COMMISSIONER OF INTERNAL REVENUE VS. ALGUE INC.

 Taxes are the lifeblood of the government and so should be collected without
GR NO. L-28896 | FEB. 17, 1988 unnecessary hindrance, made in accordance with law.
 RA 1125: the appeal may be made within thirty days after receipt of the decision
FACTS: or ruling challenged
 Algue Inc. is a domestic corp engaged in engineering, construction and other  During the intervening period, the warrant was premature and could therefore
allied activities not be served.
 On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency  Originally, CIR claimed that the 75K promotional fees to be personal holding
income taxes from 1958-1959, amtg to P83,183.85 company income, but later on conformed to the decision of CTA
 A letter of protest or reconsideration was filed by Algue Inc on Jan 18  There is no dispute that the payees duly reported their respective shares of the
 On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its fees in their income tax returns and paid the corresponding taxes thereon. CTA
counsel, Atty. Guevara, who refused to receive it on the ground of the pending also found, after examining the evidence, that no distribution of dividends was
protest involved
 Since the protest was not found on the records, a file copy from the corp was  CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
produced and given to BIR Agent Reyes, who deferred service of the warrant involving an imaginary deduction
 On April 7, Atty. Guevara was informed that the BIR was not taking any action on  Algue Inc. was a family corporation where strict business procedures were not
the protest and it was only then that he accepted the warrant of distraint and levy applied and immediate issuance of receipts was not required. at the end of the
earlier sought to be served year, when the books were to be closed, each payee made an accounting of all of
 On April 23, Algue filed a petition for review of the decision of the CIR with the the fees received by him or her, to make up the total of P75,000.00. This
Court of Tax Appeals arrangement was understandable in view of the close relationship among the
CIR contentions: persons in the family corporation
 the claimed deduction of P75,000.00 was properly disallowed because it was not  The amount of the promotional fees was not excessive. The total commission paid
an ordinary reasonable or necessary business expense by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After
 payments are fictitious because most of the payees are members of the same deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
family in control of Algue and that there is not enough substantiation of such from the transaction. The amount of P75,000.00 was 60% of the total
payments commission. This was a reasonable proportion, considering that it was the payees
 CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in who did practically everything, from the formation of the Vegetable Oil
the form of promotional fees. These were collected by the Payees for their work Investment Corporation to the actual purchase by it of the Sugar Estate
in the creation of the Vegetable Oil Investment Corporation of the Philippines properties.
and its subsequent purchase of the properties of the Philippine Sugar Estate  Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the
Development Company. 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
ISSUE: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 other compensation for personal services actually rendered xxx
deduction claimed by Algue as legitimate business expenses in its income tax returns  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
RULING: themselves in a new business requiring millions of pesos.
 Taxes are what we pay for civilization society. Without taxes, the government FACTS:
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  PD 1956 was issued to create the Oil Price Stabilization Fund (OPSF) designed to
income to the taxing authorities, every person who is able to must contribute his reimburse oil companies for cost increases in crude oil resulting from exchange
share in the running of the government. The government for its part, is expected rate fluctuations and from increases in the prices of oil in the world market.
to respond in the form of tangible and intangible benefits intended to improve
 It was later amended by EO 137 which expands the grounds for reimbursement to
the lives of the people and enhance their moral and material values
oil companies for possible cost underrecovery incurred as a result of the
 Taxation must be exercised reasonably and in accordance with the prescribed
reduction of domestic prices of petroleum products.
procedure. If it is not, then the taxpayer has a right to complain and the courts
will then come to his succor  In 1991, the OPSF incurred a deficit to which the Energy Regulatory Board (ERB)
 Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in
tried to resolve such problem by issuing an order to increase pump prices of
accordance with Rep. Act No. 1125. And we also find that the claimed deduction
petroleum and such shall have covered the OPSF deficit within 6 months. Osmena
by Algue Inc. was permitted under the Internal Revenue Code and should
reacted to this by claiming that the OPSF should be treated as a special fund and
therefore not have been disallowed by the CIR
not as a trust account/fund because a special tax collected for a specific purpose
shall have its revenue expended for such purposes only and not channeled to
ISSUE: Whether the assessment was reasonable.
another government objective and that PD 1956 is unconstitutional because it
RULING:
confers invalid delegation to ERB.
 Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance  It thus appears that the challenge posed by the petitioner is premised primarily
 Every person who is able to pay must contribute his share in the running of the on the view that the powers granted to the ERB under PD 1956, partake the
government. The Government, for his part, is expected to respond in the form of
nature of the taxation power of the State.
tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the
ISSUES:
rationale of taxation and should dispel the erroneous notion that is an arbitrary
method of exaction by those in the seat of power.
(1) Whether PD 1956 is a legislation partaking the nature of the taxation power of the
 Tax collection, however, should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. For all the State or is it more of police power;
awesome power of the tax collector, he may still be stopped in his tracks if the
(2) Whether Paragraph 1 PD No. 1956 is unconstitutional for being an undue and
taxpayer can demonstrate that the law has not been observed. Herein, the
claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 invalid delegation of legislative power, setting no limit on the powers of the ERB
[1] of Revenue Regulation [2]: as to compensation for personal services) had been
legitimately by Algue Inc. It has further proven that the payment of fees was RULING:
reasonable and necessary in light of the efforts exerted by the payees in inducing
investors (in VOICP) to involve themselves in an experimental enterprise or a The fluctuations in world market prices and foreign exchange rates would in a
business requiring millions of pesos. completely free market translate into corresponding adjustments in domestic prices of
The assessment was not reasonable. oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day would result in a chaotic market with unpredictable effects upon
OSMENA, PETITIONER VS ORBOS, RESPONDENTS the country’s economy. The OPSF was established to protect local consumers from the
adverse consequences that frequent oil price adjustments may have upon the G.R. No. L- 41383, August 15, 1988
economy.
FACTS:
The OPSF is thus a buffer mechanism through which the domestic consumer prices of
The Philippine Airlines (PAL) is a corporation engaged in the air transportation
oil and petroleum products are stabilized instead of fluctuating every so often. The
business under a legislative franchise, Act No. 42739. Under its franchise, PAL is
establishment and maintenance of the OPSF is well within that power and
exempt from the payment of taxes.
responsibility of the government to secure the physical and economic survival—it is
within the police power of the State.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate
The stabilization and subsidy of domestic prices of petroleum products is regarded as (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise
public purpose. With regard to undue delegation of legislative power, the Court finds known as the Land and Transportation and Traffic Code, requiring all tax exempt
that the authority conferred upon the ERB to impose additional amounts on entities, among them PAL to pay motor vehicle registration fees.
petroleum provides a sufficient standard. PD 1956 expressly authorizes the ERB to
impose additional amounts to augment the resources of the Fund. What is here Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the
involved is not so much the power of taxation as police power. amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest,
registration fees of its motor vehicles. After paying under protest, PAL through
Although the provision authorizing the ERB to impose additional amounts could be counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner
construed to refer to the power of taxation, it cannot be overlooked that the Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request
overriding consideration is to enable the delegate to act with expediency in carrying for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo
out the objectives of the law which are embraced by the police power of the State. Carbonell (Carbonell).
Constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products do not conveniently permit the setting of fixed or rigid The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which
parameters in the law as proposed by the petitioner. in turn certified the case to the Supreme Court.

As such, the standard as it is expressed, suffices to guide the delegate in the exercise
ISSUE:
of the delegated power. The petition is granted only for the nullification of the
Whether or not motor vehicle registration fees are considered as taxes.
reimbursement of financing charges but dismissed in all other respects.

RULING:
Yes. 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. Such is the
case of motor vehicle registration fees. 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 agency
administering the program.

PHILIPPINE AIRLINES, INC. v. EDU REPUBLIC V. BACOLOD-MURCIA MILLING CO., INC., ET AL.
Action: Joint Appeal from Court of First Instance of Manila ISSUE:
Summary: Whether the taxpayers may refuse to pay the special assessment, allegedly distinct
 The three sugar centrals are sister companies under single ownership and from an ordinary tax which no one can refuse to pay.
management.
 They were required to pay 10 centavos per picul (around 5-6 kilos) of sugar RULING:
collected for 5 crop years under Sec. 15 of RA 632. The nature of a “special assessment” similar to the case has been discussed and
 The sugar tax was levied to create Philsugin (Philippine Sugar Institute), to explained in Lutz vs. Araneta. The special assessment or levy for the Philippine Sugar
conduct research and development for sugar and sugar by-products. Institute (Philsugin) Fund is not so much an exercise of the power of taxation, nor the
 Philsugin acquired the Insular Sugar Refinery and lost a lot of money imposition of a special assessment, but the exercise of police power for the general
 Appellants stopped paying the levy because they said that the purchase was welfare of the entire country. It is, therefore, an exercise of a sovereign power which
unauthorized by RA 632. They had unpaid balances no private citizen may lawfully resist. Section 2a of the Charter authorizing Philsugin to
 The Court of First Instance said that they had to pay the balance, and the “conduct research work for the sugar industry in all its phases, either agricultural or
Supreme Court affirmed its decision industrial, for the purpose of introducing into the sugar industry such practices or
processes that will reduce the cost of production and achieve greater efficiency in the
Definitions: industry, justifies the acquisition of the refinery in question. The financial loss resulting
Special assessments: a levy on property where the property against which it is levied from the operation thereof is no means an index that the industry did not profit
derives special benefits from how the money was used (in normal people speak: therefrom, as other gains of a different nature (such as experience) may have been
whatever this tax is spent on will benefit those who paid the tax) realized.
RA 632: Philippine Sugar Institute charter; where Philsugin is a semi-public corporation
meant to advance the Philippine sugar industry (research, marketing, etc.) ISSUE:
Section 15 of RA 632: to raise funds for Philsugin, annual sugar production will be Are the milling companies liable?
levied 10c per picul of sugar collected for 5 crop years, (c.y. 1951-52 to 1956). The
amount will be borne by sugar centrals and sugar cane planters RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so
FACTS: much an exercise of the power of taxation, nor the imposition of a special
 RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, assessment, but the exercise of police power for the general welfare of the entire
the Institute acquired the Insular Sugar Refinery for P3.07 million payable in country. It is, therefore, an exercise of a sovereign power which no private citizen may
installments from the proceeds of the sugar tax to be collected under RA 632. The lawfully resist. Section 2a of the charter authorizes Philsugin to acquire the refinery in
operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered question. The financial loss resulting from the operation thereof is no means an index
tremendous losses. Contending that the purchase of the refinery with money that the industry did profit therefrom, as other gains of a different nature (such as
from the Institute’s fund was not authorized under RA 632, and that the experience) may have been realized.
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
TIO VS VIDEOGRAM REGULATORY COMMISSION (G.R. NO. 75697)
Azucarera del Danao refused to continue with their contribution to said fund. The
trial court found them liable under RA 632.
FACTS:
The case is a petition filed by petitioner on behalf of videogram operators adversely The unregulated activities of videogram establishments have also affected the viability
affected by Presidential Decree No. 1987, “An Act Creating the Videogram Regulatory of the movie industry.
Board” with broad powers to regulate and supervise the videogram industry.
ISSUES:
A month after the promulgation of the said Presidential Decree, the amended the (1) Whether or not tax imposed by the DECREE is a valid exercise of police power.
National Internal Revenue Code provided that: (2) Whether or nor the DECREE is constitutional.
“SEC. 134. Video Tapes. — There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos; RULING:
Provided, That locally manufactured or imported blank video tapes shall be subject to Taxation has been made the implement of the state’s police power. The levy of the
sales tax.” 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
“Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any flagrant violation of intellectual property rights, and the proliferation of pornographic
provision of law to the contrary, the province shall collect a tax of thirty percent (30%) video tapes. And while it was also an objective of the DECREE to protect the movie
of the purchase price or rental rate, as the case may be, for every sale, lease or industry, the tax remains a valid imposition.
disposition of a videogram containing a reproduction of any motion picture or
audiovisual program.” We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void. While the underlying
“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, objective of the DECREE is to protect the moribund movie industry, there is no
and the other fifty percent (50%) shall accrue to the municipality where the tax is question that public welfare is at bottom of its enactment, considering “the unfair
collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by competition posed by rampant film piracy; the erosion of the moral fiber of the
the City/Municipality and the Metropolitan Manila Commission.” viewing public brought about by the availability of unclassified and unreviewed video
tapes containing pornographic films and films with brutally violent sequences; and
The rationale behind the tax provision is to curb the proliferation and unregulated losses in government revenues due to the drop in theatrical attendance, not to
circulation of videograms including, among others, videotapes, discs, cassettes or any mention the fact that the activities of video establishments are virtually untaxed since
technical improvement or variation thereof, have greatly prejudiced the operations of mere payment of Mayor’s permit and municipal license fees are required to engage in
movie houses and theaters. Such unregulated circulation have caused a sharp decline business.”
in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor’s specific, amusement and other taxes, thereby resulting WHEREFORE, the instant Petition is hereby dismissed. No costs.
in substantial losses estimated at P450 Million annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and these earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million in
taxes each year.

CALTEX PHILIPPINES, INC. V COMMISSION ON AUDIT

 GR NO. 92585, MAY 8, 1992 CHAVEZ V ONGPIN
GR NO 76778, JUNE 6, 1990
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price FACTS:
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of Section 21 of Presidential Decree 464 provides that every 5 years starting calendar
the additional tax on petroleum products authorized under the PD 1956. Pending such year 1978, there shall be a provincial or city general revision of real property
remittance, all of its claims for reimbursement from the OPSF shall be held in assessments. The general revision was completed in 1984.
abeyance. The grant total of its unremitted collections of the above tax is On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning
P1,287,668,820. January 1, 1987, the 1984 assessments shall be the basis of real property taxes.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA Francisco Chavez, a taxpayer and landowner, questioned the constitutionality of EO
approved the proposal but prohibited Caltex from further offsetting remittances and 74. He alleges that it will bring unreasonable increase in real property taxes.
reimbursements for the current and ensuing years. Caltex moved for reconsideration
but was denied. Hence, the present petition. ISSUE:
Is EO 73 constitutional?
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s RULING:
outstanding claims from said funds Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978
revision of property values. Certainly, to continue collecting real property taxes based
RULING: on valuations arrived at several years ago, in disregard of the increases in the value of
No. Taxation is no longer envisioned as a measure merely to raise revenue to support real properties that have occurred since then is not in consonance with a sound tax
the existence of government. Taxes may be levied with a regulatory purpose to system.
provide means for the rehabilitation and stabilization of a threatened industry which is Fiscal adequacy, which is one of the characteristics of a sound tax system, requires
affected with public interest as to be within the police power of the State. that sources of revenue must be adequate to meet government expenditures and
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is their variations.
taxation.
A taxpayer may not offset taxes due from the claims he may have against the
government. 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.

Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of
underrecovery arising from sales to the National Power Corporation is allowed.
 PHIL. GUARANTY CO., INC. v. CIR withholding tax, but it certainly would not exculpate it from liability to pay such
GR No. L-22074, April 30, 1965 withholding tax. The Government is not estopped from collecting taxes by the
mistakes or errors of its agents.
FACTS:
The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered ISSUES:
into reinsurance contracts with foreign insurance companies not doing business in the 1. Is PhilGuaranty innocent of the charges?
country, thereby ceding to foreign reinsurers a portion of the premiums on insurance 2. Is PhilGuaranty not expected to withhold taxes for reinsurance premiums?
it has originally underwritten in the Philippines. The premiums paid by such 3. Is PhilGuaranty released from liability for the tax after it was advised by the CIR that
companies were excluded by the petitioner from its gross income when it file its reinsurance premiums were not subject to withholding?
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on
them. Consequently, the CIR assessed against the petitioner withholding taxes on the RULING:
ceded reinsurance premiums to which the latter protested the assessment on the 1. No. Precisely, the mere fact that it was exempted implies violation of Section 53c.
ground that the premiums are not subject to tax for the premiums did not constitute 2. No, it should withhold taxes. The law sets no condition for the personal liability of
income from sources within the Philippines because the foreign reinsurers did not the withholding agent to attach. The reason is to compel the withholding agent to
engage in business in the Philippines, and CIR's previous rulings did not require withhold the tax under all circumstances.
insurance companies to withhold income tax due from foreign companies. 3. No, it is liable. It has not been shown that it withheld the amount of tax due before
it inquired form the BIR, contrary to the requirements of Section 200. Strict
ISSUE: observance of said steps is required of a withholding agent before he could be
Are insurance companies not required to withhold tax on reinsurance premiums released from liability. Foreign corporations are taxable on their income from sources
ceded to foreign insurance companies, which deprives the government from collecting within the Philippines. The foreign insurer’s place of business should not be confused
the tax due from them? with their place of activity. It suffices that the activity creating the income is
performed or done in the Philippines.
HELD:
No. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to
give the citizenry an army to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide. Considering that
the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers should share the burden of
maintaining the state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no
withholding of tax due on reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to pay the corresponding
 GOMEZ v. PALOMAR LORENZO VS. POSADAS
GR No. L-23645, October 29, 1968 64 PHIL 353

FACTS: FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, On 27 May 1922, Thomas Hanley died in Zamboanga, leaving a will and considerable
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was amount of real and personal properties. Hanley’s will provides the following: his
returned to the petitioner. Petitioner now assails the constitutionality of the statute money will be given to his nephew, Matthew Hanley, as well as the real estate owned
claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the by him. It further provided that the property will only be given ten years after Thomas
equal protection clause because it constitutes mail users into a class for the purpose Hanley’s death.
of the tax while leaving untaxed the rest of the population and that even among postal
patrons the statute discriminatorily grants exemptions. The law in question requires Thus, in the testamentary proceedings, the Court of First Instance of Zamboanga
an additional 5 centavo stamp for every mail being posted, and no mail shall be appointed P.J.M. Moore as trustee of the estate. Moore took oath of office on March
delivered unless bearing the said stamp. 10, 1924, and resigned on Feb. 29, 1932. Pablo Lorenzo was appointed in his stead.

ISSUE: Juan Posadas, Collector of Internal Revenue, assessed inheritance tax against the
Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal estate amounting to P2,057.74 which includes penalty and surcharge. He filed a
protection clause? motion in the testamentary proceedings so that Lorenzo will be ordered to pay the
amount due. Lorenzo paid the amount in protest after CFI granted Posadas’ motion.
RULING: He claimed that the inheritance tax should have been assessed after 10 years.
No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide He asked for a refund but Posadas declined to do so. The latter counterclaimed for the
range and flexibility." Indeed, it is said that in the field of taxation, more than in other additional amount of P1,191.27 which represents interest due on the tax and which
areas, the legislature possesses the greatest freedom in classification. The reason for was not included in the original assessment. However, CFI dismissed this counterclaim.
this is that traditionally, classification has been a device for fitting tax programs to local It also denied Lorenzo’s claim for refund against Posadas.
needs and usages in order to achieve an equitable distribution of the tax burden. Hence, both appealed.
The classification of mail users is based on the ability to pay, the enjoyment of a
privilege and on administrative convenience. Tax exemptions have never been thought ISSUE:
of as raising revenues under the equal protection clause. Whether the estate was delinquent in paying the inheritance tax and therefore liable
for the P1,191.27 that Posadas is asking for?

RULING:
Yes. It was delinquent because according to Sec. 1544 (b) of the Revised
Administrative Code, payment of the inheritance tax shall be made before delivering
to each beneficiary his share. This payment should have been made before March 10,
1924, the date when P.J.M. Moore formally assumed the function of trustee.
Although the property was only to be given after 10 years from the death of Hanley,
the court considered that delivery to the trustee is delivery to cestui que trust, the 3. No. The compensation of a trustee, earned not in the administration of the estate,
beneficiary within the meaning of Sec. 1544 (b). but in the management thereof for the benefit of the legatees or devises, does not
Even though there was no express mention of the word “trust” in the will, the court of come properly within the class or reason for exempting administration expenses.
first instance was correct in appointing a trustee because no particular or technical 4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more favorable to the
words are required to create a testamentary trust (69 C.J.,p. 711). taxpayer, revenue laws, generally, which impose taxes collected by means ordinarily
resorted to for the collection of taxes are not classes as penal laws.
The requisites of a valid testamentary trust are:
1) sufficient words to raise a trust, 5. Yes. That taxes must be collected promptly is a policy deeply entrenched in our tax
2) a definite subject, system. Thus, no court is allowed to grant injunction to restrain the collection of any
3) a certain or ascertained object. internal revenue tax. The mere fact that the estate of the deceased was placed in trust
did not remove it from the operation of our inheritance tax laws or exempt it from the
There is no doubt that Hanley intended to create a trust since he ordered in his will payment of the inheritance tax.
that certain of his properties be kept together undisposed during a fixed period or for
a stated purpose.

ISSUES:
1. When does the inheritance tax accrue and when must it be satisfied?
2. Should the inheritance tax be computed on the basis of the value at the time of the
testator's death or on its value ten years later?
3. In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?
4. What law governs the case?
5. Has there been delinquency in the payment of the inheritance tax?

RULING:
1. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of that
date. But it must be paid before the delivery of the properties in question to PJM
Moore as trustee on March 10, 1924.

2. It should be computed at the time of the decedent's death, regardless of any

subsequent contingency value of any increase or decrease and notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary
and the tax measured by the value of the property transmitted at that time regardless
of its appreciation or depreciation.
 VILLANUEVA V CITY V ILOILO CITY OF BAGUIO vs. DE LEON
GR NO L-26521, DECEMBER 28, 1968 25 SCRA 938
GR No. L-24756, October 31, 1968
FACTS:
On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86 "There is no double taxation where one tax is imposed by the state and the other is
imposing license tax fees upon tenement houses. imposed by the city."

The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, FACTS:
owners of four tenement houses containing 34 apartments. The Supreme Court held The City of Baguio passed an ordinance imposing a license fee on any person, entity or
the ordinance to be ultra views. corporation doing business in the City. The ordinance sourced its authority from RA
No. 329, thereby amending the city charter empowering it to fix the license fee and
On January 15, 1960, however, the municipal board, believing that it acquired regulate businesses, trades and occupations as may be established or practiced in the
authority to enact an ordinance of the same nature pursuant to the Local Autonomy City. De Leon was assessed for P50 annual fee it being shown that he was engaged in
Act, enacted Ordinance 11, Eusebio and Remedios Villanueva assailed the ordinance property rental and deriving income therefrom. The latter assailed the validity of the
anew. ordinance arguing that it is ultra vires for there is no statury authority which expressly
grants the City of Baguio to levy such tax, and that there it imposed double taxation,
ISSUE: and violates the requirement of uniformity.
Does Ordinance 11 violate the rule of uniformity of taxation?
ISSUE:
RULING: Are the contentions of the defendant-appellant tenable?
No. The Court has ruled the tenement houses constitute a distinct class of property
and that taxes are uniform and equal when imposed upon all property of the same HELD:
class or character within the taxing authority. No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative
Code empowering the City Council not only to impose a license fee but to levy a tax
The fact that the owners of the other classes of buildings in Iloilo are not imposed for purposes of revenue, thus the ordinance cannot be considered ultra vires for there
upon by the ordinance, or that tenement taxes are imposed in other cities do not is more than ample statury authority for the enactment thereof.
violate the rule of equality and uniformity.
Second, an argument against double taxation may not be invoked where one tax is
The rule does not require that taxes for the same purpose should be imposed in imposed by the state and the other is imposed by the city, so that where, as here,
different territorial subdivisions at the same time. So long as the burden of tax falls Congress has clearly expressed its intention, the statute must be sustained even
equally and impartially on all owners or operators of tenement houses similarly though double taxation results.
classified or situated, equality and uniformity is accomplished.
And third, violation of uniformity is out of place it being widely recognized that there
The presumption that tax statutes are intended to operate uniformly and equally was is nothing inherently obnoxious in the requirement that license fees or taxes be
not overthrown therein. exacted with respect to the same occupation, calling or activity by both the state and
the political subdivisions thereof.
 PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN The classification made in the exercise of this authority, to be valid, must, however, be
24 SCRA 789 reasonable and this requirement is not deemed satisfied unless:
GR No. L-22814, August 28, 1968 (1) it is based upon substantial distinctions which make real differences;
(2) these are germane to the purpose of the legislation or ordinance;
"The classification made in the exercise of power to tax, to be valid, must be (3) the classification applies, not only to present conditions, but, also, to future
reasonable ." conditions substantially identical to those of the present; and
(4) the classification applies equally to all those who belong to the same class.
FACTS:
Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to
the City of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No.
110 which plaintiff assails as null and void because it partakes of the nature of an
import tax, amounts to double taxation, highly unjust and discriminatory, excessive,
oppressive and confiscatory, and constitutes an invlaid delegation of the power to tax.

The ordinance imposes taxes for every case of softdrinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the agents and/or
consignees by outside dealers or any person or company having its actual business
outside the City.

ISSUE:
Does the tax ordinance violate the uniformity requirement of taxation?

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

It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation.
 DELPHER TRADES CORP. V. IAC (1988) 7. Petitioners filed a petition for certiorari which was initially denied by the SC but
upon MR, the SC gave it due course.
Petitioners: Delpher Trades Corporation, and Delphin Pacheco 8. Eduardo Neria, CPA and son-in-law of Pelagia testified that:
Respondents: Intermediate Appellate Court and Hydro Pipes Philippines, Inc. a. Delpher is a family corporation, organized by the children of Pelagia
Pacheco and Benjamin Hernandez, and Sps. Delfin and Pilar Pacheco,
Brief Facts: Delf and Pelagia Pacheco leased the lot they co-owned to CCII to which the who owned in common the parcel of land leased to Hydro Pipes in order
siblings granted a right of first refusal. CCII assigned its rights to Hydro Pipes. A deed of to perpetuate their control over the property through the corporation
exchange was executed between the Pachecos and Delpher Trades Corp. wherein the and to avoid taxes;
b. To accomplish this, two pieces of real estate, including the land leased to
Pachecos conveyed the leased lot to Delpher in exchange for 2500 shares of stock.
Hydro Pipes, were transferred to the corporation;
Hydro Pipes filed a complaint for reconveyance for alleged violation of its right of first
c. The leased property was transferred to the corporation by virtue of a
refusal.
deed of exchange of property; in exchange for these properties, Pelagia
and Delfin acquired 2500 unissued no par value shares of stock which are
Doctrine: After incorporation, one becomes a stockholder of a corporation by
equivalent to a 55% majority in the corporation because the other
subscription or by purchasing stock directly from the corporation or from individual
owners only owned 2000 shares
owners thereof. d. At the time of incorporation, he knew all about the contract of lease to
Hydro Pipes. In the petitioners’ MR, they refer to this scheme as “estate
FACTS: planning”
1. Delfin Pacheco and his sister Pelagia Pacheco were the co-owners of a real estate 9. Petitioners contend that there was actually no transfer of ownership of the
in Polo (now Valenzuela). subject parcel of land since the Pachecos remained in control of the property. The
2. They leased the property to Construction Components International Inc. (CCII), transfer of ownership, if anything, was merely in form, but not in substance.
providing that during the existence or after the term of this lease the lessor, a. Petitioner corporation is a mere alter ego or conduit of the Pacheco co-
should he decide to sell the property leased shall first offer the same to the lessee owners; hence the corporation and the co-owners should be deemed to
and the latter has the priority to buy under similar conditions. be the same, there being identity of interest.
3. CCII assigned its rights and obligations under the contract of lease in favour of b. The Pachecos did not sell the property. There was no sale and they
Hydro Pipes Philippines, Inc. with the signed conformity and consent of the exchanged the land for shares of stocks in their own corporation.
Pachecos. The contract and assignment of lease were annotated at the back of 10. Respondents argue that Delpher is a corporate entity separate and distinct from
the title. the Pachecos. It cannot be said that Delpher is the Pacheco’s alter ego or conduit.
4. A deed of exchange was executed between the Pachecos and defendant Delpher a. That Delfin, having treated Delpher as such a separate and distinct
Trades Corporation whereby the former conveyed to the latter the leased corporate entity, is not a party who may allege that this separate
property together with another parcel of land also in Valenzuela for 2500 shares corporate existence should be disregarded.
of stock of Delpher (total value of P1.5M) b. There was actual transfer of ownership interest over the leased property
5. On the ground that it was not given the first option to buy the leased property when the same was transferred to Delpher in exchange for the latter’s
pursuant to the proviso in the lease agreement, Hydro Pipes filed an amended shares of stock.
complaint for reconveyance of the lot in its favour under conditions similar to
those whereby Delpher acquired the property from the Pachecos. ISSUE: WON the Deed of Exchange executed by the Pachecos and Delpher was
6. The CFI ruled in favour of Hydro Pipes. This was affirmed on appeal by the IAC. meant to be a contract of sale, which prejudiced respondent’s right of first refusal.
(NO)
 DISPOSITIVE: Petition granted.
RATIO: The Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership
from unincorporated to incorporated form by organizing Delpher Trades Corporation
to take control of their properties and at the same time save on inheritance taxes.
 The Deed of Exchange of property cannot be a considered a contract of sale since
there was no transfer of actual ownership interests by the Pachecos to a third
party. The Pacheco family merely changed their ownership from one form to
another.
 There is nothing wrong or objectionable about the estate planning scheme
resorted to by the Pachecos. “The legal right of a taxpayer to decrease the
amount of what otherwise could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted.”
 After incorporation, one becomes a stockholder of a corporation by subscription
or by purchasing stock directly from the corporation or from individual owners
thereof.
o In exchange of their properties, the Pachecos acquired 2500 original
unissued no par value shares of stocks of the Delpher Trades
Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription.
 A no-par value share does not purport to represent any stated proportionate
interest in the capital stock measured by value, but only an aliquot part of the
whole number of such share issuing corporation. The holder of no-par shares may
see from the certificate itself that he is an aliquot sharer in the assets of the
corporation. But this character of proportionate interest is not hidden beneath a
false appearance of a given sum in money, as in the case of par value shares. The
capital stock of a corporation issuing only no-par value shares is not set forth by a
stated amount of money, but instead is expressed to be divided into a stated
number of shares, such as 1000 shares. This indicates that a shareholder of 100
such shares is an aliquot sharer in the assets of the corporation, no matter what
value they may have to the extent of 100/1000, or 1/10. Thus, by removing the YUTIVO VS CTA
par value of shares, the attention of persons interested in the financial condition 1 SCRA 160
of a corporation is focused upon the value of assets and the amount of its debts.
 There was no attempt to state the true or current market value of the real estate.
FACTS
Land valued at P300.00 per square meter was turned over to the family’s
corporation for only P14.00 a square meter.
1.Yutivo Sons Hardware Co. (Yutivo), a domestic corporation incorporated under RULING
Philippine laws in 1916, was engaged inthe importation and sale of hardware supplies NO. SM was organized in June, 1946 when it could not have caused Yutivo any
and equipment. tax savings.
2. After the first world war, it resumed its business and bought a number of cars and
From that date up to June 30, 1947, or a period of more than one year, GM
trucks from General MotorsCorporation (GM), an American Corporation licensed to do
was the importer of the cars and trucks sold to Yutivo, which, in turn resold
business in the Philippines.
them to SM.
3. GM paid sales tax prescribed by the Tax Code on the basis of its selling price to
Yutivo but Yutivo paid no further salestax on its sales to the public. During that period, it is not disputed that GM as importer, was the one solely
4. On June 13, 1946, the Southern Motors Inc, (SM) was organized to engage in the liable for sales taxes.
business of selling cars, trucks andspare parts. One of the subscribers of stocks during Neither Yutivo or SM was subject to the sales taxes on their sales of cars and
its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin,(sons of Yu Tiong Yee, trucks.
one of Yutivo’s founders) as well as Yu Eng Poh, and Washington Sycip (sons of Yu The sales tax liability of Yutivo did not arise until July 1, 1947 when it became
Tiong Sin andAlbino Sycip, respectively, also founders of Yutivo). the importer and simply continued its practice of selling to SM.
5. After SM’s incorporation and until the withdrawal of GM from the Philippines, the The decision, therefore, of the Tax Court that SM was organized purposely as a
cars and trucks purchased by Yutivofrom GM were sold by Yutivo to SM which the
tax evasion device runs counter to the fact that there was no tax to evade.
latter sold to the public.
6. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer
of cars and trucks sold by GM. Yutivopaid the sales tax prescribed on the basis of
selling price to SM. SM paid no sales tax on its sales to the public.
7. An assessment was made upon Yutivo for deficiency sales tax. The Collector of
Internal Revenue, contends that thetaxable sales were the retail sales by SM to the
public and not the sales at wholesale made by Yutivo to the latter inasmuchasSM and
Yutivo were one and the same corporation, the former being a subsidiary of the latter.
8. The assessment was disputed by petitioner. After reinvestigation, a second
assessment was made, sustaining the validityof the first assessment. Yutivo contested
the second assessment,alleging that:
(1) there is no valid ground to disregardthe corporate personality of SM and
to hold that it is an adjunct of petitioner;
(2) assuming the separate personality ofSM may be disregarded, the sales tax
already paid by Yutivo should first be deducted from the selling price of SM
incomputing the sales tax due on each vehicle; and
(3) the surcharge has been erroneously imposed by respondent. REPUBLIC V. GONZALES (TAX EVASION)

