Tax 1 Digests - Part I

TAXATION 1 (BVQ) DIGESTS PLM CL JD 1-1 ALSOL. ASIS. GUEVARRA. JOCSON. JILOCA. PAGASPAS. ROQUE. SIMABAHAN.
SUELTO
G.R. No. L-29059 December 15, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.
FACTS: CTA rendered a decision ordered CIR to refund Cebu Portland Cement Company the amount of of P 359,408.98,
representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957. Cebu Portland
ordered for the execution of the judgment but was opposed by the petitioner on the ground that Cebu Portland had an
outstanding sales tax liability in the amount of P 4,789,279.85 plus 28% surcharge.
CTA granted the motion, holding that the alleged sales tax liability of the private respondent was still being
questioned and therefore could not be set-off against the refund.
CIR claims that the refund should be charged against the tax deficiency of the private respondent on the sales of
cement under Section 186 of the Tax Code. His position is that cement is a manufactured and not a mineral product and
therefore not exempt from sales taxes. He adds that enforcement of the said tax deficiency was properly effected through
his power of distraint of personal property under Sections 316 and 318 of the said Code and, moreover, the collection of
any national internal revenue tax may not be enjoined under Section 305, subject only to the exception prescribed in Rep.
Act No. 1125. This is not applicable to the instant case. The petitioner also denies that the sales tax assessments have already
prescribed because the prescriptive period should be counted from the filing of the sales tax returns, which had not yet been
done by the private respondent.
Cebu Portland disclaims liability for the sales taxes, on the ground that cement is not a manufactured product but a
mineral product. As such, it was exempted from sales taxes under Section 188 of the Tax Code after the effectivity of Rep.
Act No. 1299 on June 16, 1955, in accordance with Cebu Portland Cement Co. v. Collector of Internal Revenue, decided in
1968 "before the effectivity of Rep. Act No. 1299, amending Section 246 of the National Internal Revenue Code, cement
was taxable as a manufactured product under Section 186, in connection with Section 194(4) of the said Code," thereby
implying that it was not considered a manufactured product afterwards. Also, the alleged sales tax deficiency could not as
yet be enforced against it because the tax assessment was not yet final, the same being still under protest and still to be
definitely resolved on the merits. Besides, the assessment had already prescribed, not having been made within the
reglementary five-year period from the filing of the tax returns.
ISSUE:
1. WON sales tax was properly imposed upon the private respondent
2. WON assessment of taxes can be enforced even if there’s a case contesting it (MAIN ISSUE for the TOPIC)
RULING:
1. Sales tax was properly imposed upon the private respondent for the reason that cement has always been considered
a manufactured product and not a mineral product. This matter was extensively discussed and categorically resolved
in CIR v. Republic Cement Corporation.
“cement qua cement was never considered as a mineral product within the meaning of Section 246 of the Tax Code,
notwithstanding that at least 80% of its components are minerals, for the simple reason that cement is the product of
a manufacturing process and is no longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected to
simple treatments) for the purpose of imposing the ad valorem tax.”
The said decision is no authority for the proposition that after the enactment of Republic Act No. 1299 in 1955
(defining mineral product as things with at least 80% mineral content), cement became a 'mineral product," as distinguished
from a "manufactured product," and therefore ceased to be subject to sales tax. It was not necessary for the Court to so rule.
It was enough for the Court to say in effect that even assuming Republic Act No. 1299 had reclassified cement was a mineral
TAXATION 1 (BVQ) DIGESTS PLM CL JD 1-1 ALSOL. ASIS. GUEVARRA. JOCSON. JILOCA. PAGASPAS. ROQUE. SIMABAHAN. SUELTO
product, the reclassification could not be given retrospective application (so as to justify the refund of sales taxes paid before
Republic Act 1299 was adopted) because laws operate prospectively only, unless the legislative intent to the contrary is
manifest, which was not so in the case of Republic Act 1266. [The situation would have been different if the Court instead
had ruled in favor of refund, in which case it would have been absolutely necessary (1) to make an unconditional ruling that
Republic Act 1299 re-classified cement as a mineral product (not subject to sales tax), and (2) to declare the law retroactive,
as a basis for granting refund of sales tax paid before Republic Act 1299.]
The nature of cement as a "manufactured product" (rather than a "mineral product") is well-settled. The issue has
repeatedly presented itself as a threshold question for determining the basis for computing the ad valorem mining tax to be
paid by cement Companies. No pronouncement was made in these cases that as a "manufactured product" cement is subject
to sales tax because this was not at issue. The decision sought to be reconsidered here referred to the legislative history of
Republic Act No. 1299 which introduced a definition of the terms "mineral" and "mineral products" in Sec. 246 of the Tax
Code.
2. YES.
In order to avail itself of the benefits of the five-year prescription period under Section 331 of the Tax Code, the taxpayer
should have filed the required return for the tax involved, that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et al.,
G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed sales tax returns of its gross sales for
the subject periods. Both parties admit that returns were made for the ad valorem mining tax. CEPOC argues that said
returns contain the information necessary for the assessment of the sales tax. The Commissioner does not consider such
returns as compliance with the requirement for the filing of tax returns so as to start the running of the five-year prescriptive
period.
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency
of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.
That is the reason why, save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court shall have authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being questioned in a court
of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level.
There is all the more reason to apply the rule here because it appears that even after crediting of the refund against the tax
deficiency, a balance of more than P 4 million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt, which he will later
have the right to distrain for payment of its sales tax liability is in our view an Idle ritual. CTA erred.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and
other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959. On January 18, 1965, Algue filed a letter of protest or request for reconsideration,
which letter was stamp received on the same day in the office of the petitioner. On March 12, 1965, a warrant of distraint
and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it
on the ground of the pending protest. A search of the protest in the dockets of the case proved fruitless. Atty. Guevara
produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. On April 7,
1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he
accepted the warrant of distraint and levy earlier sought to be served. Sixteen days later, on April 23, 1965, Algue filed a
petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.
CIR contentions:
- The claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary
business expense
- payments are fictitious because most of the payees are members of the same family in control of Algue and that there is
not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate Development Company.
ISSUE:
1. WON the appeal of the private respondent from the decision of the CIR was made on time and in accordance with
law.
2. WON CIR correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns.
RULING:
1. YES. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or
ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of the finality of the
assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof
and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such
protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest
that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro forma and was based
on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary
period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only
on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the
warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary
period had been consumed.
2. NO. Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on
conformed to the decision of CTA. There is no dispute that the payees duly reported their respective shares of the
fees in their income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the
evidence, that no distribution of dividends was involved CIR suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of receipts
was not required. at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees
received by him or her, to make up the total of P75,000.00. This arrangement was understandable in view of the close
relationship among the persons in the family corporation. The amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
“ Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered xxx”
The burden is on the taxpayer to prove the validity of the claimed deduction. In this case, Algue Inc. has proved that the
payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of
pesos.
Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his share in the running of the government. The government for its part,
is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance
their moral and material values. Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the courts will then come to his succor.
G.R. No. L-18129 January 31, 1963
C. N. HODGES, petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF ILOILO, ET AL., respondents-appellants.
FACTS: On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of 1960, pursuant
to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring any person, firm, association or
corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the
sale of the motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid. It is expressly
required therein that the payment of the municipal tax shall be a requirement for registration and transfer of ownership, the
tax to be paid in the office of the city treasurer, and that the tax receipt shall be made part of the documents to be presented
to the Motor Vehicles Office..
C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the City of
Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is invalid for having been
passed in excess of the authority conferred by law upon the municipal board, he filed on June 27, 1960 a petition for
declaratory judgment with the Court of First Instance of Iloilo praying that said ordinance be declared void ab initio, and
that the City of Iloilo be ordered to refund to him the amounts he was required to pay thereunder without prejudice to
determining its validity in an appropriate action.
CFI held that part of the ordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1%
of the selling price is valid, but the portion thereof which requires the payment of the tax as a condition precedent for the
registration of the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264.
ISSUE: WON City of Iloilo is empowered to imposed tax.
RULING:
Section 2 of Republic Act No. 2264, known as the Local Autonomy Act pursuant to which the ordinance in question was
approved by the Municipal Board of the City of Iloilo, provides in part:
SEC. 2. Taxation.— Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring
them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered
in connection with any business, profession or occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the
national internal revenue code: ....
It would appear that the City of Iloilo, thru its municipal board, is empowered (a) to impose municipal licenses, taxes or
fees upon any person engaged in any occupation or business, or exercising any privilege, in the city; (b) to regulate and
impose reasonable fees for services rendered in connection with any business, profession or occupation conducted within
the city; and (c) to levy for public purposes just and uniform taxes, licenses or fees. It would also appear that municipalities
and municipal districts are prohibited from imposing any percentage tax on sales or other taxes in any form on articles
subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code.
On the other issue WON the additional requirement of paying the tax shall be a requirement for registration is valid, IT IS
VALID. The court a quo undoubtedly had in mind the provisions of Section 2(h) of Republic Act No. 2264 which prohibits
a chartered city from imposing a tax on the registration of motor vehicles and the issuance of all kinds of licenses or permits
for the driving thereof, which is one of the exceptions constituting a restriction on the taxation power granted by said Act
to a city, municipality or municipal district. But the requirement of the ordinance cannot be considered a tax in the light
viewed by the court a quo for the same is merely a coercive measure to make the enforcement of the contemplated sales tax
more effective. Well-settled is the principle that taxes are imposed for the support of the government in return for the general
advantage and protection which the government affords to taxpayers and their property. Taxes are the lifeblood of the
government. It is imperative that the power to impose them to be clothed with the implied authority to devise ways and
means to accomplish their collection in the most effective manner. Without this implied power the end of government may
falter or fail. It is a general and undisputed proposition of law that a municipal corporation possesses and can exercise the
following powers, and no others: First, those granted in express words; second, those necessarily or fairly implied in or
incident to the powers expressly granted; third, those essential to the accomplishment of the declared objects and purposes
of the corporation not simply convenient, but indispensable.
Municipal corporations may exercise all powers in the fair intent and purpose of their creation which are reasonably proper
to give effect to the powers expressly granted, and in so doing they gave the choice of the means adapted to the ends and
are not confined to any one mode of operation.
G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,

vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all
of the City of Manila, respondents-appellees.
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 Ordinance No. 3379 pased by Municipal Board of Manila 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.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic
Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double
taxation. CFI held its validity.
ISSUE: WON the city ordinance is void for infringing uniformity of taxes.
RULING: YES. Republic Act No. 409 confers upon the municipal board the power "to tax motor and other vehicles
operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that
this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on
motor vehicles operating within the city limits.
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to impose
tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are contained in section 70 (b)
which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry,
or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner
thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the
payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . . .
This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be
construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When
section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it
can only refers to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law.
"An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila" was passed,
and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds
of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair,
maintenance and improvement of its streets and bridges."
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be
taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise
or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is
proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed.
Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if
it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be
considered an excise." (26 R. C. L., 35-36.) It has also been held that
The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and
from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it
is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon
persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated
according to the property used in such business, or on the gross receipts of the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we
cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose
of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said
city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing,
maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended
to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance
in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
It is also our opinion that 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.
G.R. Nos. L-28508-9 July 7, 1989
ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Facts:
The case is about an appeal before the Supreme Court about the decision of the CTA denying petitioner’s claims for refund
of overpaid income taxes for years 1959 and 1960 respectively.
In the first case, petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business
expenses, the amount it had spent for drilling and exploration of its petroleum concessions.
This claim was disallowed by the Commissioner of Internal Revenue on the ground that the expenses should be capitalized
and might be written off as a loss only when a "dry hole" should result. ESSO then filed an amended return where it asked
for the refund by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary
expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its
profit remittances to its New York head office.
The CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid.
In the second case,the CIR assessed ESSO a deficiency income tax for the year 1960, in the amount of P367,994.00, plus
18% interest thereon of P66,238.92 for the period from April 18,1961 to April 18, 1964, for a total of P434,232.92. The
deficiency arose from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit
remittances to its New York head office.
The CIR denied the claims of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, holding that the
margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.
ESSO appealed to the CTA and sought the refund for 1959, contending that the margin fees were deductible from gross
income either as a tax or as an ordinary and necessary business expense. It also claimed an overpayment of its tax in 1960,
for the same reason. Additionally, ESSO argued that even if the amount paid as margin fees were not legally deductible,
there was still an overpayment for 1960, representing excess interest.
After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92 for 1960 but sustained
its claim for P39,787.94 as excess interest. This portion of the decision was appealed by the CIR but was affirmed by this
Court on April 18, 1989. ESSO for its part appealed the CTA decision denying its claims for the refund of the margin fees
for 1959 and 1960.
Issues:
Whether or not the margin fees paid by the petitioner to the Central Bank on its profit remittances to its New York head
office should be deductible from ESSO's gross income under Sec. 30(c) of the National Internal Revenue Code.
In relation to the first issue, if proven that it’s not then whether or not margin fees should be considered a valid deduction
to petitioner’s tax was an expenditure necessary and proper for the conduct of its corporate affairs.
Ruling:
No. The applicable provision is Section 30(a) of the National Internal Revenue Code reading as follows:
SEC. 30. Deductions from gross income in computing net income there shall be allowed as deductions
(a) Expenses:
(1) In general. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for personal services actually
rendered; traveling expenses while away from home in the pursuit of a trade or business; and rentals or other payments
required to be made as a condition to the continued use or possession, for the purpose of the trade or business, of
property to which the taxpayer has not taken or is not taking title or in which he has no equity.
(2) Expenses allowable to non-resident alien individuals and foreign corporations. — In the case of a non-resident
alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying
on any business or trade conducted within the Philippines exclusively.
The Court laid down the rules on the deductibility of business expenses, thus:
The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of the
statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the
law allows. As previously adverted to, the law allowing expenses as deduction from gross income for purposes of the
income tax is Section 30(a) (1) of the National Internal Revenue which allows a deduction of 'all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business.' An item of
expenditure, in order to be deductible under this section of the statute, must fall squarely within its language.
The statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three conditions are
imposed, namely:
(1) the expense must be ordinary and necessary,
(2) it must be paid or incurred within the taxable year, and
(3) it must be paid or incurred in carrying on a trade or business.
In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction.
Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the
development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the
business of the taxpayer and the surrounding circumstances. The term 'ordinary' does not require that the payments be
habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or
non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on the particular facts
and the relation of the payment to the type of business in which the taxpayer is engaged. The intention of the taxpayer
often may be the controlling fact in making the determination. Assuming that the expenditure is ordinary and necessary
in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable
deduction as a business expense must be determined from the nature of the expenditure itself, which in turn depends
on the extent and permanency of the work accomplished by the expenditure.
ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or
business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a
showing that they are illegal or ultra vires. This is error. The public respondent is correct when it asserts that "the paramount
rule is that claims for deductions are a matter of legislative grace and do not turn on mere equitable considerations .The
taxpayer in every instance has the burden of justifying the allowance of any deduction claimed."
The margin fees are not expenses in connection with the production or earning of petitioner's incomes in the
Philippines. They were expenses incurred in the disposition of said incomes; expenses for the remittance of funds
after they have already been earned by petitioner's branch in the Philippines for the disposal of its Head Office in
New York which is already another distinct and separate income taxpayer.
It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an
ordinary and necessary expense paid or incurred in carrying on its own trade or business.
WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for refund of P102,246.00 for 1959
and P434,234.92 for 1960, is AFFIRMED, with costs against the petitioner.
SO ORDERED.
G.R. No. L-36081 April 24, 1989
PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,

vs.
QUEZON CITY, respondent.
Facts:
The City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as the Market
Code of Quezon City which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market
spaces in the City. .
Petitioner Progressive Development Corporation, owner and operator of a public market known as the "Farmers Market &
Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against respondent before the CFI of Rizal on
the ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income
which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended. The
petitioner insists that the “supervision fee” collected from rentals, being a return from capital invested in the construction
of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondent’s taxing
authority, and thus beyond the latter’s competence.
The lower court dismissed the petition, ruling that the questioned imposition is not a tax on income, but rather a privilege
tax or license fee which local governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner presents this Petition for Review.
Issues:
Whether or not the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the
nature of an income tax or, alternatively, of a license fee.
Ruling
No. License fee is a legal concept distinguishable from tax; the former is imposed in the exercise of police power primarily
for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. If
the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax. If the regulation
is the primary purpose, the fact that incidentally 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 inspection, supervision or
regulation, taking into account not only the costs of direct regulation but also its incidental consequences. Such cost may
be, as provided for by the Legislature, at the expense of the persons engaged in the said occupation or activity. It may also
be provided that no one shall engage in the same until a fee or charge sufficient to cover such cost 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.
In the case at bar, the "Farmers' Market and Shopping Center" being a public market in the sense of a market being open to
and inviting the patronage of the general public even though privately owned, It is required that the petitioner's operation
thereof be issued a license issued by the respondent in the exercise of the latter’s police power. Its operation is equivalent
to or quite the same as the operation of a government-owned market as both are established for the rendition of service to
the general public which warrants close supervision and control by the City for the protection of the health of the public by
insuring the maintenance of sanitary and hygienic conditions in the market and compliance of all food stuffs sold therein
with applicable food and drug and related standards, among others. As such, the 5% tax imposed in the ordinance is a license
fee for the regulation of the business in which the petitioner is engaged.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby AFFIRMED
and the Court Resolved to DENY the Petition for lack of merit.
SO ORDERED.
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his
capacity as National Treasurer, defendants-appellants.
Facts:
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the then
Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid under protest.
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. 42739, as amended by Republic Act Nos. 25). and 269.1
Under its franchise, PAL is exempt from the payment of taxes.
PAL has, since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities,
among them PAL to pay motor vehicle registration fees.
The appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were
paid. PAL thus paid, under protest, the registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter to Commissioner Edu demanding a refund of the amounts
paid, invoking the ruling in Calalang v. Lorenzo 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., to the effect that motor vehicle registration fees are regulatory exceptional and not revenue measures and, therefore,
do not come within the exemption granted to PAL under its franchise.
Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal.
Appellee Romeo F. Elevate filed a motion to dismiss alleging that the complaint states no cause of action. In support of the
motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that
registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police
power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on
its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration
fees. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits.
Issues:
Whether or not motor vehicle registration fees are considered taxes and not regulatory fees.
Ruling:
Yes. They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for
that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. Hence, a
charge fixed by statute for the service to be person,-When by an officer, where the charge has no relation to the value of the
services performed and where the amount collected eventually finds its way into the treasury of the branch of the government
whose officer or officers collected the chauffeur, is not a fee but a tax. It is the object of the charge, and not the name, that
determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the
expenditures of the Motor Vehicle Office but accrues to the funds for the construction and maintenance of public roads,
streets and bridges. As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, but to provide revenue with which the government is to
construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees.
PAL is therefore exempt from paying such fess except for the period between June 1968 to April 1979 where its tax
exception was repealed in their franchise.
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily
revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax.
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one fifth or less
of the amount collected is set aside for the operating expenses of the agency administering the program.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is
DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any
tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from April 9, 1979 as provided
in Presidential Decree No. 1590. SO ORDERED.
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Facts:
Ordinance No. 6537 was passed by the Municipal Board of Manila and signed by the herein petitioner Mayor Antonio J.
Villegas of Manila.
Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to engage or participate in any position or
occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment
permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular
missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign
government, and those working in their respective households, and members of religious orders or congregations, sect or
denomination, who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of
not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction.
Private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance
of Manila, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of
Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void.
In this petition, Hiu Chiong Tsai Pao Ho assigned 3 grounds for wanting the ordinance declared null and void one of it being
that as a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and
violative of the rule of the uniformity in taxation among others.
Issues:
Whether or not the respondent court erred in ruling that Ordinance No. 6537 violated the cardinal rule of uniformity
of taxation.
Ruling: 1
No. Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated
the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures
and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being
principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory
in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit
from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of
applications for employment permits and therefore is regulatory in character the second part which requires the payment of
P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from
aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the
guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences
in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution
does not forbid classification, it is imperative that the classification should be based on real and substantial differences
having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from
every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly
paid executive
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
G.R. No. L-16619 June 29, 1963

