JOSE DE BORJA (Petitioner) v. VICENTE G. GELLA, et.

al (Respondents)
G.R. No. L-18330 | July 31, 1963 | BAUTISTA ANGELO, J.

FACTS:
 Petitioner Borja has been delinquent in payment of his real estate taxes since
1958 for his properties in Manila and Pasay. He offered to pay such
delinquency with two negotiable certificates of indebtedness but in those
certificates, he was merely an assignee.
 Such offer by petitioner was rejected by both City Treasurers on the ground of
their limited negotiability for which reason, Borja brought the question to the
Treasurer of the Philippines who opined that the negotiable certificates
cannot be accepted as payment of real estate taxes.
 Afterwards, Borja filed an action against the City Treasurers and the Treasurer
of the Philippines to impel them to accept the said certificate of indebtedness
considering that they were already due and demandable.
 Court rendered judgment ordering the respondent Treasurers to accept
petitioner’s certificate of indebtedness as payment for the delinquent real
estate taxes.
 Hence, this present action.
ISSUE/S:
Whether or not petitioner’s certificate of indebtedness may be applied as payment
for his delinquency real estate taxes to the city governments of Manila and Pasay;
Whether or not compensation may be applied to extinguish petitioner’s real estate
tax liability;
HELD:
For the first issue:
NO. It cannot be contended that respondents are bound to accept the certificates of
indebtedness as petitioner’s payment of his real estate taxes for the reason that
they were not obligations subsisting at the time of the approval of RA No.
304 which took effect on 1948. The real estate taxes in question were only due
from 1958 and the subsequent years. RA No. 304 as amended by RA 800 is
explicit that in order that a certificate may be used as payment of an obligation,
such obligation must already be subsisting at the time of the law’s approval.
Likewise, it was provided that the right to use the backpay certificate in the
settlement of taxes is given only to the applicant and not to any holder of a
negotiable certificate. In this case, petitioner was not the applicant himself but was
merely an assignee. Hence, not having the right to use said certificates for the
fulfillment of his taxes, he cannot compel the respondents to accept them.

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For the second issue:
NO. Compensation cannot be effected with regard to the two obligations in this
case. With regard to the certificates of indebtedness, the creditor is the petitioner
while the debtor is the RP. On the other hand, with regard to the real estate taxes,
the creditor is the City Governments of Manila and Pasay while the debtor is the
petitioner. It appears that each one of the obligors concerning the two obligations is
not at the same time the principal creditor of the other.
Although on their faces, the certificates state that they were already redeemable on
1958, yet the law does not say that they are redeemable from its approval on 1948.
Hence, there is no certainty as to the date when the certificates were actually
redeemable.
PRINCIPLES:
Art. 1278, NCC. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.

Art. 1279, NCC. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they two liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

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RUFINO R. TAN (Petitioner) v. RAMON R. DEL ROSARIO, JR., et.al
(Respondents)
G.R. Nos. 109289, 109446 | October 3, 1994 | VITUG, J.

FACTS:
 These two consolidated special actions for prohibition challenge the
constitutionality of RA 7496, known as the Simplified Net Income Taxation
(SNIT) amending certain provisions of NIRC.
 Petitioner claim to be taxpayers adversely affected by continued
implementation of the amendatory statute.
 Petitioner contends that the enactment of the said statute violates certain
provisions of the Constitution namely:

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.

 He likewise contends that the title of HB 34314, the progenitor or RA 7496 is

deficient for being merely entitled, “Simplified Net Income Taxation Scheme
for the Self-Employed and Professionals Engaged in the Practice of their
Profession”
 He further contends that the challenged statute contravenes the
constitutional requirement that taxation “shall be uniform and equitable” in
that the law now attempts to tax single proprietorships and professionals
differently from the manner it imposes the tax on corporations and
partnerships.
 Also, the assail the interpretation of public respondents that would apply SNIT
to partners in general professional partnerships.
ISSUE/S:
Whether or not RA 7496 violates the constitutional requirement that taxation “shall
be uniform and equitable” as it attempts to tax single proprietorship and
professionals differently from corporations and partnerships;
Whether or not the entity subjected to income tax is the general partnership itself
and not the partners comprising it;

