Yes. Court held that the Tax Code includes "partnerships" among the entities subject to the tax on
corporation. Said law defined the term "corporation" as including partnerships no matter how created or
organized, thereby indicating that "a joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporation.

13. REYES vs. CIR

FACTS: Petitioners, father and son, purchased a lot and building, situated at 671 Dasmariñas Street, Manila, for
P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00, representing the
mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations were
assumed by the vendees.
Petitioners were assessed by CIR and ordered them to pay the sums of P37,128.00 as income tax due
from the partnership formed by herein petitioners for the years 1951 to 1954 and P20,619.00 for the years 1955
and 1956.
Issue: Whether or not petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466
Ruling: YES. For purposes of the tax on corporations, our National Internal Revenue Code, include these
partnerships — with the exception only of duly registered general co-partnerships within the purview of the term
"corporation." It is, therefore clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations."
Book: Taxable partnerships include leasing by father and son of lot and building to tenants under administration
by building administrator.

14. MARUBENI CORP vs COMMISSIONER

FACTS: Petitioner Marubeni s a foreign corporation duly organized under the existing laws of Japan and duly
licensed to engage in business under Philippine laws. Marubeni of Japan has equity investments in Atlantic Gulf
& Pacific Co. of Manila (AG&P). AG&P declared and directly remitted the cash dividends to Marubeni’s head
office in Tokyo net of the final dividend tax and withholding profit remittance tax.

Thereafter, Marubeni, through SGV, sought a ruling from the BIR on whether or not the dividends petitioner
received from AG&P are effectively connected with its conduct or business in the Philippines as to be
considered branch profits subject to the 15% profit remittance tax imposed under Section 24 (b) (2) of the
National Internal Revenue Code.

The Acting Commissioner ruled that the dividends received by Marubeni are not income from the business
activity in which it is engaged. Thus, the dividend if remitted abroad are not considered branch profits subject
to profit remittance tax. Pursuant to such ruling, petitioner filed a claim for refund for the profit tax remittance
erroneously paid on the dividends remitted by AG&P. Respondent Commissioner denied the claim. It ruled that
since Marubeni is a non-resident corporation not engaged in trade or business in the Philippines it shall be
subject to tax on income earned from Philippine sources at the rate of 35% of its gross income.

On the other hand, Marubeni contends that, following the principal-agent relationship theory, Marubeni Japan
is a resident foreign corporation subject only to final tax on dividends received from a domestic corporation.

ISSUE: W/N the remittance should be subjected to withholding tax?

RULING: NO. The general rule is that a foreign corporation is the same juridical entity as its branch office in the
Philippines, when, however, the corporation transacts business in the Philippines directly and independently of
its branch, the taxpayer would be the foreign corporation itself and subject to the dividend tax similarly
imposed on nonresident foreign corporation. The dividends attributable to Home Office would not qualify as
dividends earned by a resident foreign corporation, which is exempt from tax.

15. CIR vs. Marubeni

CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985 deficiency
income, branch profit remittance and contractor’s taxes from Marubeni Corp after finding the latter to have
properly availed of the tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export trading, financing and
construction, is duly registered in the Philippines with Manila branch office. CIR examined the Manila branch’s
books of accounts for fiscal year ending March 1985, and found that respondent had undeclared income from
contracts with NDC and Philphos for construction of a wharf/port complex and ammonia storage complex
respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that
the income respondent derived were income from Philippine sources, hence subject to internal revenue taxes.
On Sept 1986, respondent filed 2 petitions for review with CTA: the first, questioned the deficiency income,
branch profit remittance and contractor’s tax assessments and second questioned the deficiency commercial
broker’s assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who
wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under Title 3 and business
tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and stated those who
already availed amnesty under EO 41 should file an amended return to avail of the new benefits. Marubeni
filed a supplemental tax amnesty return on Dec 15, 1986.

Issue: W/N Marubeni is exempted from paying tax

Ruling: Yes.

Marubeni was able to sufficiently prove in trial that not all its work was performed in the Philippines because
some of them were completed in Japan (and in fact subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering and manufacture of the materials and
equipment under Japanese Yen Portion I were made and completed in Japan. These services were rendered
outside Philippines’ taxing jurisdiction and are therefore not subject to contractor’s tax.

They are income from without Philippines; Hence, not taxable to a foreign corp in the PH.

1. Madrigal vs. Rafferty

G.R. No. L-12287 August 7, 1918

FACTS: Vicente Madrigal and Susana Paterno were married with Conjugal Partnership as their property
relations.Vicente filed his 1914 income tax return but later claimed a refund on the contention that it was the
income of the conjugal partnership. Vicente claimed that the income should be divided into two with each
spouse filing a separate return.Hence, Vicente claimed that each spouse should be entitled to the P8,000
exemption, which would result in a lower amount of income tax due.

ISSUE: Define Income Tax

RULING: The essential difference between capital and income is that capital is a fund; income is a flow. A fund
of property existing at an instant of time is called capital. A flow of services rendered by that capital by the
payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a
period of time is called income. Capital is wealth, while income is the service of wealth.

A tax on income is not a tax on property. Income can be defined as profits or gains. Susana, has an inchoate
right in the property of her husband during the life of the conjugal partnership. Her interest in the ultimate
property rights and in the ultimate ownership of property acquired as income lies after such income has
become capital. She has no absolute right to ½ the income of the conjugal partnership. Not being seized of a
separate estate, Susana cannot make a separate return in order to receive the benefit of the exemption which
would arise by reason of the additional tax. As she has no estate and income, actually and legally vested in her
and entirely distinct from her husband’s property, the income cannot properly be considered the separate
income of the wife for purposes of the additional tax.

2. Moore vs Commissioner

Petitioner owned four thousand shares of stock in the Ajax Hand Brake Company. One George M.
DeGuire desired to purchase this stock. An agreement was reached, whereby the Petitioner agreed to sell said
stock to DeGuire paid in cash and evidenced with four notes executed by DeGuire, each of said notes to bear
interest from date at the rate of five per cent per annum, payable semi-annually.
 These notes and stock certificates attached were then deposited with the Harris Trust and Savings Bank
of Chicago, to be held by it in escrow, to be delivered to DeGuire as and when he paid the notes and all
interest due by the tender of a certified or cashier's check. If the notes were paid on or before due date, the
notes and stock certificates attached thereto were to be delivered to DeGuire. If DeGuire failed to pay any
note when due, the stock was to be delivered to the Petitioner and the note to DeGuire. The agreement
contained this important provision: "All dividends which may be paid during the life of this agreement, on the
stock of the Ajax Hand Brake Company agreed hereby to be sold, shall be credited by the recipient thereof
upon the principal and interest of the next one of said notes thereafter to become due."

DeGuire wrote a letter to the Harris Trust and Savings Bank, which contained his understanding of the
nature of the transaction between the parties: "With reference to Escrow Agreement No. 6489 dated January
16, 1936, between the writer, Mrs. Moore, Mr. Bosworth and your bank, in connection with certain notes which
you are holding for collection and against which stock of the Ajax Hand Brake Company is pledged as
collateral."

The Respondent contends that this transaction was no sale, that it was an option to purchase granted to
DeGuire; that Petitioner remained the owner of the stock at the time the dividend was declared, and was
therefore owner of the dividend as such and properly taxed therefor as income.

Issue: W/N the dividends belonged to the petitioner

Ruling:

Yes. Dividends are prima facie the income of the record-owner of the stock and are taxable to such
owner. But where the record-owner has sold the stock under an escrow agreement under which title is to be
retained by him, the dividends received by such owner and applied in reduction of the purchase price are not
taxable to him.

The Petitioner did not agree to transfer or assign to the attorney and did not transfer or assign to him any
interest or estate in the Ajax Company stock. It was simply the designation of a fund or property from which a
debt not related to that property was to be paid. There was no pledging of the property or any part thereof or
any interest therein to secure the payment of the agreed fee.

3. Mercy’s Inc vs CTA To whom income is taxable

Facts:

Petitioner is a corporation registered in Securities and Exchange Comission. After investigation, the
respondent Commission on Internal Revenue assessed a deficiency tax against Petitioner on the premise that
on its failure to file returns for the years 1953-1956. Petitioner contends that aforesaid assessment and requested
reconsideration on the grounds that investigation was conducted without due process and there were
mistakes in computation of respondent. Both requests were denied and respondent reiterated the demand for
payment of income deficiency tax assessed. Hence, this appeal to the court.

Issue:

Whether or not the deficiency income tax assessment issued against petitioners are legal and proper.

Held:

No.

Ownership of building by an individual makes the assessment against the corporation improper.

At the outset, it can be stated that the records of these cases clearly show that respondent's assessments are
primarily based on the examiners reports which are not well founded. Respondent’s examiners who
investigated petitioner’s tax liabilities did not conduct a thorough investigation. They did not secure or show any
evidence to prove that Mercy Building is owned by Mercy's Inc. They did not verify where the income of said
building really go during the years covered by the assessment. They cannot really say that petitioners intended
to evade payment of the tax; and the fact that two assessments were issued, one against Mercy Bldg., and the
other against Mercy Almonidovar de Vera, computed on the basis of tax on individual, which remained
unexplained. Respondent makes much of the circumstance that Mercy Almonidovar de Vera and Mercy’s Inc.
refused examination of her books and that of Mercy's Inc., despite repeated demands and duly issued
subpoena duces tecum. These circumstances cannot justify an inference that the taxpayer committed certain
violations under the Revenue Code.

It must be noted that respondent's assessment is based on the report of the examiners alleging failure of
Mercy's Inc. to file returns from 1953 to 1956 inspite of the receipt of income from Mercy Building it supposedly
own. In other words, the assessment rests on the alleged ownership of Mercy Building by Mercy’s Inc. This basis,
however, is belied by the very same report which states that Mercy Almonidovar de Vera is the registered
owner of said building. Needless to say, the income therefrom cannot be considered as income of Mercy's Inc.
Respondent could have check from the return of Mercy Almonidovar whether the income from said building
was included in her return. And, respondent could have explained why the assessment against Mercy’s Inc.
was computed on the basis of the tax on individuals. We are convinced by the explanation offered by
petitioners during trial that the taxpayer’s mistake -in not consolidating all her income is committed in good
faith and evidence showed that she did include the income from Mercy Building in her return. Moreover, in the
absence of any indication that Mercy Inc. received income during the years in question, its failure to file
income tax return for those years, were of no consequence. Considering therefore, the surrounding
circumstances, the assessment against Mercy's Inc.is not proper.

4. RCBC v. Commissioner CTA Case No. 6201

Facts: Petitioner is a corporation duly organized and existing under and by virtue of PH law, with principal office
located at 333 Gen Gil Puyat Avenue, Makati City, It is duly registered with SEC and authorized by BSP to
engage in general banking operations.

For the calendar years 1994 and 1995, petitioner seasonably files its 1994 and 1995 Corporation Annual Income
Tax Returns for Foreign Currency Deposit Unit.

Petitioner was assessed by the Commissioner of Internal Revenue for deficiency onshore income tax for the
calendar years 1994 and 1995. Said assessment was paid by the petitioner under protest.
Petitioner assails the validity of the assessment claiming that it is not liable to 10% onshore tax. The 10% final tax
on onshore income is the liability of the payor-borrower who is the constituted withholding agent of the
respondent. Petitioner avers that it is the payor-borrower who have the obligation to deduct, withhold, and
remit the said taxes to the BIR. Petitioner, being the lending OBU/FCDU, cannot be held liable for deficiency
onshore tax even if the withholding agents failed to remit the tax to the respondent.

Issue: Whether or not the petitioner is liable for deficiency onshore tax for taxable years 1994 and 1995 on its
interest income derived from foreign currency loans granted to residents

Ruling: Yes. Pursuant to Section 24 (e)(3) of the NIRC of 1993 provides that the interest income from foreign
currency loans granted by such depository banks under the said expanded system to residents (other than
offshore banking units in the PH or other depository banks under the expanded system) shall be subject to a
10% tax.

While it is true that the payor-borrower is the one constituted by law to withhold and remit the 10% final tax on
onshore income, the obligation of paying the 10% final tax on onshore income rests on petitioner being the one
directly liable for it pursuant to Section 24(e)(3) of the NIRD of 1993.

In one case, the Supreme Court elucidated the operation of the withholding tax system:

In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no
more than an agent of the government for the collection of the tax in order to ensure its payments; the payer is
the taxpayer – he is the person subject to tax imposed by law; and the payee is the taxing authority. In other
words, the withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however,
the agent-payor becomes a payee by fiction of law. His (agent) liability is direct and independent from the
taxpayer, because the income tax is still imposed on and due from the latter. The agent is not liable for the tax
as no wealth flowed into him – he earned no income.

The law and jurisprudence do not dispense the liability of the taxpayer with respect to the payment of the 10%
final tax on onshore income if the withholding agent fails to deduct and remit the same to the BIR. After all, it is
the taxpayer who earned the income.

*#5 CASE CANNOT BE FOUND – OMIT*

6. DBP vs. COA

Facts:

Development Bank of the Philippines (DBP) Board of Governors adopted Resolution No. 794 creating the DBP
Gratuity Plan and authorizing the setting up of a retirement fund to cover the benefits due to DBP retiring
officials and employees under Commonwealth Act No. 186, as amended. The Gratuity Plan was made
effective on June 17, 1967 and covered all employees of the Bank as of May 31, 1977.

In 1983, the DBP established a Special Loan Program availed thru the facilities of the DBP Provident Fund and
funded by placements from the Gratuity Plan Fund.

Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of ₱11,626,414.25
representing the net earnings of the investments for the years 1991 and 1992. The payments were disallowed by
the Auditor under Audit Observation Memorandum No. 93-2 dated March 1, 1993, on the ground that the
distribution of income of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and constituted the
use of public funds for private purposes which is specifically proscribed under Section 4 of P.D. 1445.8

The COA alleges that DBP is the actual owner of the Fund and its income, on the following grounds: (1) DBP
made the contributions to the Fund; (2) the trustees of the Fund are merely administrators; and (3) DBP
employees only have an inchoate right to the Fund.

The DBP counters that the Fund is the subject of a trust, and that the Agreement transferred legal title over the
Fund to the trustees. The income of the Fund does not accrue to DBP. Thus, such income should not be
recorded in DBP’s books of account.

Issue: Whether or not the DBP owns the income fund and has beneficial title over it

Ruling:

YES. The resumption of the SLP did not eliminate the trust or terminate the transfer of legal title to the Fund’s
trustees. The records show that the Fund’s Board of Trustees approved the SLP upon the request of the DBP
Career Officials Association. The DBP Board of Directors only confirmed the approval of the SLP by the Fund’s
trustees.

The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who will retire under
Commonwealth Act No. 186 ("CA 186"), as amended by RA 1616. RA 1616 requires the employer agency or
government instrumentality to pay for the retirement gratuity of its employees who rendered service for the
required number of years.40 The Government Service Insurance System Act of 1997 still allows retirement under
RA 1616 for certain employees.

As COA correctly observed, the right of the employees to claim their gratuities from the Fund is still inchoate. RA
1616 does not allow employees to receive their gratuities until they retire. However, this does not invalidate the
trust created by DBP or the concomitant transfer of legal title to the trustees. As far back as in Government v.
Abadilla, the Court held that "it is not always necessary that the cestui que trust should be named, or even be in
esse at the time the trust is created in his favor." It is enough that the beneficiaries are sufficiently certain or
identifiable
7. Baier Nickel vs. Commissioner

Facts:

Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation
engaged in "manufacturing, marketing on wholesale only, buying or otherwise acquiring, holding, importing
and exporting, selling and disposing embroidered textile products." Through JUBANITEX’s General Manager,
Marina Q. Guzman, the corporation appointed and engaged the services of respondent as commission agent.
It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected
through her efforts.

In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income from
which JUBANITEX withheld the corresponding 10% withholding tax amounting to P170,777.26, and remitted the
same to the Bureau of Internal Revenue (BIR). On October 17, 1997, respondent filed her 1995 income tax return
reporting a taxable income of P1,707,772.64 and a tax due of P170,777.26.6

On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26 alleged to have been
mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales commission
income is not taxable in the Philippines because the same was a compensation for her services rendered in
Germany and therefore considered as income from sources outside the Philippines

On June 28, 2000, the CTA rendered a decision denying her claim. It held that the commissions received by
respondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not
as a mere sales agent thereof. The income derived by respondent is therefore an income taxable in the
Philippines because JUBANITEX is a domestic corporation.

Issue: Whether or not respondent’s sales commission income is taxable in the Philippines

Ruling

Yes.

Non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on
their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of
non-resident aliens is the income’s "source." In construing the meaning of "source" in Section 25 of the NIRC,
resort must be had on the origin of the provision.

The important factor therefore which determines the source of income of personal services is not the residence
of the payor, or the place where the contract for service is entered into, or the place of payment, but the place
where the services were actually rendered.

8. Commissioner of Internal Revenue vs. Baier-NickelG.R. No. 153793. August 29, 2006
Facts: CIR appeals the CA decision, which granted the tax refund of respondent and reversed that of the CTA.
Juliane Baier-Nickel, a non-resident German, is the president of Jubanitex, a domestic corporation engaged in
the manufacturing, marketing and selling of embroidered textile products. Through Jubanitex’s general
manager, Marina Guzman, the company appointed respondent as commission agent with 10% sales
commission on all sales actually concluded and collected through her efforts.
In 1995, respondent received P1, 707, 772. 64 as sales commission from w/c Jubanitex deducted the 10%
withholding tax of P170, 777.26 and remitted to BIR. Respondent filed her income tax return but then claimed a
refund from BIR for the P170K, alleging this was mistakenly withheld by Jubanitex and that her sales commission
income was compensation for services rendered in Germany not Philippines and thus not taxable here.

Issue: Whether or not the claim for refund must be granted.

