FIRST DIVISION

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

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
ALGUE, INC., AND THE COURT OF TAX APPEALS,
RESPONDENTS.
DECISION

CRUZ, J.:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. On the other hand,
such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of
the common good, may be achieved.
The main issue in this case is whether or not the Collector of
Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was
made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private
respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter
from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958
and 1959.[1] On January 18, 1965, Algue filed a letter of

protest or request for reconsideration, which letter was

stamp-received on the same day in the office of the
petitioner.[2] On March 12, 1965, a warrant of distraint and
levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it
on the ground of the pending protest.[3] A search of the
protest in the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a photostat to BIR
agent Ramon Reyes, who deferred service of the warrant. [4]
On April 7, 1965, Atty. Guevara was finally informed that the
BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy
earlier sought to be served.[5] Sixteen days later, on April 23,
1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax
Appeals.[6]
The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may
be made within thirty days after receipt of the decision or
ruling challenged.[7] It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the
assessment"[8] and "renders hopeless a request for
reconsideration,"[9] being "tantamount to an outright denial
thereof and makes the said request deemed rejected." [10] But
there is a special circumstance in the case at bar that
prevents application of this accepted doctrine.
The proven fact is that four days after the private
respondent received the petitioner's notice of assessment, it
filed its letter of protest. This was apparently not taken into
account before the warrant of distraint and levy was issued;
indeed, such protest could not be located in the office off the
petitioner. It was only after Atty. Guevara gave the BIR a
copy of the protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant was
premature and could therefore not be served.

As the Court of Tax Appeals correctly noted,[11] the protest

filed by private respondent was not pro forma and was based
on strong legal considerations. It thus had the effect of
suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The period
started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied
rejection of the said protest and the warrant was finally
served on it. Hence, when the appeal was filed on April 23,
1965, only 20 days of the reglementary period had been
consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of
P75,000.00 was properly disallowed because it was not an
ordinary, reasonable or necessary business expense. The
Court of Tax Appeals had seen it differently. Agreeing with
Algue, it held that the said amount had been legitimately
paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees. These
were collected by the payees for their work in the creation of
the Vegetable Oil Investment Corporation of the Philippines
and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had
originally claimed these promotional fees to be personal
holding company income[12] but later conformed to the
decision of the respondent court rejecting this assertion. [13]
In fact, as the said court found, the amount was earned
through the joint efforts of the persons among whom it was
distributed. It has been established that the Philippine Sugar
Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil

manufacturing process. Pursuant to such authority, Alberto

Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith O
Farell, and Pablo Sanchez worked for the formation of the
Vegetable Oil Investment Corporation, inducing other
persons to invest in it.[14] Ultimately, after its incorporation
largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties.[15] For this
sale, Algue received as agent a commission of P125,000.00,
and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. [16]
There is no dispute that the payees duly reported their
respective shares of the fees in their income tax returns and
paid the corresponding taxes thereon.[17] The Court of Tax
Appeals also found, after examining the evidence, that no
distribution of dividends was involved.[18]
The petitioner claims that these payments are fictitious
because most of the payees are members of the same family
in control of Algue. It is argued that no indication was made
as to how such payments were made, whether by check or in
cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by invoking an
imaginary deduction.
We find that these suspicions were adequately met by the
private respondent when its President, Alberto Guevara, and
the accountant, Cecilia V. de Jesus, testified that the
payments were not made in one lump sum but periodically
and in different amounts as each payee's need arose.[19] It
should be remembered that this was a family corporation
where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at
the end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him
or her, to make up the total of P75,000.00.[20] Admittedly,

everything seemed to be informal. This arrangement was

understandable, however, in view of the close relationship
among the persons in the family corporation.
We agree with the respondent court that the amount of the
promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the
private respondent was P125,000.00.[21] After deducting the
said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of
the Sugar Estate properties.
This finding of the respondent court is in accord with the
following provision of the Tax Code:
"SEC. 30. Deductions from gross income. - In computing net
income there shall be allowed as deductions (a) Expenses:
(1) In general.- All the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade
or business, including a reasonable allowance for salaries or
other compensation for personal services actually rendered;
x x x"[22]
and Revenue Regulations No. 2, Section 70 (1), reading as
follows:
"SEC. 70. Compensation for personal services. - Among the
ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for
personal services actually rendered. The test of deductibility
in the case of compensation payments is whether they are

reasonable and are, in fact, payments purely for service. This

test and its practical application may be further stated and
illustrated as follows:
"Any amount paid in the form of compensation, but not in
fact as the purchase price of services, is not deductible. (a)
An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in
the case of a corporation having few stockholders,
practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a
close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid
wholly for services rendered, but the excessive payments are
a distribution of earnings upon the stock. x x x"
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were
not in the regular employ of Algue nor were they its
controlling stockholders.[23]
The Solicitor General is correct when he says that the
burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the
onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted
by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and
involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence,

despite the natural reluctance to surrender part of one's

hard-earned income to the taxing authorities, every person
who is able to must contribute his share in the running of
the government. The government, for its part, is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in
the seat of power.
But even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that
it be exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor.
For all the awesome power of the tax collector, he may still
be stopped in his tracks if the taxpayer can demonstrate, as
it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the
decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And
we also find that the claimed deduction by the private
respondent was permitted under the Internal Revenue Code
and should therefore not have been disallowed by the
petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax
Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco, and Grio-Aquino, JJ.,
concur.

SECOND DIVISION
G.R. No. 68252, May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
TOKYO SHIPPING CO. LTD., REPRESENTED BY SORIAMONT
STEAMSHIP AGENCIES, INC., AND COURT OF TAX
APPEALS, RESPONDENTS.
DECISION

PUNO, J.:
For resolution is whether or not private respondent Tokyo
Shipping Co. Ltd., is entitled to a refund or tax credit for
amounts representing pre-payment of income and common
carrier's taxes under the National Internal Revenue Code,
section 24(b)(2), as amended.[1]
Private respondent is a foreign corporation represented in
the Philippines by Soriamont Steamship Agencies,
Incorporated. It owns and operates tramper vessel M/V
Gardenia. In December 1980, NASUTRA[2] chartered M/V
Gardenia to load 16,500 metric tons of raw sugar in the
Philippines.[3] On December 23, 1980, Mr. Edilberto Lising,
the operations supervisor of Soriamont Agency,[4] paid the
required income and common carrier's taxes in the
respective sums of FIFTY-NINE THOUSAND FIVE
HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND
SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total
of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED
FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS
(P107,142.75) based on the expected gross receipts of the
vessel.[5] Upon arriving, however, at Guimaras Port of Iloilo,
the vessel found no sugar for loading. On January 10, 1981,
NASUTRA and private respondent's agent mutually agreed

to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier's
taxes as erroneous since no receipt was realized from the
charter agreement, private respondent instituted a claim for
tax credit or refund of the sum ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and
SEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner
Commissioner of Internal Revenue on March 23, 1981.
Petitioner failed to act promptly on the claim, hence, on May
14, 1981, private respondent filed a petition for review [6]
before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative
defenses, it alleged, the following: that taxes are presumed
to have been collected in accordance with law; that in an
action for refund, the burden of proof is upon the taxpayer to
show that taxes are erroneously or illegally collected, and
the taxpayer's failure to sustain said burden is fatal to the
action for refund; and that claims for refund are construed
strictly against tax claimants.[7]
After trial, respondent tax court decided in favor of the
private respondent. It held:
"It has been shown in this case that 1) the petitioner has
complied with the mentioned statutory requirement by
having filed a written claim for refund within the two-year
period from date of payment; 2) the respondent has not
issued any deficiency assessment nor disputed the
correctness of the tax returns and the corresponding
amounts of prepaid income and percentage taxes; and 3) the
chartered vessel sailed out of the Philippine port with
absolutely no cargo laden on board as cleared and certified
by the Customs authorities; nonetheless 4) respondent's
apparent bit of reluctance in validating the legal merit of the
claim, by and large, is tacked upon the 'examiner who is

investigating petitioner's claim for refund which is the

subject matter of this case' has not yet submitted his report.
Whether or not respondent will present his evidence will
depend on the said report of the examiner.' (Respondent's
Manifestation and Motion dated September 7, 1982). Be
that as it may the case was submitted for decision by
respondent on the basis of the pleadings and records and by
petitioner on the evidence presented by counsel sans the
respective memorandum.
"An examination of the records satisfies us that the case
presents no dispute as to relatively simple material facts.
The circumstances obtaining amply justify petitioner's
righteous indignation to a more expeditious action.
Respondent has offered no reason nor made effort to submit
any controverting documents to bash that patina of
legitimacy over the claim. But as might well be, towards the
end of some two and a half years of seeming impotent
anguish over the pendency, the respondent Commissioner of
Internal Revenue would furnish the satisfaction of ultimate
solution by manifesting that 'it is now his turn to present
evidence, however, the Appellate Division of the BIR has
already recommended the approval of petitioner's claim for
refund subject matter of this petition. The examiner who
examined this case has also recommended the refund of
petitioner's claim. Without prejudice to withdrawing this
case after the final approval of petitioner's claim, the Court
ordered the resetting to September 7, 1983.' (Minutes of
June 9, 1983 Session of the Court). We need not fashion any
further issue into an apparently settled legal situation as far
be it from a comedy of errors it would be too much of a
stretch to hold and deny the refund of the amount of prepaid
income and common carrier's taxes for which petitioner
could no longer be made accountable."
On August 3, 1984, respondent court denied petitioner's
motion for reconsideration, hence, this petition for review on
certiorari.

Petitioner now contends: (1) private respondent has the

burden of proof to support its claim of refund; (2) it failed to
prove that it did not realize any receipt from its charter
agreement; and (3) it suppressed evidence when it did not
present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24
(b)(2) of the National Internal Revenue Code which at that
time provides as follows:
"A corporation organized, authorized, or existing under the
laws of any foreign country, engaged in trade or business
within the Philippines, shall be taxable as provided in
subsection (a) of this section upon the total net income
derived in the preceding taxable year from all sources within
the Philippines: Provided, however, That international
carriers shall pay a tax of two and one-half per cent (2 1/2%)
on their gross Philippine billings: 'Gross Philippine Billings'
include gross revenue realized from uplifts anywhere in the
world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail, provided the cargo or
mail originates from the Philippines. The gross revenue
realized from the said cargo or mail include the gross freight
charge up to final destination. Gross revenue from chartered
flights originating from the Philippines shall likewise form
part of 'Gross Philippine Billings' regardless of the place or
payment of the passage documents. x x x ."
Pursuant to this provision, a resident foreign corporation
engaged in the transport of cargo is liable for taxes
depending on the amount of income it derives from sources
within the Philippines. Thus, before such a tax liability can
be enforced the taxpayer must be shown to have earned
income sourced from the Philippines.

We agree with petitioner that a claim for refund is in the

nature of a claim for exemption[8] and should be construed in
strictissimi juris against the taxpayer.[9] Likewise, there
can be no disagreement with petitioner's stance that private
respondent has the burden of proof to establish the factual
basis of its claim for tax refund.
The pivotal issue involves a question of fact whether or
not the private respondent was able to prove that it derived
no receipts from its charter agreement, and hence is entitled
to a refund of the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been
adduced by the private respondent proving that it derived no
receipt from its charter agreement with NASUTRA. This
finding of fact rests on a rational basis, and hence must be
sustained. Exhibits "E", "F," and "G" positively show that the
tramper vessel M/V "Gardenia" arrived in Iloilo on January
10, 1981 but found no raw sugar to load and returned to
Japan without any cargo laden on board. Exhibit "E" is the
Clearance Vessel to a Foreign Port issued by the District
Collector of Customs, Port of Iloilo while Exhibit "F" is the
Certification by the Officer-in-Charge, Export Division of the
Bureau of Customs Iloilo. The correctness of the contents of
these documents regularly issued by officials of the Bureau
of Customs cannot be doubted as indeed, they have not been
contested by the petitioner. The records also reveal that in
the course of the proceedings in the court a quo, petitioner
hedged and hawed when its turn came to present evidence.
At one point, its counsel manifested that the BIR examiner
and the appellate division of the BIR have both
recommended the approval of private respondent's claim for
refund. The same counsel even represented that the
government would withdraw its opposition to the petition
after final approval of private respondents' claim. The case
dragged on but petitioner never withdrew its opposition to

the petition even if it did not present evidence at all. The

insincerity of petitioner's stance drew the sharp rebuke of
respondent court in its Decision and for good reason.
Taxpayers owe honesty to government just as government
owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by
the private respondent, petitioner contends that private
respondent suppressed evidence when it did not present its
charter agreement with NASUTRA. The contention cannot
succeed. It presupposes without any basis that the charter
agreement is prejudicial evidence against the private
respondent.[10] Allegedly, it will show that private respondent
earned a charter fee with or without transporting its
supposed cargo from Iloilo to Japan. The allegation simply
remained an allegation and no court of justice will regard it
as truth. Moreover, the charter agreement could have been
presented by petitioner itself thru the proper use of a
subpoena duces tecum. It never did either because of
neglect or because it knew it would be of no help to bolster
its position.[11] For whatever reason, the petitioner cannot
take to task the private respondent for not presenting what
it mistakenly calls "suppressed evidence."
We cannot but bewail the unyielding stance taken by the
government in refusing to refund the sum of ONE
HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY
TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75)
erroneously prepaid by private respondent. The tax was
paid way back in 1980 and despite the clear showing that it
was erroneously paid, the government succeeded in delaying
its refund for fifteen (15) years. After fifteen (15) long years
and the expenses of litigation, the money that will be finally
refunded to the private respondent is just worth a damaged
nickel. This is not, however, the kind of success the
government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers

from the BIR and the duty demands that BIR should refund
without any unreasonable delay what it has erroneously
collected: Our ruling in Roxas v. Court of Tax Appeals[12] is
apropos to recall:
"The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax
collector kill the 'hen that lays the golden egg.' And, in order
to maintain the general public's trust and confidence in the
Government this power must be used justly and not
treacherously."
IN VIEW HEREOF, the assailed decision of respondent
Court of Tax Appeals, dated September 15, 1983, is
AFFIRMED in toto. No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Regalado, and Mendoza, JJ.,
concur.

THIRD DIVISION
G.R. No. 122480, April 12, 2000
BPI-FAMILY SAVINGS BANK, INC., PETITIONER, VS. COURT
OF APPEALS, COURT OF TAX APPEALS AND THE
COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
DECISION

PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and
honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments. When
it is undisputed that a taxpayer is entitled to a refund, the
State should not invoke technicalities to keep money not
belonging to it. No one, not even the State, should enrich
oneself at the expense of another.
The Case
Before us is a Petition for Review assailing the March 31,
1995 Decision of the Court of Appeals[1] (CA) in CA-GR SP
No. 34240, which affirmed the December 24, 1993
Decision[2] of the Court of Tax Appeals (CTA). The CA
disposed as follows:
"WHEREFORE, foregoing premises considered, the petition
is hereby DISMISSED for lack of merit." [3]
On the other hand, the dispositive portion of the CTA
Decision affirmed by the CA reads as follows:
"WHEREFORE, in [view of] all the foregoing, Petitioners
claim for refund is hereby
DENIED and this Petition for Review is DISMISSED for lack
of merit."[4]

Also assailed is the November 8, 1995 CA Resolution [5]

denying reconsideration.
The Facts
The facts of this case were summarized by the CA in this
wise:
"This case involves a claim for tax refund in the amount of
P112,491.00 representing petitioners tax withheld for the
year 1989.
In its Corporate Annual Income Tax Return for the year
1989, the following items are reflected:
Income
Deductions
Net Income
(Loss)
Taxable
Income
(Loss)
Less:

P1,017,931,831.00
P1,026,218,791.00
(P8,286,960.00)
P8,286,960.00

1988
Tax
Credit
1989
Tax
Credit
TOTAL
AMOUNT
REFUNDAB
LE

P185,001.00
P112,491.00
P297,492.00

"It appears from the foregoing 1989 Income Tax Return that
petitioner had a total refundable amount of P297,492
inclusive of the P112,491.00 being claimed as tax refund in

the present case. However, petitioner declared in the same

1989 Income Tax Return that the said total refundable
amount of P297,492.00 will be applied as tax credit to the
succeeding taxable year.
"On October 11, 1990, petitioner filed a written claim for
refund in the amount of P112,491.00 with the respondent
Commissioner of Internal Revenue alleging that it did not
apply the 1989 refundable amount of P297,492.00 (including
P112,491.00) to its 1990 Annual Income Tax Return or other
tax liabilities due to the alleged business losses it incurred
for the same year.
"Without waiting for respondent Commissioner of Internal
Revenue to act on the claim for refund, petitioner filed a
petition for review with respondent Court of Tax Appeals,
seeking the refund of the amount of P112,491.00.
"The respondent Court of Tax Appeals dismissed petitioners
petition on the ground that petitioner failed to present as
evidence its Corporate Annual Income Tax Return for 1990
to establish the fact that petitioner had not yet credited the
amount of P297,492.00 (inclusive of the amount P112,491.00
which is the subject of the present controversy) to its 1990
income tax liability.
"Petitioner filed a motion for reconsideration, however, the
same was denied by respondent court in its Resolution dated
May 6, 1994."[6]
As earlier noted, the CA affirmed the CTA. Hence, this
Petition.[7]
Ruling of the Court of Appeals
In affirming the CTA, the Court of Appeals ruled as follows:
"It is incumbent upon the petitioner to show proof that it has
not credited to its 1990 Annual income Tax Return, the

amount of P297,492.00 (including P112,491.00), so as to

refute its previous declaration in the 1989 Income Tax
Return that the said amount will be applied as a tax credit in
the succeeding year of 1990. Having failed to submit such
requirement, there is no basis to grant the claim for refund.
xxx
"Tax refunds are in the nature of tax exemptions. As such,
they are regarded as in derogation of sovereign authority
and to be construed strictissimi juris against the person or
entity claiming the exemption. In other words, the burden of
proof rests upon the taxpayer to establish by sufficient and
competent evidence its entitlement to the claim for
refund."[8]
Issue
In their Memorandum, respondents identify the issue in this
wise:
"The sole issue to be resolved is whether or not petitioner is
entitled to the refund of P112,491.00, representing excess
creditable withholding tax paid for the taxable year 1989." [9]
The Courts Ruling
The Petition is meritorious.
Main Issue:
Petitioner Entitled to Refund
It is undisputed that petitioner had excess withholding taxes
for the year 1989 and was thus entitled to a refund
amounting to P112,491. Pursuant to Section 69[10] of the
1986 Tax Code which states that a corporation entitled to a
refund may opt either (1) to obtain such refund or (2) to
credit said amount for the succeeding taxable year,
petitioner indicated in its 1989 Income Tax Return that it
would apply the said amount as a tax credit for the
succeeding taxable year, 1990. Subsequently, petitioner

informed the Bureau of Internal Revenue (BIR) that it would

claim the amount as a tax refund, instead of applying it as a
tax credit. When no action from the BIR was forthcoming,
petitioner filed its claim with the Court of Tax Appeals.
The CTA and the CA, however, denied the claim for tax
refund. Since petitioner declared in its 1989 Income Tax
Return that it would apply the excess withholding tax as a
tax credit for the following year, the Tax Court held that
petitioner was presumed to have done so. The CTA and the
CA ruled that petitioner failed to overcome this presumption
because it did not present its 1990 Return, which would
have shown that the amount in dispute was not applied as a
tax credit. Hence, the CA concluded that petitioner was not
entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual
findings of the appellate court are binding on this Court.
This rule, however, does not apply where, inter alia, the
judgment is premised on a misapprehension of facts, or
when the appellate court failed to notice certain relevant
facts which if considered would justify a different conclusion.
[11]
This case is one such exception.
In the first place, petitioner presented evidence to prove its
claim that it did not apply the amount as a tax credit. During
the trial before the CTA, Ms. Yolanda Esmundo, the manager
of petitioners accounting department, testified to this fact.
It likewise presented its claim for refund and a certification
issued by Mr. Gil Lopez, petitioners vice-president, stating
that the amount of P112,491 "has not been and/or will not be
automatically credited/offset against any succeeding
quarters income tax liabilities for the rest of the calendar
year ending December 31, 1990." Also presented were the
quarterly returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to

controvert petitioners claim. In fact, it presented no

evidence at all. Because it ought to know the tax records of
all taxpayers, the CIR could have easily disproved
petitioners claim. To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for
1990 was attached to petitioners Motion for
Reconsideration filed before the CTA.[12] A final adjustment
return shows whether a corporation incurred a loss or
gained a profit during the taxable year. In this case, that
Return clearly showed that petitioner incurred P52,480,173
as net loss in 1990. Clearly, it could not have applied the
amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said
return. It did not even file an opposition to petitioners
Motion and the 1990 Final Adjustment Return attached
thereto. In denying the Motion for Reconsideration, however,
the CTA ignored the said Return. In the same vein, the CA
did not pass upon that significant document.
True, strict procedural rules generally frown upon the
submission of the Return after the trial. The law creating the
Court of Tax Appeals, however, specifically provides that
proceedings before it "shall not be governed strictly by the
technical rules of evidence."[13] The paramount consideration
remains the ascertainment of truth. Verily, the quest for
orderly presentation of issues is not an absolute. It should
not bar courts from considering undisputed facts to arrive at
a just determination of a controversy.
In the present case, the Return attached to the Motion for
Reconsideration clearly showed that petitioner suffered a net
loss in 1990. Contrary to the holding of the CA and the CTA,
petitioner could not have applied the amount as a tax credit.
In failing to consider the said Return, as well as the other
documentary evidence presented during the trial, the

appellate court committed a reversible error.

It should be stressed that the rationale of the rules of
procedure is to secure a just determination of every action.
They are tools designed to facilitate the attainment of
justice.[14] But there can be no just determination of the
present action if we ignore, on grounds of strict technicality,
the Return submitted before the CTA and even before this
Court.[15] To repeat, the undisputed fact is that petitioner
suffered a net loss in 1990; accordingly, it incurred no tax
liability to which the tax credit could be applied.
Consequently, there is no reason for the BIR and this Court
to withhold the tax refund which rightfully belongs to the
petitioner.
Public respondents maintain that what was attached to
petitioners Motion for Reconsideration was not the final
adjustment Return, but petitioners first two quarterly
returns for 1990.[16] This allegation is wrong. An examination
of the records shows that the 1990 Final Adjustment Return
was attached to the Motion for Reconsideration. On the
other hand, the two quarterly returns for 1990 mentioned by
respondent were in fact attached to the Petition for Review
filed before the CTA. Indeed, to rebut respondents specific
contention, petitioner submitted before us its Surrejoinder,
to which was attached the Motion for Reconsideration and
Exhibit "A" thereof, the Final Adjustment Return for 1990. [17]
CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had
done before the CTA, to a Decision rendered by the Tax
Court in CTA Case No. 4897, involving its claim for refund
for the year 1990. In that case, the Tax Court held that
"petitioner suffered a net loss for the taxable year 1990 x x
x."[18] Respondent, however, urges this Court not to take
judicial notice of the said case.[19]

As a rule, "courts are not authorized to take judicial notice of

the contents of the records of other cases, even when such
cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been
heard or are actually pending before the same judge." [20]
Be that as it may, Section 2, Rule 129 provides that courts
may take judicial notice of matters ought to be known to
judges because of their judicial functions. In this case, the
Court notes that a copy of the Decision in CTA Case No.
4897 was attached to the Petition for Review filed before this
Court. Significantly, respondents do not claim at all that the
said Decision was fraudulent or nonexistent. Indeed, they do
not even dispute the contents of the said Decision, claiming
merely that the Court cannot take judicial notice thereof.
To our mind, respondents reasoning underscores the
weakness of their case. For if they had really believed that
petitioner is not entitled to a tax refund, they could have
easily proved that it did not suffer any loss in 1990. Indeed,
it is noteworthy that respondents opted not to assail the fact
appearing therein -- that petitioner suffered a net loss in
1990 in the same way that it refused to controvert the
same fact established by petitioners other documentary
exhibits.
In any event, the Decision in CTA Case No. 4897 is not the
sole basis of petitioners case. It is merely one more bit of
information showing the stark truth: petitioner did not use
its 1989 refund to pay its taxes for 1990.
Finally, respondents argue that tax refunds are in the nature
of tax exemptions and are to be construed strictissimi juris
against the claimant. Under the facts of this case, we hold
that petitioner has established its claim. Petitioner may have
failed to strictly comply with the rules of procedure; it may

have even been negligent. These circumstances, however,

should not compel the Court to disregard this cold,
undisputed fact: that petitioner suffered a net loss in 1990,
and that it could not have applied the amount claimed as tax
credits.
Substantial justice, equity and fair play are on the side of
petitioner. Technicalities and legalisms, however exalted,
should not be misused by the government to keep money not
belonging to it and thereby enrich itself at the expense of its
law-abiding citizens. If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, so must it
apply the same standard against itself in refunding excess
payments of such taxes. Indeed, the State must lead by its
own example of honor, dignity and uprightness.
WHEREFORE, the Petition is hereby GRANTED and the
assailed Decision and Resolution of the Court of Appeals
REVERSED and SET ASIDE. The Commissioner of Internal
Revenue is ordered to refund to petitioner the amount of
P112,491 as excess creditable taxes paid in 1989. No costs.
SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., abroad, on official business.

Supreme Court of the Philippines

118 Phil. 619

G.R.No. L-18330, July 31, 1963

JOSE DE BORJA, PETITIONER AND APPELLEE, VS. VICENTE
G. GELLA, ET AL., RESPONDENTS AND APPELLANTS.
DECISION

BAUTISTA ANGELO, J.:

Jose de Borja has been delinquent in the payment of his real
estate taxes since 1958 for properties located in the City of
Manila and Pasay City and has offered to pay them with two
negotiable certificates of indebtedness Nos. 3064 and 3065
in the amounts of P793.40 and P717.39, aforesaid negotiable
certificates, the applicants for backpay rights covered by
them being respectively Rafael Vizcaya and Pablo Batario
Luna.
The offers to pay real estate taxes in question were rejected
by the city treasurers of both Manila and Pasay cities on the
ground of their limited negotiability under Section 2,
Republic Act No. 304, as amended by Republic ; Act 800,
and in the case of the city treasurer of Manila on the further
ground that he was ordered not to accept them by the city
mayor, for which reason Borja was prompted to bring the
question to the Treasurer of the Philippines who opined,
among others, that the negotiable certificates cannot be
accepted as payment of real estate taxes inasmuch as the
law provides for their acceptance from their backpay holder
only or the original applicant himself, but not his assignee.
In his letter of April 29, 1960 to the Treasurer of the

Philippines, however, Borja entertained hope that the

certificates would be accepted for payment in view of the
fact that they were already long past due and redeemable,
but his hope was frustrated. So on June, 30, 1960, Borja filed
an action against the treasurers of both the City of Manila
and Pasay City, as well as the Treasurer of the Philippines, to
compel them to execute an act which the law allegedly
requires them to perform, to wit: to accept the abovementioned certificates of indebtedness considering that they
were already due and redeemable so as not to deprive him
illegally of his privilege to pay his obligation to the
government thru such means
Respondents in due time filed their answer setting up , the
reasons for their refusal to accept the certificates, and after
the requisite trial was held, the court a quo rendered t
judgment the dispositive part of which reads:
"Wherefore, the treasurers of the City of Manila and Pasay
City, their agents and other persons acting in their behalf
are hereby enjoned from including petitioner's properties in
the payment of real estate taxes, and to sell them at public
auction, and respondent Treasurer of the Philippines, and
the treasurers of the City of Manila and Pasay City are
hereby ordered to accept petitioners Negotiable Certificates
of Indebtedness Nos. 3064 and 3065 in the sums of P793.40
and P717.39 in payment of real estate taxes of his properties
in the City of Manila and Pasay City, respectively, without
cost."
Respondents took this appeal on purely questions of law.
Reduced to bare essentials, the 12 errors assigned by
appellants may be boiled down to the following: (a) has
appellee the right to apply to the payment of his real estate
taxes to the governments of Manila and Pasay cities the
certificates of indebtedness he holds while appellants have

the correlative legal duty to accept the certificates in

payment of said taxes?; (b) can compensation be invoked to
extinguish appellee's estate tax liability between the latter's
obligation and the credit represented by said certificates of
indebtedness?
Anent the first issue, the pertinent legal provision to be
reckoned with is Section 2 of Republic Act No. 304, as
amended by Republic Act No. 800, which in part reads:
"Sec. 2. The Treasurer of the Philippines shall, upon
application, and within one year from the approval of this
Act, and under such rules and regulations as may be
promulgated by the Secretary of Finance, acknowledge and
file requests for the recognition of the right to the salaries
and wages as provided in section one, hereof, and notice of
such acknowledgment shall be issued to the applicant which
shall state the total amount of such salaries or wages due to
the applicant, and certify that it shall be redeemed by the
Government of the Philippines within ten years from the
date of their issuance unthout interest: Provided, That upon
application * * * , a certificate of indebtedness may be issued
by the Treasurer of the Philippines covering the whole or
part of the total salaries or wages the right to which has
been duly acknowledged and recognized, provided that the
face value of such certificate of indebtedness shall not .
exceed the amount that the applicant may need for the
payment of (1) obligations subsisting at the time of the
approval of this Act ' for which the applicant may directly be
liable to the Government or , to any of its branches or
instrumentalities, or the corporations owned or controlled by
the Government, or to any citizen of the Philippines, who
may be willing to accept the same for such settlement; (2)
his taxes; * * * And Provided, also, That any person who is
not an alien, bank or other financial institution at least sixty
per centum of whose capital is owned by Filipinos may,
notwithstanding any provision of its charter, articles of

incorporation, by-laws, or rules and regulations to the

contrary, accept or discount at not more than three and onehalf per centum per annum for ten years a negotiable
certificate of indebtedness which shall be issued by the
treasurer of the Philippines upon application by a holder of a
backpay acknowledgment.
To begin with, it cannot be contended that appellants are in
duty bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate
taxes for the simple reason that they were not obligations
subsisting at the time of the approval of Republic Act No.
304 which took effect on June 18,1948. It should be noted
that the real estate taxes in question have reference to those
due in 1958 and subsequent years. The law is explicit that in
order that a certificate may be used in payment of an
obligation the same must be subsisting at the time of its
approval even if we hold that a tax partakes of this
character. Neither can it be contended that appellee can
compel the government to accept the alleged certificates of
indebtedness in payment of his real estate taxes under
proviso No. 2 above quoted also for the reason that in order
that such payment may be allowed the tax must be owed by
the applicant himself. This is the correct implication that
may be drawn from the use by the law of the word "his
taxes". Verily, the right to use the backpay certificate in
settlement of taxes is given only to an applicant and not to
any holder of any negotiable certificate to whom the law only
gives the right to have it discounted by a Filipino citizen or
corporation under certain limitations. Here appellee is not
himself the applicant of the certificate h in question. He is
merely an assignee thereof, or a subsequent holder whose
right is at most to have it discounted upon maturity or to
negotiate it in the meantime. A fortiori it may be concluded
that, not having the right to use said certificates to pay his
taxes, appellee cannot compel appellants to accept them as
he requests in the present petition for mandamus. As a

consequence, we can not but hold that mandamus does not

lie against appellants because they have in no way neglected
to perform an act enjoined upon them by law as a duty, nor
have they unlawfully excluded appellee from the use or
enjoyment of a right to which he is entitled.[1]
We are aware of the cases[2] cited by the court a quo wherein
the government banking institutions were ordered to accept
the backpay certificates of petitioners in payment of their
indebtedness to them, but they are not here in point because
in the cases mentioned the petitioners were applicants and
original holders of the corresponding back- pay certificates.
Here appellee is not. With regard to the second issue, i.e.
whether compensation can be invoked insofar as the two
obligations are concerned, Articles 1278 and 1279 of the
new Civil Code provide:
"Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of each
other.
"Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the
things due are consummable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor."