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee, vs. CITY OF MANILA, ET AL.,
defendants-appellants.
DIZON, J.:
Preliminary:
Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund the sum
of P15,280.00 to Compania General de Tabacos de Filipinas.
Facts:
Compañia General de Tabacos de Filipinas (Tabacalera), as a duly licensed first-class wholesale and retail liquor dealer
paid the City the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957, inclusive. and, as a wholesale
and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 381. In
1954, City Ordinance 3634, amending City Ordinance 3420, and City Ordinance 3816, amending City Ordinance 3301 were
passed. By reason thereof, the City Treasurer issued the regulations, according to which, the term “general merchandise”,
as used in said ordinances, includes all articles referred to in chapter 1, Sections 123 to 148 of the National Internal Revenue
Code. Of these, Section 133-135 included liquor among the taxable articles. Pursuant to said regulations, Tabacalera
included its sales of liquor in its sworn quarterly declaration submitted to the City Treasurer beginning from the third quarter
of 1954 to the second quarter of 1957, with a total value of P722,501.09 and correspondingly paid a wholesaler’s tax
amounting to P13,688 and a retailer’s tax amounting to P1,520, or a total of P15,208. In 1954, the City, through its
treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view
that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance 3358 are not subject to the
wholesale and retail dealers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. Upon learning of said opinion, the
Tabacalera stopped including its sales of liquor in its quarterly sworn declarations submitted in accordance with the City
Ordinances 3634, 3301, and 3816, and on 3 December 1957, it addressed a letter to the City Treasurer demanding refund
of the alleged overpayment. As the claim was disallowed, the Tabacalera filed the action in the CFI Manila to recover from
the City of Manila and its Treasurer, Marcelino Sarmiento the sum of P15,280.00 allegedly overpaid by it as taxes on its
wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive,
under Ordinances 3634, 3301, and 3816. The CFI Manila ordered the City Treasurer of Manila to refund the sum of P15,280
to Compañia General de Tabacos de Filipinas. Hence, the appeal
The Supreme Court reversed the decision appealed from, with the result that the case should be dismissed, with costs
ISSUE:
Is petitioner entitled to refund? NO
HELD:
Meaning of “tax”; Distinction of taxes and license fee
The term “tax” applies to all kinds of exactions which become public funds. The term is often loosely used to include levies
for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking,
however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for
purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues
Ordinance 3358 a valid regulatory enactment for the sale of intoxicating liquors
Ordinance 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling
liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix
license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p],
RA as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering
that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to
supervision or regulation by the state and by cities and municipalities authorized to act in the premises.
Ordinance 3634, 3301 and 316 are revenue measures
On the other hand, Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or
retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for
the sale of such merchandise. (Section 10 [o], RA 409, as amended.
Merchandise includes liquor; Merchandise defined
Under Ordinance 3634 the word “merchandise” as employed therein clearly includes liquor. Aside from this, it was held in
City of Manila vs. Inter-Island Gas Service Inc. (99 Phil. 847), that the word “merchandise” refers to all subjects of
commerce and traffic; whatever is usually bought and sold in trade or market; goods or wares bought and sold for
gain; commodities or goods to trade; and commercial commodities in general.
Tabacalera not subject to double taxation; License fee and tax may be imposed on same subject matter
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 (Bentley Gray Dry Goods Co., vs. City of Tampa 137 Fla. 641, 188 SO. 758;
MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83).
Government not bound by errors of its officers, especially on matters of law
The contention that the City is repudiating its previous view, expressed by its Treasurer in a letter addressed to Messrs.
Sycip, Gorres, Velayo & Co. in 1954, that a liquor dealer who pays the annual license fee under Ordinance 3358 is
exempted from the wholesalers and retailers taxes under the other three ordinances is of no consequence. The
government is not bound by the errors or mistakes committed by its officers, especially on matters of law
G.R. No. L-12647 May 31, 1961
AMERICAN MAIL LINE, ET AL., plaintiffs-appellees, vs.CITY OF BASILAN, ET AL., defendants-appellants.
DIZON, J.:
Facts: On 12 September 1955 the City Council of Basilan City enacted Ordinance 180, Series of 1955, amending Title IV,
Ordinance 7, Series of 1948 by adding thereto Section 1 (D) and Sections 2 (C) and (D). Section 1 (D) provides that “any
foreign vessel engaged in coastwise trade which may anchor at any open bay, channel, or any loading point within the
territorial waters of the City of Basilan for the purpose of loading or unloading logs or passengers and other cargoes
shall pay an anchorage fee of 1/2 centavo (P.005) per registered gross ton of the vessel for the first twenty-four
(24) hours, or part thereof, PROVIDED, that maximum charge shall not exceed, seventy-five pesos (P75.00) per day,
irrespective of the greater tonnage of the vessels.” American Mail Line, et. al. are foreign shipping companies licensed to
do business in the Philippines, with offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel
within its territorial waters. As the city treasurer assessed and attempted to collect from them the anchorage fees prescribed
in the amendatory ordinance, they filed the action for Declaratory Relief to have the courts determine its validity. Upon
their petition the CFI Manila issued a writ of preliminary injunction restraining appellants from collecting or attempting to
collect from them the fees prescribed therein. After the denial of the city’s motion to dismiss the complaint on the ground
of wrong venue, they filed their answer alleging therein that the City of Basilan had authority, through its city council, to
enact the questioned ordinance in the exercise of either its revenue-raising power or of its police power. They also filed a
counterclaim to recover alleged uncollected anchorage dues amounting to P7,500.00, and the sum of P2,000.00 for expenses
incurred in defending the suit. The lower court declared Ordinance 180, Series of 1955, of the City of Basilan illegal and
void and dismissing the city’s counterclaim for lack of merit
The Supreme Court affirmed the decision appealed from, and made final the preliminary injunction issued; without costs
ISSUE:
Is the ordinance valid exercise of taxing power of the City of Basilan.
HELD:
City of Basilan did not grant a blanket power of taxation, Meaning of the phrase “In accordance with law”
Under paragraph (a) of the Charter of the City of Basilan (RA 288), which provides that the council has the legislative
powers to only levy and collect taxes for general and special purposes in accordance with or as provided by law. The City
of Basilan was not granted a blanket power of taxation. The use of the phrase “in accordance with law” means the same “as
provided by law” clearly discloses the legislative intent to limit the taxing power of the City.
Section 14 (v) does not authorize the city to promulgate ordinance for the collection of Anchorage
fees
Section 14 (v) of RA 288, which provides that the council has the legislative power to fix the charges to be paid by all
watercraft landing at or using public wharves, docks, levees, or landing places, does not authorize the City of Basilan to
promulgate ordinances providing for the collection of “Anchorage” fees. This is clearly not included in the power granted
by the provision under consideration “to fix the charges to be paid by all watercraft landing at or using public wharves,
docks, levees or landing places”. That this is so is shown by the need which the City of Basilan had to enact the amendatory
ordinance
Power to regulate as exercise of police power does not include power to impose fees for revenue purposes
The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes (Cu
Unjieng vs. Patstone, 42 Phil., 818; Pacific Commercial Co. vs. Romualdez, etc., et al., 46 Phil., 917; Arquiza etc. vs.
Municipality of Zamboanga, 55 Phil., 653)
Fees for regulatory purpose enough for expenses of issuing license, cost of inspection or surveillanceIn the
Cu Unjieng case it was held that fees for purely regulatory purposes “may only be of sufficient amount to include the
expenses of issuing the license and the cost of the necessary inspection or police surveillance, taking into account not only
the expense of direct regulation but also incidental expenses. In Manila Electric Co. vs. Auditor General (73 Phil., 129-135),
it was also held that the regulatory fee “must be no more than sufficient to cover the actual cost of inspection or examination
as nearly as the same can be estimated. If it were possible to prove in advance the exact cost, that would be the limit of the
fee.
Ordinance intended for revenue purposes
The fees required are intended for revenue purposes. In the first place, being based upon the tonnage of the vessels, the fees
have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or surveillance. In the
second place, the fee imposed on foreign vessels — 1/2 centavo per registered gross ton for the first 24 hours,
and which shall not exceed P75.00 per day — exceeds even the harbor fee imposed by the National Government, which is
only P50.00 for foreign vessels (Sec. 2702 of the Tariff and Customs Code, RA 1937, taken from Sec. 2, RA 1317 which
was enacted by Congress to raise revenues for the Port Works Fund). Moreover, Mariano Mancao, Port Inspector of the
City of Basilan, in his affidavit dated 17 February 1956, states that were it not for the injunction issued by the lower court
in the present case, the city “would have collected considerable amounts from the plaintiffs for anchorage fees”. All these
circumstances point to the conclusion that the fees were intended for revenue purposes
Estoppel
The city’s own contention that the questioned ordinance was enacted in the exercise of its power of taxation, makes it
obvious that the fees imposed therein are not merely regulatory
G.R. No. 99886 March 31, 1993

JOHN H. OSMEÑA, petitioner, vs. OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO,
in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
FACTS:
October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated
as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude
oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices
of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino
promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred
as a result of the reduction of domestic prices of petroleum products.
The petitioner argues inter alia that "the monies collected pursuant to P.D. 1956, as amended, must be treated as a 'SPECIAL
FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue
generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to
another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected through
the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created."
The petition is granted insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to
E.O. 137, and DISMISSED in all other respects.
ISSUE:
Whether or not the funds collected under PD 1956 is an exercise of the power of taxation
HELD:
The levy is primarily in the exercise of the police power of the State. While the funds collected may be referred to as taxes,
they are exacted in the exercise of the police power of the State.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax."
The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation;
but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power.
Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of
taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying
out the objectives of the law which are embraced by the police power of the State.
G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

REPUBLIC OF THE PHILIPPINES v. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL
CO., INC., and TALISAY-SILAY MILLING COMPANY,
REGALA, J.:
Facts:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-
Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First
Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation.
Sections 15 and 16 of the aforementioned law provide:
Sec. 15. Capitalization. — To raise the necessary funds to carry out the provisions of this Act and the purposes of the
corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to
be collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane
planters and the sugar centrals in the proportion of their corresponding milling share and said levy shall constitute a lien on
their sugar quedans and/or warehouse receipts.
Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as
the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of the corporation. All the
income and receipts derived from the special fund herein created shall accrue to, and form part of the said fund to be
available solely for the use of the corporation.
The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted by the
appellants, are the following:
during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-1954, 1954-1955 and 1955-1956,
defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant
Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay
Milling Company has paid P251,812.43 but left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao
made a payment of P49,897.78 but left unpaid balance of P48,059.77. There is no question regarding the correctness of the
amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine
Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of
P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar tax to
be collected, under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for
the years, 1954, 1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown
by an examination of the statements of income and expenses. Contending that the purchase of refinery with money from the
Institute’s fund was not authorized under RA 632, and that the continued operation of the refinery is inimical to their interest,
Bacolod-Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused
to continue with their contribution to said fund. The trial court found them liable under RA 632. Hence, this petition.
the decision appealed from, is hereby affirmed,
ISSUE:
Are the Miling Companies Liable?
HELD:
the nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the
case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar
Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a 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. (Sec. 3).
Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in
the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any
or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." It then
proceeds to enumerate the said purposes, among which are "to place the sugar industry in a position to maintain itself; ... to
readjust the benefits derived from the sugar industry ... so that all might continue profitably to engage therein; to limit the
production of sugar to areas more economically suited to the production thereof; and to afford laborers employed in the
industry a living wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was
unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore, not
for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words,
the act is primarily an exercise of the police power.
It was competent for the Legislature to find that the general welfare demanded that the sugar industry should be stabilized
in turn; and in the wide field of its police power, the law-making body could provide that the distribution of benefits
therefrom be readjusted among its components, to enable it to resist the added strain of the increase in taxes that it had to
sustain
Once it is conceded, as it must that 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. 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 the law (above quoted) bear no relation to the objective pursued or
are oppressive in character. If objective and methods are alike 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.
On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the
above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition
of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore,
an exercise of a sovereign power which no private citizen may lawfully resist.
VICTORIAS MILLING, CO., INC. v THE MUNICIPALITY OF VICTORIAS