Held: No. What she presented as evidence to prove that she performed income-producing activities abroad
were copies of documents she allegedly faxed to Jubanitex and bearing instructions as to the sizes of, or
designs and fabrics to be used in the finished products as well as samples of sales orders purportedly relayed to
her by clients. However, these documents do not show whether the instructions or orders faxed ripened into
concluded or collected sales in Germany. At the very least, these pieces of evidence show that while Baier-
Nickel was in Germany, she sent instructions or oreders to Jubanitex. Thus, claim for refund must be denied
9. Commissioner v Marubeni Corporation GR. No. 137377 December 18, 2001
Facts:
Marubeni Corporation is a foreign corporation, organized and existing under the laws of Japan. It has a
branch office in Manila. The Commissioner of Internal Revenue found it to have undeclared income from two
contracts completed in 1984 in the Philippines:
 National Development Company (NDC) contract: to construct and install a wharf/port complex at the
Leyte Industrial Development Estate in the municipality of Isabel
 Philippine Phosphate Fertilizer Corporation (Philphos) contract: to construct an ammonia storage
complex also at the Leyte Industrial Development Estate.
Both contracts have the Foreign Offshore Portion and the Philippine Onshore Portion. There was no
dispute that the income from the completion of the Philippine Onshore Portion is taxable, as Marubeni already
declared it for tax purposes. What petitioner claims are taxes on the Foreign Offshore Portion. CIR contends that
each contract, being made on a "turn-key" basis, for a piece of work, and called for the construction and
installation of facilities in the Philippines, the entire income therefrom constituted income from Philippine
sources, hence, subject to internal revenue taxes.
Issue:
Whether or not the gross receipts from the Foreign Offshore Portion of the two contracts may be taxed
Ruling:
No, because they are not income sourced from the Philippines. While the construction and installation
work were completed within the Philippines, some pieces of equipment and supplies were completely
designed and engineered in Japan. For the NDC project, they were already finished products when shipped to
the Philippines. The other construction supplies were not finished products when shipped to the Philippines, but
were likewise fabricated and manufactured in Japan. All services for the design, fabrication, engineering and
manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside the taxing jurisdiction of the Philippines and are therefore not
subject to tax on a foreign corporation.
Moreover, payments for all materials and equipment under Japanese Yen Portion I were made to
Marubeni by NDC and Philphos in Japan. The NDC, through the Philippine National Bank, established letters of
credit in favor of respondent through the Bank of Tokyo. These were financed by letters of commitment issued
by the OECF (Overseas Economic Cooperation Fund) with the Bank of Tokyo. The Bank of Tokyo, upon
respondent's submission of pertinent documents, released the amount in the letters of credit in favor of
Marubeni and credited the amount therein to respondent's account within the same bank.
10. Commissioner v. BOAC [149 SCRA 395, April 30, 1987]

FACTS: Commissioner assessed BOAC’s deficiency income taxes for the fiscal years 1959-1971 for doing business
in PH. BOAC is a British-government owned corporation engaged in the international airline business. They sold
BOAC tickets through a general sales agent in PH, which covered passengers and cargoes. CTA ruled in favor
of BOAC, stating that the income derived from the tickets do not constitute as BOAC income from PH sources.

ISSUE: WON the income derived from the sale of tickets do not constitute as income from PH sources.

HELD: No. The source of an income is the property, activity or service that produced the income. For such
source to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the
income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency.
The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.

11. ALEXANDER HOWDEN & CO., LTD., H. G. CHESTER & OTHERS vs CIR

Facts: In 1950 the Commonwealth Insurance Co., a domestic corporation, entered into reinsurance with
Alexander Howden & Co., Ltd., representing the British insurance companies. Commonwealth Insurance Co
remitted P798,297.47 to Alexander Howden & Co., Ltd., as reinsurance premiums. In behalf of Alexander
Howden & Co., Ltd., Commonwealth Insurance Co. filed an income tax return declaring the sum of
P798,297.47, with accrued interest in the amount of P4,985.77, as Alexander Howden & Co., Ltd.'s gross income
for calendar year 1951. It also paid the BIR P66,112.00 income tax. On May 12, 1954, Alexander Howden & Co.,
Ltd. filed with the BIR a claim for refund of the P66,112.00, later reduced to P65,115.00, because it agreed to the
payment of P977.00 as income tax on the P4,985.77 accrued interest. Subsequently, petitioner. instituted an
action in the CFI of Manila for the recovery of the amount claimed. Tax Court denied the claim.

Issue: W/N the reinsurance premiums are subject to income tax because they constitute income from sources
within the Philippines.

Ruling: Yes. Reinsurance premiums paid to a foreign corporation is income from sources within the Philippines.
Reinsurance premiums remitted by domestic insurance company to foreign reinsurance companies are
considered income of the latter derived from sources within the Philippines. Since Section 53 (now Sec. 57) of
the Tax Code subjects to withholding tax various specified income, among them, premiums, the generic
connotation of each and every word or phrase composing the enumeration in subsection (b) is income.
Perforce, the word "premiums" which is neither qualified nor defined by the law itself, should mean income and
should include all premiums constituting income, whether they are insurance or reinsurance premiums. Section
24 (now Sec. 28) of the Tax Code does not require a foreign corporation to be engaged in business in the order
for its income sources within the Philippines to be taxable. It subjects foreign corporations not doing business in
the Philippines to tax for income from sources within the Philippines. If by source of income is meant the business
of the taxpayer, foreign corporations not engaged in business in the Philippines would be exempt from taxation
on their income from sources within the Philippines. Section 37 (now Sec. 42) of the Tax Code is not an all-
inclusive enumeration; it provides that "the following items of gross income shall be treated as gross income
from sources within the Philippines." It does not state or imply that an income not listed therein is necessarily
from sources outside Philippines.

12. Conwi v CTA and Commissioner (definition of Income)

Facts: Petitioners are Filipino citizens and employees of Procter and Gamble, in Makati. During the years 1970
and 1971 petitioners were assigned to other subsidiaries of Procter & Gamble, outside of the Philippines, during
which petitioners were paid U.S. dollars. When petitioners in C.T.A. Case No. 2511 filed their income tax returns
for the year 1970, they computed the tax due by applying the dollar-to-peso conversion on the basis of the
floating rate ordained under B.I.R. Ruling No. 70-027 dated May 14, 1970.

On February 8, 1973 and October 8, 1973, petitioners in said cases filed with the office of the respondent
Commissioner, amended income tax returns using the par value of the peso as prescribed in Section 48 of RA
No. 265 in relation to Section 6 of Commonwealth Act No. 265 the basis for converting their respective dollar
income into Philippine pesos for purposes of computing and paying the corresponding income tax due from
them. The aforesaid computation resulted in the alleged overpayments. Claims for refund of said over-
payments were filed with respondent Commissioner. Without awaiting the resolution on their claims, petitioners
filed their petitioner for review. Petitioners argue that since there were no remittances and acceptances of their
salaries and wages in US dollars into the Philippines, they are exempt from the coverage of such circulars. Court
of Tax Appeals denied their petition.

Issue: Whether or not the petitioners are exempt from paying tax due to the fact that there were no
remittances and acceptances of their salaries and wages in US dollars into the Philippines

Ruling: No. Income means an amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or
its equivalent. Income can also be thought of as flow of the fruits of one's labor. Petitioners forget that they are
citizens of the Philippines, and their income, within or without, and in these cases wholly without, are subject to
income tax. Sec. 21, NIRC, as amended, does not brook any exemption. Dollar earnings are considered
income. —The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter &
Gamble. It was a definite amount of money which came to them within a specified period of time of two years
as payment for their services.

13. Madrigal Vs. Rafferty

38 PHIL 414
FACTS: Vicente Madrigal and Susana Paterno were legally married and have conjugal partnership.
Madrigal filed his total net income for the year is P296,302.73.

Subsequently, Madrigal submitted the claim that the said total net income of year 1914 did not represent his
income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and
his wife, and the computing and assessing the additional income tax provided by the Act of Congress of Oct.
3, 1913, the income declared by Madrigal and the other half of Paterno.

Madrigal and Paterno brought action against Collector of Internal Revenue and the Deputy Collector of
Internal Revenue for the recovery of the sum P3,786.08.

The burden of the complaint was that if the income tax for the year 1914 had been correctly and lawfully
computed there would have been due payable by each of the plaintiff the sum of P2,921.09, which taken
together amount of P5842.18 instead of P9,668.21.

Issue: WON the additional income tax should be divided into equal parts because of the conjugal partnership
existing between them?

Held: NO.Paterno has an inchoate right in the property of her husband Madrigal during the lifetime of the
conjugal property. She has an interest in the ultimate ownership of property acquired as income of the
conjugal partnership. Not being seized of the separate estate, Paterno cannot make a separate return in order
to receive the benefit of the exemption which would arise by reason of the additional tax. As she has no estate
or income, actually and legally vested in her and entirely distinct from her husband property, the income
cannot properly be considered the separate income of the wife for the purpose of the additional tax. The
income tax law does not look on the spouses as individual partners in an ordinary partnership.

The higher schedules of the additional tax directed at the incomes of the wealthy may not be partially
defeated by reliance on provisions in our Civil Code dealing with the conjugal partnership and having no
application to the Income Tax Law.

Definition of Income

14. JAMES v. US

Facts:

The defendant, Eugene James, was an official in a labor union who had embezzled more than $738,000 in
union funds, and did not report these amounts on his tax return. He was tried for tax evasion, and claimed in his
defense that embezzled funds did not constitute taxable income because, like a loan, the taxpayer was legally
obligated to return those funds to their rightful owner. Indeed, James pointed out, the Supreme Court had
previously made such a determination in Commissioner v. Wilcox, 327 U.S. 404 (1946). However, this defense
was unavailing in the trial court, where Eugene James was convicted and sentenced to three years in prison

Issue:

Whether or not the receipt of embezzled funds constitutes income taxable to the wrongdoer.

Ruling:

YES.

Income includes earnings, lawfully or unlawfully acquired, without consensual recognition, express or implied, of
an obligation to repay and without restriction as to their disposition.

15. Madrigal v. Rafferty, 38 Phil. 414

Facts:

Vicente Madrigal and Susana Paterno were legally married prior to Jan. 1, 1914. The marriage was contracted
under the provisions of law concerning conjugal partnership. On 1915, Madrigal filed a declaration of his net
income for year 1914, the sum of P296,302.73. Vicente Madrigal was contending that the said declared income
does not represent his income for the year 1914 as it was the income of his conjugal partnership with Paterno.
He said that in computing for his additional income tax, the amount declared should be divided by 2. The
revenue officer was not satisfied with Madrigal’s explanation and ultimately, the United States Commissioner of
Internal Revenue decided against the claim of Madrigal. Madrigal paid under protest, and the couple
decided to recover the sum of P3,786.08 alleged to have been wrongfully and illegally assessed and collected
by the CIR.

Issue: WON the income reported by Madrigal should be divided into 2.

Held:

No. Income as contrasted with capital or property is to be the test. The essential difference between capital
and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called
capital. A flow of services rendered by that capital by the payment of money from it or any other benefit
rendered by a fund of capital in relation to such fund through a period of time is called an income. Capital is
wealth, while income is the service of wealth. Not being seized of a separate estate, Susana Paterno cannot
make a separate return in order to receive the benefit of the exemption which would arise by reason of the
additional tax. As she has no estate and income, actually and legally vested in her and entirely distinct from her
husband's property, the income cannot properly be considered the separate income of the wife for the
purposes of the additional tax. Moreover, the Income Tax Law does not look on the spouses as individual
partners in an ordinary partnership.

16. MADRIGAL VS RAFERTY, 38 PHIL 414

FACTS: Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914 which marriage was
contracted under conjugal partnership. On 1915, Madrigal filed a declaration of his net income for year 1914,
the sum of P296,302.73. He contended that the said declared income does not represent his income for the
year 1914 as it was the income of his conjugal partnership with Paterno. He said that in computing for his
additional income tax, the amount declared should be divided by 2.
The revenue officer was not satisfied with Madrigal’s explanation and ultimately, the United States
Commissioner of Internal Revenue decided against the claim of Madrigal. Petitioner paid under protest, and
the couple decided to recover the sum of P3,786.08 alleged to have been wrongfully and illegally assessed
and collected by the CIR.
ISSUE: Whether or not the income reported by Madrigal on 1915 should be divided into 2 in computing for the
additional income tax.
RULING: No. The point of view of the CIR is that the Income Tax Law, as the name implies, taxes upon income
and not upon capital and property. The essential difference between capital and income is that capital is a
fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services
rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in
relation to such fund through a period of time is called income. Capital is wealth, while income is the service of
wealth. Capital is the tree, while income is the fruit; labor is a tree, income the fruit; property is a tree, income
the fruit. As Paterno has no estate and income, actually and legally vested in her and entirely distinct from her
husband’s property, the income cannot properly be considered the separate income of the wife for the
purposes of the additional tax. To recapitulate, Vicente wants to half his declared income in computing for his
tax since he is arguing that he has a conjugal partnership with his wife. However, the court ruled that the one
that should be taxed is the income which is the flow of the capital, thus it should not be divided into 2.

17. Eisner vs Macomber

Facts: On January 1, 1916, the Standard Oil Company of California, a corporation of that state, out of an
authorized capital stock of $100,000, 000, had shares of stock outstanding, par value $100 each, amounting in
round figures to $50,000,000. In addition, it had surplus and undivided profits invested in plant, property, and
business and required for the purposes of the corporation, amounting to about $45,000,000, of which about
$20,000,000 had been earned prior to March 1, 1913, the balance thereafter. In January, 1916, in order to
readjust the capitalization, the board of directors decided to issue additional shares sufficient to constitute a
stock dividend of 50 per cent. of the outstanding stock, and to transfer from surplus account to capital stock
account an amount equivalent to such issue. Appropriate resolutions were adopted, an amount equivalent to
the par value of the proposed new stock was transferred accordingly, and the new stock duly issued against it
and divided among the stockholders. Mrs. Macomber owned 2,200 shares in Standard Oil, which declared a
50% stock dividend. She received 1,100 additional shares, about $20,000 in par value of which represented
earnings accumulated by the company, recapitalized rather than distributed, since the effective date of the
original tax law.

The current statute expressly included stock dividends in income, and the government contended that the
certificates should be taxed as income to Mrs. Macomber as if the corporation had distributed money to her.
Defendant United States treated those shares as income, and plaintiff paid a tax under protest on the same.
Plaintiff brought an action against defendant and Mark Eisner, the Collector of Internal Revenue to recover the
tax contending that in imposing such a tax, the Revenue Act of September 8, 191 violated Article 1 of the
Constitution, which required direct taxes to be apportioned according to population. The district court held in
favor of plaintiff and defendant sought the court's review.
Issue: WON the contested taxation without apportionment of plaintiff's stock dividend violative of Article 1 of
the United States Constitution

Ruling: Yes. The Court held that by treating the dividends as income, defendant failed to appraise correctly the
force of the term "income" as the mere issue of a stock dividend made plaintiff no richer than before. Therefore,
Congress did not have the power to tax without apportionment a stock dividend made lawfully and in good
faith, as income of the stockholder, and the Act failed as a contravention of Article 1 of the Constitution.
Income may be defined as the gain derived from capital, from labor, or from both combined, provided it be
understood to include profit gained through a sale conversion of capital assets. Realization Test: There’s no
taxable income until there is a separation from capital of something of exchangeable value, thereby supplying
the realization or transmutation which would result in the receipt of income.

18. COMMISSIONER VS WILCOX (taxpayer)

FACTS:

The taxpayer was employed as a bookkeeper by a transfer and warehouse company in Reno, Nevada. He
was paid his salary promptly each month when due, it not being the custom to allow him to draw his salary in
advance. The company's books were audited and it was discovered for the first time that the taxpayer had
converted a sum of money to his own use. This amount was composed of miscellaneous sums of money
belonging to the company which he had received and collected at various times in his capacity as
bookkeeper. He failed to deposit this money to the credit of the company. Instead, he pocketed and withdrew
payments in cash made to him by customers.

The taxpayer lost practically all of this money in various gambling houses in Reno. The company never
condoned or forgave the taking of the money, and still holds him liable to restore it. The taxpayer was
convicted of the crime of embezzlement. The Commissioner determined that the taxpayer was required to
report the money embezzled as income received in that year, and asserted a tax deficiency.

ISSUE: whether embezzled money constitutes taxable income to the embezzler under Section 22(a) of the
Internal Revenue Code.

RULING: NO

Claim of Right Doctrine: a taxable gain is conditioned upon (1) the presence of a claim of right to the alleged
gain and (2) the absence of a definite, unconditional obligation to repay or return that which would otherwise
constitute a gain.

To collect the would give the government an unjustified preference as to the part of the money that rightfully
and completely belong to the victim. The embezzler’s title is void.

Had the taxpayer used the embezzled money and obtained profits therefrom, such profits might have been
taxable regardless of the illegality involved. Or had his employer condoned or forgiven any part of the unlawful
appropriation, the taxpayer might have been subject to tax liability to that extent. But neither situation is
present in this proceeding, and we need not explore such possibilities. Sanctioning a tax under the
circumstances before us would serve only to give the United States an unjustified preference as to part of the
money which rightfully and completely belongs to the taxpayer's employer.

19. Commissioner vs. Javier 199 scra 824

Facts: Victoria Javier, wife of respondent Javier, received from Prudential Bank $999,973.70 remitted by her sister
Mrs. Dolores Ventosa, through banks in the US including Mellon Bank. Mellon filed a case in CFI Rizal against
Javier claiming that the remittance of $1million was a clerical error, and it should have been $1000 only,
praying the excess be returned, since the Javiers were only trustees of an implied trust for the benefit of Mellon.
Sps Javier were charged with estafa for misappropriating, misapplying, and converting the money to their own
personal use. A year after, Javier filed his Income Tax Return for taxable year 1977 which showed gross income
of P53K, and net income P48K and stating in a footnote that “taxpayer was recipient of some money received
from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation”.
Acting Commissioner of Internal Revenue assessed deficiency taxes P1,615.96 and P9.28million as deficiency
assessments for years 1976, 1977 respectively. Javier agreed to pay 1976 deficiency, but prayed that the final
court decision on the case filed against him be waited. CIR sent a letter protest, saying that the amount of the
erroneous remittance that they disposed was taxable. It imposed 50% fraud penalty against them. CTA deleted
the 50% fraud penalty upon appeal, saying that there was no fraud.

Issue: Whether or not Javier is liable to pay the 50% penalty

Ruling: NO. Under the then Section 72 of the Tax Code (now Section 248 of the 1988 National Internal Revenue
Code), a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of
the deficiency tax in case payment has been made on the basis of the return filed before the discovery of the
falsity or fraud.