ISSUE FACTS
Whether or not Southern Motors, Inc. was organized as a tax evasion device.
Since 1946, Blas Gonzales, has been a private concessionaire in the U.S. Military Base specific application to the right to establish agencies and concessions within the bases
at Clark Field, Angeles City: He was engaged in the manufacture of furniture and, per and to the merchandise or services sold or dispensed by such agencies or concessions.
agreement with base authorities, supplied them with his manufactured articles.
2. YES. As rightly argued by the Solicitor General's office, since fraud is a state of mind,
The appellant filed his income tax returns for the years 1946 and 1947, respectively, it need not be proved by direct evidence but may be inferred from the circumstances
with the then Municipal Treasurer of Angeles, Pampanga. Upon investigation, of the case. The failure of the appellant to declare for taxation purposes his true and
however, the BIR discovered that for the years 1946 and 1947, the appellant had been actual income derived from his furniture business at the Clark Field Air Base for two
paid a total of P2,199,920.50 for furniture delivered by him to the base authorities. consecutive years is an indication of his fraudulent intent to cheat the Government of
its due taxes.
Compared against the sales figure provided by the base authorities, therefore, the
amount of P1,787,848.32 declared by the appellant as his total sales for the two tax
years in question was short or underdeclared by some P412,072.18.

Accordingly, the appellee considered this last mentioned amount as unreported item
of income of the appellant for 1946. Further investigation into the appellant's 1946
profit and loss statement disclosed "local sales," that is, sales to persons other than
the United States Army, in the amount of P124,510.43. As a result, the appellee
likewise considered the said amount as unreported income for the said year.

The full amount of P124,510.43 was considered as taxable income because the
appellant could not produce the books of account on the same upon which any
deduction could be based.

ISSUES
1. Whether or not Gonzales is subject to Philippine tax laws pursuant to the United
States-Philippine Military Bases Agreement
2. Whether or not Gonzales is guilty of fraud.

RULING
1. YES. None of the mentioned covenants shields a concessionaire, like the appellant,
from the payment of the income tax. For one thing, even the exemption in favor of
members of the United States Armed Forces and nationals of the United States does
not include income derived from Philippine sources. The appellant cannot seek refuge
in the use of "excise" or "other taxes or imposts" in paragraph 1 of Article XVIII of the GREENFIELD V. MEER
Military Bases Agreement, because, as already stated, said terms are employed with (Exemption from Taxation)
FACTS
Since the year 1933, the plaintiff has been continuously engaged in the embroidery
business. FACTS
In 1935, the plaintiff began engaging in buying and selling mining stocks and securities RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks
for his own exclusive account and not for the account of others. to widen the tax base of the existing VAT system and enhance its administration by
The plaintiff has not been a dealer in securities as defined in section 84 (t) of amending the National Internal Revenue Code. There are various suits questioning
Commonwealth Act No. 466; he has no established place of business for the purchase and challenging the constitutionality of RA 7716 on various grounds.
and sale of mining stocks and securities; and he was never a member of any stock
exchange. Tolentino contends that RA 7716 did not originate exclusively from the House of
The plaintiff filed an income tax return where he claims a deduction of P67,307.80 Representatives but is a mere consolidation of HB. No. 11197 and SB. No. 1630 and it
representing the net loss sustained by him in mining stocks securities during the year did not pass three readings on separate days on the Senate thus violating Article VI,
1939. Sections 24 and 26(2) of the Constitution, respectively.
The defendant disallowed said item of deduction on the ground that said losses were
sustained by the plaintiff from the sale of mining stocks and securities which are Art. VI, Section 24: All appropriation, revenue or tariff bills, bills authorizing increase
capital assets, and that the loss arising from the sale of the same should be allowed of the public debt, bills of local application, and private bills shall originate exclusively
only to the extent of the gains from such sales, which gains were already taken into in the House of Representatives, but the Senate may propose or concur with
consideration in the computation of the alleged net loss of P67,307.80. amendments.

Art. VI, Section 26(2): No bill passed by either House shall become a law unless it
ISSUE
has passed three readings on separate days, and printed copies thereof in its final
Whether the personal and additional exemptions granted by section 23 of
form have been distributed to its Members three days before its passage, except
Commonwealth Act No. 466 should be considered as a credit against or be deducted
when the President certifies to the necessity of its immediate enactment to meet a
from the net income, or whether it is the tax on such exemptions that should be
public calamity or emergency. Upon the last reading of a bill, no amendment thereto
deducted from the tax on the total net income.
shall be allowed, and the vote thereon shall be taken immediately thereafter, and the
yeas and nays entered in the Journal.
RULING
Personal and additional exemptions claimed by appellant should be credited against or ISSUE
deducted from the net income. "Exception is an immunity or privilege; it is freedom
from a charge or burden to which others are subjected." (If the amounts of personal Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the
and additional exemptions fixed in section 23 are exempt from taxation, they should Constitution.
not be included as part of the net income, which is taxable. There is nothing in said
section 23 to justify the contention that the tax on personal exemptions (which are
exempt from taxation) should first be fixed, and then deducted from the tax on the net
income.
TOLENTINO VS. SECRETARY OF FINANCE RULING
G.R. No. 115455
No. The phrase “originate exclusively” refers to the revenue bill and not to the HELD: By a 9-6 vote, the SC rejected the challenge, holding that such consolidation
revenue law. It is sufficient that the House of Representatives initiated the passage was consistent with the power of the Senate to propose or concur with amendments
of the bill which may undergo extensive changes in the Senate. to the version originated in the HoR. What the Constitution simply means, according
to the 9 justices, is that the initiative must come from the HoR. Note also that there
SB. No. 1630, having been certified as urgent by the President need not meet the were several instances before where Senate passed its own version rather than having
requirement not only of printing but also of reading the bill on separate days. the HoR version as far as revenue and other such bills are concerned. This practice of
amendment by substitution has always been accepted. The proposition of Tolentino
The argument that RA 7716 did not originate exclusively in the House of
concerns a mere matter of form. There is no showing that it would make a significant
Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear
difference if Senate were to adopt his over what has been done.
analysis. To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. To insist that a
revenue statute and not only the bill which initiated the legislative process culminating
in the enactment of the law must substantially be the same as the House bill would be
to deny the Senate’s power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private
bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. Nor does the
Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is
withheld pending receipt of the House bill.

The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on
separate days as required by the Constitution because the second and third readings
were done on the same day. But this was because the President had certified S. No.
1630 as urgent. The presidential certification dispensed with the requirement not only
of printing but also that of reading the bill on separate days. That upon the
certification of a bill by the President the requirement of 3 readings on separate days
and of printing and distribution can be dispensed with is supported by the weight of
legislative practice.

ISSUE: Whether or not EVAT originated in the HoR. MACEDA v. MACARAIG

 (Rationale/Ground for tax exemption & Construction of Statutes Granting Tax NO, NAPOCOR still exempt. Tax exemptions are undoubtedly to be construed strictly
Exemption – Exemption) but not so grudgingly as knowledge that many impositions taxpayers have to pay are
in the nature of indirect taxes.
FACTS: To limit the exemption granted the National Power Corporation to direct taxes
(same as 1991 case) notwithstanding the general and broad language of the statute will be to thwart the
* CA 120 created NAPOCOR as a public corporation to undertake the development of legislative intention in giving exemption from all forms of taxes and impositions
hydraulic power and the production of power from other sources. without distinguishing between those that are direct and those that are not. 1991
* RA 358 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) case held: NAPOCOR is a non-profit public corporation created for the general good
revised the charter of the NAPOCOR, tasking it to carry out the policy of the national and welfare, and wholly owned by the government of the Republic of the Philippines.
electrification, and provided in detail NAPOCOR’s tax exceptions. PD 380 (1974) From the very beginning of the corporation’s existence, NAPOCOR enjoyed
specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or preferential tax treatment “to enable the corporation to pay the indebtness and
indirectly.” obligation” and effective implementation of the policy enunciated in Section 1 of RA
* PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; 6395.
however, empowering the President or the Minister of Finance, upon From the preamble of PD 938, it is evident that the provisions of PD 938 were not
recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or intended to be strictly construed against NAPOCOR.
completely, the exemptions withdrawn or revised. On the contrary, the law mandates that it should be interpreted liberally so as to
* The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax enhance the tax exempt status of NAPOCOR. It is recognized principle that the rule on
exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution strict interpretation does not apply in the case of exemptions in favor of government
1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 political subdivision or instrumentality.
(1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) The basis for applying the rule of strict construction to statutory provisions granting
restoring NAPOCOR’s exemption, which was approved by the President on 5 October tax exemptions or deductions, even more obvious than with reference to the
1987. affirmative or levying provisions of tax statutes, is to minimize differential treatment
* Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum and foster impartiality, fairness, and equality of treatment among tax payers. The
products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad reason for the rule does not apply in the case of exemptions running to the benefit of
valorem taxes on their sales of oil products to NAPOCOR only in 1984. the government itself or its agencies. In such case the practical effect of an exemption
* NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, is merely to reduce the amount of money that has to be handled by government in
corresponding to Caltex, was approved and released by way of a tax credit memo. The the course of its operations. For these reasons, provisions granting exemptions to
claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 government agencies may be construed liberally, in favor of non tax liability of such
million was denied. agencies. In the case of property owned by the state or a city or other public
* NAPOCOR moved for reconsideration, starting that all deliveries of petroleum corporations, the express exemption should not be construed with the same degree of
products to NAPOCOR are tax exempt, regardless of the period of delivery. strictness that applies to exemptions contrary to the policy of the state, since as to
such property “exemption is the rule and taxation the exception.”
ISSUE: DISPOSITIVE: NAPOCOR exempt from tax.
WON NAPOCOR cease to enjoy exemption from indirect tax when exemption in PD
938 is in general terms.
RULING: PHILIPPINE ACETYLENE CO., INC. V CIR
 (Indirect Tax; also in Nature of Tax Exemption) As regards VOA, petitioner is also not exempt from percentage tax because the Bases
Agreement only exempts from tax sales made “for exclusive use in the construction,
Facts: maintenance and operation or defense of the bases,” or sales to the quartermaster.
Petitioner is a corporation engaged in the manufacture and sale of oxygen and
acetylene gases. It made various sales of its product to the National Power Sales of goods to any other party even if it be an agency of the US, or even the
Corporation (NPC) an agency of the government and to Voice of America (VOA) an quartermaster but for a different purpose are not exempt from tax. It is a familiar
agency of the US government. learning in the American law of taxation that tax exemption must be strictly construed
and that the exemption will not be held to be conferred unless the terms under which
The respondent assessed against and demanded from the petitioner the payment of it is granted clearly and distinctly show that such was the intention of the parties.
deficiency sales tax and surcharge as provided by Sections 186 and 183 of the NIRC.

Petitioner denied liability on the payment of the tax based on the sales made to these
agencies stating that the same are exempt from taxation because the NPC is exempt
from taxation by virtue of RA 947 Sec2 and because VOA is exempt as well because of
the Bases Agreement.

ISSUE:

Is petitioner exempt from paying the percentage taxes on the sales made to NPC and
VOA?

RULING:

No.

The percentage tax provided by Section 286 of the NIRC is a tax on the producer or
manufacturer and not a tax on the purchaser.

Section 183 of the NIRC provide that sales tax shall be paid by the manufacturer or
producer who must make a true and complete return of the amount of his or her or its
gross monthly sales, receipts or earnings or gross value of output actually removed
from the factory or mill warehouse and within twenty days after the end of each
month, pay the tax due thereon. Since the tax imposed by section 186 is a tax on the
manufacturer or producer and not a tax on the purchaser, petitioner could not be
considered exempt.
 WONDER MECHANICAL ENGINEERING CORP. V CTA DAVAO LIGHT & POWER CO. INC. V CA
(204 SCRA 343)
FACTS:
FACTS:
Davao Light and Power Inc, Co. filed a complaint for recovery of sum of money and
Wonder Corp. was engaged in the business of manufacturing auto spare parts, lamp damages against Queensland Hotel and Teodorico Adarna. The complaint contained
shades, rice threshers and other articles. It was also engaged in the business of an ex parte application for a writ of preliminary attachment.
electroplating and repair of machines. However, it did not pay sales tax on the sale of
articles and the percentage tax on its electroplating and repair business. Judge Nartatez granted the writ and fixed the attachment bond at around P4Million.
The summons, copy of complaint, writ of attachment, copy of attachment bond were
Commissioner of Internal Revenue caused the investigation of Wonder Corp. for the served upon Queensland and Adarna. Pursuant to the writ, the Sheriff seized the
purpose of ascertaining its tax liability. Revenue Examiner Pedro Cabigao reported that properties of the latter.
Corp. manufactured and sold other articles subject to 7% sales tax but not covered by
the Corp’s tax exemption privilege. The Corp. was assessed with a deficiency Queensland and Adarna filed a motion to discharge the attachment for lack of
percentage tax of P25, 080. and a 25% surcharge. jurisdiction to issue the same because at the time the order of attachment was
promulgated (May 3, 1989) and the attachment writ issued (May 11,1989), the Trial
Wonder Corp. contends that it was a given a Certificate of Tax Exemption with respect Court had not yet acquired jurisdiction over cause and person of defendants.
to the manufacture of machines for making cigarette paper, pails, lead washer, nails…
(those which are determined as new and necessary by RA 901). Trial Court denied the motion to discharge.

ISSUE: CA annulled the Trial Court’s Order. Davao seeks to reverse CA’s order.

Whether or not the manufacture and sale of steel chairs, jeep parts… which are not ISSUE:
machines for making other products are tax exempt under RA 901.
Whether or not preliminary attachment may issue ex parte against a defendant before
RULING acquiring jurisdiction over his person.

No. Wonder Corp. was granted the tax exemption in the manufacture and sale of RULING:
machines but not manufacture and sale of the articles produced by the machines.
Such was the intention of the State for new and necessary industries as an incentive to Yes. Rule 57 speaks of the grant of the remedy “at the commencement of the action
greater and adequate production of products made scarce by World War II. Tax or at any time thereafter” What the rule is saying is that after an action is properly
exemptions are highly disfavored in law and those who claim them must be able to commenced (by filing of the complaint and payment of all requisite docket and other
justify his claim and must be clearly expressed in the law. Tax exemptions cannot be fees), the plaintiff may apply for and obtain a writ of preliminary attachment. This he
established by implication. may do so, before or after, the summons to the defendant.

