Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR

VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI,
MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO,
AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE
JAMANDRE, AURELIO GAMBOA, ET AL., petitioners,
vs.
REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR
REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR.,
GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and
NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.:

Petitioners are sugar producers, sugarcane planters and millers, who have come to this
Court in their individual capacities and in representation of other sugar producers, planters
and millers, said to be so numerous that it is impracticable to bring them all before the
Court although the subject matter of the present controversy is of common interest to all
sugar producers, whether parties in this action or not.

Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the
government office tasked with the function of regulating and supervising the sugar
industry until it was superseded by its co-respondent Sugar Regulatory Administration
(SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive
Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to
continue for three (3) more years "for the purpose of prosecuting and defending suits by or
against it and enables it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets."

Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking

corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their
sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the
Court, since they have common cause with petitioners and respondents having interposed
no objection to their intervention. Subsequently, on January 14,1988, the National
Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed on
February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus
commanding respondents:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF

REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION
OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND
STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR
COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND
MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416
COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045
PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF
P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE
SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF
Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR
PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT
AS STABILIZATION FUND PURSUANT TO P.D. # 388.

Respondent Bank does not take issue with either petitioners or its correspondents as it has
no beneficial or equitable interest that may be affected by the ruling in this Petition, but
welcomes the filing of the Petition since it will settle finally the issue of legal ownership of
the questioned shares of stock.

Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing
that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are
considered government funds under the Government Auditing Code; that the transfer of
shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal;
and that this suit is barred by laches.

The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization
fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are
funds in trust for them, or public funds; and (2) whether shares of stock in respondent Bank
paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar
planters and millers from whom the fees were collected or levied.

P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided
for the collection of a Stabilization Fund as follows:

SEC. 7. Capitalization, Special Fund of the Commission, Development and

Stabilization Fund. — There is hereby established a fund for the commission
for the purpose of financing the growth and development of the sugar
industry and all its components, stabilization of the domestic market
including the foreign market to be administered in trust by the Commission
and deposited in the Philippine National Bank derived in the manner herein
below cited from the following sources:

a. Stabilization fund shall be collected as provided for in the various

provisions of this Decree.
 b. Stabilization fees shall be collected from planters and millers in the
amount of Two (P2.00) Pesos for every picul produced and milled for a period
of five years from the approval of this Decree and One (Pl.00) Peso for every
picul produced and milled every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on
planters, millers and traders under Section 4(c) of this Decree will be used for
the payment of salaries and wages of personnel, fringe benefits and
allowances of officers and employees for the purpose of accomplishing and
employees for the purpose of accomplishing the efficient performance of the
duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar
quedan and/or warehouse receipts and shall be paid immediately by the
planters and mill companies, sugar centrals and refineries to the
Commission. (paragraphing and bold supplied).

Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be
administered in trust by the Commission." However, while the element of an intent to
create a trust is present, a resulting trust in favor of the sugar producers, millers and
planters cannot be said to have ensued because the presumptive intention of the parties is
not reasonably ascertainable from the language of the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the

parties; and as a general rule, it arises where, and only where such may be
reasonably presumed to be the intention of the parties, as determined from
the facts and circumstances existing at the time of the transaction out of
which it is sought to be established (89 C.J.S. 947).

No implied trust in favor of the sugar producers either can be deduced from the imposition
of the levy. "The essential Idea of an implied trust involves a certain antagonism between
the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out
of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown
from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the
stabilization fund for the benefit of the sugar producers. It must be categorically
demonstrated that the very administrative agency which is the source of such regulation
would place a burden on itself (Batchelder v. Central Bank of the Philippines, L-25071, July
29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).

Neither can petitioners place reliance on the history of respondents Bank. They recite that
at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent
difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the
PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank.
The Central Bank acted favorably on the proposal at the meeting of the Monetary Board on
March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners
maintain that this infusion of fresh capital was accomplished, not by any capital
investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of the
P1.00 per picul stabilization fund to pay for its subscription in shares of stock of respondent
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 beneficial owners thereof.

In point of fact, we cannot see our way clear to upholding petitioners' position that the
investment of the proceeds from the stabilization fund in subscriptions to the capital stock
of the Bank were being made for and on their behalf. That could have been clarified by the
Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor"
acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB- Trust
Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in
behalf of the sugar producers," the latter "being the true and beneficial owners thereof."
The Agreement, however, did not get off the ground because it failed to receive the approval
of the PHILSUCOM Board of Commissioners as required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the
adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the
Chairman of the Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the
ruling of the Commission on Audit that the aforementioned Agreement is of doubtful
validity."

From the legal standpoint, we find basis for the opinion of the Commission on Audit
reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar

Regulatory Administration, in particular, owns and stocks. While it is true
that the collected stabilization fees were set aside by PHILSUCOM to pay its
subscription to RPB, it did not collect said fees for the account of the sugar
producers. That stabilization fees are charges/levies on sugar produced and
milled which accrued to PHILSUCOM under 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 taxing power. It is levied with a
regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.).

The protection of a large industry constituting one of the great sources of the
state's wealth and therefore directly or indirectly affecting the welfare of so
great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign. (Johnson vs.
State ex rel. Marey, 128 So. 857, cited in Lutz vs. 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 growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market the fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a special purpose
(Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec.
2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated
as a special fund, to be, in the language of the statute, "administered in trust' for the
purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of the trust
intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
Article VI, Sec. 23(l]). 2

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 Philippine Treasury,
moneys from which may be paid out only in pursuance of an appropriation made by law
(1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds
were channeled to the purchase of shares of stock in respondent Bank do not convert the
funds into a trust fired for their benefit nor make them the beneficial owners of the shares
so purchased. It is but rational that the fees be collected from them since it is also they who
are to be benefited from the expenditure of the funds derived from it. The investment in
shares of respondent Bank is not alien to the purpose intended because of the Bank's
character as a commodity bank for sugar conceived for the industry's growth and
development. Furthermore, of note is the fact that one-half, (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
personnel, fringe benefits and allowances of officers and employees of PHILSUCOM"
thereby immediately negating the claim that the entire amount levied is in trust for sugar,
producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for the exclusive benefit of private
persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry,
"and all its components, stabilization of the domestic market," including the foreign market
the industry being of vital importance to the country's economy and to national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No
costs.

This Decision is immediately executory.

SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

PLANTERS PRODUCTS, INC., G.R. No. 166006

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
FERTIPHIL CORPORATION,
Respondent. March 14, 2008

x--------------------------------------------------x

DECISION

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision[1] of
the Court of Appeals (CA) affirming with modification that of
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to private
respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of Instruction
(LOI) No. 1465.
 The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated
under Philippine laws.[3] They are both engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.[4] The
LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its

fertilizer pricing formula a capital contribution component of not less
than P10 per bag. This capital contribution shall be collected until
adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in
the Philippines.[5] (Underscoring supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the
amount collected to the Far East Bank and Trust Company, the depositary bank of
PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.[6]

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10
levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it
paid under LOI No. 1465, but PPI refused to accede to the demand.[7]

Fertiphil filed a complaint for collection and damages[8] against FPA and PPI with the
RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being unjust,
unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of
due process of law.[9] Fertiphil alleged that the LOI solely favored PPI, a privately owned
corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,[10] FPA, through the Solicitor General, countered that the issuance of
LOI No. 1465 was a valid exercise of the police power of the State in ensuring the stability of
the fertilizer industry in the country. It also averred that Fertiphil did not sustain any
damage from the LOI because the burden imposed by the levy fell on the ultimate consumer,
not the seller.

RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as
follows:

WHEREFORE, in view of the foregoing, the Court hereby renders

judgment in favor of the plaintiff and against the defendant Planters Product,
Inc., ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time

of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.

SO ORDERED.[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be
levied for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the
country by LOI 1465 is purportedly in the exercise of the power of taxation. It
is a settled principle that the power of taxation by the state is
plenary. Comprehensive and supreme, the principal check upon its abuse
resting in the responsibility of the members of the legislature to their
constituents. However, there are two kinds of limitations on the power of
taxation: the inherent limitations and the constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public
purposes:

The power to tax can be resorted to only for a constitutionally

valid public purpose. By the same token, taxes may not be levied
for purely private purposes, for building up of private fortunes,
or for the redress of private wrongs. They cannot be levied for
the improvement of private property, or for the benefit, and
promotion of private enterprises, except where the aid is
 incident to the public benefit. It is well-settled principle of
constitutional law that no general tax can be levied except for
the purpose of raising money which is to be expended for public
use. Funds cannot be exacted under the guise of taxation to
promote a purpose that is not of public interest. Without such
limitation, the power to tax could be exercised or employed as an
authority to destroy the economy of the people. A tax, however,
is not held void on the ground of want of public interest unless
the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the
Fertilizer and Pesticide Authority pursuant to the P10 per bag of fertilizer sold
imposition under LOI 1465 which, in turn, remitted the amount to the
defendant Planters Products, Inc. thru the latters depository bank, Far East
Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil
Corporation, which is a private domestic corporation, became poorer by the
amount of P6,698,144.00 and the defendant, Planters Product, Inc., another
private domestic corporation, became richer by the amount of P6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted

jurisprudence, it is quite evident that LOI 1465 insofar as it imposes the
amount of P10 per fertilizer bag sold in the country and orders that the said
amount should go to the defendant Planters Product, Inc. is unlawful because
it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product,
Inc.[12]

PPI moved for reconsideration but its motion was denied.[13] PPI then filed a notice of appeal
with the RTC but it failed to pay the requisite appeal docket fee. In a separate but related
proceeding, this Court[14] allowed the appeal of PPI and remanded the case to the CA for
proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of
the RTC, with the following fallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is

hereby AFFIRMED, subject to the MODIFICATION that the award of
attorneys fees is hereby DELETED.[15]

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection
was the constitutionality of LOI No. 1465, thus:
 The question then is whether it was proper for the trial court to exercise its
power to judicially determine the constitutionality of the subject statute in the
instant case.

As a rule, where the controversy can be settled on other grounds, the courts
will not resolve the constitutionality of a law (Lim v. Pacquing, 240 SCRA 649
[1995]). The policy of the courts is to avoid ruling on constitutional questions
and to presume that the acts of political departments are valid, absent a clear
and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the
following requisites are obtaining in a controversy before it:First, there must
be before the court an actual case calling for the exercise of judicial
review. Second, the question must be ripe for adjudication. Third, the person
challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity;
and lastly, the issue of constitutionality must be the very lis mota of the case
(Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).

Indisputably, the present case was primarily instituted for collection and
damages. However, a perusal of the complaint also reveals
that the instant action is founded on the claim that the levy imposed was an
unlawful and unconstitutional special assessment. Consequently, the requisite
that the constitutionality of the law in question be the very lis mota of the case
is present, making it proper for the trial court to rule on the constitutionality
of LOI 1465.[16]

The CA held that even on the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not promote public welfare. The
CA explained:

In declaring LOI 1465 unconstitutional, the trial court held that the
levy imposed under the said law was an invalid exercise of the States power of
taxation inasmuch as it violated the inherent and constitutional prescription
that taxes be levied only for public purposes. It reasoned out that the amount
collected under the levy was remitted to the depository bank of PPI, which the
latter used to advance its private interest.

On the other hand, appellant submits that the subject statutes passage was a
valid exercise of police power. In addition, it disputes the court a quos findings
arguing that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust
for millions of farmers, the stock ownership of PPI.
 Of the three fundamental powers of the State, the exercise of police power has
been characterized as the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs. It may be exercised
as long as the activity or the property sought to be regulated has some
relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995
Edition).

Vast as the power is, however, it must be exercised within the limits set by the
Constitution, which requires the concurrence of a lawful subject and a lawful
method. Thus, our courts have laid down the test to determine the validity of
a police measure as follows: (1) the interests of the public generally, as
distinguished from those of a particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals (National Development
Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).

It is upon applying this established tests that We sustain the trial courts
holding LOI 1465 unconstitutional. To be sure, ensuring the continued supply
and distribution of fertilizer in the country is an undertaking imbued with
public interest. However, the method by which LOI 1465 sought to achieve this
is by no means a measure that will promote the public welfare. The
governments commitment to support the successful rehabilitation and
continued viability of PPI, a private corporation, is an unmistakable attempt
to mask the subject statutes impartiality. There is no way to treat the self-
interest of a favored entity,
like PPI, as identical with the general interest of the countrys farmers or even
the Filipino people in general. Well to stress, substantive due process exacts
fairness and equal protection disallows distinction where none is
needed. When a statutes public purpose is spoiled by private interest, the use
of police power becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private
individuals.[17]

The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the
benefit of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership
of PPI. The CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit
of Planters Foundation, Incorporated (PFI), a foundation created by law to hold
in trust for millions of farmers, the stock ownership of PFI on the strength of
Letter of Undertaking (LOU) issued by then Prime Minister Cesar Virata
on April 18, 1985 and affirmed by the Secretary of Justice in an Opinion
dated October 12, 1987, to wit:
 2. Upon the effective date of this Letter of Undertaking, the
Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will
be used initially for the purpose of funding the unpaid portion of
the outstanding capital stock of Planters presently held in trust
by Planters Foundation, Inc. (Planters Foundation), which
unpaid capital is estimated at approximately P206 million
(subject to validation by Planters and Planters Foundation)
(such unpaid portion of the outstanding capital stock of Planters
being hereafter referred to as the Unpaid Capital), and
subsequently for such capital increases as may be required for
the continuing viability of Planters.

The capital recovery component shall be in the minimum

amount of P10 per bag, which will be added to the price of all
domestic sales of fertilizer in the Philippines by any importer
and/or fertilizer mother company. In this connection, the
Republic hereby acknowledges that the advances by Planters to
Planters Foundation which were applied to the payment of the
Planters shares now held in trust by Planters Foundation, have
been assigned to, among others, the Creditors. Accordingly, the
Republic, through FPA, hereby agrees to deposit the proceeds of
the capital recovery component in the special trust account
designated in the notice dated April 2, 1985, addressed by
counsel for the Creditors to Planters Foundation. Such proceeds
shall be deposited by FPA on or before the 15th day of each
month.

The capital recovery component shall continue to be charged and

collected until payment in full of (a) the Unpaid Capital and/or
(b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts
which may be outstanding from time to time of the Unpaid
Capital and/or the Subsidy Receivables and (d) the capital
increases contemplated in paragraph 2 hereof. For the purpose
of the foregoing clause (c), the carrying cost shall be at such rate
as will represent the full and reasonable cost to Planters of
servicing its debts, taking into account both its peso and foreign
currency-denominated obligations. (Records, pp. 42-43)

Appellants proposition is open to question, to say the least. The LOU issued by
then Prime Minister Virata taken together with the Justice Secretarys Opinion
does not preponderantly demonstrate that the collections made were held in
trust in favor of millions of farmers.Unfortunately for appellant, in the absence
of sufficient evidence to establish its claims, this Court is constrained to rely
on what is explicitly provided in LOI 1465 that one of the primary aims in
 imposing the levy is to support the successful rehabilitation and continued
viability of PPI.[18]

PPI moved for reconsideration but its motion was denied.[19] It then filed the present
petition with this Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY
ATTACKED AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE
FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF
CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR
ENTITY WHICH HASNO STANDING TO DO SO.

II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF
ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE
COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW
TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT
TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC
PURPOSES.

III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY
COMPONENT WAS REMITTED TO THE GOVERNMENT, ANDBECAME
GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY
ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS
BY VIRTUE OF THE PRINCIPLE OF OPERATIVE FACT PRIOR TO ANY
DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.

IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT)
FINDS NO APPLICATION IN THE INSTANT CASE.[20](Underscoring
supplied)

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to
resolve constitutional issues.
Fertiphil has locus standi because it suffered
direct injury; doctrine of standing is a mere
procedural technicality which may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI
No. 1465 because it does not have a personal and substantial interest in the case or will
sustain direct injury as a result of its enforcement.[21] It asserts that Fertiphil did not suffer
any damage from the CRC imposition because incidence of the levy fell on the ultimate
consumer or the farmers themselves, not on the seller fertilizer company.[22]

We cannot agree. The doctrine of locus standi or the right of appearance in a court of
justice has been adequately discussed by this Court in a catena of cases. Succinctly put, the
doctrine requires a litigant to have a material interest in the outcome of a case. In private
suits, locus standi requires a litigant to be a real party in interest, which is defined as the
party who stands to be benefited or injured by the judgment in the suit or the party entitled
to the avails of the suit.[23]

In public suits, this Court recognizes the difficulty of applying the doctrine especially
when plaintiff asserts a public right on behalf of the general public because of conflicting
public policy issues. [24] On one end, there is the right of the ordinary citizen to petition the
courts to be freed from unlawful government intrusion and illegal official action. At the other
end, there is the public policy precluding excessive judicial interference in official acts, which
may unnecessarily hinder the delivery of basic public services.

In this jurisdiction, We have adopted the direct injury test to determine locus standi in
public suits. In People v. Vera,[25] it was held that a person who impugns the validity of a
statute must have a personal and substantial interest in the case such that he has sustained,
or will sustain direct injury as a result. The direct injury test in public suits is similar to the
real party in interest rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.[26]

Recognizing that a strict application of the direct injury test may hamper public
interest, this Court relaxed the requirement in cases of transcendental importance or with
far reaching implications. Being a mere procedural technicality, it has also been held
that locus standi may be waived in the public interest.[27]
 Whether or not the complaint for collection is characterized as a private or public suit,
Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of
LOI No. 1465. It was required, and it did pay, the P10 levy imposed for every bag of fertilizer
sold on the domestic market. It may be true that Fertiphil has passed some or all of the levy
to the ultimate consumer, but that does not disqualify it from attacking the constitutionality
of the LOI or from seeking a refund. As seller, it bore the ultimate burden of paying the
levy. It faced the possibility of severe sanctions for failure to pay the levy. The fact of payment
is sufficient injury to Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was
compelled to factor in its product the levy. The levy certainly rendered the fertilizer products
of Fertiphil and other domestic sellers much more expensive. The harm to their business
consists not only in fewer clients because of the increased price, but also in adopting
alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other
fertilizer sellers may have shouldered all or part of the levy just to be competitive in the
market. The harm occasioned on the business of Fertiphil is sufficient injury for purposes
of locus standi.

Even assuming arguendo that there is no direct injury, We find that the liberal policy
consistently adopted by this Court on locus standi must apply. The issues raised by Fertiphil
are of paramount public importance. It involves not only the constitutionality of a tax law
but, more importantly, the use of taxes for public purpose. Former President Marcos issued
LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear
from the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the
levy. Worse, the levy was made dependent and conditional upon PPI becoming financially
viable. The LOI provided that the capital contribution shall be collected until adequate
capital is raised to make PPI viable.