In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the
government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The
government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its
lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake
of law is not fraud. The petitioner's zealousness to collect taxes from the unearned windfall to Javier is highly
commendable.1âwphi1 Unfortunately, the imposition of the fraud penalty in this case is not justified by the
extant facts. Javier may be guilty of swindling charges, perhaps even for greed by spending most of the money
he received, but the records lack a clear showing of fraud committed because he did not conceal the fact
that he had received an amount of money although it was a "subject of litigation." As ruled by respondent
Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by the petitioner against the private
respondent in the deficiency assessment should be deleted.

SUMMARY: This is the so called million-dollar case. Javier erroneously received $1million from the US, and a case
was filed against them to return the money. When they filed an Income Tax Return, CIR wanted to assess 50%
penalty for fraud for not reporting such income. CTA removed the penalty, and SC upheld CTA decision, saying
that there was a footnote which basically showed that Javier spouses did not intend to defraud the
government.

20. GUTIERREZ VS. COLLECTOR – test in determining income

FACTS: Maria Morales, married to Gutierrez(spouses), was the owner of an agricultural land. The U.S.
Gov(pursuant to Military Bases Agreement) wanted to expropriate the land of Morales to expand the Clark Field
Air Base. The Republic was the plaintiff, and deposited a sum of Php 152k to be able to take immediate
possession. The spouses wanted consequential damages but instead settled with a compromise agreement. In
the compromise agreement, the parties agreed to keep the value of Php 2,500 per hectare, except to some
particular lot which would be at Php 3,000 per hectare.

In an assessment notice, CIR demanded payment of Php 8k for deficiency of income tax for the year 1950. The
spouses contend that the expropriation was not taxable because it is not "income derived from sale, dealing or
disposition of property" as defined in Sec. 29 of the Tax Code. The spouses further contend that they did not
realize any profit in the said transaction. CIR did not agree. The spouses appealed to the CTA. The Solicitor
General, in representation of the respondent Collector of Internal Revenue, filed an answer that the profit
realized by petitioners from the sale of the land in question was subject to income tax, that the full
compensation received by petitioners should be included in the income received in 1950, same having been
paid in 1950 by the Government. CTA favored SolGen but disregarded the penalty charged.

Issue: Whether or not that for income tax purposes, the expropriation should be deemed as income from sale
and any profit derived therefrom is subject to income taxes capital gain?

Ruling: Yes It is to be remembered that said property was acquired by the Government through condemnation
proceedings and appellants' stand is, therefore, that same cannot be considered as sale as said acquisition
was by force, there being practically no meeting of the minds between the parties. U.S jurisprudence has held
that the transfer of property through condemnation proceedings is a sale or exchange within the meaning of
section 117 (a) of the 1936 Revenue Act and profit from the transaction constitutes capital gain" "The taking of
property by condemnation and the, payment of just compensation therefore is a "sale" or "exchange" within
the meaning of section 117 (a) of the Revenue Act of 1936, and profits from that transaction is capital gain.

SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains, profits, and income
derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form
paid, or from professions, vocations, trades, businesses, commerce, sales or dealings in property, whether real or
personal, growing out of ownership or use of or interest in such property; also from interests, rents, dividends,
securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived
from any source whatsoever.

SEC. 37. INCOME FROM SOURCES WITHIN THE PHILIPPINES.

—
(a) Gross income from sources within the Philippines. — The following items of gross income shall be treated as
gross income from sources within the Philippines:

(5) SALE OF REAL PROPERTY. — Gains, profits, and income from the sale of real property located in the
Philippines;

It appears then that the acquisition by the Government of private properties through the exercise of the power
of eminent domain, said properties being JUSTLY compensated, is embraced within the meaning of the term
"sale" "disposition of property", and the proceeds from said transaction clearly fall within the definition of gross
income laid down by Section 29 of the Tax Code of the Philippines.

21. Commissioner vs. Smith 324 U.S. 177 (Test in determining income)
FACTS: Respondent's employer gave to him, as compensation for his services, an option to purchase from the
employer certain shares of stock of another corporation at a price not less than the then value of the stock. In
two later tax years, when the market value of the stock was greater than the option price, respondent
exercised the option, purchasing large amounts of the stock in each year. The question for decision is whether
the difference between the market value and the option price of the stock was compensation for personal
services of the employee, taxable as income in the years when he received the stock.
ISSUE: Is the Respondent liable to pay tax?

HELD: Yes. under § 22(a) of the Revenue Act of 1938 and of the Internal Revenue Code, the employee
received "compensation for personal service," and hence taxable income in each year in which stock was
acquired, through effective exercise of the option in that year, in the amount of the difference between the
option price and the then market value of the stock.

The conclusion of the Tax Court upon the facts of this case that the option to purchase stock was effectively
exercised and taxable compensation was received, not when the optionee made his election and paid the
option price, but when the shares were delivered to him, is supported by the record.
Section 22(a) of the Revenue Act defines 'gross income' subject to the Act as including 'gains, profits, and
income derived from salaries, wages, or compensation for personal service ..., of whatever kind and in
whatever form paid ....' Treasury Regulations 101, Art. 22(a)-1 provides: 'If property is transferred ... by an
employer to an employee, for an amount substantially less than its fair market value, regardless of whether the
transfer is in the guise of a sale or exchange, such ... employee shall include in gross income the difference
between the amount paid for the property and the amount of its fair market value to the extent that such
difference is in the nature of (1) compensation for services rendered. ...'

Section 22(a) of the Revenue Act is broad enough to include in taxable income any economic or financial
benefit conferred on the employee as compensation, whatever the form or mode by which it is effected.

22. Brotherhood Labor Unity Movement of the Phil. v. Zamora

Facts: The petitioners are employed at the San Miguel Factory as “kargadors” for seven years. Their work was
neither regular nor continuous, depending on the volume of bottles to be loaded and unloaded. However,
work, necessitated work on Sundays and holidays - for this, they were neither paid overtime nor compensation.
The workers organized and affiliated themselves with Brotherhood Labor Unity Movement (BLUM). They wanted
to be paid to overtime and holiday pay. They pressed the SMC management to hear their grievances. BLUM
filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of some of its
members. San Miguel refused to bargain with the union alleging that the workers are not their employees but
the employees of an independent labor contracting firm, Guaranteed Labor Contractor.The workers were
dismissed from their jobs and denied entrance to the glass factory despite their regularly reporting for work. A
complaint was filed for illegal dismissal and unfair labor practices.

Issue: Whether or not there was employer-employee relationship between the workers and San Miguel Corp.

Held: YES.

BOOK: The term “compensation” means all remuneration for services performed by an employee for his
employer under an employee-employer relationship. In determining if there is an existence of the (ER-EE)
relationship, the four-fold test was used by the Supreme Court. These are: The selection and engagement of the
employee, Payment of wages, Power of dismissal and Control Test – (the employer’s power to control the
employee with respect to the means and methods by which work is to be accomplished.) It is the so-called
“control test” that is the most important element.

In the case, the records fail to show that San Miguel entered into mere oral agreements of employment with
the workers. Considering the length of time that the petitioners have worked with the company, there is
justification to conclude that they were engaged to perform activities necessary in the usual business or trade.
Despite past shutdowns of the glass plant, the workers promptly returned to their jobs. The term of the
petitioner’s employment appears indefinite and the continuity and habituality of the petitioner’s work bolsters
the claim of an employee status.

*SC ordered San Miguel to reinstate the petitioners with 3 years backwages.

23. First Lepanto Taisho Insurance Corporation vs. Commissioner of Internal Revenue

Facts: Petitioner is a non-life insurance corporation and considered as a ‘Large Taxpayer under Revenue
Regulations No. 6-85,’ as amended by Revenue Regulations No. 12-94 effective 1994. Petitioner received a
Letter of Authority from respondent (CIR) to allow it to examine their books of account and other accounting
records for 1997 and other unverified prior years.

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the ₱500,000.00
Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales, Felipe Yap, and Catalino
Macaraig, Jr., because they were not employees and the amount was already subjected to Expanded
Withholding Tax. The CTA En Banc, however, ruled that Section 5 of Revenue Regulation No. 12-86 expressly
identified a director to be an employee.

ISSUE: Whether or not the CTA En Banc erred in holding petitioner liable for deficiency withholding taxes on
compensation on directors’ bonuses.

Ruling: NO

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation No.
12-86,to wit: An individual, performing services for a corporation, whether as an officer and director or merely as
a director whose duties are confined to attendance at and participation in the meetings of the Board of
Directors, is an employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does not
ipso facto create a presumption that they are not employees of the corporation, because the imposition of
withholding tax on compensation hinges upon the nature of work performed by such individuals in the
company. Moreover, contrary to petitioner’s attestations, Revenue Regulation No. 2-98,15 specifically, Section
2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a later regulation while the accounting
books examined were for taxable year 1997.

24. Escareal vs. Court of Tax Appeals

Facts: Petitioner was hired by the Philippine Refining Company, Inc. (PRC) for the position of Pollution Control
Manager. The contract of employment provides, inter alia, that his mandatory retirement age is 60 years old.

Three (3) years before his mandatory retirement he was terminated due to redundancy of the said
position. He filed a complaint for illegal dismissal with damages against the private respondent PRC. The court
at end order the respondent to pay the petitioner backwages inclusive of allowances and the monetary
equivalent of other benefits due him for that period, as well as his retirement pay and other benefits provided
under the former's compulsory retirement scheme.

Issue: Whether the said back wages are subject to income tax.

Ruling: Yes. When an award of backwages is made, there is an acceptance that the employee wasillegally or
unjustly terminated, and the backwages are the salaries he was supposed to have earned had he not been
dismissed. It is as though he was not separated from employment, and as though he actually rendered service.
In this connection, the employee should report as income and pay the corresponding taxes by allocating or
spreading his back wages, allowances and benefits through the years from his separation up to the final
decision of the court awarding the back wages.

25. Henderson v. Collector

FACTS: The spouses Arthur Henderson and Marie Henderson filed with BIR returns of annual net income for the
years 1948-1952. The Henderson's received notice of assessment from BIR, and subsequently, paid the
assessment. BIR reassessed the taxpayers’ income for the year 1948-1952 and demanded payment of the
deficiency taxes.

In the assessments, BIR considered as part of their taxable income the husband’s allowances for rental,
residential expenses, subsistence, water, electricity and telephone; bonus paid to him; withholding tax and
entrance fee to Marikina Gun and Country Club paid by his employer for his account; and travelling allowance
of his wife in 1952.

Taxpayers claim that as regards the husband-taxpayer's allowances for rental and utilities such as water,
electricity and telephone, he did not receive the money for said allowances, but that they lived in the
apartment furnished and paid for by his employer for its convenience; that they had no choice but live in the
said apartment furnished by his employer. As to the entrance fee to the Marikina Gun and Country Club paid
by his employer and should not be considered as part of their income as with the wife-taxpayer travelling
allowance.
ISSUE: Are the allowances for rental of the apartment furnished by the husband-taxpayer's employer-
corporation, including utilities such as light, water, telephone, etc. and the allowance for travel expenses given
by his employer-corporation to his wife in 1952 part of taxable income?

RULING: NO. The prevailing judicial opinion is to the effect that generally, the value to the employee of living
quarters and meals furnished in addition to salary constitutes income subject to tax. However, where the
quarters and meals are furnished for the convenience of the employer, the ratable value of the same need not
be added to the salary or cash compensation of the employee for income tax purposes.

Collector of Internal Revenue is ordered to refund the taxpayers.

26. Commissioner vs Smith

(Cannot find any relation sa facts and ruling)

Smith Kline and French Overseas Company, a multinational firm domiciled in Philadelphia, Pennsylvania, is
licensed to do business in the Philippines. It is engaged in the importation, manufacture and sale of
pharmaceuticals drugs and chemicals.

In its 1971 original income tax return, Smith Kline declared a net taxable income of P1,489,277 and paid
P511,247 as tax due. Among the deductions claimed from gross income was its share of the head office
overhead expenses. However, there was an overpayment of P324,255 "arising from under deduction of home
office overhead". It made a formal claim for the refund of the alleged overpayment.

It appears that sometime in October, 1972, Smith Kline received from its international independent auditors,
Peat, Marwick, Mitchell and Company, an authenticated certification to the effect that the Philippine share in
the unallocated overhead expenses of the main office for the year ended December 31, 1971 was actually
$219,547 (P1,427,484). It further stated in the certification that the allocation was made on the basis of the
percentage of gross income in the Philippines to gross income of the corporation as a whole. By reason of the
new adjustment, Smith Kline's tax liability was greatly reduced from P511,247 to P186,992 resulting in an
overpayment of P324,255.

Without awaiting the action of the Commissioner of Internal Revenue on its claim Smith Kline filed a petition for
review with the Court of Tax Appeals.

Issue:

Ruling:

A corporation grants option to its employees to buy its shares of stock at P150 per share. The employees
exercised the options at the time the shares of stock were selling at the stock exchange at P200 per share.
There is additional compensation income of P50 per share at the exercise date.

27. COMMISSIONER vs. BOAC

149 SCRA 395
GR No. L-65773-74 April 30, 1987

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of deficiency
income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1971.
BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United
Kingdom, and is engaged in the international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines. Consequently,
it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines — Wamer Barnes and Company, Ltd., and
later Qantas Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. The
CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC income from
Philippine sources since no service of carriage of passengers or freight was performed by BOAC within the
Philippines and, therefore, said income is not subject to Philippine income tax. The CTA position was that
income from transportation is income from services so that the place where services are rendered determines
the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no landing
rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income. For the source
of income to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces
the income. The tickets exchanged hands here and payments for fares were also made here in Philippine
currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and
occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of supporting the government.

28. Luzon Stevedoring Co. vs Trinidad

Facts:

Plaintiff is engaged in the stevedoring business in said city consisting of loading and unloading cargo
from vessels in port, at certain rates of charge per unit of cargo; that all the work done by it is conducted under
the direct supervision of the officers of the ships and under the instruction given to plaintiff’s men by the captain
and officers of said ships.

The defendant alleged that during the first quarter of the year 1921 the plaintiff was engaged in business as a
contractor, its gross receipts from said business during said quarter amounting to P242,281.33, and that the
defendant, under the provisions of section 1462 of Act No. 2711, levied and assessed on the above-mentioned
amount the percentage tax amounting to P2,422.81, which the plaintiff paid on April 18, 1921, under protest,
this protest having been duly overruled by the defendant.

Issue: W/N the plaintiff is a contractor

Ruling:

No. Although, in a general sense, every person who enters into a contract may be called a contractor,
yet the word, for want of a better one, has come to be used with special reference to a person who, in the
pursuit of an independent business, undertakes to do a specific piece or job or work for other persons, using his
own means and methods without submitting himself to control as to the petty details. The true test of a
‘contractor’ would seem to be that he renders the service in the course of an independent occupation,
representing the will of his employer only as to the result of his work, and not as to the means by which it is
accomplished.”

29. Commissioner vs Engineering Equipment and Supply Company

Facts:

Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an
engineering and machinery firm. As operator of an integrated engineering shop, it is engaged, among others,
in the design and installation of central type air conditioning system, pumping plants and steel fabrication

Upon a letter from a certain Juan dela Cruz denouncing the company for tax evasion and fraud in
obtaining its dollar allocations, a joint team of BIR, CB and NBI agents conducted a raid and voluminous
documents were seized and confiscated. The Commissioner contends that Engineering is a manufacturer and
seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance
sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same. Engineering
claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof
subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and
installation of the central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the
same Code, which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of
articles subject to the tax referred to in Sections 184, 185 and 186 of the Code.

Issue:

Whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in
relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code

Held:

Respondent is a contractor!

Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical
Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila and not as manufacturers. It likewise paid
the contractors tax on all the contracts for the design and construction of central system as testified to by Mr.
Rey Parker, its President and General Manager. Similarly, Engineering did not have ready-made air conditioning
units for sale

The word “contractor” has come to be used with special reference to a person who, in the pursuit of
the independent business, undertakes to do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the petty details. The true test of a contractor
would seem to be that he renders service in the course of an independent occupation, representing the will of
his employer only as to the result of his work, and not as to the means by which it is accomplished.

(BOOK)

The employer-employee relationship exists only where the person rendering employment services is an
individual and not a corporation. Moreover, the true test in determining the relationship between parties is that if
he renders service in the course of an independent occupation, representing the will of his employer only as to
the result of his work and not as to the means and methods by which the work is to be accomplished, he is a
contractor.

30. Advertising Associates, Inc. vs Court of Appeals and CIR

Facts: Advertising Associates is being held liable for 3% Contractor’s percentage tax for rental income from the
lease of neon signs and billboards imposed by 1933 tax code on business agents and independent contractors.
petitioner relies on the Collector's rulings dated September 12, 1960 and June 20, 1967 that it is neither an
independent contractor nor a business agent.

As already stated, it considers itself a media company, like a newspaper or a radio broadcasting company,
but not an advertising agency in spite of the purpose stated in its articles of incorporation. It argues that its act
of leasing its neon signs and billboards does not make it a business agent or an independent contractor. It
stresses that it is a mere lessor of neon signs and billboards and does not perform advertising services.

Section 191 defines an independent contractor as including all persons whose activity consists essentially of the
sale of all kinds of services for a fee. Section 194(v) of the Tax Code defines a business agent as including
persons who conduct advertising agencies. Its business is limited to the making, construction and installation of
billboards and electric signs and making and printing of posters, signs, handbills, etc..It contends that it is a
media company, not an advertising company.

The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for
1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income
from billboards and neon signs.

The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary
purpose is to engage in general advertising business. Its income tax returns indicate that its business was
advertising

Issue: W/N petitioner is liable to pay deficiency tax.