In the case, Wonder Corp. was granted tax exemption in the manufacture of cigarette The CA decision is reversed and the writ of attachment issued by Judge Nartatez is
paper, pails, lead washers, nails… as explicitly stated in the Certificate of Tax reinstated.
Exemption. The manufacture of steel chairs, jeep parts and other articles not
constituting machines for making certain products does not fall under RA 901.
** ABRA VALLEY COLLEGE V. AQUINO
(Prohibition Against Taxation of Religious, Charitable Entities and Educational
Preliminary Attachment – provisional remedy in virtue of which a plaintiff or other
Entities)
party may, at the commencement of the action or at any time thereafter, have the
property of the adverse party taken into custody of court as security for satisfaction of
judgment to be recovered. FACTS:
The Municipal Treasurer of Bangued, Abra caused to be seized and sold the lot
Nature of Attachment: a remedy which is purely statutory in respect of which the law and building of Abra Valley Junior College for its failure to pay taxes
requires a strict of construction of the provisions granting it. No principle, whether
(P5140.31).
statutory or through jurisprudence, prohibits its issuance by any court before the
Petitioner school wants to declare the notice of sale and notice of seizure
acquisition of jurisdiction over the person.
annulled. The lot and the building was sold at public auction to the mayor.
Provincial fiscal: building and lot used for educational purposes are exempted
from the payment of taxes.

RTC: not exempted since the second floor is used by the Director of the school
for residential purposes;
Respondent: (raised for the first time in the SC but still considered in the
interest of substantial justice) for commercial purposes because the ground
floor of the college building is being used and rented by a commercial
establishment, the Northern Marketing Corporation

ISSUE:
Is the school exclusively used for educational purposes?

RULING
NO (leased to commercial establishment) Section 22, paragraph 3, Article VI,
of the then 1935 Philippine Constitution, exempts "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational
purposes ... from real taxes.
The Assessment Law also exempts from real property tax (c) churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, scientific or
educational purposes. It was clarified that the term "used exclusively" also LUNG CENTER V. QC
considers incidental use. (Prohibition Against Taxation of Religious, Charitable Entities and Educational
Entities)
The exemption in favor of property used exclusively for charitable or
educational purposes is 'not limited to property actually indispensable' but FACTS:
extends to facilities which are incidental to and reasonably necessary for the Lung Center of the Philippines (both land and hospital) was assessed for tax
accomplishment of said purposes, purposes. In the middle of the lot is the hospital.
A big space at the ground floor is being leased to private parties, for canteen
The test of exemption from taxation is the use of the property for purposes and small store spaces, and to medical or professional practitioners who use
mentioned in the Constitution. It must be stressed however, that while this the same as their private clinics for their patients whom they charge for their
Court allows a more liberal and non-restrictive interpretation of the phrase professional services.
"exclusively used for educational purposes" as provided for in Article VI, The corner right side of Quezon Avenue and Elliptical Road, is being leased for
Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable commercial purposes to Elliptical Orchids and Garden Center. The petitioner
emphasis has always been made that exemption extends to facilities which are accepts paying and non-paying patients.
incidental to and reasonably necessary for the accomplishment of the main The petitioner receives annual subsidies from the government. The institution
purposes. filed a claim for exemption predicated on its claim that it’s a charitable
institution.
Otherwise stated, the use of the school building or lot for commercial It averred that a minimum of 60% of its hospital beds are exclusively used for
purposes is neither contemplated by law, nor by jurisprudence. The lease of charity patients and that the major thrust of its hospital operation is to serve
the first floor thereof to the Northern Marketing Corporation cannot by any charity patients.
stretch of the imagination be considered incidental to the purpose of The petitioner contends that it is a charitable institution and, as such, is
education. exempt from real property taxes. Central Board of Assessment Appeals of
Quezon City thinks otherwise: Before a patient is admitted for treatment in the
Under the 1935 Constitution, the trial court correctly arrived at the conclusion Center, first impression is that it is pay-patient and required to pay a certain
that the school building as well as the lot where it is built, should be taxed, not amount as deposit.
because the second floor of the same is being used by the Director and his That even if a patient is living below the poverty line, he is charged with high
family for residential purposes, but because the first floor thereof is being hospital bills.
used for commercial purposes.
RULING: Portions of the land leased to private entities as well as those parts of
However, since only a portion is used for purposes of commerce, it is only fair the hospital leased to private individuals are not exempt from such taxes.
that half of the assessed tax be returned to the school involved. Portions of the land occupied by the hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt from real property
taxes. Petitioner is a charitable institution within the context of the 1973 and prevalent in the country. Hence, the medical services of the petitioner are to
1987 Constitutions. be rendered to the public in general in any and all walks of life including those
who are poor and the needy without discrimination. As a general principle, a
To determine whether an enterprise is a charitable institution/entity or not, charitable institution does not lose its character as such and its exemption
the elements which should be considered include the statute creating the from taxes simply because it derives income from paying patients, or receives
enterprise, its corporate purposes, its constitution and by-laws, the methods subsidies from the government, so long as the money received is devoted or
of administration, the nature of the actual work performed, the character of used altogether to the charitable object which it is intended to achieve; and
the services rendered, the indefiniteness of the beneficiaries, and the use and no money inures to the private benefit of the persons managing or operating
occupation of the properties. the institution The fundamental ground upon which all exemptions in favor of
charitable institutions are based is the benefit conferred upon the public by
In the legal sense, a charity may be fully defined as a gift, to be applied them, and a consequent relief, to some extent, of the burden upon the state
consistently with existing laws, for the benefit of an indefinite number of to care for and advance the interests of its citizens.20 Subsidies are like a gift
persons, either by bringing their minds and hearts under the influence of or donation of any other kind except they come from the government. The
education or religion, by assisting them to establish themselves in life or crux is the presence or absence of material reciprocity. Therefore, the fact that
otherwise lessening the burden of government. subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the
It may be applied to almost anything that tend to promote the well-doing and denial of a charitable exemption if the facts otherwise support such an
well-being of social man. It embraces the improvement and promotion of the exemption, as they do here. In this case, the petitioner adduced substantial
happiness of man. The word "charitable" is not restricted to relief of the poor evidence that it spent its income, including the subsidies from the government
or sick. for 1991 and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations. Even as we find that
The test of a charity and a charitable organization are in law the same. The the petitioner is a charitable institution, we hold, that those portions of its real
test whether an enterprise is charitable or not is whether it exists to carry out property that are leased to private entities are not exempt from real property
a purpose reorganized in law as charitable or whether it is maintained for gain, taxes as these are not actually, directly and exclusively used for charitable
profit, or private advantage. purposes. The settled rule in this jurisdiction is that laws granting exemption
from tax are construed strictissimi juris against the taxpayer and liberally in
Under P.D. No. 1823, the petitioner is a non-profit and nonstock corporation favor of the taxing power. Hence, a claim for exemption from tax payments
which, subject to the provisions of the decree, organized for the welfare and must be clearly shown and based on language in the law too plain to be
benefit of the Filipino people principally to help combat the high incidence of mistaken. Section 28(3), Article VI of the 1987 Philippine Constitution
lung and pulmonary diseases in the Philippines. provides, thus: (3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries, and all lands,
The general purpose of its creation is to ease the burden among the Filipinos buildings, and improvements, actually, directly and exclusively used for
from contracting respiratory illnesses which are considered as among the most religious, charitable or educational purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes CIR VS MARUBENI
only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 GR NO 137377
Constitutional Commission, explained: ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands, buildings FACTS:
and improvements actually, directly and exclusively used for religious, CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting
the 1985 deficiency income, branch profit remittance and contractor’s taxes from
charitable or educational purposes."34 Under the 1973 and 1987
Marubeni Corp after finding the latter to have properly availed of the tax amnesty
Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption,
under EO 41 & 64, as amended.
the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it
is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY Marubeni, a Japanese corporation, engaged in general import and export trading,
and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as financing and construction, is duly registered in the Philippines with Manila branch
possessed and enjoyed to the exclusion of others; debarred from participation office. CIR examined the Manila branch’s books of accounts for fiscal year ending
or enjoyment; and "exclusively" is defined, "in a manner to exclude; as March 1985, and found that respondent had undeclared income from contracts with
enjoying a privilege exclusively."40 If real property is used for one or more NDC and Philphos for construction of a wharf/port complex and ammonia storage
commercial purposes, it is not exclusively used for the exempted purposes but complex respectively.
is subject to taxation.41 The words "dominant use" or "principal use" cannot
On August 27, 1986, Marubeni received a letter from CIR assessing it for several
be substituted for the words "used exclusively" without doing violence to the
deficiency taxes. CIR claims that the income respondent derived were income from
Constitutions and the law.42 Solely is synonymous with exclusively.43 What is
Philippine sources, hence subject to internal revenue taxes. On Sept 1986, respondent
meant by actual, direct and exclusive use of the property for charitable filed 2 petitions for review with CTA: the first, questioned the deficiency income,
purposes is the direct and immediate and actual application of the property branch profit remittance and contractor’s tax assessments and second questioned the
itself to the purposes for which the charitable institution is organized. It is not deficiency commercial broker’s assessment.
the use of the income from the real property that is determinative of whether
the property is used for tax-exempt purposes.44 The petitioner failed to On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85,
discharge its burden to prove that the entirety of its real property is actually, and that taxpayers who wished to avail this should on or before Oct 31, 1986.
directly and exclusively used for charitable purposes. While portions of the Marubeni filed its tax amnesty return on Oct 30, 1986.
hospital are used for the treatment of patients and the dispensation of
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes
medical services to them, whether paying or non-paying, other portions
under Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of
thereof are being leased to private individuals for their clinics and a canteen.
availment to Dec 15, 1986 and stated those who already availed amnesty under EO 41
Further, a portion of the land is being leased to a private individual for her should file an amended return to avail of the new benefits. Marubeni filed a
business enterprise under the business name "Elliptical Orchids and Garden supplemental tax amnesty return on Dec 15, 1986.
Center." CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled
the deficiency taxes. CA affirmed on appeal.
ISSUE: 2. On situs of taxation
W/N Marubeni is exempted from paying tax Marubeni contends that assuming it did not validly avail of the amnesty, it is still not
liable for the deficiency tax because the income from the projects came from the
RULING “Offshore Portion” as opposed to “Onshore Portion”. It claims all materials and
Yes. equipment in the contract under the “Offshore Portion” were manufactured and
1. On date of effectivity completed in Japan, not in the Philippines, and are therefore not subject to
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the Philippine taxes.
exception in Sec 4b of EO 41: (BG: Marubeni won in the public bidding for projects with government corporations
NDC and Philphos. In the contracts, the prices were broken down into a Japanese Yen
“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the Portion (I and II) and Philippine Pesos Portion and financed either by OECF or by
amnesty herein granted: xxx b) Those with income tax cases already filed in Court as supplier’s credit. The Japanese Yen Portion I corresponds to the Foreign Offshore
of the effectivity hereof;” Portion, while Japanese Yen Portion II and the Philippine Pesos Portion correspond to
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, the Philippine Onshore Portion. Marubeni has already paid the Onshore Portion, a fact
1986, a case had already been filed and was pending before the CTA and Marubeni that CIR does not deny.)
therefore fell under the exception. However, the point of reference is the date
of effectivity of EO 41 and that the filing of income tax cases must have been made CIR argues that since the two agreements are turn-key, they call for the supply of both
before and as of its effectivity. materials and services to the client, they are contracts for a piece of work and are
indivisible. The situs of the two projects is in the Philippines, and the materials
EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed provided and services rendered were all done and completed within the territorial
with CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been jurisdiction of the Philippines. Accordingly, respondent’s entire receipts from the
filed. Marubeni does not fall in the exception and is thus, not disqualified from availing contracts, including its receipts from the Offshore Portion, constitute income from
of the amnesty under EO 41 for taxes on income and branch profit remittance. Philippine sources. The total gross receipts covering both labor and materials should
be subjected to contractor’s tax (a tax on the exercise of a privilege of selling services
The difficulty herein is with respect to the contractor’s tax assessment (business tax) or labor rather than a sale on products).
and respondent’s availment of the amnesty under EO 64, which expanded EO 41’s Marubeni, however, was able to sufficiently prove in trial that not all its work was
coverage. When EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to performed in the Philippines because some of them were completed in Japan (and in
the coverage of the amnesty for business, estate and donor’s taxes. Instead, Section 8 fact subcontracted) in accordance with the provisions of the contracts. All services for
said EO provided that: the design, fabrication, engineering and manufacture of the materials and equipment
under Japanese Yen Portion I were made and completed in Japan. These services
“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary were rendered outside Philippines’ taxing jurisdiction and are therefore not subject
to or inconsistent with this amendatory Executive Order shall remain in full force and to contractor’s tax. Petition denied.
effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its
date of effectivity. The general rule is that an amendatory act operates prospectively. It MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. v. DEPARTMENT OF
may not be given a retroactive effect unless it is so provided expressly or by necessary FINANCE SECRETARY G.R. No. 108524. November 10, 1994
implication and no vested right or obligations of contract are thereby impaired.
FACTS:
Petitioner is engaged in the buying and selling of copra in Misamis Oriental. The
petitioner questions Revenue Memorandum Circular 47-91 issued by the respondent,
in which copra was classified as agricultural non-food product effectively removing
copra as one of the exemptions under Section 103 of the NIRC.

Section 103a of the NIRC states that the sale of agricultural non-food products in their
original state is exempt from VAT only if the sale is made by the primary producer or
owner of the land from which the same are produced and not by any other person or
entity. Section 103b states the sale of agricultural food products in their original state
is exempt from VAT at all stages of production or distribution regardless of who the
seller is - which the petitioner enjoys. The reclassification had the effect of denying to
the petitioner this exemption when copra was classified as an agricultural food
product.

Petitioner filed a motion for prohibition.

ISSUE: Whether the Circular is valid.

RULING:

Yes. The Court first stated that the CIR gave the circular a strict construction consistent
with the rule that tax exemptions must be strictly construed against the taxpayer and
liberally in favor of the state.

The Court also stated that the Circular is not discriminatory and in violation of the
equal protection clause. Petitioner likened copra farmers / producers, who are
exempted from VAT and copra traders, which the Court disagreed.

Lastly, petitioners argued that the Circular was counterproductive which the Court
answers that it is a question of wisdom or policy which should be addressed to
respondent officials and to Congress.