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is
Our constitutional duty to squarely resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing, being a mere procedural technicality, should be
waived, if at all, to adequately thresh out an important constitutional issue.
RTC may resolve constitutional issues; the
constitutional issue was adequately raised in the
complaint; it is the lis mota of the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the
LOI. It asserts that the constitutionality of the LOI cannot be collaterally attacked in a
complaint for collection.[28] Alternatively, the resolution of the constitutional issue is not
necessary for a determination of the complaint for collection.[29]

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its
complaint. It claims that the constitutionality of LOI No. 1465 is the very lis mota of the case
because the trial court cannot determine its claim without resolving the issue.[30]

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute,
presidential decree or an executive order. This is clear from Section 5, Article VIII of the 1987
Constitution, which provides:

SECTION 5. The Supreme Court shall have the following powers:

xxxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as

the law or the Rules of Court may provide, final judgments and orders of lower
courts in:

(a) All cases in which the constitutionality or validity of

any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction, ordinance,
or regulation is in question. (Underscoring supplied)

In Mirasol v. Court of Appeals,[31] this Court recognized the power of the RTC to
resolve constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the
authority and jurisdiction to consider the constitutionality of a statute,
presidential decree, or executive order. The Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
 agreement, presidential decree, order, instruction, ordinance, or regulation not
only in this Court, but in all Regional Trial Courts.[32]

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign

Affairs,[33] this Court reiterated:

There is no denying that regular courts have jurisdiction over cases

involving the validity or constitutionality of a rule or regulation issued by
administrative agencies. Such jurisdiction, however, is not limited to the Court
of Appeals or to this Court alone for even the regional trial courts can take
cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of judicial
review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts.[34]

Judicial review of official acts on the ground of unconstitutionality may be sought or

availed of through any of the actions cognizable by courts of justice, not necessarily in a suit
for declaratory relief. Such review may be had in criminal actions, as in People v.
Ferrer[35] involving the constitutionality of the now defunct Anti-Subversion law, or in
ordinary actions, as in Krivenko v. Register of Deeds[36] involving the constitutionality of laws
prohibiting aliens from acquiring public lands. The constitutional issue, however, (a) must
be properly raised and presented in the case, and (b) its resolution is necessary to a
determination of the case, i.e., the issue of constitutionality must be the very lis
mota presented.[37]

Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and
adequately raised in the complaint for collection filed with the RTC. The pertinent portions
of the complaint allege:

6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of
all grades of fertilizer in the Philippines, is unlawful, unjust, uncalled for,
unreasonable, inequitable and oppressive because:
xxxx

(c) It favors only one private domestic corporation, i.e.,

defendant PPPI, and imposed at the expense and disadvantage
of the other fertilizer importers/distributors who were
themselves in tight business situation and were then exerting
all efforts and maximizing management and marketing skills to
remain viable;
 xxxx

(e) It was a glaring example of crony capitalism, a forced

program through which the PPI, having been presumptuously
masqueraded as the fertilizer industry itself, was the sole and
anointed beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment

and its imposition is tantamount to illegal exaction amounting to a denial of
due process since the persons of entities which had to bear the burden of paying
the CRC derived no benefit therefrom; that on the contrary it was used by PPI
in trying to regain its former despicable monopoly of the fertilizer industry to
the detriment of other distributors and importers.[38] (Underscoring supplied)

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for
collection. Fertiphil filed the complaint to compel PPI to refund the levies paid under the
statute on the ground that the law imposing the levy is unconstitutional. The thesis is that
an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no legal
obligation to pay the levy. Necessarily, all levies duly paid pursuant to an unconstitutional
law should be refunded under the civil code principle against unjust enrichment. The refund
is a mere consequence of the law being declared unconstitutional. The RTC surely cannot
order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the
unconstitutionality of the LOI which triggers the refund. The issue of constitutionality is the
very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is an exercise

of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power
of taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer
supply and distribution in the country and for benefiting a foundation created by law to hold
in trust for millions of farmers their stock ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give
benefit to a private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil
also argues that, even if the LOI is enacted under the police power, it is still unconstitutional
because it did not promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers
are distinct and have different tests for validity. Police power is the power of the State to
enact legislation that may interfere with personal liberty or property in order to promote the
general welfare,[39] while the power of taxation is the power to levy taxes to be used for public
purpose. The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power.[40] The power of taxation, on
the other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of
its taxation power. While it is true that the power of taxation can be used as an implement
of police power,[41] the primary purpose of the levy is revenue generation. 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.[42]

In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle
registration fee is not an exercise by the State of its police power, but of its taxation power,
thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123

and Section 61 of the Land Transportation and Traffic Code that the legislative
intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the
administering agency. x x x Fees may be properly regarded as taxes even
though they also serve as an instrument of regulation.

Taxation may be made the implement of the state's police power (Lutz
v. Araneta, 98 Phil. 148). 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 same
provision appears as Section 59(b) in the Land Transportation Code. It is
patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor
vehicle as a tax or fee. x x x Simply put, if the exaction under Rep. Act 4136
were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an
additional tax. Rep. Act 4136 also speaks of other fees such as the special
 permit fees for certain types of motor vehicles (Sec. 10) and additional fees for
change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle registration
fee and chauffeurs license fee. Such fees are to go into the expenditures of the
Land Transportation Commission as provided for in the last proviso of Sec.
61.[44] (Underscoring supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the seller or the ultimate consumer. It
increased the price of a bag of fertilizer by as much as five percent. [45] A plain reading of the
LOI also supports the conclusion that the levy was for revenue generation. The LOI expressly
provided that the levy was imposed until adequate capital is raised to make PPI viable.

Taxes are exacted only for a public purpose.

The P10 levy is unconstitutional because it was
not for a public purpose. The levy was imposed to
give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted
only for a public purpose. They cannot be used for purely private purposes or for the exclusive
benefit of private persons.[46] The reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation that it should be used only for
a public purpose. It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case bluntly put it: To lay with one
hand, the power of the government on the property of the citizen, and with the other to bestow
it upon favored individuals to aid private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms of law and is called taxation.[47]

The term public purpose is not defined. It is an elastic concept that can be hammered
to fit modern standards. Jurisprudence states that public purpose should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but
also includes those purposes designed to promote social justice. Thus, public money may now
be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent requirement that
taxes can only be exacted for a public purpose still stands. Public purpose is the heart of a
tax law. When a tax law is only a mask to exact funds from the public when its true intent is
to give undue benefit and advantage to a private enterprise, that law will not satisfy the
requirement of public purpose.

The purpose of a law is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the levy imposed under LOI No. 1465
was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private
company. The purpose is explicit from Clause 3 of the law, thus:

3. The Administrator of the Fertilizer Pesticide Authority to include in its

fertilizer pricing formula a capital contribution component of not less
than P10 per bag. This capital contribution shall be collected until
adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in
the Philippines.[48] (Underscoring supplied)

It is a basic rule of statutory construction that the text of a statute should be given a
literal meaning. In this case, the text of the LOI is plain that the levy was imposed in order
to raise capital for PPI. The framers of the LOI did not even hide the insidious purpose of the
law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied
under the LOI. We find it utterly repulsive that a tax law would expressly name a private
company as the ultimate beneficiary of the taxes to be levied from the public. This is a clear
case of crony capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and
dependent upon PPI becoming financially viable. This suggests that the levy was actually
imposed to benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed
financially viable. Worse, the liability of Fertiphil and other domestic sellers of fertilizer to
pay the levy is made indefinite. They are required to continuously pay the levy until adequate
capital is raised for PPI.
 Third, the RTC and the CA held that the levies paid under the LOI were directly
remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank
of PPI.[49] This proves that PPI benefited from the LOI. It is also proves that the main purpose
of the law was to give undue benefit and advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding[50] dated May 18, 1985signed by then Prime Minister Cesar Virata reveals
that PPI was in deep financial problem because of its huge corporate debts. There were
pending petitions for rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPIs debts to its foreign creditors. To
fund the payment, President Marcos issued LOI No. 1465. The pertinent portions of the letter
of understanding read:

Republic of the Philippines

Office of the Prime Minister
Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS

LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)

Gentlemen:

This has reference to Planters which is the principal importer and distributor
of fertilizer, pesticides and agricultural chemicals in the Philippines. As
regards Planters, the Philippine Government confirms its awareness of the
following: (1) that Planters has outstanding obligations in foreign currency
and/or pesos, to the Creditors, (2) that Planters is currently experiencing
financial difficulties, and (3) that there are presently pending with the
Securities and Exchange Commission of the Philippines a petition filed at
Planters own behest for the suspension of payment of all its obligations, and a
separate petition filed by Manufacturers Hanover Trust Company, Manila
Offshore Branch for the appointment of a rehabilitation receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the Republic)
confirms that it considers and continues to consider Planters as a major
fertilizer distributor. Accordingly, for and in consideration of your expressed
willingness to consider and participate in the effort to rehabilitate
Planters, the Republic hereby manifests its full and unqualified support of the
 successful rehabilitation and continuing viability of Planters, and to that end,
hereby binds and obligates itself to the creditors and Planters, as follows:

xxxx

2. Upon the effective date of this Letter of Undertaking, the Republic

shall cause FPA to include in its fertilizer pricing formula a capital recovery
component, the proceeds of which will be used initially for the purpose of
funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. (Planters Foundation),
which unpaid capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the Unpaid
Capital), and subsequently for such capital increases as may be required for
the continuing viability of Planters.

xxxx

The capital recovery component shall continue to be charged and

collected until payment in full of (a) the Unpaid Capital and/or (b) any shortfall
in the payment of the Subsidy Receivables, (c) any carrying cost accruing from
the date hereof on the amounts which may be outstanding from time to time of
the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital
increases contemplated in paragraph 2 hereof. For the purpose of the foregoing
clause (c), the carrying cost shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking into account both its
peso and foreign currency-denominated obligations.

REPUBLIC OF THE PHILIPPINES

By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]

It is clear from the Letter of Understanding that the levy was imposed precisely to
pay the corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure
the stability of the fertilizer industry in the country. The letter of understanding and the
plain text of the LOI clearly indicate that the levy was exacted for the benefit of a private
corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI
No. 1465 was not for a public purpose. LOI No. 1465 failed to comply with the public purpose
requirement for tax laws.
The LOI is still unconstitutional even if enacted
under the police power; it did not promote public
interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still
be invalid for failing to comply with the test of lawful subjects and lawful
means. Jurisprudence states the test as follows: (1) the interest of the public generally, as
distinguished from those of particular class, requires its exercise; and (2) the means employed
are reasonably necessary for the accomplishment of the purpose and not unduly oppressive
upon individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote
with approval the CA ratiocination on this point, thus:

It is upon applying this established tests that We sustain the trial

courts holding LOI 1465 unconstitutional. To be sure, ensuring the continued
supply and distribution of fertilizer in the country is an undertaking imbued
with public interest. However, the method by which LOI 1465 sought to
achieve this is by no means a measure that will promote the public
welfare. The governments commitment to support the successful rehabilitation
and continued viability of PPI, a private corporation, is an unmistakable
attempt to mask the subject statutes impartiality. There is no way to treat the
self-interest of a favored entity, like PPI, as identical with the general interest
of the countrys farmers or even the Filipino people in general. Well to stress,
substantive due process exacts fairness and equal protection disallows
distinction where none is needed. When a statutes public purpose is spoiled by
private interest, the use of police power becomes a travesty which must be
struck down for being an arbitrary exercise of government power. To rule in
favor of appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private individuals. (Underscoring supplied)

The general rule is that an unconstitutional law

is void; the doctrine of operative fact is
inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared
unconstitutional. It banks on the doctrine of operative fact, which provides that an
unconstitutional law has an effect before being declared unconstitutional. PPI wants to
retain the levies paid under LOI No. 1465 even if it is subsequently declared to be
unconstitutional.
 We cannot agree. It is settled that no question, issue or argument will be entertained
on appeal, unless it has been raised in the court a quo.[53] PPI did not raise the applicability
of the doctrine of operative fact with the RTC and the CA. It cannot belatedly raise the issue
with Us in order to extricate itself from the dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an
unconstitutional law is void. It produces no rights, imposes no duties and affords no
protection. It has no legal effect. It is, in legal contemplation, inoperative as if it has not been
passed.[54] Being void, Fertiphil is not required to pay the levy. All levies paid should be
refunded in accordance with the general civil code principle against unjust enrichment. The
general rule is supported by Article 7 of the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation
or non-observance shall not be excused by disuse or custom or practice to the
contrary.

When the courts declare a law to be inconsistent with the Constitution,

the former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a
matter of equity and fair play.[55] It nullifies the effects of an unconstitutional law by
recognizing that the existence of a statute prior to a determination of unconstitutionality is
an operative fact and may have consequences which cannot always be ignored. The past
cannot always be erased by a new judicial declaration.[56]

The doctrine is applicable when a declaration of unconstitutionality will impose an

undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal
case when a declaration of unconstitutionality would put the accused in double jeopardy[57] or
would put in limbo the acts done by a municipality in reliance upon a law creating it.[58]

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid
by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was proven during the
trial that the levies paid were remitted and deposited to its bank account. Quite the reverse,
it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI
at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that every person
who, through an act of performance by another comes into possession of something at the
expense of the latter without just or legal ground shall return the same to him. We cannot
allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must
refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28,
2003 is AFFIRMED.

SO ORDERED.

EN BANC

[G. R. No. 119775. October 24, 2003]

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIO FOUNDATION INC.,

CENTER FOR ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA
VICTORIA A. BENAFIN REPRESENTED AND JOINED BY HER MOTHER MRS.
ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER
MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED
AND JOINED BY HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO,
ALICIA C. PACALSO ALIAS KEVAB, BETTY I. STRASSER, RUBY C. GIRON,
URSULA C. PEREZ ALIAS BA-YAY, EDILBERTO T. CLARAVALL, CARMEN
CAROMINA, LILIA G. YARANON, DIANE MONDOC, petitioners, vs. VICTOR LIM,
PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY
PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX
(B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC.,
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, respondents.

DECISION
CARPIO MORALES, J.:

By the present petition for prohibition, mandamus and declaratory relief with prayer for
a temporary restraining order (TRO) and/or writ of preliminary injunction, petitioners assail,
in the main, the constitutionality of Presidential Proclamation No. 420, Series of 1994,
CREATING AND DESIGNATING A PORTION OF THE AREA COVERED BY THE
FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL ECONOMIC ZONE
PURSUANT TO REPUBLIC ACT NO. 7227.
Republic Act No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY
RESERVATIONS INTO OTHER PRODUCTIVE USES, CREATING THE BASES
CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING
FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the Bases
Conversion and Development Act of 1992, which was enacted on March 13, 1992, set out the
policy of the government to accelerate the sound and balanced conversion into alternative
productive uses of the former military bases under the 1947 Philippines-United States of
America Military Bases Agreement, namely, the Clark and Subic military reservations as
well as their extensions including the John Hay Station (Camp John Hay or the camp) in the
City of Baguio.[1]
As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and
Development Authority[2] (BCDA), vesting it with powers pertaining to the multifarious
aspects of carrying out the ultimate objective of utilizing the base areas in accordance with
the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic
SEZ) the metes and bounds of which were to be delineated in a proclamation to be issued by
the President of the Philippines.[3]
R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and duty-free
importations, exemption of businesses therein from local and national taxes, to other
hallmarks of a liberalized financial and business climate.[4]
And R.A. No. 7227 expressly gave authority to the President to create through executive
proclamation, subject to the concurrence of the local government units directly affected, other
Special Economic Zones (SEZ) in the areas covered respectively by the Clark military
reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay.[5]
On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow
Agreement with private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD), private corporations registered under the laws of
the British Virgin Islands, preparatory to the formation of a joint venture for the development
of Poro Point in La Union and Camp John Hay as premier tourist destinations and recreation
centers. Four months later or on December 16, 1993, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement[6] whereby they bound themselves to put up a joint
venture company known as the Baguio International Development and Management
Corporation which would lease areas within Camp John Hay and Poro Point for the purpose
of turning such places into principal tourist and recreation spots, as originally envisioned by
the parties under their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of resolutions in response to
the actions taken by BCDA as owner and administrator of Camp John Hay.
By Resolution[7] of September 29, 1993, the Sangguniang Panlungsod of Baguio City
(the sanggunian) officially asked BCDA to exclude all the barangays partly or totally located
within Camp John Hay from the reach or coverage of any plan or program for its
development.
By a subsequent Resolution[8] dated January 19, 1994, the sanggunian sought from
BCDA an abdication, waiver or quitclaim of its ownership over the home lots being occupied
by residents of nine (9) barangays surrounding the military reservation.
Still by another resolution passed on February 21, 1994, the sanggunian adopted and
submitted to BCDA a 15-point concept for the development of Camp John
Hay.[9] The sanggunians vision expressed, among other things, a kind of development that
affords protection to the environment, the making of a family-oriented type of tourist
destination, priority in employment opportunities for Baguio residents and free access to the
base area, guaranteed participation of the city government in the management and operation
of the camp, exclusion of the previously named nine barangays from the area for
development, and liability for local taxes of businesses to be established within the camp.[10]
BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected or modified the other
proposals of the sanggunian.[11] They stressed the need to declare Camp John Hay a SEZ as
a condition precedent to its full development in accordance with the mandate of R.A. No.
7227.[12]
On May 11, 1994, the sanggunian passed a resolution requesting the Mayor to order the
determination of realty taxes which may otherwise be collected from real properties of Camp
John Hay.[13] The resolution was intended to intelligently guide the sanggunian in
determining its position on whether Camp John Hay be declared a SEZ, it
(the sanggunian) being of the view that such declaration would exempt the camps property
and the economic activity therein from local or national taxation.
More than a month later, however, the sanggunian passed Resolution No. 255, (Series of
1994),[14] seeking and supporting, subject to its concurrence, the issuance by then President
Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a
SEZ in accordance with the provisions of R.A. No. 7227. Together with this resolution was
submitted a draft of the proposed proclamation for consideration by the President.[15]
On July 5, 1994 then President Ramos issued Proclamation No. 420,[16] the title of which
was earlier indicated, which established a SEZ on a portion of Camp John Hay and which
reads as follows:

xxx

Pursuant to the powers vested in me by the law and the resolution of concurrence by the
City Council of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do hereby create
and designate a portion of the area covered by the former John Hay reservation as
embraced, covered, and defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended, as the John Hay Special
Economic Zone, and accordingly order:

SECTION 1. Coverage of John Hay Special Economic Zone. The John Hay Special Economic
Zone shall cover the area consisting of Two Hundred Eighty Eight and one/tenth (288.1)
hectares, more or less, of the total of Six Hundred Seventy-Seven (677) hectares of the John
Hay Reservation, more or less, which have been surveyed and verified by the Department of
Environment and Natural Resources (DENR) as defined by the following technical
description:

A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon, and
particularly described in survey plans Psd-131102-002639 and Ccs-131102-000030 as
approved on 16 August 1993 and 26 August 1993, respectively, by the Department of
Environment and Natural Resources, in detail containing :
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 of Ccs-
131102-000030

-and-

Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17,
and Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812, LRC Rec. No. 87.

With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTH

HECTARES (288.1 hectares); Provided that the area consisting of approximately Six and
two/tenth (6.2) hectares, more or less, presently occupied by the VOA and the residence of
the Ambassador of the United States, shall be considered as part of the SEZ only upon
turnover of the properties to the government of the Republic of the Philippines.

Sec. 2. Governing Body of the John Hay Special Economic Zone. Pursuant to Section 15 of
Republic Act No. 7227, the Bases Conversion and Development Authority is hereby
established as the governing body of the John Hay Special Economic Zone and, as such,
authorized to determine the utilization and disposition of the lands comprising it, subject to
private rights, if any, and in consultation and coordination with the City Government of
Baguio after consultation with its inhabitants, and to promulgate the necessary policies,
rules, and regulations to govern and regulate the zone thru the John Hay Poro Point
Development Corporation, which is its implementing arm for its economic development and
optimum utilization.

Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m)
and Section 15 of Republic Act No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules, and regulations governing the
zone, including investment incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives
granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that may hereinafter be enacted.

Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities. All Heads of
departments, bureaus, offices, agencies, and instrumentalities of the government are
hereby directed to give full support to Bases Conversion and Development Authority and/or
its implementing subsidiary or joint venture to facilitate the necessary approvals to
expedite the implementation of various projects of the conversion program.

Sec. 5. Local Authority. Except as herein provided, the affected local government units shall
retain their basic autonomy and identity.

Sec. 6. Repealing Clause. All orders, rules, and regulations, or parts thereof, which are
inconsistent with the provisions of this Proclamation, are hereby repealed, amended, or
modified accordingly.

Sec. 7. Effectivity. This proclamation shall take effect immediately.

Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteen hundred
and ninety-four.