G.R. No. L-21183 | 1968-09-27
FACTS:
This case questions the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros
Occidental. It was approved on September 22, 1956 as an amendment to 2 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.
The production of plaintiff in both its sugar central and its sugar refinery located in Victorias comes within these
items in the schedule. Plaintiff filed suit to ask for judgment declaring ordinance null and void; ordering the refund of all
license taxes paid and to be paid under protest; directing the officials of Victorias and the Province of Negros Occidental to
observe, during the pendency of the action, the provisions of section 357 of the Revised Manual of Instructions to Treasurers
of Provinces, Cities and Municipalities, 1954 edition, regarding the treatment of licenses taxes paid under protest by virtue
of disputed ordinance; and other reliefs.
Reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial Circular 12-A
issued by the Finance Department (b) it is discriminatory since it singles out plaintiff which is the only operator of a sugar
central and a sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the
national government has pre-empted the field of taxation with respect to sugar centrals or refineries.
RTC: There is no doubt that the ordinance in question refers to license taxes or fees, and that it is settled that a license tax
should be limited to the cost of licensing, regulating and surveillance, RTC ruled that said license taxes in dispute are
unreasonable, and held that: "If the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by
proper municipal legislation, but not in the guise of a license tax" court added: "The Court is not, however, prepared to order
the refund of all the license taxes paid by the plaintiff under protest and amounting to P280,000 considering that the plaintiff
appears to have agreed to the payment of the license taxes at the rates fixed prior to Ordinance No. 1, series of 1956; that
the defendant had evidently not complied with the provisions of Section 357 of the Revised Manual of Instructions to
Treasurers of Provinces, Cities and Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the
defendant and its appropriate officials to carry out said provisions; that the financial position of the defendant would surely
be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or forget what it had already parted with.
Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision denying
the refund of the license taxes paid under protest in the amount of P280,000; and balked at the court's order limiting refund
to "any and all such license taxes paid under protest after notice of this decision". Defendant, upon the other hand, challenges
the correctness of the court's decision invalidating Ordinance No. 1, series of 1956.
ISSUE: Whether Ordinance 1 was passed by municipal council as a regulatory enactment or as a revenue measure
SC: The trial court says that the amounts set forth in the ordinance exceed the cost of licensing regulating and surveillance,
and that defendant cannot impose a tax- for-revenue - in the guise of a police or a regulatory measure. Our finding, however,
is the other way.
The ordinance itself recites that its source of taxing power emanates from Commonwealth Act 472, Section 1 of which
reads:
"SECTION. 1. A municipal council or municipal district council shall have authority to impose municipal
license taxes upon persons engaged in any occupation or business, or exercising privileges in the municipality or
municipal district, by requiring them to secure licenses at rates fixed by the municipal council, or municipal district
council, and to collect fees and charges for services rendered by the municipality or municipal district and shall
otherwise have power to levy for public local purposes, and for school purposes, including teachers' salaries, just
and uniform taxes other than percentage taxes and taxes on specified articles".
Under the statute a municipality is authorized to imposed three kinds of licenses; (1) license for regulation of useful
occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises; and (3) license
for revenue. The first two easily fall within the broad police power granted under the general welfare clause. The third class,
however, is for revenue purposes. It is not a license fee, properly speaking, and yet it is generally so termed. It rests on the
taxing power. That taxing power must be expressly conferred by statute upon the municipality. It is so granted under
Commonwealth Act 472.
To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of Ordinance No. 18 in reference
to refineries, and Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on
persons, firms or corporations operating refinery mills in this municipality". Ordinance No. 25 speaks of municipal taxes
"relative to the output of the sugar centrals".
What are these taxes for? Resolution No. 60 of the municipal council adopted in conjunction with Ordinance No. 1, furnishes
a ready answer:
a. for salaries and wages it pays to its municipal employees and laborers
b. committed to the plan of ameliorating the deplorable situation existing in the barrios, sitios and rural areas by giving
them essential and necessary facilities calculated to improve conditions thereat thru improvements of roads and
feeder roads;
c. the rates provided for in ordinances are no longer adequate if made in keeping with the present high cost of living;
d. has also taken cognizance of the fact that the price of sugar per picul today is more than twice its pre-war average
price;
Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question
is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to
misread the purpose of the ordinance.
We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not necessarily connote
the idea that the tax is imposed - as the lower court would want it - to mean a revenue measure in the guise of a license tax.
For really, this runs counter to the declared purpose to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to designate impositions
exacted for the exercise of various privileges." 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,
legally speaking, the latter are "for the purpose of raising revenues", in contrast to the former which are imposed "in the
exercise of police power for purposes of regulation."
We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is
properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be
apparent from the provisions of the ordinance. Thus, "when no police inspection, supervision, or regulation is provided, nor
any standard set for the applicant to establish, or that he agrees to attain or maintain, but any all persons engaged in the
business designated, without qualification or hindrance, may come, and a license on payment of the stipulated sum will
issue, to do business, subject to no prescribed rule of conduct and under no guardian eye, but according to the unrestrained
judgment or fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the police
power, is being exercised."
We, accordingly, rule that Ordinance No. 1, was promulgated not in the exercise of the municipality's regulatory power but
as a revenue measure - a tax on occupation or business. The authority to impose such tax is backed by the express grant of
power in Section 1 of Commonwealth Act 472.
Precisely because of these considerations the present imposition must be treated as a levy for revenue purposes. A quick
glance at the big amount of maximum annual tax set forth in the ordinance P40,000.00 for sugar centrals, and P40,000.00
for sugar refineries will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing
which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation.
Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial pronouncements which
have gained foothold in this jurisdiction. In Standard Vacuum vs. Antigua, 25 this Court had occasion to pass upon a similar
ordinance. In categorical terms, we there stated: "We are satisfied that the graduated license tax imposed by the ordinance
in question is an occupation tax imposed not under the police or regulatory power of the municipality but by virtue of its
taxing power for purposes of revenue, and is in accordance with the last part of Section 1 of Commonwealth Act No. 472.
It is, therefore, valid".
The judgment under review is hereby reversed; (a) declaring valid and subsisting Ordinance No. 1, series of 1956, of the
Municipality of Victorias, Province of Negros Occidental; and (b) dismissing plaintiff's complaint as supplemented and
amended. Costs against plaintiff. So ordered.
LUTZ v ARANETA
G.R. No. L-7859 | 1955-12-22
FACTS:
Appelant, 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 fourteen thousand six hundred sixty six and
forty cents (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; alleging that such tax is unconstitutional and void,
being levied for the aid and support of the sugar industry exclusively, which in his opinion is not a public purpose for which
a tax may be constitutionally levied.
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 to
the 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.
CFI: The action was dismissed by the CFI thus the plaintiff appealed directly to the Supreme Court.
ISSUE: WON the tax imposition in the Commonwealth Act No. 567 is valid and constitutional.
SC: Yes, the fact that sugar production is one of the greatest industry of our nation, sugar occupying a leading position
among its export products; it gives employment to thousands of laborers in the fields and factories; it is a great source of
the state's wealth, is one of the important source of foreign exchange needed by our government and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the
sugar industry be stabilized in turn; and in the wide field of its police power, the law-making body could provide that the
distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase
in taxes that it had to sustain.
The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily a valid exercise of police power. If objective and methods are alike
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.
PCGG v Cojuangco (Republic vs. Cocofed)
G.R. No. 147062-64, December 14, 2001
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. In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an
action for reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in the Sandiganbayan.
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 July 31, 1987 complaint for reconveyance,
reversion, accounting, restitution and damages.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari in this Court. Meanwhile, upon
motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of Directors of UCPB. However,
the PCGG applied for and was granted by this Court a Restraining Order enjoining the holding of the election. Subsequently,
the Court lifted the Restraining Order and ordered the UCPB to proceed with the election of its board of directors.
Furthermore, it allowed the sequestered shares to be voted by their registered owners.
On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the “Class Action Omnibus Motion” referred to earlier in
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:
“1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more than one
million coconut farmers; and
“2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies including
those registered in the name of the PCGG.”
ISSUE: Who may vote the sequestered UCPB shared stock while the main case for their reversion to the State is pending
in the Sandiganbayan?
RULING: This Court holds that the government should be allowed to continue voting those shares inasmuch as they were
purchased with coconut levy funds – funds that are prima facie public in character or, at the very least, are “clearly affected
with public interest.”
General Rule: Sequestered Shares Are Voted by the Registered Holder
At the outset, it is necessary to restate the general rule that the registered owner of the shares of a corporation exercises the
right and the privilege of voting. (Sec. 24, BP 68) This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On the other
hand, it is authorized to vote these sequestered shares registered in the names of private persons and acquired with allegedly
ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the Court as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting by the PCGG,
while the main issue is pending with the Sandiganbayan?
Sequestered Shares Acquired with Public Funds Are an Exception
From the foregoing general principle, the has provided two clear “public character” exceptions under which the government
is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered them in their own names,
and
(2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands.
The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property registered
in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner should be given the
privilege of enjoying the rights flowing from the prima facie fact of ownership.
The “public character” test was reiterated in many subsequent cases. This Court said that in determining the issue of whether
the PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether these were purchased with
public funds, as follows:
“It is thus important to determine first if the sequestered corporate shares came from public funds that landed in private
hands.” In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with
public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character
exceptions prevail; that is, the government shall vote the shares.
UCPB Shares Were Acquired With Coconut Levy Funds
In this case, it is not disputed that the money used to purchase the sequestered UCPB shares came from the Coconut
Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds. This fact was plainly admitted by private
respondent’s counsel, Atty. Teresita J. Herbosa, during the Oral Arguments in Baguio City. Indeed in Cocofed v. PCGG,
this Court categorically declared that the UCPB was acquired “with the use of the Coconut Consumers Stabilization Fund
in virtue of Presidential Decree No. 755, promulgated on July 29, 1975.”
Coconut Levy Funds Are Affected With Public Interest
Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold that these funds
and shares are, at the very least, “affected with public interest.” The Resolution issued by the Court on February 16, 1993
in Republic v. Sandiganbayan (G.R. No. 96073, stated that coconut levy funds were “clearly affected with public interest”;
thus, herein private respondents – even if they are the registered shareholders – cannot be accorded the right to vote them.
We quote the said Resolution in part, as follows:
“The coconut levy funds being ‘clearly affected with public interest, it follows that the corporations formed and organized
from those funds, and all assets acquired therefrom should also be regarded as ‘clearly affected with public interest.’”
“The utilization and proper management of the coconut levy funds, raised as they were by the State’s police and taxing
powers, are certainly the concern of the Government. It cannot be denied that it was the welfare of the entire nation that
provided the prime moving factor for the imposition of the levy. It cannot be denied that the coconut industry is one of the
major industries supporting the national economy. It is, therefore, the State’s concern to make it a strong and secure source
not only of the livelihood of a significant segment of the population but also of export earnings the sustained growth of
which is one of the imperatives of economic stability. The coconut levy funds are clearly affected with public interest.
To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private person is alleged to have
been acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco, we allowed Eduardo Cojuangco Jr. to vote the
sequestered shares of the San Miguel Corporation (SMC) registered in his name but alleged to have been acquired with ill-
gotten wealth. We did so on his representation that he had acquired them with borrowed funds and upon failure of the PCGG
to satisfy the “two-tiered” test. This test was, however, not applied to sequestered SMC shares that were purchased with
coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies, not with alleged
ill-gotten wealth. Hence, by parity of reasoning, the right to vote them is not subject to the “two-tiered test” but to the public
character of their acquisition, must first be determined.
Coconut Levy Funds Are Prima Facie Public Funds
To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its earlier
pronouncements: the coconut levy funds are not only affected with public interest; they are, in fact, prima facie public funds.
Public funds are those moneys belonging to the State or to any political subdivision of the State; more specifically, taxes,
customs duties and moneys raised by operation of law for the support of the government or for the discharge of its
obligations. Undeniably, coconut levy funds satisfy this general definition of public funds, because of the following reasons:
1. Coconut levy funds are raised with the use of the police and taxing powers of the State.
2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.
4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated them as public funds.
6. The very laws governing coconut levies recognize their public character.
We shall now discuss each of the foregoing reasons (among others), any one of which is enough to show their public
character.
xxx
Respondents Judicially Admit That the Levies Are Government Funds
Equally important as the fact that the coconut levy funds were raised through the taxing and police powers of the State is
respondents’ effective judicial admission that these levies are government funds. As shown by the attachments to their
pleadings, respondents concede that the Coconut Consumers Stabilization Fund (CCSF) and the Coconut Investment
Development Fund “constitute government funds x x x for the benefit of coconut farmers.”
The COA Audit Shows the Public Nature of the Funds
Under COA Office Order No. 86-9470 dated April 15, 1986, the COA reviewed the expenditure and use of the coconut
levies allocated for the acquisition of the UCPB. The audit was aimed at ascertaining whether these were utilized for the
purpose for which they had been intended. Because these funds have been subjected to COA audit, there can be no other
conclusion than that they are prima facie public in character.
Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima facie public funds,
this Court believes that the government should be allowed to vote the questioned shares, because they belong to it as the
prima facie beneficial and true owner.
In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively
reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered UCPB shares which
are prima facie public in character.
The Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall continue voting the sequestered
shares until Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally and completely resolved.
CIR v Tokyo Shipping Co. LTD.
GR No L-68252, May 26, 1995
FACTS: Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies,
Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA chartered M/V Gardenia
to load 16,500 metric tons of raw sugar in the Philippines. Tokyo Shipping paid the required income and common carrier's
taxes in the respective sums P107,142.75 based on the expected gross receipts of the vessel. However, upon arriving at
Guimaras Port of Iloilo, the vessel found no sugar for loading.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from the charter
agreement, private respondent instituted a claim for tax credit or refund of said sum before CTA. Petitioner contested the
petition and contended that taxes are presumed to have been collected in accordance with law; that in an action for refund,
the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and that claims for refund
are construed strictly against tax claimants.
CTA: Decided in favor of the private respondent. Denied Motion for reconsideration, hence, petition for review on
certiorari.
ISSUE: WON private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for amounts
RULING: Yes. Pursuant to Section 24 (b) (2) of the National Internal Revenue Code which at that time, a resident foreign
corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources
within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income
sourced from the Philippines.
Indeed, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the
taxpayer and Tokyo Shipping has the burden of proof to establish the factual basis of its claim for tax refund. But sufficient
evidence has already been adduced by the respondent proving that it derived no receipt from its charter agreement with
NASUTRA - M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned to Japan
without any cargo laden on board.
"The power of taxation is sometimes called also the power to destroy, therefore, it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the 'hen that lays the golden egg.' And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously." IN VIEW HEREOF, the assailed decision of respondent
Court of Tax Appeals, dated September 15, 1983, is AFFIRMED in toto. No costs. SO ORDERED.
G.R. Nos. L-49839-46 April 26, 1991