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HELD:
For the first issue:
NO. Uniformity of Taxation like the concept of equal protection, merely requires that
all subjects of taxation which are similarly situated are to be treated alike in both
privileges and liabilities. It does not prohibit classification as long as:
1) Standards used are substantial and not arbitrary;
2) Categorization is germane to achieve the legislative purpose;
3) Law applies to both present and future conditions;
4) Classification applies equally to those belonging in the same class;
Of course, where a tax measure becomes so unconscionable and unjust as to
amount to confiscation of property, courts will not hesitate to strike it down, for
power to tax cannot override constitutional proscriptions.
For the second issue:
NO. The Court states that a general professional partnership, unlike an ordinary
business partnership (which is treated as a corporation for income tax purposes), is
not itself an income taxpayer. The income tax is imposed not on the professional
partnership but on the partners themselves in their individual capacity
based on their distributive shares of partnership profits.
PRINCIPLES:
The phrase “income taxpayers” is an all embracing term in the Tax Code, and it
practically covers all persons who derive taxable income.
Under the Tax Code, partnerships are either “taxable” or “exempt”. Ordinarily,
partnerships are subject to income tax which is usually assimilated to be within the
context of corporations. Exempt partnerships are not similarly identified as
corporations nor considered as independent taxable entities for income tax
purposes.

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COMMISSIONER OF INTERNAL REVENUE, COMMISSIONER OF CUSTOMS
(Petitioners) v. HON. APOLINARIO B. SANTOS, et.al (Respondents)
G.R. No. 119252 | August 18, 1997 | HERMOSISIMA, JR., J.

FACTS:
 Private respondent Guild of Philippine Jewelers Inc., is an association of
Filipino jewelers engaged in the manufacture of jewelries.
 Viray, then Regional Director of BIR, acting in behalf of the CIR, issued a
Regional Mission Order to conduct monitoring and inventory of all imported
articles of Hans Brumann, Inc.,
 BIR officers requested the establishment not to sell the articles until it is
proven that the taxes have already been paid. Accordingly, Hans Brumann,
the owner signed a receipt acknowledging the inventory of the articles and
also promising not to dispose the same without authority of the CIR.
 BIR officer Corcega submitted a report of the inventory and a computation of
the VAT and ad valorem tax on the articles.
 Letters of Authority for stocktaking investigation for excise purposes were
issued to Hans Brumann and also to private respondents.
 Private respondents then filed with the RTC a petition for declaratory relief
with writ of preliminary injunction and/or temporary restraining order against
petitioners praying that certain provisions of the NIRC and Tarrif and Customs
Code be declared unconstitutional as it is oppressive and confiscatory to
jewelry industries.
ISSUE/S:
Whether or not the ruling of public respondent RTC in that the tax laws on jewelries
were confiscatory and destructive of private respondent’s proprietary rights were
proper;
HELD:
NO. There is no doubt that the respondent judge encroached on matters exclusively
falling within the province of the legislature. In advocating the abolition of local tax
and duty on jewelry because other Asian countries have adopted such policies, the
respondent judge overlooked the fact that such matters are not for him to decide.
There are reasons why jewelry is taxed as it is in this country and these reasons are
deliberated by our legislature which is beyond the reach of judicial questioning.
The trial court is not the proper forum for the issues raised by the private
respondents since these focus on the wisdom of the provisions of law which they
seek to nullify. RTC can only look into the validity of the provision, on whether it has

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undergone the procedures laid down by law but cannot require as to the reasons for
its existence.
The Courts must respect the fact that in imposing taxes and duties, the State,
acting through the legislative and executive branches, is exercising its sovereign
prerogative. It is inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that "inequalities which result
from a singling out or one particular class for taxation, or exemption, infringe no
constitutional limitation."
PRINCIPLES:
The policy of the courts is to presume that acts of the political departments are
valid in the absence of a clear and unmistakable showing to the contrary. This
presumption is based on the doctrine of separation of powers which enjoins each
department respect for the acts of other departments.
Justice Laurel stated that, “the judiciary does not pass upon questions of wisdom of
legislation.” In the exercise of judicial power, Courts are allowed only "to settle
actual controversies involving rights which are legally demandable and
enforceable", and may not annul an act of the political departments simply because
we feel it is unwise or impractical.

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ARTURO M. TOLENTINO (Petitioner) v. THE SECRETARY OF FINANCE, et.al
(Respondents)
G.R. No. 115455 | August 25, 1994| MENDOZA, J.