The issuance of Proclamation No. 420 spawned the present petition[17] for
prohibition, mandamus and declaratory relief which was filed on April 25, 1995 challenging,
in the main, its constitutionality or validity as well as the legality of the Memorandum of
Agreement and Joint Venture Agreement between public respondent BCDA and private
respondents TUNTEX and ASIAWORLD.
Petitioners allege as grounds for the allowance of the petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR
AS IT GRANTS TAX EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS AN
UNCONSTITUTIONAL EXERCISE BY THE PRESIDENT OF A POWER
GRANTED ONLY TO THE LEGISLATURE.
II. PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE
POWERS AND INTERFERES WITH THE AUTONOMY OF THE CITY OF
BAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 IS
UNCONSTITUTIONAL IN THAT IT VIOLATES THE RULE THAT ALL TAXES
SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND
BETWEEN PRIVATE AND PUBLIC RESPONDENTS BASES CONVERSION
DEVELOPMENT AUTHORITY HAVING BEEN ENTERED INTO ONLY BY
DIRECT NEGOTIATION IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF
AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND PUBLIC
RESPONDENT BASES CONVERSION DEVELOPMENT
AUTHORITY IS (sic) ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT
HAVING UNDERGONE ENVIRONMENTAL IMPACT ASSESSMENT IS
BEING ILLEGALLY CONSIDERED WITHOUT A VALID ENVIRONMENTAL
IMPACT ASSESSMENT.
A temporary restraining order and/or writ of preliminary injunction was prayed for to
enjoin BCDA, John Hay Poro Point Development Corporation and the city government from
implementing Proclamation No. 420, and TUNTEX and ASIAWORLD from proceeding with
their plan respecting Camp John Hays development pursuant to their Joint Venture
Agreement with BCDA.[18]
Public respondents, by their separate Comments, allege as moot and academic the issues
raised by the petition, the questioned Memorandum of Agreement and Joint Venture
Agreement having already been deemed abandoned by the inaction of the parties thereto
prior to the filing of the petition as in fact, by letter of November 21, 1995, BCDA formally
notified TUNTEX and ASIAWORLD of the revocation of their said agreements.[19]
In maintaining the validity of Proclamation No. 420, respondents contend that by
extending to the John Hay SEZ economic incentives similar to those enjoyed by the Subic
SEZ which was established under R.A. No. 7227, the proclamation is merely implementing
the legislative intent of said law to turn the US military bases into hubs of business activity
or investment. They underscore the point that the governments policy of bases conversion
can not be achieved without extending the same tax exemptions granted by R.A. No. 7227 to
Subic SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the local autonomy of Baguio City
or that it is violative of the constitutional guarantee of equal protection, respondents assail
petitioners lack of standing to bring the present suit even as taxpayers and in the absence of
any actual case or controversy to warrant this Courts exercise of its power of judicial review
over the proclamation.
Finally, respondents seek the outright dismissal of the petition for having been filed in
disregard of the hierarchy of courts and of the doctrine of exhaustion of administrative
remedies.
Replying,[20] petitioners aver that the doctrine of exhaustion of administrative remedies
finds no application herein since they are invoking the exclusive authority of this Court under
Section 21 of R.A. No. 7227 to enjoin or restrain implementation of projects for conversion of
the base areas; that the established exceptions to the aforesaid doctrine obtain in the present
petition; and that they possess the standing to bring the petition which is a taxpayers suit.
Public respondents have filed their Rejoinder[21] and the parties have filed their
respective memoranda.
Before dwelling on the core issues, this Court shall first address the preliminary
procedural questions confronting the petition.
The judicial policy is and has always been that this Court will not entertain direct resort
to it except when the redress sought cannot be obtained in the proper courts, or when
exceptional and compelling circumstances warrant availment of a remedy within and calling
for the exercise of this Courts primary jurisdiction.[22] Neither will it entertain an action for
declaratory relief, which is partly the nature of this petition, over which it has no original
jurisdiction.
Nonetheless, as it is only this Court which has the power under Section 21[23] of R.A. No.
7227 to enjoin implementation of projects for the development of the former US military
reservations, the issuance of which injunction petitioners pray for, petitioners direct filing of
the present petition with it is allowed. Over and above this procedural objection to the present
suit, this Court retains full discretionary power to take cognizance of a petition filed directly
to it if compelling reasons, or the nature and importance of the issues raised,
warrant.[24] Besides, remanding the case to the lower courts now would just unduly prolong
adjudication of the issues.
The transformation of a portion of the area covered by Camp John Hay into a SEZ is not
simply a re-classification of an area, a mere ascription of a status to a place. It involves
turning the former US military reservation into a focal point for investments by both local
and foreign entities. It is to be made a site of vigorous business activity, ultimately serving
as a spur to the countrys long awaited economic growth. For, as R.A. No. 7227 unequivocally
declares, it is the governments policy to enhance the benefits to be derived from the base
areas in order to promote the economic and social development of Central Luzon in particular
and the country in general.[25] Like the Subic SEZ, the John Hay SEZ should also be turned
into a self-sustaining, industrial, commercial, financial and investment center.[26]
More than the economic interests at stake, the development of Camp John Hay as well
as of the other base areas unquestionably has critical links to a host of environmental and
social concerns. Whatever use to which these lands will be devoted will set a chain of events
that can affect one way or another the social and economic way of life of the communities
where the bases are located, and ultimately the nation in general.
Underscoring the fragility of Baguio Citys ecology with its problem on the scarcity of its
water supply, petitioners point out that the local and national government are faced with the
challenge of how to provide for an ecologically sustainable, environmentally sound, equitable
transition for the city in the wake of Camp John Hays reversion to the mass of government
property.[27] But that is why R.A. No. 7227 emphasizes the sound and balanced conversion of
the Clark and Subic military reservations and their extensions consistent with ecological
and environmental standards.[28] It cannot thus be gainsaid that the matter of conversion of
the US bases into SEZs, in this case Camp John Hay, assumes importance of a national
magnitude.
Convinced then that the present petition embodies crucial issues, this Court assumes
jurisdiction over the petition.
As far as the questioned agreements between BCDA
and TUNTEX and ASIAWORLD are concerned, the legal questions being raised thereon by
petitioners have indeed been rendered moot and academic by the revocation of such
agreements. There are, however, other issues posed by the petition, those which center on
the constitutionality of Proclamation No. 420, which have not been mooted by the said
supervening event upon application of the rules for the judicial scrutiny of constitutional
cases. The issues boil down to:
(1) Whether the present petition complies with the requirements for this Courts
exercise of jurisdiction over constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by providing for national and
local tax exemption within and granting other economic incentives to the John
Hay Special Economic Zone; and
(3) Whether Proclamation No. 420 is constitutional for limiting or interfering with
the local autonomy of Baguio City;
It is settled that when questions of constitutional significance are raised, the court can
exercise its power of judicial review only if the following requisites are present: (1) the
existence of an actual and appropriate case; (2) a personal and substantial interest of the
party raising the constitutional question; (3) the exercise of judicial review is pleaded at the
earliest opportunity; and (4) the constitutional question is the lis mota of the case.[29]
An actual case or controversy refers to an existing case or controversy that is appropriate
or ripe for determination, not conjectural or anticipatory.[30] The controversy needs to be
definite and concrete, bearing upon the legal relations of parties who are pitted against each
other due to their adverse legal interests.[31] There is in the present case a real clash of
interests and rights between petitioners and respondents arising from the issuance of a
presidential proclamation that converts a portion of the area covered by Camp John Hay into
a SEZ, the former insisting that such proclamation contains unconstitutional provisions, the
latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the affected local government units
to the creation of SEZs out of all the base areas in the country.[32] The grant by the law on
local government units of the right of concurrence on the bases conversion is equivalent to
vesting a legal standing on them, for it is in effect a recognition of the real interests that
communities nearby or surrounding a particular base area have in its utilization. Thus, the
interest of petitioners, being inhabitants of Baguio, in assailing the legality of Proclamation
No. 420, is personal and substantial such that they have sustained or will sustain direct
injury as a result of the government act being challenged.[33]Theirs is a material interest, an
interest in issue affected by the proclamation and not merely an interest in the question
involved or an incidental interest,[34] for what is at stake in the enforcement of Proclamation
No. 420 is the very economic and social existence of the people of Baguio City.
Petitioners locus standi parallels that of the petitioner and other residents of Bataan,
specially of the town of Limay, in Garcia v. Board of Investments[35] where this Court
characterized their interest in the establishment of a petrochemical plant in their place as
actual, real, vital and legal, for it would affect not only their economic life but even the air
they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G. Yaranon were duly elected
councilors of Baguio at the time, engaged in the local governance of Baguio City and whose
duties included deciding for and on behalf of their constituents the question of whether to
concur with the declaration of a portion of the area covered by Camp John Hay as a SEZ.
Certainly then, petitioners Claravall and Yaranon, as city officials who voted
against[36] the sanggunian Resolution No. 255 (Series of 1994) supporting the issuance of the
now challenged Proclamation No. 420, have legal standing to bring the present petition.
That there is herein a dispute on legal rights and interests is thus beyond doubt. The
mootness of the issues concerning the questioned agreements between public and private
respondents is of no moment.

By the mere enactment of the questioned law or the approval of the challenged act, the
dispute is deemed to have ripened into a judicial controversy even without any other overt
act. Indeed, even a singular violation of the Constitution and/or the law is enough to
awaken judicial duty.[37]

As to the third and fourth requisites of a judicial inquiry, there is likewise no question
that they have been complied with in the case at bar. This is an action filed purposely to bring
forth constitutional issues, ruling on which this Court must take up. Besides, respondents
never raised issues with respect to these requisites, hence, they are deemed waived.
Having cleared the way for judicial review, the constitutionality of Proclamation No. 420,
as framed in the second and third issues above, must now be addressed squarely.
The second issue refers to petitioners objection against the creation by Proclamation No.
420 of a regime of tax exemption within the John Hay SEZ. Petitioners argue that nowhere
in R. A. No. 7227 is there a grant of tax exemption to SEZs yet to be established in base areas,
unlike the grant under Section 12 thereof of tax exemption and investment incentives to the
therein established Subic SEZ. The grant of tax exemption to the John Hay SEZ, petitioners
conclude, thus contravenes Article VI, Section 28 (4) of the Constitution which provides that
No law granting any tax exemption shall be passed without the concurrence of a majority of
all the members of Congress.
Section 3 of Proclamation No. 420, the challenged provision, reads:

Sec. 3. Investment Climate in John Hay Special Economic Zone. Pursuant to Section 5(m)
and Section 15 of Republic Act No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules, and regulations governing the
zone, including investment incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the applicable incentives of the Special
Economic Zone under Section 12 of Republic Act No. 7227 and those applicable
incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987,
the Foreign Investment Act of 1991, and new investment laws that may hereinafter be
enacted. (Emphasis and underscoring supplied)

Upon the other hand, Section 12 of R.A. No. 7227 provides:

xxx

(a) Within the framework and subject to the mandate and limitations of the Constitution
and the pertinent provisions of the Local Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities in and around the zone and to
attract and promote productive foreign investments;

b) The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as provide incentives such as tax and duty free
importations of raw materials, capital and equipment. However, exportation or removal of
goods from the territory of the Subic Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines;

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding,
no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In
lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local government units affected by the
declaration of the zone in proportion to their population area, and other factors. In addition,
there is hereby established a development fund of one percent (1%) of the gross income
earned by all businesses and enterprises within the Subic Special Economic Zone to be
utilized for the Municipality of Subic, and other municipalities contiguous to be base areas.
In case of conflict between national and local laws with respect to tax exemption privileges
in the Subic Special Economic Zone, the same shall be resolved in favor of the latter;

(d) No exchange control policy shall be applied and free markets for foreign exchange, gold,
securities and futures shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the
operations of banks and other financial institutions within the Subic Special Economic
Zone;

(f) Banking and Finance shall be liberalized with the establishment of foreign currency
depository units of local commercial banks and offshore banking units of foreign banks with
minimum Central Bank regulation;

(g) Any investor within the Subic Special Economic Zone whose continuing investment shall
not be less than Two Hundred fifty thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21) years of age, shall be granted permanent
resident status within the Subic Special Economic Zone. They shall have freedom of ingress
and egress to and from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay
Metropolitan Authority referred to in Section 13 of this Act may also issue working visas
renewable every two (2) years to foreign executives and other aliens possessing highly-
technical skills which no Filipino within the Subic Special Economic Zone possesses, as
certified by the Department of Labor and Employment. The names of aliens granted
permanent residence status and working visas by the Subic Bay Metropolitan Authority
shall be reported to the Bureau of Immigration and Deportation within thirty (30) days
after issuance thereof;

x x x (Emphasis supplied)

It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was
granted by Congress with tax exemption, investment incentives and the like. There is no
express extension of the aforesaid benefits to other SEZs still to be created at the time via
presidential proclamation.
The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and
investment privileges accorded it under the law, as the following exchanges between our
lawmakers show during the second reading of the precursor bill of R.A. No. 7227 with respect
to the investment policies that would govern Subic SEZ which are now embodied in the
aforesaid Section 12 thereof:

xxx

Senator Maceda: This is what I was talking about. We get into problems here because all of
these following policies are centered around the concept of free port. And in the main
paragraph above, we have declared both Clark and Subic as special economic zones, subject
to these policies which are, in effect, a free-port arrangement.

Senator Angara: The Gentleman is absolutely correct, Mr. President. So we must confine
these policies only to Subic.

May I withdraw then my amendment, and instead provide that THE SPECIAL
ECONOMIC ZONE OF SUBIC SHALL BE ESTABLISHED IN ACCORDANCE WITH
THE FOLLOWING POLICIES. Subject to style, Mr. President.
Thus, it is very clear that these principles and policies are applicable only to Subic as a free
port.

Senator Paterno: Mr. President.

The President: Senator Paterno is recognized.

Senator Paterno: I take it that the amendment suggested by Senator Angara would then
prevent the establishment of other special economic zones observing these policies.

Senator Angara: No, Mr. President, because during our short caucus, Senator Laurel raised
the point that if we give this delegation to the President to establish other economic zones,
that may be an unwarranted delegation.

So we agreed that we will simply limit the definition of powers and description of the zone
to Subic, but that does not exclude the possibility of creating other economic zones within
the baselands.

Senator Paterno: But if that amendment is followed, no other special economic zone may be
created under authority of this particular bill. Is that correct, Mr. President?

Senator Angara: Under this specific provision, yes, Mr. President. This provision now will
be confined only to Subic.[38]

x x x (Underscoring supplied).

As gathered from the earlier-quoted Section 12 of R.A. No. 7227, the privileges given to
Subic SEZ consist principally of exemption from tariff or customs duties, national and local
taxes of business entities therein (paragraphs (b) and (c)), free market and trade of specified
goods or properties (paragraph d), liberalized banking and finance (paragraph f), and relaxed
immigration rules for foreign investors (paragraph g). Yet, apart from these, Proclamation
No. 420 also makes available to the John Hay SEZ benefits existing in other laws such as the
privilege of export processing zone-based businesses of importing capital equipment and raw
materials free from taxes, duties and other restrictions;[39]tax and duty exemptions, tax
holiday, tax credit, and other incentives under the Omnibus Investments Code of 1987;[40] and
the applicability to the subject zone of rules governing foreign investments in the
Philippines.[41]
While the grant of economic incentives may be essential to the creation and success of
SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be
sustained. The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence,
the extension of the same to the John Hay SEZ finds no support therein. Neither does the
same grant of privileges to the John Hay SEZ find support in the other laws specified under
Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the
proclamation or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption.
It is the legislature, unless limited by a provision of the state constitution, that has full power
to exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax.[42] Other than Congress, the Constitution may itself
provide for specific tax exemptions,[43] or local governments may pass ordinances on
exemption only from local taxes.[44]
The challenged grant of tax exemption would circumvent the Constitutions imposition
that a law granting any tax exemption must have the concurrence of a majority of all the
members of Congress.[45] In the same vein, the other kinds of privileges extended to the John
Hay SEZ are by tradition and usage for Congress to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John
Hay SEZ from taxation should be manifest and unmistakable from the language of the law
on which it is based; it must be expressly granted in a statute stated in a language too clear
to be mistaken.[46] Tax exemption cannot be implied as it must be categorically and
unmistakably expressed.[47]
If it were the intent of the legislature to grant to the John Hay SEZ the same tax
exemption and incentives given to the Subic SEZ, it would have so expressly provided in the
R.A. No. 7227.
This Court no doubt can void an act or policy of the political departments of the
government on either of two groundsinfringement of the Constitution or grave abuse of
discretion.[48]
This Court then declares that the grant by Proclamation No. 420 of tax exemption and
other privileges to the John Hay SEZ is void for being violative of the Constitution. This
renders it unnecessary to still dwell on petitioners claim that the same grant violates the
equal protection guarantee.
With respect to the final issue raised by petitioners that Proclamation No. 420 is
unconstitutional for being in derogation of Baguio Citys local autonomy, objection is
specifically mounted against Section 2 thereof in which BCDA is set up as the governing body
of the John Hay SEZ.[49]
Petitioners argue that there is no authority of the President to subject the John Hay SEZ
to the governance of BCDA which has just oversight functions over SEZ; and that to do so is
to diminish the city governments power over an area within its jurisdiction, hence,
Proclamation No. 420 unlawfully gives the President power of control over the local
government instead of just mere supervision.
Petitioners arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted
with, among other things, the following purpose:[50]

xxx

(a) To own, hold and/or administer the military reservations of John Hay Air Station,
Wallace Air Station, ODonnell Transmitter Station, San Miguel Naval Communications
Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those portions of Metro Manila
Camps which may be transferred to it by the President;

x x x (Underscoring supplied)
With such broad rights of ownership and administration vested in BCDA over Camp John
Hay, BCDA virtually has control over it, subject to certain limitations provided for by law.
By designating BCDA as the governing agency of the John Hay SEZ, the law merely
emphasizes or reiterates the statutory role or functions it has been granted.
The unconstitutionality of the grant of tax immunity and financial incentives as
contained in the second sentence of Section 3 of Proclamation No. 420 notwithstanding, the
entire assailed proclamation cannot be declared unconstitutional, the other parts thereof not
being repugnant to law or the Constitution. The delineation and declaration of a portion of
the area covered by Camp John Hay as a SEZ was well within the powers of the President to
do so by means of a proclamation.[51] The requisite prior concurrence by the Baguio City
government to such proclamation appears to have been given in the form of a duly enacted
resolution by the sanggunian. The other provisions of the proclamation had been proven to
be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution, while another part is
valid, the valid portion, if separable from the invalid, may stand and be enforced.[52] This
Court finds that the other provisions in Proclamation No. 420 converting a delineated portion
of Camp John Hay into the John Hay SEZ are separable from the invalid second sentence of
Section 3 thereof, hence they stand.
WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby
declared NULL AND VOID and is accordingly declared of no legal force and effect. Public
respondents are hereby enjoined from implementing the aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains valid and effective.
SO ORDERED.

IRST DIVISION
 COMMISSIONER OF G.R. No. 184428
INTERNAL REVENUE,
Petitioner, Present:

CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

SAN MIGUEL CORPORATION, Promulgated:

Respondent.
November 23, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Elevated before us via a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, is the Decision[1]of the Court of Tax Appeals (CTA) En Banc in
C.T.A. EB No. 360 on a pure question of law, that is, whether the last paragraph of Section
1 of Bureau of Internal Revenue (BIR) Revenue Regulations No. 17-99 faithfully complies
with the mandate of Section 143 of the Tax Reform Act of 1997.

The facts are undisputed:

Respondent San Miguel Corporation, a domestic corporation engaged in the

manufacture and sale of fermented liquor, produces as one of its products Red Horse beer
which is sold in 500-ml. and 1-liter bottle variants.

On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997 took
effect. It reproduced, as Section 143 thereof, the provisions of Section 140 of the old National
Internal Revenue Code as amended by R.A. No. 8240[2]which became effective on January 1,
1997. Section 143 of the Tax Reform Act of 1997 reads:

SEC. 143. Fermented Liquor. - There shall be levied, assessed and

collected an excise tax on beer, lager beer, ale, porter and other fermented
liquors except tuba, basi, tapuy and similar domestic fermented liquors in
accordance with the following schedule:
 (a) If the net retail price (excluding the excise tax and value-added tax)
per liter of volume capacity is less than Fourteen pesos and fifty centavos
(P14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per liter;

(b) If the net retail price (excluding the excise tax and the value-added
tax) per liter of volume capacity is Fourteen pesos and fifty centavos (P14.50)
up to Twenty-two pesos (P22.00), the tax shall be Nine pesos and fifteen
centavos (P9.15) per liter;

(c) If the net retail price (excluding the excise tax and the value-added
tax) per liter of volume capacity is more than Twenty-two pesos (P22.00), the
tax shall be Twelve pesos and fifteen centavos (P12.15) per liter.

Variants of existing brands which are introduced in the domestic

market after the effectivity of Republic Act No. 8240 shall be taxed under the
highest classification of any variant of that brand.

Fermented liquor which are brewed and sold at micro-breweries or

small establishments such as pubs and restaurants shall be subject to the rate
in paragraph (c) hereof.