PASCUAL V. SEC. OF PUBLIC WORKS

(inherent limitation: public purpose)
FACTS: FACTS:
 Philippine Sugar Commission (PHILSUCOM) which was tasked with the function of
RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an regulating and supervising the sugar industry was abolished. P. D. No. 388,
item (Section 1 c[a]) for the construction, reconstruction, repair, extension and promulgated on February 2,1974, which created the PHILSUCOM, provided for the
improvement of Pasig feeder road terminals (the projected and planned subdivision collection of a Stabilization Fund for the purpose of financing the growth and
roads, which were not yet constructed, within Antonio Subdivision owned by Senator development of the sugar industry market to be administered in trust by the
Jose C. Zulueta). Zulueta “donated” said parcels of land to the Government 5 months Commission and deposited in the Philippine National Bank derived by collecting 2
after the enactment of RA 920, on the condition that if the Government violates such pesos/picul produced and milled for 5 years, and 1 peso/picul produced and milled
condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao every year thereafter.
Pascual, questioned the validity of the donation and the Constitutionality of the item in  Petitioners filed a mandamus to compel the distribution of shares of stock in PNB,
RA 920, it being not for a public purpose. in the name of PHILSUCOM to the sugar producers, planters and millers who
contributed in the Stabilization fund.
ISSUE:  Petitioners say that the fees collected were held in trust for the sugar planters and
millers (belonging to them) and not public funds (belonging to PHILSUCOM) which
Whether the item in the appropriation is valid. should be transferred to the general funds of the government upon dissolution of
the Commission.
HELD:  Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be
NO. administered in trust by the Commission." However, while the element of an intent
 The right of the legislature to appropriate funds is correlative with its right to tax, to create a trust is present, a resulting trust in favor of the sugar producers, millers
under constitutional provisions against taxation, except for public purposes and and planters cannot be said to have ensued because the presumptive intention of
prohibiting the collection of a tax for one purpose and the devotion thereof to the parties is not reasonably ascertainable from the language of the statute itself.
another purpose, no appropriation of state funds can be made for other than a  No implied trust in favor of the sugar producers either can be deduced from the
public purpose. imposition of the levy. It is not clearly shown from the statute itself that the
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for
 The validity of a statute depends upon the powers of Congress at the time of its the benefit of the sugar producers. Petitioners maintain that this infusion of fresh
passage or approval, not upon events occupying, or acts performed, subsequently capital was accomplished by PHILSUCOM, using the proceeds of the P1.00 per
thereto, unless the latter consist of an amendment of the organic law, removing, picul stabilization fund to pay for its subscription in shares of stock of respondent
with retrospective operation, the constitutional limitation infringed by said statute. Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's
name only out of convenience and necessity and that they are the true and
 Herein, inasmuch as the land on which the projected feeder roads were to be beneficial owners thereof. But, while it is true that the collected stabilization fees
constructed belonged to Senator Zulueta at the time RA 920 was passed by were set aside by PHILSUCOM to pay its subscription to RPB, it did not collect said
Congress, or approved by the President, and the disbursement of said sum fees for the account of the sugar producers. That stabilization fees are
became effective on 20 June 1953 pursuant to Section 13 of the Act, the result is charges/levies on sugar produced and milled which accrued to PHILSUCOM under
that the appropriating sough a private purpose and hence, null and void. PD 338, as amended. ...
 The stabilization fees collected are in the nature of a tax, which is within the power
of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98
Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections
made accrue to a "Special Fund," a "Development and Stabilization Fund," almost
Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6
of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the
GASTON V. REPUBLIC PLANTERS BANK
(Prohibition on Use of Tax Levied for Special Purpose)
 taxing power. It is levied with a regulatory purpose, to provide means for the (inherently legislative)
stabilization of the sugar industry.
 The levy is primarily in the exercise of the police power of the State (Lutz vs. FACTS:
Araneta, supra.). The stabilization fees in question are levied by the State upon
sugar millers, planters and producers for a special purpose — that of "financing the • The constitutionality of RA 7496 – the Simplified Net Income Taxation Scheme (SNIT)
growth and development of the sugar industry and all its components, stabilization violates the following provisions of the Constitution: Art6, Sec26(1)
of the domestic market including the foreign market. the fact that the State has • Every bill passed in Congress shall embrace only one subject which shall be
taken possession of moneys pursuant to law is sufficient to constitute them state expressed in the title thereof Art6, Sec28(1)
funds, even though they are held for a special purpose. Having been levied for a • The rule of taxation shall be uniform and equitable. The congress shall evolve a
special purpose, the revenues collected are to be treated as a special fund, to be, progressive system of taxation
in the language of the statute, "administered in trust' for the purpose intended. _ Art3, Sec1
 Once the purpose has been fulfilled or abandoned, the balance, if any, is to be • No person shall be deprived of Uproperty without due process of law, nor shall any
transferred to the general funds of the Government. That is the essence of the trust person be denied equal protection of the law
intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(l]). 2 ISSUE/S:
 The character of the Stabilization Fund as a special fund is emphasized by the fact
that the funds are deposited in the Philippine National Bank and not in the WON RA 7496 violated the constitutional requirement thattaxation shall be uniform and
Philippine Treasury, moneys from which may be paid out only in pursuance of an equitable in that it attempts to tax single proprietorships and professionals differently
appropriation made by law (1987) Constitution, Article VI, Sec. 29[1],1973 from corporations and partnerships
Constitution, Article VIII, Sec. 18[l]).
 That the fees were collected from sugar producers, planters and millers, and that RULING:
the funds were channeled to the purchase of shares of stock in respondent Bank • NO. Uniformity of taxation merely requires that all subjects or objects of taxation,
do not convert the funds into a trust fired for their benefit nor make them the similarly situated, are to be treated alike both in privileges and liabilities. Such
beneficial owners of the shares so purchased. It is but rational that the fees be classification is valid as long as:
collected from them since it is also they who are to be benefited from the (1) standards used are substantial andnot arbitrary;
expenditure of the funds derived from it. The investment in shares of respondent (2) categorization is germane to achieve the legislative purpose;
Bank is not alien to the purpose intended because of the Bank's character as a (3) law applies, all things being equal, to both present and future conditions; and (4) the
commodity bank for sugar conceived for the industry's growth and development. classification applies equally well to all those belonging to the same class.
Furthermore, of note is the fact that onehalf, (1/2) or PO.50 per picul, of the amount
levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of • What may be apparent is simply that the amendatory law reflects he legislative intent
personnel, fringe benefits and allowances of officers and employees of to increasingly shift the income tax system towards the schedular approach.
PHILSUCOM" thereby immediately negating the claim that the entire amount levied
is in trust for sugar, producers, planters and millers. • Also, with the legislature primarily lies the discretion to determine the nature (kind0,
 To rule in petitioners' favor would contravene the general principle that revenues object (purpose), extent (rate), coverage (subjects), and situs (place) of taxation. The
derived from taxes cannot be used for purely private purposes or for the exclusive court cannot freely delve into these matters, unless the tax becomes so unconscionable
benefit of private persons. The Stabilization Fund is to be utilized for the benefit of and unjust as to amount to confiscation of property. Only then will the
the entire sugar industry, "and all its components, stabilization of the domestic courts able to strike it down.
market," including the foreign market the industry being of vital importance to the
country's economy and to national interest.

TAN V. DEL ROSARIO

SISON V. ANCHETA
 (Due Process) (Gross or taxable income fromsources within the Philippines)

(Sec 1, Art III, Consti) FACTS:

FACTS: Respondent Japan Air Lines, Inc. (hereinafter referred to as JAL for brevity), is a foreign
In a suit for declaratory relief and probation, petitioner alleges arbitrariness in Sec. 1, BP corporation engaged in the business of international air carriage. From 1959 to 1963,
135. He reasons that he would be unduly discriminated against by the imposition of JAL did not have planes that lifted or landed passengers and cargo in the Philippines as
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis it had not been granted then by the Civil Aeronautics Board (CAB) a certificate of public
those which are imposed upon fixed income or salaried individual taxpayers. convenience and necessity to operate here. However, since mid-July, 1957, JAL had
maintained an officeat the Filipinas Hotel, Roxas Boulevard, Manila. Said office did not
ISSUE: sell tickets but was maintained merely for the promotion of the company's public
Whether the imposition of a higher tax rate on taxable net income derived from business relations and to hand out brochures, literature and other information playing up the
or profession than on compensation is constitutionally infirm. attractions of Japan as a tourist spot and the services enjoyed in JAL planes.

RULING: On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales
No. The Constitution as the fundamental law overrides any legislative or executive act agent in the Philippines. As an agent, PAL, among other things, sold for and in behalf of
that runs counter to it. In any case therefore where it can be demonstrated that the JAL, plane tickets and reservations for cargo spaces which were used by the
challenged statutory provision - as petitioner here alleges – fails to abide by its passengers or customers on the facilities of JAL.
command, then this Court must so declared and adjudge it null.
On June 2, 1972, JAL received deficiency income tax assessment notices and a
It is undoubted that the due process clause may be invoked where a taxing statute is so demand letter from petitioner Commissioner of Internal Revenue (hereinafter referred to
arbitrary that it finds no support in the Constitution. An obvious example is where it can as Commissioner for brevity), all dated February 28, 1972, for a total amount of
be shown to amount to the confiscation of property. That would be a clear abuse of P2,099,687.52 inclusive of 50% surcharge and interest, for years 1959 through 1963
power. It then becomes the duty of this Court to say that such an arbitrary act amounted
to the exercise of an authority not conferred. That properly calls for the application of the On June 19, 1972, JAL protested said assessments alleging that as a non-resident
Holmes dictum. It has also been held that where the assailed tax measure is beyond the foreign corporation, it was taxable only on income from Philippine sources as
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute determined under Section 37 of the Tax Code, and there being no such income
is so harsh and unreasonable, it is subject to attack on due process grounds. during the period in question, it was not liable for the deficiency income tax liabilities
assessed .
Now for equal protection. The applicable standard to avoid the charge that there is a
denial of this constitutional mandate whether the assailed act is in the exercise of the The Commissioner resolved otherwise and in a letter-decision dated December 21,
police power or the power of eminent domain is to demonstrate "that the governmental 1972, denied JAL's request for cancellaton of the assessment .
act assailed, far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least, discrimination that finds to support ISSUE:
in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the Whether or not proceeds from JAL ticket sales in the Philippines are taxable as income
conditions not being different, both in the privileges conferred and the from sources within the Philippines.
liabilities imposed.
HELD:
In the case at bar, petitioner failed to make a case that the challenged law was
constitutionally infirm because the classifications were valid for tax purposes, and the it YES. The issues in the case at bar have already been laid to rest in no less than three
is not arbitrary and confiscatory. cases resolved by this Court. Anent the first issue, the landmark case of Commissioner
COMMISSIONER VS JAPAN AIR LINES of Internal Revenue vs. British Overseas Airways Corporation (G.R. No.L-65773-74,
April 30, 1987, 149 SCRA 395) has categorically ruled: "The source of an income is the (Situs of Taxation)
property, activity or service that produced the income.
FACTS:
For the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from activity within the Philippines. In BOAC's case, the sale Birdie Lillian Eye, died on September 16, 1932 at Los Angeles California, the place of
of tickets in the Philippines is the activity that produces the income. The tickets her alleged last residence and domicile. Among the properties she left was her one half
exchanged hands here and payments for fares were also made here in Philippine conjugal shares in 70,000 shares of stock in Benguet Consolidated Mining Company, an
currency. anonymous partnership organized and existing under the laws of the Philippines, with
its principal office in Manila.
The situs of the source of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the protection accorded by the She left a will which was duly admitted to probate in California where her estate was
Philippine government. In consideration of such protection, the flow of wealth should administered and settled. Petitioner is the trustee of the trust created by the will. The
share the burden of supporting the government. Federal and State of California’s inheritance taxes due on said shares have been duly
paid. The respondent now claims that the same shares of stocks are also subject to
"x x x x x x inheritance tax here in the Philippines.
"True, Section 37(a) of the Tax Code, which enumerates items of gross income from Hence, this petition for declaratory judgment was instituted by plaintiff to ascertain
sources within the Philippines, namely: whether the shares are still subject to inheritance tax.
(1) interest,
(2) dividends, ISSUE:
(3) service, May inheritance taxes be imposed on the said shares?
(4) rentals and royalties,
(5) sale of real property, and RULING:
(6) sale of personal property, does not mention income from the sale of tickets for Yes. Originally the settled law in the US is that intangibles have only one situs for the
international transportation. However, that purpose of inheritance tax, and that such situs is in the domicile of the decedent at the
does not render it less an income from sources within the Philippines. time of his death. But this rule has been relaxed due to:
(1) the recognition of the inherent power of each government to tax persons, properties
and rights within its jurisdiction and enjoying thus, the protection of its laws; and
(2) upon the principle that as to intangibles, a single location in space is hardly possible
considering the multiple, distinct relationships which may be entered into with respect
thereto.

It is the identity or association of intangibles with the person of their owner at his
domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with
respect to his intangibles, so as to avail himself of the protection and benefit of the laws
of another state, in such a way as to bring his person or property within the reach of the
tax gatherer there, the reason for a single place of taxation no longer obtains.

In this case, the actual situs of the shares of stock is in the Philippines, the corporation
being domiciled therein. The owner residing in California has extended her activities
with respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws. The jurisdiction of the Philippine government to impose tax must be
upheld.
WELLS FARGO BANK V CIR BASCO VS PAGCOR (1991)
 (Delegation to Loc Gov) Congress can grant the City of Manila the power to tax certain matters, it can also
provide for exemptions or even take back the power.
FACTS:
(c) The City of Manila's power to impose license fees on gambling, has long been
Petitioners filed the instant petition seeking to annul PAGCOR Charter (PD 1869) revoked. As early as 1975, the power of local governments to regulate gambling thru the
because it is allegedly contrary to morals, public policy and order, and because — grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested
a. It constitutes a waiver of a right prejudicial to a third person with a right exclusively on the National Government. Therefore, only the National Government has
recognized by law. It waived the Manila City government's right to impose the power to issue "licenses or permits" for the operation of gambling. Necessarily, the
taxes and license fees, which is recognized by law; power to demand or collect license fees which is a consequence of the issuance of
b. For the same reason stated in the immediately preceding paragraph, the law "licenses or permits" is no longer vested in the City of Manila.
has intruded into the local government's right to impose local taxes and license
fees. This, in contravention of the constitutionally enshrined principle of local (d) SUPREMACY of NATIONAL GOVT. Local governments have no power to tax
autonomy instrumentalities of the National Government. PAGCOR is a government owned or
c. It violates the equal protection clause of the constitution in that it legalizes controlled corporation with an original charter, PD 1869. All of its shares of stocks are
PAGCOR — conducted gambling, while most other forms of gambling are owned by the National Government. PAGCOR has a dual role, to operate and to
outlawed,together with prostitution, drug trafficking and other vices regulate gambling casinos. The latter role is governmental, which places it in the
d. It violates the avowed trend of the Corygovernment away from monopolistic category of an agency or instrumentality of the Government. Being an instrumentality of
and crony economy, andtoward free enterprise and privatization. (p. 2, the Government, PAGCOR should be and actually is exempt from local taxes.
Amended Petition; p. 7, Rollo) Otherwise, its operation might be burdened, impeded or subjected to control by a mere
Local government.
ISSUE
WON the Charter has intruded into thelocal government’s right to impose taxes and (e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be
license fees violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution
(on Local Autonomy) provides: Sec. 5. Each local government unit shall have the power
RULING: to create its own source of revenue and to levy taxes, fees, and other charges subject to
NO Petitioners contend that the exemption clause in P.D. 1869 is violative of the such guidelines and limitation as the congress may provide, consistent with the basic
principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the
which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or local government. (emphasis supplied) The power of local government to "impose taxes
form, income or otherwise, as well as fees, charges or levies of whatever nature, and fees" is always subject to "limitations" which Congress may provide by law. Since
whether National or Local." PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art.
XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the
Their contention is without merit for the following reasons: exercise of the power of local governments to impose taxes and fees. It cannot
(a) The City of Manila, being a mere Municipal corporation has no inherent right to therefore be violative but rather is consistent with the principle of
impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that local autonomy.
power or the municipality cannot assume it.” Its "power to tax" therefore must always
yield to a legislative act which is superior having been passed upon by the state itself
which has the "inherent power to tax"

(b) The Charter of the City of Manila is subject to control by Congress. It should be
stressed that "municipal corporations are mere creatures of Congress" which has
the power to "create and abolish municipal corporations" due to its "general legislative
powers." Congress, therefore, has the power of control over Local governments. And if
 NPC V. CITY OF CABANATUAN significance with the ratification of the 1987 Constitution.
(necessity theory) Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other
FACTS: charges34 pursuant to Article X, section 5 of the 1987 Constitution.
• NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992. City of Cabanatuan assessed the petitioner a • The local government code removed the blanket exclusion of instrumentalities and
franchise tax amounting to P808,606.41, representing 75% of 1% of the former’s gross agencies of the National Government from the coverage of local taxation.
receipts for the preceding year.
• A franchise tax is imposed based not on the ownership but on the exercise by the
• NPC refused to pay the tax assessment, which argued that the respondent has no corporation of a privilege to do business. The taxable entity is the corporation which
authority to impose tax on government entities. Petitioner also contend that as a exercises the franchise, and not the individual stockholders.
nonprofit organization, it is exempted from the payment of all forms of taxes, charges,
duties or fees. By virtue of its charter, petitioner was created as a separate and distinct entity from the
National Government. It can sue and be sued under its own name, and can exercise all
• The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that the powers of a corporation under the Corporation Code. The ownership by the National
petitioner pay. Respondent alleged that petitioner’s exemption from local taxes has Government of its entire capital stock does not necessarily imply that petitioner is not
been repealed by Sec. 193 of RA 7160 (Local Government Code). engaged in business.