FACTS:
 Congress enacted RA No. 7716, which sought to widen the tax base of the
existing Value Added Tax (VAT) system and enhance its administration by
amending the National Internal Revenue Code (NIRC).
 The VAT is levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of service. 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.
 Several petitioners, including Arturo Tolentino, Raul Roco, the IBP, the
Philippine Press Institute, PAL, Kilosbayan, and Liwayway Chato, among
others, challenged the constitutionality of said law.
ISSUE/S:
Whether or not RA No. 7716 is a discriminatory statute as it unduly tax one
particular class as compared to another;
Whether or not VAT is regressive;
HELD:
For the first issue:
NO. Petitioner PPI contends that RA No 7716 is discriminatory as it amended Section
103 of the NIRC which originally exempted print media from VAT. What it contends is
that by withdrawing the exemption previously granted to print media transactions,
RA 7716 discriminate print media by giving broadcast media favored treatment.
This contention however, did not convince the Court.
Court held that if the press is now required to pay a VAT on its transactions, it is not
because it is being singled out for special treatment but only because of the
removal of the exemption previously granted to it by law. Also, it is not only print
media but also other transactions, which were previously granted exemption, have
been delisted as part of the scheme to expand the base of the VAT system.
In the cases at bar, the statute applies to a wide range of goods and services and
not only to print media. The argument that the law still discriminates by the fact

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that print media and broadcast media are treated differently is without merit since it
has not been shown that as a result, the class subject to tax has been unreasonably
narrowed. The press is taxed on its transactions involving printing and publication,
which are different from the transactions of broadcast media. There is thus a
reasonable basis for the classification.
For the second issue:
NO. Petitioners contend that as a result of the uniform 10% VAT, the tax on
consumption goods of those who are in the higher-income bracket, which before
were taxed at a rate higher than 10%, has been reduced, while basic commodities,
which before were taxed at rates ranging from 3% to 5%, are now taxed at a higher
rate.
Contrary to petitioners' assertion that RA 7716 is regressive, the SC held that the
law in fact 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. It is thus equitable.
It is important to highlight the assertion of respondent that The goods and
properties subject to the VAT are those used or consumed by higher-income groups.
On the other hand, small business establishments, with annual gross sales of less
than P500,000, are exempted. This, according to respondents, removes from the
coverage of the law some 30,000 business establishments. Also in a NEDA study, it
has been stated that the VAT has minimal impact on inflation and income
distribution
Lacking empirical data on which to base these arguments, any discussion whether
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. As Republic Act
No. 7716 merely expands the base of the VAT system and its coverage as provided
in the original VAT Law, further debate on the wisdom of the law should have shifted
to Congress.
PRINCIPLES:
A tax measure, like the expanded VAT law, is enacted by Congress and approved by
the President in the exercise of the State's power to tax. It is inherent in the power
to tax that the State be free to select the subjects of taxation
Without taxes, basic services to the people can come to a halt; economic progress
will be stunted, and, in the long run, the people will suffer the pains of stagnation
and retrogression.
It has been repeatedly held that inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation unless
there is a showing that the class subjected to tax has been unreasonably narrowed.
In other words, there must be reasonable basis for the classification to justify the
difference of treatment of one particular class as compared to the other class.

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CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative
Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the
law contravenes the mandate of Congress to provide for a progressive system of
taxation because the law imposes a flat rate of 10% and thus places the tax burden
on all taxpayers without regard to their ability to pay. The Constitution does not
really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that
"direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should
be minimized." Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken.
Sales taxes are also regressive. Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to avoid them by imposing
such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of
certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the
NIRC). Thus, the following transactions involving basic and essential goods and
services are exempted from the VAT: (a) Goods for consumption or use which are in
their original state (agricultural, marine and forest products, cotton seeds in their
original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to enhance agriculture (milling of palay, corn
sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for
the manufacture of feeds). (b) Goods used for personal consumption or use
(household and personal effects of citizens returning to the Philippines) and or
professional use, like professional instruments and implements, by persons coming
to the Philippines to settle here. (c) Goods subject to excise tax such as petroleum
products or to be used for manufacture of petroleum products subject to excise tax
and services subject to percentage tax. (d) Educational services, medical, dental,
hospital and veterinary services, and services rendered under employer-employee
relationship. (e) Works of art and similar creations sold by the artist himself. (f)
Transactions exempted under special laws, or international agreements. (g) Export-
sales by persons not VAT-registered. (h) Goods or services with gross annual sale or
receipt not exceeding P500,000.00. (Respondents' Consolidated Comment on the
Motions for Reconsideration, pp. 58-60) On the other hand, the transactions which
are subject to the VAT are those which involve goods and services which are used or
availed of mainly by higher income groups. These include real properties held
primarily for sale to customers or for lease in the ordinary course of trade or
business, the right or privilege to use patent, copyright, and other similar property
or right, the right or privilege to use industrial, commercial or scientific equipment,
motion picture films, tapes and discs, radio, television, satellite transmission and
cable television time, hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and telegraph

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CALTEX PHILIPPINES, INC. (Petitioner) v. COMMISSION ON AUDIT, et.al
(Respondents)
G.R. No. 92585 | May 8, 1992 | DAVIDE, JR., J.