Ruling: Yes. The undeniable fact is that neon signs and billboards are primarily designed for advertising. We hold
that the petitioner is a business agent and an independent contractor as contemplated in sections 191 and
194(v).
However, in view of the prior rulings that the taxpayer is not a business agent nor an independent contractor
and in view of the controversial nature of the deficiency assessments, the 25% surcharge should be eliminated.
31. CIR vs CA and GCL RETIREMENT PLAN G.R. No. 95022 March 23, 1992
FACTS:
GCL Retirement Plan is an employees' trust to provide retirement, pension, disability and death benefits
to its employees. The Plan as submitted was approved and qualified as exempt from income tax. Respondent
GCL made investsments and earned therefrom interest income from which was witheld the fifteen per centum
(15%) final witholding tax imposed by Pres. Decree No. 1959. Respondent GCL filed with Petitioner a claim for
refund in the amounts of P1,312.66 withheld by Anscor Capital and Investment Corp., and P2,064.15 by
Commercial Bank of Manila. On 12 February 1985, it filed a second claim for refund of the amount of P7,925.00
withheld by Anscor, stating in both letters that it disagreed with the collection of the 15% final withholding tax
from the interest income as it is an entity fully exempt from income tax as provided under Rep. Act No. 4917 in
relation to Section 56 (b) 3 of the Tax Code. The refund requested having been denied, Respondent GCL
elevated the matter to respondent Court of Tax Appeals (CTA). The latter ruled in favor of GCL, holding that
employees' trusts are exempt from the 15% final withholding tax on interest income and ordering a refund of the
tax withheld. Upon appeal, originally to this Court, but referred to respondent Court of Appeals, the latter
upheld the CTA Decision.

ISSUE: WON the GCL Plan is exempt from the final withholding tax on interest income from money placements
and purchase of treasury bills required by Pres. Decree No. 1959?

HELD:
Yes. The Court upheld the exemption. To begin with, it is significant to note that the GCL Plan was
qualified as exempt from income tax by the Commissioner of Internal Revenue in accordance with Rep. Act
No. 4917 approved on 17 June 1967. In so far as employees' trusts are concerned, the foregoing provision
should be taken in relation to then Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No.
1983, supra, which took effect on 22 June 1957. This provision specifically exempted employee's trusts from
income tax. The tax-exemption privilege of employees' trusts, as distinguished from any other kind of property
held in trust, springs from the foregoing provision. It is unambiguous. Manifest therefrom is that the tax law has
singled out employees' trusts for tax exemption. There can be no denying either that the final withholding tax is
collected from income in respect of which employees' trusts are declared exempt (Sec. 56 [b], now 53 [b], Tax
Code). The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by requiring its payment at the source. If
an employees' trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a
certain percentage of that income which it is not supposed to pay in the first place.
32. Fisher vs. Collector

Facts:

That during the year 1919 the Philippine American Drug Company was a corporation duly organized and
existing under the laws of the Philippine Islands, doing business in the City of Manila.

Appellant was a stockholder in said corporation; and as a result of the business for that year, declared a "stock
dividend"; that the proportionate share of said stock divided of the appellant was P24,800; that the stock
dividend for that amount was issued to the appellant. Thereafter, in the month of March, 1920, the appellant,
upon demand of the appellee, paid under protest, and voluntarily, unto the appellee the sum of P889.91 as
income tax on said stock dividend. For the recovery of that sum (P889.91) the present action was instituted. The
defendant demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of
action. The demurrer was sustained and the plaintiff appealed.

Issue: Whether or not stock dividends are income thus subject to taxation

Ruling:
No. "A dividend is defined as a corporate profit set aside, declared, and ordered by the directors to be paid to
the stockholders on demand or at a fixed time. Until the dividend is declared, these corporate profits belong to
the corporation, not to the stockholders, and are liable for corporate indebtedness.

In such a case, if the holder of the stock dividend is required to pay an income tax on the same, the result
would be that he has paid a tax upon an income which he never received. Such a conclusion is absolutely
contradictory to the idea of an income. An income subject to taxation under the law must be an actual
income and not a promised or prospective incom

*32 AND 33 – SAME CASE*

34. Hyatt v. . Allen, 56 N.Y. 553 (NY 1874)

Fact:The defendant was bound by his covenant "that all profits and dividends of and upon the stock of the
Albany Dental Plate Company so exchanged, up to the first day of January 1872, shall be paid" to the plaintiffs.
The Albany Dental Plate Company was a corporation, and no dividend on the stock of the company was
made after the agreement of August 11, 1871, until April 9, 1872, when a dividend of $15 on each share was
declared, whereby the defendant was entitled to receive, and did receive on the twenty shares transferred to
him by the plaintiffs, $300. It is claimed, however, that the increase in the assets of the company from the date
of the agreement to January 1, 1872, wereprofits, and that the defendant having as a stockholder an interest in
them, that interest was a profit on the stock which he had bound himself to pay to the plaintiffs.

Issue: Whether or not, upon the facts found, there were any profits or dividends on the stock to which, under
the agreement, the plaintiffs were entitled.

Held: It is conceded that the plaintiffs are not entitled to recover anything by force of the
word dividends contained in the agreement. The defendant agreed that dividends to the 1st of January, 1872,
should be paid to the plaintiffs. As no declaration of a dividend was made until April 9, 1872, the defendant
incurred no liability under this part of the agreement. Dividend is distinguished from profits, for profits in the
hands of a corporation do not become dividends until they have been set apart, or at least declared, as
dividends and transferred to the separate property of the stockholders. A shareholder in a corporation has no
legal title to the property or profits of the corporation until a division is made. The undivided profits of a
corporation may never be received by the stockholders. They may be squandered or lost, and no benefit may
accrue to the stockholders therefrom.
The covenant of the defendant related to profits of the stock up to the 1st of January, 1872. There were profits
earned by the corporation up to that time, but to these the covenant does not apply. They were not profits of
the stockholders in any legitimate sense. When a contract is made in relation to dividends or profits, it must be
deemed to have reference to dividends or profits to be ascertained and declared by the particular company,
and not to growing profits from day to day, or month to month, to be ascertained upon an investigation by third
persons, or courts of justice, into the accounts and transactions of the company."
The words profits and dividends, in the contract in question, related, to profits or dividends realized by the
defendant as a stockholder, or declared by the company, prior to January 1, 1872, and as no division of profits
or declaration of dividends was made, the plaintiffs are not entitled to recover.

Ang naka-red yung nasa book. <3

35. Commissioner v CA and A. Soriano Corporation
Facts:
In the 1930s, Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A.
Soriano Y Cia", predecessor of ANSCOR. By 1947, ANSCOR declared stock dividends. On December 30, 1964
Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares.
Correspondingly, one-half of that shareholdings were transferred to his wife, Doña Carmen Soriano, as her
conjugal share. The other half formed part of his estate.
By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares into 150,000 common and
150,000 preferred shares.
IRS opined that the exchange from common to preferred shares is only a recapitalization scheme and
not tax avoidance. Doña Carmen exchanged her whole common shares for the newly reclassified preferred
shares. The estate of Don Andres in turn, exchanged some of its common shares, for the remaining preferred
shares, thus reducing its common shares.
In 1973, Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency
withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code, for the year 1968 and the
second quarter of 1969 based on the transactions of exchange and redemption of stocks. The Bureau of
Internal Revenue (BIR) made the corresponding assessments despite the claim of ANSCOR that it availed of the
tax amnesty under Presidential Decree
Issue:
Whether or not stock dividends are subject to income tax.
Ruling:
In a loose sense, stock dividends issued by the corporation, are considered unrealized gain, and cannot
be subjected to income tax until that gain has been realized. Before the realization, stock dividends are
nothing but a representation of an interest in the corporate properties. 72 As capital, it is not yet subject to
income tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such
manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent
to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock
shall be considered as taxable income to the extent it represents a distribution of earnings or profits. This process
of issuance-redemption amounts to a distribution of taxable cash dividends which was lust delayed so as to
escape the tax.
36. Commissioner v. Procter & Gamble Philippine Manufacturing Corporation [204 SCRA 377, Apr. 15, 1988]

FACTS: P & G is a corporation duly organized under PH laws and is a wholly owned subsidiary of P & G-USA, a
non-resident foreign corporation of PH not engaged in trade and business therein. Being the sole stockholder of
P & G-PH, P & G-USA is entitled to receive income from the latter in the form of dividends, if not rents or royalties.
P & G-PH has a separate personality from its US counterpart. P & G-PH paid an income tax equivalent to 25-35%
of its net income as provided by Sec. 24(a) of the Tax Code [imposed tax on every corporation organized
under PH laws. 25% if taxable net income is 100k and below. 35% if it exceeds 100k].

P & G-PH declared two dividends in favor of P & G-USA, which were both subjected to the 35% tax according
to Sec. 24(b) of the Tax Code [imposed taxes on non-resident corporations, 35% of the gross income received
during its taxable year from all sources within the Philippines. It also provided that dividends received from a
domestic corporation shall be subjected to tax which is 15% of the dividend received subject to the condition
that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax
due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent
to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on
dividends as provided in this section].

P & G-PH deemed that it is entitled to a refund of 20% of the 35% tax it paid, stating that it overpaid. CIR ruled in
favor of the Commissioner, which dismissed the respondent’s claim for refund.

ISSUE: WON respondent should only pay a 15% tax on the dividends and not 35%.

HELD: No. The NIRC only requires that the US “shall allow” P&G-USA a “deemed paid” tax credit in an amount
equivalent to the 20% points waived by the Philippines. Furthermore, P & G-PH failed to meet certain conditions
necessary in order that the dividends received by the non-resident parent company in the US may be subject
to the preferential 15% tax instead of 35%. Among other things, the private respondent failed: (1) to show the
actual amount credited by the U.S. government against the income tax due from PMC-U.S.A. on the dividends
received from private respondent; (2) to present the income tax return of its mother company for 1975 when the
dividends were received; and (3) to submit any duly authenticated document showing that the U.S.
government credited the 20% tax deemed paid in the Philippines.

37. Commissioner v. Wander PH

Facts: Wander is a domestic corporation which is a wholly-owned subsidiary of Glaro a Swiss corporation not
engaged in trade/business in the Philippines. In two instances, Wander filed its withholding tax return and
remitted to Glaro (the parent company) dividends (P222,000 in the first instance and P355,200 in the second),
on which 35% tax was withheld and paid to the BIR.

Wander now files a claim for refund of the withheld tax contending that it is liable only to 15% withholding tax
pursuant to Section 24. B.1 of the Tax Code. The BIR did not act upon the claim filed by Wander so the
corporation filed a petition to the Court of Tax Appeals (CTA). The CTA held that the corporation is entitled to
15% withholding tax rate on dividends remitted to Glaro, a non-resident foreign corporation.

Issue: Whether or not Wander is entitled to the 15% withholding tax rate.
Ruling: Yes. According to Sec. 24.B.1 of the Tax Code, the dividends received from a domestic corporation is
liable to a 15% withholding tax, provided that the country in which the foreign corporation is domiciled shall
allow a tax credit (equivalent to 20% which is the difference between the 35% tax due on regular corporations
and the 15% tax due on dividends) against the taxes due to have been paid in the Philippines.

The fact that Switzerland does not impose any tax on the dividends received from a domestic corporation
should be considered as full satisfaction of the condition that the 20% differential is deemed credited by the
Swiss government (as against the Commissioner's contention that the tax-sparing credit should apply only if the
foreign country allows a foreign tax credit). The court observed that to deny private respondent the privilege to
withhold only 15% provided for under P.D. 369 would run counter to the very spirit and intent of said law and
definitely will adversely affect foreign corporations' interest and discourage them from investing capital in our
country.

38. Blas Guttierez v Collector (Income from any source whatever)

Facts: Maria Morales was the registered owner of an agricultural land in Mabalacat, Pampanga. The Republic
of the Philippines, at the request of the U.S. Government and pursuant to the terms of the Military Bases
Agreement, instituted condemnation proceedings for the purpose of expropriating the lands owned by Maria
for the expansion of the Clark Field Air Base. Upon RTC’s approval, defendant Maria Morales was to receive the
amount of P94,305.75 as compensation. In a notice of assessment dated January 28, 1953, the Collector of
Internal Revenue demanded of the petitioners the payment of P8,481 as alleged deficiency income tax.
Counsel for petitioner argued that the compensation paid to the spouses by the Government for their property
was not "income derived from sale, dealing or disposition of property" as per sec. 29 of tax code.

Court of Tax Appeals rendered a decision that the gain derived by the petitioners from the
expropriation of their property constituted taxable income and as such was capital gain as per the same
provision cited by the counsel of petitioner which states in its entirety, that:

SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains, profits, and income
derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form
paid, or from professions, vocations, trades, businesses, commerce, sales or dealings in property, whether real or
personal, growing out of ownership or use of or interest in such property; also from interests, rents, dividends,
securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived
from any source whatsoever.

Issue: Whether or not income from expropriation is deemed as income from sale, hence taxable

Ruling: Yes. The phrase “income from any source whatever” is broad enough to cover gains contemplated
here. These words disclose a legislative policy to include all income not expressly exempted within the class of
taxable income under our laws, irrespective of the voluntary or involuntary action of the tax payer in producing
the gains. The compensation or income derived from the expropriation of property located in the Philippines is
an income from sources within the Philippines and subject to the taxing jurisdiction of the place.

The exemption from tax of the compensation to be paid for the expropriation of privately owned lands
located in the Philippines was not given any attention, and the internal revenue exemptions specifically taken
care of by said agreement applies only to members of the U. S. Armed Forces serving in the Philippines and U. S.
nationals working in these Islands in connection with the construction, maintenance, operation and defense of
said bases.

39. Commissioner vs. Smith

FACTS:Smith Kline and French Overseas Company, a multinational firm domiciled in Philadelphia, Pennsylvania,
is licensed to do business in the Philippines. It is engaged in the importation, manufacture and sale of
pharmaceuticals drugs and chemicals
In its 1971 original income tax return, Smith Kline declared a net taxable income of P1,489,277 (Exh. A) and paid
P511,247 as tax due. Among the deductions claimed from gross income was P501,040 ($77,060) as its share of
the head office overhead expenses. However, in its amended return filed on March 1, 1973, there was an
overpayment of P324,255 "arising from underdeduction of home office overhead" (Exh. E). It made a formal
claim for the refund of the alleged overpayment.

Smith Kline received from its international independent auditors, Peat, Marwick, Mitchell and Company, an
authenticated certification to the effect that the Philippine share in the unallocated overhead expenses of the
main office for the year ended December 31, 1971 was actually $219,547 (P1,427,484). It further stated in the
certification that the allocation was made on the basis of the percentage of gross income in the Philippines to
gross income of the corporation as a whole. By reason of the new adjustment, Smith Kline's tax liability was
greatly reduced from P511,247 to P186,992 resulting in an overpayment of P324,255. On April 2, 1974, without
awaiting the action of the Commissioner of Internal Revenue on its claim Smith Kline filed a petition for review
with the Court of Tax Appeal. Tax Court ordered the Commissioner to refund the overpayment or grant a tax
credit to Smith Kline. The Commissioner appealed to this Court.

Issue: WON Smith Kline is entitled for the refund

Ruling: Yes. The governing law is found in section 37 of the old National Internal Revenue Code,
Commonwealth Act No. 466, which is reproduced in Presidential Decree No. 1158, the National Internal
Revenue Code of 1977 and which reads SEC. 37. Income form sources within the Philippines. . (b) Net income
from sources in the Philippines. — From the items of gross income specified in subsection (a) of this section there
shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto and a
ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to some item or
class of gross income. The remainder, if any, shall be included in full as net income from sources within the
Philippines.The overhead expenses incurred by the parent company in connection with finance, administration,
and research and development, all of which direct benefit its branches all over the world, including the
Philippines, fall under a different category however. These are items which cannot be definitely allocated or
Identified with the operations of the Philippine branch. For 1971, the parent company of Smith Kline spent
$1,077,739. Under section 37(b) of the Revenue Code and section 160 of the regulations, Smith Kline can claim
as its deductible share a ratable part of such expenses based upon the ratio of the local branch's gross income
to the total gross income, worldwide, of the multinational corporation.

40. FERNANDEZ HERMANOS v. COMMISSIONER

Facts:

The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of
engaging in business as an "investment company" with main office at Manila.

It appears that petitioner had an account with the Manila Insurance Company, the records bearing on which
were lost. When its records were reconstituted the amount of P349,800.00 was set up as its liability to the Manila
Insurance Company. It was discovered later that the correct liability was only 319,750.00, or a difference of
P30,050.00, so that the records were adjusted so as to show the correct liability. Respondent contends that the
reduction of petitioner's liability to Manila Insurance Company resulted in the increase of petitioner's net worth
to the extent of P30,050.00. The said amount was treated by respondent as taxable income of petitioner.

Issue:

Whether or not the increase in net worth , as a result of the correction of an error in setting up the liability, is
taxable.

Ruling:

NO.

The principle underlying the taxability of an increase in net worth of a taxpayer rests on theory that such an
increase in net worth, if unreported and not explained by taxpayer, comes from income derived from a
taxable source. In this case, the increase in net worth was not the result of the receipt by it of taxable income. It
was merely the outcome of the correction of an error in the entry in its books relating top its indebtedness to the
insurance company. The income tax law imposes a tax on income; it does not tax any or every increase in net
worth whether or not derived from income.

41. Commissioner v. YMCA, GR No. 124043

Facts:

In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to small shop owners,
like restaurants and canteen operators and 44,259 from parking fees collected from non-members. On July 2,
1984, the CIR issued an assessment to YMCA for deficiency taxes which included the income from lease of
YMCA’s real property. YMCA formally protested the assessment but the CIR denied the claims of YMCA. On
appeal, the CTA ruled in favor of YMCA and excluded income from lease to small shop owners and parking
fees. However, the CA reversed the CTA but affirmed the CTA upon motion for reconsideration.

Issue: Whether the rental income of YMCA is taxable.

Held:

Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of
then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from
any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last
paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, 20
the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted
attempt at construction.