It is clear from the above legal provisions that compensation

cannot be effected with regard to the two obligations in
question. In the first place, the debtor insofar as the
certificates of indebtedness are concerned is the Republic of
the Philippines, whereas the real estate taxes owed by
appellee are due to the City of Manila and Pasay City, each
one of which having a distinct and separate personality from
our Republic. With regard to the Certificates, the creditor is
the appellee while the debtor is the Republic of the
Philippines. And with regard to the taxes, the creditors are
the City of Manila and Pasay City while the debtor is the
appellee. It appears, therefore, that each one of the obligors
concerning the two obligations is not at the same time the
principal creditor of the other. It cannot also be said for
certain that certificates are already due. Although on their
faces the certificates issued to appellee state that they are
redeemable on June 18,1958, yet the law does not say that
they are redeemable from its approval on June 18, 1958 but
"within ten years from the date of issuance" of the
certificates. There is no certainty, therefore, when the
certificate are really redeemable with in the meaning of the
law. Since the requisites for the accomplishment of legal
compensation cannot be fulfilled, the latter cannot take
place with regard to the two obligations as found by the
court a quo.
Wherefore, the decision appealed from is reversed. The
petition for mandamus is dismissed. The injunction issued
against respondents-appellants is hereby lifted. No costs.
Padilla, Labrador, Concepcion,, Reyes, J.B.L., Barrera,
Paredes, Dizon, Regala, and Makalintal, JJ., concur.

Supreme Court of the Philippines

178 Phil. 154

FIRST DIVISION
G.R. No. L-31364, March 30, 1979
MISAEL P. VERA, AS COMMISSIONER OF INTERNAL
REVENUE, AND JAIME ARANETA, AS REGIONAL DIRECTOR,
REVENUE REGION NO. 14, BUREAU OF INTERNAL
REVENUE, PETITIONERS, VS. HON, JOSE F. FERNANDEZ,
JUDGE OF THE COURT OF FIRST INSTANCE OF NEGROS
OCCIDENTAL, BRANCH V, AND FRANCIS A. TONGOY,
ADMINISTRATOR OF THE ESTATE OF THE LATE LUIS D.
TONGOY, RESPONDENTS.
DECISION

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of
Negros Occidental, Branch V in Special Proceedings No.
7794, entitled: "Intestate Estate of Luis D. Tongoy," the first
dated July 29, 1969 dismissing the Motion for Allowance of
Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the
Estate of the late Luis D. Tongoy, for deficiency income taxes
for the years 1963 and 1964 of the decedent in the total
amount of P3,254.80, inclusive 5% surcharge, 1% monthly
interest and compromise penalties, and the second, dated
October 7, 1969, denying the Motion for reconsideration of
the Order of dismissal.
The Motion for allowance of claim and for payment of taxes
dated May 28, 1969 was filed on June 3, 1969 in the

abovementioned special proceedings, (par. 3, Annex A,

Petition, pp. 19-20, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy
for deficiency income taxes in the total sum of P3,254.80 as
above stated, covered by Assessment Notices Nos. 11-50-291-11061-21-63 and 11-50-29-1-110875-64, to which motion
was attached Proof of Claim (Annex B, Petition, pp. 21-22,
Rollo). The Administrator opposed the motion solely on the
around that the claim was barred under Section 5, Rule 86
of the Rules of Court (par. 4, opposition to Motion for
Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim filed
by herein petitioner, Regional Director of the Bureau of
Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition p. 26, Rollo). On September 18, 1969, a motion for
reconsideration was filed, of the Order of July 29, 1969, but
was denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the
follow errors:
"1. The lower court erred in holding that the claim for taxes
by the government against the estate of Luis D. Tongoy was
filed beyond the period provided in Section 2, Rule 86 of the
Rules of Court.
2. The lower court erred in holding that the claim for taxes
of the government was already barred under Section 5, Rule
86 of the Rules of Court."
which raise the sole issue of whether or not the statute of
non-claims, Section 5, Rule 86 of the New Rule of Court,
bars claim of the government for unpaid, taxes, still within
the period of limitation prescribed in Section 331 and 332 of
the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent

Administrator in his Opposition to the Motion for Allowance
of Claim, etc. of the petitioners reads as follows:
"All claims for money against the decedent, arising from
contracts, express or implied, whether the same be due, not
due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment
for money against the decedent, must be filed within the
time limited in the notice; otherwise they are barred forever,
except that they may be set forth as counterclaims in any
action that the executor of administrator may bring against
the claimants. Where an executor or administrator
commence an action, or prosecutes an action already
commenced by the deceased in his lifetime, the debtor may
set forth by answer the claims he has against the decedent,
instead of presenting them independently to the court as
herein provided, and mutual claims may be set off against
each other in such action; and if final judgment is rendered
in favor of the defendant, the amount so determined shall be
considered the true balance against the estate, as though
the claim had been presented directly before the court in the
administration proceedings. Claims not yet due, or
contingent may be approved at their present value."
A perusal of the aforequoted provisions shows that it makes
no mention of claims for monetary obligations of the
decedent created by law, such as taxes which is entirely of
different character from the claims expressly enumerated
therein, such as: "all claims for money against the decedent
arising from contract, express or implied, whether the same
be due, not due or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent
and judgment for money against the decedent." Under the
familiar rule of statutory construction of expressio unius est
exclusio alterius, the mention of one thing implies the
exclusion of another thing not mentioned. Thus, if a statute

enumerates the things upon which it is to operate,

everything else must necessarily, and by implication be
excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan
Electric& Ice Plant, et. al., G. R. No. L-23081, December 30,
1969 it was held that the assessment, collection and
recovery of taxes, as welt as the matter of prescription
thereof are governed by the provisions of the National
Internal Revenue Code, particularly Sections 331 and 332
thereof, and not by other provisions of law. (See also Lim
Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals &
Collector of Internal Revenue, G. R. No. L-10681, March 29,
1958). Even without being specifically mentioned, the
provisions of Section 2 of Rule 86 of the Rules of Court may
reasonably be presumed to have been also in the mind of the
Court as not affecting the aforecited Section of the National
Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was
even more pointedly held that "taxes assessed against the
estate of a deceased person x x x need not be submitted to
the committee on claims in the ordinary course of
administration. In the exercise of its control over the
administrator, the court may direct the payment of such
taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee
on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other
claims mentioned in the Rule should be filed before the
Court. Claims for taxes may be collected even after the
distribution of the decedent's estate among his heirs who
shall be liable therefor in proportion of their share in the
inheritance. (Government of the Philippines vs. Pamintuan,
55 Phil. 13).

The reason for the more liberal treatment of claims for taxes
against a decedent's estate in the form of exception from the
application of the statute of non-claims, is not hard to find.
Taxes are the lifeblood of the Government and their prompt
and certain availability are imperious need. (Commissioner
of Internal Revenue vs. Pineda, G. R. No. L-22734,
September 15, 1967, 21 SCRA 105). Upon taxation depends
the Government ability to serve the people for whose benefit
taxes are collected. To safeguard such interest, neglect or
omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his
own negligence, the presumption being that they take good
care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own
personal concern. This is the philosophy behind the
Government's exemption, as a general rule, from the
operation of the principle of estoppel. (Republic vs.
Caballero, L-27473, September 30, 1977, 79 SCRA 177;
Manila Lodge No. 761, Benevolent and Protective Order of
the Elks, Inc. vs. Court of Appeals, L-41001, September 30,
1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines,
L-41480, April 30, 1976, SCRA 571; Balmaceda vs.
Corominas& Co., Inc., 66 SCRA 653; Auyong Hian vs. Court
of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit
Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long
Distance Telephone Company, L-18841, January 27, 1969, 26
SCRA 620; Zamora vs. Court of Tax Appeals, L-23272,
November 26, 1970; 36 SCRA 77; E. Rodriguez, Inc. vs.
Collector of Internal Revenue, L-23041, July 31, 1969, 28
SCRA 119.) As already shown, taxes may be collected even
after the distribution of the estate of the decedent among
this heirs (Government of the Philippines vs. Pamintuan,
supra; Pineda vs. CFI of Tayabas, supra; Clara Diluangco
Palanca vs. Commissioner of Internal Revenue, G.R. No. L16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue

vs. Pineda supra, citing the last paragraph of Section 315 of
the Tax Code payment of income tax shall be a lien in favor
of the Government of the Philippines from the time the
assessment was made by the Commissioner of Internal
Revenue until paid with interests, penalties, etc. By virtue of
such lien, this Court held that the property of the estate
already in the hands of an heir or transferee may be subject
to the payment of the taxi due the estate. A fortiori, before
the inheritance has passed to the heirs, the unpaid taxes due
the decedent may be collected, even without its having been
presented under Section 2 of Rule 86 of the Rules of Court.
It may truly be said that until the property of the estate of
the decedent has vested in the heirs, the decedent,
represented by his estate, continues as if he were still alive,
subject to the payment of such taxes as would be collectible
from the estate even after his death. Thus in the case
abovecited, the income taxes sought to be collected were
due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be
filed within the time prescribed in Section 2, Rule 86 of the
Rules of Court, the claim in question may be filed even after
the expiration of the time originally fixed therein, as may be
gleaned from the italicized portion of the Rule herein cited
which reads:
"Section. 2. Time within which claims shall be filed. - In the
notice provided in the preceding section, the court shall
state the time for the filing of claims against the estate,
which shall not be more than twelve (12) nor less than six (6)
months after the date of the first publication of the notice.
However, at any time before an order of distribution is
entered, on application of a creditor who has failed to file his
claim within the time previously limited, the court may for
cause shown and on such terms as are equitable, allow such

claim to be filed within a time not exceeding one (1) month."

(underscoring supplied)
In the instant case, petitioners filed an application (Motion
for Allowance of Claim and for and Order of Payment of
Taxes) which, though filed after the expiration of the time
previously limited but before an order of the distribution is
entered, should have been granted by the respondent court,
in the absence of any valid ground, as none was shown,
justifying denial of the motion, specially considering that it
was for allowance of claim for taxes due from the estate,
which in effect represents a claim of the people at large, the
only reason given for the denial being that the claim was
filed out of the previously limited period, sustaining thereby
private respondents' contention, erroneously as has been
demonstrated.
WHEREFORE, the order appealed from is reversed. Since
the Tax Commissioner's assessment in the total amount of
P3,254.80 with 5% surcharge and 1% monthly interest as
provided in the Tax Code is a final one and the respondent
estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein
granted and respondent estate is ordered to pay and
discharge the same, subject only to the limitation of the
interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero, and
Melencio-Herrera, JJ., concur.

Supreme Court of the Philippines

127 Phil. 105

G.R. No. L-22356, July 21, 1967

REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT,
VS. PEDRO B. PATANAO, DEFENDANT-APPELLEE.
DECISION

ANGELES, J.:
This is an appeal from an order of the Court of First Instance
of Agusan in civil case No. 925, dismissing plaintiff's
complaint so far as concerns the collection of deficiency
income taxes for the years 1951, 1953 and 1954 and
additional residence taxes for 1951 and 1952, and requiring
the defendant to file his answer with respect to deficiency
income tax for 1955 and residence taxes for 1953-1955.
In the complaint filed by the Republic of the Philippines,
through the Solicitor General, against Pedro B. Patanao, it is
alleged that defendant was the holder of an ordinary timber
license with concession at Esperanza, Agusan, and as such
was engaged in the business of producing logs and lumber
for sale during the years 1951-1955; that defendant failed to
file income tax returns for 1953 and 1954, and although he
filed income tax returns for 1951, 1952 and 1955, the same
were false and fraudulent because he did not report
substantial income earned by him from his business; that in
an examination conducted by the Bureau of Internal
Revenue on defendant's income and expenses for 1951-1955,
it was ascertained that the sum of P79,892.75, representing
deficiency income taxes and additional residence taxes for

the aforesaid years, is due from defendant; that on February

14, 1958, plaintiff, through the Deputy Commissioner of
Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to pay
the said amount; that notwithstanding repeated demands the
defendant refused, failed and neglected to pay said taxes;
and that the assessment for the payment of the taxes in
question has become final, executory and demandable,
because it was not contested before the Court of Tax Appeals
in accordance with the provisions of section 11 of Republic
Act No. 1125.
Defendant moved to dismiss the complaint on two grounds,
namely: (1) that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089
and 2090 of the same court, which were prosecutions for
failure to file income tax returns and for nonpayment of
income taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition
thereto and the rejoinder to the opposition, the lower court
entered the order appealed from, holding that the only cause
of action left to the plaintiff in its complaint is the collection
of the income tax due for the taxable year 1955 and the
residence tax (Class B) for 1953, 1954 and 1955. A motion
to reconsider said order was denied, whereupon plaintiff
interposed the instant appeal, which was brought directly to
this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is
barred by prior judgment, is anchored on the following
rationale:
"There is no question that the defendant herein has been
accused in Criminal Cases Nos. 2089 and 2090 of this Court
for not filing his income tax returns and for non-payment of
income taxes for the years 1953 and 1954. In both cases, he

was acquitted. The rule in this jurisdiction is that the

accused once acquitted is exempt from both criminal and
civil responsibility because when a criminal action is
instituted, civil action arising from the same offense is
impliedly instituted unless the offended party expressly
waives the civil action or reserves the right to file it
separately. In the criminal cases abovementioned wherein
the defendant was completely exonerated, there was no
waiver or reservation to file a separate civil case so that the
failure to obtain conviction on a charge of non-payment of
income taxes is fatal to any civil action to collect the
payment of said taxes."
Plaintiff-appellant assails the ruling as erroneous.
Defendant-appellee on his part urges that it should be
maintained.
In applying the principle underlying the civil liability of an
offender under the Penal Code to a case involving the
collection of taxes, the court a quo fell into error. The two
cases are circumscribed by factual premises which are
diametrically opposed to each other, and are founded on
entirely different philosophies. Under the Penal Code the
civil liability is incurred by reason of the offender's criminal
act. Stated differently, the criminal liability gives birth to the
civil obligation such that generally, if one is not criminally
liable under the Penal Code, he cannot become civilly liable
thereunder. The situation under the income tax law is the
exact opposite. Civil liability to pay taxes arises from the
fact, for instance, that one has engaged himself in business,
and not because of any criminal act committed by him. The
criminal liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual premises
and foundation principles of the two cases is one of the
reasons for not imposing civil indemnity on the criminal
infractor of the income tax law. Another reason, of course, is
found in the fact that while section 73 of the National

Internal Revenue Code has provided the imposition of the

penalty of imprisonment or fine, or both, for refusal or
neglect to pay income tax or to make a return thereof, it
failed to provide the collection of said tax in criminal
proceedings. The only civil remedies provided for the
collection of income tax, in Chapters I and II, Title IX of the
Code and section 316 thereof, are distraint of goods,
chattels, etc. or by judicial action, which remedies are
generally exclusive in the absence of a contrary intent from
the legislator. (People vs. Arnault, G. R. No. L-4288,
November 20, 1952; People vs. Tierra, G. R. Nos. L-1717717180, December 28, 1964) Considering that the
Government cannot seek satisfaction of the taxpayer's civil
liability in a criminal proceeding under the tax law or,
otherwise stated, since the said civil liability is not deemed
included in the criminal action, acquittal of the taxpayer in
the criminal proceeding does not necessarily entail
exoneration from his liability to pay the taxes. It is error to
hold, as the lower court has held, that the judgment in the
criminal cases Nos. 2089 and 2090 bars the action in the
present case. The acquittal in the said criminal cases cannot
operate to discharge defendant-appellee from the duty of
paying the taxes which the law requires to be paid, since
that duty is imposed by statute prior to and independently of
any attempts by the taxpayer to evade payment. Said
obligation is not a consequence of the felonious acts charged
in the criminal proceeding, nor is it a mere civil liability
arising from crime that could be wiped out by the judicial
declaration of nonexistence of the criminal acts charged.
(Castro vs. The Collector of Internal Revenue, G. R. No. L12174, April 20, 1962)
Regarding prescription of action, the lower court held that
the cause of action on the deficiency income tax and
residence tax for 1951 is barred because appellee's income
tax return for 1951 was assessed by the Bureau of Internal
Revenue only on February 14, 1958, or beyond the five-year

period of limitation for assessment as provided in section

331 of the National Internal Revenue Code. Appellant
contends that the applicable law is section 332(a) of the
same Code under which a proceeding in court for the
collection of the tax may be commenced without assessment
at any time within 10 years from the discovery of the falsity,
fraud or omission.
The complaint filed on December 7, 1962, alleges that the
fraud in the appellee's is income tax return for 1951, was
discovered on February 14, 1958. By filing a motion to
dismiss, appellee hypothetically admitted this allegation as
all the other averments in the complaint were so admitted.
Hence, section 332(a) and not section 331 of the National
Internal Revenue Code should determine whether or not the
cause of action of deficiency income tax and residence tax
for 1951 has prescribed. Applying the provisions of section
332(a), the appellant's action instituted in court on December 7, 1962 has not prescribed.
WHEREFORE, the order appealed from is hereby set aside.
Let the records of this case be remanded to the court of
origin for further proceedings. No pronouncement as to
costs.
Reyes, JBL, Acting C.J., Makalintal, Bengzon, Zaldivar,
Sanchez, Ruiz Castro, and Fernando, JJ., concur.
Concepcion, C.J., and Dizon, J., on official leave of absence.

Supreme Court of the Philippines

121 Phil. 755

G.R. No. L-22074, April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., PETITIONER, VS.
THE COMMISSIONER OF INTERNAL REVENUE AND THE
COURT OF TAX APPEALS, RESPONDENTS.
DECISION

REYES, J.B.L., J.:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the
Philippines, namely: Imperio Compania de Seguros, La Union y El Fenix Espafiol, Overseas
Assurances Corp., Ltd., Sociedad Anonima de Reaseguros Alianza, Tokio Marine & Fire Insurance
Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance
Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion
of the premiums on insurances it has originally underwritten in the Philippines, in consideration
for the assumption by the latter of liability on an equivalent portion of the risks insured. Said
reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which
was signed by both parties in Switzerland.
The reinsurance contracts made the commencement o the reinsurers' liability simultaneous with
that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc.
was required to keep a register in Manila where the risks ceded to the foreign reinsurers were
entered, and entry therein was binding upon the reinsurers. A proportionate amount of taxes on
insurance premiums not recovered from the original assured were to be paid for by the foreign
reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering
their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc. in an amount
equal to 5% of the reinsurance premiums. Conflicts and or differences between the parties under
the reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss
Reinsurance Company stipulated that their contract shall be construed by the laws of the
Philippines.

Pursuant to the aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers the following premiums:

1953

P842,466.71

1954

721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it filed
its income tax returns for 1953 and 1951. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed
against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:

1953

Gross premium per investigation

P768,580.00

____________

Withholding tax due thereon at

24%

25% surcharge

Compromise

for

P184,459.00

46,114.00

non-filing

of

withholding income tax return

100.00

____________

TOTAL

AMOUNT

COLLECTIBLE

DUE

&

P230,673.00

1954

Gross premium per investigation

P780,880.68

____________

Withholding tax due thereon at

24%

25% surcharge

Compromise

for

46,853.00

non-filing

of

withholding income tax return

TOTAL

AMOUNT

P187,411.00

DUE

&

COLLECTIBLE

100.00

P234,364.00

============

Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding
tax. Its protest was denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
"In view of the foregoing considerations, petitioner Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and
P173,153.00 for the total sum of P375,345.00 as withholding income taxes for the years 1953
and 1954, plus the statutory delinquency penalties thereon. With costs against petitioner."
Philippine Guaranty Co., Inc., has appealed, questioning the legality of the Commissioner of
Internal Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953
and 1954 to the foreign reinsurers.

Petitioner maintains that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have office here.
The reinsurance contracts however show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against losses arising from the original
insurances in the Philippines were performed in the Philippines. The liability of the foreign
reinsurers commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the
original insurances. Philippine Guaranty Co., lnc, kept in Manila a register of the risks ceded to
the foreign reinsurers. Entries made in such register bound the foreign reinsurers, localizing in
the Philippines the actual cession of the risks and premiums and assumption of the reinsurance
undertaking by the foreign reinsurers. Taxes on premiums imposed by Section 255 of the Tax
Code for the privilege of doing insurance business in the Philippines were payable by the foreign
reinsurers when the same were not recoverable from the original assured. The foreign reinsurers
paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in
consideration for administration and management by the latter of the affairs of the former in the
Philippines in regard to their reinsurance activities here. Disputes and differences between the
parties were subject to arbitration in the City of Manila. AH the reinsurance contracts, except that
with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines
and later signed by the foreign reinsurers abroad. Although the contract between Philippine
Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland,
the same specifically provided that its provision shall be construed according to the laws of the
Philippines, thereby manifesting a clear intention of the parties lo subject themselves to
Philippine laws.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources
within the Philippines. The word "sources" has been interpreted as the activity, property or
service giving rise to the income. [1] The reinsurance premiums were income created from the
undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc.
against liability for loss under original insurances. Such undertaking, as explained above, took
place in the Philippines. These insurance premiums therefore came from sources within the
Philippines and, hence, are subject to corporate income tax.
The foreign insurers place of business should not be confused with their place of activity.
Business implies continuity and progression of transactions [2] while activity may consist of only a
single transaction. An activity may occur outside the place of business. Section 24 of the Tax
Code does not require a foreign corporation to engage in business in the Philippines in subjecting
its income to tax. It suffices that the activity creating the income is performed or done in the
Philippines. What is controlling, therefore, is not the place of business but the place of activity
that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within
the Philippines because they are not specifically mentioned in Section 37 of the Tax Cede. Section

37 is not an all inclusive enumeration, for it merely directs that the kinds of income mentioned
therein should be treated as income from sources within the Philippines but it does not require
that other kinds of income should not be considered likewise.
The power to lax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to
serve, public improvements designed for the enjoyment of the citizenry and those which come
within the State's territory, and facilities and protection which a government is supposed to
provide. Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges guaranteed by
our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the
state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner
of Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in
question relieved it of the duty to pay the corresponding withholding tax thereon. This defense of
petitioner may free it from the payment of surcharges or penalties imposed for failure to pay the
corresponding withholding tax, but it certainly would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors
of its agents.[3]
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers
not doing business in the Philippines are subject to withholding tax under Sections 53 and 54 of
the Tax Code, suffice it to state that this question has already been answered in the affirmative
in Alexander Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19392, April 11, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount
actually remitted to the foreign reinsurers instead of from the total amount ceded. And since it
did not remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code states:
"Sec. 54. Payment of corporation income tax at source .In the case of foreign corporation
subject to taxation under this Title not engaged in trade or business within the Philippines and
not having any office or place of business therein, there shall be deducted and withheld at the
source in the same manner and upon the same items as is provided in section fifty-three a tax
equal to twenty-four per centum thereof, and such tax shall be returned and paid in the same
manner and subject to the same conditions as provided in that Action."
The applicable portion of Section 53 provides:

"(b) Non-resident aliens.All persons, corporations and general copartnerships (companias

colectivas), in whatever capacity acting, including lessees or mortgagors of real or personal
property, trustees acting in any trust capacity, executors, administrators receivers, conservators,
fiduciaries, employers, and all officers and employees of the Government of the Philippines
having the control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries,
wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or
determinable annual or periodical gains, profits, and income of any non-resident alien individual,
not engaged in trade or business within the Philippines and not having any office or place of
business therein, shall (except) in the cases provided for in subsection (a) of this section) deduct
and withhold from such annual or periodical gains, profits, and income a tax equal to twelve per
centum hereof: Provided, That no such deduction or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or
business within the Philippines or has an office or place of business therein, and (2) more than
eighty-five per centum of the gross income of such corporation for the three-year period ending
with the lose of its taxable year preceding the declaration of such dividends (or for such part of
such period as the corporation has been in existence) was derived from sources within the
Philippines as determined under the provisions of section thirty-seven: Provided, further. That
the Collector of Internal Revenue may authorize such tax to be deducted and withheld from the
interest upon any securities the owners of which are not known to the withholding agent."
The above-quoted provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. Accordingly, in computing the withholding tax due on the
reinsurance premiums in question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is
hereby ordered to pay to the Commissioner of Internal Revenue the sums of P202.192.00 and
P173.153.00, or a total amount of P375 345.00, as withholding tax for the years 1953 and 1954,
respectively. If the amount of P375.345.00 is not paid within 30 days from the date this
judgment becomes final there shall be collected a surcharge of 5% on the amount unpaid, plus
interest at the rate of 1% a month from the date of delinquency to the date of payment,
provided that the maximum amount that may be collected as interest shall not exceed the
amount corresponding to a period of three (3) years. With costs against petitioner.
SO ORDERED.
Bengzon, C. J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ.,

[1]

concur.

Mertens, Jr., Jacob. Law On Federal Income Taxation, Vol. 8, Section 45.27.

[2]

Imperial vs. Collector of Internal Revenue, L-7924, September 30, 1955.

[3]

Hilado vs. Collector of Internal Revenue, 100 Phil, 288; 53 Off. Gaz., 241; Koppel (Philippines),

Inc. vs. Collector of Internal Revenue, L-10550, September 19, 1961; Compaia General de
Tobacos de Filipinas vs. City of Manila, L-161619, June 29, 1963.