FACTS:
 The controversy in this case revolves around the creation by PD 1956 of an
Oil Price Stabilization Fund (OPSF) for the purpose of minimizing price
changes of crude oil and imported petroleum products by imposing additional
tax.
 Respondent COA sent a letter to Petitioner Caltex directing the latter to remit
to the OPSF its collection of the additional tax on petroleum products which
then amounted to P335M and informing petitioner that, pending remittance,
all its claims for reimbursement from the OPSF shall be halted.
 Respondent COA sent another letter informing petitioner that its grand total
of unremitted collections of the additional tax amounted to P1.2B and again
directed it to already remit the collections to the OPSF.
 As a response, petitioner Caltex submitted to COA its proposal for the
payment of the due collections since according to it, the outright payment of
the sum of P1.2B will cause very serious impairment to the cash position of
petitioner.
 The proposal was considered by respondent COA in its Decision No. 921 but
still made a reservation in prohibiting petitioner from offsetting remittances
due to the OPSF and its claim for reimbursement from the OPSF.
 Hence, this petition.
ISSUES/S:
Whether or not petitioner Caltex may offset or effect compensation of its remittance
of additional tax due to the OPSF with its claim of reimbursement from the OPSF;
Whether or not OPSF exactions are not intended for public purpose, hence does not
constitute as valid tax
HELD:
For the first issue:

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NO. The Court held that it is already settled that a taxpayer cannot offset payment
of taxes from claims which an individual taxpayer may have against the
government. The collection of taxes cannot await the decision of a suit against a
government because the collection of said taxes must be hindered with as little as
possible owing to it being lifeblood of the State.
Taxes cannot likewise be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other. It is also settled that
a tax is not in the nature of a debt, contract, demand or judgment but grows out of
a duty to the government, a positive act on the part of the government in which the
personal consent of the individual taxpayers is not anymore required.
Hence, petitioner Caltex’ contention that it should be allowed to offset its claims
from the OPSF against its contributions or remittances to the fund since such
practice was already allowed in the past, particularly in the years 1987 and 1988, is
untenable.
For the second issue:
NO. The Court finds no merit in petitioner’s contention that the OPSF
contributions/exactions are not for a public purpose because they go to a special
fund of the government.
The Court went on to state that, “Taxation is no longer a measure merely for raising
revenue to support the existence of the government. The modern view is that taxes
may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry affected with public interest as to be within the
police power of the state.”
In the case at bar, petitioner is necessarily engaged in the oil industry. Oil industry is
greatly imbued with public interest as it vitally affects the general welfare. Any
increase in the oil prices could hurt the lives of the public and may cause economic
crisis. The stabilization then of oil prices is of primary concern of the State which it
may regulate or address in the exercise of its police power.
PRINCIPLES:
It was stated in Francia v. IAC, Hernandez that, “There can be no offsetting of
payment of taxes against claims which an individual taxpayer may have against the
government, as taxes do not arise from contracts nor does it depend upon
the will of taxpayer, but is rather imposed by law.”
It was stated in CIR v. Algue that, “Money due to the government, either in form of
taxes or other dues, is its lifeblood and should be collected without hindrance.”
Art. 1279, NCC provides: For compensation to be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

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 (2) both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced

by third persons and communicated in due time to the debtor.

ENGRACIO FRANCIA (Petitioner) v. INTERMEDIATE APPELLATE COURT, HO

FERNANDEZ (Respondents)
G.R. No. L-67649 | June 28, 1988 | GUTIERREZ JR., J.