42. CIR vs St. Lukes Medical Center, GR No. 195909, September 26, 2012
FACTS: SLMC received audit assessment notices from the BIR which found the former deficient in paying income taxes for taxable
years 2005and 2006. SLMC protested the assessments before the CIR invoking Section 30 (E) and (G) of the 1997 NIRC and claimed
that, as a non-stock, non-profit charitable and social welfare organization, it is exempted from paying income tax. The CIR ruled that
SLMC was liable for paying incomes taxes for 2005 and 2006. SLMC elevated its case to CTA which said that SLMC is not
liable to pay income tax. The CIR filed a petition for review before the CTA En Banc which affirmed the cancellation. The CIR filed a
petition for review before the SC rendered a decision that SLMC is not entitled to tax exemption because it does not operate
exclusively for charitable or social purposes insofar as its revenues from paying patients are concern. SLMC was ordered to pay the
deficiency taxes in 1998 based on the 10% preferential income tax. In April 2013, SLMC paid the amount of basic taxes due for
taxable years 1998, 2000-2002, and 2004-2007. It informed the Court of such payments through a Manifestation and Motion and
thereafter moved for the dismissal of the instant case on the ground of mootness. The CIR, however, opposed the motion claiming
that the payment confirmation submitted by the SLMC is not a competent proof of payment.
Issue: Whether or not SLMC is entitled to tax exemption.
Ruling: No. The Supreme Court ruled that SLMC is not entitled to tax exemption under Section 30(E) and (G) of the 1997 NIRC. For
real property taxes, the incidental generation of income is permissible because the test of exemption is the use of the property. The
Constitution provides that charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation. Even if the charitable institution must be organized and operated exclusively
for charitable purpose, it is nevertheless allowed to engage in activities conducted for profit without losing its tax exempt status for its
not-for-profit activities. The only consequence is that income of whatever kind and character of a charitable institution from any of its
activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax.

43. Fisher vs Trinidad

Facts: During the year 1919 the Philippine American Drug Company was a corporation… doing business in the
City of Manila; that he appellant (Frederick Fisher) was a stockholder in said corporation; that said corporation,
as result of the business for that year, declared a "stock dividend"; that the proportionate share of said stock
divided of the appellant was P24,800; that the stock dividend for that amount was issued to the appellant; that
thereafter, in the month of March, 1920, the appellant, upon demand of the appellee (Collector of Internal
Revenue), paid under protest, and voluntarily, unto the appellee the sum of P889.91 as income tax on said
stock dividend. For the recovery of that sum (P889.91) the present action was instituted. The defendant
demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of action. The
demurrer was sustained and the plaintiff appealed. Appellant cites and relies on some decisions of the
Supreme Court of the United States as will as the decisions of the supreme court of some of the states (Eisner vs
Macomber, etc.). In each of said cases an effort was made to collect an "income tax" upon "stock dividends"
and in each case it was held that "stock dividends" were capital and not an "income" and therefore not subject
to the "income tax" law.

Issue: WON stock dividends are are “income” taxable under Sec. 25 of R.A. 2833 (Income Tax Law).

Ruling: No. We believe that the Legislature, when it provided for an "income tax," intended to tax only the
"income" of corporations, firms, or individuals, as that term is generally used in its common acceptation; that... is,
that the income means money received, coming to a person or corporation for services, interest, or profit from
investments. We do not believe that the Legislature intended that a mere increase in the value of the capital or
assets of a corporation, firm, or individual,... should be taxed as "income."

Dividend is a corporate profit set aside (from Retained Earnings), declared and ordered by the directors to be
paid to the stockholders on demand or at a fixed time. A stock dividend is a dividend payable in reserve or
increase of additional stock of the corporation. A cash dividend is disbursement to the stockholder of the
accumulated earnings, and the corporation parts irrevocably with all interest therein. A stock dividend involves
no disbursement, and the corporation parts with nothing to the stockholders who receive, not an actual
dividend but a certificate of stock. When cash dividend is declared and paid to the stockholders and such cash
becomes the absolute property of the stockholders and cannot be reached by creditors of the corporation in
the absence of fraud. A stock dividend, however, still being the property of the corporation, and not of the
stockholder, it may be reached by... an execution against the corporation, and sold as a part of the property of
the corporation.

Cash dividends, whether large or small, are regarded as "income"... and all stock dividends, as capital or assets.
If the holder of the stock dividend is required to pay an income tax on the same, the result would be that he
has paid a tax upon an income which he never received. Such a conclusion is absolutely contradictory to the
idea of an income. An income subject to taxation under the law must be an actual income... and not a
promised or prospective income. The appellee emphasizes the "income from dividends." Of course, income
received as dividends is taxable as an income, but an income from "dividends" is a very different thing from a
receipt of a "stock dividend." One is... an actual receipt of profits; the other is a receipt of a representation of
the increased value of the assets of a corporation. "stock dividends" are not "income," the same cannot be
taxed under that provision of Act No, 2833 which provides for a tax upon income.

1. GREENFIELD VS MEER
FACTS:
Up to the present time, the plaintiff has been continuously engaged in the embroidery business. 2 years later
the plaintiff began engaging in buying and selling mining stocks and securities for his own exclusive account.
The plaintiff has not been a dealer in securities as defined in Commonwealth Act No. 466.
Plaintiff filed an income tax return and claims for a deduction representing a net loss sustained from the
purchase and sales of mining stocks and securities. The defendant disallowed said item of deduction on the
ground that said losses were sustained by the plaintiff from the sale of mining stocks and securities which are
capital assets, and that the loss arising from the sale of the same should be allowed only to the extent of the
gains from such sales. Defendant computed the graduated rate of income tax due on the entire net income
as per office audit, without first deducting therefrom the amount of personal and additional exemptions to
which the plaintiff is entitled.
The lower court held that, as the new law does not provide that the personal exemptions to be allowed in the
nature of a deduction from the net income, as prescribed in the old law, the tax due on said exemptions must
be deducted from the tax due on the whole net income, instead of deducting the total amount of the
exemptions from the net income.

ISSUE: Whether the personal and additional exemptions granted by CA No. 466 should be considered as a
credit against or be deducted from the net income.

RULING: YES
Book: Exception is an immunity or privilege; it is freedom from a charge or burden to which others are
subjected.
The mere fact that the phrase "in the nature of a deduction" found in the old law was omitted in the new or
National Internal Revenue Code did not and could not effect any change in the law. It is evident that said
phrase was added or inserted in the old law only out of extreme caution, because, even without it, the
exemption would have to be deducted from the gross income in order to determine the net income subject to
tax. Had the provision in the old law been drafted in exactly the same term as that of the new law, the same
construction should have been adopted. Because "Exception is an immunity or privilege; it is freedom from a
charge or burden to which others are subjected. If the amounts of personal and additional exemptions fixed in
the new law are exempt from taxation, they should not be included as part of the net income, which is taxable.
There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are
exempt from taxation) should first be fixed, and then deducted from the tax on the net income.
2.COMMISSIONER OF INTERNAL REVENUE V. MISTUBISHI METAL CORPORATION (181 SCRA 214)

Facts: Atlas Consolidated Mining andDevelopment Corporation, a domestic corporation, entered into a Loan
and Sales Contract with Mitsubishi Metal Corporation, a Japanese corporation licensed to engage in business in
the Philippines. To be able to extend the loan to Atlas, Mitsubishi entered into another loan agreement with
Export-Import Bank (Eximbank), a financing institution owned, controlled, and financed by the Japanese
government. After making interest payments to Mitsubishi, with the corresponding 15% tax thereon remitted to the
Government of the Philippines, Altas claimed for tax credit with the Commissioner of Internal Revenue based on
Section 29(b)(7) (A) of the National Internal Revenue Code, stating that since Eximbank, and not Mitsubishi, is
where the money for the loan originated from Eximbank, then it should be exempt from paying taxes on its loan
thereon.

Issue: WON the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income
taxation.

Ruling: NO. Mitsubishi secured the loan from Eximbank in its own independent capacity as a private entity and not
as a conduit of Eximbank. Therefore, what the subject of the 15% withholding tax is not the interest income paid
by Mitsubishi to Eximbank, but the interest income earned by Mitsubishi from the loan to Atlas. Thus, it does not
come within the ambit of Section 29(b)(7)(A), and it is not exempt from the payment of taxes.

Notes: Findings of fact of the Court of Tax Appeals are entitled to the highest respect and can only be disturbed
on appeal if they are not supported by substantial evidence or if there is a showing of gross error or abuse on the
part of the tax court. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power. Taxation is the rule and exemption is the exception.

4. Pirovano vs. Commissioner, 14 SCRA 832 (Value of property acquired by gift 1 st bequest, devisee or descent)
Sec. 32[B] of the NIRC provides that Gifts, bequests and devises are excluded from gross income liable to tax.
Instead, such donations are subject to estate or gift taxes. However, if the amount is received on account of
services rendered, whether constituting a demandable debt or not (such as remuneratory donations under
Civil Law), the donation is considered taxable income.
FACTS: De la Rama Steamship Co. insured the life of Enrico Pirovano, who was then its President and General
Manager until the time of his death. The Company then received the total sum of P643,000.00 as proceeds of
the said life insurance policies. The Company renounced all its rights on the money in favor of the decedent's
children.
The CIR subjected the donation to gift tax. Pirovano’s heirs contended that the grant was not subject to such
donee’s tax because it was not a simple donation, as it was made for a full and adequate compensation for
the valuable services by the late Priovano (i.e. that it was remuneratory).
ISSUE: WON the donation is remuneratory and therefore not subject to donee’s tax, but rather taxable as part
of gross income.
HELD: No. the donation is not remuneratory. There is nothing on record to show that when the late Enrico
Pirovano rendered services as President and General Manager of the De la Rama Steamship Co. and was
“largely responsible for the rapid and very successful development of the activities of the company", he was
not fully compensated for such services. The fact that his services contributed in a large measure to the success
of the company did not give rise to a recoverable debt, and the conveyances made by the company to his
heirs remain a gift or a donation. The company’s gratitude was the true consideration for the donation, and not
the services themselves.
A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is
subject to the donees’ gift tax. Like “love and affection,” gratitude has no economic value and is not
“consideration” in the sense that the word is used in this section of the Tax Code.
Gifts, bequests and devises (which are subject to estate or gift taxes) are excluded, but not the income from
such property. If the amount received is on account of services rendered, whether constituting a demandable
debt or not, or the use or opportunity to use of capital, the receipt is income.

5. B.F Metal v Sps. Lomotan

Facts: Rico Umuyon was driving the owner-type jeep owned by spouses Rolando and Linaflor Lomotan at a
moderate speed of 20 to 30 km per hr when at the opposite lane, the speeding ten wheeler truck driven by
Onofre Rivera overtook a car by invading the lane being traversed by the jeep and rammed into it.

The jeep was a total wreck while Umuyon suffered ‘blunt thoracic injury with multiple rib fracture, gractured
scapula (L), with pneumohemothorax’, which entailed his hospitalization for 19 days. Also in view of the injuries
he sustained, Umuyon could no longer drive, reducing his daily income from 150 php to 100 php.

The spouses Lomotan and Umuyon instituted a separate and independent civil action for damages against
Petitioner and Rivera alleging that Rivera’s gross negligence and recklessness were the immediate and
proximate cause of the vehicular accident and that Petitioner failed to exercise the required diligence in the
selection and supervision of Rivera.

The complaint prayed for the award of actual, exemplary and moral damages and attorney’s fees. Both the
trial and appellate courts awarded 100,000 in moral damages.

Issue: W/N Umuyon is entitled to moral damages?

Ruling: YES. Petitioner is liable for the moral damages suffered by respondent Umuyon. Its liability is based on
a quasi-delict or on its negligence in the supervision and selection of its driver, causing the vehicular accident
and physical injuries to respondent Umuyon. Rivera is also liable for moral damages to respondent Umuyon
based on either culpa criminal or quasi-delict. Since the decision in the criminal case, which found Rivera guilty
of criminal negligence, did not award moral damages, the same may be awarded in the instant civil action for
damages.

BOOK: In order that moral damages may be awarded, there must be pleading and proof of moral suffering,
mental anguish, fright and the like. The award of moral damages fulfills two purposes: (a) to compensate the
morally injured; (b) to alleviate his suffering.

6. SULPICIO LINES vs. CURSO

FACTS:
On October 3, 1988, Dr. Curso boarded at the port of Manila the MV Doa Marilyn, an inter-island vessel owned
and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the vessel sank in the
afternoon of October 24, 1988 while at sea due to inclement sea and weather conditions brought about by
typhoon Unsang. Dr. Curso's surviving brothers and sisters (herein respondents) sued the petitioner for breach of
contract of carriage based on negligence. In their complaint, they claimed that as their parents had
predeceased Dr. Curso, who died single and without issue, they were entitled to recover moral damages for
their sibling's death as successors-in-interest.
Issue: Are the Cursos (surviving brothers and sisters of the deceased) entitled to recover moral damages?
Ruling: No. As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract, unless there is fraud or bad faith.
Book: In order that moral damages may be awarded,there must be pleading and proof of of moral suffering,
mental anguish, fright and the like. The award of moral damages, fulfills two purposes: a.)to compensate the
morally injured and b.) to alleviate his suffering.
*Brothers and sisters were not included among the persons entitled to recover moral damages as enumerated
in Article 2219 of the Civil Code. To be entitled to moral damages, the respondents must have a right upon law.
*case 7 missing*
8. FRANCISCO v FERRER

FACTS: The petitioners failed to deliver the wedding cake on the wedding day as ordered and paid for.
Petitioners gave the lame excuse that delivery was probably delayed because of the traffic, when in truth, no
cake could be delivered because the order slip got lost.

The respondents filed a complaint with the RTC of Cebu for breach of contract with damages. The trial court
rendered a decision in favor of respondents and against Erlinda Francisco (Petitioner) who is ordered to pay an
amount of P30, 000 for moral damages. The petitioners appealed to the CA which modified the appealed
decision increasing the award of moral damages from P30,000.00 to P250,000.00 and awarded an additional
exemplary damages of one hundred thousand pesos P100,000.00.

ISSUE: W/N CA erred in its decision

RULING: YES. The Court granted the petition and reversed the ruling of the Court of Appeals. To recover moral
and exemplary damages in an action for breach of contract, the breach must be palpable wanton, reckless,
malicious, in bad faith, oppressive or abusive. Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.

The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence
for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental
anguish, and serious anxiety as the result of the actuation of the other party. Invariably such action must be
shown to have been willfully done in bad faith or with ill motive.

Nevertheless, the Court found the petitioners liable for nominal damages (an amount of P10,000) for
insensitivity, inadvertence or inattention to their customer’s anxiety and need of the hour. Nominal damages
may be awarded “to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of
vindicating or recognizing that right, not for indemnifying the plaintiff for any loss suffered.

*case 9 missing*

10. Commissioner of Internal Revenue vs. Court of Appeals

G.R. No. 95022 March 23, 1992

FACTS: Petitioner, seeks a reversal of the Decision of respondent CA, dated Aug. 27, 1990, in CA-G.R. SP No.
20426, entitled “Commissioner of Internal Revenue vs. GCL Retirement Plan, represented by its Trustee-Director
and the Court of Tax Appeals,” which affirmed the Decision of the latter Court, dated 15 December 1986, in
Case No. 3888, ordering a refund, in the sum of P11,302.19, to the GCL Retirement Plan representing the
withholding tax on income from money market placements and purchase of treasury bills, imposed pursuant to
Presidential Decree No. 1959.

There is no dispute with respect to the facts. Private Respondent, GCL Retirement Plan (GCL, for brevity) is an
employees’ trust maintained by the employer, GCL Inc., to provide retirement, pension, disability and death
benefits to its employees. The Plan as submitted was approved and qualified as exempt from income tax by
Petitioner Commissioner of Internal Revenue in accordance with Rep. Act No. 4917.

ISSUE: Are school’s retained earnings tax-exempt?

RULING: Yes. GCL Plan was qualified as exempt from income tax by the CIR in accordance with Rep. Act. 4917.
The tax-exemption privilege of employees’ trusts, as distinguished from any other kind of property held in trust,
springs from Section 56(b) (now 53[b]) of the Tax Code, “The tax imposed by this Title shall not apply to
employee’s trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit
of some or all of his employees . . .” And rightly so, by virtue of the raison de’etre behind the creation of
employees’ trusts. Employees’ trusts or benefit plans normally provide economic assistance to employees upon
the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. It
provides security against certain hazards to which members of the Plan may be exposed. It is an independent
and additional source of protection for the working group. What is more, it is established for their exclusive
benefit and for no other purpose.

It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation
of those earnings would result in a diminution accumulated income and reduce whatever the trust
beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law. There
can be no denying either that the final withholding tax is collected from income in respect of which
employees’ trusts are declared exempt (Sec. 56 [b], now 53 [b], Tax Code). The application of the withholdings
system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the
collection of income taxes by requiring its payment at the source. If an employees’ trust like the GCL enjoys a
tax-exempt status from income, we see no logic in withholding a certain percentage of that income which it is
not supposed to pay in the first place.

The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under
the old law, therefore, cannot be deemed to extend to employees’ trusts. Said Decree, being a general law,
cannot repeal by implication a specific provision, Section 56(b) (now 53 [b]) in relation to Rep. Act No. 4917
granting exemption from income tax to employees’ trusts.

11. Commissioner vs Castaneda

Facts:

Efren Castaneda retired from gov’t service as Revenue Attache in the Philippine Embassy, London,
England. Upon retirement, he received benefits such as the terminal leave pay. The Commissioner of Internal
Revenue withheld P12,557 allegedly representing that it was tax income.Castaneda filed for a refund,
contending that the cash equivalent of his terminal leave is exempt from income tax.

The Solicitor General contends that the terminal leave is based from an employer-employee relationship
and that as part of the services rendered by the employee, the terminal leave pay is part of the gross income
of the recipient. The CTA ruled in favor of Castaneda and ordered the refund. The CA affirmed decision of CTA.
Hence, this petition for review on certiorari.

Issue: W/N terminal leave pay received by a government official or employee on the occasion of his
compulsory retirement from the government service is subject to withholding (income) tax

Ruling:

No. Any amount received by an official or employee or by his heirs from the employer as a
consequence or separation of such official or employee from the service of the employer due to death,
sickness or other physical disability or for any cause beyond the control of the said official or employee is
excluded. The tax exemption applies to the salary or cash equivalent of accumulated vacation and sick leaves
such as the “terminal leave pays” of retiring government employees, which are considered not part of the gross
salary.

A terminal pay leave is a retirement benefit which is not subject to income tax.

12. PLDT vs Comissioner

Facts:

Petitioner- acquired by purchase the Republic Telephone Company (RETELCO). As a result, petitioner
assumed the obligations under which RETELCO was still bound to in a supply contract with Gold-Star Tele-
Electric Co., Ltd. (GST) of Korea involving the purchase of various equipment by RETELCO for its
expansion/modernization program.