RESOLUTION
BENGZON, J.P., J.:
The Philippine Guaranty Company, Inc. moves for the reconsideration of our decision,
promulgated on April 30, 1965, holding it liable for the payment of income tax which it should
have withheld and remitted to the Bureau of Internal Revenue in the total sum of P375,345.00.
The grounds raised in the instant motion all spring from movant's view that the Court of Tax
Appeals as well as this Court found it "innocent of the charges of violating, wilfully or negligently,
sub-section (c) of Section 53 and Section 51 of the National Internal Revenue Code." Hence, it
cannot subsequently be held liable for the assessment of P375.315.00 based on said sections.
The premise of movant's reasoning cannot be accepted. The Court of Tax Appeals and this Court
did not find that it did not violate Section r>3(c) and 54 of the Tax Code. On the contrary,
movant was found to have violated Section 53 violation was due to a reasonable causenamely,
reliance on the advice of its auditors and opinion of the Commissioner of Internal Revenueno
surcharge to the 764 PHILIPPINE REPORTS Phil. Guaranty Co., Inc. vs. Comm. of Int. Rev. and
CTA tax was imposed. Section 72 of the Tax Code provides:
"Sec. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns.
The Commissioner of Internal Revenue shall assess all income taxes. In case of willful neglect
to file the return or list within the time prescribed by law, or in case a false or fraudulent return
or list is willfully made, the Commissioner of Internal Revenue shall add to the tax or to the
deficiency tax, in case any payment has been made on the basis of such return before the
discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such tax or
deficiency tax. In case of any failure to make and file a return or list within the time prescribed
by law or by the Commissioner or other internal revenue officer, not due to willful neglect, the
Commissioner of Internal Revenue shall add to the tax twenty-five per centum of its amount,
except that, when a return is voluntarily and without notice from the Commissioner or other

officer filed after such time, and it is shown that the failure to file it was due to a reasonable
cause, no such addition shall be made to the tax. * * *"
It will be noted that the first half of the above-quoted section covers failure to file a return,
willingly and/or due to negligence, in which case the surcharge is 50%. In the second part of the
law it covers failure to make and file a return "not due to willful neglect", in which case only 25%
surcharge should be added. As a further concession to the taxpayer the above-quoted section
provides that if "it is shown that the failure to, file it was due to a reasonable cause, no such
addition shall be made to the tax".
It would, therefore, be incorrect for movant to state that it was found "innocent of the charges of
violating, willfully or negligently, sub-section (c) of Section 53 and Section 54". For, precisely, the
mere fact that it was exempted from paying the penalty necessarily implies violation of Section
53(c). Violating Section 53(c) is one thing; imposing the penalty for such violation under Section
72[*] is another. If it is found that the failure to file is due to a reasonable cause, then exemption
from surcharge sets in but never exemption from payment o the tax due.
Since movant failed to pay the tax due, in the sum of P375,345.00, this Court ordered it to pay
the same. Simply because movant was relieved from paying the surcharge for failure to file the
necessary returns, it now wants us to absolve it from paying even the tax. This, we cannot do.
The non-imposition of the 25% surcharge does not carry with it remission of the tax.
Movant argues that it could not be expected to withhold the tax, for as early as August 18, 1953
the Board of Tax Appeals held in the case of Franklin Baker [1] that the reinsurance premiums in
question were not subject to withholding. On top of that, movant maintains, the Commissioner of
Internal Revenue, in reply to the query of its accountants and auditors, issued on September 5,
1953 an opinion subscribing to the ruling in the Franklin Baker case. As already explained in our
decision a mistake committed by Government agents is not binding on the Government.
Inasmuch as movant insists on this point in its motion for reconsideration, we shall further
elaborate on the same. Section 200 of the Income Tax Regulations expressly grants protection to
him only if and when he follows strictly what has been provided therein.
Section 53 (c) makes the withholding agent personally liable for the income tax withheld under
Section 54. It states:
"Sec. 53 (c) Return and payment.Every person required to deduct and withhold any tax under
this section shall make return thereof, in duplicate, on or before the fifteenth day of April of each
year, and, on or before the time fixed by law for the payment of the tax, shall pay the amount
withheld to the officer of the Government of the Philippines authorized to receive it. Every such
person is made personally liable for such tax, and is indemnified against the claims and demands
of any person for the amount of any payments made in accordance with the provisions of this
section."

The law sets no condition for the personal liability of the withholding agent to attach. The reason
is to compel the withholding agent to withhold the tax under all circumstances. In effect, the
responsibility for the collection of the tax as well as the payment thereof is concentrated upon
the person over whom the Government has jurisdiction. Thus, the withholding agent is
constituted the agent of both the Government and the taxpayer. With respect to the collection
and/or withholding of the tax, he is the Government's agent. In regard to the filing of the
necessary income tax return and the payment of the tax to the Government, he is the agent of
the taxpayer. The withholding agent, therefore, is no ordinary government agent especially
because under Section 53 (c) he is held personally liable for the tax he is duty bound to
withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable
by law. Movant then further contends that as agent of the Government it was released from
liability for the tax after it was advised by the Commissioner of Internal Revenue that the
reinsurance premiums involved were not subject to withholding. It relies on the provisions of the
second paragraph of Section 200 of the Income Tax Regulations, which states:

"In case of doubt, a withholding agent may always protect himself by withholding the tax due,
and promptly causing a query to be addressed to the Commissioner of Internal Revenue for the
determination of whether or not the income paid to an individual is not subject to withholding. In
case the Commissioner of Internal Revenue decides that the income paid to an individual is not
subject to withholding. The withholding agent may thereupon remit the amount of tax withheld."
The section above-quoted relaxes the application of the stringent provisions of Section 63 of the
Tax Code. Accordingly, it grants exemption from tax liability, and in so doing, it lays down steps
to be taken by the withholding agent, namely, (1) that he withholds the tax due, (2) that he
promptly addresses a query to the Commissioner of Internal Revenue for determination whether
or not the income paid to an individual is subject to withholding; and (3) that the Commissioner
of Internal Revenue decides that such income is not subject to withholding. Strict observance of
said steps is required of a withholding agent before he could be released from liability. Generally,
the law frowns upon exemption from taxation, hence, an ex- empting provision should be
construed strictissimi juris.[2]
It may be illuminating to mention here however that the Income Tax Regulations was issued by
the Secretary of Finance upon his authority, "to promulgate all needful rules and regulations of
the effective enforcement" of the provisions of the Tax Code. [3] The mission therefore of Section
200, quoted above, is to implement Section 53 of the Tax Code for no other purpose than to
enforce its provisions effectively. It should also be noted, that Section 53 provides for no
exemption from the duty to withhold except in the cases of tax-free covenant bonds and
dividends.
The facts in this case do not support a finding that movant complied with Section 200. For, it has
not been shown that it withheld the amount of tax due before it inquired from the Bureau of

Internal Revenue as to the taxability of the reinsurance premiums involved. As a matter of fact,
the Court of Tax Appeals found that "upon advice of its accountants and auditors, * * * petitioner
did not collect and remit to the Commissioner of Internal Revenue the withholding tax". This
finding of fact of the lower court, unchallenged as it is, may not be disturbed. [4]
The requirement in Section 200 that the withholding agent should first withhold the tax before
addressing a query to the Commissioner of Internal Revenue is not without a meaning for it is in
keeping with the general operation of our tax laws: payment precedes defense. Prior to the
creation of the Court of Tax Appeals, the remedy of a taxpayer was to pay an internal revenue
tax first and file a claim for refund later.[5] This remedy has not been abrogated, for the law
creating the Court of Tax Appeals merely gives to the taxpayer an additional remedy. With
respect to customs duties the consignee or importer concerned is required to pay them under
protest, before he is allowed to question legality of the imposition. [6] Likewise, validity of a realty
tax cannot be assailed until after the taxpayer has paid the tax under protest. [7] The legislature,
in adopting such measures in our tax laws, only wanted to be assured that taxes are paid and
collected without delay. For taxes are the lifeblood of government. Also, such measures tend to
prevent collusion between the taxpayer and the tax collector. By questioning a tax's legality
without first paying it, a taxpayer, in collusion with B.l.R. officials, can unduly delay, if not totally
evade, the payment of such tax.
Ofcourse, in this case there was absolutely no such collusion. Precisely, the Philippine Guaranty
Company, Inc. was absolved from the payment of the 25% surcharge for non-filing of income tax
returns inasmuch as the Tax Court as well as this Court believes that its omission was due to a
reasonable cause.
WHEREFORE, the motion for reconsideration is denied.
SO ORDERED.

BengzonC.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala,

Makalintal, and Zaldivar, JJ., concur.

G.R. No. L-22265, December 22, 1967

COLLECTOR OF INTERNAL REVENUE, PETITIONER, VS.
GOODRICH INTERNATIONAL RUBBER CO., RESPONDENT.
DECISION

CONCEPCION, C.J.:
Appeal by the Government from a decision of the Court of
Tax Appeals, setting aside the assessments made by the
Commissioner of Internal Revenue, in the sums of
P14,128.00 and P8,439.00, as deficiency income taxes
allegedly due from respondent Goodrich International
Rubber Company hereinafter referred to as Goodrich
for the years 1951 and 1952, respectively.
These assessments were based on disallowed deductions,
claimed by Goodrich, consisting of several alleged bad debts,
in the aggregate sum of P50,455.41, for the year 1951, and
the sum of P30,138.88, as representation expenses allegedly
incurred in the year 1952. Goodrich had appealed from said
assessments to the Court of Tax Appeals, which, after
appropriate proceedings, rendered, on June 8, 1963, a
decision allowing the deduction for bad debts, but
disallowing the alleged representation expenses. On motion
for reconsideration and new trial, filed by Goodrich, on
November 19, 1963, the Court of Tax Appeals amended its
aforementioned decision and allowed said deductions for
representation expenses. Hence, this appeal by the
Government.
The alleged representation expenses are:
1. Expenses at Elks Club
2. Manila Polo Club

P10,959
.21

4,947.3
5
3. Army and Navy Club

2,812.9
5

4. Manila Golf Club

4,478.4
5
5. Wack Wack Golf Club,
Casino Espaol, etc..
TOTAL

6,940.9
2
P30,138
.88

The claim for deduction thereof is based upon receipts

issued, not by the entities in which the alleged expenses had
been incurred, but by the officers of Goodrich who allegedly
paid them.
The claim must be rejected. If the expenses had really been
incurred, receipts or chits would have been issued by the
entities to which the payments had been made, and it would
have been easy for Goodrich or its officers to produce such
receipts. Those issued by said officers merely attest to their
claim that they had incurred and paid said expenses. They
do not establish payment of said alleged expenses to the
entities in which the same are said to have been incurred.
The Court of Tax Appeals erred, therefore, in allowing the
deduction thereof.
The alleged bad debts are:
1. Portillo's Auto Seat Cover
2. Visayan Rapid Transit

P
630.31

17,810.26
3. Bataan Auto Seat Cover
373.13
4. Tres Amigos Auto Supply
1,370.31
5. P. C. Teodoro
650.00
6. Ordnance Service, P. A.
386.42
7. Ordnance Service, P. C
796.26
8. National Land Settlement
Administration
9. National Coconut
Corporation
10. Interior Caltex Service
Station
11. San Juan Auto Supply

3,020.76
644.74
1,505.87
4,530.64

12. PACSA
45.36
13. Philippine Naval Patrol
14.18
14. Surplus Property
Commission
15. Alvarez Auto Supply

277.68

16. Lion Shoe Store

285.62
11,686.
93

17. Ruiz Highway Transit

2,350.00
18. Esquire Auto Seat Cover

TOTAL

3,536.94
P
50,455.41

The issue, in connection with these debts, is whether or not

the same had been properly deducted as bad debts for the
year 1951. In this connection, we find:
Portillo's Auto Seat Cover (P730.00):
This debt was incurred in 1950. In 1951, the debtor paid
P70.00, leaving a balance of P630.31. That same year, the
account was written off as bad debt (Exhibit 3-C-4). Counsel
for Goodrich had merely sent two (2) letters of demand in
1951 (Exh. B-14). In 1952, the debtor paid the full balance
(Exhibit A).
Visayan Rapid Transit (P17,810.26):
This debt was, also, incurred in 1950. In 1951, it was
charged off as bad debt, after the debtor had paid P275.21.
No other payment had been made. Taxpayer's Accountant
testified that, according to its branch manager in Cebu, he
had been unable to collect the balance. The debtor had
merely promised and kept on promising to pay. Taxpayer's
counsel stated that the debtor had gone out of business and
became insolvent, but no proof to this effect was introduced.
Bataan Auto Seat Cover (P373.13):
This is the balance of a debt of P474.13 contracted in 1949.
In 1951, the debtor paid P100.00. That same year, the
balance of P373.13 was charged off as bad debt. The next
year, the debtor paid the additional sum of P50.00.
Tres Amigos Auto Supply (P1,370.31):

This account had been outstanding since 1949. Counsel for

the taxpayer had merely sent demand letters (Exh. B-13)
without success.
P. C. Teodoro (P650.00):
In 1949, the account was P751.91. In 1951, the debtor paid
P101.91, thus leaving a balance of P650.00, which the
taxpayer charged off as bad debt in the same year. In 1952,
the debtor made another payment of P160.00.
Ordnance Service, P. A. (P386.42):
In 1949, the outstanding account of this government agency
was P817.55. Goodrich's counsel sent demand letters (Exh.
B-8). In 1951, it paid Goodrich P431.13. The balance of
P386.42 was written off as bad debt that same year.
Ordnance Service, P.C. (P796.26):
In 1950, the account was P796.26. It was referred to
counsel for collection. In 1951, the account was written off
as a bad debt. In 1952, the debtor paid it in full.
National Land Settlement Administration (P3,020.76):
The outstanding account in 1949 was P7,041.51. Collection
letters were sent (Exh. B-7). In 1951, the debtor paid
P4,020.75, leaving a balance of P3,020.76, which was
written off, that same year, as a bad debt. This office was
under liquidation, and its Board of Liquidators promised to
pay when funds shall become available.
National Coconut Corporation (P644.74):
This account had been outstanding since 1949. Collection
letters were sent (Exh. B-12) without success. It was written
off as bad debt in 1951, while the corporation was under a

Board of Liquidators, which promised to pay upon

availability of funds. In 1961, the debt was fully paid.
Interior Caltex Service Station (P1,505.87):
The original account was P2,705.87, when, in 1950, it was
turned over for collection to counsel for Goodrich (p. 156,
CTA Records). Counsel began sending letters of collection
in April 1950. Interior Caltex made partial payments, so that
as of December, 1951, the balance outstanding was
P1,505.87. The debtor paid P200, in 1952; P113.20, in 1954;
P750.00, in 1961; and P300.00 in 1962. The account had
been written off as bad debt in 1951.
The claim for deduction of these ten (10) debts should be
rejected. Goodrich has not established either that the debts
are actually worthless or that it had reasonable grounds to
believe them to be so in 1951. Our statute permits the deduction of debts "actually ascertained to be worthless within
the taxable year," obviously to prevent arbitrary action by
the taxpayer, to unduly avoid tax liability.
The requirement of ascertainment of worthlessness requires
proof of two facts: (1) that the taxpayer did in fact ascertain
the debt to be worthless, in the year for which the deduction
is sought; and (2) that, in so doing, he acted in good faith.
[1]

Good faith on the part of the taxpayer is not enough. He

must show, also, that he had reasonably investigated the
relevant facts and had drawn a reasonable inference from
the information thus obtained by him. Respondent herein
has not adequately made such showing.
[2]

The payments made, some in full, after some of the

foregoing accounts had been characterized as bad debts,
merely stresses the undue haste with which the same had
been written off. At any rate, respondent has not proven
that said debts were worthless. There is no evidence that

the debtors can not pay them. It should be noted also that,
in violation of Revenue Regulations No. 2, Section 102,
respondent had not attached to its income tax returns a
statement showing the propriety of the deductions therein
made for alleged bad debts.
Upon the other hand, we find that the following accounts
were properly written off:
San Juan Auto Supply (P4,530.64):
This account was contracted in 1950. Referred, for
collection, to respondent's counsel, the latter secured no
payment. In November, 1950, the corresponding suit for
collection was filed (Exh. C). The debtor's counsel was allowed to withdraw, as such, the debtor having failed to meet
him. In fact, the debtor did not appear at the hearing of the
case. Judgment was rendered in 1951 for the creditor (Exh.
C-2). The corresponding writ of execution (Exh. C-3) was
returned unsatisfied, for no properties could be attached or
levied upon.
PACSA (P45.36),
Philippine Naval Patrol (P14.18),
Surplus Property Commission (P277.68),
Alvarez Auto Supply (P285.62):
These four (4) accounts were 2 or 3 years old in 1951. After
the collectors of the creditor had failed to collect the same,
its counsel wrote letters of demand (Exhs. B-10, B-11, B-6
and B-2) to no avail. Considering the small amounts
involved in these accounts, the taxpayer was justified in
feeling that the unsuccessful efforts therefore exerted to
collect the same sufficed to warrant their being written off.1
Lion Shoe Store (P11,686.93),
Ruiz Highway Transit (P2,350.00), and

Esquire Auto Seat Cover (P3,536.94):

These three (3) accounts were among those referred to
counsel for Goodrich for collection. Up to 1951, when they
were written off, counsel had sent 17 letters of demand to
Lion Shoe Store (Exh. B); 16 demand letters to Ruiz Highway
Transit (Exh. B-1); and 6 letters of demand to Esquire Auto
Seat Cover (Exh. B-5). In 1951, Lion Shoe Store, Ruiz
Highway Transit, and Esquire Auto Seat Cover had made
partial payments in the sums of P1,050.00, P400.00, and
P300.00, respectively. Subsequent to the write-off,
additional small payments were made and accounted for as
income of Goodrich. Counsel interviewed the debtors,
investigated their ability to pay and threatened law suits.
He found that the debtors were in strained financial condition and had no attachable or leviable property. Moreover,
Lion Shoe Store was burned twice, in 1948 and 1949.
Thereafter, it continued to do business on limited scale.
Later, it went out of business. Ruiz Highway Transit, had
more debts than assets. Counsel, therefore, advised
respondent to write off these accounts as bad debts without
going to court, for it would be "foolish to spend good money
after bad."
The deduction of these eight (8) accounts, aggregating
P22,627.35, as bad debts should be allowed.
WHEREFORE, the decision appealed from should be, as it is
hereby, modified, in the sense that respondent's alleged
representation expenses are totally disallowed, and its claim
for bad debts allowed up to the sum of P22,627.35 only.
Without special pronouncement as to costs.
IT IS SO ORDERED.
Reyes, JBL, Dizon, Makalintal, Bengzon, Zaldivar, Sanchez,
Ruiz Castro, Angeles, and Fernando, JJ., concur.

SECOND DIVISION
G.R. No. 106611, July 21, 1994
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION
AND COURT OF TAX APPEALS, RESPONDENTS.
DECISION

REGALADO, J.:
The judicial proceedings over the present controversy
commenced with CTA Case No. 4099, wherein the Court of
Tax Appeals ordered herein petitioner Commissioner of
Internal Revenue to grant a refund to herein private
respondent Citytrust Banking Corporation (Citytrust) in the
amount of P13,314,506.14, representing its overpaid income
taxes for 1984 and 1985, but denied its claim for the alleged
refundable amount reflected in its 1983 income tax return on
the ground of prescription. That judgment of the tax court
was affirmed by respondent Court of Appeals in its judgment
in CA-G.R. SP No. 26839. The case was then elevated to us
in the present petition for review on certiorari wherein the
latter judgment is impugned and sought to be nullified
and/or set aside.
[1]

[2]

It appears that in a letter dated August 26, 1986, herein

private respondent corporation filed a claim for refund with
the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the
excess of its carried-over total quarterly payments over the
actual income tax due, plus carried-over withholding tax
payments on government securities and rental income, as
computed in its final income tax return for the calendar year
ending December 31, 1985.
[3]

Two days later, or on August 28, 1986, in order to interrupt

the running of the prescriptive period, Citytrust filed a
petition with the Court of Tax Appeals, docketed therein as
CTA Case No. 4099, claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00.
[4]

In the answer filed by the Office of the Solicitor General, for

and in behalf of therein respondent commissioner, it was
asserted that the mere averment that Citytrust incurred a
net loss in 1985 does not ipso facto merit a refund; that the
amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes
withheld on proceeds of government securities investments,
as well as on rental income, respectively, are not properly
documented; that assuming arguendo that petitioner is
entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28,
1984, pursuant to Sections 292 and 295 of the National
Internal Revenue Code of 1977, as amended, since the
petition was filed only on August 28, 1986.
[5]

On February 20, 1991, the case was submitted for decision

based solely on the pleadings and evidence submitted by
herein private respondent Citytrust. Herein petitioner could
not present any evidence by reason of the repeated failure of
the Tax Credit/Refund Division of the BIR to transmit the
records of the case, as well as the investigation report
thereon, to the Solicitor General.
[6]

However, on June 24, 1991, herein petitioner filed with the

tax court a manifestation and motion praying for the
suspension of the proceedings in the said case on the ground
that the claim of Citytrust for tax refund in the amount of
P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was
only awaiting the submission by Citytrust of the required

confirmation receipts which would show whether or not the

aforestated amount was actually paid and remitted to the
BIR.
[7]

Citytrust filed an opposition thereto, contending that since

the Court of Tax Appeals already acquired jurisdiction over
the case, it could no longer be divested of the same; and,
further, that the proceedings therein could not be suspended
by the mere fact that the claim for refund was being
administratively processed, especially where the case had
already been submitted for decision. It also argued that the
BIR had already conducted an audit, citing therefor Exhibits
Y, Y-1, Y-2 and Y-3 adduced in the case, which clearly showed
that there was an overpayment of income taxes and for
which a tax credit or refund was due to Citytrust. The
foregoing exhibits are allegedly conclusive proof of and an
admission by herein petitioner that there had been an
overpayment of income taxes.
[8]

The tax court denied the motion to suspend proceedings on

the ground that the case had already been submitted for
decision since February 20, 1991.
[9]

Thereafter, said court rendered its decision in the case, the

decretal portion of which declares:
"WHEREFORE, in view of the foregoing, petitioner is
entitled to a refund but only for the overpaid taxes incurred
in 1984 and 1985. The refundable amount as shown in its
1983 income tax return is hereby denied on the ground of
prescription. Respondent is hereby ordered to grant a refund
to petitioner Citytrust Banking Corp. in the amount of
P13,314,506.14 representing the overpaid income taxes for
1984 and 1985, recomputed as follows:
1984 Income tax due
P4,715,533.00
Less: 1984 Quarterly

payments
P16,214,599.00*
1984 Tax Credits
W/T on int. on
gov't. sec.
1,921,245.37*
W/T on rental
inc.
26,604.30*
18,162,448.67
Tax Overpayment
(13,446,915.67)
Less: FCDU payable
150,252.00
Amount refundable for 1984
P(13,296,663.67)
1985 Income tax due (loss)
P
0?
Less: W/T on rentals
36,716.47*
Tax Overpayment
(36,716.47)*
Less: FCDU payable
18,874.00
Amount Refundable for 1985
P
(17,842.47)
*Note:
These credits are smaller than the claimed amount because
only the above figures are well supported by the various
exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED."
[10]

The order for refund was based on the following findings of

the Court of Tax Appeals: (1) the fact of withholding has
been established by the statements and certificates of

withholding taxes accomplished by herein private

respondent's withholding agents, the authenticity of which
were neither disputed nor controverted by herein petitioner;
(2) no evidence was presented which could effectively
dispute the correctness of the income tax return filed by
herein respondent corporation and other material facts
stated therein; (3) no deficiency assessment was issued by
herein petitioner; and (4) there was an audit report
submitted by the BIR Assessment Branch, recommending
the refund of overpaid taxes for the years concerned
(Exhibits Y to Y-3), which enjoys the presumption of
regularity in the performance of official duty.
[11]

A motion for the reconsideration of said decision was initially

filed by the Solicitor General on the sole ground that the
statements and certificates of taxes allegedly withheld are
not conclusive evidence of actual payment and remittance of
the taxes withheld to the BIR. A supplemental motion for
reconsideration was thereafter filed, wherein it was
contended for the first time that herein private respondent
had outstanding unpaid deficiency income taxes. Petitioner
alleged that through an inter-office memorandum of the Tax
Credit/Refund Division, dated August 8, 1991, he came to
know only lately that Citytrust had outstanding tax liabilities
for 1984 in the amount of P56,588,740.91 representing
deficiency income and business taxes covered by
Demand/Assessment Notice No. FAS-1-84-003291-003296.
[12]

[13]

Oppositions to both the basic and supplemental motions for

reconsideration were filed by private respondent Citytrust.
Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of
the Tax Code, as implemented by Revenue Regulation 6-85,
only requires that the claim for tax credit or refund must
show that the income received was declared as part of the
gross income, and that the fact of withholding was duly
established. Moreover, with regard to the argument raised in
[14]

the supplemental motion for reconsideration anent the

deficiency tax assessment against herein petitioner, the tax
court ruled that since that matter was not raised in the
pleadings, the same cannot be considered, invoking therefor
the salutary purpose of the omnibus motion rule which is to
obviate multiplicity of motions and to discourage dilatory
pleadings.
[15]

As indicated at the outset, a petition for review was filed by

herein petitioner with respondent Court of Appeals which in
due course promulgated its decision affirming the judgment
of the Court of Tax Appeals. Petitioner eventually elevated
the case to this Court, maintaining that said respondent
court erred in affirming the grant of the claim for refund of
Citytrust, considering that, firstly, said private respondent
failed to prove and substantiate its claim for such refund;
and, secondly, the bureau's findings of deficiency income and
business tax liabilities against private respondent for the
year 1984 bars such payment.
[16]

After a careful review of the records, we find that under the

peculiar circumstances of this case, the ends of substantial
justice and public interest would be better subserved by the
remand of this case to the Court of Tax Appeals for further
proceedings.
It is the sense of this Court that the BIR, represented herein
by petitioner Commissioner of Internal Revenue, was denied
its day in court by reason of the mistakes and/or negligence
of its officials and employees. It can readily be gleaned from
the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its
counsel, the Solicitor General, due to the unavailability of
the necessary records which were not transmitted by the
Refund Audit Division of the BIR to said counsel, as well as
the investigation report made by the Banks/Financing and
Insurance Division of the said bureau, despite repeated

requests. It was under such a predicament and in

deference to the tax court that ultimately, said records being
still unavailable, herein petitioner's counsel was constrained
to submit the case for decision on February 20, 1991 without
presenting any evidence.
[17]

For that matter, the BIR officials and/or employees

concerned also failed to heed the order of the Court of Tax
Appeals to remand the records to it pursuant to Section 2,
Rule 7 of the Rules of the Court of Tax Appeals which
provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the
Court of Tax Appeals, within ten days after filing his answer,
all the records of the case in his possession, with the pages
duly numbered, and if the records are in separate folders,
then the folders shall also be numbered.
The aforestated impasse came about due to the fact that,
despite the filing of the aforementioned initiatory petition in
CTA Case No. 4099 with the Court of Tax Appeals, the Tax
Refund Division of the BIR still continued to act
administratively on the claim for refund previously filed
therein, instead of forwarding the records of the case to the
Court of Tax Appeals as ordered.
[18]

It is a long and firmly settled rule of law that the

Government is not bound by the errors committed by its
agents. In the performance of its governmental functions,
the State cannot be estopped by the neglect of its agent and
officers. Although the Government may generally be
estopped through the affirmative acts of public officers
acting within their authority, their neglect or omission of
public duties as exemplified in this case will not and should
not produce that effect.
[19]

Nowhere is the aforestated rule more true than in the field

of taxation. It is axiomatic that the Government cannot and
[20]

must not be estopped particularly in matters involving taxes.

Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never be
allowed to jeopardize the Government's financial position,
especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.
[21]

[22]

Further, it is also worth noting that the Court of Tax Appeals

erred in denying petitioner's supplemental motion for
reconsideration alleging and bringing to said court's
attention the existence of the deficiency income and
business tax assessment against Citytrust. The fact of such
deficiency assessment is intimately related to and
inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such
refund despite the existence of that deficiency assessment is
an absurdity and a polarity in conceptual effects. Herein
private respondent cannot be entitled to refund and at the
same time be liable for a tax deficiency assessment for the
same year.
The grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are true
and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge
against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence,
cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue
Code of 1977, which was the applicable law when the claim
of Citytrust was filed, provides that "(w)hen an assessment is
made in case of any list, statement, or return, which in the
opinion of the Commissioner of Internal Revenue was false

or fraudulent or contained any understatement or

undervaluation, no tax collected under such assessment
shall be recovered by any suits unless it is proved that the
said list, statement, or return was not false nor fraudulent
and did not contain any understatement or undervaluation;
but this provision shall not apply to statements or returns
made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the
proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits. If the deficiency
assessment should subsequently be upheld, the Government
will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must
be filed within the prescriptive period of ten years after
discovery of the falsity, fraud or omission in the false or
fraudulent return involved. This would necessarily require
and entail additional efforts and expenses on the part of the
Government, impose a burden on and a drain of government
funds, and impede or delay the collection of much needed
revenue for governmental operations.
[23]

Thus, to avoid multiplicity of suits and unnecessary

difficulties or expenses, it is both logically necessary and
legally appropriate that the issue of the deficiency tax
assessment against Citytrust be resolved jointly with its
claim for tax refund, to determine once and for all in a single
proceeding the true and correct amount of tax due or
refundable.
In fact, as the Court of Tax Appeals itself has heretofore
conceded, it would be only just and fair that the taxpayer
and the Government alike be given equal opportunities to
avail of remedies under the law to defeat each other's claim
and to determine all matters of dispute between them in one
single case. It is important to note that in determining
[24]

whether or not petitioner is entitled to the refund of the

amount paid, it would be necessary to determine how much
the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability
of the taxpayer and, certainly, a determination of this case
would constitute res judicata on both parties as to all the
matters subject thereof or necessarily involved therein.
The Court cannot end this adjudication without observing
that what caused the Government to lose its case in the tax
court may hopefully be ascribed merely to the ennui or
ineptitude of officialdom, and not to syndicated intent or
corruption. The evidential cul-de-sac in which the Solicitor
General found himself once again gives substance to the
public perception and suspicion that it is another proverbial
tip in the iceberg of venality in a government bureau which
is pejoratively rated over the years. What is so distressing,
aside from the financial losses to the Government, is the
erosion of trust in a vital institution wherein the reputations
of so many honest and dedicated workers are besmirched by
the acts or omissions of a few. Hence, the liberal view we
have here taken pro hac vice, which may give some degree
of assurance that this Court will unhesitatingly react to any
bane in the government service, with a replication of such
response being likewise expected by the people from the
executive authorities.
WHEREFORE, the judgment of respondent Court of
Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE and
the case at bar is REMANDED to the Court of Tax Appeals
for further proceedings and appropriate action, more
particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not
otherwise inconsistent with our adjudgment herein.
SO ORDERED.

Narvasa, C.J., (Chairman), Padilla, Puno, and Mendoza, JJ.,

concur.

SECOND DIVISION
G.R. No. 106611, July 21, 1994
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION
AND COURT OF TAX APPEALS, RESPONDENTS.
DECISION

REGALADO, J.:
The judicial proceedings over the present controversy
commenced with CTA Case No. 4099, wherein the Court of
Tax Appeals ordered herein petitioner Commissioner of
Internal Revenue to grant a refund to herein private
respondent Citytrust Banking Corporation (Citytrust) in the
amount of P13,314,506.14, representing its overpaid income
taxes for 1984 and 1985, but denied its claim for the alleged
refundable amount reflected in its 1983 income tax return on
the ground of prescription. That judgment of the tax court
was affirmed by respondent Court of Appeals in its judgment
in CA-G.R. SP No. 26839. The case was then elevated to us
in the present petition for review on certiorari wherein the
latter judgment is impugned and sought to be nullified
and/or set aside.
[1]

[2]

It appears that in a letter dated August 26, 1986, herein

private respondent corporation filed a claim for refund with
the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the
excess of its carried-over total quarterly payments over the
actual income tax due, plus carried-over withholding tax
payments on government securities and rental income, as
computed in its final income tax return for the calendar year
ending December 31, 1985.
[3]

Two days later, or on August 28, 1986, in order to interrupt

the running of the prescriptive period, Citytrust filed a
petition with the Court of Tax Appeals, docketed therein as
CTA Case No. 4099, claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00.
[4]

In the answer filed by the Office of the Solicitor General, for

and in behalf of therein respondent commissioner, it was
asserted that the mere averment that Citytrust incurred a
net loss in 1985 does not ipso facto merit a refund; that the
amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes
withheld on proceeds of government securities investments,
as well as on rental income, respectively, are not properly
documented; that assuming arguendo that petitioner is
entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28,
1984, pursuant to Sections 292 and 295 of the National
Internal Revenue Code of 1977, as amended, since the
petition was filed only on August 28, 1986.
[5]

On February 20, 1991, the case was submitted for decision

based solely on the pleadings and evidence submitted by
herein private respondent Citytrust. Herein petitioner could
not present any evidence by reason of the repeated failure of
the Tax Credit/Refund Division of the BIR to transmit the
records of the case, as well as the investigation report
thereon, to the Solicitor General.
[6]

However, on June 24, 1991, herein petitioner filed with the

tax court a manifestation and motion praying for the
suspension of the proceedings in the said case on the ground
that the claim of Citytrust for tax refund in the amount of
P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was
only awaiting the submission by Citytrust of the required

confirmation receipts which would show whether or not the

aforestated amount was actually paid and remitted to the
BIR.
[7]

Citytrust filed an opposition thereto, contending that since

the Court of Tax Appeals already acquired jurisdiction over
the case, it could no longer be divested of the same; and,
further, that the proceedings therein could not be suspended
by the mere fact that the claim for refund was being
administratively processed, especially where the case had
already been submitted for decision. It also argued that the
BIR had already conducted an audit, citing therefor Exhibits
Y, Y-1, Y-2 and Y-3 adduced in the case, which clearly showed
that there was an overpayment of income taxes and for
which a tax credit or refund was due to Citytrust. The
foregoing exhibits are allegedly conclusive proof of and an
admission by herein petitioner that there had been an
overpayment of income taxes.
[8]

The tax court denied the motion to suspend proceedings on

the ground that the case had already been submitted for
decision since February 20, 1991.
[9]

Thereafter, said court rendered its decision in the case, the

decretal portion of which declares:
"WHEREFORE, in view of the foregoing, petitioner is
entitled to a refund but only for the overpaid taxes incurred
in 1984 and 1985. The refundable amount as shown in its
1983 income tax return is hereby denied on the ground of
prescription. Respondent is hereby ordered to grant a refund
to petitioner Citytrust Banking Corp. in the amount of
P13,314,506.14 representing the overpaid income taxes for
1984 and 1985, recomputed as follows:
1984 Income tax due
P4,715,533.00
Less: 1984 Quarterly

payments
P16,214,599.00*
1984 Tax Credits
W/T on int. on
gov't. sec.
1,921,245.37*
W/T on rental
inc.
26,604.30*
18,162,448.67
Tax Overpayment
(13,446,915.67)
Less: FCDU payable
150,252.00
Amount refundable for 1984
P(13,296,663.67)
1985 Income tax due (loss)
P
0?
Less: W/T on rentals
36,716.47*
Tax Overpayment
(36,716.47)*
Less: FCDU payable
18,874.00
Amount Refundable for 1985
P
(17,842.47)
*Note:
These credits are smaller than the claimed amount because
only the above figures are well supported by the various
exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED."
[10]

The order for refund was based on the following findings of

the Court of Tax Appeals: (1) the fact of withholding has
been established by the statements and certificates of

withholding taxes accomplished by herein private

respondent's withholding agents, the authenticity of which
were neither disputed nor controverted by herein petitioner;
(2) no evidence was presented which could effectively
dispute the correctness of the income tax return filed by
herein respondent corporation and other material facts
stated therein; (3) no deficiency assessment was issued by
herein petitioner; and (4) there was an audit report
submitted by the BIR Assessment Branch, recommending
the refund of overpaid taxes for the years concerned
(Exhibits Y to Y-3), which enjoys the presumption of
regularity in the performance of official duty.
[11]

A motion for the reconsideration of said decision was initially

filed by the Solicitor General on the sole ground that the
statements and certificates of taxes allegedly withheld are
not conclusive evidence of actual payment and remittance of
the taxes withheld to the BIR. A supplemental motion for
reconsideration was thereafter filed, wherein it was
contended for the first time that herein private respondent
had outstanding unpaid deficiency income taxes. Petitioner
alleged that through an inter-office memorandum of the Tax
Credit/Refund Division, dated August 8, 1991, he came to
know only lately that Citytrust had outstanding tax liabilities
for 1984 in the amount of P56,588,740.91 representing
deficiency income and business taxes covered by
Demand/Assessment Notice No. FAS-1-84-003291-003296.
[12]

[13]

Oppositions to both the basic and supplemental motions for

reconsideration were filed by private respondent Citytrust.
Thereafter, the Court of Tax Appeals issued a resolution
denying both motions for the reason that Section 52 (b) of
the Tax Code, as implemented by Revenue Regulation 6-85,
only requires that the claim for tax credit or refund must
show that the income received was declared as part of the
gross income, and that the fact of withholding was duly
established. Moreover, with regard to the argument raised in
[14]

the supplemental motion for reconsideration anent the

deficiency tax assessment against herein petitioner, the tax
court ruled that since that matter was not raised in the
pleadings, the same cannot be considered, invoking therefor
the salutary purpose of the omnibus motion rule which is to
obviate multiplicity of motions and to discourage dilatory
pleadings.
[15]

As indicated at the outset, a petition for review was filed by

herein petitioner with respondent Court of Appeals which in
due course promulgated its decision affirming the judgment
of the Court of Tax Appeals. Petitioner eventually elevated
the case to this Court, maintaining that said respondent
court erred in affirming the grant of the claim for refund of
Citytrust, considering that, firstly, said private respondent
failed to prove and substantiate its claim for such refund;
and, secondly, the bureau's findings of deficiency income and
business tax liabilities against private respondent for the
year 1984 bars such payment.
[16]

After a careful review of the records, we find that under the

peculiar circumstances of this case, the ends of substantial
justice and public interest would be better subserved by the
remand of this case to the Court of Tax Appeals for further
proceedings.
It is the sense of this Court that the BIR, represented herein
by petitioner Commissioner of Internal Revenue, was denied
its day in court by reason of the mistakes and/or negligence
of its officials and employees. It can readily be gleaned from
the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its
counsel, the Solicitor General, due to the unavailability of
the necessary records which were not transmitted by the
Refund Audit Division of the BIR to said counsel, as well as
the investigation report made by the Banks/Financing and
Insurance Division of the said bureau, despite repeated

requests. It was under such a predicament and in

deference to the tax court that ultimately, said records being
still unavailable, herein petitioner's counsel was constrained
to submit the case for decision on February 20, 1991 without
presenting any evidence.
[17]

For that matter, the BIR officials and/or employees

concerned also failed to heed the order of the Court of Tax
Appeals to remand the records to it pursuant to Section 2,
Rule 7 of the Rules of the Court of Tax Appeals which
provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the
Court of Tax Appeals, within ten days after filing his answer,
all the records of the case in his possession, with the pages
duly numbered, and if the records are in separate folders,
then the folders shall also be numbered.
The aforestated impasse came about due to the fact that,
despite the filing of the aforementioned initiatory petition in
CTA Case No. 4099 with the Court of Tax Appeals, the Tax
Refund Division of the BIR still continued to act
administratively on the claim for refund previously filed
therein, instead of forwarding the records of the case to the
Court of Tax Appeals as ordered.
[18]

It is a long and firmly settled rule of law that the

Government is not bound by the errors committed by its
agents. In the performance of its governmental functions,
the State cannot be estopped by the neglect of its agent and
officers. Although the Government may generally be
estopped through the affirmative acts of public officers
acting within their authority, their neglect or omission of
public duties as exemplified in this case will not and should
not produce that effect.
[19]

Nowhere is the aforestated rule more true than in the field

of taxation. It is axiomatic that the Government cannot and
[20]

must not be estopped particularly in matters involving taxes.

Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never be
allowed to jeopardize the Government's financial position,
especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.
[21]

[22]

Further, it is also worth noting that the Court of Tax Appeals

erred in denying petitioner's supplemental motion for
reconsideration alleging and bringing to said court's
attention the existence of the deficiency income and
business tax assessment against Citytrust. The fact of such
deficiency assessment is intimately related to and
inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such
refund despite the existence of that deficiency assessment is
an absurdity and a polarity in conceptual effects. Herein
private respondent cannot be entitled to refund and at the
same time be liable for a tax deficiency assessment for the
same year.
The grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are true
and correct. The deficiency assessment, although not yet
final, created a doubt as to and constitutes a challenge
against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence,
cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue
Code of 1977, which was the applicable law when the claim
of Citytrust was filed, provides that "(w)hen an assessment is
made in case of any list, statement, or return, which in the
opinion of the Commissioner of Internal Revenue was false

or fraudulent or contained any understatement or

undervaluation, no tax collected under such assessment
shall be recovered by any suits unless it is proved that the
said list, statement, or return was not false nor fraudulent
and did not contain any understatement or undervaluation;
but this provision shall not apply to statements or returns
made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the
proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits. If the deficiency
assessment should subsequently be upheld, the Government
will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must
be filed within the prescriptive period of ten years after
discovery of the falsity, fraud or omission in the false or
fraudulent return involved. This would necessarily require
and entail additional efforts and expenses on the part of the
Government, impose a burden on and a drain of government
funds, and impede or delay the collection of much needed
revenue for governmental operations.
[23]

Thus, to avoid multiplicity of suits and unnecessary

difficulties or expenses, it is both logically necessary and
legally appropriate that the issue of the deficiency tax
assessment against Citytrust be resolved jointly with its
claim for tax refund, to determine once and for all in a single
proceeding the true and correct amount of tax due or
refundable.
In fact, as the Court of Tax Appeals itself has heretofore
conceded, it would be only just and fair that the taxpayer
and the Government alike be given equal opportunities to
avail of remedies under the law to defeat each other's claim
and to determine all matters of dispute between them in one
single case. It is important to note that in determining
[24]

whether or not petitioner is entitled to the refund of the

amount paid, it would be necessary to determine how much
the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability
of the taxpayer and, certainly, a determination of this case
would constitute res judicata on both parties as to all the
matters subject thereof or necessarily involved therein.
The Court cannot end this adjudication without observing
that what caused the Government to lose its case in the tax
court may hopefully be ascribed merely to the ennui or
ineptitude of officialdom, and not to syndicated intent or
corruption. The evidential cul-de-sac in which the Solicitor
General found himself once again gives substance to the
public perception and suspicion that it is another proverbial
tip in the iceberg of venality in a government bureau which
is pejoratively rated over the years. What is so distressing,
aside from the financial losses to the Government, is the
erosion of trust in a vital institution wherein the reputations
of so many honest and dedicated workers are besmirched by
the acts or omissions of a few. Hence, the liberal view we
have here taken pro hac vice, which may give some degree
of assurance that this Court will unhesitatingly react to any
bane in the government service, with a replication of such
response being likewise expected by the people from the
executive authorities.
WHEREFORE, the judgment of respondent Court of
Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE and
the case at bar is REMANDED to the Court of Tax Appeals
for further proceedings and appropriate action, more
particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not
otherwise inconsistent with our adjudgment herein.
SO ORDERED.

Narvasa, C.J., (Chairman), Padilla, Puno, and Mendoza, JJ.,

concur.

THIRD DIVISION
G.R. No. 120082, September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY,
PETITIONER, VS. HON. FERDINAND J. MARCOS, IN HIS
CAPACITY AS THE PRESIDING JUDGE OF THE REGIONAL
TRIAL COURT, BRANCH 20, CEBU CITY, THE CITY OF CEBU,
REPRESENTED BY ITS MAYOR, HON. TOMAS R. OSMEA,
AND EUSTAQUIO B. CESA, RESPONDENTS.
DECISION

DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure
question of law are the decision of 22 March 1995[1] of the
Regional Trial Court (RTC) of Cebu City, Branch 20,
dismissing the petition for declaratory relief in Civil Case
No. CEB-16900, entitled "Mactan Cebu International Airport
Authority vs. City of Cebu," and its order of 4 May
1995[2]denying the motion to reconsider the decision.
We resolved to give due course to this petition for it raises
issues dwelling on the scope of the taxing power of local
government units and the limits of tax exemption privileges
of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in
the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority
(MCIAA) was created by virtue of Republic Act No. 6958,
mandated to "principally undertake the economical, efficient
and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, x x x and such other airports as

may be established in the Province of Cebu x x x" (Sec. 3, RA

6958). It is also mandated to:
a) encourage, promote and develop international and
domestic air traffic in the Central Visayas and Mindanao
regions as a means of making the regions centers of
international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country; and,
b) upgrade the services and facilities of the airports and to
formulate internationally acceptable standards of airport
accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter:
Sec. 14. Tax Exemptions. -- The Authority shall be exempt
from realty taxes imposed by the National Government or
any of its political subdivisions, agencies and
instrumentalities x x x.
On October 11, 1994, however, Mr. Eustaquio B. Cesa,
Officer-in-Charge, Office of the Treasurer of the City of
Cebu, demanded payment for realty taxes on several parcels
of land belonging to the petitioner (Lot Nos. 913-G, 743, 88
SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F,
941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio
Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless
and unjustified, claiming in its favor the aforecited Section
14 of RA 6958 which exempts it from payment of realty
taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government
units:

Section 133. Common Limitations on the Taxing Powers of

Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
a)

xxx
xxx

o) Taxes, fees or charges of any kind on the National

Government, its agencies and instrumentalities, and local
government units. (underscoring supplied)
Respondent City refused to cancel and set aside petitioners
realty tax account, insisting that the MCIAA is a governmentcontrolled corporation whose tax exemption privilege has
been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege.-- Unless
otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
(underscoring supplied)
xxx
Section 234. Exemptions from Real Property Taxes. -- x x x
(a)x x x
(e)x x x

xxx

Except as provided herein, any exemption from payment of

real property tax previously granted to, or presently enjoyed
by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy
against the properties of petitioner, the latter was compelled
to pay its tax account "under protest" and thereafter filed a
Petition for Declaratory Relief with the Regional Trial Court
of Cebu, Branch 20, on December 29, 1994. MCIAA
basically contended that the taxing powers of local
government units do not extend to the levy of taxes or fees
of any kind on an instrumentality of the national
government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the
same footing as an agency or instrumentality of the national
government by the very nature of its powers and functions.
Respondent City, however, asserted that MCIAA is not an
instrumentality of the government but merely a governmentowned corporation performing proprietary functions. As
such, all exemptions previously granted to it were deemed
withdrawn by operation of law, as provided under Sections
193 and 234 of the Local Government Code when it took
effect on January 1, 1992.[3]
The petition for declaratory relief was docketed as Civil Case
No. CEB-16900.
In its decision of 22 March 1995,[4] the trial court dismissed
the petition in light of its findings, to wit:
A close reading of the New Local Government Code of 1991
or RA 7160 provides the express cancellation and
withdrawal of exemption of taxes by government-owned and
controlled corporation per Sections after the effectivity of
said Code on January 1, 1992, to wit: [proceeds to quote

Sections 193 and 234]

Petitioners claimed that its real properties assessed by
respondent City Government of Cebu are exempted from
paying realty taxes in view of the exemption granted under
RA 6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and
special laws, acts, city charters, decrees [sic], executive
orders, proclamations and administrative regulations, or
part of parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly." (/f/, Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and
state that the tax exemption provided for in RA 6958
creating petitioner had been expressly repealed by the
provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty
tax of its properties effective after January 1, 1992 until the
present.
This Courts ruling finds expression to give impetus and
meaning to the overall objectives of the New Local
Government Code of 1991, RA 7160. "It is hereby declared
the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest
development as self-reliant communities and make them
more effective partners in the attainment of national goals.
Toward this end, the State shall provide for a more
responsive and accountable local government structure
instituted through a system of decentralization whereby
local government units shall be given more powers,
authority, responsibilities, and resources. The process of

decentralization shall proceed from the national government

to the local government units. x x x"[5]
Its motion for reconsideration having been denied by the
trial court in its 4 May 1995 order, the petitioner filed the
instant petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE
THAT THE PETITIONER IS VESTED WITH GOVERNMENT
POWERS AND FUNCTIONS WHICH PLACE IT IN THE
SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY
OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO
THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that
although it is a government-owned or controlled corporation,
it is mandated to perform functions in the same category as
an instrumentality of Government. An instrumentality of
Government is one created to perform governmental
functions primarily to promote certain aspects of the
economic life of the people.[6] Considering its task "not
merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the
Government policies of promoting and developing the
Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country,"[7] and that it is an attached
agency of the Department of Transportation and
Communication (DOTC),[8] the petitioner "may stand in [sic]
the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege
under Section 14 of its Charter "cannot be considered
withdrawn with the passage of the Local Government Code
of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the `taxing powers of local
government units shall not extend to the levy of taxes or fees

or charges of any kind on the national government, its

agencies and instrumentalities."
As to the second assigned error, the petitioner contends that
being an instrumentality of the National Government,
respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the aforesaid
Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation:[9]
Local governments have no power to tax instrumentalities of
the National Government. PAGCOR is a government owned
or controlled corporation with an original charter, PD 1869.
All of its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter role is governmental, which places it in
the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government,
PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or
subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government.
(McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the
National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political

subdivision can regulate a federal instrumentality in such a

way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340
US 42). The power to tax which was called by Justice
Marshall as the "power to destroy" (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to
wield it. (underscoring supplied)
It then concludes that the respondent Judge "cannot
therefore correctly say that the questioned provisions of the
Code do not contain any distinction between a government
corporation performing governmental functions as against
one performing merely proprietary ones such that the
exemption privilege withdrawn under the said Code would
apply to all government corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the
legislature meant to exclude instrumentalities of the
national government from the taxing powers of the local
government units.
In its comment, respondent City of Cebu alleges that as a
local government unit and a political subdivision, it has the
power to impose, levy, assess, and collect taxes within its
jurisdiction. Such power is guaranteed by the
Constitution[10] and enhanced further by the LGC. While it
may be true that under its Charter the petitioner was exempt
from the payment of realty taxes,[11] this exemption was
withdrawn by Section 234 of the LGC. In response to the
petitioners claim that such exemption was not repealed
because being an instrumentality of the National

Government, Section 133 of the LGC prohibits local

government units from imposing taxes, fees, or charges of
any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and
Section 234 thereof does not distinguish between
government-owned or controlled corporations performing
governmental and purely proprietary functions. Respondent
City of Cebu urges this Court to apply by analogy its ruling
that the Manila International Airport Authority is a
government-owned corporation,[12] and to reject the
application of Basco because it was "promulgated . . . before
the enactment and the signing into law of R.A. No. 7160,"
and was not, therefore, decided "in the light of the spirit and
intention of the framers of" the said law.
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in
its very nature no limits, so that security against its abuse is
to be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed
by the people through their Constitutions.[13] Our
Constitution, for instance, provides that the rule of taxation
shall be uniform and equitable and Congress shall evolve a
progressive system of taxation.[14] So potent indeed is the
power that it was once opined that "the power to tax
involves the power to destroy."[15] Verily, taxation is a
destructive power which interferes with the personal and
property rights of the people and takes from them a portion
of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against
the government and liberally in favor of the taxpayer.[16] But
since taxes are what we pay for civilized society, [17] or are the
lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority.[18] A claim of exemption from

tax payments must be clearly shown and based on language

in the law too plain to be mistaken.[19] Elsewise stated,
taxation is the rule, exemption therefrom is the exception. [20]
However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction
does not apply because the practical effect of the exemption
is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. [21]
The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution.[22]
Under the latter, the exercise of the power may be subject to
such guidelines and limitations as the Congress may provide
which, however, must be consistent with the basic policy of
local autonomy.
There can be no question that under Section 14 of R.A. No.
6958 the petitioner is exempt from the payment of realty
taxes imposed by the National Government or any of its
political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered
by the non-impairment clause of the Constitution.[23]
The LGC, enacted pursuant to Section 3, Article X of the
Constitution, provides for the exercise by local government
units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.

Section 133 of the LGC prescribes the common limitations

on the taxing powers of local government units as follows:
SEC. 133. Common Limitations on the Taxing Power of Local
Government Units. -- Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharfage
on wharves, tonnage dues, and all other kinds of customs
fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit
concerned;
(e) Taxes, fees and charges and other impositions upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the guise
of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees or charges in any form whatsoever upon
such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National

Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services
except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperatives Code of the Philippines respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.
(emphasis supplied)
Needless to say, the last item (item o) is pertinent to this
case. The "taxes, fees or charges" referred to are "of any
kind"; hence, they include all of these, unless otherwise
provided by the LGC. The term "taxes" is well understood so

as to need no further elaboration, especially in light of the

above enumeration. The term "fees" means charges fixed by
law or ordinance for the regulation or inspection of business
or activity,[24] while "charges" are pecuniary liabilities such
as rents or fees against persons or property.[25]
Among the "taxes" enumerated in the LGC is real property
tax, which is governed by Section 232. It reads as follows:
SEC. 232. Power to Levy Real Property Tax. -- A province or
city or a municipality within the Metropolitan Manila Area
may levy an annual ad valorem tax on real property such as
land, building, machinery, and other improvements not
hereafter specifically exempted.
Section 234 of the LGC provides for the exemptions from
payment of real property taxes and withdraws previous
exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled
corporations, except as provided therein. It provides:
SEC. 234. Exemptions from Real Property Tax. -- The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions except when the beneficial
use thereof had been granted, for consideration or
otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and
government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and

transmission of electric power;

(d) All real property owned by duly registered cooperatives
as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of
real property tax previously granted to, or presently enjoyed
by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
These exemptions are based on the ownership, character,
and use of the property. Thus:
(a) Ownership Exemptions. Exemptions from real property
taxes on the basis of ownership are real properties owned
by: (i) the Republic, (ii) a province, (iii) a city, (iv) a
municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property
taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and
(iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes
on the basis of the actual, direct and exclusive use to which
they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively
used for religious, charitable or educational purposes; (ii) all
machineries and equipment actually, directly and exclusively
used by local water districts or by government-owned or
controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of
electric power; and (iii) all machinery and equipment used
for pollution control and environmental protection.