The excise tax from any brand of fermented liquor within the next three
(3) years from the effectivity of Republic Act No. 8240 shall not be lower than
the tax which was due from each brand on October 1, 1996.

The rates of excise tax on fermented liquor under paragraphs (a), (b)
and (c) hereof shall be increased by twelve percent (12%) on January 1, 2000.

x x x x (Emphasis and underscoring supplied.)

Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue

Regulations No. 17-99 increasing the applicable tax rates on fermented liquor by 12% as
follows:

SECTION DESCRIPTION OF PRESENT NEW SPECIFIC

ARTICLES SPECIFIC TAX
TAX RATES RATES(Effective
(Prior to January 1, 2000)
January 1,
2000)
xxxx
143 FERMENTED LIQUORS
(a) Net Retail Price per
liter(excluding VAT
& Excise) is less
than P14.50 P6.15/liter P6.89/liter
 (b) Net Retail Price per
liter (excluding VAT
& Excise) is P14.50 up
to P22.00 P9.15/liter P10.25/liter

(c) Net Retail Price per

liter (excluding VAT
& Excise) is more
than P22.00 P12.15/liter P13.61/liter
xxxx

This increase, however, was qualified by the last paragraph of Section 1 of Revenue
Regulations No. 17-99 which reads:

Provided, however, that the new specific tax rate for any existing brand
of cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquors shall not be lower than the excise tax that is actually being paid prior
to January 1, 2000. (Emphasis and underscoring supplied.)

Now, for the period June 1, 2004 to December 31, 2004, respondent was assessed and paid
excise taxes amounting to P2,286,488,861.58[3]for the 323,407,194 liters of Red Horse beer
products removed from its plants. Said amount was computed based on the tax rate
of P7.07/liter or the tax rate which was being applied to its products prior to January 1, 2000,
as the last paragraph of Section 1 of Revenue Regulations No. 17-99 provided that the new
specific tax rate for fermented liquors shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000.[4]Respondent, however, later contended that the said
qualification in the last paragraph of Section 1 of Revenue Regulations No. 17-99 has no basis
in the plain wording of Section 143.Respondent argued that the applicable tax rate was only
the P 6.89/liter tax rate stated in Revenue Regulations No. 17-99, and that accordingly, its
excise taxes should have been only P2,228,275,566.66.

On May 22, 2006, respondent filed before the BIR a claim for refund or tax credit of
the amount of P60,778,519.56[5]as erroneously paid excise taxes for the period of May 22,
2004 to December 31, 2004. Later, said amount was reduced to P58,213,294.92 because of
prescription. As the petitioner Commissioner of Internal Revenue (CIR) failed to act on the
claim, respondent filed a petition for review with the CTA.[6]
 On September 26, 2007,[7]the CTA Second Division granted the petition and ordered
petitioner to refund P58,213,294.92 to respondent or to issue in the latters favor a Tax Credit
Certificate for the said amount for the erroneously paid excise taxes. The CTA held
that Revenue Regulations No. 17-99 modified or altered the mandate of Section 143 of
the Tax Reform Act of 1997. The CTA Second Division held,

A reading of Section 143 of the [Tax Reform Act] of 1997, as amended,

clearly shows that the law contemplated two periods with applicable excise tax
rate for each one: the first is the three-year transition period beginning
January 1, 1997, the date when RA 8240 took effect, until December 31, [1999];
and the second is the period thereafter. During the transition period, the excise
tax rate shall not be lower than the tax rate which is due from each brand on
October 1, 1996. After the transitory period, the excise tax rate shall be the
figures provided under paragraphs (a), (b) and (c) of Section 143 of the [Tax
Reform Act] of 1997, as amended, but increased by 12%, regardless of whether
such rate is lower or higher than the tax rate that is actually being paid prior
to January 1, 2000.

On the other hand, an analysis of the last paragraph of [Revenue

Regulations No.] 17-99 would reveal that it created a new tax rate or a new
requirement when it provided that the new specific tax rate for any existing
brand of cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000. This is indeed a situation not intended by
Section 143 of the [Tax Reform Act] of 1997, as amended, both in letter and in
spirit. Rather, it is a clear contradiction to the import of the law.[8] (Emphasis
supplied.)

Petitioner sought reconsideration[9]of the above decision, but the CTA Second Division
denied petitioners motion in a Resolution[10]dated January 17, 2008. Petitioner then filed a
Petition for Review[11]with the CTA En Banc.

On August 7, 2008,[12]the CTA En Banc affirmed the Decision and Resolution of the
CTA Second Division. The CTA En Banc held that [c]onsidering that there is nothing in the
law that allows the BIR to extend the three-year transitory period, and considering further
that there is no provision in the law mandating that the new specific tax rate should not be
lower than the excise tax that is actually being paid prior to January 1, 2000, the last
paragraph of [BIR Revenue Regulations No.] 17-99 has no basis in law and is inconsistent
with the situation contemplated under the provisions of Section 143 of the [Tax Reform Act
of 1997]. It is an unauthorized administrative legislation and, therefore, invalid.[13]
Undaunted, petitioner filed the instant petition for review on certiorari, raising the sole issue
of whether the CTA committed reversible error in ruling that the provision in the last
paragraph of Section 1 of Revenue Regulations No. 17-99 is an invalid administrative
interpretation of Section 143 of the Tax Reform Act of 1997.

Petitioner contends that the last paragraph of Section 1 of Revenue Regulations No.
17-99 providing that the new specific tax rate for any brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000, is a valid administrative interpretation
of Section 143 of the Tax Reform Act of 1997. It carries out the legislative intent behind the
enactment of R.A. No. 8240, which is to increase government revenues through the collection
of higher excise taxes on fermented liquor.

Petitioner further points out that Section 143 of the Tax Reform Act of 1997 provides
that for 3 years after the effectivity of R.A. No. 8240, i.e., from January 1, 1997 to December
31, 1999, the excise tax from any brand of fermented liquor shall not be lower than the tax
due on October 1, 1996. In the case of respondents Red Horse beer brand, the applicable tax
rate was the applicable tax rate as of October 1, 1996, i.e., P7.07/liter, which was higher than
the rate of P6.15/liter imposed under Section 143 of the Tax Reform Act of 1997. However,
the CTA ruled that after the 3-year transition period, the 12% increase in the excise tax on
fermented liquors should be based on the rates stated in paragraphs (a), (b), and (c) of Section
143. Applying this interpretation, the rate of excise tax that may be collected on respondents
Red Horse beer brand after the 3-year period would only be P6.89/liter, the figure arrived at
after adding 12% to the rate of P6.15/liter imposed in paragraph (a) of Section 143. Petitioner
argues that said literal interpretation of Section 143 defeats the legislative intent behind the
shift from the ad valorem system to the specific tax system, i.e., to raise more revenues from
the collection of taxes on the so-called sin products like alcohol and cigarettes.

Respondent, for its part, maintains the correctness of the CTAs interpretation and
stresses that as already held by this Court in Commissioner of Internal Revenue v. Fortune
Tobacco Corporation,[14]the last paragraph of Section 1 of Revenue Regulations No. 17-
99 finds no support in the clear and plain wording of Section 143 of the Tax Reform Act of
1997.

We deny the petition for utter lack of merit.

 Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides for
two periods: the first is the 3-year transition period beginning January 1, 1997, the date when
R.A. No. 8240 took effect, until December 31, 1999; and the second is the period
thereafter. During the 3-year transition period, Section 143 provides that the excise tax from
any brand of fermented liquorshall not be lower than the tax which was due from each brand
on October 1, 1996. After the transitory period, Section 143 provides that the excise tax rate
shall be the figures provided under paragraphs (a), (b) and (c) of Section 143 but increased
by 12%, without regard to whether such rate is lower or higher than the tax rate that is
actually being paid prior to January 1, 2000 and therefore, without regard to whether the
revenue collection starting January 1, 2000 may turn out to be lower than that collected prior
to said date. Revenue Regulations No. 17-99, however, created a new tax rate when it added
in the last paragraph of Section 1 thereof, the qualification that the tax due after the 12%
increase becomes effective shall not be lower than the tax actually paid prior to January 1,
2000. As there is nothing in Section 143 of the Tax Reform Act of 1997 which clothes the BIR
with the power or authority to rule that the new specific tax rate should not be lower than
the excise tax that is actually being paid prior to January 1, 2000, such interpretation is
clearly an invalid exercise of the power of the Secretary of Finance to interpret tax laws and
to promulgate rules and regulations necessary for the effective enforcement of the Tax
Reform Act of 1997.[15]Said qualification must, perforce, be struck down as invalid and of no
effect.[16]

It bears reiterating that tax burdens are not to be imposed, nor presumed to be
imposed beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.[17]In case of discrepancy between the
basic law and a rule or regulation issued to implement said law, the basic law prevails as
said rule or regulation cannot go beyond the terms and provisions of the basic law.[18] It must
be stressed that the objective of issuing BIR Revenue Regulations is to establish parameters
or guidelines within which our tax laws should be implemented, and not to amend or modify
its substantive meaning and import. As held in Commissioner of Internal Revenue v. Fortune
Tobacco Corporation,[19]
x x x The rule in the interpretation of tax laws is that a statute will not
be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without clear and express words for
that purpose. Accordingly, the general rule of requiring adherence to the letter
in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. x x x As
burdens, taxes should not be unduly exacted nor assumed beyond the plain
meaning of the tax laws.[20]
 Hence, while it may be true that the interpretation advocated by petitioner CIR is in
furtherance of its desire to raise revenues for the government, such noble objective must yield
to the clear provisions of the law, particularly since, in this case, the terms of the said law
are clear and leave no room for interpretation.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated August
7, 2008 of the Court of Tax Appeals in C.T.A. EB No. 360 is AFFIRMED.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant
appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and
Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for
appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case
No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as involving
only pure questions of law, challenging the power of taxation delegated to municipalities
under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the

Philippines, Inc., commenced a complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of
1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject
matter and the production tax rates imposed therein are practically the same, and second,
that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his
letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series
of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects "from soft drinks producers and manufacturers a tai of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962,
levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person,
fun company, partnership, corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal

production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264]
declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay
the taxes due under the oft the said Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act
of 1948, as amended.

There are three capital questions raised in this appeal:

1. — Is Section 2, Republic Act No. 2264 an undue delegation of power,

confiscatory and oppressive?

2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose

percentage or specific taxes?

3. — Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as

a matter of right to every independent government, without being expressly conferred by
the people. 6 It is a power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the case
of municipal corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the
power to create its sources of revenue and to levy taxes, subject to such limitations as may
be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited 6 the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted
to tax subjects which for reasons of public policy the State has not deemed wise to tax for
more general purposes. 10 This is not to say though that the constitutional injunction
against deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful exercise of
the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of
taxes notice and opportunity for hearing are provided. 11 Due process is usually violated
where the tax imposed is for a private as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or
oppressive methods are used in assessing and collecting taxes. But, a tax does not violate
the due process clause, as applied to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such taxpayer. Due process does not require
that the property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in
which it shall be apportioned are generally not necessary to due process of law. 12

There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. 13 The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some states of the
Union.14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State and the other by the city
or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose practically the
same tax rate. The thesis proceeds from its assumption that both ordinances are valid and
legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved
on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax
of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer
could increase the volume contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962,
imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft
drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27
is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and
operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in
its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27,
series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the
provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows
that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even
the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the
latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost "everything, accepting those which are mentioned therein." As long as the text
levied under the authority of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the general rule, pursuant to the
rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The
limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax except gasoline, under the provisions of the National
Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance
which prescribes a set ratio between the amount of the tax and the volume of sale of the
taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the produce (whether sold or
not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the products, but there is not
set ratio between the volume of sales and the amount of the tax.21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco
other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium
and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per case, 23 cannot
be considered unjust and unfair. 24 an increase in the tax alone would not support the
claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are
allowed much discretion in determining the reates of imposable taxes. 25 This is in line
with the constutional policy of according the widest possible autonomy to local governments
in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD
No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will
go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more
than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks and/or mineral waters
under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of
defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance
No. 27. Municipalities are empowered to impose, not only municipal license taxes upon
persons engaged in any business or occupation but also to levy for public purposes, just and
uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second
power of a municipality.

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with
offices and principal place of business in Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its municipal board and its City Treasurer.
Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter
referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No.
110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff
assails as null and void, and to prevent the enforcement thereof. Both parties submitted the
case for decision in the lower court upon a stipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and
all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks
are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for
distribution and sale in the City of Butuan and all municipalities of Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122 and effective November 28, 1960.
A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated
herein as Exhibits "A" and "B", respectively.

3. That Ordinance No. 110 as amended, imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest
the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.

4. That the plaintiff filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay until the
termination of this case on the ground that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan
City, has prepared a form to be accomplished by the plaintiff for the computation of
the tax. A copy of the form is enclosed herewith as Exhibit "C".

6. That the Profit and Loss Statement of the plaintiff for the period from January 1,
1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as
Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation which the company
claims to be P3,052.62. This is in accordance with the findings of the representative
of the undersigned City Attorney who verified the records of the plaintiff.

7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles
was increased to P1.92 which price is uniform throughout the Philippines. Said
increase was made due to the increase in the production cost of its manufacture.
 8. That the parties reserve the right to submit arguments on the constitutionality
and illegality of Ordinance No. 110, as amended of the City of Butuan in their
respective memoranda.

xxx xxx x x x1äwphï1.ñët

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within
the purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of
any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified
rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or carbonated drinks."
Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the
ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar
month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo
manifest or bill of lading or any other record showing the number of cases of soft drinks,
liquors or all other soft drinks or carbonated drinks received within the month." Sections 6,
7 and 8 specify the surcharge to be added for failure to pay the taxes within the period
prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a
copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated
drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors
or carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for
Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of
the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive
and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act
No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of
legislative powers.

The second and last objections are manifestly devoid of merit. Indeed — independently of
whether or not the tax in question, when considered in relation to the sales tax prescribed
by Acts of Congress, amounts to double taxation, on which we need not and do not express
any opinion - double taxation, in general, is not forbidden by our fundamental law. We have
not adopted, as part thereof, the injunction against double taxation found in the
Constitution of the United States and of some States of the Union.1 Then, again, the
general principle against delegation of legislative powers, in consequence of the theory of
separation of powers2 is subject to one well-established exception, namely: legislative
powers may be delegated to local governments — to which said theory does not apply3 — in
respect of matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft
drinks or carbonated drinks — in the production and sale of which plaintiff is engaged — or
less than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or
confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection,
it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally
approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks.
Thus, it would seem that the intent was then to levy a tax upon the sale of said
merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon
"any agent and/or consignee of any person, association, partnership, company or
corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section
3-A, which was inserted by said Ordinance No. 122:

... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or
corporation who acts in the place of another by authority from him or one entrusted
with the business of another or to whom is consigned or shipped no less than 1,000
cases of hard liquors or soft drinks every month for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not
subject to the tax, unless they are agents and/or consignees of another dealer, who, in the
very nature of things, must be one engaged in business outside the City. Besides, the tax
would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft
drinks are consigned or shipped to him every month. When we consider, also, that the tax
"shall be based and computed from the cargo manifest or bill of lading ... showing the
number of cases" — not sold — but "received" by the taxpayer, the intention to limit the
application of the ordinance to soft drinks and carbonated drinks brought into the City from
outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of
an import duty, which is beyond defendant's authority to impose by express provision of
law.4

Even however, 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.5 The classification made in the exercise of this authority, to be valid,
must, however, be reasonable6 and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these are germane to
the purpose of the legislation or ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially identical to those of the present; and
(4) the classification applies equally all those who belong to the same class.7

These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were
merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no
reason why sales thereof by sealers other than agents or consignees of producers or
merchants established outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing
the City of Butuan to refund to plaintiff herein the amounts collected from and paid under
protest by the latter, with interest thereon at the legal rate from the date of the
promulgation of this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said Ordinance, as
amended. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees.

Assistant City Fiscal Vicente P. Gengos for defendant-appellant.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of
Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing
Municipal License Tax On Persons Engaged In The Business Of Operating Tenement
Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected
from them under the said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing
license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2)
tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M.
Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly
engaged in business in any other streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and
Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This
Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695,
March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax
owners of tenement houses is one among those clearly and expressly granted to the City of
Iloilo by its Charter."

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the
passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired
the authority or power to enact an ordinance similar to that previously declared by this
Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS

ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the

provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local
Government, that:

Section 1. — A municipal license tax is hereby imposed on tenement houses in

accordance with the schedule of payment herein provided.

Section 2. — Tenement house as contemplated in this ordinance shall mean any

building or dwelling for renting space divided into separate apartments or
accessorias.

Section 3. — The municipal license tax provided in Section 1 hereof shall be as

follows:
 I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materials P10.00 per door p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or

dedicated to business in the following streets: J.M. Basa,
Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay
to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or

dedicated to business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super

market as soon as said place is declared commercial P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby

amended.

Section 5. — Any person found violating this ordinance shall be punished with a fine
note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than
six (6) months or both at the discretion of the Court.

Section 6 — This ordinance shall take effect upon approval.

ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of
five tenement houses, aggregately containing 43 apartments, while the other appellees and
the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees'
apartments has a door leading to a street and is rented by either a Filipino or Chinese
merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of
the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in
Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do
not impose tenement or apartment taxes.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio
Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and
from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for
the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying
real estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an
amended complaint, respectively, against the City of Iloilo, in the aforementioned court,
praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers
of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being
violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the
equal protection clause of the Constitution," and that the City be ordered to refund the
amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on
the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment
taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes
owners of tenement houses who fail to pay the tax, (c) it constitutes not only double
taxation, but treble at that and (d) it violates the rule of uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes
double taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement
taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a

penal clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licences at rates fixed by the municipal board or city
council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose
reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case, impose
any percentage tax on sales or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax, except gasoline, under the provisions of the
National Internal Revenue Code; Provided, however, That no city, municipality or
municipal district may levy or impose any of the following:

(a) Residence tax;

(b) Documentary stamp tax;

 (c) Taxes on the business of persons engaged in the printing and publication of any
newspaper, magazine, review or bulletin appearing at regular intervals and having
fixed prices for for subscription and sale, and which is not published primarily for
the purpose of publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other public utilities
except electric light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise
tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly
with foreign insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the
ordinance shall provide otherwise: Provided, however, That the Secretary of Finance
shall have authority to suspend the effectivity of any ordinance within one hundred
and twenty days after its passage, if, in his opinion, the tax or fee therein levied or
imposed is unjust, excessive, oppressive, or confiscatory, and when the said
Secretary exercises this authority the effectivity of such ordinance shall be
suspended.

In such event, the municipal board or city council in the case of cities and the
municipal council or municipal district council in the case of municipalities or
municipal districts may appeal the decision of the Secretary of Finance to the court
during the pendency of which case the tax levied shall be considered as paid under
protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting those
which are mentioned therein," provided that the tax so levied is "for public purposes, just
and uniform," and does not transgress any constitutional provision or is not repugnant to a
controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the same comes
within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio
alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions
provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to
determine the true nature of the tax. The appellees strongly maintain that it is a "property
tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business
or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the
title of the ordinance designates it as a "municipal license tax on persons engaged in
the business of operating tenement houses," while section 1 thereof states that a
"municipal license tax is hereby imposed on tenement houses." It is the phraseology of
section 1 on which the appellees base their contention that the tax involved is a real estate
tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in
excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City
Charter, Com. Act 158."5.