FACTS:
 Petitioner Francia is the registered owner of a residential lot and two-storey
house with an area of 328 sqm. in Sta. Clara, Pasay City.
 125 sqm. of Francia’s property was expropriated by the Republic of the
Philippines for the sum of P4,116.
 Since 1963 up to 1977, Francia failed to pay his real estate taxes and as a
result, his property was sold at public auction by the City Treasurer of Pasay
City pursuant to the Real Property Tax Code to satisfy his tax delinquency of
P2,400. Private Respondent Fernandez was the highest bidder.
 Francia was not present during the auction sale. Despite such instance, he
received a notice of hearing for the Petition for Entry of New Certificate of
Title filed by respondent Ho Fernandez. Petitioner likewise discovered that a
Final Bill of Sale was issued by the City Treasurer in favor of private
respondent.
 Afterwards, petitioner filed a complaint to annul the auction sale but the
lower court ruled against his favor. Hence, this petition.
ISSUE/S:
Whether or not his real estate tax delinquency due to the local government should
have been compensated by the amount which the national government owed him
as a result of the expropriation of a portion of his land;
HELD.
NO. The Court held 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.

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In the case at bar, the tax was due to the city government while the expropriation
was effected by the national government. The amount of P4,116 paid by the
national government was deposited with the PNB. It should have been an easy
matter to withdraw P2,400 from the deposit so that he could pay the tax obligation
thus aborting the sale at public auction.
PRINCIPLES:
In Republic v. Mambulao Lumber, Court ruled that Internal Revenue Tax cannot be
the subject of set-off or compensation: “The general rule is well-settled that no set-
off is admissible against taxes levied for general or local governmental purposes.
The reason is that taxes are not in the nature of contracts between the party
but are positive acts of the government to the making and enforcing of which,
the personal consent of individual taxpayers is not required.
In Corders v. Gonda, it was stated that: “…internal revenue taxes cannot be the
subject of compensation. Reason: government and taxpayer are not mutual
creditors and debtors of each other under Art. 1278 and a claim for taxes is
not a debt, demand, contract that is allowed to be set-off.

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MELECIO R. DOMINGO (Petitioner) v. HON. LORENZO C. GARLITOS, et.al
(Respondents)
G.R. No. L-18994 | June 29, 1963| LABRADOR, J.

FACTS:
 In Domingo v. Moscoso, this Court declared as final and executory the order
for payment by estate of the estate and inheritance taxes, charges
amounting to P40,058.55. To enforce the claims against the estate, the fiscal
presented a petition to the court for the execution of 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 in the amount of
P262,200 which sum was appropriated as payment to Leyte Cadastral Survey
represented by administratix Simeona K. Price. Hence, the Court held that the
payment of inheritance taxes in the amount of P40,058.55 due to the CIR is
already ordered paid which shall be deducted from the amount of P262,200
due to the administratix.
ISSUE/S:
Whether or not writ of execution is the proper procedure to settle claims of
indebtedness against estate of a deceased person such as inheritance tax;
Whether or not compensation properly took place between the claim of the
Government and the intestate;
HELD:
For the first issue:
NO. Court ruled that the ordinary procedure to settle claims of indebtedness
against the estate of a deceased person is for claimant to present a claim before
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

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the estate are under the jurisdiction of the court and such jurisdiction continues
until said properties have been distributed among the heirs entitled. All the estate is
in custodia legis and the proper procedure is not to allow the sheriff 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.
For the second issue:
YES. The court having jurisdiction of the estate found that the claim of estate
against the Government has been recognized and an amount of P262,200 has
already been appropriated. The claim of the Government for inheritance taxes and
the claim of the intestate for services rendered have already become overdue and
demandable as 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, that petitioner has no right to execute judgment for taxes against the
estate of the deceased Walter Scott Price.
PRINCIPLES:
ART. 1290. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguished both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation.

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REPUBLIC OF THE PHILIPPINES (Petitioner) v. MAMBULAO LUMBER
COMPANY, et.al (Respondents)
G.R. No. L-17725 | February 28, 1962| BARRERA, J.