To help provide a healthy environment in the midst of the

modernization of the country, all machinery and equipment
for pollution control and environmental protection may not
be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons including
government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.[26]
Section 193 of the LGC is the general provision on
withdrawal of tax exemption privileges. It provides:
SEC. 193. Withdrawal of Tax Exemption Privileges.-- Unless
otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
On the other hand, the LGC authorizes local government
units to grant tax exemption privileges. Thus, Section 192
thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges.-Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speak of: (a) the
limitations on the taxing powers of local government units
and the exceptions to such limitations; and (b) the rule on
tax exemptions and the exceptions thereto. The use of
exceptions or provisos in these sections, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of

Section 234
initially hampers a ready understanding of the sections.
Note, too, that the aforementioned clause in Section 133
seems to be inaccurately worded. Instead of the clause
"unless otherwise provided herein," with the "herein" to
mean, of course, the section, it should have used the clause
"unless otherwise provided in this Code." The former results
in absurdity since the section itself enumerates what are
beyond the taxing powers of local government units and,
where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a)
which excepts income taxes "when levied on banks and other
financial institutions"; item (d) which excepts "wharfage on
wharves constructed and maintained by the local
government unit concerned"; and item (1) which excepts
taxes, fees and charges for the registration and issuance of
licenses or permits for the driving of "tricycles." It may also
be observed that within the body itself of the section, there
are exceptions which can be found only in other parts of the
LGC, but the section interchangeably uses therein the clause
"except as otherwise provided herein" as in items (c) and (i),
or the clause "except as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere
surplusages if the opening clause of the section were
"Unless otherwise provided in this Code" instead of "Unless
otherwise provided herein." In any event, even if the latter
is used, since under Section 232 local government units have
the power to levy real property tax, except those exempted
therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the
LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units
cannot extend to the levy of, inter alia, "taxes, fees and
charges of any kind on the National Government, its

agencies and instrumentalities, and local government units";

however, pursuant to Section 232, provinces, cities, and
municipalities in the Metropolitan Manila Area may impose
the real property tax except on, inter alia, "real property
owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a
taxable person," as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently
enjoyed by natural or juridical persons, including
government-owned and controlled corporations, Section 193
of the LGC prescribes the general rule, viz., they are
withdrawn upon the effectivity of the LGC, except those
granted to local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, and unless otherwise provided in
the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax.
But the last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those
enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as to real property owned by the
Republic of the Philippines or any of its political subdivisions
covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property
has been granted to a taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or
juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the

petitioner is, undoubtedly, a government-owned corporation,

it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has
been withdrawn. Any claim to the contrary can only be
justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section
133, as it now asserts, since, as shown above, the said
section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule
in Section 133 that the taxing powers of the local
government units cannot extend to the levy of:
(o)
taxes, fees or charges of any kind on the National
Government, its agencies or instrumentalities, and local
government units.
It must show that the parcels of land in question, which are
real property, are any one of those enumerated in Section
234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under
any explicit provision of the said section, for none exists. In
light of the petitioners theory that it is an "instrumentality
of the Government," it could only be within the first item of
the first paragraph of the section by expanding the scope of
the term "Republic of the Philippines" to embrace its
"instrumentalities" and "agencies." For expediency, we
quote:
(a) real property owned by the Republic of the Philippines,
or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or
otherwise, to a taxable person.
This view does not persuade us. In the first place, the
petitioners claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and, in the second
place, it fails to consider the fact that the legislature used

the phrase "National Government, its agencies and

instrumentalities" in Section 133(o), but only the phrase
"Republic of the Philippines or any of its political
subdivisions" in Section 234(a).
The terms "Republic of the Philippines" and "National
Government" are not interchangeable. The former is
broader and synonymous with "Government of the Republic
of the Philippines" which the Administrative Code of 1987
defines as the "corporate governmental entity through which
the functions of government are exercised throughout the
Philippines, including, save as the contrary appears from the
context, the various arms through which political authority is
made affective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local
government."[27] These "autonomous regions, provincial, city,
municipal or barangay subdivisions" are the political
subdivisions.[28]
On the other hand, "National Government" refers "to the
entire machinery of the central government, as distinguished
from the different forms of local governments."[29] The
National Government then is composed of the three great
departments: the executive, the legislative and the judicial.
[30]

An "agency" of the Government refers to "any of the various

units of the Government, including a department, bureau,
office, instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit
therein;"[31] while an "instrumentality" refers to "any agency
of the National Government, not integrated within the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term

includes regulatory agencies, chartered institutions and

government-owned and controlled corporations."[32]
If Section 234(a) intended to extend the exception therein to
the withdrawal of the exemption from payment of real
property taxes under the last sentence of the said section to
the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not.
Moreover, that Congress did not wish to expand the scope of
the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the
government including government-owned and controlled
corporations is further borne out by the fact that the source
of this exemption is Section 40(a) of P.D. No. 464, otherwise
known as The Real Property Tax Code, which reads:
SEC. 40. Exemptions from Real Property Tax. -- The
exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions and any government-owned
or controlled corporation so exempt by its charter: Provided,
however, That this exemption shall not apply to real property
of the above-mentioned entities the beneficial use of which
has been granted, for consideration or otherwise, to a
taxable person.
Note that as reproduced in Section 234(a), the phrase "and
any government-owned or controlled corporation so exempt
by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of
the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property
taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure
autonomy to local governments[33] and the objective of the

LGC that they enjoy genuine and meaningful local autonomy

to enable them to attain their fullest development as selfreliant communities and make them effective partners in the
attainment of national goals.[34] The power to tax is the most
effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the
delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to
recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and
controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated
enterprises, and there was a need for these entities to share
in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them.[35]
The crucial issues then to be addressed are: (a) whether the
parcels of land in question belong to the Republic of the
Philippines whose beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a "taxable
person."
Section 15 of the petitioners Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible
Assets.-- All existing public airport facilities, runways, lands,
buildings and other properties, movable or immovable,
belonging to or presently administered by the airports, and
all assets, powers, rights, interests and privileges relating on
airport works or air operations, including all equipment
which are necessary for the operations of air navigation,
aerodrome control towers, crash, fire, and rescue facilities
are hereby transferred to the Authority: Provided, however,
that the operations control of all equipment necessary for
the operation of radio aids to air navigation, airways
communication, the approach control office, and the area

control center shall be retained by the Air Transportation

Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence
of the Authority. The Authority may assist in the
maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu
City and the "Mactan International Airport in the Province of
Cebu,"[36] which belonged to the Republic of the Philippines,
then under the Air Transportation Office (ATO).[37]
It may be reasonable to assume that the term "lands" refer
to "lands" in Cebu City then administered by the Lahug Air
Port and includes the parcels of land the respondent City of
Cebu seeks to levy on for real property taxes. This section
involves a "transfer" of the "lands," among other things, to
the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic
of the Philippines.
This "transfer" is actually an absolute conveyance of the
ownership thereof because the petitioners authorized
capital stock consists of, inter alia, "the value of such real
estate owned and/or administered by the airports."[38] Hence,
the petitioner is now the owner of the land in question and
the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a
"taxable person" under its Charter. It was only exempted
from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable
person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be
conceded to be an "agency" or "instrumentality" of the

Government, a taxable person for such purpose in view of

the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which,
as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is
untenable. Reliance on Basco vs. Philippine Amusement and
Gaming Corporation[39] is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities
or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely
to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The
challenged decision and order of the Regional Trial Court of
Cebu, Branch 20, in Civil Case No. CEB-16900 are
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban,
JJ., concur.

SECOND DIVISION
G.R. No. L-30232, July 29, 1988
LUZON STEVEDORING CORPORATION, PETITIONERAPPELLANT, VS. COURT OF APPEALS AND THE
HONORABLE COMMISSIONER OF INTERNAL REVENUE,
RESPONDENTS-APPELLEES.
DECISION

PARAS, J.:
This is a petition for review of the October 21, 1968
Decision[*] of the Court of Tax Appeals in CTA Case No. 1484,
Luzon Stevedoring Corporation v. Hon Ramon Oben,
Commissioner, Bureau of Internal Revenue, denying the
various claims for tax refund; and the February 20, 1969
Resolution of the same court denying the motion for
reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair
and maintenance of its tugboats, imported various engine
parts and other equipment for which it paid, under protest,
the assessed compensating tax. Unable to secure a tax
refund from the Commissioner of Internal Revenue, on
January 2, 1964, it filed a Petition for Review (Rollo, pp. 1418) with the Court of Tax Appeals, docketed therein as CTA
Case No. 1484, praying among others, that it be granted the
refund of the amount of P33,442.13. The Court of Tax
Appeals, however, in a Decision dated October 21, 1969
(Ibid., pp. 22-27), denied the various claims for tax refund.
The decretal portion of the said decision reads:
WHEREFORE, finding petitioners various claims for refund
amounting to P33442.13 without sufficient legal justification,

the said claims have to be, as they are hereby, denied. With
costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for
Reconsideration (Ibid., pp 28-34), but the same was denied
in a Resolution dated February 20, 1969 (Ibid., p. 35).
Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due
course to the petition (Ibid., p. 40).
Petitioner-appellant raised three (3) assignments of error, to
wit:
I
The lower court erred in holding that the petitionerappellant is engaged in business as stevedore, the work of
unloading and loading of a vessel in port, contrary to the
evidence on record.
II
The lower court erred in not holding that the business in
which petitioner-appellant is engaged, is part and parcel of
the shipping industry.
III
The lower court erred in not allowing the refund sought by
petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's
"tugboats" can be interpreted to be included in the term
cargo vessels for purposes of the tax exemption provided
for in Section 190 of the National Internal Revenue Code, as
amended by Republic Act No. 3176.

The said law provides:

Sec. 190. Compensating tax. . . . And Provided further,
That the tax imposed in this section shall not apply to
articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax
or those for consignment abroad and are to form part
thereof or to articles to be used by the importer himself as
passenger and/or cargo vessels, whether coastwise or
oceangoing, including engines and spare parts of said vessel.
...
Petitioner contends that tugboats are embraced and
included in the term cargo vessel under the tax exemption
provisions of Section 190 of the Revenue Code, as amended
by Republic Act No. 3176. He argues that in legal
contemplation, the tugboat and a barge loaded with cargoes
with the former towing the latter for loading and unloading
of a vessel in part, constitute a single vessel. Accordingly, it
concludes that the engines, spare parts and equipment
imported by it and used in the repair and maintenance of its
tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that
petitioner-appellants tugboats are not cargo vessels
because they are neither designed nor used for carrying
and/or transporting persons or goods by themselves but are
mainly employed for towing and pulling purposes. As such, it
cannot be claimed that the tugboats in question are used in
carrying and transporting passengers or cargoes as a
common carrier by water, either coastwise or oceangoing
and, therefore, not within the purview of Section 190 of the
Tax Code, as amended by Republic Act No. 3176 (Brief for
Respondents-Appellees, pp. 4-5)
This Court has laid down the rule that "as the power of
taxation is a high prerogative of sovereignty, the

relinquishment is never presumed and any reduction or

dimunition thereof with respect to its mode or its rate, must
be strictly construed, and the same must be coached in clear
and unmistakable terms in order that it may be applied.'
(84C.J.S. pp. 659-800) More specifically stated, the general
rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer (Acting
Commissioner of Customs v. Manila Electric Co. et al., 69
SCRA 469 [1977] and Commissioner of internal Revenue v.
P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).
As correctly analyzed by the Court of Tax Appeals, in order
that the importations in question may be declared exempt
from the compensating tax, it is indispensable that the
requirements of the amendatory law be complied with,
namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo vessel; and (2)
the said passenger and/or cargo vessel must be used in
coastwise or oceangoing navigation (Decision, CTA Case No.
1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory
provisions of Republic Act No. 3176 limit tax exemption from
the compensating tax to imported items to be used by the
importer himself as operator of passenger and/or cargo
vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a
tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or power
vessel, used for towing and, now, also used for attendance on
vessel. (Webster New International Dictionary, 2nd Ed.)
A tugboat is a diesel or steam power vessel designed
primarily for moving large ships to and from piers for towing
barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p. 256).

"A tug is a steam vessel built for towing, synonymous with

tugboat. (Bouviers Law Dictionary.) (Rollo, p. 24).
Under the foregoing definitions, petitioners tugboats clearly
do not fall under the categories of passenger and/or cargo
vessels. Thus, it is a cardinal principle of statutory
construction that where a provision of law speaks
categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify noncompliance. All that has to be done is to apply it in every
case that falls within its terms (Allied Brokerage Corp. v.
Commissioner of Customs, L-27641, 40 SCRA 555 [1971];
Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law id
insisted upon, following fundamental rule that statutes ate to
be construed in the light of purposes to be achieved and the
evils sought to be remedied (People v. Purisima etc., et al., L42050-66, 86 SCRA 544 [1978]), it will be noted that the
legislature in amending Section 190 of the Tax Code by
Republic Act 3176, as appearing in the records, intended to
provide incentives and inducements to bolster the shipping
industry and not the business of stevedoring, as manifested
in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellants transactions, the Court
of Tax Appeals found that no evidence was adduced by
petitioner-appellant that tugboats are passenger and/or
cargo vessels used in the shipping industry as an
independent business. On the contrary, petitioner-appellants
own evidence supports the view that it is engaged as a
stevedore, that is, the work of unloading and loading of a
vessel in port; and towing of barges containing cargoes is a
part of petitioners undertaking as a stevedore. In fact, even
its trade name is indicative that its sole and principal
business is stevedoring and lighterage, taxed under Section
191 of the National Internal Revenue Code as a contractor,

and not an entity which transports passengers or freight for

hire which is taxed under Section 192 of the same Code as a
common carrier by water (Decision, CTA Case No. 1484;
Rollo, p. 25).
Under the circumstances, there appears to be no plausible
reason to disturb the findings and conclusion of the Court of
Tax Appeals.
As a matter of principle, this Court will not set aside the
conclusion reached by an agency such as the Court of Tax
Appeals, which is, by the very nature of its function,
dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the
subject unless there has been an abuse or improvident
exercise of authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1968]), which is not present in the
instant case.
PREMISES CONSIDERED, the instant petition is
DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.
SO ORDERED.
Melencio-Herrera, (Chairman), Padilla, and Sarmiento, JJ.,
concur

EN BANC
G.R. No. 92585, May 08, 1992
CALTEX PHILIPPINES, INC., PETITIONER, VS. THE
HONORABLE COMMISSION ON AUDIT, HONORABLE
COMMISSIONER BARTOLOME C. FERNANDEZ AND
HONORABLE COMMISSIONER ALBERTO P. CRUZ,
RESPONDENTS.
DECISION

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the
Rules of Court questioning the authority of the Commission
on Audit (COA) in disallowing petitioner's claims for
reimbursement from the Oil Price Stabilization Fund (OPSF)
and seeking the reversal of said Commission's decision
denying its claims for recovery of financing charges from the
Fund and reimbursement of underrecovery arising from
sales to the National Power Corporation, Atlas Consolidated
Mining and Development Corporation (ATLAS) and
Marcopper Mining Corporation (MARCOPPER), preventing it
from exercising the right to offset its remittances against its
reimbursement vis-a-vis the OPSF and disallowing its claims
which are still pending resolution before the Office of Energy
Affairs (OEA) and the Department of Finance (DOF).
[1]

Pursuant to the 1987 Constitution, any decision, order or

ruling of the Constitutional Commissions may be brought to
this Court on certiorari by the aggrieved party within thirty
(30) days from receipt of a copy thereof. The certiorari
referred to is the special civil action for certiorari under
Rule 65 of the Rules of Court.
[2]

[3]

[4]

Considering, however, that the allegations that the COA

acted with: (a) total lack of jurisdiction in completely
ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in
disallowing a claim which is still pending resolution at the
OEA level, and (b) grave abuse of discretion and completely
without jurisdiction in declaring that petitioner cannot
avail of the right to offset any amount that it may be
required under the law to remit to the OPSF against any
amount that it may receive by way of reimbursement
therefrom are sufficient to bring this petition within Rule 65
of the Rules of Court, and, considering further the
importance of the issues raised, the error in the designation
of the remedy pursued will, in this instance, be excused.
[5]

The issues raised revolve around the OPSF created under

Section 8 of Presidential Decree (P.D.) No. 1956, as amended
by Executive Order (E.O.) No. 137. As amended, said Section
8 reads as follows:
SECTION 8. There is hereby created a Trust Account in the
books of accounts of the Ministry of Energy to be designated
as Oil Price Stabilization Fund (OPSF) for the purpose of
minimizing frequent price changes brought about by
exchange rate adjustments and/or changes in world market
prices of crude oil and imported petroleum products. The Oil
Price Stabilization Fund may be sourced from any of the
following:
a) Any increase in the tax collection from ad
valorem tax or customs duty imposed on
petroleum products subject to tax under this
Decree arising from exchange rate
adjustment, as may be determined by the
Minister of Finance in consultation with the
Board of Energy;

b) Any increase in the tax collection as a result

of the lifting of tax exemptions of government
corporations, as may be determined by the
Minister of Finance in consultation with the
Board of Energy;
c) Any additional amount to be imposed on
petroleum products to augment the
resources of the Fund through an
appropriate Order that may be issued by the
Board of Energy requiring payment by
persons or companies engaged in the
business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso cost differentials in case
the actual peso costs paid by oil companies in
the importation of crude oil and petroleum
products is less than the peso costs
computed using the reference foreign
exchange rate as fixed by the Board of
Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost
increases in crude oil and imported
petroleum products resulting from exchange
rate adjustment and/or increase in world
market prices of crude oil;
2) To reimburse the oil companies for possible
cost underrecovery incurred as a result of
the reduction of domestic prices of petroleum
products. The magnitude of the
underrecovery, if any, shall be determined by
the Ministry of Finance. `Cost
underrecovery shall include the following:

i. Reduction in oil company take as directed

by the Board of Energy without the
corresponding reduction in the landed cost
of oil inventories in the possession of the oil
companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of
foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry of
Finance to result in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be
administered by the Ministry of Energy.
The material operative facts of this case, as gathered from
the pleadings of the parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex
Philippines, Inc. (CPI), hereinafter referred to as Petitioner,
directing the latter to remit to the OPSF its collection,
excluding that unremitted for the years 1986 and 1988, of
the additional tax on petroleum products authorized under
the aforesaid Section 8 of P.D. No. 1956 which, as of 31
December 1987, amounted to P335,037,649.00 and
informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF shall be held in abeyance.
[6]

On 9 March 1989, the COA sent another letter to petitioner

informing it that partial verification with the OEA showed
that the grand total of its unremitted collections of the above
tax is P1,287,668,820.00, broken down as follows:
1986
1987
1988

P233,190,916.00
335,065,650.00
719,412,254.00;

directing it to remit the same, with interest and surcharges

thereon, within sixty (60) days from receipt of the letter;
advising it that the COA will hold in abeyance the audit of all
its claims for reimbursement from the OPSF; and directing it
to desist from further offsetting the taxes collected against
outstanding claims in 1989 and subsequent periods.
[7]

In its letter of 3 May 1989, petitioner requested the COA for

an early release of its reimbursement certificates from the
OPSF covering claims with the Office of Energy Affairs since
June 1987 up to March 1989, invoking in support thereof
COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies
and government-owned or controlled corporations.
[8]

In its Answer dated 8 May 1989, the COA denied petitioner's

request for the early release of the reimbursement
certificates from the OPSF and repeated its earlier directive
to petitioner to forward payment of the latter's unremitted
collections to the OPSF to facilitate COA's audit action on
the reimbursement claims.
[9]

By way of a reply, petitioner, in a letter dated 31 May 1989,

submitted to the COA a proposal for the payment of the
collections and the recovery of claims, since the outright
payment of the sum of P1.287 billion to the OEA as a
prerequisite for the processing of said claims against the
OPSF will cause a very serious impairment of its cash
position. The proposal reads:
[10]

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to
COA to facilitate monitoring of payments
and reimbursements will be administered by
the ERB/Finance Dept./OEA, as agencies
designated by law to administer/regulate
OPSF.

(2) For the retroactive period, Caltex will

deliver to OEA, P1.287 billion as payment to
OPSF, similarly OEA will deliver to Caltex
the same amount in cash reimbursement
from OPSF.
(3) The COA audit will commence immediately
and will be conducted expeditiously.
(4) The review of current claims (1989) will be
conducted expeditiously to preclude further
accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part,
handed down Decision No. 921 accepting the above-stated
proposal but prohibiting petitioner from further offsetting
remittances and reimbursements for the current and
ensuing years. Decision No. 921 reads:
[11]

This pertains to the within separate requests of Mr. Manuel

A. Estrella, President, Petron Corporation, and Mr. Francis
Ablan, President and Managing Director, Caltex (Philippines)
Inc., for reconsideration of this Commission's adverse action
embodied in its letters dated February 2, 1989 and March 9,
1989, the former directing immediate remittance to the Oil
Price Stabilization Fund of collections made by the firms
pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987,
and the latter reiterating the same directive but further
advising the firms to desist from offsetting collections
against their claims with the notice that `this Commission
will hold in abeyance the audit of all x x x claims for
reimbursement from the OPSF.
It appears that under letters of authority issued by the
Chairman, Energy Regulatory Board, the aforenamed oil
companies were allowed to offset the amounts due to the Oil
Price Stabilization Fund against their outstanding claims
from the said Fund for the calendar years 1987 and 1988,

pending with the then Ministry of Energy, the government

entity charged with administering the OPSF. This
Commission, however, expressing serious doubts as to the
propriety of the offsetting of all types of reimbursements
from the OPSF against all categories of remittances, advised
these oil companies that such offsetting was bereft of legal
basis. Aggrieved thereby, these companies now seek
reconsideration and in support thereof clearly manifest their
intent to make arrangements for the remittance to the Office
of Energy Affairs of the amount of collections equivalent to
what has been previously offset, provided that this
Commission authorizes the Office of Energy Affairs to
prepare the corresponding checks representing
reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the
remittance of collections due to the OPSF and the
reimbursement of claims from the Fund shall be made within
a period of not more than one week from each other, will
benefit the Fund and not unduly jeopardize the continuing
daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein
obtaining, this Commission perceives no further
objectionable feature in the proposed arrangement, provided
that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be
answerable for suspensions or disallowances, errors or
discrepancies which may be noted in the course of audit and
surcharges for late remittances without prejudice to similar
future retentions to answer for any deficiency in such
surcharges, and provided further that no offsetting of
remittances and reimbursements for the current and
ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989,
sent the following letter to Executive Director Wenceslao R.
De la Paz of the Office of Energy Affairs:
[12]

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated
June 7, 1989, and based on our initial verification of
documents submitted to us by your Office in support of
Caltex (Philippines), Inc. offsets (sic) for the year 1986 to
May 31, 1989, as well as its outstanding claims against the
Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we
are pleased to inform your Office that Caltex (Philippines),
Inc. shall be required to remit to OPSF an amount of
P1,505,668,906, representing remittances to the OPSF
which were offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission hereby
authorize (sic) the Office of Energy Affairs (OEA) to cause
payment of P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are presented
hereunder: x x x
As presented in the foregoing computation the disallowances
totalled P387,683,535, which included P130,420,235
representing those claims disallowed by OEA, details of
which is (sic) shown in Schedule 1 as summarized as follows:
Disallowance
of COA
Particulars
Recovery of
financing
charges
Product sales
Inventory
losses
Borrow loan
arrangement
Sales to
Atlas/Marcopp
er

Amount
-

P162,728,475 /
a

48,402,398 /b

14,034,786 /c

32,097,083 /d

Sale to NPC

558

Disallowances
of OEA

130,420,235

Total

P387,683,535

P257,263,300

The reasons for the disallowances are discussed hereunder:

a.

Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O.

137 seems to indicate that recovery of financing charges by
oil companies is not among the items for which the OPSF
may be utilized. Therefore, it is our view that recovery of
financing charges has no legal basis. The mechanism for
such claims is provided in DOF Circular 1-87.
b.

Product Sales - Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as

implemented by OEA Order No. 87-03-095 indicating that
(sic) February 7, 1987 as the effectivity date that (sic) oil
companies should pay OPSF impost on export sales of
petroleum products. Effective February 7, 1987 sales to
international vessels/airlines should not be included as part
of its domestic sales. Changing the effectivity date of the
resolution from February 7, 1987 to October 20, 1987 as
covered by subsequent ERB Resolution No. 88-12 dated
November 18, 1988 has allowed Caltex to include in their
domestic sales volumes to international vessels/airlines and
claim the corresponding reimbursements from OPSF during
the period. It is our opinion that the effectivity of the said
resolution should be February 7, 1987.
c.

Inventory losses - Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA)

transactions including the related BLA, agreement, as they
affect the claims for reimbursements of ad valorem taxes.
We observed that oil companies immediately settle ad
valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to
reimbursements but those of the borrower. Hence, we
recommend reduction of the claim for July, August, and
November, 1987 amounting to P14,034,786.
d.

Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that `I hereby
order and direct the suspension of payment of all taxes,
duties, fees, imposts and other charges whether direct or
indirect due and payable by the copper mining companies in
distress to the national and local governments. It is our
opinion that LOI 1416 which implements the exemption from
payment of OPSF imposts as effected by OEA has no legal
basis.
Furthermore, we wish to emphasize that payment to Caltex
(Phil.) Inc., of the amount as herein authorized shall be
subject to availability of funds of OPSF as of May 31, 1989
and applicable auditing rules and regulations. With regard to
the disallowances, it is further informed that the aggrieved
party has 30 days within which to appeal the decision of the
Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request
for the Reconsideration of the decision based on the
following grounds:
[13]

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER

EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS
ISSUED BY THE DEPARTMENT OF FINANCE AND THE
ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE
ORDER NO. 137.

xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE
OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT
OF FINANCE AND ENERGY REGULATORY BOARD ARE
LEGAL AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY COURTS OR
REPEALED BY LEGISLATION.
x XX
C) LEGAL BASIS FOR RETENTION OF OFFSET
ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE
BRANCH OF GOVERNMENT, REMAINS VALID.
xxx
On 6 November 1989, petitioner filed with the COA a
Supplemental Omnibus Request for Reconsideration.

[14]

On 16 February 1990, the COA, with Chairman Domingo

taking no part and with Commissioner Fernandez dissenting
in part, handed down Decision No. 1171 affirming the
disallowance for recovery of financing charges, inventory
losses, and sales to MARCOPPER and ATLAS, while allowing
the recovery of product sales or those arising from export
sales. Decision No. 1171 reads as follows:
[15]

Anent the recovery of financing charges, you contend that

Caltex Phil. Inc. has the authority to recover financing
charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18,1987, which
allowed oil companies to recover cost of financing working
capital associated with crude oil shipments, and provided a
schedule of reimbursement in terms of peso per barrel. It
appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining
the nature of these financing charges and justifying their
reimbursement as follows:

`As part of your program to promote economic recovery,

oil companies (were authorized) to refinance their imports of
crude oil and petroleum products from the normal trade
credit of 30 days up to 360 days from date of loading
Conformably , the oil companies deferred their foreign
exchange remittances for purchases by refinancing their
import bills from the normal 30-day payment term up to the
desired 360 days. This refinancing of importations carried
additional costs (financing charges) which then became, due
to government mandate, an inherent part of the cost of the
purchases of our country's oil requirement.
We beg to disagree with such contention. The justification
that financing charges increased oil costs and the schedule
of reimbursement rate in peso per barrel (Exhibit 1) used to
support alleged increase (sic) were not validated in our
independent inquiry. As manifested in Exhibit 2, using the
same formula which the DOF used in arriving at the
reimbursement rate but using comparable percentages
instead of pesos, the ineluctable conclusion is that the oil
companies are actually gaining rather than losing from the
extension of credit because such extension enables them to
invest the collections in marketable securities which have
much higher rates than those they incur due to the
extension. The Data we used were obtained from CPI
(CALTEX) Management and can easily be verified from our
records.
With respect to product sales or those arising from sales to
international vessels or airlines, x x x, it is believed that
export sales (product sales) are entitled to claim refund from
the OPSF.
As regard your claim for underrecovery arising from
inventory losses, x x x It is the considered view of this
Commission that the OPSF is not liable to refund such surtax
on inventory losses because these are paid to BIR and not to

OPSF, in view of which CPI (CALTEX) should seek refund

from BIR. x x x.
Finally, as regards the sales to Atlas and Marcopper, it is
represented that you are entitled to claim recovery from the
OPSF pursuant to LOI 1416 issued on July 17, 1984, since
these copper mining companies did not pay CPI (CALTEX)
and OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes
and so holds that the CPI (CALTEX) has no authority to claim
reimbursement for this uncollected OPSF impost because
LOI 1416 dated July 17, 1984, which exempts distressed
mining companies from all taxes, duties, import fees and
other charges was issued when OPSF was not yet in
existence and could not have contemplated OPSF imposts at
the time of its formulation. Moreover, it is evident that OPSF
was not created to aid distressed mining companies but
rather to help the domestic oil industry by stabilizing oil
prices.
Unsatisfied with the decision, petitioner filed on 28 March
1990 the present petition wherein it imputes to the COA the
commission of the following errors:
[16]

"I
RESPONDENT COMMISSION ERRED IN DISALLOWING
RECOVERY OF FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's CLAIM FOR REIMBURSEMENT OF
UNDERRECOVERY ARISING FROM SALES TO NPC.
[17]

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's

CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND
MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI
FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS
REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS
THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION
BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the
respondents to comment on the petition within ten (10) days
from notice.
[18]

On 6 September 1990, respondents COA and Commissioners

Fernandez and Cruz, assisted by the Office of the Solicitor
General, filed their Comment.
[19]

This Court resolved to give due course to this petition on 30

May 1991 and required the parties to file their respective
Memoranda within twenty (20) days from notice.
[20]

In a Manifestation dated 18 July 1991, the Office of the

Solicitor General prays that the Comment filed on 6
September 1990 be considered as the Memorandum for
respondents.
[21]

Upon the other hand, petitioner filed its Memorandum on 14

August 1991.

I. Petitioner dwells lengthily on its first assigned error

contending, in support thereof, that:
(1) In view of the expanded role of the OPSF pursuant to
Executive Order No. 137, which added a second purpose, to
wit:
2) To reimburse the oil companies for possible cost
underrecovery incurred as a result of the reduction of
domestic prices of petroleum products. The magnitude of the
underrecovery, if any, shall be determined by the Ministry of
Finance. Cost underrecovery shall include the following:
i. Reduction in oil company take as directed by
the Board of Energy without the
corresponding reduction in the landed cost of
oil inventories in the possession of the oil
companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated
price reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
the other factors mentioned therein that may be
determined by the Ministry (now Department) of
Finance may include financing charges for in
essence, financing charges constitute unrecovered
cost of acquisition of crude oil incurred by the oil
companies, as explained in the 6 November 1989
Memorandum to the President of the Department
of Finance; they directly translate to cost
underrecovery in cases where the money market
placement rates decline and at the same time the
tax on interest income increases. The relationship

is such that the presence of underrecovery or

overrecovery is directly dependent on the amount
and extent of financing charges.
(2) The claim for recovery of financing charges has
clear legal and factual basis; it was filed on the
basis of Department of Finance Circular No. 1-87,
dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing
working capital associated with crude oil shipments, the
following guidelines on the utilization of the Oil Price
Stabilization Fund pertaining to the payment of the
foregoing (sic) exchange risk premium and recovery of
financing charges will be implemented:
1. The OPSF foreign exchange premium shall
be reduced to a flat rate of one (1) percent
for the first (6) months and 1/32 of one
percent per month thereafter up to a
maximum period of one year, to be applied on
crude oil shipments from January 1, 1987.
Shipments with outstanding financing as of
January 1, 1987 shall be charged on the basis
of the fee applicable to the remaining period
of financing.
2. In addition, for shipments loaded after
January 1987, oil companies shall be allowed
to recover financing charges directly from
the OPSF per barrel of crude oil based on the
following schedule:
Financing
Period
Reimbursement

Rate

Pesos per
Barrel
Less than 180
days
None
180 days to 239
days
1.90
241 (sic) days to
299
4.02
300 days to 369 (sic) days
6.16
360 days or
more
8.28
The above rates shall be subject to review every sixty
days."
[22]

Pursuant to this circular, the Department of Finance, in its

letter of 18 February 1987, advised the Office of Energy
Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
This refers to the letters of the Oil Industry dated December
4, 1986 and February 5, 1987 and subsequent discussions
held by the Price Review committee on February 6, 1987.
On the basis of the representations made, the Department of
Finance recognizes the necessity to reduce the foreign
exchange risk premium accruing to the Oil Price
Stabilization Fund (OPSF). Such a reduction would allow the

industry to recover partly associated financing charges on

crude oil imports. Accordingly, the OPSF foreign exchange
risk fee shall be reduced to a flat charge of 1% for the first
six (6) months plus 1/32% of 1% per month thereafter up to
a maximum period of one year, effective January 1, 1987. In
addition, since the prevailing company take would still leave
unrecovered financing charges, reimbursement may be
secured from the OPSF in accordance with the provisions of
the attached Department of Finance circular.
[23]

Acting on this letter, the OEA issued on 4 May 1987 Order

No. 87-05-096 which contains the guidelines for the
computation of the foreign exchange risk fee and the
recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing
charges directly from the OPSF for both crude and product
shipments loaded after January 1, 1987 based on the
following rates:
Financing
Period
Reimbursement
Rate
(PBbl.)