• The trial court issued an order dismissing the case. On appeal, the Court of Appeals
reversed the decision of the RTC and ordered the petitioner to pay the city government
the tax assessment.

ISSUE:

WON NPC is exempted from franchise tax by the

local government?

RULING:

NO.
• Taxes are the lifeblood of the government, for without taxes, the government
can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the state whose social contract with
its citizens obliges it to promote public interest and common good.

The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.

• In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well
as public welfare and similar objectives.33 Taxation assumes even greater
 COMMISSIONER V. BOAC 3. Tax Code provides that for revenue to be taxable, it must constitute income from
(Territorial) Philippine sources (see previous paragraph)

FACTS: 4. Income is broadly and comprehensively defined as cash received or its equivalent or
the amount of money comint to a person within a specific time.
1. Commissioner of Internal Revenue (CIR) questioned a ruling by the Court of Tax
Appeals wherein the CTA set aside the CIR’s assessment of deficiency income taxes 5. Source of an income is the property, activity or service that produced the
against respondent British Overseas Airways Corporation (BOAC). income. For the source to be considered as from the Philippines, it is sufficient
that the income is derived from activity within the Philippines.
2. BOAC is a UK government-owned corporation engaged in the international airline
business. It did not have landing rights in the Philippines nor was it granted a certificate 6. In this case, the sale of the tickets in the Philippines is the source of income. The
of public convenience by the Civil Aeronautics Board. situs of the source of payments is the Philippines.
It did not have flight operations in the Philippines; it did not carry passengers or
cargo.

3. However, it maintained a general sales agent. (Warner Barnes and Co. at first then
Qantas Airways) The agent sold BOAC tickets covering passengers and cargoes.

ISSUE:

1. WON BOAC is a resident foreign corporation. (tax scheme is different for a

nonresident foreign corporation) – Yes; BOAC is a resident corporation doing
business in the Philippines.

2. WON the revenue derived by BOAC from sales of its tickets, while having no flight
operations in the Philippines, is taxable. – Yes; the revenue constitutes income from
Philippine sources so it is taxable.

RULING:

1. Sec 20 of the 1977 Tax Code defines a resident foreign corporation as a foreign
corporation engaged in trade or business within the Philippines or having an office or
place of business therein.

2. BOAC was engaged in business in the Philippines through a local agent during the
period covered by the CIR’s assessments.

It is a resident foreign corporation subject to tax upon its total net income
received in the preceding taxable year from all sources within the Philippines.
(Sec 24(b), (2), Tax Code as amended
 MANILA RACE HORCE V. DELA FUENTE SHELL V. MUNICIPALITY OF CORDOVA
(valid classification of taxpayers/subject matter to be taxed) (valid classification of taxpayers/subject matter to be taxed)

FACTS: FACTS:
Ordinance No. 3065 of the City of Manila imposes a tax on stable owners based on the The Municipality of Cordova, Cebu adopted a series of ordinances, one of which is
number of race horses kept or maintained in the stables (P10/year for each race horce). Ordinance 10 which imposes an annual tax of P150 on occupation or the exercise of the
Manila Race Horce Trainers Association, Inc., a group of owners of boarding stables for privilege of installation manager. Shell, Co. wants to refund the taxes paid by it on the
race horses wants to declare the Ordinance invalid for being violative of the ground that the ordinances imposing the taxes are ultra vires.
Constitution. It is argued that the ordinance taxes race horses and not boarding
stables (Sec. 2 of the Ordinance does not impose a license fee on empty stables). RULING
The ordinances are valid.
RULING Ordinance No. 10 which imposes an annual tax of P150 on "installation manager"
Ordinance VALID. The spirit, rather than the letter, of an ordinance determines the comes under the provisions of Commonwealth Act No. 472. The claim that "installation
construction thereof, and the court looks less to its words and more to the context, manager" is a designation made by the plaintiff and such designation cannot be
subject matter, consequence and effect. The tax is assessed not on the owners of the deemed to be a "calling" as defined in section 178 of the National Internal Revenue
horses but on the owners of the stables, as counsel admit in their brief, although there is Code (Com. Act No. 466), and that the installation manager employed by the plaintiff is
nothing, of course, to stop stable owners from shifting the tax to the horse owners in the a salaried employee which may not be taxed by the municipal council under the
form of increased rents or fees, which is generally the case. provisions of Commonwealth Act No. 472 is without merit.
It is also plain from the text of the whole ordinance that the number of horses is used in
the assessment purely as a method of fixing an equitable and practical distribution of Even if the installation manager is a salaried employee of the plaintiff, still it is an
the burden imposed by the measure. Far from being obnoxious, the method is fair and occupation "and one occupation or line of business does not become exempt by being
just. It is but fair and just that for a boarding stable where only one horse is maintained conducted with some other occupation or business for which such tax has been paid'1
proportionately less amount should be exacted than for a stable where more horses are and the occupation tax must be paid "by each individual engaged in a calling subject
kept and from which greater income is derived. thereto." And pursuant to section 179 of the National Internal Revenue Code, "The
payment of . . . occupation tax shall not exempt any person from any tax, . . . provided
In taxing only boarding stables for race horses, we do not believe that the ordinance by law or ordinance in places where such . . . occupation in . . . regulated by municipal
makes arbitrary classification. it was said there is equality and uniformity in taxation if all law, nor shall the payment of any such tax be held to prohibit any municipality from
articles or kinds of property of the same class are taxed at the same rate. placing a tax upon the same . . . occupation, for local purposes, where the imposition of
such tax is authorized by law."
From the viewpoint of economics and public policy the taxing of boarding stables for
race horses to the exclusion of boarding stables for horses dedicated to other purposes The contention that the ordinance is discriminatory and hostile because there is no
is not indefensible. The owners of boarding stables for race horses and, for that matter, other person in the locality who exercises such "designation" or occupation is also
the race horse owners themselves, who in the scheme of shifting may carry the taxation without merit, because the fact that there is no other person in the locality who
burden, are a class by themselves and appropriately taxed where owners of other kinds exercises such a "designation" or calling does not make the ordinance discriminatory
of horses are taxed less or not at all, considering that equity in taxation is generally and hostile, inasmuch as it is and will be applicable to any person or firm who exercises
conceived in terms of ability to pay in relation to the benefits received by the taxpayer such calling or occupation named or designated as "installation manager."
and by the public from the business or property taxed. Race horses are devoted to
gambling if legalized, their owners derive fat income and the public hardly any profit
from horse racing, and this business demands relatively heavy police supervision.

Taking everything into account, the differentiation against which the plaintiffs complain
conforms to the practical dictates of justice and equity and is not discrimatory within the
meaning of the Constitution.
 SAN MIGUEL CORP. V. AVELINO AMERICAN BIBLE SOCIETY V. CITY OF MANILA
(Non-Impairment of Jurisdiction of the Supreme Court) (Religious Freedom)
(Sec. 5, Art. III, Consti)
FACTS
San Miguel challenged the existing Ordinance of the Tax Code of the City of Mandaue. FACTS:
This was on the ground that Section 12(e) (7) in relation to Section 12(e) (1) and (2), Plaintiff Bible Society challenges the City’s imposition of license fees and refuses to pay
Mandaue City Ordinance No. 97, is illegal and void because it imposed a specific tax taxes on the bible it sold in the region. Plaintiff further tried to establish that it never
beyond its territorial jurisdiction. The validity of the ordinance was sustained by the City made any profit from the sale of its bibles, which are disposed of for as low as one third
Fiscal. of the cost, and that in order to maintain its operating cost it obtains substantial
remittances from its New York office and voluntary contributions and gifts from certain
However, when the case appealed to the Secretary Justice, Macaraig, the challenged churches, both in the United States and in the Philippines, which are interested in its
ordinance was deemed “of doubtful validity”. missionary work. Defendant retorts, however, that they do obtain profit from selling the
bibles.
Respondent City filed a suit for collection on the issue of the validity of the ordinance
which had the effect of questioning the opinion of the Justice Secretary. San Miguel filed ISSUE:
a petition for certiorari and prohibition to oppose the suit and have it dismissed. It Nevertheless, the issue in this case is whether tax imposition and a fee (Ordinances
claimed that under Section 47, which states that "The decision of the Secretary of Nos. 2529 and 3000 respectively) on activities religious in characters and on religious
Justice shall be final and executory unless, within thirty days upon receipt thereof, the materials are tantamount to religious censorship and abridgment by the state.
aggrieved party contents the same in a court of competent jurisdiction”, the suit for
collection was not the appeal allowed by the law. RULING:
Ordinance No. 2529 which taxes the sale of assorted merchandise does not apply to
ISSUE: the sale of religious materials in the exercise of the right to freedom of religion. The right
WON the courts are ousted its jurisdiction over questions of law because the to enjoy freedom of the press and religion occupies a preferred position as against the
mode of appeal by the Respondent city was improper. constitutional right of property owners.

RULING: Otherwise, those who can tax the exercise of this religious practice can make its
No. The validity of a statute, an executive order or ordinance is a matter for the judiciary exercise so costly as to deprive it of the resources necessary for its maintenance.
to decide and that whenever in the disposition of a pending case such a question Those who can tax the privilege of engaging in this form of missionary evangelism can
becomes unavoidable, then it is not only the power but the duty of the Court to resolve close all its doors to all 'those who do not have a full purse. Spreading religious beliefs
such a question. To construe Section 47 narrowly would be to raise a serious in this ancient and honorable manner would thus be denied the needy.
constitutional question.
With respect to Ordinance No. 3000, as amended, which requires the obtention of the
For it would in effect bar what otherwise would be a proper case cognizable by a court Mayor's permit before any person can engage in any of the businesses, trades or
precisely is the exercise of the conceded power of judicial review just because the occupations enumerated therein, We do not find that it imposes any charge upon the
procedure contended for which is that of an "appeal," under the circumstances a term enjoyment of a right granted by the Constitution, nor tax the exercise of religious
vague and ambiguous, was not followed. practices.

The fee does not deprive defendant of his constitutional right of the free exercise and
enjoyment of religious profession and worship, even though it prohibits him from
introducing and carrying out a scheme or purpose which he sees fit to claim as a part of
his religious system.
 GONZALES V. MARCOS ASSOC. OF CUSTOM BROKERS V MUNICIPAL BOARD
(Taxpayer’s Suit) (privilege tax)

FACTS: FACTS:

The action is centered on the validity of the creation in EO 30 of a trust for the benefit of The disputed ordinance (Ordinance 3379) was passed by the Municipal Board of the
the Filipino people under the name and style of the Cultural Center of the Philippines. It City of Manila under the authority conferred by section 18(p) of RA 409 which confers
was likewise alleged that the Board of Trustees did accept donations from the private upon the municipal board the power “to tax motor and other vehicles operating within
sector and did secure from the Chemical Bank of New York a loan of $5 million the City of Manila the provisions of any existing law to the contrary notwithstanding. “
guaranteed by the National Investment & Development Corporation as well as $3.5
million received from President Johnson of the United States in the concept of war The plaintiff, an association composed of all brokers and public service operators of
damage funds, all intended for the construction of the Cultural Center building estimated Motor Vehicles in the City of Manila filed this petition for declaratory relief challenging
to cost P48 million. the validity of the ordinance on the following grounds; that it while it levies a socalled
property tax, it is in reality a license fee which is beyond the power of the board to
Respondents contention: petitioner did not have the requisite personality to contest as a impose; that the said ordinance goes against the rule on uniformity of taxation; and, that
taxpayer the validity of the executive order in question, as the funds held by the Cultural the said imposition constitutes double taxation.
Center came from donations and contributions, not one centavo being raised by
taxation. ISSUES:
Can the city validly enact such ordinance?
ISSUE:
RULING:
Does the petitioner have standing to sue? NO.
No.
RULING: The Motor Vehicle Law (Section 70[b]) provides that no fees may be exacted or
1. It was pointed out as "one more valid reason" why such an outcome was unavoidable demanded for the operation of any motor vehicle other than those therein provided , the
was that "the funds administered by the President of the Philippines came from only exception being that which refers to property tax which may be imposed by
donations [and] contributions [not] by taxation." municipal corporations.

2. Accordingly, there was that absence of the "requisite pecuniary or monetary interest." While the ordinance refers to property tax and it is fixed ad valorem, it is merely levied
on motor vehicles operating within the city of Manila with the main purpose of raising
3. This is not to retreat from the liberal approach followed in Pascual v. Secretary of funds to be expanded exclusively for the repair, maintenance and improvement of
Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first streets and bridges in said city.
fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning,
has not satisfied the elemental requisite for a taxpayer's suit. Because of this, the ordinance in question merely imposes a license fee although under
the cloak of being an ad valorem tax to circumvent the prohibition provided by the Motor
4. Moreover, even on the assumption that public funds raised by taxation were involved, Vehicle Law.
it does not necessarily follow that such kind of an action to assail the validity of a
legislative or executive act has to be passed upon. This Court, as held in the recent
case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be
entertained."

RULING: Petition denied.

 ABS-CBN v. CTA RULING:
(BIR Rules and Regulations)
No. Sec. 338-A11 (now Sec. 327) of the Tax Code applies in this case. Rulings or
FACTS: circulars promulgated by the CIR have no retroactive application where to so
ABS-CBN is engaged in the business of telecasting local as well as foreign films apply them would be prejudicial to taxpayers. The retroactive application of
acquired from foreign corporations not engaged in trade or business within the Memorandum Circular No. 4-71 prejudices ABSCBN since:
Philippines.
a) it was issued only in 1971, or 3 years after 1968, the last year that petitioner had
The applicable law wrt the income tax of non-resident corporations is section 24 (b) of withheld taxes under General Circular No. V-334.
the National Internal Revenue Code, as amended by Republic Act No. 2343 dated June b) the assessment and demand on petitioner to pay deficiency withholding income tax
20, 19598. On April 12, 1961, in implementation of said provision, the CIR issued was also made three years after 1968 for a period of time commencing in 1965.
General Circular No. V-3349.
c) ABS-CBN was no longer in a position to withhold taxes due from foreign corporations
Pursuant to the foregoing, ABS-CBN dutifully withheld and turned over to the BIR the because it had already remitted all film rentals and no longer had any control over them
amount of 30% of one-half of the film rentals paid by it to foreign corporations not when the new Circular was issued.
engaged in trade or business within the Philippines.
And in so far as the enumerated exceptions (to nonretroactivity) are concerned, ABS-
The last year that ABS-CBN withheld taxes pursuant to the foregoing Circular was in CBN does not fall under any
1968. of them.

On June 27, 1968, RA 5431 amended Section 24 (b)10 of the Tax Code increasing the
tax rate from 30 % to 35 % and revising the tax basis from "such amount" referring to
rents, etc. to "gross income."

On February 8, 1971, the CIR issued Revenue Memorandum Circular No. 4-71,
revoking General Circular No. V-334, and holding that the latter was "erroneous for
lack of legal basis," because "the tax therein prescribed should be based on gross
income without deduction whatever.

On the basis of this new Circular, CIR issued against ABSCBN a letter of assessment
and demand requiring them to pay deficiency withholding income tax on the remitted
film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in
the total amount of P525,897.06.