FACTS:
 Under the first cause of action, forest charges covering period September
1952 to May 1953, respondents admitted that they have a liability of P587.37
covered by a bond in favor of plaintiff;
 Under the second cause of action, respondents admitted a joint and several
liability in favor of plaintiff in the sum of P296.70.
 Under the third cause of action, respondents admitted a joint and several
liability in favor of plaintiff for P3,928.30. These liabilities amount to
P4,802.37
 Prior to these liabilities, respondent Mambulao already paid to petitioner
reforestation charges in the total amount of P9,127.50 pursuant to RA 115
which provides that there shall be collected, in addition to regular forest
charges provided under the NIRC the amount of P 0.50 on each cubic meter
of timber cut out from any public forest for commercial purposes.
 It is the contention of respondent Mambulao that since the reforestation
charges collected by petitioner were not used, this should be made to answer
to respondent’s liability.
 Hence, this petition.
HELD:
Whether or not the reforestation charges paid by respondent Mambulao may be
used to compensate its liability for forest charges to petitioner Republic;
HELD:
NO. Pursuant to RA No 115, the amount collected as reforestation charges are
intended for reforestation and afforestation of watersheds, denuded areas and other
public forest lands. Hence, all revenues collected under this statute shall constitute

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the fund to be known as Reforestation Fund to be expended exclusively in carrying
out the purpose provided for under this Act.
Respondent maintains that the principle of compensation under Article 1278 of the
Civil Code is applicable, that the sum paid by it as reforestation charges may
compensate its indebtedness to petitioner. However, this Court ruled that petitioner
and respondent are not mutually creditors and debtors of each other. Hence, the
law on compensation is inapplicable.
With respect to the forest charges which respondent Mambulao Lumber paid to the
government, they are in the coffers of the government as taxes, hence the Republic
of the Philippines and the Mambulao Lumber are not creditors and debtors of each
other, because compensation refers to mutual debts.
PRINCIPLES:
Under Article 1278, compensation should take place when two persons in their own
right are creditors and debtors of each other.
Internal revenue taxes, such as the forest charges cannot be subject of set-off or
compensation.
The general rule is well-settled that no set-off is admissible against taxes levied for
general or local governmental purposes. The reason is that taxes are not in the
nature of contracts between the party but are the positive acts of the government,
to the making and enforcing of which, the personal consent of individual taxpayers
is not required.
If taxpayer can properly refuse to pay his tax because he has a claim against the
governmental body not included in the tax levy, some necessary expenditure must
be curtailed.

Arvie Ginete
VICTORIAS MILLING CO., INC., (Petitioner) v. THE MUNICIPALITY OF
VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL (Respondents)
G.R. No. L-21183 | September 27, 1968| SANCHEZ, J.

FACTS:
 The disputed ordinance was approved by the municipal Council of Victorias
by amending two municipal ordinances separately imposing license taxes on
operators of sugar centrals and 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 range of
graduated schedule of annual output capacity.
 The production of petitioner Victorias Milling in both its sugar central and
refinery are affected with these changes.
 As a result, petitioner filed suit seeking to declare Ordinance No. 1 as void
and ordering the refund of all license taxes paid and to be paid under protest
since said ordinance is discriminatory as it singles out petitioner which is the
only operator of sugar central and refinery within the respondent municipality
and that such imposition constitutes double taxation.
 Trial court rendered judgment in favor of petitioner stating that the license
taxes are unreasonable.
 Hence, this petition
ISSUE/S:
Whether or not Ordinance No.1 passed by defendant is a regulatory enactment or
revenue measure;
Whether or not the changes introduced in the Ordinance is unreasonable and
excessive;
Whether or not the Ordinance is discriminatory as it singles out petitioner, being the
sole operator of sugar centrals and refineries within the municipality of respondent;
HELD:

Arvie Ginete
For the first issue:
It is a revenue measure. To be recalled, Ordinance No. 1 is but an amendment to
two existing Ordinances. The taxes collected by the Municipality of Victoria was
intended to address the heavy obligations which the Municipality is encountering
due to the implementation of Minimum Wage Law on the salaries it pays to its
municipal employees thus greatly draining the Municipal Treasury. The taxes
collected will also be used for the development of barrios and rural areas by giving
them improvements of roads. Hence, it is plain and simple that the ordinance is for
raising money.
This Court therefore rules 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.
For the second issue:
NO. Petitioner limited its contention by insisting that the amounts levied exceed the
cost of regulation and that the municipality has adequate funds for the alleged
purposes as evidenced by the municipality’s cash surplus.
Court ruled that a cash surplus cannot stop a municipality from enacting a revenue
ordinance increasing taxes in anticipation of municipal needs. Discretion to
determine the amount of revenue required to address the needs of municipality is
lodged with the municipal authorities. Hence, the reasonableness of the ordinance
may not be disputed. It is not confiscatory.
For the third issue:
NO. The ordinance does not single out petitioner Victorias as the only object of the
ordinance. Said ordinance is made to apply to any sugar central or sugar refinery
which may happen to operate in the municipality. The fact that petitioner is actually
the sole operator of sugar central and refinery does not make the ordinance
discriminatory.
The circumstance that "that there is no other person in the locality who exercises"
the occupation does not make the ordinance discriminatory since it will still be
made applicable in the event that there be a person or entity which attempts to
exercise the same business or occupation.
There is no double taxation in this case since the occupation/s taxed are different
from each other; one being sugar central and the other being sugar refinery. To
constitute double taxation, “same property must be taxed twice, when it should be
taxed once.”
PRINCIPLES:
“License tax” has not acquired a fixed meaning. It does not refer solely to a license
for regulation. In many instances, it refers to “revenue-raising exactions on
privileges or activities.”