As a consequence of this contract originally between GST and RETELCO the EXPORT-IMPORT BANK OF KOREA
granted GST an export loan to finance importations of RETELCO. Having bought RETELCO petitioner paid
interest, and remitted to the BIR the 15% withholding tax on the entire interest payment on the loan, including
the portion of the contract financed by KOEXIM BANK, in the total amount of P1,864,458.01 inclusive. Petitioner
maintains that the withholding tax on the interest on the portion of the purchase price corresponding to 76% per
centum of the loan extended by KOEXIM BANK in the total amount of P1,416,988.09 were erroneously paid and
are not taxable in the Philippines.

Issue:

Whether or not petitioner is entitled to a refund of the alleged erroneously paid withholding tax on
interest in the light of the provisions of the RP Korea Tax Treaty in relation to the National Internal Revenue Code.

Held:

Yes. While the loan was extended to GST and who therefore appears to be the creditor of RETELCO, it
was known by the KOEXIM BANK that the end user would be RETELCO who was importing the equipment for its
modernization and expansion. In turn, the payment by RETELCO (later PLDT) of the obligation was guaranteed
by government institutions as the PNB and the NIDC (National Investment and Development Corporation). It
can be logically established that the RETELCO loan was, in effect, a loan from a Korean government financial
institution, the KOEXIM BANK.

Petitioner is also correct to infer that if under the relevant provisions of Section 28 of the National Internal
Revenue Code income on loans granted by a financial institution of a foreign government such as the KOEXIM
BANK is expressly excluded from gross income and exempted from ta:

(BOOK)

(Topic) Exclusions from Gross income

7. Income of foreign governments

Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities,
or from interest on deposits in banks in the Philippines by (1) foreign governments, (2) financing institutions
owned, controlled or enjoying refinancing from foreign governments and (3) international or regional financial
institutions established by foreign corporations.

13. Asia Transmission vs Commissioner (CTA Case)

Facts: ATC is a manufacturer of motor vehicle transmission component parts and engines of Mitsubishi vehicles.
ATC filed its Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes
and Annual Information Return of Creditable Income Taxed Withheld (Expanded)/Income Payments Exempt
from Withholding Tax, respectively. ATC received Letter of Authority where [the CIR] informed ATC that its
revenue officers from the Large Taxpayers Audit and Investigation Division II shall examine its books of accounts
and other accounting records for the taxable year 2002.

Thereafter, [the CIR] issued a Preliminary Assessment Notice (PAN) to ATC. Meanwhile, on February 28,
2008, ATC availed of the Tax Amnesty [P]rogram under Republic Act No. 9480. ATC received a Formal Letter of
Demand from [the] CIR for deficiency, thus, ATC filed an appeal letter/request for reconsideration with [the]
CIR. ATC received the Decision of CIR denying its request for reconsideration. As such, ATC filed the instant
Petition for Review (with Application for Preliminary Injunction and TRO).

Issue : Whether or not interest payments of a domestic corporation on loans extended by Japanese
Corporations are excluded in gross income tax computation?

Ruling: No, if the loan agreements state nothing about the loan being obtained from Eximbank of Japan nor
can it be inferred or deduced from the loan agreements that foreign creditors acted for and in behalf of
Eximbank of Japan, or Eximbank of Japan had to finance or guarantee the loans extended by foreign
creditors, interest income is not exempt from Philippine income tax.

14. CIR vs MITSUBISHI METAL CORP., ATLAS MINING G.R. No. L-54908, 80041 January 22, 1990
FACTS:
 Atlas Consolidated Mining entered into a Loan and Sales Contract with Mitsubishi Metal Corporation a
Japanese corporation licensed to engage in business in the Philippines, for purposes of the projected
expansion of the productive capacity of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi
agreed to extend a loan to Atlas or the installation of a new concentrator for copper production. Atlas, in turn
undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a period of fifteen
(15) years. It was contemplated that $9,000,000.00 of said loan was to be used for the purchase of the
concentrator machinery from Japan. Mitsubishi thereafter applied for a loan with the Export-Import Bank of
Japan obviously for purposes of its obligation under said contract. Its loan application was approved. The
records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to Mitsubishi was
subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for
importing copper concentrates from Atlas.

Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to
the latter. The corresponding 15% tax thereon was withheld and duly remitted to the Government. Private
Respondent filed a claim for tax credit, requesting that said amount be applied against their existing and future
tax liabilities. CTA noted Mitsubishi executed a waiver and disclaimer of its interest in the claim for tax credit in
favor of Atlas. The petition was grounded on the claim that Mitsubishi was a mere agent of Eximbank, which is a
financing institution owned, controlled and financed by the Japanese Government. Such governmental status
of Eximbank, if it may be so called, is the basis for private repondents' claim for exemption from paying the tax
on the interest payments on the loan as earlier stated. Respondent court promulgated its decision ordering
petitioner to grant a tax credit in favor of Atlas. Respondent court concluded that the ultimate creditor of Atlas
was Eximbank with Mitsubishi acting as a mere "arranger or conduit through which the loans flowed from the
creditor Export-Import Bank of Japan to the debtor Atlas Consolidated Mining & Development Corporation.

ISSUE: WON Mitsubishi is a mere conduit of Eximbank which will then be considered as the creditor whose
investments in the Philippines on loans are exempt from taxes under the code?

HELD:
No, The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of
loan and Atlas as the seller of the copper concentrates. Surely, Eximbank had nothing to do with the sale of the
copper concentrates since all that Mitsubishi stated in its loan application with the former was that the amount
being procured would be used as a loan to and in consideration for importing copper concentrates from
Atlas. To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is complete in itself, does
not appear to be suppletory or collateral to another contract and is, therefore, not to be distorted by other
considerations aliunde. The application for the loan was approved on May 20, 1970, or more than a month
after the contract between Mitsubishi and Atlas was entered into on April 17, 1970. POINT IS, WHILE MIT
OBTAINED LOAN FROM EXIM FOR ATLAS’ BENEFIT, FACT REMAINS THAT IT SECURED THE LOAN AND NOT ATLAS.
*Case 15 MISSING*
16. Nippon Life Insurance Company vs. Commissioner

Facts:

As a company engaged in the business of life insurance, Petitioner is required under the Insurance Code of the
Philippines to invest in and purchase certain government securities in the course of its operations. In
compliance with the foregoing requirement.

On October 25, 1999, the BIR issued BIR Ruling No. 166-99, providing that the interest income, yield or gain
derived from bonds, debentures or certificates of indebtedness as deposit substitutes, which are ordinarily
subject to 20% final tax under Section 27 (D)(l) of the NIRC, should exclude the interest income, yield or gain
from the gross income if the bonds, debentures or the certificate of indebtedness have maturities of more than
five (5) years. Petitioner filed with Revenue District Office No. 50 of the BIR, an administrative claim for the refund
of the amount of P2,223 ,386.82 allegedly representing taxes erroneously withheld from its income from
investment in Fixed Rate Treasury Bond for the years 1998 and 1999.

Issue: Whether or not that interest on petitioner’s long term investments should be considered gain exempt from
income tax

Ruling:
No. "Gains" as the term is used therein in Section 32(B)(7)(g) of the Tax Code cannot include interest since it
clearly refers to gains from the sale of bonds, debentures and other certificates of indebtedness. Initially, it must
be pointed out that whereas the term "gains" includes "interest" as a general rule, this rule cannot be applied to
Section 32(B)(7)(g) of the Tax Code. Stated otherwise, Section 32(B)(7)(g) of the Tax Code specifically refers to
gains from the sale of bonds, debentures and other certificates of indebtedness as contradistinguished from
the term "gains" in its general sense, which is synonymous to income.

There is a distinction between "gains derived from dealings in property" and "interests", which are separately
classified as items of gross income. "Gains realized from the sale or exchange or retirement of bonds,
debentures and other certificate of indebtedness" would fall under the category of "gains derived from dealings
in property". On the other hand, "interests" would include interest from bonds, debentures and other certificate
of indebtedness.

Moreover, it should be noted that both Sections 24(B)(1) and 25(A)(2), respectively, of the Tax Code expressly
exempt interest derived from certain long-term deposit or investment (covered by Bangko Sentral ng Pilipinas
(BSP) certificates and with maturity of five years or more) by citizens, resident aliens and nonresident aliens
engaged in trade or business within the Philippines from income tax. However, there is no such exemption from
. income tax on such interest for corporations, domestic or foreign, under Sections 27 and 28 of the Tax Code.

17. Malayan Zurich Insurance vs. CIR

Facts: From 1996 to 1998, petitioner Malayan Zurich Insurance Company, Inc. purchased Fixed Rates Treasury
Notes (FXTNs) issued by the Bureau of Treasury, which paid interest for the said treasury notes to petitioner and
withheld 20%final tax thereon in the sum of P946,362.50.
Petitioner filed a formal claim for refund/ tax credit' praying that respondent refund or issue a tax P946,362.50
corresponding to the tax withheld by the Bureau of Treasury on its Fixed Rate Treasury Notes from March 1999 to
November 1999.
Petitioner contended that the interest income derived from the treasury notes with a maturity of more than 5
years amounted to 'gains realized from title sale and were therefore exempt from the 20% withholding tax on
deposit and deposit substitutes, pursuant to Sec, 32 (B)(7)(g)of the 1997 NIRC as well as BIR Ruling 166-99 dated
October 25, 19995; that, hence, the tax withheld by the Bureau was erroneously made and should be refunded
or credited. Petitioner further contends that the only reasonable interpretation of Section 32 (B)(7)(g)would be
to exempt all forms of gains realized on the sale, exchange or retirement of long-term bonds, including the
interest income realized in relation to such bonds.
As a defense, gains from the sale of bonds, debentures, and other certificates of indebtedness were
considered to be taxable. Hence, interest income derived from FXTNs, not being included in the term "gains," is
still subject to tax.

Issue: WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN RULING THAT THE TERM "GAIN" AS USED IN
SECTION 32 (b)(7)(G) OF THE TAX CODE DOES NOT INCLUDE INTEREST?

Held: No. we agree with respondent CTA, whose findings of facts will not ordinarily be reviewed absent any
showing of gross error or abuse on its part because of its recognized expertise, that if Congress had intended to
exempt interest from bonds, debentures and other certificates of indebtedness under Section 32(B)(7)(g)of the
Tax Code, it would have done so in clear and specific tenus. The fact that it used the term "gains from sale" in
the said section, knowing fully well the reference to interest under Sections 24, 25., 27 and 28 of the Tax Code
shows that it did not intend to exempt such.
Under Section 32(B)(7)(g) of the National Internal Revenue Code (NIRC), only gains realized from the sale or
exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than
five (5) years are excluded from gross income. The intent and meaning of the legislature is ascertained from the
language of the law. Where the law is clear and unambiguous, as in this case, there is nothing for the courts to
do except to apply it. Courts are not allowed to interpret what has no need of interpretation, nor to restrict or
extend the meaning of words when they have a definite and precise meaning. To go elsewhere in search of
conjectures in order to find a different meaning is not so much to interpret the law as to elude it.

18. Commissioner v YMCA of the Philippines, GR No 124043, October 14, 1998

Facts:
YMCA is a s a non-stock, non-profit institution, which conducts various programs and activities that are
beneficial to the public, especially the young people, pursuant to its religious, educational and charitable
objectives. In 1980, it earned P676,829 from leasing out a portion of its premises to small shop owners and
P44,259 from parking fees collected from non-members. They were assessed P415,615.01 including:
YMCA paid under protest. The CTA ruled in its favour, stating that the leasing out and collection of
parking fees were reasonably incidental to and reasonably necessary for the accomplishment of the objectives
of YMCA. The CA reversed.
Issue:
Whether or not the income of private respondent from rentals of small shops and parking fees is exempt
from taxation
Ruling:
No, such income is not exempt from taxation. Section 27 of the NIRC, reads:
“Sec. 27. Exemptions from tax on corporations
(g) Civic league or organization not organized for profit but operated exclusively for the promotion
of social welfare;
…the income of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax imposed under this Code.”
(BOOK) The phrase "any of their activities conducted for profit" does not qualify the word
"properties." This makes from the property of the organization taxable, regardless of how that income is used —
whether for profit or for lofty non-profit purposes. The rental income cannot be exempted on the solitary but
unconvincing ground that said income is not collected for profit but is merely incidental to its operation. The
law does not make a distinction. Where the law does not distinguish, neither should we distinguish. Inasmuch as
taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in
construing tax exemptions. YMCA is exempt from the payment of property taxes only but not income taxes
because it is not an educational institution devoting its income solely for educational purposes. The term
"educational institution" or "institution of learning" has acquired a well-known technical meaning, of which the
members of the Constitutional Commission are deemed cognizant. Under the Education Act of 1982, such term
refers to schools. The school system is synonymous with formal education, which "refers to the hierarchically
structured and chronologically graded learnings organized and provided by the formal school system and for
which certification is required in order for the learner to progress through the grades or move to the higher
levels.
19. CIR v. CA and COMASERCO [Commonwealth Management and Services Corporation]

FACTS: COMASERCO is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter
to perform collection, consultative and other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates. BIR assessed COMASERCO deficiency VAT. COMASERCO contested the
assessment, stating that its services as internal auditor were on a "no-profit, reimbursement-of-cost-only" basis.
COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and
its affiliates, and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. And that
since it was not engaged in business, it was not liable to pay VAT. CTA ruled in favor of CIR. CA reversed it,
hence this petition.

ISSUE: WON COMASERCO is liable to pay VAT.

HELD: Yes. For VAT purposes, even non-stock, non-profit organizations are liable to pay VAT on their sale of
goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the performance of services, even in the absence of profit
attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity regardless of whether or not the entity is profit-oriented.

20. Commissioner of Internal Revenue vs. St Luke's Medical Center

Facts: St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit
corporation. St. Luke’s accepts both paying and non-paying patients. The BIR assessed St. Luke’s deficiency
taxes for 1998 comprised of deficiency income tax, value-added tax, and withholding tax. The BIR claimed that
St. Luke’s should be liable for income tax at a preferential rate of 10% as provided for by Section 27(B). Further,
the BIR claimed that St. Luke’s was actually operating for profit in 1998 because only 13% of its revenues came
from charitable purposes. Moreover, the hospital’s board of trustees, officers and employees directly benefit
from its profits and assets.
On the other hand, St. Luke’s maintained that it is a non-stock and non-profit institution for charitable and social
welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. It argued that the making
of profit per se does not destroy its income tax exemption.

Issue: W/N St. Luke’s is liable for deficiency income tax

Ruling:

Yes. Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an
institution from tax. An institution cannot use its corporate form to prevent its profitable activities from being
taxed.

non-stock, non-profit hospital organized for charitable purposes, although generally exempt from income tax,
becomes taxable on income derived from activities conducted for profit.

To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be
“organized and operated exclusively” for charitable purposes.

The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned. the NIRC requires that an institution be
“operated exclusively” for charitable or social welfare purposes to be completely exempt from income tax.

* CASE 21 OMITTED*

22. V.G. Sinco Educational Corporation vs. Collector

100 Phil 127

Facts:

V. G Sinco established Foundation College of Dumaguete. The Department of Education required that colleges
should be incorporated. Hence, in 1951,he organized V. G Sinco Educational Instutitution, a non-stock
corporation. The college derived its income solely from the tuition fees paid by students enrolled and realized
profits out of its operation but did not distribute any dividend or profit to its stockholders. . Part of its income was
spent in acquiring additional buildings and equipment.

It never distributed any dividend or profit to its stockholders. Only part of its income went to the payment of its
teachers and to the other expenses of the college incident to an educational institution, but none of the
income had been channeled to the benefit of any individual stockholders In upholding the corporation's claim
that under the provisions of section 27 (e) of the National Internal Revenue Code, it is exempt from the
payment of income tax because it is organized and maintained exclusively for educational purposes and no
part of its income inures to the benefit of any individual or stockholder

Issue:

Whether or not failure to observe requirement constitutes waiver of right of exemption.

Ruling:

NO. While the acquisition of additional facilities may redound to the benefit of the institution itself, it cannot be
positively asserted that the same will redound to the benefit of its stockholder, for no one can predict the
financial condition of the institution upon its dissolution.

The fact that appellant charges tuition fees and other fees for the different services it renders to the students,
which is its only source of income, does not itself make the school a profit-making enterprise that would place it
beyond the purview of the law. Moreover, intended to relieve the taxpayer of the duty of filing returns and
paying the tax, it cannot be said that the failure to observe the requirement called for therein constitutes a
waiver of the right to enjoy the exemption.

23.DEUTSCHE BANK v. CIR

Facts:

Petitioner withheld and remitted to respondent the amount of PHP 67,688,553.51, which represented the fifteen
percent (15%) branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to
Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years.

Believing that it made an overpayment of the BPRT, petitioner filed with the BIR for refund or issuance of its tax
credit certificate in the total amount of PHP 22,562,851.17. On the same date, petitioner requested from the
International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under
the RP-Germany Tax Treaty.

The claim of petitioner for a refund was denied on the ground that the application for a tax treaty relief was not
filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB
Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax
Treaty provision which is in violation with Revenue Memorandum Order (RMO) No. 1-2000.

Issue:

Whether or not the failure to strictly comply with the provisions of RMO No. 1-2000 will deprive persons or
corporations the benefit of a tax treaty.

Ruling:

NO.

Our Constitution provides for adherence to the general principles of international law as part of the law of the
land. The time-honored international principle of pacta sunt servanda demands the performance in good faith
of treaty obligations on the part of the states that enter into the agreement.

Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties and, in turn,
help the taxpayer avoid simultaneous taxations in two different jurisdictions. Tax conventions are drafted with a
view towards the elimination of international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for
identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of
goods and services and the movement of capital, technology and persons between countries, conditions
deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly
predictable and reasonable international investment climate and the protection against double taxation is
crucial in creating such a climate.

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international juridical
double taxation.

24. Commissioner v. Castañeda, GR No. 96016 (1991)

Facts:

Efren P. Castaneda retired from the government service as Revenue Attache in the Philippine Embassy in
London, England, on 10 December 1982 under the provisions of Section 12 (c) of Commonwealth Act 186, as
amended. Upon retirement, he received, among other benefits, terminal leave pay from which petitioner
Commissioner of Internal Revenue withheld P12,557.13 allegedly representing income tax thereon.