It is our view, contrary to the appellees' contention, that the tax in question is not a real
estate tax. Obviously, the appellees confuse the tax with the real estate tax within the
meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has
counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the
ownership of lands and buildings or other improvements thereon, not specially
exempted,8 and is payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor.9 The tax is usually single or indivisible,
although the land and building or improvements erected thereon are assessed separately,
except when the land and building or improvements belong to separate owners.10 It is a
fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the
intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes
a superior lien on and is enforceable against the property14 subject to such taxation, and not
by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It
is not a tax on the land on which the tenement houses are erected, although both land and
tenement houses may belong to the same owner. The tax is not a fixed proportion of the
assessed value of the tenement houses, and does not require the intervention of assessors or
appraisers. It is not payable at a designated time or date, and is not enforceable against the
tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a
real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and
the court looks less to its words and more to the context, subject-matter, consequence and
effect. Accordingly, what is within the spirit is within the ordinance although it is not
within the letter thereof, while that which is in the letter, although not within the spirit, is
not within the ordinance."15 It is within neither the letter nor the spirit of the ordinance
that an additional real estate tax is being imposed, otherwise the subject-matter would
have been not merely tenement houses. On the contrary, it is plain from the context of the
ordinance that the intention is to impose a license tax on the operation of tenement houses,
which is a form of business or calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by
itself, means an "imposition or exaction on the right to use or dispose of property, to pursue
a business, occupation, or calling, or to exercise a privilege."16.
 "The character of a tax is not to be fixed by any isolated words that may beemployed
in the statute creating it, but such words must be taken in the connection in which
they are used and the true character is to be deduced from the nature and essence of
the subject."17 The subject-matter of the ordinance is tenement houses whose nature
and essence are expressly set forth in section 2 which defines a tenement house as
"any building or dwelling for renting space divided into separate apartments or
accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et
al., L-12695, March 23, 1959, adopted the definition of a tenement house18 as "any
house or building, or portion thereof, which is rented, leased, or hired out to be
occupied, or is occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by more than
two families upon any floor, so living and cooking, but having a common right in the
halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses,
being necessarily offered for rent or lease by their very nature and essence, therefore
constitute a distinct form of business or calling, similar to the hotel or motel
business, or the operation of lodging houses or boarding houses. This is precisely one
of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian
Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the
municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to
tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors,
cafes, lodging houses, boarding houses, livery garages, public warehouses,
pawnshops, theaters, cinematographs," tenement houses, which constitute a
different business enterprise,19 are not mentioned in the aforestated section of the
City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.

"And it not appearing that the power to tax owners of tenement houses is one among
those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of
such power cannot be assumed and hence the ordinance in question is ultra
vires insofar as it taxes a tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or
an apartment tax. Called by either name, it is not among the exceptions listed in section 2
of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license
tax on persons engaged in the business of operating tenement houses finds authority in
section 2 of the Local Autonomy Act which provides that chartered cities have the authority
to impose municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges within their respective territories, and "otherwise to levy
for public purposes, just and uniform taxes, licenses, or fees." .

2. The trial court condemned the ordinance as constituting "not only double taxation but
treble at that," because "buildings pay real estate taxes and also income taxes as provided
for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax
under the said ordinance." Obviously, what the trial court refers to as "income taxes" are
the fixed taxes on business and occupation provided for in section 182, Title V, of the
National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting
property, whether on their account as principals or as owners of rental property or
properties," are considered "real estate dealers" and are taxed according to the amount of
their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of
the National Internal Revenue Code as real estate dealers, and still taxable under the
ordinance in question, the argument against double taxation may not be invoked. The same
tax may be imposed by the national government as well as by the local government. There
is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the
same occupation, calling or activity by both the State and a political subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they are paying the
real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid
of merit. It is a well-settled rule that a license tax may be levied upon a business or
occupation although the land or property used in connection therewith is subject to
property tax. The State may collect an ad valorem tax on property used in a calling, and at
the same time impose a license tax on that calling, the imposition of the latter kind of tax
being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the
same property must be taxed twice when it should be taxed but once; both taxes
must be imposed on the same property or subject-matter, for the same purpose, by
the same State, Government, or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or
character of tax."23 It has been shown that a real estate tax and the tenement tax
imposed by the ordinance, although imposed by the sametaxing authority, are not of
the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the

Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes must
be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court that the ordinance
is not only oppressive because it "carries a penal clause of a fine of P200.00 or
imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided
into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also
unconstitutional as it subjects the owners of tenement houses to criminal prosecution for
non-payment of an obligation which is purely sum of money." The lower court apparently
had in mind, when it made the above ruling, the provision of the Constitution that "no
person shall be imprisoned for a debt or non-payment of a poll tax."26 It is elementary,
however, that "a tax is not a debt in the sense of an obligation incurred by contract, express
or implied, and therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes
the non-payment thereof by fine or imprisonment is not, in conflict with that
prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount
upon all persons, or upon all persons of a certain class, resident within a specified territory,
without regard to their property or the occupations in which they may be
engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court
puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix
penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or
six months' imprisonment, or both such fine and imprisonment for each offense." In
Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement
of the lower court declaring illegal and void an ordinance imposing an occupation tax on
persons exercising various professions in the City of Manilabecause it imposed a penalty of
fine and imprisonment for its violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and
income taxes the ordinance imposes aside from these two taxes an apartment or
tenement tax. It should be noted that in the assessment of real estate tax all parts of
the building or buildings are included so that the corresponding real estate tax could
be properly imposed. If aside from the real estate tax the owner or owners of the
tenement buildings should pay apartment taxes as required in the ordinance then it
will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack
of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are
singled out to pay taxes on their tenement houses, while citizens of other cities, where their
councils do not enact a similar tax ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention. This Court has
already ruled that tenement houses constitute a distinct class of property. It has likewise
ruled that "taxes are uniform and equal when imposed upon all property of the same class
or character within the taxing authority."31 The fact, therefore, that the owners of other
classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in
question is no argument at all against uniformity and equality of the tax imposition.
Neither is the rule of equality and uniformity violated by the fact that tenement taxesare
not imposed in other cities, for the same rule does not require that taxes for the same
purpose should be imposed in different territorial subdivisions at the same time.32 So long
as the burden of the tax falls equally and impartially on all owners or operators of tenement
houses similarly classified or situated, equality and uniformity of taxation is
accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo,
have not shown that the tax burden is not equally or uniformly distributed among them, to
overthrow the presumption that tax statutes are intended to operate uniformly and
equally.34.

5. The last important issue posed by the appellees is that since the ordinance in the case at
bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this
Court in L-12695, supra, as ultra vires, the decision in that case should be accorded the
effect of res judicata in the present case or should constitute estoppel by judgment. To
dispose of this contention, it suffices to say that there is no identity of subject-matter in
that case andthis case because the subject-matter in L-12695 was an ordinance which dealt
not only with tenement houses but also warehouses, and the said ordinance was enacted
pursuant to the provisions of the City charter, while the ordinance in the case at bar was
enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity
of cause of action in the two cases because the main issue in L-12695 was whether the City
of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of
1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was
not available for consideration in the decision in L-12695 which was promulgated on March
23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local
governments may now tax any taxable subject-matter or object not included in the
enumeration of matters removed from the taxing power of local governments.Prior to the
enactment of the Local Autonomy Act the taxes that could be legally levied by local
governments were only those specifically authorized by law, and their power to tax was
construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing

valid, the complaint is hereby dismissed. No pronouncement as to costs..
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.

Sotero H. Laurel for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review tile decision dated September 17, 1968 of
respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil
Case No. 72797, the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against

the respondents, declaring Ordinance No. 6 37 of the City of Manila null and
void. The preliminary injunction is made permanent. No pronouncement as
to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRAN
CISCO
ARCA

J
u
d
g
e
1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila
on March 27, 1968. 2
City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A

CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF
EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT
FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF
MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether
permanent, temporary or casual, without first securing an employment permit from the
Mayor of Manila and paying the permit fee of P50.00 except persons employed in the
diplomatic or consular missions of foreign countries, or in the technical assistance programs
of both the Philippine Government and any foreign government, and those working in their
respective households, and members of religious orders or congregations, sect or
denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3)
months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both
such fine and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila,
filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil
Case No. 72797, praying for the issuance of the writ of preliminary injunction and
restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment
declaring said Ordinance No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting
the ordinance declared null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila,

Ordinance No. 6537 is discriminatory and violative of the rule of the
uniformity in taxation;

2) As a police power measure, it makes no distinction between useful and

non-useful occupations, imposing a fixed P50.00 employment permit, which is
out of proportion to the cost of registration and that it fails to prescribe any
standard to guide and/or limit the action of the Mayor, thus, violating the
fundamental principle on illegal delegation of legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens

who are thus, deprived of their rights to life, liberty and property and
therefore, violates the due process and equal protection clauses of the
Constitution.7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on
September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and
making permanent the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed
the present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED
THE CARDINAL RULE OF UNIFORMITY OF TAXATION.

II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED
THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE
POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND

PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES
OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void
on the ground that it violated the rule on uniformity of taxation because the rule on
uniformity of taxation applies only to purely tax or revenue measures and that Ordinance
No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state,
it being principally a regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part
which requires that the alien shall secure an employment permit from the Mayor involves
the exercise of discretion and judgment in the processing and approval or disapproval of
applications for employment permits and therefore is regulatory in character the second
part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue
measure. There is no logic or justification in exacting P50.00 from aliens who have been
cleared for employment. It is obvious that the purpose of the ordinance is to raise money
under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to
consider valid substantial differences in situation among individual aliens who are required
to pay it. Although the equal protection clause of the Constitution does not forbid
classification, it is imperative that the classification should be based on real and substantial
differences having a reasonable relation to the subject of the particular legislation. The
same amount of P50.00 is being collected from every employed alien whether he is casual or
permanent, part time or full time or whether he is a lowly employee or a highly paid
executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to
state any policy or to set up any standard to guide or limit the mayor's action, expresses no
purpose to be attained by requiring a permit, enumerates no conditions for its grant or
refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and
unrestricted power to grant or deny the issuance of building permits, such ordinance is
invalid, being an undefined and unlimited delegation of power to allow or prevent an
activity per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law
granted a government agency power to determine the allocation of wheat flour among
importers, the Supreme Court ruled against the interpretation of uncontrolled power as it
vested in the administrative officer an arbitrary discretion to be exercised without a policy,
rule, or standard from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and
refuse permits of all classes conferred upon the Mayor of Manila by the Revised Charter of
Manila is not uncontrolled discretion but legal discretion to be exercised within the limits of
the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion
to guide the mayor in the exercise of the power which has been granted to him by the
ordinance.

The ordinance in question violates the due process of law and equal protection rule of the
Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of
Manila who may withhold or refuse it at will is tantamount to denying him the basic right
of the people in the Philippines to engage in a means of livelihood. While it is true that the
Philippines as a State is not obliged to admit aliens within its territory, once an alien is
admitted, he cannot be deprived of life without due process of law. This guarantee includes
the means of livelihood. The shelter of protection under the due process and equal
protection clause is given to all persons, both aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as

to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-9637 April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.

City Fiscal Eugenio Angeles and Juan Nabong for appellant.

Assistant City Fiscal Arsenio Nañawa for appellee.

FELIX, J.:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly

registered and doing business in the Philippines through its Philippine agency established
in Manila in November, 1898, with its principal office at 636 Isaac Peral in said City. The
defendant appellee is a municipal corporation with powers that are to be exercised in
conformity with the provisions of Republic Act No. 409, known as the Revised Charter of
the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling
bibles and/or gospel portions thereof (except during the Japanese occupation) throughout
the Philippines and translating the same into several Philippine dialects. On May 29 1953,
the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the
business of general merchandise since November, 1945, without providing itself with the
necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as
amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure,
within three days, the corresponding permit and license fees, together with compromise
covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total
sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that
plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court
regarding the same (Annex B). To avoid the closing of its business as well as further fines
and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under
protest the said permit and license fees in the aforementioned amount, giving at the same
time notice to the City Treasurer that suit would be taken in court to question the legality
of the ordinances under which, the said fees were being collected (Annex C), which was
done on the same date by filing the complaint that gave rise to this action. In its complaint
plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and
that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under
protest, together with legal interest thereon, and the costs, plaintiff further praying for
such other relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were enacted
by the Municipal Board of the City of Manila by virtue of the power granted to it by section
2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18, 1949, by
section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City
of Manila, and praying that the complaint be dismissed, with costs against plaintiff. This
answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated
ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys
and respectfully submit the following stipulation of facts:

1. That the plaintiff sold for the use of the purchasers at its principal office at 636
Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance
in English and other foreign languages imported by it from the United States as well
as Bibles, New Testaments and bible portions in the local dialects imported and/or
purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953
inclusive the sales made by the plaintiff were as follows:

Quarter Amount of
Sales

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

 2nd quarter 1949 17,802.08

3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

1st quarter 1953 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not
herein stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the
parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in
existence in the Philippines since 1899, and that its parent society is in New York, United
States of America; that its, contiguous real properties located at Isaac Peral are exempt
from real estate taxes; and that it was never required to pay any municipal license fee or
tax before the war, nor does the American Bible Society in the United States pay any
license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it
never made any profit from the sale of its bibles, which are disposed of for as low as one
third 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
churches, both in the United States and in the Philippines, which are interested in its
missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles,
defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on
cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's
New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of
$4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15
each; and those bearing the price of $11 each are sold here at P22 each, clearly show that
plaintiff's contention that it never makes any profit from the sale of its bible, is evidently
untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

As may be seen from the repealed section (m-2) of the Revised Administrative Code
and the repealing portions (o) of section 18 of Republic Act No. 409, although they
seemingly differ in the way the legislative intent is expressed, yet their meaning is
practically the same for the purpose of taxing the merchandise mentioned in said
legal provisions, and that the taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1,
Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion

and so holds that this case should be dismissed, as it is hereby dismissed, for lack of
merits, with costs against the plaintiff.

Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which
certified the case to Us for the reason that the errors assigned to the lower Court involved
only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;

2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code
under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by
Section 18 of Republic Act No. 409;

3. In not holding that an ordinance providing for taxes based on gross sales or
receipts, in order to be valid under the new Charter of the City of Manila, must first
be approved by the President of the Philippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed

commercial proportions, it cannot escape from the operation of said municipal
ordinances under the cloak of religious privilege.

The issues. — As may be seen from the proceeding statement of the case, the issues
involved in the present controversy may be reduced to the following: (1) whether or not the
ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are
constitutional and valid; and (2) whether the provisions of said ordinances are applicable or
not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines,
provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the

free exercise thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall forever be allowed. No religion
test shall be required for the exercise of civil or political rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances

Nos. 2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as
its society is concerned, because they provide for religious censorship and restrain the free
exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles
and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first
consider the provisions of the questioned ordinances in relation to their application to the
sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A),
the City Treasurer required plaintiff to secure a Mayor's permit in connection with the
society's alleged business of distributing and selling bibles, etc. and to pay permit dues in
the sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise
on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the
City of Manila, as amended. This Ordinance is of general application and not particularly
directed against institutions like the plaintiff, and it does not contain any provisions
whatever prescribing religious censorship nor restraining the free exercise and enjoyment
of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:

SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to

conduct or engage in any of the businesses, trades, or occupations enumerated in
Section 3 of this Ordinance or other businesses, trades, or occupations for which a
permit is required for the proper supervision and enforcement of existing laws and
ordinances governing the sanitation, security, and welfare of the public and the
health of the employees engaged in the business specified in said section 3
hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM
THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly
mentioned in Section 3 of the Ordinance, and the record does not show that a permit is
required therefor under existing laws and ordinances for the proper supervision and
enforcement of their provisions governing the sanitation, security and welfare of the public
and the health of the employees engaged in the business of the plaintiff. However, sections
3 of Ordinance 3000 contains item No. 79, which reads as follows:

79. All other businesses, trades or occupations not

mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to
license or tax said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to pay
from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including
the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779,
2821 and 3028 prescribes the following:

SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances
of the City of Manila, as amended, there shall be paid to the City Treasurer for
engaging in any of the businesses or occupations below enumerated, quarterly,
license fees based on gross sales or receipts realized during the preceding quarter in
accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a
person engaged in any businesses or occupation for the first time shall pay the
initial license fee based on the probable gross sales or receipts for the first quarter
beginning from the date of the opening of the business as indicated herein for the
corresponding business or occupation.

xxx xxx xxx

GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are
not yet subject to the payment of any municipal tax, such as (1) retail dealers in
general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books,
including stationery.

xxx xxx xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance
No. 2529, as amended, are not imposed directly upon any religious institution but upon
those engaged in any of the business or occupations therein enumerated, such as retail
"dealers in general merchandise" which, it is alleged, cover the business or occupation of
selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-
2) of said legal body, as amended by Act No. 3659, approved on December 8, 1929,
empowers the Municipal Board of the City of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories
or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are
not yet subject to the payment of any municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail
dealers in general merchandise, and (2) retail dealers exclusively engaged in the sale
of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .:
PROVIDED, HOWEVER, That the combined total tax of any debtor or
manufacturer, or both, enumerated under these subsections (m-1) and (m-2),
whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN
EXCESS OF FIVE HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended,
were enacted in virtue of the power that said Act No. 3669 conferred upon the City of
Manila. Appellant, however, contends that said ordinances are longer in force and effect as
the law under which they were promulgated has been expressly repealed by Section 102 of
Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409
expressly repealed the provisions of Chapter 60 of the Revised Administrative Code but in
the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter
and section 18 (o) of the new seemingly differ in the way the legislative intent was
expressed, yet their meaning is practically the same for the purpose of taxing the
merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529
and 3000, as amended, are to be considered as still in full force and effect uninterruptedly
up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will
repeal the old statute in its entirety and by the same enactment re-enact all or
certain portions of the preexisting law. Of course, the problem created by this sort of
legislative action involves mainly the effect of the repeal upon rights and liabilities
which accrued under the original statute. Are those rights and liabilities destroyed
or preserved? The authorities are divided as to the effect of simultaneous repeals
and re-enactments. Some adhere to the view that the rights and liabilities accrued
under the repealed act are destroyed, since the statutes from which they sprang are
actually terminated, even though for only a very short period of time. Others, and
they seem to be in the majority, refuse to accept this view of the situation, and
consequently maintain that all rights an liabilities which have accrued under the
original statute are preserved and may be enforced, since the re-enactment
neutralizes the repeal, therefore, continuing the law in force without interruption.
(Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and
wider concept of taxation and is different from the provisions of Section 2444(m-2) that the
former cannot be considered as a substantial re-enactment of the provisions of the latter.
We have quoted above the provisions of section 2444(m-2) of the Revised Administrative
Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of
Republic Act No. 409, which reads as follows:

(o) To tax and fix the license fee on dealers in general merchandise, including
importers and indentors, except those dealers who may be expressly subject to the
payment of some other municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b)
retail dealers. For purposes of the tax on retail dealers, general merchandise shall be
classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles,
(3) essential commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are sold in the
same establishment, it shall not be compulsory for the owner to secure more than
one license if he pays the higher or highest rate of tax prescribed by ordinance.
Wholesale dealers shall pay the license tax as such, as may be provided by
ordinance.
 For purposes of this section, the term "General merchandise" shall include poultry
and livestock, agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any
bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total
tax of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2),
whether dealing in one or all of the articles mentioned therein, shall not be in excess of
P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does
not contain any limitation as to the amount of tax or license fee that the retail dealer has to
pay per annum. Hence, and in accordance with the weight of the authorities above referred
to that maintain that "all rights and liabilities which have accrued under the original
statute are preserved and may be enforced, since the reenactment neutralizes the repeal,
therefore continuing the law in force without interruption", We hold that the questioned
ordinances of the City of Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be
approved by the President of the Philippines as per section 18, subsection (ii) of Republic
Act No. 409, which reads as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted
within the City of Manila, not otherwise enumerated in the preceding subsections,
including percentage taxes based on gross sales or receipts, subject to the approval
of the PRESIDENT, except amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of the
former Charter of the City of Manila under which Ordinance No. 2529 was promulgated.
Anyway, as stated by appellee's counsel, the business of "retail dealers in general
merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409;
hence, an ordinance prescribing a municipal tax on said business does not have to be
approved by the President to be effective, as it is not among those referred to in said
subsection (ii). Moreover, the questioned ordinances are still in force, having been
promulgated by the Municipal Board of the City of Manila under the authority granted to it
by law.

The question that now remains to be determined is whether said ordinances are
inapplicable, invalid or unconstitutional if applied to the alleged business of distribution
and sale of bibles to the people of the Philippines by a religious corporation like the
American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free
exercise and enjoyment of the religious profession and worship of appellant.

Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted,
guarantees the freedom of religious profession and worship. "Religion has been spoken of as
a profession of faith to an active power that binds and elevates man to its Creator"
(Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His
Creator and to the obligations they impose of reverence to His being and character, and
obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the
free exercise and enjoyment of religious profession and worship carries with it the right to
disseminate religious information. Any restraints of such right can only be justified like
other restraints of freedom of expression on the grounds that there is a clear and present
danger of any substantive evil which the State has the right to prevent". (Tañada and
Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar
the license fee herein involved is imposed upon appellant for its distribution and sale of
bibles and other religious literature:

In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring
that a license be obtained before a person could canvass or solicit orders for goods,
paintings, pictures, wares or merchandise cannot be made to apply to members of
Jehovah's Witnesses who went about from door to door distributing literature and
soliciting people to "purchase" certain religious books and pamphlets, all published
by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five
cents each, the "price" of the pamphlets five cents each. It was shown that in making
the solicitations there was a request for additional "contribution" of twenty-five
cents each for the books and five cents each for the pamphlets. Lesser sum were
accepted, however, and books were even donated in case interested persons were
without funds.

On the above facts the Supreme Court held that it could not be said that petitioners
were engaged in commercial rather than a religious venture. Their activities could
not be described as embraced in the occupation of selling books and pamphlets. Then
the Court continued:

"We do not mean to say that religious groups and the press are free from all
financial burdens of government. See Grosjean vs. American Press Co., 297 U.S.,
233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different,
for example, from a tax on the income of one who engages in religious activities or a
tax on property used or employed in connection with activities. It is one thing to
impose a tax on the income or property of a preacher. It is quite another to exact a
tax from him for the privilege of delivering a sermon. The tax imposed by the City of
Jeannette is a flat license tax, payment of which is a condition of the exercise of
these constitutional privileges. The power to tax the exercise of a privilege is the
power to control or suppress its enjoyment. . . . Those who can tax the exercise of
this religious practice can make its exercise so costly as to deprive it of the resources
necessary for its maintenance. Those who can tax the privilege of engaging in this
form of missionary evangelism can close all its doors to all those who do not have a
full purse. Spreading religious beliefs in this ancient and honorable manner would
thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this
activity is unimportant if it does not do so. But that is to disregard the nature of this
tax. It is a license tax — a flat tax imposed on the exercise of a privilege granted by
the Bill of Rights . . . The power to impose a license tax on the exercise of these
freedom is indeed as potent as the power of censorship which this Court has
repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure
 to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of
activities whose enjoyment is guaranteed by the constitutional liberties of press and
religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax."

Nor could dissemination of religious information be conditioned upon the approval of

an official or manager even if the town were owned by a corporation as held in the
case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as
held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme
Court expressed the opinion that the right to enjoy freedom of the press and religion
occupies a preferred position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of

the people to enjoy freedom of press and religion, as we must here, we remain
mindful of the fact that the latter occupy a preferred position. . . . In our view the
circumstance that the property rights to the premises where the deprivation of
property here involved, took place, were held by others than the public, is not
sufficient to justify the State's permitting a corporation to govern a community of
citizens so as to restrict their fundamental liberties and the enforcement of such
restraint by the application of a State statute." (Tañada and Fernando on the
Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following

organizations shall not be taxed under this Title in respect to income received by
them as such —

(e) Corporations or associations organized and operated exclusively for religious,

charitable, . . . or educational purposes, . . .: Provided, however, That the income of
whatever kind and character from any of its properties, real or personal, or from any
activity conducted for profit, regardless of the disposition made of such income, shall
be liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff
from this tax and says that such exemption clearly indicates that the act of distributing and
selling bibles, etc. is purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason We believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations
enumerated therein, We do not find that it imposes any charge upon the enjoyment of a
right granted by the Constitution, nor tax the exercise of religious practices. In the case
of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either
by hand or otherwise, circulars, handbooks, advertising, or literature of any kind,
whether said articles are being delivered free, or whether same are being sold within
the city limits of the City of Griffin, without first obtaining written permission from
the city manager of the City of Griffin, shall be deemed a nuisance and punishable
as an offense against the City of Griffin, 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.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional,
even if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as
amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to
license or tax the business of plaintiff Society involved herein for, as stated before, it would
impair plaintiff's right to the free exercise and enjoyment of its religious profession and
worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance
No. 3000, as amended is also inapplicable to said business, trade or occupation of the
plaintiff.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the
decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45
unduly collected from it. Without pronouncement as to costs. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

CITY ASSESSOR OF CEBU G.R. No. 152904

CITY,
Petitioner,
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
ASSOCIATION OF BENEVOLA Promulgated:
DE CEBU, INC.,
Respondent. June 8, 2007
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

Is a medical arts center built by a hospital to house its doctors a separate commercial
establishment or an appurtenant to the hospital?This is the core issue to be resolved in the
instant petition where petitioner insists on a 35% assessment rate on the building which he
considers commercial in nature contrary to respondents position that it is a special real
property entitled to a 10% assessment rate for purposes of realty tax.

The Case

This Petition for Review on Certiorari[1] under Rule 45 assails the October 31, 2001
Decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 62548, which affirmed the January
24, 2000 Decision[3] and October 25, 2000 Resolution[4] of the Central Board of Assessment
Appeals (CBAA); and the March 11, 2002 Resolution[5] of the same court denying petitioners
Motion for Reconsideration.[6] The CBAA upheld the February 10, 1999 Decision of the Local
Board of Assessment Appeals (LBAA), which overturned the 35% assessment rate of
respondent Cebu City Assessor and ruled that petitioner is entitled to a 10% assessment.
 The Facts

Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit

organization organized under the laws of the Republic of the Philippines and is the owner of
Chong Hua Hospital (CHH) in Cebu City. In the late 1990s, respondent constructed the CHH
Medical Arts Center (CHHMAC). Thereafter, an April 17, 1998 Certificate of
Occupancy[7] was issued to the center with a classification of Commercial [Clinic].

Petitioner City Assessor of Cebu City assessed the CHHMAC building under Tax
Declaration (TD) No. 97 GR-04-024-02529 as commercial with a market value of PhP
28,060,520 and an assessed value of PhP 9,821,180 at the assessment level of 35% for
commercial buildings, and not at the 10% special assessment currently imposed for CHH and
its other separate buildingsthe CHHs Dietary and Records Departments.

Thus, respondent filed its September 15, 1998 letter-petition with the Cebu City
LBAA for reconsideration, asserting that CHHMAC is part of CHH and ought to be imposed
the same special assessment level of 10% with that of CHH. On September 25, 1998,
respondent formally filed its appeal with the LBAA which was docketed as Case No. 4406,
TD No. 97 GR-04-024-02529 entitled Association Benevola de Cebu, Inc. v. City Assessor.

In the September 30, 1998 Order, the LBAA directed petitioner to conduct an ocular
inspection of the subject property and to submit a report on the scheduled date of hearing. In
the October 7, 1998 hearing, the parties were required to submit their respective position
papers.

In its position paper, petitioner argued that CHHMAC is a newly constructed five-
storey building situated about 100 meters away from CHH and, based on actual inspection,
was ascertained that it is not a part of the CHH building but a separate building which is
actually used as commercial clinic/room spaces for renting out to physicians and, thus,
classified as commercial. Petitioner contended that in turn the medical specialists in
CHHMAC charge consultation fees for patients who consult for diagnosis and relief of bodily
ailment together with the ancillary (or support) services which include the areas of
anesthesia, radiology, pathology, and more. Petitioner concluded the foregoing set up to be
ultimately geared for commercial purposes, and thus having the proper classification as
commercial under Building Permit No. B01-9750087 pursuant to Section 10 of the Local
Assessment Regulations No. 1-92 issued by the Department of Finance (DOF).

On the other hand, respondent contended in its position paper that CHHMAC
building is actually, directly, and exclusively part of CHH and should have a special
assessment level of 10% as provided under City Tax Ordinance LXX. Respondent asserted
that the CHHMAC building is similarly situated as the buildings of CHH, housing its Dietary
and Records Departments, are completely separate from the main CHH building and are
imposed the 10% special assessment level. In fine, respondent argued that the CHHMAC,
though not actually indispensable, is nonetheless incidental and reasonably necessary to
CHHs operations.

The Ruling of the Local Board of Assessment Appeals

On February 10, 1999, the LBAA rendered a Decision,[8] the dispositive portion of
which reads:

WHEREFORE, premises considered, the appealed decision imposing a

thirty five (35) percent assessment level of TD No. 97 GR-04-024-02529
on the Chong Hua Hospital Medical Arts building is reversed and set
aside and other [sic] one issued declaring that the building is entitled to
a ten (10) percent assessment level.

In reversing the ruling of petitioner City Assessor of Cebu City, the LBAA reasoned
that it is of public knowledge that hospitals have plenty of spaces leased out to medical
practitioners, which is both an accepted and desirable fact; thus, respondents claim is not
disputed that such is a must for a tertiary hospital like CHH. The LBAA held that it is
inconsequential that a separate building was constructed for that purpose pointing out that
departments or services of other institutions and establishments are also not always housed
in the same building.

Thus, the LBAA pointed to the fact that respondents Dietary and Records
Departments which are housed in separate buildings were similarly imposed with CHH the
special assessment level of 10%, ratiocinating in turn that there is no reason therefore why
a higher level would be imposed for CHHMAC as it is similarly situated with the Dietary and
Records Departments of the CHH.
 The Ruling of the Central Board of Assessment Appeals

Aggrieved, petitioner filed its March 15, 1999 Notice of Appeal[9] and March 16,
1999 Appeal Memorandum[10] before the CBAA Visayas Field Office which docketed the
appeal as CBAA Case No. V-15, In Re: LBAA Case No. 4406, TD No. 97 GR-04-024-02529
entitled City Assessor of Cebu City v. Local Board of Assessment Appeals of Cebu City and
Associacion Benevola de Cebu, Inc. On June 3, 1999, respondent filed its Answer[11] to
petitioners appeal.

Subsequently, on January 24, 2000, the CBAA rendered a Decision[12] affirming in

toto the LBAA Decision and resolved the issue of whether the subject building of CHHMAC
is part and parcel of CHH. It agreed with the above disquisition of the LBAA that it is a
matter of public knowledge that hospitals lease out spaces to its accredited medical
practitioners, and in particular it is of public knowledge that before the CHHMAC was
constructed, the accredited doctors of CHH were housed in the main hospital building of
CHH. Moreover, citing Herrera v. Quezon City Board of Assessment Appeals[13] later applied
in Abra Valley College, Inc. v. Aquino,[14] the CBAA held that the fact that the subject
building is detached from the main hospital building is of no consequence as the exemption
in favor of property used exclusively for charitable or educational purposes is not only limited
to property actually indispensable to the hospital, but also extends to facilities which are
incidental and reasonably necessary for the accomplishment of such purposes.

Through its October 25, 2000 Resolution,[15] the CBAA denied petitioners Motion for
Reconsideration.[16]

The Ruling of the Court of Appeals

Not satisfied, petitioner brought before the CA a petition for review [17] under Rule 43
of the Rules of Court, docketed as CA-G.R. SP No. 62548, ascribing error on the CBAA in
dismissing his appeal and in affirming the February 10, 1999 Decision[18] of the LBAA.

On October 31, 2001, the appellate court rendered the assailed Decision[19] which
affirmed the January 24, 2000 Decision of the CBAA. It agreed with the CBAA that
CHHMAC is part and parcel of CHH in line with the ruling in Herrera[20] on what the term
appurtenant thereto means. Thus, the CA held that the facilities and utilities of CHHMAC
are undoubtedly necessary and indispensable for the CHH to achieve its ultimate purpose.

The CA likewise ruled that the fact that rentals are paid by CHH accredited doctors
and medical specialists for spaces in CHHMAC has no bearing on its classification as a
hospital since CHHMAC serves also as a place for medical check-up, diagnosis, treatment,
and care for its patients as well as a specialized out-patient department of CHH where
treatment and diagnosis are done by accredited medical specialists in their respective fields
of anesthesia, radiology, pathology, and more.

The appellate court also applied Secs. 215 and 216 of the Local Government Code
(Republic Act No. 7160) which classify lands, buildings, and improvements actually, directly,
and exclusively used for hospitals as special cases of real property and not as
commercial. Thus, CHHMAC being an integral part of CHH is not commercial but special
and should be imposed the 10% special assessment, the same as CHH, instead of the 35% for
commercial establishments.

Lastly, the CA pointed out that courts generally will not interfere in matters which
are addressed to the sound discretion of the government agencies entrusted with the
regulation of activities under their special technical knowledge and trainingtheir findings
and conclusions are accorded not only respect but even finality.

Through the assailed March 11, 2002 Resolution,[21] the CA denied petitioners Motion
for Reconsideration.

The Issues

Hence, before us is the instant petition with the solitary issue, as follows:

WHETHER OR NOT THERE IS SERIOUS ERROR BY THE COURT OF

APPEALS IN AFFIRMING THE DECISION OF THE CENTRAL
BOARD OF ASSESSMENT APPEALS THAT THE NEW BUILDING
CHONG HUA HOSPITAL AND MEDICAL ARTS CENTER (CHHMAC)
IS AN ESSENTIAL PART OF THE OLD BUILDING KNOWN AS
CHONG HUA HOSPITAL. IN THE NEGATIVE, WHETHER OR NOT
THE NEW BUILDING IS LIABLE TO PAY THE 35% ASSESSMENT
LEVEL. AND WHETHER OR NOT THE COURT OF APPEALS COULD
INTERFERE WITH THE FINDINGS OF THE CENTRAL BOARD OF
 ASSESSMENT APPEALS, A GOVERNMENT AGENCY HAVING
SPECIAL TECHNICAL KNOWLEDGE AND TRAINING ON THE
MATTER SUBJECT OF THE PRESENT CASE.[22]

The Courts Ruling

The petition is devoid of merit.

It is petitioners strong belief that the subject building, CHHMAC, which is built on a
rented land and situated about 100 meters from the main building of CHH, is not an
extension nor an integral part of CHH and thus should not enjoy the 10% special
assessment. Petitioner anchors the classification of CHHMAC as commercial, first, on Sec.
10 of Local Assessment Regulations No. 1-92 issued by the DOF, which provides:

SEC. 10. Actual use of Real Property as basis of Assessment.Real

Property shall be classified, valued and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses
it. (Sec. 217, R.A. 7160)

A. Actual use refers to the purpose for which the property is principally
or predominantly utilized by the person in possession of the
property. (Sec. 199 (b), R.A. 7160)

Secondly, the result of the inspection on subject building by the City Assessors
inspection team shows that CHHMAC is a commercial establishment based on the following:
(1) CHHMAC is exclusively intended for lease to doctors; (2) there are neither operating
rooms nor beds for patients; and (3) the doctors renting the spaces earn income from the
patients who avail themselves of their services. Thus, petitioner argues that CHHMAC is
principally and actually used for lease to doctors, and respondent as owner of CHHMAC
derives rental income from it; hence, CHHMAC was built and is intended for profit and
functions commercially.

Moreover, petitioner asserts that CHHMAC is not part of the CHH main building as
it is exclusively used as private clinics of physicians who pay rental fees to petitioner. And
while the private clinics might be considered facilities, they are not incidental to nor
reasonably necessary for the accomplishment of the hospitals purposes as CHH can still
function and accomplish its purpose without the existence of CHHMAC. In addition,
petitioner contends that the Abra Valley College, Inc.[23] ruling is not applicable to the instant
case for schools, the subject matter in said case, are already entitled to special
assessment. Besides, petitioner points CHHMAC is not among the facilities mentioned in
said case. Further, petitioner argues that CHHMAC is not in the same category as nurses
homes and housing facilities for the hospital staff as these are clearly not for profit, that is,
not commercial, and are clearly incidental and reasonably necessary for the hospitals
purposes.

We are not persuaded.

A careful review of the records compels us to affirm the assailed CA Decision as we

find no reversible error for us to reverse or alter it.

Chong Hua Hospital Medical Arts Center is an integral part of Chong Hua Hospital

We so hold that CHHMAC is an integral part of CHH.

It is undisputed that the doctors and medical specialists holding clinics in CHHMAC
are those duly accredited by CHH, that is, they are consultants of the hospital and the ones
who can treat CHHs patients confined in it. This fact alone takes away CHHMAC from being
categorized as commercial since a tertiary hospital like CHH is required by law to have a
pool of physicians who comprises the required medical departments in various medical
fields. As aptly pointed out by respondent:

Chong Hua Hospital is a duly licensed tertiary hospital and is covered by

Dept. of Health (DOH) Adm. Order No. 68-A and the 1989 Revised Rules
and Regulations governing the registration, licensure and operation of
hospitals in the Philippines. Under Sec. 6, sub-sec. 6.3, it is mandated by
law, that respondent appellee in order to retain its classification as a
TERTIARY HOSPITAL, must be fully departmentalized and equipped
with the service capabilities needed to support certified medical
specialists and other licensed physicians rendering services in the field
of medicine, pediatrics, obstetrics and gynecology, surgery, and their sub-
specialties, ICCU and ancillary services which is precisely the function
of the Chong Hua Hospital Medical Arts Center.[24]

Sec. 6.3, Administrative Order No. (AO) 68-A, Series of 1989, Revised Rules and
Regulations Governing the Registration, Licensure and Operation of Hospitals in
the Philippines pertinently provides:
 Tertiary Hospital is fully departmentalized and equipped with the
service capabilities needed to support certified medical specialists and
other licensed physicians rendering services in the field of Medicine,
Pediatrics, Obstetrics and Gynecology, Surgery, their subspecialties and
ancillary services. (Emphasis supplied.)

Moreover, AO 68-A likewise provides what clinic service and medical ancillary service
are, thus:

11.3.2 Clinical ServiceThe medical services to patients shall be

performed by the medical staff appointed by the governing body of the
institution. x x x

11.3.3 Medical Ancillary ServiceThese are support services which

include Anesthesia Department, Pathology Department, Radiology
Department, Out-Patient Department (OPD), Emergency Service,
Dental, Pharmacy, Medical Records and Medical Social Services.

Based on these provisions, these physicians holding offices or clinics in CHHMAC,

duly appointed or accredited by CHH, precisely fulfill and carry out their roles in the
hospitals services for its patients through the CHHMAC. The fact that they are holding office
in a separate building, like at CHHMAC, does not take away the essence and nature of their
services vis--vis the over-all operation of the hospital and the benefits to the hospitals
patients. Given what the law requires, it is clear that CHHMAC is an integral part of CHH.

These accredited physicians normally hold offices within the premises of the hospital;
in which case there is no question as to the conduct of their business in the ambit of diagnosis,
treatment and/or confinement of patients. This was the case before 1998 and before
CHHMAC was built. Verily, their transfer to a more spacious and, perhaps, convenient place
and location for the benefit of the hospitals patients does not remove them from being an
integral part of the overall operation of the hospital.

Conversely, it would have been different if CHHMAC was also open for non-accredited
physicians, that is, any medical practitioner, for then respondent would be running a
commercial building for lease only to doctors which would indeed subject the CHHMAC to
the commercial level of 35% assessment.
 Moreover, the CHHMAC, being hundred meters away from the CHH main building,
does not denigrate from its being an integral part of the latter. As aptly applied by the CBAA,
the Herrera ruling on what constitutes property exempt from taxation is indeed applicable
in the instant case, thus:

Moreover, the exemption in favor of property used exclusively for

charitable or educational purposes is not limited to property actually
indispensable therefore (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as, in the case of hospitals, a
school for training nurses, a nurses home, property use to provide
housing facilities for interns, resident doctors, superintendents, and
other members of the hospital staff, and recreational facilities for student
nurses, interns and residents (84 C.J.S., 621), such as athletic fields,
including a farm used for the inmates of the institution (Cooley on
Taxation, Vol. 2, p. 1430).[25]

Verily, being an integral part of CHH, CHHMAC should be under the same special
assessment level of as that of the former.

The CHHMAC facility is definitely incidental to and reasonably necessary for the
operations of Chong Hua Hospital

Given our discussion above, the CHHMAC facility, while seemingly not indispensable
to the operations of CHH, is definitely incidental to and reasonably necessary for the
operations of the hospital. Considering the legal requirements and the ramifications of the
medical and clinical operations that have been transferred to the CHHMAC from the CHH
main building in light of the accredited physicians transfer of offices in 1998 after the
CHHMAC building was finished, it cannot be gainsaid that the services done in CHHMAC
are indispensable and essential to the hospitals operation.