Reyes v. Almanzor
Facts:
Petitioners J.B.L. Reyes and Milagros Reyes are owners of a parcel of land situated in Tondo and Sta. Maria districts,
Manila, which are leased and occupied as dwelling sites by tenants, who were paying rentals not exceeding 300 pesos per
month.
On July 14, 1971, R.A. 6359 was enacted, prohibiting for one year of its effectivity, an increase in monthly rentals of
dwelling units, where rentals do not exceed 300 Pesos. Petitioners were precluded in raising rentals and from ejecting
tenants. On October, it was amended by P.D. No. 20, making the absolute prohibition in effect indefinitely. Respondent
City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market
values reviewed by the Sec. of Finance, which entailed an increase in the corresponding tax rates. This prompted the
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals, claiming that the
reassessment were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes
imposed them exceeded their annual income derived from their properties.
They argued that the income approach should have been used in determining land values instead of comparable sales
approach which the assessor adopted. Board of Tax appeal ruled the assessment as valid. The Reyeses appealed to the
Central Board of Assessment Appeals, but ruling was affirmed. Motion for reconsideration was also denied.
Petitioners filed a petition for review on certiorari.
Issue: WON the appreciation method used by the City Assessor is reasonable
No. The power to tax "is an attribute of sovereignty". It is the strongest of all the powers of government. But the power to
tax is not unconfined as there are restrictions. If not, then there would be truth to the 1903 dictum of Chief Justice Marshall
that "the power to tax involves the power to destroy." , however, the same was brushed away by Justice Holmes by
stating that "The power to tax is not the power to destroy while this Court sits. This applies in the Philippines.
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the
government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in
reason.
The laws should operate equally and uniformly on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. The
market value of properties covered by P.D. No. 20 cannot be equated with the market value of properties not covered. The
former has naturally a much lesser market value in view of the rental restrictions.
Consequently, the petitioners were burdened by the Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) imposed
by the government. Under the principle of social justice, petitioners should not be penalized by the same government, due
to the imposition of excessive taxes petitioners cannot afford, and eventually result in the forfeiture of their properties.
RULING: (a) the petition is GRANTED; (b) the assailed decisions of public respondents are REVERSED and SET ASIDE;
and (e) the respondent Board of Assessment Appeals of Manila and the City Assessor of Manila are ordered to make a new
assessment by the income approach method to guarantee a fairer and more realistic basis of computation
G.R. No. L-28896 February 17, 1988

Commission of Internal Revenue v. Algue, Inc.
Facts:
Private respondent Algue is a domestic corporation engaged in engineering, construction, and other alike activities.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 purchased 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.
Respondent received a letter from petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes
for the years 1958 and 1959. Algue flied a letter of protest or request for reconsideration. On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to
receive it on the ground of the pending protest. On April 7, 1965, Atty. Guevara was finally informed that the BIR was not
taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served.
Algue then sought to claim a P75,000 deduction but was denied by the CIR. on April 23, 1965, Algue filed a petition
for review of the decision of the CIR with the Court of Tax Appeals. Petitioner CIR contends that the deduction of
P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense.
CTA ruled in favor of Algue, stating that the said amount had been legitimately paid by Algue, Inc. as promotional
fees for the work in the formation of Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase
of the properties of the Philippine Sugar Estate Development Corporation.
Issue: WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns.
Ruling: No. SC affirmed the ruling of CTA
SC agreed with the CTA that the amount of the promotional fees was not excessive. The total commission paid by
the PSEDC to theAlgue was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
As stated by the Solicitor General, the taxpayer has the burden to prove the validity of the claimed deduction. And
in this case, the burden has been discharged satisfactorily. Algue has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in
an experimental enterprise and involve themselves in a new business requiring millions of pesos.
Also, there is no dispute that the payees duly reported their respective shares of the fees in their income tax returns
and paid the corresponding taxes thereon. The Court of Tax Appeals also found, after examining the evidence, that no
distribution of dividends was involved.
G.R. No. 148187 April 16, 2008

Philex Mining Corp v. CIR
Facts:
In Aug. 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for 2Q, 3Q and 4Q of 1991, as well
as the 1Q and 2Q of 1992, in the total amount of P123,821,982. Philtex protested the demand for payment stating that it has
pending claims for VAT input credit/refund for the taxes it paid in 1989 to 1991 in the amount of P119,977,032 plus interest.
Hence, these claims for tax credit/refund should be applied in the tax liabilities.
BIR found no merit in Philex’s position. BIR then reiterated its demand that Philex settle the amount plus interest in
30 days.
Philex appealed to the CTA but was denied, though lowered their tax liabilities to P110 million plus interest. Moreover,
the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is not a debt
or contract.
Philex appealed to CA, but affirmed the decision of the CTA. Motion for reconsideration was also filed by Philex but
was denied. However after a few days after the denial of the MR, Philex was able to obtain its VAT credit/refund not only
for the taxable year 1989 to 1991, but also for 1992 and 1994.
Case reached to the SC. In view of the tax refund, Philex contends that the same should offset its excise tax liabilities,
since both had become due and demandable, hence legal compensation can take place.
ISSUE: WON legal compensation can properly take place between VAT input credit/refund and excise tax liabilities of
Philex.
Ruling:
NO. Legal compensation cannot take place. SC stated that taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. SC found no reason to deviate from the distinction. In a case ruled by the SC, it said “We have
consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.”
A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that
the collection of the tax is contingent on the result of the lawsuit it filed against the government. Moreover, Philex's theory
that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and
abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.
G.R. No. L-67649 June 28, 1988