Less than 180

days
None
180 days to 239
days
1.90
240 days to 229 (sic)
days
4.02
300 days to 359
days
6.16

360 days to
more

8.28

2. The above rates shall be subject to review

every sixty days.
[24]

Then on 22 November 1988, the Department of Finance

issued Circular No. 4-88 imposing further guidelines on the
recoverability of financing charges, to wit:
Following are the supplemental rules to Department of
Finance Circular No. 1-87 dated February 18, 1987 which
allowed the recovery of financing charges directly from the
Oil Price Stabilization Fund. (OPSF):
1. The claim for reimbursement shall be on a per
shipment basis.
2. The claim shall be filed with the Office of
Energy Affairs together with the claim on peso
cost differential for a particular shipment and
duly certified supporting documents provided
for under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of
reimbursement certificate (Annex A) to be
issued by the Office of Energy Affairs. The said
certificate may be used to offset against
amounts payable to the OPSF. The oil companies
may also redeem said certificates in cash if not
utilized, subject to availability of funds.
[25]

The OEA disseminated this Circular to all oil companies in

its Memorandum Circular No. 88-12-017.
[26]

The COA can neither ignore these issuances nor formulate

its own interpretation of the laws in the light of the
determination of executive agencies. The determination by

the Department of Finance and the OEA that financing

charges are recoverable from the OPSF is entitled to great
weight and consideration. The function of the COA,
particularly in the matter of allowing or disallowing certain
expenditures, is limited to the promulgation of accounting
and auditing rules for, among others, the disallowance of
irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds
and properties.
[27]

[28]

(3) Denial of petitioner's claim for reimbursement

would be inequitable. Additionally, COA's claim
that petitioner is gaining, instead of losing, from
the extension of credit, is belatedly raised and not
supported by expert analysis.
In impeaching the validity of petitioner's assertions, the
respondents argue that:
1. The Constitution gives the COA discretionary power to
disapprove irregular or unnecessary government
expenditures and as the monetary claims of petitioner are
not allowed by law, the COA acted within its jurisdiction in
denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow
reimbursement of financing charges from the OPSF;
3. Under the principle of ejusdem generis, the other
factors mentioned in the second purpose of the OPSF
pursuant to E.O. No. 137 can only include factors which are
of the same nature or analogous to those enumerated;
4. In allowing reimbursement of financing charges from
OPSF, Circular No. 1-87 of the Department of Finance
violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations
implementing P.D. No. 1956 do not likewise allow
reimbursement of financing charges.
[29]

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved
in view of its primacy, We find the theory of petitioner -- that
such does not extend to the disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable
expenditures, or use of government funds and properties,
but only to the promulgation of accounting and auditing
rules for, among others, such disallowance -- to be untenable
in the light of the provisions of the 1987 Constitution and
related laws.
Section 2, Subdivision D, Article IX of the 1987
Constitution expressly provides:
SECTION 2(1). The Commission on Audit shall have the
power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal
autonomy under this Constitution; (b) autonomous state
colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which
are required by law or the granting institution to submit to
such audit as a condition of subsidy or equity. However,
where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures,
including temporary or special pre-audit, as are necessary
and appropriate to correct the deficiencies. It shall keep the
general accounts of the Government and, for such period as

may be provided by law, preserve the vouchers and other

supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to
the limitations in this Article, to define the scope of its audit
and examination, establish the techniques and methods
required therefor, and promulgate accounting and auditing
rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or uses of
government funds and properties.
These present powers, consistent with the declared
independence of the Commission, are broader and more
extensive than that conferred by the 1973 Constitution.
Under the latter, the Commission was empowered to:
[30]

Examine, audit, and settle, in accordance with law and

regulations, all accounts pertaining to the revenues, and
receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to, the Government,
or any of its subdivisions, agencies, or instrumentalities
including government-owned or controlled corporations;
keep the general accounts of the Government and, for such
period as may be provided by law, preserve the vouchers
pertaining thereto; and promulgate accounting and auditing
rules and regulations including those for the prevention of
irregular, unnecessary, excessive, or extravagant
expenditures or uses of funds and property.
[31]

Upon the other hand, under the 1935 Constitution, the

power and authority of the COA's precursor, the General
Auditing Office, were, unfortunately, limited; its very role
was markedly passive. Section 2 of Article XI thereof
provided:
SECTION 2. The Auditor General shall examine, audit, and
settle all accounts pertaining to the revenues and receipts

from whatever source, including trust funds derived from

bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or
property pertaining to or held in trust by the Government or
the provinces or municipalities thereof. He shall keep the
general accounts of the Government and preserve the
vouchers pertaining thereto. It shall be the duty of the
Auditor General to bring to the attention of the proper
administrative officer expenditures of funds or property
which, in his opinion, are irregular, unnecessary, excessive,
or extravagant. He shall also perform such other functions
as may be prescribed by law.
As clearly shown above, in respect to irregular, unnecessary,
excessive or extravagant expenditures or uses of funds, the
1935 Constitution did not grant the Auditor General the
power to issue rules and regulations to prevent the same.
His was merely to bring that matter to the attention of the
proper administrative officer.
The ruling on this particular point, quoted by petitioner from
the cases of Guevarra vs. Gimenez and Ramos vs. Aquino,
are no longer controlling as the two (2) were decided in the
light of the 1935 Constitution.
[32]

[33]

There can be no doubt, however, that the audit power of the

Auditor General under the 1935 Constitution and the
Commission on Audit under the 1973 Constitution
authorized them to disallow illegal expenditures of funds or
uses of funds and property. Our present Constitution retains
that same power and authority, further strengthened by the
definition of the COA's general jurisdiction in Section 26 of
the Government Auditing Code of the Philippines and
Administrative Code of 1987. Pursuant to its power to
promulgate accounting and auditing rules and regulations
for the prevention of irregular, unnecessary, excessive or
extravagant expenditures or uses of funds, the COA
[34]

[35]

[36]

promulgated on 29 March 1977 COA Circular No. 77-55.

Since the COA is responsible for the enforcement of the
rules and regulations, it goes without saying that failure to
comply with them is a ground for disapproving the payment
of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr.
Joaquin G. Bernas:
[37]

It should be noted, however, that whereas under Article XI,

Section 2, of the 1935 Constitution the Auditor General
could not correct irregular, unnecessary, excessive or
extravagant expenditures of public funds but could only
bring [the matter] to the attention of the proper
administrative officer. under the 1987 Constitution, as also
under the 1973 Constitution, the Commission on Audit can
promulgate accounting and auditing rules and regulations
including those for the prevention and disallowance of
irregular, unnecessary, excessive; extravagant, or
unconscionable expenditures or uses of government funds
and properties. Hence, since the Commission on Audit must
ultimately be responsible for the enforcement of these rules
and regulations, the failure to comply with these regulations
can be a ground for disapproving the payment of a proposed
expenditure.
Indeed, when the framers of the last two (2) Constitutions
conferred upon the COA a more active role and invested it
with broader and more extensive powers, they did not intend
merely to make the COA a toothless tiger, but rather
envisioned a dynamic, effective, efficient and independent
watchdog of the Government.
The issue of the financing charges boils down to the validity
of Department of Finance Circular No. 1-87, Department of
Finance Circular No. 4-88 and the implementing circulars of
the OEA, issued pursuant to Section 8, P.D. No. 1956, as
amended by E.O. No. 137, authorizing it to determine other

factors which may result in cost underrecovery and a

consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine
of ejusdem generis, financing charges are not included in
cost underrecovery and, therefore, cannot be considered
as one of the other factors. Section 8 of P.D. No. 1956, as
amended by E.O. No. 137, does not explicitly define what
cost underrecovery is. It merely states what it includes.
Thus:
x x x Cost underrecovery shall include the following:
i. Reduction in oil company take as directed by
the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in
the possession of the oil companies at the time
of the price change;
ii. Reduction in internal ad valorem taxes as a
result of foregoing government mandated price
reductions;
iii. Other factors as may be determined by the
Ministry of Finance to result in cost
underrecovery.
These other factors can include only those which are of the
same class or nature as the two specifically enumerated in
subparagraphs (i) and (ii). A common characteristic of both
is that they are in the nature of government mandated price
reductions. Hence, any other factor which seeks to be a part
of the enumeration, or which could qualify as a cost
underrecovery, must be of the same class or nature as those
specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to

grant the Department of Finance broad and unrestricted
authority to determine or define other factors.
Both views are unacceptable to this Court.
The rule of ejusdem generis states that [w]here general
words follow an enumeration of persons or things, by words
of a particular and specific meaning, such general words are
not to be construed in their widest extent, but are held to be
as applying only to persons or things of the same kind or
class as those specifically mentioned. A reading of
subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the
second refers to reduction in internal ad valorem taxes.
Therefore, subparagraph (iii) cannot be limited by the
enumeration in these subparagraphs. What should be
considered for purposes of determining the other factors
in subparagraph (iii) is the first sentence of paragraph (2) of
the Section which explicitly allows cost underrecovery only if
such were incurred as a result of the reduction of domestic
prices of petroleum products.
[38]

Although petitioner's financing losses, if indeed incurred,

may constitute cost under recovery in the sense that such
were incurred as a result of the inability to fully offset
financing expenses from yields in money market placements,
they do not, however, fall under the foregoing provision of
P.D. No. 1956, as amended, because the same did not result
from the reduction of the domestic price of petroleum
products. Until paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress, this Court can do
nothing. The duty of this Court is not to legislate, but to
apply or interpret the law. Be that as it may, this Court
wishes to emphasize that as the facts in this case have
shown, it was at the behest of the Government that

petitioner refinanced its oil import payments from the

normal 30-day trade credit to a maximum of 360 days.
Petitioner could be correct in its assertion that owing to the
extended period for payment, the financial institution which
refinanced said payments charged a higher interest, thereby
resulting in higher financing expenses for the petitioner. It
would appear then that equity considerations dictate that
petitioner should somehow be allowed to recover its
financing losses, if any, which may have been sustained
because it accommodated the request of the Government.
Although under Section 29 of the National Internal Revenue
Code such losses may be deducted from gross income, the
effect of that loss would be merely to reduce its taxable
income, but not to actually wipe out such losses. The
Government then may consider some positive measures to
help petitioner and others similarly situated to obtain
substantial relief. An amendment, as aforestated, may then
be in order.
Upon the other hand, to accept petitioner's theory of
unrestricted authority on the part of the Department of
Finance to determine or define other factors is to uphold
an undue delegation of legislative power, it clearly appearing
that the subject provision does not provide any standard for
the exercise of the authority. It is a fundamental rule that
delegation of legislative power may be sustained only upon
the ground that some standard for its exercise is provided
and that the legislature, in making the delegation, has
prescribed the manner of the exercise of the delegated
authority.
[39]

Finally, whether petitioner gained or lost by reason of the

extensive credit is rendered irrelevant by reason of the
foregoing disquisitions. It may nevertheless be stated that
petitioner failed to disprove COA's claim that it had in fact
gained in the process. Otherwise stated, petitioner failed to
sufficiently show that it incurred a loss. Such being the case,

how can petitioner claim for reimbursement? It cannot have

its cake and eat it too.
II. Anent the claims arising from sales to the
National Power Corporation, We find for the
petitioner. The respondents themselves admit in
their Comment that underrecovery arising from
sales to NPC are reimbursable because NPC was
granted full exemption from the payment of taxes;
to prove this, respondents trace the laws providing
for such exemption. The last law cited is the Fiscal
Incentives Regulatory Board's Resolution No. 17-87
of 24 June 1987 which provides, in part, that the
tax and duty exemption privileges of the National
Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum
products ... are restored effective March 10, 1987.
In a Memorandum issued on 5 October 1987 by the
Office of the President, NPC's tax exemption was
confirmed and approved.
[40]

Furthermore, as pointed out by respondents, the intention to

exempt sales of petroleum products to the NPC is evident in
the recently passed Republic Act No. 6952 establishing the
Petroleum Price Standby Fund to support the OPSF. The
pertinent part of Section 2, Republic Act No. 6952 provides:
[41]

SECTION 2. Application of the Fund shall be subject to the

following conditions:
(1) That the Fund shall be used to reimburse the
oil companies for (a) cost increases of imported
crude oil and finished petroleum products
resulting from foreign exchange rate
adjustments and/or increases in world market
prices of crude oil; (b) cost underrecovery
incurred as a result of fuel oil sales to the

National Power Corporation (NPC); and (c)

other cost underrecoveries incurred as may be
finally decided by the Supreme Court; x x x
Hence, petitioner can recover its claim arising from sales of
petroleum products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to
ATLAS and MARCOPPER, petitioner relies on Letter of
Instruction (LOI) 1416, dated 17 July 1984, which ordered
the suspension of payments of all taxes, duties, fees and
other charges, whether direct or indirect, due and payable
by the copper mining companies in distress to the national
government. Pursuant to this LOI, then Minister of Energy,
Hon. Geronimo Velasco, issued Memorandum Circular No.
84-11-22 advising the oil companies that Atlas Consolidated
Mining Corporation and Marcopper Mining Corporation are
among those declared to be in distress.
In denying the claims arising from sales to ATLAS and
MARCOPPER, the COA, in its 18 August 1989 letter to
Executive Director Wenceslao R. de la Paz, states that it is
our opinion that LOI 1416 which implements the exemption
from payment of OPSF imposts as effected by OEA has no
legal basis; in its Decision No.1171, it ruled that the CPI
(CALTEX) (Caltex) has no authority to claim reimbursement
for this uncollected impost because LOI 1416 dated July 17,
1984, ... was issued when OPSF was not yet in existence and
could not have contemplated OPSF imposts at the time of its
formulation. It is further stated that: Moreover, it is
evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by
stabilizing oil prices.
[42]

[43]

In sustaining COA's stand, respondents vigorously maintain

that LOI 1416 could not have intended to exempt said

distressed mining companies from the payment of OPSF

dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on
July 17, 1984. P.D. 1956 creating the OPSF was promulgated
on October 10, 1984, while E.O. 137, amending P.D. 1956,
was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper
mining companies in line with the government's effort to
prevent the collapse of the copper industry. P.D. 1956, as
amended, was issued for the purpose of minimizing frequent
price changes brought about by exchange rate adjustments
and/or changes in world market prices of crude oil and
imported petroleum products; and
c. LOI 1416 caused the suspension of all taxes, duties,
fees, imposts and other charges, whether direct or indirect,
due and payable by the copper mining companies in distress
to the National and Local Governments ... On the other
hand, OPSF dues are not payable by (sic) distressed copper
companies but by oil companies. It is to be noted that the
copper mining companies do not pay OPSF dues. Rather,
such imposts are built in or already incorporated in the
prices of oil products.
[44]

Lastly, respondents allege that while LOI 1416 suspends the

payment of taxes by distressed mining companies, it does
not accord petitioner the same privilege with respect to its
obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside
from such reasons, however, it is apparent that LOI 1416
was never published in the Official Gazette as required by
Article 2 of the Civil Code, which reads:
[45]

Laws shall take effect after fifteen days following the

completion of their publication in the Official Gazette, unless
it is otherwise provided. x x x

In applying said provision, this Court ruled in the case of

Taada vs. Tuvera:
[46]

WHEREFORE, the Court hereby orders respondents to

publish in the Official Gazette all unpublished presidential
issuances which are of general application, and unless so
published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision,
this Court, in its Resolution promulgated on 29 December
1986, ruled:
[47]

We hold therefore that all statutes, including those of local

application and private laws, shall be published as a
condition for their effectivity, which shall begin fifteen days
after publication unless a different effectivity date is fixed by
the legislature.
Covered by this rule are presidential decrees and executive
orders promulgated by the President in the exercise of
legislative powers whenever the same are validly delegated
by the legislature or, at present, directly conferred by the
Constitution. Administrative rules and regulations must also
be published if their purpose is to enforce or implement
existing laws pursuant also to a valid delegation.
xxx
WHEREFORE, it is hereby declared that all laws as above
defined shall immediately upon their approval, or as soon
thereafter as possible, be published in full in the Official
Gazette, to become effective only after fifteen days from
their publication, or on another date specified by the
legislature, in accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was
never published in the Official Gazette after its issuance or
at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by

Executive Order No. 200, issued on 18 June 1987. As
amended, the said provision now reads:
Laws shall take effect after fifteen days following the
completion of their publication either in the Official Gazette
or in a newspaper of general circulation in the Philippines,
unless it is otherwise provided.
We are not aware of the publication of LOI 1416 in any
newspaper of general circulation pursuant to Executive
Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has
force and effect, petitioner's claim must still fail. Tax
exemptions as a general rule are construed strictly against
the grantee and liberally in favor of the taxing authority.
The burden of proof rests upon the party claiming exemption
to prove that it is in fact covered by the exemption so
claimed. The party claiming exemption must therefore be
expressly mentioned in the exempting law or at least be
within its purview by clear legislative intent.
[48]

In the case at bar, petitioner failed to prove that it is

entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF under
LOI 1416. Though LOI 1416 may suspend the payment of
taxes by copper Mining companies, it does not give
petitioner the same privilege with respect to the payment of
OPSF dues.
IV. As to COA's disallowance of the amount of
P130,420,235.00, petitioner maintains that the Department
of Finance has still to issue a final and definitive ruling
thereon; accordingly, it was premature for COA to disallow
it. By doing so, the latter acted beyond its jurisdiction.
Respondents, on the other hand, contend that said amount
was already disallowed by the OEA for failure to substantiate
[49]

it. In fact, when OEA submitted the claims of petitioner for

pre-audit, the abovementioned amount was already
excluded.
[50]

An examination of the records of this case shows that

petitioner failed to prove or substantiate its contention that
the amount of P130,420,235.00 is still pending before the
OEA and the DOF. Additionally, We find no reason to doubt
the submission of respondents that said amount has already
been passed upon by the OEA. Hence, the ruling of
respondent COA disapproving said claim must be upheld.
V. The last issue to be resolved in this case is whether or not
the amounts due to the OPSF from petitioner may be offset
against petitioner's outstanding claims from said fund.
Petitioner contends that it should be allowed to offset its
claims from the OPSF against its contributions to the fund as
this has been allowed in the past, particularly in the years
1987 and 1988.
[51]

Furthermore, petitioner cites, as bases for offsetting, the

provisions of the New Civil Code on compensation and
Section 21, Book V, Title I-B of the Revised Administrative
Code which provides for Retention of Money for
Satisfaction of Indebtedness to Government. Petitioner
also mentions communications from the Board of Energy and
the Department of Finance that supposedly authorize
compensation.
[52]

Respondents, on the other hand, citing Francia vs. IAC and

Fernandez, contend that there can be no offsetting of taxes
against the claims that a taxpayer may have against the
government, as taxes do not arise from contracts or depend
upon the will of the taxpayer, but are imposed by law.
Respondents also allege that petitioner's reliance on Section
21, Book V, Title I-B of the Revised Administrative Code is
misplaced because while this provision empowers the COA
[53]

to withhold payment of a government indebtedness to a

person who is also indebted to the government and apply the
government indebtedness to the satisfaction of the
obligation of the person to the government, like authority or
right to make compensation is not given to the private
person. The reason for this, as stated in Commissioner of
Internal Revenue vs. Algue, Inc., is that money due the
government, either in the form of taxes or other dues, is its
lifeblood and should be collected without hindrance. Thus,
instead of giving petitioner a reason for compensation or setoff, the Revised Administrative Code makes it the
respondents duty to collect petitioner's indebtedness to the
OPSF.
[54]

[55]

Refuting respondents' contention, petitioner claims that the

amounts due from it do not arise as a result of taxation
because P.D. 1956, as amended, did not create a source of
taxation; it instead established a special fund," and that
the OPSF contributions do not go to the general fund of the
state and are not used for public purpose, i.e., not for the
support of the government, the administration of law, or the
payment of public expenses. This alleged lack of a public
purpose behind OPSF exactions distinguishes such from a
tax. Hence, the ruling in the Francia case is inapplicable.
[56]

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum

Price Standby Fund to support the OPSF; the said law
provides in part that:
SECTION 2. Application of the fund shall be subject to the
following conditions:
xxx
(3) That no amount of the Petroleum Price
Standby Fund shall be used to pay any oil
company which has an outstanding obligation
to the Government without said obligation

being offset first, subject to the requirements

of compensation or offset under the Civil
Code.
We find no merit in petitioner's contention that the OPSF
contributions are not for a public purpose because they go to
a special fund of the government. Taxation is no longer
envisioned as a measure merely to raise revenue to support
the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation
and stabilization of a threatened industry which is affected
with public interest as to be within the police power of the
state. There can be no doubt that the oil industry is greatly
imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt
the lives of a majority of the people and cause economic
crisis of untold proportions. It would have a chain reaction in
terms of, among others, demands for wage increases and
upward spiralling of the cost of basic commodities. The
stabilization then of oil prices is one of prime concern which
the state, via its police power, may properly address.
[57]

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly

provides that the source of OPSF is taxation. No amount of
semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the
claims that he may have against the government. Taxes
cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be setoff.
[58]

[59]

We may even further state that technically, in respect to the

taxes for the OPSF, the oil companies merely act as agents
for the Government in the latter's collection since the taxes

are, in reality, passed unto the end-users -- the consuming

public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and
remit the taxes collected to the administrator of the OPSF.
This duty stems from the fiduciary relationship between the
two; petitioner certainly cannot be considered merely as a
debtor. In respect, therefore, to its collection for the OPSF
vis-a-vis its claims for reimbursement, no compensation is
likewise legally feasible. Firstly, the Government and the
petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that
petitioner's claim is already due and liquidated. Under
Article 1279 of the Civil Code, in order that compensation
may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor.
That compensation had been the practice in the past can set
no valid precedent. Such a practice has no legal basis.
Lastly, R.A. No. 6952 does not authorize oil companies to
offset their claims against their OPSF contributions. Instead,
it prohibits the government from paying any amount from
the Petroleum Price Standby Fund to oil companies which
have outstanding obligations with the government, without
said obligation being offset first subject to the rules on
compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby

rendered AFFIRMING the challenged decision of the
Commission on Audit, except that portion thereof
disallowing petitioner's claim for reimbursement of
underrecovery arising from sales to the National Power
Corporation, which is hereby allowed.
With costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras,
Feliciano, Padilla, Bidin, Grio-Aquino, Medialdea, Regalado,
Romero, and Nocon, JJ., concur.
Cruz and Bellosillo, JJ., no part.

G.R. No. L-7859, December 22, 1955

WALTER LUTZ, AS JUDICIAL ADMINISTRATOR OF THE
INTESTATE ESTATE OF THE DECEASED ANTONIO JAYME
LEDESMA, PLAINTIFF AND APPELLANT, VS. J. ANTONIO
ARANETA, AS THE COLLECTOR OF INTERNAL REVENUE,
DEFENDANT AND APPELLEE.
DECISION

REYES, J.B.L., J.:

This case was initiated in the Court of First Instance of
Negros Occidental to test the legality of the taxes imposed
by Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1)
with a declaration of emergency, due to the threat to our
industry by the imminent imposition of export taxes upon
sugar as provided in the Tydings-MeDuffie Act, and the
"eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to
obtain a readjustment of the benefits derived from the sugar
industry by the component elements thereof" and "to
stabilize the sugar industry so as to prepare it for the
eventuality of the loss of its preferential position in the
United States market and the imposition of the export
taxes."
In section 2, Commonwealth Act 567 provides for an
increase of the existing tax on the manufacture of sugar, on
a graduated basis, on each picul of sugar manufactured;
while section 3, levies on owners or persons in control of
lands devoted to the cultivation of sugar cane and ceded to
others for a consideration, oh lease or otherwise

"a tax equivalent to the difference between the money value

6f the rental or consideration collected and the amount
representing 'l2 per centum of the assessed value of such
land."
According to section 6 of the law
"Sec. 6. All collections made under this Act shall accrue to a
special fund in the Philippine Treasury, to be known as the
'Sugar Adjustment and Stabilization Fund,' and shall be paid
out only for any or all of the following purposes or to attain
any or all of the following objectives, as may be provided by
law.
First, to place the sugar industry in a position to maintain
itself, , despite the gradual loss of the preferntial position of
the Philippine sugar in the United States market, and
ultimately to insure its continued existence notwithstanding
the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar
industry by all of the component elements thereofthe mill,
the landowner, the planter of the sugar cane, and the
laborers in the factory, and in the fieldso that all might
continue profitably to engage therein;"
Third, to limit the production of sugar to areas more
economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living
wage and to improve their living and working conditions:
Provided, That the President of the Philippines may, until the
adjournment of the next regular session of the National
Assembly, make the necessary disbursements from the fund
herein created (1) for the establishment and operation of
sugar experiment station, or stations and the undertaking of
researchers (a) to increase the recoveries of the centrifugal

sugar factories with the view of reducing manufacturing

costs, (b) to produce and propagate higher yielding varieties
of sugar cane moire adaptable to different district conditions
in the Philippines, (c) to lower the costs of raising sugar
Cane, (d) to improve the buying quality of denatured alcohol
from molasses for motor fuel, (e) to .determine the
possibility of utilising the other by-products of the industry,
(f) to determine what crop or crops are suitable for rotation
and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and
stabilize the industry, and (2) for the improvement of living
and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or
agencies to take charge of the expenditure and allocation of
said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount; or
amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or
agencies."
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as taxes,
under section 3 of the Act, for the crop years 1948-1949 and
1949-1950; alleging that such tax is unconstitutional and
void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a
public purpose for which a tax may be constitutionally
levied. The action having been dismissed by the Court of
First Instance, the plaintiffs appealed the ease directly to
this Court (Judiciary Act, section 17),
The basic defect in the plaintiff's position is his assumption
that the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the taxing power. Analysis of the Act; and

particularly of section 6 (heretofore quoted in full), will show

that the tax is levied with a regulatory purpose, to provide
means for the rehabilitation aiid stabilization of the
threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation, Sugar
occupying a leading position among its export products ;
that it gives employment to thousands of laborers in fields
and factories; that it is a great source of the state's wealth,
is one of the important sources of foreign exchange needed
by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for
the legislature to find that the general welfare demanded
that the.sugar industry should be stabilized in turn; and in
the wide field of its police power, the law-making body could
provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the
added strain of the increase in taxes that it had to sustain
(Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853.; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference
to the citrus industry in Florida
"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." (128 So. 857).

Once it is conceded, as it must, that the protection and

promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and
expedient for its promotion'. Here, the legislative discretion
must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in
character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to
raise funds for their prosecution and attainment. Taxation
may be made the implement of the state's police power
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L.
Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it
appears rational that the tax be obtained precisely from
those who are to be benefited from the expenditure of the
funds derived from it. At any rate, it is inherent in the power
to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that "inequalities which
result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81
L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no
moment that the funds raised under the Sugar Stabilization
Act, now in question, .should be exclusively spent in aid of
the sugar industry, since it is that very enterprise that is
being protected. It may be that other industries are also in
need of similar protection; but the legislature is not required
by the Constitution to adhere to a policy of "all or none." Aa
ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U.