ISSUE:

WON respondent can apply General Circular No. 4-71 retroactively and issue a
deficiency assessment against petitioner in the amount of P 525,897.06 as deficiency
withholding income tax for the years 1965, 1966, 1967 and 1968.
 BPI LEASING V.CA,CTA,CIR VILLEGAS VS, HIU CHIONG TSAI PAO HO
(BIR Rules &Regulations) GR L-29646, 10 NOVEMBER 1978

FACTS: FACTS:

For the calendar year 1986, BLC paid the CIR a total of P1,139,041.49 representing 4% The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those
"contractor’s percentage tax" imposed by Section 205 of the NIRC based on its gross employed in the diplomatic and consular missions of foreign countries, in technical
rentals from equipment leasing for said year. assistance programs of the government and another country, and members of religious
orders or congregations) to procure the requisite mayor’s permit so as to be employed
On November 10, 1986, CIR issued Revenue Regulation 19- 86. Section 6.2 thereof or engage in trade in the City of Manila.
provided that finance and leasing companies registered under RA 5980 shall be subject
to gross receipt tax of 5%-3%-1% on actual income earned. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months
This means that companies registered under Republic Act 5980, such as BLC, are imprisonment or a fine of P100 to P200, or both.
not liable for "contractor’s percentage tax" under Section 205 but are, instead,
subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC. ISSUE:

Since BLC had earlier paid the "contractor’s percentage tax for its 1986 lease rentals Whether the ordinance imposes a regulatory fee or a tax.
BLC filed a claim for a refund with the CIR on April 1988 for the amount representing the
difference between what it had paid as "contractor’s percentage tax" and RULING:
what it should have paid for "gross receipts tax."
The ordinance’s purpose is clearly to raise money under the guise of regulation by
ISSUES: exacting P50 from aliens who have been cleared for employment.
1. WON Revenue Regulation 19-86 is legislative12 rather than interpretative in
character. The amount is unreasonable and excessive because it fails to consider difference in
situation among aliens required to pay it, i.e. being casual, permanent, part-time,
2. WON it should retroact to the date of effectivity of the law it seeks to interpret. rankand- file or executive.

RULING: [ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable,
1. NO. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated being applied only to aliens who are thus deprived of their rights to life, liberty and
pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant property and therefore violates the due process and equal protection clauses of the
of authority to the Secretary of Finance to promulgate all needful rules and Constitution.
regulations for the effective enforcement of the provisions of the NIRC.
2.NO. The principle is well entrenched that statutes, including administrative rules and Further, the ordinance does not lay down any criterion or standard to guide the Mayor in
regulations, operate prospectively only, unless the legislative intent to the contrary is the exercise of his discretion, thus conferring upon the mayor arbitrary and
manifest by express terms or by necessary implication. In the present case, there is no unrestricted powers. ]
indication that the revenue regulation may operate retroactively. Furthermore, there is
an express provision stating that it "shall take effect on January 1, 1987," and that it
"shall be applicable to all leases written ON OR AFTER the said date."

Being clear on its prospective application, it must be given its literal meaning and
applied without further interpretation. Thus, BLC is not in a position to invoke the
provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1,
1987.
 COMMISSIONER VS. GOTAMCO KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN VS. TAN
GR L-31092, 27 FEBRUARY 1987 GR L-81311, 30 JUNE 1988

FACTS: FACTS:

The World Trade Organization (WHO) decided to construct a building to house its EO 273 was issued by the President of the Philippines which amended the Revenue
offices, as well as the other United Nations Offices in Manila. In inviting bids for the Code, adopting the value-added tax (VAT) effective 1 January 1988.
construction of the building, the WHO informed the bidders of its tax exemptions. The
contract was awarded to John Gotamco and Sons. Four petitions assailed the validity of the VAT Law fro being beyond the President to
enact; for being oppressive, discriminatory, regressive, and violative of the due process
The Commissioner opined that a 3% contractor’s tax should be due from the contractor. and equal protection clauses, among others, of the Constitution.
The WHO issued a certification that Gotamco should be exempted, but the
Commissioner insisted on the tax. Raised in the Court of Tax Appeals, the court ruled in The Integrated Customs Brokers Association particularly contend that it unduly
favor of Gotamco. discriminate against customs brokers (Section 103 [r]) as the amended provision of the
Tax Code provides that “service performed in the exercise of profession or calling
ISSUE: (except custom brokers) subject to occupational tax under the Local Tax Code, and
professional services performed by registered general professional partnerships are
Whether Gotamco is likewise from the contractor’s tax in lieu of WHO’s exemption from exempt from VAT.
indirect
taxes. ISSUE:
Whether the E-VAT law discriminates against customs brokers.
RULING:
RULING
Direct taxes are those that are demanded from the very person who, it is intended or The phrase “except custom brokers” is not meant to discriminate against custom
desired, should pay them; while indirect taxes are those that are demanded in the first brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code,
instance from one person in the expectation and intention that he can shift the burden to as amended.
someone else.
The distinction of the customs brokers from the other professionals who are subject to
Herein, the contractor’s tax is payable by the contractor but it is the owner of the occupation tax under the Local Tax Code is based upon material differences, in that the
building that shoulders the burden of the tax because the same is shifted by the activities of customs brokers partake more of a business, rather than a profession and
contractor to the owner as a matter of self-preservation. were thus subjected to the percentage tax under Section 174 of the Tax Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the
Such tax is an “indirect tax” on the organization, as the payment thereof or its inclusion VAT.
in the bid price would have meant an increase in the construction cost of the building.
If the Association did not protest the classification of customs brokers then, there is no
Hence, the Contractee’s (WHO) exemption from “indirect taxes” implies that contractor reason why it should protest now.
(Gotamco) is exempt
from contractor’s tax.
 REPUBLIC V. INTERMEDIATE APPELLATE COURT PASCUAL AND DRAGON V. CIR, G.R. NO. 78133, OCTOBER 18, 1988

FACTS:
FACTS:
Respondent spouses Antonio and Clara Pastor owed the Government P1,283, 621.63
for taxes from the years 1955-1959. A reinvestigation of their debt was made and the Petitioners bought two (2) parcels of land and a year after, they bought another three (3)
amount was changed to P17,117.08. parcels of land. Petitioners subsequently sold the said lots in 1968 and 1970, and
realized net profits. The corresponding capital gains taxes were paid by petitioners in
They applied for tax amnesty under P.D. 23, 213 and 370. Due to this, their debt even 1973 and 1974 by availing of the tax amnesties granted in the said years.
decreased to about P12,000. They paid such debt to the Government and had receipts
as proofs of such. However, the Acting BIR Commissioner assessed and required Petitioners to pay a total
amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968
The Government contended that the spouses could not avail of the tax amnesty under and 1970. Petitioners protested the said assessment asserting that they had availed of
P.D. 213 because of Revenue Regulation No. 8-72 which stated that amnesty is not tax amnesties way back in 1974.
allowed for those who had pending assessments with the BIR.
In a reply, respondent Commissioner informed petitioners that in the years 1968 and
Respondent spouses then contended that Revenue Regulation No. 8-72 was null 1970, petitioners as co-owners in the real estate transactions formed an unregistered
because P.D. 213 did not contain any exemption wherein one should not be allowed to partnership or joint venture taxable as a corporation under Section 20(b) and its income
amnesty. was subject to the taxes prescribed under Section 24, both of the National Internal
Revenue Code that the unregistered partnership was subject to corporate income tax as
ISSUE: distinguished from profits derived from the partnership by them which is subject to
individual income tax; and that the availment of tax amnesty under P.D. No. 23, as
W/N Respondent spouses were properly given tax amnesty. amended, by petitioners relieved petitioners of their individual income tax liabilities but
did not relieve them from the tax liability of the unregistered partnership.
HELD:
Yes, because Revenue Regulation No. 8-72 was null and void. If Revenue Regulation Hence, the petitioners were required to pay the deficiency income tax assessed.
No. 8-72 provided an exception to the coverage of P.D. 213, then such provision is null
and void for being contrary to the Presidential Decree. Revenue regulations shall not ISSUE:
prevail over provisions of a Presidential Decree.
Whether the Petitioners should be treated as an unregistered partnership or a co-
ownership for the purposes of income tax.

RULING:

The Petitioners are simply under the regime of co-ownership and not under
unregistered partnership.

By the contract of partnership two or more persons bind themselves to contribute

money, property, or industry to a common fund, with the intention of dividing the profits
among themselves (Art. 1767, Civil Code of the Philippines).
In the present case, there is no evidence that petitioners entered into an agreement to MERALCO VS. VERA
contribute money, property or industry to a common fund, and that they intended to G.R. No. L-29987 | October 22, 1975
divide the profits among themselves.
FACTS:
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property. There Meralco is the holder of a franchise to construct, maintain, and operate an electric light,
must be a clear intent to form a partnership, the existence of a juridical personality heat, and power system in the City of Manila and its suburbs.
different from the individual partners, and the freedom of each party to transfer or assign
the whole property. In 1962 and 1963, Meralco imported and received from abroad copper wires,
transformers, and insulators for use in the operation of its business.
Hence, there is no adequate basis to support the proposition that they thereby formed
an unregistered partnership. The Collector of Customs, as deputy of the Commissioner of Internal Revenue, levied
and collected a compensating tax. Meralco claimed for refund for the said years, but
The two isolated transactions whereby they purchased properties and sold the same a such claims were either not acted upon or denied by the Commissioner.
few years thereafter did not thereby make them partners. They shared in the gross
profits as co- owners and paid their capital gains taxes on their net profits and availed of ISSUE:
the tax amnesty thereby.
Whether or not Meralco is exempt from payment of a compensating tax on poles, wires,
Under the circumstances, they cannot be considered to have formed an unregistered transformers and insulators imported by it for use in the operation of its electric light,
partnership which is thereby liable for corporate income tax, as the respondent heat, and power system.
commissioner proposes.
RULING

Meralco is not exempt from paying the compensation tax provided for in Section 190 of
the Tax Code, the purpose of which is to “place casual importers, who are not
merchants on equal footing with established merchants who pay sales tax on articles
imported by them.”

Meralco’s claim for exemption from payment of the compensating tax is not clear or
expressed, contrary to the rule that “exemptions from taxation are highly disfavored in
law, and he who claims exemption must be able to justify his claim by the clearest grant
of organic or statute law.”

Tax exemption are strictly construed against the taxpayer, they being highly disfavored
and may almost be said to be “odious to the law.” When exemption is claimed, it must
be shown indubitably to exist, for every presumption is against it, and a well-founded
doubt is fatal to the claim.
 PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) ISSUE:
vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption
GR. No. 143867/ March 25, 2003 from payment of the local franchise tax in view of the grant of tax exemption to Globe
and Smart.
________________________
TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION RULING:
____________________________
Petitioner contends that because their existing franchises contain “in lieu of all
FACTS: taxes” clauses, the same grant of tax exemption must be deemed to have become
ipso facto part of its previously granted telecommunications franchise.
PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The
franchise tax was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant But the rule is that tax exemptions should be granted only by a clear and unequivocal
to RA 7082. provision of law “expressed in a language too plain to be mistaken” and assuming for
the nonce that the charters of Globe and of Smart grant tax exemptions, then this
The exemption from “all taxes on this franchise or earnings thereof” was subsequently runabout way of granting tax exemption to PLDT is not a direct, “clear and unequivocal”
withdrawn by RA 7160 (LGC), which at the same time gave local government units the way of communicating the legislative intent.
power to taxbusinesses enjoying a franchise on the basis of income received or earned
by them within their territorial jurisdiction. The LGC took effect on January 1, 1992. Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term
refers to exemption from regulations and requirements imposed by the National
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The
provides: Notwithstanding any exemption granted by law or other special laws, there is Commission shall exempt any specific telecommunications service from its rate or tariff
hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent regulations if the service has sufficient competition to ensure fair and
(75%) of one percent (1%) of the gross annual receipts for the preceding calendar year reasonable rates of tariffs. Another exemption granted by the law in line with its policy
based on the income receipts realized within the territorial jurisdiction of Davao City. of deregulationis the exemption from the requirement of securing permits from the
NTCevery time a telecommunications company imports equipment.
Subsequently, Congress granted in favor of Globe Mackay Cable and
RadioCorporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises Tax exemptions should be granted only by clear and unequivocal provision of law on the
which contained “in leiu of all taxes” provisos. basis of language too plain to be mistaken.

In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines,

Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises. The law took effect
on March 16, 1995.

In January 1999, when PLDT applied for a mayor’s permit to operate itsDavao Metro
exchange, it was required to pay the local franchise tax which then had amounted to
P3,681,985.72. PLDT challenged the power of the city government to collect the local
franchise tax and demanded a refund of what had been paid as a local franchise tax for
the year 1997 and for the first to the third quarters of 1998.
 ROXAS VS. CTA unreported 50% of the net profits derived from the sale of the Nasugbu farm lands to the
GR NO. L-25043 | APRIL 26, 1968 tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia and the Roxas brothers
FACTS: · The brothers protested the assessment but was denied, thus appealing to the CTA
· Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their · CTA decision: sustained the assessment except the demand for the payment of
grandchildren by hereditary succession the following properties: the fixed tax on dealer of securities and the disallowance of the deductions for
contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa
a. Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas
- Tenants who have been tilling the lands expressed their desire to purchase from ISSUE:
Roxas y Cia, the parcels which they actually occupied
- The govt, in line with the constitutional mandate to acquire big landed estates Should Roxas y Cia be considered a real estate dealer because it engaged in the
and apportion them among landless tenants-farmers, persuaded the Roxas brothers to business of selling real estate
part with their landholdings
- The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K RULING:
survey and subdivision expenses NO, being an isolated transaction
- Unfortunately, the govt did not have funds · Real estate dealer: any person engaged in the business of buying, selling,
- A special arrangement was made with the Rehabilitation Finance Corporation to exchanging, leasing or renting property on his own account as principal and holding
advance to Roxas y Cia the amount of P1.5Mn as loan himself out as a full or part-time dealer in real estate or as an owner of rental property
- Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for or properties rented or offered to rent for an aggregate amount of three thousand pesos
the same price but by installment, and contracted with the RFC to pay its loan from the or more a year:
proceeds of the yearly amortizations paid by the farmers
- In 1953 and 1955, Roxas y Cia. derived from said installment payments a net · Section 194 of the Tax Code, in considering as real estate dealers owners of real
gain of P42,480.83 and P29,500.71. 50% of said net gain was reported for income tax estate receiving rentals of at least P3,000.00 a year, does not provide any qualification
purposes as gain on the sale of capital asset held for more than one year pursuant to as to the persons paying the rentals
Sec. 34 of the Tax Code
· The fact that there were hundreds of vendees and them being paid for their
b. Residential house and lot at Wright St., Malate, Manila respective holdings in installment for a period of ten years, it would nevertheless not
- After the marriage of Antonio and Eduardo, Jose lived in the house where he make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization
paid rentals of 8K/year to Roxas y Cia period