For one, as found by the appellate court, the CHHMAC facility is primarily used by
the hospitals accredited physicians to perform medical check-up, diagnosis, treatment, and
care of patients. For another, it also serves as a specialized outpatient department of the
hospital.
 Indubitably, the operation of the hospital is not only for confinement and surgical
operations where hospital beds and operating theaters are required. Generally, confinement
is required in emergency cases and where a patient necessitates close monitoring. The usual
course is that patients have to be diagnosed, and then treatment and follow-up consultations
follow or are required. Other cases may necessitate surgical operations or other medical
intervention and confinement. Thus, the more the patients, the more important task of
diagnosis, treatment, and care that may or may not require eventual confinement or medical
operation in the CHHMAC.

Thus, the importance of CHHMAC in the operation of CHH cannot be over-

emphasized nor disputed. Clearly, it plays a key role and provides critical support to hospital
operations.

Charging rentals for the offices used by its accredited physicians cannot be equated to a
commercial venture

Finally, respondents charge of rentals for the offices and clinics its accredited
physicians occupy cannot be equated to a commercial venture, which is mainly for profit.

Respondents explanation on this point is well taken. First, CHHMAC is only for its
consultants or accredited doctors and medical specialists. Second, the charging of rentals is
a practical necessity: (1) to recoup the investment cost of the building, (2) to cover the rentals
for the lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its
facilities. Third, as correctly pointed out by respondent, it pays the proper taxes for its rental
income. And, fourth, if there is indeed any net income from the lease income of CHHMAC,
such does not inure to any private or individual person as it will be used for respondents
other charitable projects.

Given the foregoing arguments, we fail to see any reason why the CHHMAC building
should be classified as commercial and be imposed the commercial level of 35% as it is not
operated primarily for profit but as an integral part of CHH. The CHHMAC, with operations
being devoted for the benefit of the CHHs patients, should be accorded the 10% special
assessment.
In this regard, we point with approbation the appellate courts application of Sec. 216
in relation with Sec. 215 of the Local Government Code on the proper classification of the
subject CHHMAC building as special and not commercial. Secs. 215 and 216 pertinently
provide:

SEC. 215. Classes of Real Property for Assessment Purposes.For

purposes of assessment, real property shall be classified as residential,
agricultural, commercial, industrial, mineral, timberland or special.

xxxx

SEC. 216. Special Classes of Real Property.All lands, buildings, and

other improvements thereon actually, directly and exclusively used
for hospitals, cultural or scientific purposes, and those owned and used
by local water districts, and government-owned or controlled
corporations rendering essential public services in the supply and
distribution of water and/or generation and transmission of electric
power shall be classified as special. (Emphasis supplied.)

Thus, applying the above provisos in line with City Tax Ordinance LXX of Cebu City,
the 10% special assessment should be imposed for the CHHMAC building which should be
classified as special.

WHEREFORE, the petition is DENIED for lack of merit and the October 31,
2001 Decision and March 11, 2002 Resolutionof the CA are hereby AFFIRMED. No
pronouncement as to costs.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-49336 August 31, 1981

THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA, Provincial

Assessor, petitioner,
vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding Judge of Branch I,
Court of First Instance Abra; THE ROMAN CATHOLIC BISHOP OF BANGUED, INC.,
represented by Bishop Odilo etspueler and Reverend Felipe Flores, respondents.

FERNANDO, C.J.:

On the face of this certiorari and mandamus petition filed by the Province of Abra, 1 it
clearly appears that the actuation of respondent Judge Harold M. Hernando of the Court of
First Instance of Abra left much to be desired. First, there was a denial of a motion to
dismiss 2 an action for declaratory relief by private respondent Roman Catholic Bishop of
Bangued desirous of being exempted from a real estate tax followed by a summary
judgment 3granting such exemption, without even hearing the side of petitioner. In the
rather vigorous language of the Acting Provincial Fiscal, as counsel for petitioner,
respondent Judge "virtually ignored the pertinent provisions of the Rules of Court; ...
wantonly violated the rights of petitioner to due process, by giving due course to the
petition of private respondent for declaratory relief, and thereafter without allowing
petitioner to answer and without any hearing, adjudged the case; all in total disregard of
basic laws of procedure and basic provisions of due process in the constitution, thereby
indicating a failure to grasp and understand the law, which goes into the competence of the
Honorable Presiding Judge." 4

It was the submission of counsel that an action for declaratory relief would be proper only
before a breach or violation of any statute, executive order or regulation. 5 Moreover, there
being a tax assessment made by the Provincial Assessor on the properties of respondent
Roman Catholic Bishop, petitioner failed to exhaust the administrative remedies available
under Presidential Decree No. 464 before filing such court action. Further, it was pointed
out to respondent Judge that he failed to abide by the pertinent provision of such
Presidential Decree which provides as follows: "No court shall entertain any suit assailing
the validity of a tax assessed under this Code until the taxpayer, shall have paid, under
protest, the tax assessed against him nor shall any court declare any tax invalid by reason
of irregularities or informalities in the proceedings of the officers charged with the
assessment or collection of taxes, or of failure to perform their duties within this time
herein specified for their performance unless such irregularities, informalities or failure
shall have impaired the substantial rights of the taxpayer; nor shall any court declare any
portion of the tax assessed under the provisions of this Code invalid except upon condition
that the taxpayer shall pay the just amount of the tax, as determined by the court in the
pending proceeding." 6

When asked to comment, respondent Judge began with the allegation that there "is no
question that the real properties sought to be taxed by the Province of Abra are properties
of the respondent Roman Catholic Bishop of Bangued, Inc." 7 The very next sentence
assumed the very point it asked when he categorically stated: "Likewise, there is no dispute
that the properties including their procedure are actually, directly and exclusively used by
the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes." 8 For him
then: "The proper remedy of the petitioner is appeal and not this special civil action." 9 A
more exhaustive comment was submitted by private respondent Roman Catholic Bishop of
Bangued, Inc. It was, however, unable to lessen the force of the objection raised by
petitioner Province of Abra, especially the due process aspect. it is to be admitted that his
opposition to the petition, pressed with vigor, ostensibly finds a semblance of support from
the authorities cited. It is thus impressed with a scholarly aspect. It suffers, however, from
the grave infirmity of stating that only a pure question of law is presented when a claim for
exemption is made.

The petition must be granted.

1. Respondent Judge would not have erred so grievously had he merely compared the
provisions of the present Constitution with that appearing in the 1935 Charter on the tax
exemption of "lands, buildings, and improvements." There is a marked difference. Under
the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." 10 The present
Constitution added "charitable institutions, mosques, and non-profit cemeteries" and
required that for the exemption of ":lands, buildings, and improvements," they should not
only be "exclusively" but also "actually and "directly" used for religious or charitable
purposes. 11 The Constitution is worded differently. The change should not be ignored. It
must be duly taken into consideration. Reliance on past decisions would have sufficed were
the words "actually" as well as "directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation. According to Commissioner of Internal
Revenue v. Guerrero: 12"From 1906, in Catholic Church v. Hastings to 1966, in Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and
uniform holding that exemption from taxation is not favored and is never presumed, so that
if granted it must be strictly construed against the taxpayer. Affirmatively put, the law
frowns on exemption from taxation, hence, an exempting provision should be
construed strictissimi juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such
principle was reiterated, reference being made to Republic Flour Mills, Inc. v.
Commissioner of Internal Revenue; 15 Commissioner of Customs v. Philippine Acetylene Co.
& CTA; 16 and Davao Light and Power Co., Inc. v. Commissioner of Customs. 17

2. Petitioner Province of Abra is therefore fully justified in invoking the protection of

procedural due process. If there is any case where proof is necessary to demonstrate that
there is compliance with the constitutional provision that allows an exemption, this is it.
Instead, respondent Judge accepted at its face the allegation of private respondent. All that
was alleged in the petition for declaratory relief filed by private respondents, after
mentioning certain parcels of land owned by it, are that they are used "actually, directly
and exclusively" as sources of support of the parish priest and his helpers and also of
private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner Province
of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax
assessment may be questioned before the Local Board of Assessment Appeals and not with
a court. There was also mention of a lack of a cause of action, but only because, in its view,
declaratory relief is not proper, as there had been breach or violation of the right of
government to assess and collect taxes on such property. It clearly appears, therefore, that
in failing to accord a hearing to petitioner Province of Abra and deciding the case
immediately in favor of private respondent, respondent Judge failed to abide by the
constitutional command of procedural due process.

WHEREFORE, the petition is granted and the resolution of June 19, 1978 is set aside.
Respondent Judge, or who ever is acting on his behalf, is ordered to hear the case on the
merit. No costs.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,

vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra;
HEIRS OF PATERNO MILLARE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct Court of First
Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled
"Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M.
Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of
Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued,
Abra, the Provincial Treasurer of said province against the lot and building of
the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia
located at Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay
all back taxes in the amount of P5,140.31 and back taxes and penalties from
the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before
the trial, be confiscated to apply for the payment of the back taxes and for the
redemption of the property in question, if the amount is less than P6,000.00,
the remainder must be returned to the Director of Pedro Borgonia, who
represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also
before the trial must be returned to said Municipal Treasurer of Bangued,
Abra;

And finally the case is hereby ordered dismissed with costs against the
plaintiff.
 SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated

with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of
Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in
the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of
its lot and building located at Bangued, Abra, for non-payment of real estate taxes and
penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building
covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner,
plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The
"Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers
on July 8, 1972 for the sale at public auction of said college lot and building, which sale was
held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra,
offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was
correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel
a motion to dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer,
through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by
the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was
followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.

On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid;
Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the
respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I,
ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on
December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the
sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by
the trial court in its questioned decision. Said Stipulations reads:

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this Honorable Court
respectfully enter into the following agreed stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of

the complaint is admitted; but the particular person of Mr. Armin M. Cariaga
is to be substituted, however, by anyone who is actually holding the position
of Provincial Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot
and buildings thereon located in Bangued, Abra under Original Certificate of
Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued,

Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice
of Seizure on the property of said school under Original Certificate of Title
No. 0-83 for the satisfaction of real property taxes thereon, amounting to
P5,140.31; the Notice of Seizure being the one attached to the complaint as
Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior
College, Inc. was sold at public auction for the satisfaction of the unpaid real
property taxes thereon and the same was sold to defendant Paterno Millare
who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor
was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this
stipulation of facts will be the subject of evidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider

and admit this stipulation of facts on the point agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd.
Agripi
no
Brilla
ntes
Typ
AGRI
PINO
BRILL
ANTE
S
Attorn
ey for
Plainti
ff

Sgd.
Loreto
Rolda
n
Typ
LORE
TO
 ROLD
AN
Provin
cial
Fiscal
Couns
el for
Defen
dants
Provin
cial
Treasu
rer of
Abra
and
the
Munici
pal
Treasu
rer of
Bangu
ed,
Abra

Sgd.
Demet
rio V.
Pre
Typ.
DEME
TRIO
V.
PRE
Attorn
ey for
Defen
dant
Patern
o
Millar
e
(Rollo,
pp. 17-
18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a)
that the school is recognized by the government and is offering Primary, High School and
College Courses, and has a school population of more than one thousand students all in all;
(b) that it is located right in the heart of the town of Bangued, a few meters from the plaza
and about 120 meters from the Court of First Instance building; (c) that the elementary
pupils are housed in a two-storey building across the street; (d) that the high school and
college students are housed in the main building; (e) that the Director with his family is in
the second floor of the main building; and (f) that the annual gross income of the school
reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the
parties, is whether or not the lot and building in question are used exclusively for
educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio
Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a
Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the
evidence, the laws applicable, court decisions and jurisprudence, the school building and
school lot used for educational purposes of the Abra Valley College, Inc., are exempted from
the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director
of petitioner school for residential purposes. He thus ruled for the government and rendered
the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which
to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57)
petitioner instead availed of the instant petition for review on certiorari with prayer for
preliminary injunction before this Court, which petition was filed on August 17, 1974
(Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the
petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF
THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE
PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR
EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00

DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for
educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes,
and not the incidental use thereof, determines and exemption from property taxes under
Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject
college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal
basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in
question which were subjected to seizure and sale to answer for the unpaid tax are used: (1)
for the educational purposes of the college; (2) as the permanent residence of the President
and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and
grandchildren; and (3) for commercial purposes because the ground floor of the college
building is being used and rented by a commercial establishment, the Northern Marketing
Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar
is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment
Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable,
scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the
basic and controlling guide, norm and standard to determine tax exemption, and not the
mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916],
this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding
house and maintains a restaurant for its members, still these do not constitute business in
the ordinary acceptance of the word, but an institution used exclusively for religious,
charitable and educational purposes, and as such, it is entitled to be exempted from
taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352
[1972], this Court included in the exemption a vegetable garden in an adjacent lot and
another lot formerly used as a cemetery. It was clarified that the term "used exclusively"
considers incidental use also. Thus, the exemption from payment of land tax in favor of the
convent includes, not only the land actually occupied by the building but also the adjacent
garden devoted to the incidental use of the parish priest. The lot which is not used for
commercial purposes but serves solely as a sort of lodging place, also qualifies for
exemption because this constitutes incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court
in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991
[1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable

or educational purposes is 'not limited to property actually indispensable'
therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which
are incidental to and reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84 CJS
6621), such as "Athletic fields" including "a firm used for the inmates of the
institution. (Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable
emphasis has always been made that exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the main purposes. Otherwise stated,
the use of the school building or lot for commercial purposes is neither contemplated by law,
nor by jurisprudence. Thus, while the use of the second floor of the main building in the
case at bar for residential purposes of the Director and his family, may find justification
under the concept of incidental use, which is complimentary to the main or primary
purpose—educational, the lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered incidental to the
purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the
first time in this Court. That the matter was not taken up in the to court is really apparent
in the decision of respondent Judge. No mention thereof was made in the stipulation of
facts, not even in the description of the school building by the trial judge, both embodied in
the decision nor as one of the issues to resolve in order to determine whether or not said
properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the
other hand, it is noteworthy that such fact was not disputed even after it was raised in this
Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the
first time on appeal. Nonetheless, as an exception to the rule, this Court has held that
although a factual issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme
Court is clothed with ample authority to review palpable errors not assigned as such if it
finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of
Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the
school building as well as the lot where it is built, should be taxed, not because the second
floor of the same is being used by the Director and his family for residential purposes, but
because the first floor thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the assessed tax be
returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is
hereby AFFIRMED subject to the modification that half of the assessed tax be returned to
the petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15270 September 30, 1961

JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners,

vs.
THE QUEZON CITY BOARD OF ASSESSMENT APPEALS, respondent.

Angel A. Sison for petitioners.

Jaime Agloro for respondent.

CONCEPCION, J.:

Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a decision of the
Court of Tax Appeals affirming that of the Board of Assessment Appeals of Quezon City,
which held that certain properties of said petitioners are subject to assessment for purposes
of real estate tax.

The facts and the issue are set forth in the aforementioned decision of the Court of Tax
Appeals, from which we quote:

On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners
to establish and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta.
Mesa Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3,
1953, the petitioners sent a letter to the Quezon City Assessor requesting exemption
from payment of real estate tax on the lot, building and other improvements
comprising the hospital stating that the same was established for charitable and
humanitarian purposes and not for commercial gain (Exhibit "F-2", pp. 8-9, BIR
rec.). After an inspection of the premises in question and after a careful study of the
case, the exemption from real property taxes was granted effective the years 1953,
1954 and 1955.

Subsequently, however, in a letter dated August 10, 1955 (Exhibit "E", p. 65, CTA
rec.) the Quezon City Assessor notified the petitioners that the aforesaid properties
were re-classified from exempt to "taxable" and thus assessed for real property taxes
effective 1956, enclosing therewith copies of Tax Declarations Nos. 19321 to 19322
covering the said properties. The petitioners appealed the assessment to the Quezon
City Board of Assessment Appeals, which, in a decision dated March 31, 1956 and
received by the former on May 17, 1956, affirmed the decision of the City Assessor. A
motion for reconsideration thereof was denied on March 8, 1957. From this decision,
the petitioners instituted the instant appeal.1awphîl.nèt
The building involved in this case is principally used as a hospital. It is mainly a
surgical and orthopedic hospital with emphasis on obstetrical cases, the latter
constituting 90% of the total number of cases registered therein. The hospital has
thirty-two (32) beds, of which twenty (20) are for charity-patients and twelve (12) for
pay-patients. From the evidence presented by petitioners, it is made to appear that
there are two kinds of charity patients — (a) those who come for consultation only
("out-charity patients"); and (b) those who remain in the hospital for treatment
("lying-in-patients"). The out-charity patients are given free consultation and
prescription, although sometimes they are furnished with free medicines which are
not costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are given free
medical service and medicine although the food served to the pay-patients is very
much better than that given to the former. Although no condition is imposed by the
hospital on the admission of charity lying-in-patients, they however, usually give
donations to the hospital. On the other hand, the pay-patients are required to pay
for hospital services ranging from the minimum charge of P5.00 to the maximum of
P40.00 for each day of stay in the hospital. The income realized from pay-patients is
spent for the improvement of the charity wards. The hospital personnel is composed
of three nurses, two graduate midwives, a resident physician receiving a salary of
P170.00 a month and the petitioner, Dr. Ester Ochangco Herrera, as directress. As
such directress, the latter does not receive any salary.

Petitioners also operate within the premises of the hospital the "St. Catherine's
School of Midwifery" which was granted government recognition by the Secretary of
Education on February 1, 1955 (Exhibit "F-3", p. 10, BIR rec.) This school has an
enrollment of about two hundred students. The students are charged a
matriculation fee of P300.00 for 1-½ years, plus P50.00 a month for board and
lodging, which includes transportation to the St. Mary's Hospital. The students
practice in the St. Catherine's Hospital, as well as in the St. Mary's Hospital, which
is also owned by the petitioners. A separate set of accounting books is maintained by
the school for midwifery distinct from that kept by the hospital. The petitioners
alleged that the accounts of the school are not included in Exhibits "A", "A-1", "A-2",
"B", "B-1", "B-2", "C", "C-1" and "C-2" which relate to the hospital only. However, the
petitioners have refused to submit a separate statement of accounts of the school. A
brief tabulation indicating the amount of income of the hospital for the years 1954,
1955 and 1956, and its operational expenses, is as follows:

1954
Income Expenses Deficit
P 5,280.04 P1,303.80
Charity Ward P10,803.26
P14,779.50
Pay Ward
P16,083.30
(Exhibits "A", "A-1" and "A-2")

1955
 Income Expenses Deficit
P 6,859.32
Charity Ward 14,038.92
P17,433.30 P3,464.94
Pay Ward
P20,898.24
(Exhibits "B", "B-1" and "B-2")

1956
Income Expenses Deficit
P 5,559.89 P 341.53
Charity Ward 16,249.04
P21,467.40
Pay Ward
P21,809.93
(Exhibits "C", "C-1" and "C-2")

Aside from the St. Catherine and St. Mary hospitals, the petitioners declared that they also
own lands and coconut plantations in Quezon Province, and other real estate in the City of
Manila consisting of apartments for rent. The petitioner, Jose V. Herrera, is an architect,
actively engaged in the practice of his profession, with office at Tuason Building, Escolta,
Manila. He was formerly Chairman, Board of Examiners for Architects and Chairman,
Board of Architects connected with the United Nations. He was also connected with the
Allied Technologists which constructed the Veterans Hospital in Quezon City.

The only issue raised, is whether or not the lot, building and other improvements occupied
by the St. Catherine Hospital are exempt from the real property tax. The resolution of this
question boils down to the corollary issue as to whether or not the said properties are used
exclusively for charitable or educational purposes. (Petitioners' brief, pp. 24-29).