Engracio Francia v. Intermediate Appellate Court
Facts:
Engracio Francia is the registered owner of a residential lot and a two-storey house situated in Pasay City. Area of teh
said lot was about 328 sqm. In 1977, a 125 sqm 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 said portion.
Since 1963 to 1977, Francia failed to pay his real estate taxes. Thus, his property was sold at public auction by the Treasurer
of Pasay City, in pursuant to PD no. 464 ( Real Property Tax code), in order to satisfy a tax delinquency of P2400. Francia
was not present in the said auction.
The highest bidder, Ho Fernandez filed a Petition for the New Certificate of Title, seeking the cancellation of Francia’s
title. Francia then received a notice of hearing due to such. Francia filed a complaint to annul the auction sale, which he
later amended. The lower court dismissed his complaint. He appealed to the Intermediate Apellate Court, but the decision
of the lower court was affirmed.
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: WON the expropriation payment can compensate the real estate taxes due
RULING:
NO. SC ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the
government.A person cannot refuse to pay a tax on the ground that the government owes him an amount greater or equal to
the tax being collected.
The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil
Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the national government for the 125 sqm portion of his lot was deposited with
the Philippine National Bank long before the sale at public auction of his remaining property. It would have been an easy
matter to withdraw P 2,400 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction.
Thus, the petition for review is dismissed. The taxes assessed are the obligations of the taxpayer arising from law, while the
money judgment against the government is an obligation arising from contract, whether express or implied.
COMMISSIONER OF INTERNAL REVENUE

vs.
ITOGON-SUYOC MINES, INC.
FACTS:
Respondent Itogon-Suyoc Mines, Inc., a mining corporation duly organized and existing in accordance with the laws of the
Philippines, filed on January 13, 1961, its income tax return for the fiscal year 1959-1960. It declared a taxable income of
P114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20
as the first installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax return, reporting
therein a net loss of P331,707.33. It thus sought a refund from the Commissioner of Internal Revenue, now the petitioner.
On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal year 1960-1961, setting
forth its income tax liability to the tune of P97,345.00, but deducting the amount of P13,155.20 representing alleged tax
credit for overpayment of the preceding fiscal year 1959-1960. 0n December 18, 1962, petitioner Commissioner of Internal
Revenue assessed against the respondent the amount of P1,512.83 as 1% monthly interest on the aforesaid amount of
P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right
to deduct said amount before the refund or tax credit thereof was approved by petitioner Commissioner of Internal Revenue.
Such an assessment was contested by respondent before the Court of Tax Appeals.
CTA ruling:
"Respondent assessed against the petitioner the amount of P1,512.83 as 1% monthly interest on the sum of P13,155.20 from
January 16, 1962 to December 31, 1962 on the ground that petitioner had no legal right to deduct the said amount from its
income tax liability for the fiscal year 1960-1961 until the refund or tax credit thereof has been approved by respondent. As
aforestated, petitioner paid the amount of P13,155.20 as first installment on its reported income tax liability for the fiscal
year 1959-1960. But, it turned out that instead of deriving a net gain, it sustained a net loss during the said fiscal year.
Accordingly, it filed an amended income tax return and a claim for the refund of the sum of P13,155.20, which sum it
subsequently, deducted from its income tax liability for the succeeding fiscal year 1960-1961. The overpayment for the
fiscal year 1959-1960 and the deduction of the overpaid amount from its 1960-1961 tax liability are not denied by
respondent. In this circumstance, we find it unfair and unjust for the Commissioner to exact an interest on the said sum of
P13,155.20, which, after all, was paid to and received by the government even before the incidence of the tax in question."
The petitioner argues that the Court of Tax Appeals should not have absolved respondent corporation "from liability to pay
the sum of P1,512.83 as 1% monthly interest for delinquency in the payment of income tax for the fiscal year 1960-1961."
ISSUE:
WON respondent corporation is liable to pay the sum of PhP1,512.83 as 1% monthly interest for delinquency in the payment
of income tax.
RULING:
The National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall be assessed
and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the specified. It is made clear,
however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund
of any amount due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid.
There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, it
deducted the said amount from the tax that it had to pay. That it had a right to do according to the law. It is true a doubt
could have arisen due to the fact that as of the time such a deduction was made, the Commissioner of Internal Revenue had
not as yet approved such a refund. It is an admitted fact though that respondent was clearly entitled to it, and petitioner did
not allege otherwise. Nor could he do so. Under all the circumstances disclosed therefore, the applicability of the legal
provision allowing such a deduction from the amount of the tax to be paid cannot be disputed.
Domingo vs. Garlitos
FACTS:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C.
Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court
below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court
declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and
penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled
"In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the
fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was,
however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate
under administration in the amount of P262,200.
ISSUE:
WON the petitioner has the right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.
RULING:
The petition to set aside the above orders of the court below and for the execution of the claim of the Government against
the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the
estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said
court may order the administrator to pay the amount thereof.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased
person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said
properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is
in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties
but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had
found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim
of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue
and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with
the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased
Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner.
Appeal is the remedy.
Republic of the Philippines vs. Mambulao Lumber Company
FACTS:
The facts of this case are not contested and may be briefly summarized as follows: (a) under the first cause of action, for
forest charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability
of P587.37, which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for
Mambulao Lumber Company, jointly and severally in character, on July 29, 1953, in favor of herein plaintiff; (b) under the
second cause of action, both defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70, also
covered by a bond dated November 27, 1953; and (c) under the third cause of action, both defendants admitted a joint and
several liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954.
ISSUES:
Whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges from 1947
to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant
to appellee.
RULING:
Under Section 1 of Republic Act No. 115, it seems quite clear that the amount collected as reforestation charges from a
timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund, and that the same shall be
expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources for the
reforestation or afforestation, among others, of denuded areas which, upon investigation, are found to be needing
reforestation or afforestation. Note that there is nothing in the law which requires that the amount collected as reforestation
charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire,
and that if not so used, the same should be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms
a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not.
Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely,
the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation.
Anti-Graft League of the Philippines vs. San Juan
FACTS: Marcos issued a decree establishing the Technological Colleges of Rizal. It directed the Board to provide funds
for the purchase of 4 parcels of land which belonged to Ortigas &Co. For 12 years, the land was idle and construction did
not materialize so the Board authorized the selling of the lot. This was sold to Valley View Realty. Ortigas filed for rescission
of contract contending that it violated the terms of the contract by selling such lot to Valley View. The Board made a
Resolution providing for the rescission of the deed of sale to Valley View. Valley View filed a case against the Province
of Rizal for specific performance but was dismissed. Thereafter, a compromise agreement was executed between Province
and Ortigas to reconvey the lots to Ortigas. The Anti-Graft League of the Philippines is a non-government organization,
constituted to protect the interest of the Republic and its instrumentalities and political subdivisions against abuses its public
official and employees, claims the instant petition for certiorari is a taxpayer’s suit because the Provincial Board of Rizal
allegedly illegally disbursed public funds in transactions involving the land.
ISSUE: WON this is a case of taxpayer’s suit.
RULING: To constitute a taxpayer’s suit, two requisites: (1) that public funds are disbursed by a political subdivision
or instrumentality and (2) in doing so, a law is violated or some irregularity is committed, and that the petitioner is directly
affected by the alleged ultra vires act. In the case at bar, petitioner’s standing should not even be made an issue here since
standing is a concept in constitutional law and here no constitutional question is actually involved. The disbursement of
public funds was only made when the Province bought the lands from Ortigas. Petitioner never referred to such purchase as
an illegal disbursement of public funds but focused on the alleged fraudulent reconveyance of said property to Ortigas
because the price paid was lower than the prevailing market value of neighboring lots. As a taxpayer, petitioner would
somehow be adversely affected by an illegal use of public money. But when no such unlawful spending has been shown
petitioner, even as a taxpayer, cannot question the transaction executed by the Province and Ortigas for the reason that it is
not privy to said contract.
JOYA vs. PCGG

G.R. No. 96541, August 24, 1993
FACTS: PCGG Chairman Mateo A.T. Caparas, upon authority of President Corazon C. Aquino, signed a Consignment
Agreement with Christie's of New York to auction off 82 Old Masters Paintings and 18th and 19th century silverware for
and in behalf of the Republic.
Commission on Audit (COA) subsequently submitted its audit findings and observations on the Consignment Agreement
stating, among others, that the assets subject of auction were historical relics and had cultural significance, hence, their
disposal was prohibited by law. PCGG defended the agreement, and the National Museum issued a certification that the
assets did not fall within the classification of protected cultural properties and did not specifically qualify as part of the
Filipino cultural heritage.
During oral arguments on 9 January 1991, the Court denied petitioners Joya et al’s application for preliminary injunction
on the ground that they had not presented a clear legal right to a restraining order and that proper parties had not been
impleaded. Meanwhile, the auction proceeded as scheduled on 11 January 1991. On 5 February 1991, additional respondents
were impleaded and petitioners were added.
ISSUE: WON petitioners have legal standing to file the petition
RULING: NO. One of the legal requisites for judicial inquiry is that the question must be raised by the proper party. A case
brought before the Court must be by one who has the legal standing to raise the constitutional or legal question. One of the
exceptions to the rule on legal standing is when a taxpayer questions the validity of a governmental act authorizing the
disbursement of public funds.
However, the Court said that the petition cannot be allowed as a taxpayer's suit. A taxpayer's suit can prosper only if the
governmental acts being questioned involve an alleged misapplication of public funds by an officer of the state, which may
be enjoined at the request of a taxpayer.
Joya et al, however, are not challenging any expenditure involving public funds. Instead, they are enjoining the disposition
of what they allege to be public properties when in fact, the assets were acquired from private sources and not with public
money.
Lozada vs. COMELEC

G.R. No. L-59068, January 27, 1983
FACTS: In a petition for mandamus as a representative suit, petitioners Jose Mari Eulalio Lozada and Romeo Igot ask the
Supreme Court to compel respondent COMELEC to call a special election to fill up existing vacancies numbering 12 in the
Interim Batasan Pambansa.
The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads: "(2) In case a vacancy arises in the
Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special
election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term.”
Both Lozada and Igot claim that as taxpayers, they have the requisite legal standing, hence they are the proper parties to
institute the action.
ISSUE: WON petitioners have legal standing to institute a taxpayer’s suit
RULING: NO, petitioners may not file the instant petition. The act complained of, which pertains to the inaction of
COMELEC to call a special election, involves no expenditure of public funds. It is only when an act complained of, which
may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer
suit may be allowed. However, nowhere in the petition is it alleged that tax money is being illegally spent.
Mactan Cebu Int’l Airport Authority v. Marcos