c. Shares of stocks in different corporations · the sale of the Nasugbu farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and
· To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the pursuant to the policy of our Government to allocate lands to the landless
children, formed a partnership called Roxas y Compania
· On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's · It was the duty of the Government to pay the agreed compensation after it had
tax for 1952 amtg to P150.00 plus P10.00 compromise penalty for late payment, and persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them
P150.00 tax for dealers of securities plus P10.00 compromise penalty for late payment. among the farmers at very reasonable terms and prices. But due to the lack of funds,
- Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands
stating that an owner of a real estate who derives a yearly rental income therefrom in directly to the farmers in the same way and under the same terms as would have been
the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the case had the Government done it itself
the corresponding fixed tax
· The Commissioner further assessed deficiency income taxes against the brothers
for 1953 and 1955, resulting from the inclusion as income of Roxas y Cia of the
· The power of taxation is sometimes called also the power to destroy. Therefore it ENRIQUE GARCIA VS EXECUTIVE SECRETARY (1992)
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly 211 SCRA 219 – Political Law – Congress Authorizing the President to Tax
· Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in
FACTS:
question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers
are capital assets, and the gain derived from the sale thereof is capital gain, taxable In November 1990, President Corazon Aquino issued Executive Order No. 438 which
only to the extent of 50% imposed, in addition to any other duties, taxes and charges imposed by law on all
articles imported into the Philippines, an additional duty of 5% ad valorem tax. This
As to the deductions additional duty was imposed across the board on all imported articles, including crude
a. P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel oil and other oil products imported into the Philippines. In 1991, EO 443 increased the
beer given as gifts to various persons – representation expenses additional duty to 9%. In the same year, EO 475 was passed reinstating the previous
· Representation expenses: deductible from gross income as expenditures 5% duty except that crude oil and other oil products continued to be taxed at 9%.
incurred in carrying on a trade or business Enrique Garcia, a representative from Bataan, avers that EO 475 and 478 are
· In this case, the evidence does not show such link between the expenses and the unconstitutional for they violate Section 24 of Article VI of the Constitution which
business of Roxas y Cia provides:
b. Contributions to the Pasay police and fire department and other police
departments as Christmas funds All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills
· Contributions to the Christmas funds are not deductible for the reason that the of local application, and private bills shall originate exclusively in the House of
Christmas funds were not spent for public purposes but as Christmas gifts to the Representatives, but the Senate may propose or concur with amendments.
families of the members of said entities
He contends that since the Constitution vests the authority to enact revenue bills in
· Under Section 39(h), a contribution to a government entity is deductible when
Congress, the President may not assume such power by issuing Executive Orders Nos.
used exclusively for public purposes
475 and 478 which are in the nature of revenue-generating measures.
· As to the contribution to the Manila Police trust fund, such is an allowable
deduction for said trust fund belongs to the Manila Police, a government entity, intended ISSUE: Whether or not EO 475 and 478 are constitutional.
to be used exclusively for its public functions.
c. Contributions to the Philippines Herald's fund for Manila's neediest families HELD: Under Section 24, Article VI of the Constitution, the enactment of appropriation,
· The contributions were not made to the Philippines Herald but to a group of civic revenue and tariff bills, like all other bills is, of course, within the province of the
spirited citizens organized by the Philippines Herald solely for charitable purposes Legislative rather than the Executive Department. It does not follow, however, that
· There is no question that the members of this group of citizens do not receive therefore Executive Orders Nos. 475 and 478, assuming they may be characterized as
profits, for all the funds they raised were for Manila's neediest families. Such a group of revenue measures, are prohibited to be exercised by the President, that they must be
citizens may be classified as an association organized exclusively for charitable enacted instead by the Congress of the Philippines.
purposes mentioned in Section 30(h) of the Tax Code Section 28(2) of Article VI of the Constitution provides as follows:
d. Contribution to Our Lady of Fatima chapel at the FEU
· University gives dividends to its stockholders (2) The Congress may, by law, authorize the President to fix within specified limits, and
· Located within the premises of the university, the chapel in question has not been subject to such limitations and restrictions as it may impose, tariff rates, import and
shown to belong to the Catholic Church or any religious organization export quotas, tonnage and wharfage dues, and other duties or imposts within the
· The contributions belongs to the Far Eastern University, contributions to which framework of the national development program of the Government.
are not deductible under Section 30(h) of the Tax Code for the reason that the net
income of said university injures to the benefit of its stockholders There is thus explicit constitutional permission to Congress to authorize the President
“subject to such limitations and restrictions as [Congress] may impose” to fix “within
No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose specific limits” “tariff rates . . . and other duties or imposts . . . .” In this case, it is the
Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, Tariff and Customs Code which authorized the President ot issue the said EOs.
P91.00 and P49.00, respectively
 ERNESTO M. MACEDA VS. ENERGY REGULATORY BOARD, ET AL.
18 JULY 1991 :: G.R. NO. 96266 EASTERN THEATRICAL CO. V ALFONSO

FACTS: FACTS
 The Municipal Board of the City of Manila enacted Ordinance No. 2958 which
Upon the outbreak of the Persian Gulf conflict on August 1990, private respondents oil imposes a fee on the price of every admission ticket sold by theaters and other
companies filed with the ERB their respective applications on oil price increases. ERB similar amusement establishments. The fees imposed are graduated according to
then issued an order granting a provisional increase of P1.42 per liter. Petitioner the price of the ticket sold.
Maceda filed a petition for Prohibition seeking to nullify said increase.
 Twelve corporations (Petitioners) engaged in the motion picture business instituted
a complaint in the CFI to impugn the validity of the ordinance.
ISSUE:
 CFI upheld the validity of the ordinance and held that:
Whether or not the decisions of the Energy Regulatory Board should be subject to o Under Sec 2444(m) of the Revised Administrative Code (RAC), the City of
presidential review. Manila had the power to enact the ordinance.
o Sec 2444(m) of the RAC was not repealed by the NIRC nor the power granted
HELD: by it withdrawn.
o Ordinance did not violate the principle of equality and uniformity of taxation.
Pursuant to Section 8 of E.O. No. 172, while haring is indispensable, it does not
preclude the Board from ordering a provisional increase subject to final disposition of
whether or not to make it permanent or to reduce or increase it further or to deny the ISSUES AND ARGUMENTS:
application. The provisional increase is akin to a temporary restraining order, which are
given ex-parte. 1. WON ordinance was enacted beyond the charter powers of the City of
Manila?
The Court further noted the Solicitor General’s comments that “the ERB is not averse to
 Petitioners: Sec 2444(m) of the Revised Administrative Code, which
the idea of a presidential review of its decision,” except that there is no law at present
grants to the City the power to regulate theaters, confers only the
authorizing the same.
power to tax on business but not on amusement.
The Court suggested that it will be under the scope of the legislative to allow the
presidential review of the decisions of the ERB since, despite its being a quasi-judicial 2. WON Sec 2444(m) of the RAC has been impliedly repealed by the NIRC?
body, it is still “ an administrative body under the Office of the President whose  Petitioners: Since the NIRC was passed later the RAC and since both
decisions should be appealed to the President under the established principle of taxing powers cover the same field of legislation, Sec 2444(m) of the
exhaustion of administrative remedies,” especially on a matter as transcendental as oil RAC must have been repealed by the NIRC and consequently, the
price increases which affect the lives of almost all Filipinos. power to regulate theaters granted to the City was withdrawn.

3. WON the ordinance violates the principle of equality and uniformity of

taxation enjoined by the Constitution?
 Petitioners: Ordinance does not tax other kinds of amusements (e.g.
race tracks, cockpits, cabarets, concert halls)

HELD AND RATIO:

1. NO. The tax imposed by Sec 2444(m) cannot be defined as and be restricted
to tax on business. The fact that said section includes theaters and similar
 amusement establishments shows that the power to tax amusement is GONZALES VS MACARAIG
expressly included within the power granted by Sec 2444(m)

2. NO. Both provisions of law may stand together and enforced at the same time. Political Law – Veto Power – Inappropriate Provision in an Appropriation Bill

3. NO. Equality and uniformity of taxation means that all taxable articles or FACTS:
kinds of property of the same class shall be taxed at the same rate. The Gonzales, together w/ 22 other senators, assailed the constitutionality of Cory’s veto of
taxing power has the authority to make reasonable and natural Section 55 of the 1989 Appropriations Bill (Sec 55 FY ’89, and subsequently of its
classifications for purposes of taxation. counterpart Section 16 of the 1990 Appropriations Bill (Sec 16 FY ’90).

Petitioners cannot point out what places of amusement do not constitute a Gonzalez averred the following:
class by themselves and which can be confused with those not included in the
(1) the President’s line-veto power as regards appropriation bills is limited to item/s and
ordinance.
does not cover provision/s; therefore, she exceeded her authority when she vetoed
Section 55 (FY ’89) and Section 16 (FY ’90) which are provision;

(2) when the President objects to a provision of an appropriation bill, she cannot
exercise the item-veto power but should veto the entire bill;

(3) the item-veto power does not carry with it the power to strike out conditions or
restrictions for that would be legislation, in violation of the doctrine of separation of
powers; and

(4) the power of augmentation in Article VI, Section 25 [5] of the 1987 Constitution, has
to be provided for by law and, therefore, Congress is also vested with the prerogative to
impose restrictions on the exercise of that power.

ISSUE:

Whether or not the President exceeded the item-veto power accorded by the
Constitution. Or differently put, has the President the power to veto `provisions’ of an
Appropriations Bill.

RULING:

SC ruled that Congress cannot include in a general appropriations bill matters that
should be more properly enacted in separate legislation, and if it does that, the
inappropriate provisions inserted by it must be treated as “item,” which can be vetoed by
the President in the exercise of his item-veto power.

The SC went one step further and rules that even assuming arguendo that “provisions”
are beyond the executive power to veto, and Section 55 (FY ’89) and Section 16 (FY
’90) were not “provisions” in the budgetary sense of the term, they are “inappropriate
provisions” that should be treated as “items” for the purpose of the President’s veto
power.
 UMALI VS. ESTANISLAO MAY 29, 1992 calendar year. Thus, under Rep. Act 7167, which became effective, on 30 January
1992, the increased exemptions are literally available on or before 15 April 1992 [though
FACTS: not before 30 January 1992].

Congress enacted Republic Act 7167 amending the NIRC (adjusting the basic and
But these increased exemptions can be available on 15 April 1992 only in respect of
additional exemptions allowable to individuals for income tax purposes to the poverty
compensation income earned or received during the calendar year 1991. The personal
threshold level).
exemptions as increased by Rep. Act 7167 are not available in respect of compensation
The said Act was signed and approved by the President on 19 December 1991 and income received during the 1990 calendar year; the tax due in respect of said income
published on 14 January 1992 in "Malaya" a newspaper of general circulation. On 26 had already accrued, and been presumably paid (The law does not state retroactive
December 1991, the CIR promulgated Revenue Regulations No. 1-92 stating that the application).
regulations shall take effect on compensation income from January 1, 1992.
The personal exemptions as increased by Rep. Act 7167 cannot be regarded as
Petitioners filed a petition for mandamus to compel the CIR to implement RA 7167 in available as to compensation income received during 1992 because it would in effect
regard to income earned or received in 1991, and prohibition to enjoin the CIR from postpone the availability of the increased exemptions to 1 January-15 April 1993. The
implementing the revenue regulation. implementing regulations collide with Section 3 of Rep. Act 7167 which states that the
statute "shall take effect upon its approval”.
ISSUE:
The revenue regulation should take effect on compensation income earned or received
Assuming that Rep. Act 7167 took effect on 30 January 1992 (15 days after its from 1 January 1991. Since this decision is promulgated after 15 April 1992, those
publication in “Malaya”), whether or not the said law nonetheless covers or applies to taxpayers who have already paid are entitled to refunds or credits.
compensation income earned or received during calendar year 1991.

RULING
PHILIPPINE PETROLEUM CORPORATION vs. MUNICIPALITY OF PILILLA
The Court is of the considered view that Rep. Act 7167 should cover or extend to
compensation income earned or received during calendar year 1991. Sec. 29, par. [L], FACTS:
Item No. 4 of the National Internal Revenue Code, as amended, provides:
1. Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise
Upon the recommendation of the Secretary of Finance, the President shall engaged in the manufacture of lubricated oil basestock which is a petroleum product,
automatically adjust not more often than once every three years, the personal and with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities
additional exemptions taking into account, among others, the movement in consumer within the territorial jurisdiction of the Municipality of Pililla, Rizal.
price indices, levels of minimum wages, and bare subsistence levels.
2. Under Section 142 of the National Internal Revenue Code of 1939, manufactured
The exemptions were last adjusted in 1986. The president could have adjusted it in oils and other fuels are subject to specific tax.
1989 but did not do so. The poverty threshold level refers to the level at the time Rep.
Act 7167 was enacted by Congress. The Act is a social legislation intended to alleviate 3. Later, Presidential Decree No. 231, otherwise known as the Local Tax Code was
in part the present economic plight of the lower income taxpayers. issued by former President Ferdinand E. Marcos governing the exercise by provinces,
cities, municipalities and barrios of their taxing and other revenue-raising powers.
Rep. Act 7167 says that the increased personal exemptions shall be available after the Sections 19 and 19 (a) thereof, provide among others, that the municipality may
law shall have become effective. These exemptions are available upon the filing of impose taxes on business, except on those for which fixed taxes are provided on
personal income tax returns, done not later than the 15th day of April after the end of a manufacturers, importers or producers of any article of commerce of whatever kind or
nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, 11. The trial court rendered a decision against the petitioner. Hence, the instant petition.
distilled spirits and/or wines in accordance with the schedule listed therein.
ISSUE:
4. The Secretary of Finance issued a Circular directed to all provincial, city and
municipal treasurers to refrain from collecting any local tax imposed in old or new tax Whether petitioner PPC whose oil products are subject to specific tax under the NIRC,
ordinances in the business of manufacturing, wholesaling, retailing, or dealing in is still liable to pay (a) tax on business and (b) storage fees, considering Provincial
petroleum products subject to the specific tax under the National Internal Revenue Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the respondent
Code. Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.

5. Likewise, another Circular was issued by the Secretary of Finance instructing all City RULING:
Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted
before or after the effectivity of the Local Tax Code on the businesses of Petitioner PPC contends that:
manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the
specific tax under the National Internal Revenue Code.
(a) Provincial Circular No. 2673 declared as contrary to national economic policy the
imposition of local taxes on the manufacture of petroleum products as they are already
6. Meanwhile, Respondent Municipality of Pililla enacted Municipal Tax Ordinance No. subject to specific tax under the National Internal Revenue Code;
1 otherwise known as "The Pililla Tax Code of 1974". Sections 9 and 10 of the said
ordinance imposed a tax on business, except for those for which fixed taxes are
(b) the above declaration covers not only old tax ordinances but new ones, as well as
provided in the Local Tax Code.
those which may be enacted in the future;

7. P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline,
(c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless
bunker fuel oil, diesel fuel oil and other similar petroleum products levied under
and until revoked, any effort on the part of the respondent to collect the suspended tax
Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and
on business from the petitioner would be illegal and unauthorized; and
granting provinces, cities and municipalities certain shares in the specific tax on such
products in lieu of local taxes imposed on petroleum products.
(d) Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products.
8. Provincial Circular No. 6-77 was also issued directing all city and municipal treasurers
to refrain from collecting the so-called storage fee on flammable or combustible There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed
materials imposed under the local tax ordinance of their respective locality, said fee taxes, fees and charges is valid as it conforms with the mandate of law.
partaking of the nature of a strictly revenue measure or service charge.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial
9. P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was Circulars issued by the Secretary of Finance when Sections 19 and 19 (a), were carried
enacted, Section 153 of which specifically imposes specific tax on refined and over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers,
manufactured mineral oils and motor fuels. retailers, or dealers in petroleum products.

10. Enforcing the provisions of the above-mentioned ordinance, the respondent filed a Well-settled is the rule that administrative regulations must be in harmony with the
complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the provisions of the law. In case of discrepancy between the basic law and an
collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; implementing rule or regulation, the former prevails.
mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have
already paid the last-named fees starting 1985 (Rollo, p. 74). Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as
amended by P.D. 426, wherein the municipality is granted the right to levy taxes on
business of manufacturers, importers, producers of any article of commerce of whatever stated, it is the law-making body, and not an executive like the mayor, who can make an
kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be
imposition of tax on business of manufacturers, etc. in petroleum products contravenes required before any individual or juridical entity shall engage in any business or
a declared national policy, it should have been expressly stated in P.D. No. 436. occupation under the provisions of the Code.

The exercise by local governments of the power to tax is ordained by the present However, since the Local Tax Code does not provide the prescriptive period for
Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26- collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that an
73 (1) would be tantamount to restricting their power to tax by mere administrative action upon an obligation created by law prescribes within ten (10) years from the time
issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and the right of action accrues. The Municipality of Pililla can therefore enforce the collection
limitations that may be established by Congress can define and limit such power of local of the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that
governments. Thus: had accrued prior to 1976.

Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy . . .

Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from
collecting the so-called storage fee on flammable or combustible materials imposed in
the local tax ordinance of their respective locality frees petitioner PPC from the payment
of storage permit fee.

The storage permit fee being imposed by Pililla's tax ordinance is a fee for the
installation and keeping in storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of tanks owned not by the
municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is envisioned in Section 37 of the same
Code.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is
a permit fee allowed under Section 36 of the amended Code.

As to the authority of the mayor to waive payment of the mayor's permit and sanitary
inspection fees, the trial court did not err in holding that "since the power to tax includes
the power to exempt thereof which is essentially a legislative prerogative, it follows that
a municipal mayor who is an executive officer may not unilaterally withdraw such an
expression of a policy thru the enactment of a tax." The waiver partakes of the nature of
an exemption. It is an ancient rule that exemptions from taxation are construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax
exemptions are looked upon with disfavor (Western Minolco Corp. v. Commissioner of
Internal Revenue, 124 SCRA 121 [1983]). Thus, in the absence of a clear and express
exemption from the payment of said fees, the waiver cannot be recognized. As already