The Court of Tax Appeals decided the issue in the negative, upon the ground that the St.
Catherine's Hospital "has a pay ward for ... pay-patients, who are charged for the use of the
private rooms, operating room, laboratory room, delivery room, etc., like other hospitals
operated for profit" and that "petitioners and their family occupy a portion of the building
for their residence." With respect to petitioners' claim for exemption based upon the
operation of the school of midwifery, the Court conceded that "the proposition might be
proper if the property used for the school of midwifery were separate and distinct from the
hospital." It added, however, that, "in the instant case, the portions of the building used for
classrooms of the school of midwifery have not been shown to be exclusively for school
purposes"; that said portions "rather ... have a dual use, i.e., for classroom and for hospital
use, the latter not being a purpose that renders the property tax exempt;" that part of the
building and lot in question "is used as a hospital, part as residence of the petitioners, part
as garage, part as dormitory and part as school"; and that "the portion dedicated to
educational and charitable purposes can not be identified from those destined to other uses;
and the building is itself an indivisible unit of property."
It should be noted, however, that, according to the very statement of facts made in the
decision appealed from, of the thirty-two (32) beds in the hospital, twenty (20) are for
charity-patients; that "the income realized from pay-patients is spent for improvement of
the charity wards;" and that "petitioners, Dr. Ester Ochangco Herrera, as directress" of said
hospital, "does not receive any salary," although its resident physician gets a monthly
salary of P170.00. It is well settled, in this connection, that the admission of pay-patients
does not detract from the charitable character of a hospital, if all its funds are devoted
"exclusively to the maintenance of the institution" as a "public charity" (84 C.J.S., 617; see,
also, 51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In other
words, where rendering charity is its primary object, and the funds derived from payments
made by patients able to pay are devoted to the benevolent purposes of the institution, the
mere fact that a profit has been made will not deprive the hospital of its benevolent
character" (Prairie Du Chien Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7
NW [2d] 832, 144 A.L.R. 1480).

Thus, we have held that the U.S.T. Hospital was not established for profit-making
purposes, although it had 140 paying beds maintained only to partly finance the expenses
of the free wards, containing 203 beds for charity patients (U.S.T. Hospital Employees
Association vs. Sto. Tomas University Hospital, L-6988, May 24, 1954), that St. Paul's
Hospital of Iloilo, a corporation organized for "charitable educational and religious
purposes" can not be considered as engaged in business merely because its pharmacy
department charges paying patients the cost of their medicine, plus 10% thereof, to partly
offset the cost of medicines supplied free of charge to charity patients (Collector of Internal
Revenue vs. St. Paul's Hospital of Iloilo, L-12127, May 25, 1959), and that the amendment
of the original articles of incorporation of the University of Visayas to convert it from a non-
stock to a stock corporation and the increase of its assets from P9,000 to P50,000,
distributed among the members of the original non-stock corporation in terms of shares of
stock, as well as the subsequent move of its board of trustees to double the stock dividends
of the corporation, in view of a gain of P200,000.00 in property, besides good-will, which
was not carried out, does not justify the inference that the corporation has become one for
business and profit, none of its profits having inured to the benefit of any stockholder or
individual (Collector of Internal Revenue vs. University of Visayas, L-13554, February 28,
1961).

Moreover, the exemption in favor of property used exclusively for charitable or educational
purposes is "not limited to property actually indispensable" therefor (Cooley on Taxation,
Vol. 2, p. 1430), but extends to facilities which are "incidental to and reasonably necessary
for" the accomplishment of said purposes, such as, in the case of hospitals, "a school for
training nurses, a nurses' home, property use to provide housing facilities for interns,
resident doctors, superintendents, and other members of the hospital staff, and recreational
facilities for student nurses, interns and residents" (84 C.J.S., 621), such as "athletic fields,"
including "a farm used for the inmates of the institution" (Cooley on Taxation, Vol. 2, p.
1430).

Within the purview of the Constitutional exemption from taxation, the St. Catherine's
Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does
not bar it from claiming that it is devoted exclusively to benevolent purposes, it being
admitted that the income derived from pay-patients is devoted to the improvement of the
charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital,
aside from "out-charity patients" who come only for consultation.

Again, the existence of "St. Catherine's School of Midwifery", with an enrollment of about
200 students, who practice partly in St. Catherine's Hospital and partly in St. Mary's
Hospital, which, likewise, belongs to petitioners herein, does not, and cannot, affect the
exemption to which St. Catherine's Hospital is entitled under our fundamental law. On the
contrary, it furnishes another ground for exemption. Seemingly, the Court of Tax Appeals
was impressed by the fact that the size of said enrollment and the matriculation fee
charged from the students of midwifery, aside from the amount they paid for board and
lodging, including transportation to St. Mary's Hospital, warrants the belief that
petitioners derive a substantial profit from the operation of the school aforementioned.
Such factor is, however, immaterial to the issue in the case at bar, for "all lands, building
and improvements used exclusively for religious, charitable or educational purposes shall
be exempt from taxation," pursuant to the Constitution, regardless of whether or not
material profits are derived from the operation of the institutions in question. In other
words, Congress may, if it deems fit to do so, impose taxes upon such "profits", but said
"lands, buildings and improvements" are beyond its taxing power.

Similarly, the garage in the building above referred to — which was obviously essential to
the operation of the school of midwifery, for the students therein enrolled practiced, not
only in St. Catherine's Hospital, but, also, in St. Mary's Hospital, and were entitled to
transportation thereto — for Mrs. Herrera received no compensation as directress of St.
Catherine's Hospital — were incidental to the operation of the latter and of said school,
and, accordingly, did not affect the charitable character of said hospital and the educational
nature of said school.

WHEREFORE, the decision of the Court of Tax Appeals, as well as that of the Assessment
Board of Appeals of Quezon City, are hereby reversed and set aside, and another one
entered declaring that the lot, building and improvements constituting the St. Catherine's
Hospital are exempt from taxation under the provisions of the Constitution, without special
pronouncement as to costs. It is so ordered.
 FIRST DIVISION

[G.R. No. 124043. October 14, 1998]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS,

COURT OF TAX APPEALS and YOUNG MENS CHRISTIAN ASSOCIATION OF
THE PHILIPPINES, INC., respondents.

DECISION
PANGANIBAN, J.:

Is the income derived from rentals of real property owned by the Young Mens Christian
Association of the Philippines, Inc. (YMCA) established as a welfare, educational and
charitable non-profit corporation -- subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?

The Case

This is the main question raised before us in this petition for review
on certiorari challenging two Resolutions issued by the Court of Appeals[1] on September 28,
1995[2] and February 29, 1996[3] in CA-GR SP No. 32007. Both Resolutions affirmed the
Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on
the latters income from the lease of its real property.

The Facts

The Facts are undisputed.[4] Private Respondent YMCA is a non-stock, non-profit

institution, which conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from
leasing out a portion of its premises to small shop owners, like restaurants and canteen
operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984,
the commissioner of internal revenue (CIR) issued an assessment to private respondent, in
the total amount of P415,615.01 including surcharge and interest, for deficiency income tax,
deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied
the claims of YMCA.
 Contesting the denial of its protest, the YMCA filed a petition for review at the Court if
Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of
the YMCA:

xxx [T]he leasing of private respondents facilities to small shop owners, to restaurant and
canteen operators and the operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the objectives of the [private
respondents]. It appears from the testimonies of the witnesses for the [private respondent]
particularly Mr. James C. Delote, former accountant of YMCA, that these facilities were
leased to members and that they have to service the needs of its members and their
guests. The Rentals were minimal as for example, the barbershop was only charged P300
per month. He also testified that there was actually no lot devoted for parking space but the
parking was done at the sides of the building. The parking was primarily for members with
stickers on the windshields of their cars and they charged P.50 for non-members. The
rentals and parking fees were just enough to cover the costs of operation and maintenance
only. The earning[s] from these rentals and parking charges including those from lodging
and other charges for the use of the recreational facilities constitute [the] bulk of its income
which [is] channeled to support its many activities and attainment of its objectives. As
pointed out earlier, the membership dues are very insufficient to support its program. We
find it reasonably necessary therefore for [private respondent] to make [the] most out [of]
its existing facilities to earn some income. It would have been different if under the
circumstances, [private respondent] will purchase a lot and convert it to a parking lot to
cater to the needs of the general public for a fee, or construct a building and lease it out to
the highest bidder or at the market rate for commercial purposes, or should it invest its
funds in the buy and sell of properties, real or personal. Under these circumstances, we
could conclude that the activities are already profit oriented, not incidental and reasonably
necessary to the pursuit of the objectives of the association and therefore, will fall under the
last paragraph of section 27 of the Tax Code and any income derived therefrom shall be
taxable.

Considering our findings that [private respondent] was not engaged in the business of
operating or contracting [a] parking lot, we find no legal basis also for the imposition of [a]
deficiency fixed tax and [a] contractors tax in the amount[s] of P353.15 and P3,129.73,
respectively.

xxxxxxxxx

WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed
for lack of merit:

1980 Deficiency Fixed Tax P353,15;

1980 Deficiency Contractors Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not
to exceed three (3) years pursuant to Section 51 (e)(2) & (3) of the National Internal
Revenue Code effective as of 1984.[5]

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals
(CA). In its Decision of February 16, 1994, the CA[6] initially decided in favor of the CIR and
disposed of the appeal in the following manner:

Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra
Valley College Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that the
leasing of petitioners (herein respondent) facilities to small shop owners, to restaurant and
canteen operators and the operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the objectives of the petitioners,' and the
income derived therefrom are tax exempt, must be reversed.

WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the

assessment for:

1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractors Tax P 3,129.23, &
1980 Deficiency Income Tax P372,578.20,

but the same is AFFIRMED in all other respect.[7]

Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I

The findings of facts of the Public Respondent Court of Tax Appeals being supported by
substantial evidence [are] final and conclusive.

II

The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from

the income on rentals of small shops and parking fees [are] in accord with the
applicable law and jurisprudence.[8]

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed
itself and promulgated on September 28, 1995 its first assailed Resolution which, in part,
reads:

The Court cannot depart from the CTAs findings of fact, as they are supported by evidence
beyond what is considered as substantial.

xxxxxxxxx

The second ground raised is that the respondent CTA did not err in saying that the rental
from small shops and parking fees do not result in the loss of the exemption. Not even the
petitioner would hazard the suggestion that YMCA is designed for profit. Consequently, the
little income from small shops and parking fees help[s] to keep its head above the water, so
to speak, and allow it to continue with its laudable work.

The Court, therefore, finds the second ground of the motion to be meritorious and in accord
with law and jurisprudence.

WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTAs decision
is AFFIRMED in toto.[9]

The internal revenue commissioners own Motion for Reconsideration was denied by
Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this petition
for review under Rule 45 of the Rules of Court.[10]

The Issues

Before us, petitioner imputes to the Court of Appeals the following errors:
I

In holding that it had departed from the findings of fact of Respondent Court of Tax
Appeals when it rendered its Decision dated February 16, 1994; and

II

In affirming the conclusion of Respondent Court of Tax Appeals that the income of
private respondent from rentals of small shops and parking fees [is] exempt from
taxation.[11]

This Courts Ruling

The Petition is meritorious.

First Issue:
Factual Findings of the CTA

Private respondent contends that the February 16, 1994 CA Decision reversed the factual
findings of the CTA. On the other hand, petitioner argues that the CA merely reversed
the ruling of the CTA that the leasing of private respondents facilities to small shop owners,
to restaurant and canteen operators and the operation of parking lots are reasonably
incidental to and reasonably necessary for the accomplishment of the objectives of the private
respondent and that the income derived therefrom are tax exempt.[12] Petitioner insists that
what the appellate court reversed was the legal conclusion, not the factual finding, of the
CTA.[13] The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported
by substantial evidence, will not be disturbed on appeal unless it is shown that the said court
committed gross error in the appreciation of facts.[14] In the present case, this Court finds
that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter
merely applied the law to the facts as found by the CTA and ruled on the issue raised by the
CIR:Whether or not the collection or earnings of rental income from the lease of certain
premises and income earned from parking fees shall fall under the last paragraph of Section
27 of the National Internal Revenue Code of 1977, as amended.[15]
Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned
issue, as indeed it was expected to. That it did so in a manner different from that of the CTA
did not necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been
held that [t]here is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts.[16] In the present case, the CA
did not doubt, much less change, the facts narrated by the CTA. It merely applied the law to
the facts. That its interpretation or conclusion is different from that of the CTA is not
irregular or abnormal.

Second Issue:
Is the Rental Income of the YMCA Taxable?

We now come to the crucial issue: Is the rental income of the YMCA from its real estate
subject to tax? At the outset, we set forth the relevant provision of the NIRC:

SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be
taxed under this Title in respect to income received by them as such --

xxxxxxxxx

(g) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;

(h) Club organized and operated exclusively for pleasure, recreation, and other non-
profitable purposes, no part of the net income of which inures to the benefit of any private
stockholder or member;

xxxxxxxxx

Notwithstanding the provision in the preceding paragraphs, the income of whatever kind
and character of the foregoing organization from any of their properties, real or personal, or
from any of their activities conducted for profit, regardless of the disposition made of such
income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree
No. 1457)

Petitioners argues that while the income received by the organizations enumerated in
Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax in
respect to income received by them as such, the exemption does not apply to income derived
xxx from any if their properties, real or personal, or from any of their activities conducted for
profit, regardless, of the disposition made of such income xxx.
Petitioner adds that rented income derived by a tax-exempt organization from the lease
of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if
such income [is] exclusively used for the accomplishment of its objectives.[17] We agree with
the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine
of strict interpretation in construing tax exemptions.[18]Furthermore, a claim of statutory
exemption from taxation should be manifest and unmistakable from the language of the law
on which it is based. Thus, the claimed exemption must expressly be granted in a statute
stated in a language too clear to be mistaken.[19]
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the
very wording of the last paragraph of then Section 27 of the NIRC which mandates that the
income of exempt organizations (such as the YMCA) from any of their properties, real or
personal, be subject to the imposed by the same Code. Because the last paragraph of said
section unequivocally subjects to tax the rent income f the YMCA from its rental
property,[20] the Court is duty-bound to abide strictly by its literal meaning and to refrain
from resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express
terms must be applied.[21] Parenthetically, a consideration of the question of construction
must not even begin, particularly when such question is on whether to apply a strict
construction or a literal one on statutes that grant tax exemptions to religious, charitable
and educational propert[ies] or institutions.[22]
The last paragraph of Section 27, the YMCA argues, should be subject to the qualification
that the income from the properties must arise from activities conducted for profit before it
may be considered taxable.[23] This argument is erroneous. As previously stated, a reading of
said paragraph ineludibly shows that the income from any property of exempt organizations,
as well as that arising from any activity it conducts for profit, is taxable. The phrase any of
their activities conducted for profit does not qualify the word properties. This makes income
from the property of the organization taxable, regardless of how that income is used --
whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on
income it derived from renting out its real property, on the solitary but unconvincing ground
that the said income is not collected for profit but is merely incidental to its operation. The
law does not make a distinction. The rental income is taxable regardless of whence such
income is derived and how it used or disposed of. Where the law does not distinguish, neither
should we.
Constitutional Provisions
on Taxation

Invoking not only the NIRC but also the fundamental law, private respondent submits
that Article VI, Section 28 of par. 3 of the 1987 Constitution,[24]exempts charitable
institutions from the payment not only of property taxes but also of income tax from any
source.[25] In support of its novel theory, it compares the use of the words charitable
institutions, actually and directly in the 1973 and the 1987 Constitutions, on the hand; and
in Article VI Section 22, par. 3 of the 1935 Constitution, on the other hand.[26]
Private respondent enunciates three points. First, the present provision is divisible into
two categories: (1) [c]haritable institutions, churches and parsonages or convents
appurtenant thereto, mosques and non-profit cemeteries, the incomes of which are, from
whatever source, all tax-exempt;[27] and (2) [a]ll lands, buildings and improvements actually
and directly used for religious, charitable or educational purposes, which are exempt only
from property taxes.[28] Second, Lladoc v. Commissioner of Internal Revenue,[29] which
limited the exemption only to the payment of property taxes, referred to the provision of the
1935 Constitution and not to its counterparts in the 1973 and the 1987
Constitutions.[30] Third, the phrase actually, directly and exclusively used for religious,
charitable or educational purposes refers not only to all lands, buildings and improvements,
but also to the above-quoted first category which includes charitable institutions like the
private respondent.[31]
The Court is not persuaded. The debates, interpellations and expressions of opinion of
the framers of the Constitution reveal their intent which, in turn, may have guided the people
in ratifying the Charter.[32] Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is
now a member of this Court, stressed during the Concom debates that xxx what is exempted
is not the institution itself xxx; those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for religious, charitable or
educational purposes.[33] Father Joaquin G. Bernas, an eminent authority on the Constitution
and also a member of the Concom, adhered to the same view that the exemption created by
said provision pertained only to property taxes.[34]
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that [t]he tax
exemption covers property taxes only."[35] Indeed, the income tax exemption claimed by
private respondent finds no basis in Article VI, Section 28, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter,[36] claiming
that the YMCA is a non-stock, non-profit educational institution whose revenues and assets
are used actually, directly and exclusively for educational purposes so it is exempt from taxes
on its properties and income.[37] We reiterate that private respondent is exempt from the
payment of property tax, but not income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi
juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited
provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of evidence was submitted by private
respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4,
par.3 of the Constitution? We rule that it is not. The term educational institution or
institution of learning has acquired a well-known technical meaning, of which the members
of the Constitutional Commission are deemed cognizant.[38] Under the Education Act of 1982,
such term refers to schools.[39] The school system is synonymous with formal
education,[40]which refers to the hierarchically structured and chronological graded learnings
organized and provided by the formal school system and for which certification is required in
order for the learner to progress through the grades or move to the higher levels.[41] The Court
has examined the Amended Articles of Incorporation[42] and By-Laws[43] of the YMCA, but
found nothing in them that even hints that it is a school or an educational institution.[44]
Furthermore, under the Education Act of 1982, even non-formal education is understood
to be school-based and private auspices such as foundations and civic-spirited organizations
are ruled out.[45] It is settled that the term educational institution, when used in laws
granting tax exemptions, refers to a xxx school seminary, college or educational
establishment xxx.[46] Therefore, the private respondent cannot be deemed one of the
educational institutions covered by the constitutional provision under consideration.

xxx Words used in the Constitution are to be taken in their ordinary acceptation. While in
its broadest and best sense education embraces all forms and phrases of instruction,
improvement and development of mind and body, and as well of religious and moral
sentiments, yet in the common understanding and application it means a place where
systematic instruction in any or all of the useful branches of learning is given by methods
common to schools and institutions of learning. That we conceive to be the true intent and
scope of the term [educational institutions,] as used in the Constitution.[47]

Moreover, without conceding that Private Respondent YMCA is an educational

institution, the Court also notes that the former did not submit proof of the proportionate
amount of the subject income that was actually, directly and exclusively used for educational
purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence
submitted, is patently insufficient, since the same merely signified that [t]he net income
derived from the rentals of the commercial buildings shall be apportioned to the Federation
and Member Associations as the National Board may decide.[48] In sum, we find no basis for
granting the YMCA exemption from income tax under the constitutional provision invoked

Cases Cited by Private

Respondent Inapplicable

The cases[49] relied on by private respondent do not support its cause. YMCA of Manila
v. Collector of Internal Revenue[50] and Abra Valley College, Inc. v. Aquino[51] are not
applicable, because the controversy in both cases involved exemption from the payment of
property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City[52] is not in
point either, because it involves a claim for exemption from the payment of regulatory fees,
specifically electrical inspection fees, imposed by an ordinance of Pasay City -- an issue not
at all related to that involved in a claimed exemption from the payment if income taxes
imposed on property leases. In Jesus Sacred Heart College v. Com. Of Internal
Revenue,[53] the party therein, which claimed an exemption from the payment of income tax,
was an educational institution which submitted substantial evidence that the income subject
of the controversy had been devoted or used solely for educational purposes. On the other
hand, the private respondent in the present case had not given any proof that it is an
educational institution, or that of its rent income is actually, directly and exclusively used for
educational purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy with private
respondent. It appreciates the nobility its cause. However, the Courts power and function are
limited merely to applying the law fairly and objectively. It cannot change the law or bend it
to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and
invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the
government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But
the Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom
or propriety of legislation. That prerogative belongs to the political departments of
government. Indeed, some of the member of the Court may even believe in the wisdom and
prudence of granting more tax exemptions to private respondent. But such belief, however
well-meaning and sincere, cannot bestow upon the Court the power to change or amend the
law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
September 28, 1995 and February 29, 1996 are hereby dated February 16, 1995
is REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16,
1995 is REINSTATED, insofar as it ruled that the income tax. No pronouncement as to costs.
SO ORDERED.