261 SCRA 667, September 11, 1996
FACTS: The Office of the Treasurer of the City of Cebu demanded payment for realty taxes amounting to P2,229,078.79
on several parcels of land belonging to petitioner Mactan Cebu Int’l Airport Authority. MCIAA objected, citing Sec 14 of
the law creating it (RA 6958) which exempt it from payment of realty taxes.
Further, MCIAA asserted that as an instrumentality of the government performing governmental functions, it may not be
levied taxes by Cebu City because, under Sec 133 of the Local Government Code (RA 7160), local governments have no
power to tax instrumentalities of the National Government. However, Cebu City said that MCIAA’s tax exemption
privileges have been withdrawn by virtue of Sections 193 and 234 of the LGC.
RTC dismissed MCIAA’s petition for declaratory relief, citing the repealing clause in the LGC which provides an express
repeal of all general and special laws etc inconsistent with it. Hence, the tax exemption provided for in RA 6958 had been
expressly repealed by the provisions of LGC.
ISSUE: WON Cebu City has power to tax MCIAA
RULING: YES. The tax exemptions being enjoyed by MCIAA, it being a GOCC, have been withdrawn by virtue of Sec
234 of the LGC. MCIAA does not fall under any of the exceptions provided therein.
Further, MCIAA cannot claim exemption under Sec 133, which laid down the general rule that LGUs cannot levy taxes etc
to the National Government, its agencies and instrumentalities, and LGUs. This is because as an exemption to the general
rule, Sec 232 provides that LGUs have the power to levy real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions…”
VAT Ruling No. 7-2006, June 7, 2006
FACTS: The Government of the Republic of the Philippines and SPEX, SPL, CHEVRON and PNOC-EC (collectively
referred to as Service Contractor/Consortium) in 1990 entered into Service Contract No. 38 for the exploration, development
and utilization of petroleum in the Camago-Malampaya field in Northwest Palawan, aka Malampaya Project.
As stipulated under Sec 6.2 of SC 38, one of the rights of the Service Contractor include exemption from all taxes except
income tax, which is based on Sec 12(a) of PD 87.
In 2005, the Consortium received Letter-Notices from RDO 44 informing them that their “sale of natural gas in whatever
form or state from the Malampaya Project is now subject to value-added tax pursuant to R.A. No. 9337, as implemented by
Revenue Regulations No. 16-2005.” However, the Consortium invoked the tax exemption granted to it pursuant to Sec 6.2
of SC 38 and Sec 12(a) of PD 87.
ISSUE: WON the Consortium are exempt from VAT
RULING: YES. The BIR said that Sec 24 of RA 9337 explicitly identifies the laws which have been repealed, and PD 87
was not mentioned. Expressio unius est exclusio alterius. Hence, the absence of PD 87 in the repealing clause of RA 9337
clearly evinces the legislature’s intent not to repeal PD 87. Being a general repealing clause, RA 9337 cannot operate to
repeal PD 87 as it fails to designate specific act/s that are intended to be repealed.
Further, PD 87 is a special law and should be regarded as an exception to the general provisions of R.A. No. 9337, and
therefore under Sec 12(a), petroleum service contractors remain exempt from all taxes including VAT, except income tax.
Finally, the contractual tax exemption granted by the Government to the Consortium under SC 38 is protected by the non-
impairment clause enshrined in Sec 10, Art III of the Constitution. Said exemption privilege was in exchange for a valid
and material consideration and, as such, shall not be unilaterally changed or impaired.
Lutz v. Araneta
G.R. No. L-7859, December 22, 1955
FACTS: Petitioner Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
questions the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
He seeks to recover P14,666.40 paid by the estate as taxes under Sec 3 of the Act. He alleges that such tax is unconstitutional
and void, being levied for the aid and support of the sugar industry exclusively, which in his opinion is not a public purpose
for which a tax may be constitutionally levied.
The questioned provision levies on owners or persons in control of lands devoted to the cultivation of sugar cane “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.”
CFI dismissed his action, and Lutz appealed directly to the SC.
ISSUE: WON the sugar tax under Commonwealth Act 567 is void and unconstitutional
RULING: NO. The tax levied under Commonwealth Act 567 is for a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry, in exercise of the state’s police power. It is not a pure
exercise of taxing power.
The promotion, protection and advancement of the sugar industry, which stand threatened by the imminent imposition of
export taxes upon sugar as provided in the Tydings-McDuffe Act, is a matter of public concern. Hence, such is within the
police power of the sovereign, and the legislature may reasonably levy taxes to meet the objective pursued.
It is only rational that the tax to be raised from the sugar producers themselves be exclusively spent in aid of the sugar
industry, since it is that very enterprise that is being protected. At any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation.
TIO vs. VIDEOGRAM REGULATORY BOARD

G.R. No. L-75697 June 18, 1987
FACTS:
Petitioner, who owns OMI Enterprises, assails the constitutionality of PD No. 1987 (An Act Creating the Videogram
Regulatory Board) which granted such board broad powers to regulate and supervise the videogram industry. A month after
its promulgation, PD No. 1994 amended the NIRC by imposing tax on video tapes.
Sec 10 (Tax on Sale, Lease or Disposition of Videograms) of the PD also imposes a 30% tax on the gross receipts, payable
to the LGUs.
According to its preambular clauses, the decree was enacted because of: (a) the proliferation and unregulated circulation of
videograms which have greatly prejudiced the operations of movie houses and theaters; (b) the Government is deprived of
revenue because the earnings of such establishments have not been subjected to tax; and (c) the rampant and unregulated
showing of obscene videogram.
Petitioner contends, among others, that the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution.
ISSUE:
WON the 30% tax imposed is harsh, oppressive confiscatory, and in restraint of trade.
RULING:
NO. A tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.
The power to impose taxes is one so unlimited in force and so searching in extent.
The tax imposed is not only a regulatory but also a revenue measure prompted by the realization that earnings of
videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the
Government of an additional source of revenue.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. It was also enacted to protect the movie industry; hence, the tax remains a valid
imposition. Moreover, taxation has been made the implement of the state's police power.
PHILIPPINE AIRLINES, INC. vs. EDU

G.R. No. L- 41383 August 15, 1988
FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business. Under its franchise, PAL is exempt
from the payment of taxes. Accordingly, it should pay a tax of 2% of its gross revenue or earning in lieu of all taxes of any
kind, nature or description, levied, established or collected by any municipal, provincial or national automobiles.
Since 1956, PAL has not been paying motor vehicle registration fee. In 1971, appellee Commissioner Elevate issued a
regulation requiring all tax exempt entities including PAL to pay such fee. PAL paid under protest and later on demanded
a refund which was subsequently denied by Land Transportation Commissioner Edu. Due to this, PAL filed a complaint
against LTC Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the CFI of Rizal.
The appellee filed a motion to dismiss, contending that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state; thus, do not come within the exemption granted to
PAL. The trial court dismissed the complaint. On appeal, the CA certified the case before the SC.
ISSUE:
WON motor vehicle registration fees are considered as taxes.
RULING:
YES. Generally, taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and to cover
the cost of the services rendered in that connection. Moreover, it is the object of the charge, and not the name, that determines
whether a charge is a tax or a fee.
Under the Land Transportation and Traffic Code, the money collected under the Motor Vehicle Law shall accrue to the
special fund for the construction and maintenance of public roads and bridges. Nevertheless, there is a proviso that such
amount necessary to maintain and equip the Land Transportation Commission shall be set aside but it shall not exceed 20%
of the total collection per year. Clearly, the legislative intent was to mainly raise funds for such public works and to a much
lesser degree pay for the operating expenses of the LTC.
Fees may be regarded as taxes even though they also serve as instruments of regulation because taxation may be
made as an implementation of the State’s police power. If the purpose is primarily revenue, or if revenue is, at least, one
of the real and substantial purposes, then the exaction is properly called a tax. Here, the motor vehicle registration fees are
actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is
set aside for the operating expenses of the LTC. Therefore, PAL is exempt from paying such fees, except for the period
between June 27, 1968 to April 9, 1979, where its tax exemption in the franchise was repealed during that period.
CALTEX PHILIPPINES, INC. vs. COMMISSION ON AUDIT
G.R. No. 92585 May 8, 1992
FACTS:
Sec. 8 of PD 1956, as amended by EO 137, provides for the Oil Price Stabilization Fund (OPSF) for the purpose of
minimizing frequent price changes brought about by exchange rate adjustments which shall be used to reimburse the oil
companies for cost increase and possible cost under-recovery incurred as a result of the reduction of domestic prices of
petroleum products.
COA sent a letter to Caltex Philippines, Inc. (CPI) directing it to remit to the OPSF its collection of the additional tax on
petroleum products. Petitioner requested COA for an early release of its reimbursement certificates but it was denied by
COA stating that pending such remittance, all of its claims from the OPSF shall be held in abeyance.
Later on, COA affirmed the disallowance for recovery of financing charges, inventory losses and sales to Marcopper and
Atlas but allowed the recovery of product sale or those arising from export sales.
Petitioner contends that Department of Finance issued Circular No. 4-88 which allows reimbursement. Moreover, offsetting
is allowed under the New Civil Code and the Revised Administrative Code. It further argued that PD 1956 did not create a
source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it
from tax.
ISSUE:
WON Caltex is entitled to offsetting.
RULING:
NO. Taxes cannot be 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.
The contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government
is untenable. 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. Here, the
oil industry is greatly imbued with public interest as it vitally affects the general welfare. Lastly, the law even explicitly
provides that the source of OPSF is taxation.
TOLENTINO vs. SECRETARY OF FINANCE