Castaneda filed a formal written claim with petitioner for a refund of the P12,557.13, contending that the cash
equivalent of his terminal leave is exempt from income tax.

Issue: Whether or not terminal leave pay received by a government official or employee on the occasion of his
compulsory retirement from the government service is subject to withholding (income) tax.

Ruling: No. The commutation of leave credits, more commonly known as terminal leave pay, i.e., the cash
equivalent of accumulated vacation and sick leave credits given to an officer or employee who retires, or
separated from the service through no fault of his own, is exempt from income tax.
25. Commissioner of Internal Revenue vs Court of Appeals, GR. 96016, October 17, 1991
FACTS: Respondent Castaneda retired from the government service as Revenue Attache in the Philippine
Embassy in London, England. Upon retirement, he received, among other benefits, terminal leave pay from
which petitioner CIR withheld P12,557.13 allegedly representing income tax. Castaneda filed a claim with
petitioner for a refund, contending that the cash equivalent of his terminal leave is exempt from income tax.
CTA ordered CIR to refund Castaneda. Petitioner appealed but CA dismissed the petition for review and
affirmed the decision of the CTA
ISSUE: Whether or not terminal leave pay received by a government official or employee on the occasion of his
compulsory retirement from the government service is subject to withholding (income) tax.
RULING: No. The Court ruled that the terminal leave pay received by a government official or employee is not
subject to withholding (income) tax. Not being part of the gross salary or income of a government official or
employee but a retirement benefit, terminal leave pay is not subject to income tax. All the benefits received on
account of their separation are not subject to income tax; hence no withholding tax shall be imposed. The
benefits received under the BIR-approved plan upon meeting the service requirement and age requirement
are explicitly excluded form gross income. The ex gratia payment also qualifies as an exclusion from gross
income, being in the nature of benefit received on account of separation due to causes beyond the
employees’ control. The cash equivalent of unused vacation and sick leave credits qualifies as part of
separation benefits excluded from gross income.

26. Stanton vs United States

Facts: Plaintiff, Mr. Stanton, managed the property of the Trinity Church (Manhattan) until a corporation was
formed which took over that work. Plaintiff then became that corporation's president, and all of his time was
spent caring for the corporation's real estate. When plaintiff resigned, the corporation gave him a gratuity in
appreciation of his services. He was provided $20,000. Provided that had to waive all his retirement and
pension benefits.
Plaintiffs Spouses Stanton filed their income tax returns admitted that gratuity on their income tax returns, but
did not include it as income because it was a gift. The tax commissioner decided that it was income and
assessed a tax deficiency, which plaintiffs paid, and thereafter filed a claim for a refund. Defendant denied
that claim.
Issue: WON the gift should be included in their income tax returns.
Ruling: No. The court held that the test of compensation was whether what was added was by way of more
compensation for a deserving employee or merely to satisfy the employer's desire to become a benefactor.
Here, because plaintiff husband's duties were exclusively financial, and there was no evidence that personal
affection entered into the payment, it could be assumed that the payment was the result of the corporation's
satisfaction for services. Trial court's judgment reversed and remanded.
Judgment in plaintiffs' favor holding that the gratuity received by plaintiffs' was not taxable as income reversed
and remanded where there was no evidence which indicated that the compensation paid to plaintiff
husband by the corporation for which he worked was based on anything other than the corporation's
satisfaction for the services rendered by plaintiff husband.
The amount received was in consideration of his loyalty and invaluable services to the company which is
clearly a compensation income received on account of employment. Under the employer’s “motivation test”,
emphasis should be placed on the value of plaintiff’s services to the company as the compelling reason for
giving him the gratuity; hence, it should constitute taxable income. The payment would only qualify as a gift if
there is nothing but ‘good will, esteem and kindness’ which motivated the employer to give the gratuity.

1.WESTERN MINOLCO CORP. VS COMMISSIONER

FACTS: (Refer to the bold for the shotgun)
Petitioner is a domestic corporation engaged in mining, particularly copper concentrates for export mined from
mineral lands. It was granted Certificate of Qualification for Tax Exemption by the Bureau of Mines and authority
to borrow money and issue commercial papers by SEC. Pursuant to this authority, it borrowed funds from several
financial institutions from and correspondingly paid a 35% transaction tax.
The petitioner applied for the refund of the transaction tax paid alleging that it was not liable to such under its
certificate, the Mining Act, Presidential Decree No. 463, and the Mineral Resources Development Decree of
1974, as implemented by Consolidated Mines Administrative Order. This was denied.
The Commissioner of Internal Revenue alleges, among others that, it's exemption from taxes granted under PD
463 relates to importations of machineries, tools and equipment to be used in the mining operations and taxes
on mining claims, improvement thereon and mineral products, whereas the 35% transaction tax is levied on
transactions pertaining to commercial papers issued in the primary money market as principal instruments; thus,
P.D. 463 is inapplicable.
The petitioner argues that the subject tax was paid in the nature of a business tax. As such, refund is based on
its exemption from business taxes, and that its exemptions are protected by under the mining law.

ISSUE: Whether or not the petitioner is exempt from the 35% transaction tax.

RULING: NO
He who claims a deduction must point to the specific provision of the statute authorizing it, and he must be able
to prove that he is entitled to it. As, a general rule deductions are strictly construed against the taxpayer
claiming them and it is incumbent upon the taxpayer to establish a clear right to tax exemption. Tax
exemptions are looked upon with disfavor.

Petitioner Western Minolco Corporation has failed to justify its claimed exemption from the 35% transaction tax.
It bears repeating that and he who would seek to be thus privileged must justify it by words too plain to be
mistaken and too categorical to be misinterpreted. In this case, petitioner merely invoked the laws.

2. Customs vs. PH Acetylene Co. 39 SCRA 70

Facts: Philippine Acetylene Company is engaged in the manufacture of oxygen, acetylene and nitrogen, and
packaging of liquefied petroleum gas in cylinders and tanks. It imported from the United States a custombuilt
liquefied petroleum gas tank. For the said importation, the company was assessed a special import tax
amounting to PhP 3,683.00. The company paid the tax under protest. Philippine Acetylene Company argues
that it is exempt from the payment of the special import tax. It cites as basis for its exemption Sec 6 of RA
No.1394 which states that special import taxes shall not be imposed on machinery, equipment, accessories and
spare parts, imported into the Philippines, for the use of industries. The company maintains that it is an industry
as defined in Sec 6 of RA No. 1394. The Court of Tax Appeals sustained Philippine Acetylene Company’s
contention and declared the latter exempt from the payment of the special import tax.

Issue: Whether or not Philippine Acetylene Company may be considered engaged in an industry as
contemplated in Sec 6 of RA No. 1394 and, therefore, exempt from the payment of the special import tax.

Ruling: NO. Philippine Acetylene Company is not an industry as defined in Sec 6 of RA No. 1394. To be an
industry, the company must be engaged in some productive enterprise, not in merely packaging an already
finished product. The operation for which the company employs the gas tank in question does not involve
manufacturing or production. It is nothing but packaging; the liquefied gas, when obtained from the refinery,
has to be placed in some kind of container to facilitate its transportation. When sold to consumers, it undergoes
no change or transformation, but is merely placed in smaller cylinders for convenience. The process is certainly
not production in any sense. The decision of the CTA is reversed and Philippine Acetylene Company is held
liable for the payment of the special import tax, as it is not an industry exempt from the payment of such tax.

The phrasing of Section 6 of Republic Act No. 1394, to be sure, is rather vague and infelicitious, particularly in
the repetition of the word "industries." It is such lack of precision in the law that gives rise to litigious controversies
concerning its proper application. One of the established rules of statutory construction, however, is that tax
exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its
purview by clear legislative intent. In the present case the construction adhered to by the respondents in
reference to the scope of the term "industries" as employed for the second time in Section 6 of Republic Act
No. 1394 is contrary to such rule.

3. General Electric vs Collector

Facts: This is a claim for refund of the amount 9,628.00 representing overpaid income tax for 1958. Petitioner
General Electric, a foreign corporation from Delaware, USA, and duly licensed to do business in the PH, filed its
ITR for 1958 declaring a net income of 587,760 on which it paid income tax in installments in august. It further
claimed deductions for incentive compensations and overseas travelling expenses.

Petitioner has adopted and consistently followed a policy of giving extra allowances, denominated as
incentive compensation, to its employees and officers for efficient service rendered during the year. Petitioner
filed an amended tax return for 1958, claiming expense deductions of 70,000.00, as incentive compensations,
and 48,385 as overseas traveling expenses. It also filed a refund for 9,628.

Issue: Whether or not petitioner is entitled to the refund?

Ruling: Yes. An expense may be ordinary when it is not unusual in the experience of the group or community it
is not required that the expenditure be habitual or normal in the sense that the taxpayer either makers or is
required to make them often. The CTA said that it is not unusual for petitioner to grant additional compensation
to its officers to send them to different plants. The grant of other compensations, in the form of bonuses, to
deserving employees is sanctioned by law and is deductible from gross income.
An expense is ordinary when it connotes a payment, which is normal in relation to the business of the taxpayer
and the surrounding circumstances. An expense is necessary where the expenditure is appropriate or helpful in
the development of the taxpayer’s business or that the same is proper of realizing a profit or minimizing a loss.

4. COMMISSIONER vs. GEN. FOODS PHIL.

FACTS: Respondent corporation General Foods (Phils), which is engaged in the manufacture of “Tang”,
“Calumet” and “Kool-Aid”, filed its income tax return for the fiscal year ending February 1985 and claimed as
deduction, among other business expenses for media advertising for “Tang”.
The Commissioner disallowed 50% of the deduction claimed and assessed deficiency income taxes
against General Foods, prompting the latter to file an MR which was denied.
General Foods later on filed a petition for review at CA, which reversed and set aside an earlier decision
by CTA dismissing the company’s appeal.

ISSUE: W/N the subject media advertising expense for “Tang” was ordinary and necessary expense fully
deductible under the NIRC

HELD: No. Tax exemptions must be construed in stricissimi juris against the taxpayer and liberally in favor of the
taxing authority, and he who claims an exemption must be able to justify his claim by the clearest grant of
organic or statute law. Deductions for income taxes partake of the nature of tax exemptions; hence, if tax
exemptions are strictly construed, then deductions must also be strictly construed.
To be deductible from gross income, the subject advertising expense must comply with the following requisites:
(a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable
year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must
be supported by receipts, records or other pertinent papers.
The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed
the two conditions set by U.S. jurisprudence: first, “reasonableness” of the amount incurred and second, the
amount incurred must not be a capital outlay to create “goodwill” for the product and/or private respondent’s
business. Otherwise, the expense must be considered a capital expenditure to be spread out over a
reasonable time.

5. CIR vs. Isabela Cultural Corporation

FACTS: Isabela Cultural Corp (ICC) , a domestic corporation received from BIR assessment notice for deficiency
income tax in the amount of Php 333,196.86 and assessment notice for deficiency expanded withholding tax in
the amount of Php 4,897.79, inclusive of surcharge and interest both for the taxable year 1986. The deficiency
income tax of Php 333,196 arose from BIR disallowance of ICC claimed expenses deductions for professional
and security services billed to and paid by ICC in 1986.

The deficiency expanded withholding tax of PhP4,897.79 was allegedly due to the failure of ICC to withhold 1%
expanded withholding tax on its claimed PhP244,890 deduction for security services.

CTA & CA affirmed that the professional services were rendered to ICC in 1984 and 1985, the cost of the service
was not yet determinable at that time, hence, it could be considered as deductible expenses only in 1986
when ICC received the billing statement for said service. It further ruled that ICC did not state its interest
income from the promissory notes of Realty Investment and that ICC properly withheld the remitted taxes on
the payment for security services for the taxable year 1986.

Petitioner contend that since ICC is using the accrual method of accounting, the expenses for the professional
services that accrued in 1984 and 1985 should have been declared as deductions from income during the said
years and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986.

ISSUE: Whether CA is correct in sustaining the deduction of the expenses for professionals and security services
form ICC gross income?

RULING: NO. Revenue Audit Memorandum Order No.1-2000 provides that under the accrual method of
accounting, expenses not being claimed as deductions by a tax payer in the current year when they are
incurred cannot be claimed as deductions from the income for the succeeding year.

The court ruled that accrual of income and expense is permitted when the “all events test” has been met. This
test requires (1) fixing a right to income or liability to pay; and (2) the availability of reasonably accurate
determination of such income or liability. It added that it does not, however, demand that the amount of
income or liability be known absolutely; it only requires that a taxpayer has at its disposal the information
necessary to compute the amount with reasonable accuracy, which implies something less than an exact or
completely accurate amount. Moreover, deduction partakes the nature of tax exemption; it must be
construed strictly against the taxpayer.

6. C.M. HOSKINS & CO. VS. CIR

FACTS: Petitioner, a domestic corporation engaged in the real estate business as brokers, managing agents
and administrators, filed its income tax return. Upon verification of its return, respondent Commissioner,
disallowed four items of deduction in petitioner's tax returns and assessed against it an income tax deficiency.
The Court of Tax Appeals upon reviewing the assessment at the taxpayer's petition, upheld respondent's
disallowance of the principal item of petitioner's having paid to Mr. C. M. Hoskins, its founder and controlling
stockholder. Petitioner’s invoking of its policy since its incorporation of sharing equally sales commissions with its
salesmen, in accordance with its board resolution and questions in this appeal the Tax Court's findings that the
disallowed payment to Hoskins was an inordinately large one, which bore a close relationship to the recipient's
dominant stockholdings and therefore amounted in law to a distribution of its earnings and profits.

ISSUE: WON the Court of tax Appeals erred in disallowing the said deductions.

RULING: No. The Tax Court correctly ruled that the payment by petitioner to Hoskins of the additional sum was
inordinately large and could not be accorded the treatment of ordinary and necessary expenses allowed as
deductible items within the purview of Section 30 (a) (i) of the Tax Code. If such payment were to be allowed
as a deductible item, then Hoskins would receive on these three items alone (salary, bonus and supervision fee)
an amount which would be double the petitioner's reported net income for the year.

The case before us is similar to previous cases of disallowances as deductible items of officers' extra fees,
bonuses and commissions, upheld by this Court as not being within the purview of ordinary and necessary
expenses and not passing the test of reasonable compensation. There is no fixed test for determining the
reasonableness of a given bonus as compensation. This depends upon many factors, one of them being 'the
amount and quality of the services performed with relation to the business.' Other tests suggested
are: payment must be 'made in good faith'; 'the character of the taxpayer's business, the volume and amount
of its net earnings, its locality, the type and extent of the services rendered, the salary policy of the corporation';
'the size of the particular business'; 'the employees' qualifications and contributions to the business venture'; and
'general economic conditions'.
7. RUTKIN VS. US
FACTS: Petitioner was convicted in the Federal District Court for willfully attempting to evade or defeat federal
taxes. He was charged with filing a false and fraudulent return stating his net income to be less, whereas he
knew that it was more than that. That difference, which would increase his tax liability, and was due largely to
his omission from his original return of an amount received by him in cash from Joseph Reinfeld. The United
States claims that this sum was obtained by petitioner by extortion and as such was taxable income.
IISUE: WON the extortion Income is taxable.
RULING: YES. Money obtained by extortion is income taxable to the extortioner under § 22(a) of the Internal
Revenue Code. An unlawful gain, as well as a lawful one, constitutes taxable income when its recipient has
such control over it that, as a practical matter, he derives readily realizable economic value from it. In short,
Illegally acquired income constitutes realized income under the claim of right doctrine.

8. ZAMORA v COMMISSIONER

FACTS: It is alleged by Mariano Zamora (owner of Bay View Hotel and Farmacia Zamora) that the CTA erred in
disallowing P10,478.50 as promotion expenses incurred by his wife for the promotion of the Bay View Hotel and
Farmacia Zamora. He contends that the whole amount of P20,957.00 as promotion expenses in his 1951 income
tax returns, should be allowed and not merely one-half of it or P10,478.50, on the ground that, while not all the
itemized expenses are supported by receipts, the absence of some supporting receipts has been sufficiently
and satisfactorily established. For, as alleged, the said amount of P20,957.00 was spent by Mrs. Esperanza A.
Zamora (wife of Mariano), during her travel to Japan and the United States to purchase machinery for or a new
Tiki-Tiki plant, and to observe hotel management in modern hotels. The CTA, however, found that for said trip
Mrs. Zamora obtained only the sum of P5,000.00 from the Central Bank and that in her application for dollar
allocation, she stated that she was going abroad on a combined medical and business trip, which facts were
not denied by Mariano Zamora. No evidence had been submitted as to where Mariano had obtained the
amount in excess of P5,000.00 given to his wife which she spent abroad. No explanation had been made either
that the statement contained in Mrs. Zamora's application for dollar allocation that she was going abroad on a
combined medical and business trip, was not correct. The alleged expenses were not supported by receipts.
Mrs. Zamora could not even remember how much money she had when she left abroad in 1951, and how the
alleged amount of P20,957.00 was spent.

ISSUE: How much should be allowed as deduction out of the promotion expenses of Mrs. Zamora claimed in
Mariano’s income tax returns?

RULING: One-half only. Sec. 30, of the Tax Code, provides that in computing net income, there shall be allowed
as deductions all the ordinary and necessary expenses paid or incurred during the taxable year, in carrying on
any trade or business. Since promotion expenses constitute one of the deductions in conducting a business,
same must testify these requirements. Claim for the deduction of promotion expenses or entertainment
expenses must also be substantiated or supported by record showing in detail the amount and nature of the
expenses incurred. Considering, as heretofore stated, that the application of Mrs. Zamora for dollar allocation
shows that she went abroad on a combined medical and business trip, not all of her expenses came under the
category of ordinary and necessary expenses; part thereof constituted her personal expenses. There having
been no means by which to ascertain which expense was incurred by her in connection with the business of
Mariano Zamora and which was incurred for her personal benefit, the Collector and the CTA in their decisions,
considered 50% of the said amount of P20,957.00 as business expenses and the other 50%, as her personal
expenses. We hold that said allocation is very fair to Mariano Zamora, there having been no receipt
whatsoever, submitted to explain the alleged business expenses, or proof of the connection which said
expenses had to the business or the reasonableness of the said amount of P20,957.00.