S. 270, 84 L. Ed. 744, "if the law presumably hits the evil
where it is most felt, it is not to be overthrown because there
are other instances to which it might have been applied;"
and that "the legislative authority, exerted within its proper
field, need not embrace all the evils within its reach" (N. L.
R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).
Even from the standpoint that the Act is a pure tax measure,
it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar
production, utilization of by-products and solution of allied
problems, as well as to the improvement of living and
working conditions in sugar mills or plantations, without any
part of such money being channeled directly to private
persons, constitutes expenditure of tax money for private
purposes, (compare Everson vs. Board of Education, 91 L.
Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with coats against
appellant. So ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista
Angelo, Labrador, and Concepcion, JJ., concur.

EN BANC
G.R. No. 99886, March 31, 1993
JOHN H. OSMEA, PETITIONER, VS. OSCAR ORBOS, IN HIS
CAPACITY AS EXECUTIVE SECRETARY; JESUS ESTANISLAO,
IN HIS CAPACITY AS SECRETARY OF FINANCE;
WENCESLAO DELA PAZ, IN HIS CAPACITY AS HEAD OF THE
OFFICE OF ENERGY AFFAIRS; REX V. TANTIONGCO, AND
THE ENERGY REGULATORY BOARD, RESPONDENTS.
DECISION

NARVASA, C.J.:
The petitioner seeks the corrective,[1] prohibitive and
coercive remedies provided by Rule 65 of the Rules of
Court,[2] upon the following posited grounds, viz.:[3]
1)the invalidity of the "TRUST ACCOUNT" in the books of
account of the Ministry of Energy (now, the Office of Energy
Affairs), created pursuant to 8, paragraph 1, of P. D. No.
1956, as amended, "said creation of a trust fund being
contrary to Section 29 (3), Article VI of the **
Constitution;"[4]
2)the unconstitutionality of 8, paragraph 1 (c) of P. D. No.
1956, as amended by Executive Order No. 137, for "being an
undue and invalid delegation of legislative power ** to the
Energy Regulatory Board;"[5]
[1]
[2]
[3]
[4]
[5]

3)the illegality of the reimbursements to oil companies, paid

out of the Oil Price Stabilization Fund,[6] because it
contravenes 8, paragraph 2 (2) of P. D. 1956, as amended;
and
4)the consequent nullity of the Order dated December 10,
1990 and the necessity of a rollback of the pump prices and
petroleum products to the levels prevailing prior to the said
Order.
It will be recalled that on October 10, 1984, President
Ferdinand Marcos issued P. D. 1956 creating a Special
Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF). The OPSF was designed to
reimburse oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate
adjustments and from increases in the world market prices
of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability
account," in virtue of E. O. 1024,[7] and ordered released
from the National Treasury to the Ministry of Energy. The
same Executive Order also authorized the investment of the
fund in government securities, with the earnings from such
placements accruing to the fund.
President Corazon C. Aquino, amended P. D. 1956. She
promulgated Executive Order No. 137 on February 27, 1987,
expanding the grounds for reimbursement to oil companies
for possible cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by
the Ministry of Finance.
[6]
[7]

Now, the petition alleges that the status of the OPSF as of

March 31, 1991 showed a Terminal Fund Balance deficit" of
some P12.877 billion;[8] that to abate the worsening deficit,
"the Energy Regulatory Board ** issued an Order on
December 10, 1990, approving the increase in pump prices
of petroleum products," and at the rate of recoupment, the
OPSF deficit should have been fully covered in a span of six
(6) months, but this notwithstanding, the respondents -Oscar Orbos, in his capacity as Executive Secretary; Jesus
Estanislao, in his capacity as Secretary of Finance;
Wenceslao de la Paz, in his capacity as Head of the Office of
Energy Affairs; Chairman Rex V. Tantiongco and the Energy
Regulatory Board -- "are poised to accept, process and pay
claims not authorized under P. D. 1956."[9]
The petition further avers that the creation of the trust fund
violates 29 (3), Article VI of the Constitution, reading as
follows:
"(3)All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out for
such purposes only. If the purpose for which a special fund
was created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the
Government."
The petitioner argues that "the monies collected pursuant to
** P. D. 1956, as amended, must be treated as a 'SPECIAL
FUND,' not as a 'trust account' or a 'trust fund,' and that "if a
special tax is collected for a specific purpose, the revenue
generated therefrom shall 'be treated as a special fund' to be
used only for the purpose indicated, and not channeled to
another government objective."[10] Petitioner further points
out that since "a 'special fund' consists of monies collected
[8]
[9]

through the taxing power of a State, such amounts belong to

the State, although the use thereof is limited to the special
purpose/objective for which it was created." [11]
He also contends that the "delegation of legislative
authority" to the ERB violates 28 (2), Article VI of the
Constitution, viz.:
"(2)The Congress may, by law, authorize the President to fix,
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government";
and, inasmuch as the delegation relates to the exercise of
the power of taxation, "the limits, limitations and restrictions
must be quantitative, that is, the law must not only specify
how to tax, who (shall) be taxed, (and) what the tax is for,
but also impose a specific limit on how much to tax."[12]
The petitioner does not suggest that a "trust account" is
illegal per se, but maintains that the monies collected, which
form part of the OPSF, should be maintained in a special
account of the general fund for the reason that the
Constitution so provides, and because they are, supposedly,
taxes levied for a special purpose. He assumes that the Fund
is formed from a tax, undoubtedly because a portion thereof
is taken from collections of ad valorem taxes and the
increases thereon.

[10]
[11]
[12]

It thus appears that the challenge posed by the petitioner is

premised primarily on the view that the powers granted to
the ERB under P. D. 1956, as amended, partake of the nature
of the taxation power of the State. The Solicitor General
observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a
special tax to be expended for a special purpose." [13] The
petitioner's perceptions are, in the Court's view, not quite
correct.
To address this critical misgiving in the position of the
petitioner on these issues, the Court recalls its holding in
Valmonte v. Energy Regulatory Board, et al.[14]-"The foregoing arguments suggest the presence of
misconceptions about the nature and functions of the OPSF.
The OPSF is a 'Trust Account' which was established 'for the
purpose of minimizing the frequent price changes brought
about by exchange rate adjustment and/or changes in world
market prices of crude oil and imported petroleum
products.'[15] Under P. D. No. 1956, as amended by Executive
Order No. 137 dated 27 February 1987, this Trust Account
may be funded from any of the following sources:
"a)Any increase in the tax collection from ad
valorem tax or customs duty imposed on
petroleum products subject to tax under this
Decree arising from exchange rate
adjustment, as may be determined by the
Minister of Finance in consultation with the
Board of Energy;
[13]
[14]
[15]

b) Any increase in the tax collection as a result

of the lifting of tax exemptions of
government corporations, as may be
determined by the Minister of Finance in
consultation with the Board of Energy;
c) Any additional amount to be imposed on
petroleum products to augment the
resources of the Fund through an
appropriate Order that may be issued by the
Board of Energy requiring payment of
persons or companies engaged in the
business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso cost differentials in case
the actual peso costs paid by oil companies
in the importation of crude oil and
petroleum products is less than the peso
costs computed using the reference foreign
exchange rate as fixed by the Board of
Energy."
*******
The fact that the world market prices of oil, measured by the
spot market in Rotterdam, vary from day to day is of judicial
notice. Freight rates for hauling crude oil and petroleum
products from sources of supply to the Philippines may also
vary from time to time. The exchange rate of the peso vis-avis the U. S. dollar and other convertible foreign currencies
also changes from day to day. These fluctuations in world
market prices and in tanker rates and foreign exchange
rates would in a completely free market translate into
corresponding adjustments in domestic prices of oil and
petroleum products with sympathetic frequency. But
domestic prices which vary from day to day or even only
from week to week would result in a chaotic market with

unpredictable effects upon the country's economy in general.

The OPSF was established precisely to protect local
consumers from the adverse consequences that such
frequent oil price adjustments may have upon the economy.
Thus, the OPSF serves as a pocket, as it were, into which a
portion of the purchase price of oil and petroleum products
paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to
time to reimburse oil companies, when appropriate
situations arise, for increases in, as well as underrecovery
of, costs of crude importation. The OPSF is thus a buffer
mechanism through which the domestic consumer prices of
oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to
recover those portions of their costs which they would not
otherwise recover given the level of domestic prices existing
at any given tine. To the extent that some tax revenues are
also put into it, the OPSF is in effect a device through which
the domestic prices of petroleum products are subsidized in
part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and
non-waivable power and responsibility of the government to
secure the physical and economic survival and well-being of
the community, that comprehensive sovereign authority we
designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and
fuel oil -- clearly critical in importance considering, among
other things, the continuing high level of dependence of the
country on imported crude oil -- are appropriately regarded
as public purposes."
Also of relevance is this Court's ruling in relation to the
sugar stabilization fund the nature of which is not far
different from the OPSF. In Gaston v. Republic Planters
Bank,[16] this Court upheld the legality of the sugar
[16]

stabilization fees and explained their nature and character,

viz.:
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 v. Araneta, 98 Phil.
148). * * * The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to
provide a means for the stabilization of the sugar industry.
The levy is primarily in the exercise of the police power of
the State (Lutz v. 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 v. 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[1].[17]
"The character of the Stabilization Fund as a special kind of
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)
[17]

Constitution, Article VI, Sec. 29 (3), lifted from the 1935

Constitution, Article VI, Sec. 23(1)." (Italics supplied.)
Hence, it seems clear that while the funds collected may be
referred to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF is a
special fund is plain from the special treatment given it by E.
O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account,"
the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied that these
measures comply with the constitutional description of a
"special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative
power, the Court finds that the provision conferring the
authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which
the authority must be exercised. In addition to the general
policy of the law to protect the local consumer by stabilizing
and subsidizing domestic pump rates, 8(c) of P. D. 1956[18]
expressly authorizes the ERB to impose additional amounts
to augment the resources of the Fund.
What petitioner would wish is the fixing of some definite,
quantitative restriction, or "a specific limit on how much to
tax."[19] The Court is cited to this requirement by the
petitioner on the premise that what is involved here is the
power of taxation; but as already discussed, this is not the
case. What is here involved is not so much the power of
taxation as police power. Although the provision authorizing
the ERB to impose additional amounts could be construed to
refer to the power of taxation, it cannot be overlooked that
the overriding consideration is to enable the delegate to act
[18]
[19]

with expediency in carrying out the objectives of the law

which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors
involved in the determination of the price of oil and
petroleum products, and the frequently shifting need to
either augment or exhaust the Fund, do not conveniently
permit the setting of fixed or rigid parameters in the law as
proposed by the petitioner. To do so would render the ERB
unable to respond effectively so as to mitigate or avoid the
undesirable consequences of such fluidity. As such, the
standard as it is expressed, suffices to guide the delegate in
the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law
delegating the power must be (1) complete in itself, that is it
must set forth the policy to be executed by the delegate and
(2) it must fix a standard - limits of which are sufficiently
determinate or determinable -- to which the delegate must
conform.[20]
"* * *As pointed out in Edu v. Ericta: To avoid the taint of
unlawful delegation, there must be a standard, which implies
at the very least that the legislature itself determines
matters of principle and lays down fundamental policy.
Otherwise, the charge of complete abdication may be hard to
repel. A standard thus defines legislative policy, marks its
limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under
which the legislative command is to be effected. It is the
criterion by which the legislative purpose may be carried
out. Thereafter, the executive or administrative office
designated may in pursuance of the above guidelines
promulgate supplemental rules and regulations. The
standard may either be express or implied. If the former, the
[20]

non-delegation objection is easily met. The standard though

does not have to be spelled out specifically. It could be
implied from the policy and purpose of the act considered as
a whole.[21]
It would seem that from the above-quoted ruling, the
petition for prohibition should fail.
The standard, as the Court has already stated, may even be
implied. In that light, there can be no ground upon which to
sustain the petition, inasmuch as the challenged law sets
forth a determinable standard which guides the exercise of
the power granted to the ERB. By the same token, the
proper exercise of the delegated power may be tested with
ease. It seems obvious that what the law intended was to
permit the additional imposts for as long as there exists a
need to protect the general public and the petroleum
industry from the adverse consequences of pump rate
fluctuations. "Where the standards set up for the guidance of
an administrative officer and the action taken are in fact
recorded in the orders of such officer, so that Congress, the
courts and the public are assured that the orders in the
judgment of such officer conform to the legislative standard,
there is no failure in the performance of the legislative
functions."[22]
This Court thus finds no serious impediment to sustaining
the validity of the legislation; the express purpose for which
the imposts are permitted and the general objectives and
purposes of the fund are readily discernible, and they
constitute a sufficient standard upon which the delegation of
power may be justified.

[21]
[22]

In relation to the third question -- respecting the illegality of

the reimbursements to oil companies, paid out of the Oil
Price Stabilization Fund, because allegedly in contravention
of 8, paragraph 2 (2) of P. D. 1956, as amended[23] -- the
Court finds for the petitioner.
The petition assails the payment of certain items or accounts
in favor of the petroleum companies (i.e., inventory losses,
financing charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by law. Petitioner
contends that "these claims are not embraced in the
enumeration in 8 of P. D. 1956 ** since none of them was
incurred 'as a result of the reduction of domestic prices of
petroleum products,'"[24] and since these items are
reimbursements for which the OPSF should not have
responded, the amount of the P 12.877 billion deficit "should
be reduced by P 5,277.2 million."[25] It is argued "that under
the principle of ejusdem generis * * * the term 'other factors'
(as used in 8 of P. D. 1956) ** can only include such 'other
factors' which necessarily result in the reduction of domestic
prices of petroleum products."[26]
The Solicitor General, for his part, contends that "(t)o place
said (term) within the restrictive confines of the rule of
ejusdem generis would reduce (E. O. 137) to a meaningless
provision."
This Court, in Caltex Philippines, Inc. v. The Honorable
Commissioner on Audit, et al.,[27] passed upon the application
of ejusdem generis to paragraph 2 of 8 of P. D. 1956, viz.:
[23]
[24]
[25]
[26]

The rule of ejusdem generis states that '[w]here words

follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not
to be construed in their widest extent, but are held to be as
applying only to persons or things of the same kind or class
as those specifically mentioned.'[28] A reading of
subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price
reduction as directed by the Board of Energy while the
second refers to reduction in internal ad valorem taxes.
Therefore, subparagraph (iii) cannot be limited by the
enumeration in these subparagraphs. What should be
considered for purposes of determining the 'other factors' in
subparagraph (iii) is the first sentence of paragraph (2) of
the Section which explicitly allows the cost underrecovery
only if such were incurred as a result of the reduction of
domestic prices of petroleum products.
The Court thus holds, that the reimbursement of financing
charges is not authorized by paragraph 2 of 8 of P.D. 1956,
for the reason that they were not incurred as a result of the
reduction of domestic prices of petroleum products. Under
the same provision, however, the payment of inventory
losses is upheld as valid, being clearly a result of domestic
price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory
acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil
to the National Power Corporation is equally permissible, not
as coming within the provisions of P. D. 1956, but in virtue of
other laws and regulations as held in Caltex [29] and which
have been pointed to by the Solicitor General. At any rate,
[27]
[28]

doubts about the propriety of such reimbursements have

been dispelled by the enactment of R. A. 6952, establishing
the Petroleum Price Standby Fund, 2 of which specifically
authorizes the reimbursement of "cost underrecovery
incurred as a result of fuel oil sales to the National Power
Corporation."
Anent the overpayment refunds mentioned by the petitioner,
no substantive discussion has been presented to show how
this is prohibited by P. D. 1956. Nor has the Solicitor General
taken any effort to defend the propriety of this refund. In
fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the
arguments for or against the legality of the so-called
overpayment refunds. To be sure, the absence of any
argument for or against the validity of the refund cannot
result in its disallowance by the Court. Unless the
impropriety or illegality of the overpayment refund has been
clearly and specifically shown, there can be no basis upon
which to nullify the same.
Finally, the Court finds no necessity to rule on the remaining
issue, the same having been rendered moot and academic.
As of date hereof, the pump rates of gasoline have been
reduced to levels below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays
for the nullification of the reimbursement of financing
charges, paid pursuant to E. O. 137, and DISMISSED in all
other respects.
SO ORDERED.
Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado,
Davide, Jr., Romero, Nocon, Bellosillo, Melo, Campos, Jr., and
Quiason, JJ., concur.
[29]

Gutierrez, Jr., J., on terminal leave.

G.R. No. 11572, September 22, 1916

FRANCIS A. CHURCHILL AND STEWART TAIT ET AL.,
PLAINTIFFS AND APPELLANTS, VS. VENANCIO
CONCEPCION, AS ACTING COLLECTOR OF INTERNAL
REVENUE, DEFENDANT AND APPELLEE.
DECISION

TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 1914, imposed an annual tax of P4 per
square meter upon "electric signs, billboards, and spaces
used for posting or displaying temporary signs, and all signs
displayed on premises not occupied by buildings." This
section was subsequently amended by Act No. 2432,
effective January 1, 1915, by reducing the tax on such signs,
billboards, etc., to P2 per square meter or fraction thereof.
Section 26 of Act No. 2432 was in turn amended by Act No.
2445, but this amendment does not in any way affect the
questions involved in the case under consideration. The
taxes imposed by Act No. 2432, as amended, were ratified by
the Congress of the United States on March 4, 1915. The
ratifying clause reads as follows:
"The internal-revenue taxes imposed by the Philippic
Legislature under the law enacted by that body on December
twenty-third, nineteen hundred and fourteen (Act No. 2432),
as amended by the law enacted by it on January sixteenth,
nineteen hundred and fifteen (Act No. 2445), are hereby
legalized and ratified, and the collection of all such taxes
heretofore or hereafter is hereby legalized, ratified and
confirmed as fully to all intents and purposes as if the same
had by prior Act of Congress been specifically authorized
and directed."

Francis A. Churchill and Stewart Tait, copartners doing

business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard containing
an area of 52 square meters constructed on private property
in the city of Manila and exposed to public view, were taxed
thereon P104. The tax was paid under protest and the
plaintiffs having exhausted all their administrative remedies
instituted the present action under section 140 of Act No.
2339 against the Collector of Internal Revenue to recover
back the amount thus paid. From a judgment dismissing the
complaint upon the merits, with costs, the plaintiffs
appealed.
It is now urged that the trial court erred:
"(1) In not holding that the tax as imposed by virtue of Act
No. 2339, as amended by Act No. 2432, as amended by Act
No. 2445, constitutes deprivation of property without
compensation or due process of law, because it is
confiscatory and unjustly discriminatory and (2) in not
holding that the said tax is void for lack of uniformity,
because it is not graded according to value; because the
classification on which it is based is mere arbitrary selection
and not based on any reasonable ground; and furthermore,
because it constitutes double taxation."
We will first inquire whether the tax in question is
confiscatory as to the business of the plaintiff. Upon this
point the lower court, in accepting the testimony of the
plaintiff, Churchill, to the effect that "the billboard in
question cost P300 to construct, that its annual gross
earning power is P268, and that the annual tax is P104,"
found "that for a five years' period the gross income from the
billboard would be P1,340, and that the expenditures for
original construction and taxes would amount to P820,
leaving a balance of P520," held that "unless the tax equals
or exceeds the gross income, the court would hardly be

justified in declaring the tax confiscatory." These findings of

fact and conclusions of law are attacked upon the ground
that the court failed to take into consideration the pertinent
facts that the annual depreciation of the billboard is 20 per
cent; that at the end of five years the capital of P300 would
be completely lost; that the plaintiffs are entitled to receive a
reasonable rate of interest on this capital; and that there
should be charged against the billboard its proportion of the
overhead charges such as labor, management, maintenance,
rental of office premises, rental or purchase of ground space
for board, repair, paints, oils, etc., resulting in an actual loss
per year on the business, instead of an apparent profit of
P520 for five years, or P44 for one year. If these contentions
rested upon a sound basis it might be said that the tax is, in
a sense, confiscatory; but they do not, as we will attempt to
show from the evidence of record.
The plaintiff Churchill testified in part as follows:
"Q. In your opinion, Mr. Churchill, state what you would
think of the rates that are charged by you for advertising
purposes in connection with this board; could they be
raised?A. No.
"Q. Why?A. The business wouldn't allow it; the business
wouldn't afford it; and otherwise it would mean bankruptcy
to try to increase it.
"Q. Who couldn't afford it? Explain it fully Mr. Churchill ?A.
The merchants couldn't afford to pay more.
On cross-examination: "Q. It is a fact, is it not, Mr. Churchill,
that since the passage of Act No. 2339 you have never made
any attempt to raise the advertising rates?A. It would be
impossible to raise them.
"Q. My question is: You have never made any attempt to
raise them?A. We have talked it over with the merchants

and talked over the price on the event of a tax being put at a
reasonable amount, about putting up some increase.
"Q. But you have never made an actual attempt to increase
your rates?A. I would consider that an actual attempt.
"Q. You have never fixed the rate higher than it is now? A.
No; no."
It was agreed that Tait, the other plaintiff, would testify to
the same effect. The parties, plaintiffs and defendant, further
agreed "that a number of persons have voluntarily and
without protest paid the taxes imposed by section 100 of Act
No. 2339, as amended by Act No. 2432, and in turn amended
by Act No. 2445."
It will thus be seen that the contention that the rates
charged for advertising cannot be raised is purely
hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the plaintiffs
themselves admit that a number of other persons have
voluntarily and without protest paid the tax herein
complained of. Under these circumstances, can it be held as
a matter of fact that the tax is confiscatory or that, as a
matter of law, the tax is unconstitutional ? Is the exercise of
the taxing power of the Legislature dependent upon and
restricted by the opinion of two interested witnesses? There
can be but one answer to these questions, especially in view
of the fact that others are paying the tax and presumably
making a reasonable profit from their business.
In Chicago and Grand Trunk Railway Co. vs. Wellman (143
U. S., 339), a question similar to the one now under
consideration was raised and decided by the Supreme Court
of the United States. The principal contention made in that
case was that an Act of the Legislature of Michigan fixing
the amount per mile to be charged by railways for the
transportation of a passenger was unconstitutional, on the

ground that the rate so fixed was confiscatory. It was agreed

in the pleadings that the total earnings and income of the
company from all sources for a given year were less than the
expenses for the same period. In addition to this agreed
statement of facts, two witnesses were called, one the traffic
manager and the other the treasurer of the company. Their
testimony was to the effect that in view of the competition
prevailing at Chicago for through business, it was impossible
to increase the freight rates then charged by the company
because it would throw the volume of business into the
hands of competing roads. In overruling the contention of
the company that the act in question was unconstitutional on
the ground that the rate fixed thereby was confiscatory, the
court said:
"Surely, before the courts are called upon to adjudge an act
of the legislature fixing the maximum passenger rates for
railroad companies to be unconstitutional, on the ground
that its enforcement would prevent the stockholders from
receiving any dividends on their investments, or the
bondholders any interest on their loans, they should be fully
advised as to what is done with the receipts and earnings of
the company; for if so advised, it might clearly appear that a
prudent and honest management would, within the rates
prescribed, secure to the bondholders their interest, and to
the stockholders reasonable dividends. While the protection
of vested rights of property is a supreme duty of the courts,
it has not come to this, that the legislative power rests
subservient to the discretion of any railroad corporation
which may, by exhorbitant and unreasonable salaries, or in
some other improper way, transfer its earnings into what it
is pleased to call 'operating expenses.' "
It is further alleged that the tax in question is
unconstitutional because "the law herein complained of was
enacted for the sole purpose of destroying billboards and
advertising business depending on the use of signs or

billboards." If it be conceded that the Legislature has the

power to impose a tax upon signs, signboards, and
billboards, then "the judicial cannot prescribe to the
legislative department of the Government limitation upon
the exercise of its acknowledged powers." (Veazie Bank vs.
Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has
the power to impose such taxes, we think there can be no
serious doubt, because "the power to impose taxes is one so
unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of
the authority which exercises it It reaches to every trade or
occupation; to every object of industry, use, or enjoyment; to
every species of possession; and it imposes a burden which,
in case of failure to discharge it, may be followed by seizure
and sale or confiscation of property. No attribute of
sovereignty is more pervading, and at no point does the
power of the government affect more constantly and
intimately all the relations of life than through the exactions
made under it." (Cooley's Constitutional Limitations, 6th
Edition, p. 587.)
In McCray vs. U. S. (195 U. S., 27), the court, in ruling
adversely to the contention that a federal tax on
oleomargarine artificially colored was void because the real
purpose of Congress was not to raise revenue but to tax out
of existence a substance not harmful of itself and one which
might be lawfully manufactured and sold, said:
"Whilst, as a result of our written constitution, it is axiomatic
that the judicial department of the government is charged
with the solemn duty of enforcing the Constitution, and
therefore, in cases properly presented, of determining
whether a given manifestation of authority has exceeded the
power conferred by that instrument, no instance is afforded
from the foundation of the government where an act which
was within a power conferred, was declared to be repugnant

to the Constitution, because it appeared to the judicial mind

that the particular exertion of constitutional power was
either unwise or unjust. To announce such a principle would
amount to declaring that, in our constitutional system, the
judiciary was not only charged with the duty of upholding
the Constitution, but also with the responsibility of
correcting every possible abuse arising from the exercise by
the other departments of their conceded authority. So to
hold would be to overthrow the entire distinction between
the legislative, judicial, and executive departments of the
government, upon which our system is founded, and would
be a mere act of judicial usurpation."
If a case were presented where the abuse of the taxing
power of the local legislature was so extreme as to make it
plain to the judicial mind that the power had been exercised
for the sole purpose of destroying rights which could not be
rightfully destroyed consistently with the principles of
freedom and justice upon which the Philippine Government
rests, then it would be the duty of the courts to say that such
an arbitrary act was not merely an abuse of the power, but
was the exercise of an authority not conferred. (McCray vs.
U. S., supra.) But the instant case is not one of that
character, for the reason that the tax herein complained of
falls far short of being confiscatory. Consequently, it cannot
be held that the Legislature has gone beyond the power
conferred upon it by the Philippine Bill in so far as the
amount of the tax is concerned.
Is the tax void for lack of uniformity or because it is not
graded according to value or constitutes double taxation, or
because the classification upon which it is based is mere
arbitrary selection and not based on any reasonable
grounds? The only limitation, in so far as these questions
are concerned, placed upon the Philippine Legislature in the
exercise of its taxing power is that found in section 5 of the

Philippine Bill, wherein it is declared "that the rule of

taxation in said Islands shall be uniform."
"Uniformity in taxationsays Black on Constitutional Law,
page 292means that all taxable articles or kinds of
property, of the same class, shall be taxed at the same rate.
It does not mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries,
shall all be assessed at the same rate. Different articles may
be taxed at different amounts, provided the rate is uniform
on the same class everywhere, with all people, and at all
times."
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found (State
Railroad Tax Cases, 92 U. S., 575.) The words "uniform
throughout the United States," as required of a tax by the
Constitution, do not signify an intrinsic, but simply a
geographical, uniformity, and such uniformity is therefore
the only uniformity which is prescribed by the Constitution.
(Patton vs. Brady, 184 U. S., 608; 46 L. Ed., 713.) A tax is
uniform, within the constitutional requirement, when it
operates with the same force and effect in every place where
the subject of it is found. (Edye vs. Robertson, 112 U. S.,
580; 28 L. Ed., 798.) "Uniformity," as applied to the
constitutional provision that all taxes shall be uniform,
means that all property belonging to the same class shall be
taxed alike. (Adams vs. Mississippi State Bank, 23 South,
395, citing Mississippi Mills vs. Cook, 56 Miss., 40.) The
statute under consideration imposes a tax of P2 per square
meter or fraction thereof upon every electric sign, billboard,
etc., wherever found in the Philippine Islands. Or in other
words, "the rule of taxation" upon such signs is uniform
throughout the Islands. The rule, which we have just quoted
from the Philippine Bill, does not require taxes to be graded
according to the value of the subject or subjects upon which
they are imposed, especially those levied as privilege or

occupation taxes. We can hardly see wherein the tax in

question constitutes double taxation. The fact that the land
upon which the billboards are located is taxed at so much
per unit and the billboards at so much per square meter
does not constitute "double taxation." Double taxation,
within the true meaning of that expression, does not
necessarily affect its validity. (1 Cooley on Taxation, 3d ed.,
389.) And again, it is not for the judiciary to say that the
classification upon which the tax is based "is mere arbitrary
selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for
taxation and it must be presumed that it, in so doing, acted
with a full knowledge of the situation.
For the foregoing reasons, the judgment appealed from is
affirmed, with costs against the appellants. So ordered.
Torres, Johnson, Carson, and Araullo, JJ., concur.