G.R. No. 115455 August 25, 1994
FACTS:
VAT is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or
of the gross receipts from the sale or exchange of services.
Petitioners, which include former Congressman Tolentino and several others, assailed the constitutionality of RA 7716
(Expanded Value-Added Tax or EVAT Law) which sought to widen the tax base of the existing VAT system and enhance
its administration.
The petitions can be summarized into two. First, procedural issues which include: revenue bills must originate exclusively
in the House of Representatives; the second and third reading in the passage of the bill must be done on separate days; extent
of the power of the bicameral conference committee; and one bill, one subject rule. Second, substantive issues which
include: claims of press freedom, freedom of thought and religious freedom; and claims of regressivity, denial of due
process, equal protection, and impairment of contracts.
ISSUE:
WON the law violates the rule that taxation must be progressive.
RULING:
NO. Congress shall “evolve a progressive system of taxation” has been interpreted to mean that “direct taxes are to be
preferred and as much as possible and indirect taxes should be minimized. This is a directive to Congress, just like the
directive to it to give priority to the enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities or for the promotion of the right to "quality education". These provisions are put in
the Constitution as moral incentives to legislation, not as judicially enforceable rights.
The Court also recognized the contentions of the parties. Petitioners argued that uniform 10% VAT is regressive because
the tax on consumption goods of those who are in the higher-income bracket has been reduced, while basic commodities
are now taxed at a higher rate.
On the other hand, respondents claim that it distributes the tax burden to as many goods and services as possible particularly
to those which are within the reach of higher-income groups, even as the law exempts basic goods and services. The goods
and properties subject to the VAT are those used or consumed by higher-income groups (e.g. sale or lease of real properties,
right or privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar places, tourist buses,
and the like).
Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middle-income group in society harder than it will the "rich" is largely
an academic exercise. In view of this, claims that the law is regressive, oppressive and confiscatory is prematurely raised
and do not justify the grant of prospective relief by writ of prohibition.
BRITISH AMERICAN TOBACCO VS. CAMACHO
FACTS:
Petitioner assails the validity of (1) Section 145 of the National Internal Revenue Code (NIRC), as recodified by Republic
Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue Regulations
Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003. Petitioner argues that the said provisions
are violative of the equal protection and uniformity clauses of the Constitution.
Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. To
determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per pack of cigarettes was
conducted as of October 1, 1996.
RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other Purposes",
took effect on January 1, 1997. In the same year, Congress passed RA 8424 or The Tax Reform Act of 1997, re-codifying
the NIRC. Section 142 was renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. To
determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per pack of cigarettes was
conducted.
As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old" brands
shall be taxed based on their net retail price as of October 1, 1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, which classified the
existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those
registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate
survey to determine their current net retail price is conducted.
In June 2001, British American Tobacco introduced into the market the Lucky Strike brands with a retail price of P9.90 per
pack. Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per
pack.
On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among
others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for the
purpose of establishing and updating their tax classification.
On March 11, 2004, Revenue Memorandum Order No. 3-2003 was issued prescribing the guidelines and procedures in
establishing current net retail prices of new brands of cigarettes and alcohol products.
On August 8, 2003, Revenue Regulations No. 22-2003 was issued to implement revised tax classification of certain new
brands introduced in the market after January 1, 1997, based on the survey of their current new retail price.
The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current
net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the Bureau of Internal
Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike’s average net retail price
is above P10.00 per pack.
On September 1, 2003, petitioner filed before the RTC of Makati a petition for injunction with prayer for the issuance of
temporary restraining order (TRO). The petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue
Regulations Nos. 1-97, 9-2003, 22-2003 and Memorandum Order No. 6-2003 on the ground that they discriminate against
new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution.
While the petition was pending, RA 9334 (An Act Increasing the Excise Tax Rates Imposed on Alcohol And Tobacco
Products took effect on January 1, 2005. Under RA 9334, the excise tax due on petitioner’s products was increased to P25.00
per pack. In the implementation thereof, respondent Commissioner assessed petitioner’s importation of 911,000 packs of
Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of
P22,775,000.00.
The trial court rendered a decision upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos.
1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. The trial court also lifted the writ of preliminary
injunction.
ISSUE: Whether the assailed provisions are violative of the equal protection and uniformity clauses of the Constitution
HELD:
All in all, the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax
administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection of the
laws since the rational basis test is amply satisfied.
Going now to the contention of petitioner that the classification freeze provision unduly favors older brands over newer
brands, petitioner generalizes that this differential tax treatment arising from the classification freeze provision adversely
impacts the fairness of the playing field in the industry, particularly, between older and newer brands. Thus, it is virtually
impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the net retail
prices of other older brands previously classified under this classification system have already pierced their tax brackets,
and, if so, how this has affected the overall competition in the market. Even if the newer brands are priced higher due to the
differential tax treatment, it does not mean that they cannot compete in the market especially since cigarettes contain
addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely due to its unique
formulation. It may also be noted that in 2003, the BIR surveyed 29 new brands that were introduced in the market after the
effectivity of RA 8240 on January 1, 1997, thus negating the sweeping generalization of petitioner that the classification
freeze provision has become an insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach
of the due process and equal protection clauses, considering that they are not fixed rules but rather broad standards, there is
a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption
of validity must prevail.
Thus, to a limited extent, the assailed law seems to derogate one of its avowed objectives, i.e. promoting fair competition
among the players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on equal
protection grounds?
The court answered in the negative.
Whether Congress acted improvidently in derogating, to a limited extent, the state’s interest in promoting fair competition
among the players in the industry, while pursuing other state interests regarding the simplification of tax administration of
sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation,
and ease of projection of revenues through the classification freeze provision, and whether the questioned provision is the
best means to achieve these state interests, necessarily go into the wisdom of the assailed law which we cannot inquire into,
much less overrule. The classification freeze provision has not been shown to be precipitated by a veiled attempt, or hostile
attitude on the part of Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably
assume, owing to the respect due a co-equal branch of government and as revealed by the Congressional deliberations, that
the enactment of the questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the
tax administration of sin products. For as long as the legislative classification is rationally related to furthering some
legitimate state interest, as here, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated.
Wherefore, the petition is partially granted and the decision of the Regional Trial Court of Makati, Branch 61, in Civil Case
No. 03-1032, is affirmed with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is constitutional; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations
9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue
Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALID insofar as they grant
the BIR the power to reclassify or update the classification of new brands every two years or earlier.
PHILIPPINE COCONUT PRODUCERS FEDERATION V. PRESIDENTIAL COMMISSION ON GOOD

GOVERNANCE
In 1986, PCGG sequestered CIIF companies as well as the shares of stock in the UCPB registered in the names of the
CIIF companies, and later those issued to 1,405,366 purported coconut farmers stockholders were likewise sequestered, as
were the 33.1 million shares of stock held by 14 CIIF companies in the San Miguel Corporation.
Next placed under sequestration was the COCOFED, its bank account as well as those of CIFF companies’ directors were
frozen.
On May 30, 1988, PCGG appointed a 15-man Board of Directors for COCOFED, replacing the incumbents. Various other
orders were also afterwards issued and implemented, with a view to conserving their assets pending the government’s
investigation into the suspected plunder of the coconut levy funds by former President Marcos and his associates and
cronies.
The instant petition was filed on September 3, 1986 to assail the foregoing directives and acts.
The Solicitor General, for the PCGG, submits that the funds collected from the coconut levy are public funds which no
amount of pronouncements to the contrary-by decree or any other presidential issuance can convert into private money
ISSUE: Whether or not there is prima facie justification for the sequestration ordered by PCGG
RULING:
Yes. The court is satisfied that there is justification.
The proposition is open to question, to say the least. Indeed, the Solicitor General suggests quite strongly that the laws
operating or purporting to convert the coconut levy funds into private funds, are a transgression of the basic limitations for
the licit exercise of the state's taxing and police powers, and that certain provisions of said laws are merely clever strategems
to keep away government audit in order to facilitate misappropriation of the funds in question.
The utilization and proper management of the coconut levy funds, raised as they were by the State's police and taxing
powers, are certainly the concern of the Government. It cannot be denied that it was the welfare of the entire nation that
provided the prime moving factor for the imposition of the levy. It cannot be denied that the coconut industry is one of the
major industries supporting the national economy. It is, therefore, the State's concern to make it a strong and secure source
not only of the livelihood of a significant segment of the population but also of export earnings the sustained growth of
which is one of the imperatives of economic stability. The coconut levy funds are clearly affected with public interest. Until
it is demonstrated satisfactorily that they have legitimately become private funds, they must prima facie and by reason of
the circumstances in which they were raised and accumulated be accounted subject to the measures prescribed in E.O. Nos.
1, 2, and 14 to prevent their concealment, dissipation, etc., which measures include the sequestration and other orders of the
PCGG complained of.
PHILIPPINE HALTH CARE PROVIDERS INC. VS. CIR
Petitioner is a domestic corporation whose primary purpose is "to establish, maintain, conduct and operate a prepaid group
practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons
enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization."
Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited
by it.
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the
taxable years 1996 and 1997 in the total amount of ₱224,702,641.18.
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code.
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments.
On April 5, 2002, the CTA rendered a decision cancelling the DST assessment and ordering the payment of VAT deficiency
.
Respondent appealed the CTA decision to the CA.

The CA rendered its decision and held that petitioner’s health care agreement was in the nature of a non-life insurance
contract subject to DST.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary Stamp Tax
for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000,
pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
ISSUE: Whether or not petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years, and
was thus liable for documentary stamp tax.
HELD:
No. Health Maintenance Organizations are not engaged in the insurance business. The SC said in June 12, 2008 decision
that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as insurance contracts
and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the transaction of the
business. Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to
determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of whether
or not it is liable for DST on its health care agreements. Petitioner is admittedly an HMO. Under RA 7878 an HMO is “an
entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid
premium. The payments do not vary with the extent, frequency or type of services provided. Section 2 (2) of PD 1460
enumerates what constitutes “doing an insurance business” or “transacting an insurance business”which are making or
proposing to make, as insurer, any insurance contract; making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate business or activity of the surety; doing any kind of
business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within
the meaning of this Code; doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services),
but these are incidental to the principal activity of providing them medical care. The “insurance-like” aspect of petitioner’s
business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services
rather than insurance services, it cannot be considered as being in the insurance business.
TAN VS. DEL ROSARIO
FACTS:
Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation Scheme (SNIT), which
amended certain provisions of the NIRC, as well as the Rules and Regulations promulgated by public respondents pursuant
to said law.
In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following provisions of the
Constitution:
Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in
the title thereof.
Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be
denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have
exceeded their rule-making authority in applying SNIT to general professional partnerships.
The Solicitor General espouses the position taken by public respondents
ISSUE: Whether or not the tax law is unconstitutional for violating due process
RULING:
NO. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not violate classification as long
as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards
the schedular approach in the income taxation of individual taxpayers and to maintain, by and large, the present global
treatment on taxable corporations. The Court does not view this classification to be arbitrary and inappropriate.

Tax 1 Digests - Part I

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TAXATION 1 (BVQ) DIGESTS PLM CL JD 1-1 ALSOL. ASIS. GUEVARRA. JOCSON. JILOCA. PAGASPAS. ROQUE. SIMABAHAN.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

G.R. No. L-18129 January 31, 1963

ISSUE: WON City of Iloilo is empowered to imposed tax.

G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,

G.R. Nos. L-28508-9 July 7, 1989

ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner,

(1) the expense must be ordinary and necessary,

(2) it must be paid or incurred within the taxable year, and

(3) it must be paid or incurred in carrying on a trade or business.

G.R. No. L-36081 April 24, 1989

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,

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

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,

The trial court did not commit the errors assigned.

G.R. No. L-16619 June 29, 1963

G.R. No. 99886 March 31, 1993

G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

VICTORIAS MILLING, CO., INC. v THE MUNICIPALITY OF VICTORIAS

PCGG v Cojuangco (Republic vs. Cocofed)

G.R. No. 147062-64, December 14, 2001

General Rule: Sequestered Shares Are Voted by the Registered Holder

Sequestered Shares Acquired with Public Funds Are an Exception

UCPB Shares Were Acquired With Coconut Levy Funds

Coconut Levy Funds Are Affected With Public Interest

Coconut Levy Funds Are Prima Facie Public Funds

Respondents Judicially Admit That the Levies Are Government Funds

The COA Audit Shows the Public Nature of the Funds

CIR v Tokyo Shipping Co. LTD.

GR No L-68252, May 26, 1995

G.R. Nos. L-49839-46 April 26, 1991

G.R. No. L-28896 February 17, 1988

Ruling: No. SC affirmed the ruling of CTA

G.R. No. 148187 April 16, 2008

G.R. No. L-67649 June 28, 1988

COMMISSIONER OF INTERNAL REVENUE

Domingo vs. Garlitos

Republic of the Philippines vs. Mambulao Lumber Company

Anti-Graft League of the Philippines vs. San Juan

ISSUE: WON this is a case of taxpayer’s suit.

JOYA vs. PCGG

ISSUE: WON petitioners have legal standing to file the petition

Lozada vs. COMELEC

ISSUE: WON petitioners have legal standing to institute a taxpayer’s suit

Mactan Cebu Int’l Airport Authority v. Marcos

261 SCRA 667, September 11, 1996

ISSUE: WON Cebu City has power to tax MCIAA

VAT Ruling No. 7-2006, June 7, 2006

ISSUE: WON the Consortium are exempt from VAT

TIO vs. VIDEOGRAM REGULATORY BOARD

PHILIPPINE AIRLINES, INC. vs. EDU

WON motor vehicle registration fees are considered as taxes.

CALTEX PHILIPPINES, INC. vs. COMMISSION ON AUDIT

G.R. No. 92585 May 8, 1992

WON Caltex is entitled to offsetting.

TOLENTINO vs. SECRETARY OF FINANCE