RULING SA BOOK: The money paid to please the director is not deductible. This is a form of bribery. Deductions
shall not be allowed if the expense is contrary to law, public policy or for immoral purposes.

*case 9 missing*

10. PAPER INDUSTRIES V COMMISSIONER

FACTS: Paper Industries Corporation of the Philippines (PICOP) is a PH corporation a preferred pioneer enterprise
with respect to its integrated pulp and paper mill, and as a preferred non-pioneer enterprise with respect to its
integrated plywood and veneer mills.

Petitioner received from the CIR (2) letters of assessment and demand (a) one for deficiency transaction tax
and for documentary and science stamp tax; and (b) the other for deficiency income tax for 1977, for an
aggregate amount of PhP88,763, 255.00.

PICOP protested the assessment of deficiency transaction tax, the documentary and science stamp taxes, and
the deficiency income tax assessment. CIR issued a warrant of distraint on personal property and a warrant of
levy on real property against PICOP, to enforce collection of the contested assessments, thereby denying
PICOP's protests. PICOP went before (CTA) appealing the assessments.

CTA rendered a decision, modifying the CIR’s findings and holding PICOP liable for the reduced aggregate
amount of P20,133,762.33. Both parties went to the SC, which referred the case to the CA

CA denied the appeal of the CIR and modified the judgment against PICOP holding it liable for transaction tax
and absolved it from payment of documentary and science stamp tax and compromise penalty. It also held
PICOP liable for deficiency of income tax.

ISSUE: Whether PICOP is liable for: (1) the 35% transaction; (2) interest and surcharge on unpaid transaction tax

RULING: YES. Picop’s tax exemption under R.A. No. 5186, as amended, does not include exemption from the
35% transaction tax. In the first place, the 35% transaction tax is an income tax, that is, it is a tax on the interest
income of the lenders or creditors. Transaction tax is an income tax and as such falls outside the scope of the
tax exemption granted to registered pioneer enterprises by Section 8 of R.A. 5186, as amended.

PICOP was the withholding agent, obliged to withhold thirty-five percent (35%) of the interest payable to its
lenders and to remit the amounts so withheld to the Bureau of Internal Revenue ("BIR"). As a withholding agent,
PICOP is made personally liable for the thirty-five percent (35%) transaction tax and if it did not actually
withhold thirty-five percent (35%) of the interest monies it had paid to its lenders, PICOP had only itself to blame.

11. CIR v Palanca

Facts:

The late Don Carlos Palanca, Sr. donated in favor of his son, Carlos Palanca, Jr. shares of stock in La
Tondeña Inc. amounting to 12,500 shares. Later, the BIR considered the donation as transfer in contemplation
of death; consequently, the BIR assessed against the respondent, Palanca Jr., the sum of P191,591.62 as estate
and inheritance taxes on the transfer of said 12,500 shares of stock, including therein interest for delinquency of
P60,581.80. The respondent then filed an amended income tax return, claiming an additional deduction in the
amount P60,581.80; hence, his new income tax due is only P428. He attached a letter requesting the refund of
P20,624.01. The Commissioner urges that a tax is not a indebtedness. However, the said request for refund was
denied by the BIR. Court of tax appeals ordered the refund. Hence, this petition.

Issue: W/N such interest was paid upon an indebtedness within the contemplation of Section 30(b) (1) of the
Tax Code

Ruling:

Yes. The Commissioner’s argument is misplaced because the interest on the donor’s tax is not one that
can be considered as having been incurred in connection with the taxpayer’s trade, business or exercise of
profession. Tax obligations constitute indebtedness for purposes of deduction from gross income of the amount
of interest paid on indebtedness.

The taxpayer sought the allowance as deductible items from the gross income of the amounts paid by
them as interests on delinquent tax liabilities. The Court also said that interests on taxes should be considered as
interests on indebtedness within the meaning of Section 30(b) (1) of the Tax Code.
*Case 12 omitted*

13. Basilan Estates, Inc. vs. Commissioner of Internal Revenue

Facts: Basilan Estate, Inc. a Philippine corporation engaged in coconut industry filed in 1954 its income tax
returns for 1953 and paid an income tax of P8,028.

Basilan Estates, Inc. claimed deductions for the depreciation of its assets on the basis of their acquisition cost. As
of January 1, 1950 it changed the depreciable value of said assets by increasing it to conform with the increase
in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of
depreciation computed on the reappraised value.

CIR disallowed the deductions claimed by petitioner, consequently assessing the latter of deficiency income
taxes.

Issue: Whether or not the depreciation shall be determined on the acquisition cost rather than the reappraised
value of the assets.

Ruling: Yes. The following tax law provision allows a deduction from gross income for depreciation but limits the
recovery to the capital invested in the asset being depreciated:

(1)In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the
business or trade, or out of its not being used: Provided, That when the allowance authorized under this
subsection shall equal the capital invested by the taxpayer . . . no further allowance shall be made. . . .

Depreciation is the gradual diminution in the useful value of tangible property resulting from wear and tear and
normal obsolescense. It commences with the acquisition of the property and its owner is not bound to see his
property gradually waste, without making provision out of earnings for its replacement.

Book: The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a
deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from
gross income are privileges, not matters of right. They are not created by implication but upon clear expression
in the law. Moreover, The recovery, free of income tax, of an amount more than the invested capital in an
asset will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would
recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru depreciation of
investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made
has never been the underlying reason for the allowance of a deduction for depreciation. Hence, depreciation
on appraisal value is not allowed.

*Case 14 omitted*

15. PLARIDEL SURETY & INSURANCE CO. VS. CIR

GR. No. L-21520; December 11, 1967

FACTS: Petitioner Plaridel Surety is a domestic corporation engaged in the bonding business. Petitioner and
Constancio San Jose (principal), solidarily executed a performance bond in favor of the PL Galang Machinery
to secure the performance of San Jose contractual obligation to produce and supply logs. To afford itself
adequate protection against loss or damages on the performance, petitioner required San Jose and Ramon
Cuervo to execute an indemnity agreement obligating themselves, solidarity to indemnify petitioner for
whatever liability it may incur by reason of said performance bond. San Jose constituted a chattel mortgage
on logging machineries and other movables in petitioners favor while Ramon Cuervo executed a real estate
mortgage.

San Jose failed to deliver the logs to Galang Machinery and sued on the performance bond. The lower court
directed San Jose and Cuervo to reimburse petitioner for whatever amount it would pay Galang Machinery.
Petitioner in his income tax claimed that the amount P44,490 as deductible loss from its gross income. CIR
disallowed the claimed deductions and assessed against petitioner the sum P8,898, plus interest, as deficiency
income tax for the year 1957.

ISSUE: Whether or not Petitioner could claim deductible loss from its gross income.

RULING: NO. Loss is deductible only in the taxable year it actually happens or is sustained. However, if the loss is
compensable otherwise than by insurance—thru the mortgages in petitioner’s favor executed by San Jose and
Cuervo—though it had not exhausted all its available remedies, especially as against Cuervo, to minimize its
loss, then deduction for the loss suffered is postponed to a subsequent year, which, to be precise, is that year in
which it appears that no compensation at all can be had, or that there is a remaining or net loss, i.e., no full
compensation. The rule is that loss deduction will be denied if there is a measurable right to compensation for
the loss, with ultimate collection reasonably clear. So where there is reasonable ground for reimbursement, the
taxpayer must seek his redress and may not secure a loss deduction until he establishes that no recovery may
be had. In other words, the taxpayer must first exhaust his remedies to recover or reduce his loss. Where the
evidence on record reveals that petitioner had not exhausted its remedies, then it was too premature for
petitioner to claim a loss deduction. (MAMALATEO BOOK PAGE 272)

16. Al Hambra Cigars vs. Collector

Facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company is a domestic corporation. engaged in the
business of manufacturing cigars and cigarettes. For the years 1949 until 1953 it filed its income tax returns on
the accrual method of accounting and paid the income taxes computed in accordance therewith.
Subsequently, a verfication of petitioners income tax returns for the said years was - conducted by respondent
Collector of Internal Revenue, and finding alleged deficiency income taxes due therefrom assessed and
demanded from petitioner respectively, plus surcharge and l% monthly interest on said amounts commencing
on January 1•1956. Hence, this appeal

Issue: Whether or not petitioner is liable to pay income tax deficiency

Ruling:

No. it will be noted that the law contemplates the deduction from gross income of. losses only which are fixed
by identifiable events The income tax law is concerned only with realized losses and it was only in 1949 that
petitioner reasonably ascertained the fact of and the amount of the loss so as to justify its deduction.. Before
that, the loss was not yet evidenced by a closed and completed transaction as the possibility of reimbursement
was still real and substantial.. The said amounts therefore an allowable deduction.

17. Collector of Internal Revenue vs. Goodrich International Rubber Co.

Facts: Respondent was assessed P14,128.00 and P8,439.00, as deficiency income taxes allegedly due for the
years 1951 and 1952, respectively. These assessments were based on disallowed deductions, claimed by
Goodrich, consisting of several alleged bad debts, in the aggregate sum of P50,455.41, for the year 1951, and
the sum of P30,138.88, as representation expenses allegedly incurred in the year 1952, composed of 10
companies. The claim for deduction thereof is based upon receipts issued, not by the entities in which the
alleged expenses had been incurred, but by the officers of Goodrich who allegedly paid them.

Issue: Whether or not the accounts should be considered bad debts.

Held: No. Claim for deduction of representation expenses, being based upon receipts issued not by the entities
in which the alleged expenses had been incurred but by the officers of some other entity who allegedly paid
them, must be rejected. If the expenses had really been incurred, receipts or chits would have been issued by
the entities to which the payments had been made, and it would have been easy for the other entity or its
officers to produce such receipts. Those issued by said officers merely attest to their claim that they had
incurred and paid said expenses. They do not establish payment of said alleged expenses, to the entities in
which the same are said to have been incurred. Our statute permits the deduction of debts “actually
ascertained to be worthless within the taxable year,” obviously to prevent arbitrary action by the taxpayer to
unduly avoid tax liability. The requirement of ascertainment of worthlessness requires proof of two facts: (1) that
the taxpayer did in fact ascertain the debt to be worthless in the year for which the deduction was sought; and
(2) that, in doing so, he acted in good faith. Good faith on the part of the taxpayer is not enough. He must
show also that he had reasonably investigated the relevant facts and had drawn a reasonable inference from
the information thus obtained by him.

18. Philipppine Fiber Processing Company v Commissioner of Internal Revenue CTA Case No. 1407
Facts:
Petitioner is a domestic corporation engaged in the manufacture of jute bags and jute sacks. In 1961,
petitioner declared a loss of P175,591.90. However, upon investigation, the revenue examiners found the
following as not an excludable item from gross income:
(1) The commission expenses of P348,997.72 condoned by the Philippine National Bank.
Petitioner invokes the “Equitable Doctrine of Tax Benefit” and argues that “since its debt consisting of
bank charges or commissions effected no reduction in its income tax liability for previous years, the complete
partial relinquishment of its debt in 1961 by way of condonation or cancellation thereof would not constitute
taxable income in 1961.”
Issues:
1. WON the condoned commission expense constitutes “income derived from any source whatever” under
the NIRC
2. WON petitioner is correct in invoking the “Equitable Doctrine of Tax Benefit.”
Ruling:
1. Yes, the condoned commission expense constitutes “income derived from any source whatever” under the
NIRC. When a creditor cancels a debt as part of a business transaction, the debtor is thereby enriched or
his net assets have been increased, and therefore he realizes taxable income.
2. No, petitioner is not correct in invoking the “Equitable Doctrine of Tax Benefit,” because it can only be
availed of by a creditor but never by a debtor. This doctrine is predicated on the reasoning that, ordinarily,
a repayment of loan is a reimbursement of capital and unless a taxpayer has already recovered his capital,
recoveries of debts are not income for income tax purposes. The doctrine provides that the recovery of
amounts deducted in previous years from gross income become taxable income unless to the extent
thereof, the deduction did not result in any tax benefit to the taxpayer.
19. Basilan Estates, Inc. (BEI) v. CIR [21 SCRA 17, Sept. 5, 1967]

FACTS: BEI claimed deductions for the depreciation of its assets up to 1949 on the basis of their acquisition cost.
As of January 1, 1950, it changed the depreciable value of said assets by increasing it to conform with the
increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted the value of depreciation
computed based on the reappraised value from the gross income. Upon investigation and examination of
taxpayer's books and papers, the CIR found that the reappraised assets depreciated in 1953 were the same
ones upon which depreciation was claimed in 1952. And for the year 1952, the Commissioner had already
determined, with taxpayer's concurrence, the depreciation allowable on said assets to be P36,842.04,
computed on their acquisition cost at rates fixed by the taxpayer. Hence, the Commissioner pegged the
deductible depreciation for 1953 on the same old assets at P36,842.04 and disallowed the excess thereof in the
amount of P10,500.49.

Petition was not given due course. BEI appealed to the CTA, alleging that the trial court erred in disallowing its
claimed depreciations, travelling and miscellaneous expenses.

ISSUE: WON the depreciation of property is deductible from the gross income.

HELD: Yes. Depreciation is the gradual diminution in the useful value of tangible property resulting from wear
and tear and normal obsolescense. The term is also applied to amortization of the value of intangible assets,
the use of which in the trade or business is definitely limited in duration. Depreciation commences with the
acquisition of the property and its owner is not bound to see his property gradually waste, without making
provision out of earnings for its replacement. Section 30 (f) (1) states that: A reasonable allowance for
deterioration of property arising out of its use or employment in the business or trade, or out of its not being
used: Provided, that when the allowance authorized under this subsection shall equal the capital invested by
the taxpayer.
It allows a deduction from gross income for depreciation but limits the recovery to the capital invested in the
asset being depreciated. The income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is
that deductions from gross income are privileges, not matters of right. They are not created by implication but
upon clear expression in the law. The claim for depreciation beyond P36,842.04 or in the amount of P10,500.49
has no justification in the law.

20. Philippine Stock Exchange, Inc vs Commissioner of Internal Revenue, CTA Case No. 5995
FACTS: Petitioner is a domestic, non-stock corporation under Philippine law and registered with SEC. Its primary
purpose is to provide and maintain a convenient, economical and suitable market for the exchange, purchase
and sale of stocks, bonds and other securities of established companies.
Petitioner received four deficiency tax assessments notices after its books of accounts and accounting records
for income/VAT/withholding/Doc Stamp taxes for period Jan. –Dec. 1995 were examined. It filed its protest
letter together with supporting documents and pointed out that the notices and demand letter failed to state
the law and the facts upon which the assessments were based.
The BIR records show that petitioner was given an opportunity to controvert the findings of the respondent’s
examiners thrice through a series of informal conferences. The deficiency income tax was brought by 3 factors,
namely unrecognized income, unallowable donation, and interest expense. On the matter of donations and
contribution, petitioner executed a Deed of Donation in favor of Philippine Stock Exchange Foundation, Inc. for
the sum of 10M. The revenue examiners are of opinion that the donation should be properly recognized in 1996
because the money was delivered only on Jan. 6, 1996. However, petitioner avers that the donation should be
recognized in 1995, the year when the deed of donation was perfected.
ISSUE: Whether or not petitioner should recognize the donation as a deduction from gross income in the year
donation was actually paid or made.
RULING: Yes. Irrespective of the accounting method used by the donor, donation is recognized as a deduction
from his gross income in the year such donation was actually paid or made, not in the year the deed of
donation was perfected. The deductibility of donation is not governed by the ordinary rules on deductibility of
the expense. Donation must be both perfected and consummated before it can be allowed as a deduction.

21. MADRIGAL VS RAFFERTY

FACTS: Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914 which marriage was
contracted under conjugal partnership. On 1915, Madrigal filed a declaration of his net income for year 1914,
the sum of P296,302.73. He contended that the said declared income does not represent his income for the
year 1914 as it was the income of his conjugal partnership with Paterno. He said that in computing for his
additional income tax, the amount declared should be divided by 2. The revenue officer was not satisfied with
Madrigal’s explanation and ultimately, the United States Commissioner of Internal Revenue decided against
the claim of Madrigal. Petitioner paid under protest, and the couple decided to recover the sum of P3,786.08
alleged to have been wrongfully and illegally assessed and collected by the CIR.

ISSUE: Whether or not the income reported by Madrigal on 1915 should be divided into 2 in computing for the
additional income tax.

RULING: No. The point of view of the CIR is that the Income Tax Law, as the name implies, taxes upon income
and not upon capital and property. As Paterno has no estate and income, actually and legally vested in her
and entirely distinct from her husband’s property, the income cannot properly be considered the separate
income of the wife for the purposes of the additional tax. To recapitulate, Vicente wants to half his declared
income in computing for his tax since he is arguing that he has a conjugal partnership with his wife. However,
the court ruled that the one that should be taxed is the income which is the flow of the capital, thus it should
not be divided into 2.

Book: Exemptions are fixed at arbitrary amounts intended to substitute for personal and living expenses. They
are roughly the equivalent of the taxpayer's minimum subsistence and those of his dependents.

The Income Tax Law of the United States in force in the Philippine Islands has selected income as the test of
faculty in taxation. The aim has been to mitigate the evils arising from the inequalities of wealth by a progressive
scheme of taxation, which places the burden on those best able to pay. To carry out this idea, public
considerations have demanded an exemption roughly equivalent to the minimum of subsistence. With these
exceptions, the Income Tax Law is supposed to reach the earnings of the' entire nongovernmental property of
the country.

22. DEPUTY v. DU PONT

Facts:

Du Pont Company, not engaging in the business of selling shares of stocks but rather it makes a broad array of
industrial chemicals, synthetic fibres, petroleum-based fuels and lubricants, pharmaceuticals, building materials,
sterile and specialty packaging materials, cosmetics ingredients, and agricultural chemical, sold share of
stocks.

Theyb claimed that the expenses in selling its shares of stocks is deductible as business expense for the purpose
of computing business income tax.

Issue:

WON the said expenses in selling its shares of stocks is deductible as business expense .

Ruling:

NO, because it is not an ordinary business expense. The term “ordinary” is used in the income tax law in its
common significance and it has connotation of being normal, usual, or customary.