Arvie Ginete
License fees are commonly called taxes but the latter are “for the purpose of
generating or raising revenues,” in contrast to the former which is imposed “in the
exercise of the police power for purposes of regulation.”
Designation given by municipal authorities does not decide whether imposition is a
license tax or a license fee. The determining factors are the purpose and effect
of imposition.
Thus, “when there is no supervision or regulation and a license is indispensable to
conduct business, subject to no prescribed rule of conduct, the presumption Is
strong that the power of taxation and not the police power is being exercised.”

NATIONAL DEVELOPMENT CORPORATION (Petitioner) v. COMMISSIONER OF

INTERNAL REVENUE (Respondent)
G.R. No. L-53961 | June 30, 1987| CRUZ, J.

FACTS:
 Petitioner NDC entered into contracts in Tokyo with several Japanese
shipbuilders for the construction of 12 ocean-going vessels. The purchase
price was to be derived from proceeds of bonds issued by the Central Bank.
 Initial payments were made in cash and in irrevocable letters of credit. 14 PNs
were signed for the balance by the NDC and the remaining payments was to
be made by NDC in Tokyo. The vessels were eventually completed and
delivered to the NDC in Tokyo.
 NDC remitted to the shipbuilders the total amount of $4M as interest on the
balance of the purchase price to which the Commissioner then held the NDC
liable on such tax in the total of P5M. The BIR issued a warrant of distraint
and levy to enforce the collection of said taxes.
 The NDC went to the CTA but the CTA upheld the BIR.
 Hence, this petition.
ISSUE/S:
Whether or not the Japanese shipbuilders are subject to tax under the Philippine
laws considering that all activities were made in Tokyo;
HELD:
YES. Japanese shipbuilders were liable to be taxed on the interest remitted to them
by petitioner NDC under Section 37 of the Tax Code.
Petitioner argues that the Japanese shipbuilders are not subject to tax because all
the related activities - the signing of the contract, the construction of the vessels,

Arvie Ginete
the payment of the stipulated price, and their delivery to the NDC — were done in
Tokyo. The law, however, does not speak of activity but of "source," which in this
case is the NDC. This is a domestic and resident corporation with principal offices in
Manila.
It has been held by the Court that the Government’s right to levy and collect income
tax on interests received by foreign corporation not engaged in trade or business
within the Philippines is not premised upon the condition that the activity and the
sale had its ‘situs’ in the Philippines. The residence of the obligor who pays the
interest rather than the physical location of the place of payment is the determining
factor of the source of interest income.
Accordingly, if the obligor is a resident of the Philippines, the interest payment paid
by him can have no other source than within the Philippines. In the case at bar,
petitioner NDC is a corporation duly organized and existing under the laws of the
Philippines with address at Pureza, Manila. Hence, it is clear that the interest
remitted by the petitioner NDC to Japanese shipbuilders in Japan on the purchase
price is derived from sources within the Philippines subject to income tax under the
NIRC.
PRINCIPLES:
The residence of the obligor who pays the interest rather than the physical location
of the place of payment is the determining factor of the source of interest income.
Tax exemptions cannot be merely implied but must be categorically and
unmistakably expressed.
In Philippine Guaranty Co. v. CIR, the Court held that: “In case of doubt, a
withholding agent may always protect himself by withholding the tax due, and
promptly causing a query to be addressed to the Commissioner of Internal Revenue
for the determination whether income paid to an individual is not subject to
withholding. In case the Commissioner of Internal Revenue decides that the income
paid to an individual is not subject to withholding, the withholding agent may
thereupon remit the amount of a tax withheld.”
Generally, the law frowns upon exemption from taxation; hence, an exempting
provision should be construed strictissimi juris.

Arvie Ginete