G.R. No. L-25043, April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS AND ROXAS Y CIA., IN
THEIR OWN RESPECTIVE BEHALFS AND AS JUDICIAL COGUARDIANS OF JOSE ROXAS, PETITIONERS VS. COURT OF
TAX APPEALS AND COMMISSIONER OF INTERNAL
REVENUE, RESPONDENTS.
DECISION

BENGZON, J.P., J.:

Don Pedro Roxas and Doa Carmen Ayala, Spanish subjects,
transmitted to their grandchildren by hereditary succession
the following properties:
(1) Agricultural lands with a total area of 19,000 hectares,
situated in the municipality of Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate,
Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children
namely, Antonio Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y Compaia.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants who
have all been tilling the lands in Nasugbu for generations
expressed their desire to purchase from Roxas y Cia. the
parcels which they actually occupied. For its part, the
Government, in consonance with the constitutional mandate
to acquire big landed estates and apportion them among
landless tenants-farmers, persuaded the Roxas brothers to
part with their landholdings. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas

brothers agreed to sell 13,500 hectares to the Government

for distribution to actual occupants for a price of
P2,079,048.47 plus 1*300,000.00 for survey and subdivision
expenses.
It turned out however that the Government did not have
funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance
Corporation to advance to Roxas y Cia. the amount of T ,
500,000.00 as loan. Collateral for such loan were the lands
proposed to be sold to the farmers. Under the arrangement,
Roxas y Cia. allowed the farmers to buy the lands for the
same price but by installment, and contracted with the
Rehabilitation Finance Corporation to pay its loan from the
proceeds of the yearly amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment
payments a net gain of P42,480.83 and P29,500.71. Fifty
percent of said net gain was reported for income tax
purposes as gain on the sale of capital asset held for more
than one year pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the
residential house at Wright St., Malate, Manila, which they
inherited from their grandparents. After Antonio and
Eduardo got married, they resided somewhere else leaving
only Jose in the old house. In fairness to his brothers, Jose
paid to Roxas y Cia. rentals for the house in the sum of
P8,000.00 a year.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue
demanded from Roxas y Cia. the payment of real estate
dealers tax for 1952 in the amount of P150.00 plus P10.00

compromise penalty for late payment, and P150.00 tax for

dealers of securities for 1952 plus P10.00 compromise
penalty for late payment. The assessment for real estate
dealers tax was based on the fact that Roxas y Cia. received
house rentals from Jose Roxas in the amount of P8,000.00.
Pursuant to Sec. 194 of the Tax Code, an owner of a real
estate who derives a yearly rental income therefrom in the
amount of P3,000.00 or more is considered a real estate
dealer and is liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand
for the fixed tax on dealers of securities against Roxas y Cia.,
on the fact that said partnership made profits from the
purchase and sale of securities.
In the same assessment, the Commissioner assessed
deficiency income taxes against the Roxas brothers for the
years 1953 and 1955, as follows:
1953

1955

Antonio Roxas
P7,010.00
P5,813.00
Eduardo Roxas
7,281.00
5,828.00
Jose Roxas
6,323.00
5,588.00
The deficiency income taxes resulted from the inclusion as
income of Roxas y Cia. of the unreported 50% of the net
profits for 1953 and 1955 derived from the sale of the
Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses
and contributions claimed by Roxas y Cia. and the Roxas
brothers'. For the reason that Roxas y Cia. subdivided its
Nasugbu farm lands and sold them to the farmers on
installment, the Commissioner considered the partnership as
engaged in the business of real estate, hence 100% of the
profits derived therefrom was taxed.
The following deductions were disallowed:

ROXAS Y CIA.:
1953

Tickets for Banquet

in honor of S.
Osmea
Gifts of San Miguel
Beer Contributions
to Philippine Air Force
Chapel
Manila Police Trust
Fund Philippines
Heralds fund for
Manila's neediest
families

P 40.00
28.00
100.00
150.00
100.00

1955
Contribution to Our
Lady of Fatima
Chapel, FEU

50.00

ANTONIO ROXAS:
1953
Contributions to
Pasay City Firemen
Christmas Fund
Pasay City Police
Dept. XMas fund
1955

Contributions to
Baguio City Police
Christmas fund
Pasay City Firemen
Christmas fund
Pasay City Police

25.00
50.00

25.00
25.00
50.00

Christmas fund
EDUARDO ROXAS:
1953

1955

Contributions to
Hijas de Jesus'
Retiro de Manresa
Philippines Heralds
fund for
Manila's neediest
families
Contribution to
Philippines Heralds
fund for Manilas
neediest families

450.00

100.00

120.00

JOSE ROXAS:
1955
Contribution to Philippines Heralds fund for Manilas
neediest families 120.00
The Roxas brothers protested the assessment but inasmuch
as said protest was denied, they instituted an appeal in the
Court of Tax Appeals on January 9, 1961. The Tax Court
heard the appeal and rendered judgment on July 31, 1965
sustaining the assessment except the demand for the
payment of the fixed tax on dealer of securities and the
disallowance of the deductions for contributions to the
Philippine Air Force Chapel and Hijas de Jesus Retiro de
Manresa. The Tax Court's judgment reads:
WHEREFORE, the decision appealed from is hereby
affirmed with respect to petitioners Antonio Roxas, Eduardo
Roxas and Jose Roxas who are hereby ordered to pay the

respondent Commissioner of Internal Revenue the amounts

of P12,808.00, P12,887.00 and P11,857.00, respectively, as
deficiency income taxes for the years 1953 and 1955, plus
5% surcharge and 1% monthly interest as provided for in
Sec. 51 (a) of the Revenue Code; and modified with respect
to the partnership Roxas y Cia. in the sense that it should
pay only "P150.00, as real estate dealer's tax. With costs
against petitioners.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed
to this Court. The Commissioner of Internal Revenue did not
appeal. The issues:
(1) Is the gain derived from the sale of the Nasugbu farm
lands an ordinary gain, hence 100% taxable?
(2) Are the deductions for business expenses and
contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on
real estate dealers?
The Commissioner of Internal Revenue contends that Roxas
y Cia. could be considered a real estate dealer because it
engaged in the business of selling real estate. The business
activity alluded to was the act of subdividing the Nasugbu
farm lands and selling them to the farmers-occupants on
installment. To bolster his stand on the point, he cites one of
the purposes of Roxas y Cia. as contained in its articles of
partnership, quoted below:
4.(a) La explotacin de fincas urbanes pertenecientes a la
misma o que pueden pertenecer a ella en el futuro,
alquilndoles por los plazos y dems condiciones, estime
convenientes y vendiendo aquellas que a juicio de sus
gerentes no deben conservarse;

The above-quoted purpose notwithstanding, the proposition

of the Commissioner of Internal Revenue cannot be
favorably accepted by Us in this isolated transaction with its
peculiar circumstances in spite of the fact that there were
hundreds of vendees. Altho they paid for their respective
holdings in installment for a period of ten years, it would
nevertheless not make the vendor Roxas y Cia. a real estate
dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm
lands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to
the request and pursuant to the policy of our Government to
allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very
reasonable terms and prices. However, the Government
could not comply with its duty for lack of funds. Obligingly,
Roxas y Cia. shouldered the Government's burden, went out
of its way and sold the lands directly to the farmers in the
same way and under the same terms as would have been the
case had the Government done it itself. For this
magnanimous act, the municipal council of Nasugbu passed
a resolution expressing the peoples gratitude.
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax
collector kill the hen that lays the golden egg. And, in
order to maintain the general public's trust and confidence
in the Government, this power must be used justly and not
treacherously. It does not conform with Our sense of justice
in the instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to penalize
him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate

dealer for the sale in question. Hence, pursuant to Section
34 of the Tax Code the lands sold to the farmers are capital
assets, and the gain derived from the sale thereof is capital
gain, taxable only to the extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of
"P40.00 for tickets to a banquet given in honor of Sergio
Osmea and P28.0 for San Miguel beer given as gifts to
various persons. The deductions were claimed as
representations expenses. Representation expenses are
deductible from gross income as expenditures incurred in
carrying on a trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary and necessary, and incurred
in connection with his business. In the case at bar, the
evidence does not show such link between the expenses and
the business of Roxas y Cia. The findings of the Court of Tax
Appeals must therefore be sustained.
The petitioners also claim deductions for contributions to the
Pasay City Police, Pasay City Firemen, and Baguio City Police
Christmas funds, Manila Police Trust Fund, Philippines
Heralds fund for Manilas neediest families and Our Lady of
Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City
Police, Pasay City Firemen and Baguio City Police are not
deductible for the reason that the Christmas funds were not
spent for public purposes but as Christmas gifts to the
families of the members of said entities. Under Section
39(h), a contribution to a government entity is deductible
when used exclusively for public purposes. For this reason,
the disallowance must be sustained. On the other hand, the

contribution to the Manila Police trust fund is an allowable

deduction for said trust fund belongs to the Manila Police, a
government entity, intended to be used exclusively for its
public functions.
The contributions to the Philippines Heralds fund for
Manila's neediest families were disallowed on the ground
that the Philippines Herald is not a corporation or an
association contemplated in Section 30(h) of the Tax Code. It
should be noted however that the contributions were not
made to the Philippines Herald- but to a group of civic
spirited citizens organized by the Philippines Herald solely
for charitable purposes. There is no question that the
members of this group of citizens do not receive profits, for
all the funds they raised were for Manilas neediest families.
Such a group of citizens may be classified as an association
organized exclusively for charitable purposes mentioned in
Section 30(h) of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed
the contribution to Our Lady of Fatima chapel at the Far
Eastern University on the ground that the said university
gives dividends to its stockholders. Located within the
premises of the university, the chapel in question has not
been shown to belong to the Catholic Church or any
religious organization. On the other hand, the lower court
found that it belongs to the Far Eastern University,
contributions to which are not deductible under Section
30(h) of the Tax Code for the reason that the net income of
said university inures to the benefit of its stockholders. The
disallowance should be sustained.
Lastly, Roxas y Cia. questions the imposition of the real
estate dealer's fixed tax upon it, because altho it earned a
rental income of P8,000.00 per annum in 1952, said rental
income came from Jose Roxas, one of the partners. Section
194 of the Tax Code, in considering as real estate dealers

owners of real estate receiving rentals of at least P3,000.00

a year, does not provide any qualification as to the persons
paying the rentals. The law, which states:
. . . Real estate dealer' includes any person engaged in the
business of buying, selling, exchanging, leasing, or renting
property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner
of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a
year: . . . (Italics supplied)
is too clear and explicit to admit construction. The findings
of the Court of Tax Appeals on this point is sustained.
To summarize, no deficiency income tax is due for 1953 from
Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955
they are liable to pay deficiency income tax in the sum of
P109.00, P91.00 and P49.00, respectively computed as
follows:[*]
ANTONIO ROXAS
Net income per
return
Add: 1/3 share,
profits in
Roxas y Cia.
Less amount
declared
Amount understated
Contributions
disallowed

P315,476.59

P153,249.15
146,135.46
7,113.69
115.00
------------P7,228.69

Less 1/3 share of

contributions
amounting to P21,
126.06 disallowed
from partnership
but allowed to
partners
Net income per
review
Less: Exemptions
Net taxable income
Tax due
Tax paid
Deficiency

7,042.02

186.67

P315,663.26
4,200.00
P 311,463.26
154,169.00
154,060.00
P 109.00
EDUARDO ROXAS

Net income per

return
Add: 1/3 share,
profits in Roxas y
Cia.
Less profits
declared
Amount understated
Less 1/3 share in
contributions
amounting to
P21,126.06
disallowed from
partnership but
allowed to partners
Net income per
review
Less: Exemptions

P304,166.92

P153,249.15
146,052.58
P 7,196.57

7,042.02

155.55

P304,322.47
4,800.00

Net taxable income

Tax due
Tax paid
Deficiency

P147.250.00
147,159.00
P 91.00

P299,522.47

JOSE ROXAS
Net income per
return
Add: 1/3 share,
profits in Roxas y
Cia.
Less amount
reported
Amount understated
Less 1/3 share of
contribu tions
disallowed from
partnership but
allowed as
deductions to
partners
Net income per
review
Less: Exemption
Net income subject
to tax
Tax due
Tax paid
Deficiency

P222,681.76
P153,429.15
146,135.46
7,113.69

7,042.02

71.67

P222,753.43
1,800.00
--------------P220,953.43
P102,763.00
102,714.00
P 49.00

WHEREFORE, the decision appealed from is modified. Roxas

y Cia. is hereby ordered to pay the sum of 150.00 as real
estate dealer's fixed tax for 1952, and Antonio Roxas,
Eduardo Roxas and Jose Roxas are ordered to pay the

respective sums of P109.00, P91.00 and P49.00 as their

individual deficiency income tax all corresponding for the
year 1955. No costs.
SO ORDERED.
Reyes, J.B.L. (Acting C.J.), Dizon, Makalintal, Sanchez, Ruiz
Castro, Angeles and Fernando, JJ., concur.
Judgment modified.

EN BANC
G.R. No. L-23771, August 04, 1988
THE COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. LINGAYEN
GULF ELECTRIC POWER CO., INC. AND THE COURT OF TAX APPEALS,
RESPONDENTS.
DECISION

SARMIENTO, J.:
This is an appeal from the decision* of the Court of Tax
Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard
upon agreement of the parties, absolving the respondent
taxpayer from liability for the deficiency percentage,
franchise, and fixed taxes and surcharge assessed against it
in the sums of P19,293.41 and P3,616.86 for the years 1946
to 1954 and 1959 to 1961, respectively.
The respondent taxpayer, Lingayen Gulf Electric Power Co.,
Inc., operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the
province of Pangasinan, pursuant to the municipal franchise
granted it by their respective municipal councils, under
Resolutions Nos. 14 and 25 of June 29 and July 2, 1946,
respectively. Section 10 of these franchises provide that:
x x x The said grantee in consideration of the franchise
hereby granted, shall pay quarterly into the Provincial
Treasury of Pangasinan, one per centum of the gross
earnings obtained thru this privilege during the first twenty
years and two per centum during the remaining fifteen years
of the life of said franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the private respondent.
On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against and demanded from the private

respondent the total amount of P19,293.41 representing

deficiency franchise taxes and surcharges for the years 1946
to 1954 applying the franchise tax rate of 5% on gross
receipts from March 1, 1948 to December 31, 1954 as
prescribed in Section 259 of the National Internal Revenue
Code, instead of the lower rates as provided in the municipal
franchises. On September 29, 1956, the private respondent
requested for a reinvestigation of the case on the ground
that instead of incurring a deficiency liability, it made an
overpayment of the franchise tax. On April 30, 1957, the BIR
through its regional director, denied the private respondent's
request for reinvestigation and reiterated the demand for
payment of the same. In its letters dated July 2, and August
9, 1958 to the petitioner Commissioner, the private
respondent protested the said assessment and requested for
a conference with a view to settling the liability amicably. In
his letters dated July 25 and August 28, 1958, the
Commissioner denied the request of the private respondent.
Thus, the appeal to the respondent Court of Tax Appeals on
September 19, 1958, docketed as C.T.A. Case No. 581.
In a letter dated August 21, 1962, the Commissioner
demanded from the private respondent the payment of
P3,616.86 representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again applying the
franchise tax rate of 5% on gross receipts as prescribed in
Section 259 of the National Internal Revenue Code. In a
letter dated October 5, 1962, the private respondent
protested the assessment and requested reconsideration
thereof. The same was denied on November 9, 1962. Thus,
the appeal to the respondent Court of Appeals on November
29, 1962, docketed as C.T.A. No. 1302.
Pending the hearing of the said cases, Republic Act (R.A.)
No. 3843 was passed on June 22, 1963, granting to the
private respondent a legislative franchise for the operation
of the electric light, heat, and power system in the same

municipalities of Pangasinan. Section 4 thereof provides

that:
In consideration of the franchise and rights hereby granted,
the grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the
public under this franchise, a tax equal to two per centum of
the gross receipts from electric current sold or supplied
under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial or national, now or in the future, on its
poles, wires, insulator x x x and on its franchise, rights,
privileges, receipts, revenues and profits, from which taxes
and/or licenses, the grantee is hereby expressly exempted
and effective further upon the date the original franchise
was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts as
provided for in the original franchise shall be collected, any
provision of law to the contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the
provisions of R.A. No. 3843 should apply and accordingly
dismissed the claim of the Commissioner of Internal
Revenue. The said ruling is now the subject of the petition at
bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in
Section 259 of the National Internal Revenue Code
assessed against the private respondent on its gross
receipts realized before the effectivity of R.A. No. 3843
is collectible.
2. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity
and equality of taxation" clause of the Constitution.

3. If the abovementioned Section 4 of R.A. No. 3843 is

valid, whether or not it could be given retroactive effect
so as to render uncollectible the taxes in question which
were assessed before its enactment.
4. Whether or not the respondent taxpayer is liable for the
fixed and deficiency percentage taxes in the amount of
P3,025.96 for the period from January 1, 1946 to
February 29, 1948, the period before the approval of its
municipal franchises.
The first issue raised by the petitioner before us is whether
or not the five percent (5%) franchise tax prescribed in
Section 259 of the National Internal Revenue Code
(Commonwealth Act No. 466 as amended by R.A. No. 39)
assessed against the private-respondent on its gross receipts
realized before the effectivity of R.A. No. 3843 is collectible.
It is the contention of the petitioner Commissioner of
Internal Revenue that the private respondent should have
been held liable for the 5% franchise tax on gross receipts
prescribed in Section 259 of the Tax Code, instead of the
lower franchise tax rates provided in the municipal
franchises (1% of gross earnings for the first twenty years
and 2% for the remaining fifteen years of the life of the
franchises) because Section 259 of the Tax Code, as
amended by R.A. No. 39 of October 1, 1946, applied to
existing and future franchises. The franchises of the private
respondent were already in existence at the time of the
adoption of the said amendment, since the franchises were
accepted on March 1, 1948 after approval by the President
of the Philippines on February 24, 1948. The private
respondent's original franchises did not contain the proviso
that the tax provided therein "shall be in lieu of all taxes";
moreover, the franchises contained a reservation clause that
they shall be subject to amendment, alteration, or repeal,
but even in the absence of such clause, the power of the
Legislature to alter, amend, or repeal any franchise is always

deemed reserved. The franchises of the private respondent

have been modified or amended by Section 259 of the Tax
Code, the petitioner submits.
We find no merit in petitioner's contention. R.A. No. 3843
granted the private respondent a legislative franchise in
June, 1963, amending, altering, or even repealing the
original municipal franchises, and providing that the privaterespondent should pay only a 2% franchise tax on its gross
receipts, "in lieu of any and all taxes and/or licenses of any
kind, nature or description levied, established, or collected
by any authority whatsoever, municipal, provincial, or
national, now or in the future x x x and effective further
upon the date the original franchise was granted, no other
tax and/or licenses other than the franchise tax of two per
centum on the gross receipts x x x shall be collected, any
provision of law to the contrary notwithstanding." Thus, by
virtue of R.A. No. 3843, the private respondent was liable to
pay only the 2% franchise tax, effective from the date the
original municipal franchise was granted.
On the question as to whether or not Section 4 of R.A. No.
3843 is unconstitutional for being violative of the "uniformity
and equality of taxation" clause of the Constitution, and, if
adjudged valid, whether or not it should be given retroactive
effect, the petitioner submits that the said law is
unconstitutional insofar as it provides for the payment by the
private respondent of a franchise tax of 2% of its gross
receipts, while other taxpayers similarly situated were
subject to the 5% franchise tax imposed in Section 259 of
the Tax Code, thereby discriminatory and violative of the
rule on uniformity and equality of taxation.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same
class shall be taxed alike. The Legislature has the inherent

power not only to select the subjects of taxation but to grant

exemptions. Tax exemptions have never been deemed
violative of the equal protection clause.[1] It is true that the
private respondent's municipal franchises were obtained
under Act No. 667[2] of the Philippine Commission, but these
original franchises have been replaced by a new legislative
franchise, i.e. R.A. No. 3843. As correctly held by the
respondent court, the latter was granted subject to the
terms and conditions established in Act No. 3636,[3] as
amended by C.A. No. 132. These conditions identify the
private respondent's power plant as falling within that class
of power plants created by Act No. 3636, as amended. The
benefits of the tax reduction provided by law (Act No. 3636
as amended by C.A. No. 132 and R.A. No. 3843) apply to the
respondent's power plant and others circumscribed within
this class. R.A. No. 3843 merely transferred the petitioner's
power plant from that class provided for in Act No. 667, as
amended, to which it belonged until the approval of R.A. No.
3843, and placed it within the class falling under Act No.
3636, as amended. Thus, it only effected the transfer of a
taxable property from one class to another.
We do not have the authority to inquire into the wisdom of
such act. Furthermore, the 5% franchise tax rate provided in
Section 259 of the Tax Code was never intended to have a
universal application.[4] We note that the said Section 259 of
the Tax Code expressly allows the payment of taxes at rates
lower than 5% when the charter granting the franchise of a
grantee, like the one granted to the private respondent
under Section 4 of R.A. No. 3843, precludes the imposition
of a higher tax. R.A. No. 3843 did not only fix and specify a
franchise tax of 2% on its gross receipts, but made it "in lieu
of any and all taxes, all laws to the contrary
notwithstanding", thus, leaving no room for doubt regarding
the legislative intent. "Charters or special laws granted and
enacted by the Legislature are in the nature of private
contracts. They do not constitute a part of the machinery of

the general government. They are usually adopted after

careful consideration of the private rights in relation with
resultant benefits to the State x x x in passing a special
charter the attention of the Legislature is directed to the
facts and circumstances which the act or charter is intended
to meet. The Legislature consider (sic) and make (sic)
provision for all the circumstances of a particular case." [5] In
view of the foregoing, we find no reason to disturb the
respondent court's ruling upholding the constitutionality of
the law in question.
Given its validity, should the said law be applied
retroactively so as to render uncollectible the taxes in
question which were assessed before its enactment? The
question of whether a statute operates retrospectively or
only prospectively depends on the legislative intent. In the
instant case, Act No. 3843 provides that "effective ... upon
the date the original franchise was granted, no other tax
and/or licenses other than the franchise tax of two per
centum on the gross receipts ... shall be collected, any
provision to the contrary notwithstanding." Republic Act No.
3843 therefore specifically provided for the retroactive effect
of the law.
The last issue to be resolved is whether or not the privaterespondent is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before the approval of
its municipal franchises. As aforestated, the franchises were
approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was
liable for the payment of percentage and fixed taxes as seller
of light, heat, and power - which, as the petitioner claims,
amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other
than the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the period

before the franchise was granted, i.e. before February 24,

1948. However, as pointed out by the respondent court in its
findings, during the period covered by the instant case, that
is from January 1, 1946 to December 31, 1961, the private
respondent paid the amount of P34,184.36, which was very
much more than the amount rightfully due from it. Hence,
the private respondent should no longer be made to pay for
the deficiency tax in the amount of P3.025.98 for the period
from January 1, 1946 to February 29, 1948.
WHEREFORE, the appealed decision of the respondent
Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz,
Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes, GrioAquino, and Medialdea, JJ., concur.
*

Penned by Hon. Mariano Nable, Presiding Judge, Hon.

Roman M. Umali, Associate Judge, concurring.
[1]

Gomez v. Palomar, 25 SCRA 827.

[2]

An Act prescribing the method of applying to governments

of municipalities x x x and of provinces for franchises to
construct and operate street railway, electric light and
power and telephone lines x x x. (The model franchise for
municipal franchises or the basic authority for granting
municipal franchises.)
[3]

An Act prescribing the form for bills for the granting of

electric light and power franchises, and for other purposes;
Section 10 thereof provides for the payment of a franchise
tax of 2% of the gross earnings x x x in lieu of any and all

taxes x x x (Model Franchise for legislative franchises).

[4]

See Phil. Railway Co. v. Collector of Internal Revenue, 91

Phil. 35; Visayan Electric Co. v. David, 92 Phil. 969.
[5]

Manila Railroad Co. v. David, 40 Phil. 224.

G.R. No. L-4817, May 26, 1954

SILVESTRE M. PUNSALAN, ET AL., PLAINTIFFS AND
APPELLANTS VS. THE MUNICIPAL BOARD OF THE CITY OF
MANILA, ET AL., DEFENDANTS AND APPELLANTS.
DECISION

REYES, J.:
This suit was commenced in the Court of First Instance of
Manila by two lawyers, a medical practitioner, a public
accountant, a dental surgeon and a pharmacist, purportedly
"in their own behalf and in behalf of other professionals
practicing in the City of Manila who may desire to join it."
Object of the suit is the annulment of Ordinance No. 3398 of
the City of Manila together with the provision of the Manila
charter authorizing it and the refund of taxes collected
under the ordinance but paid under protest.
The ordinance in question, which was approved by the
municipal board of the City of Manila on July 25, 1950,
imposes a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment of
the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such
fine and imprisonment in the discretion of the court." Among
the professions taxed were those to which plaintiffs belong.
The ordinance was enacted pursuant to paragraph (1) of
section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the
Municipal Board of said city to impose a municipal
occupation tax, not to exceed P50 per annum, on persons
engaged in the various professions above referred to.
Having already paid their occupation tax under section 201
of the National Internal Revenue Code, plaintiffs, upon being

required to pay the additional tax prescribed in the

ordinance, paid the same under protest and then brought
the present suit for the purpose already stated. The lower
court upheld the validity of the provision of law authorizing
the enactment of the ordinance but declared the ordinance
itself illegal and void on the ground that the penalty therein
provided for non-payment of the tax was not legally
authorized. From this decision both parties appealed to this
Court, and the only question they have presented for our
determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid
plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower
court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the
authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of this tax ordinance (section
18 of the Manila Charter) in express terms also empowers
the Municipal Board "to fix penalties for the violation of
ordinances which shall not exceed to (sic) two hundred
pesos fine or six months' imprisonment, or both such fine
and imprisonment, for a single offense" Hence, the
pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that
this ordinance and the law authorizing it constitute class
legislation, are unjust and oppressive, and authorize what
amounts to double taxation.
In raising the hue and cry of "class legislation", the burden
of plaintiffs' complaint is not that the professions to which
they respectively belong have been singled out for the
imposition of this municipal occupation tax; and in any
event, the Legislature may, in its discretion, select what

occupations shall be taxed, and in the exercise of that

discretion it may tax all, or it may select for taxation certain
classes and leave the others untaxed. (Cooley on Taxation,
Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that
while the law has authorized the City of Manila to impose
the said tax, it has withheld that authority from other
chartered cities, not to mention municipalities. We do not
think it is for the courts to judge what particular cities or
municipalities should be empowered to impose occupation
taxes in addition to those imposed by the National
Government. That matter is peculiarly within the domain of
the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National
Government and with a population and volume of trade
many times that of any other Philippine city or municipality,
Manila, no doubt, offers a more lucrative field for the
practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation
tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because
they say that it creates discrimination within a class in that
while professionals with offices in Manila have to pay the
tax, outsiders who have no offices in the city but practice
their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The
ordinance imposes the tax upon every person "exercising" or
"pursuing"in the City of Manila naturallyany one of the
occupations named, but does not say that such person must
have his office in Manila. What constitutes exercise or
pursuit of a profession in the city is a matter of judicial
determination.
The argument against double taxation may not be invoked
where one tax is imposed by the state and the other is
imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it
being widely recognized that there is nothing inherently

obnoxious in the requirement that license fees or taxes be

exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions
thereof. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is
reversed in so far as it declares Ordinance No. 3398 of the
City of Manila illegal and void and affirmed in so far as it
holds the validity of the provision of the Manila charter
authorizing it. With costs against plaintiffs-appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.

DISSENTING

PARAS, C. J.:
I am constrained to dissent from the decision of the majority
upon the ground that the Municipal Board of Manila cannot
outlaw what Congress of the Philippines has already
authorized. The plaintiffs-appellantstwo lawyers, a
physician, an accountant, a dentist and a pharmacisthad
already paid the occupation tax under section 201 of the
National Internal Revenue Code and are there- by duly
licensed to practice their respective professions throughout
the Philippines; and yet they had been required to pay
another occupation tax under Ordinance No. 3398 for
practising in the City ,of Manila. This is a glaring example of
contradictionthe license granted by the National
Government is in effect withdrawn by the City in case of nonpayment of the tax under the ordinance. If it be argued that
the national occupation tax is collected to allow the
professional residing in Manila to pursue his calling in other
places in the Philippines, it should then be exacted only from
professionals practising simultaneously in and outside of

Manila. At any rate, we are confronted with the following

situation: Whereas the professionals elsewhere pay only one
occupation tax, in the City of Manila they have to pay two,
although all are on equal footing insofar as opportunities for
earning money out of their pursuits are concerned. The
statement that practice in Manila is more lucrative than in
the provinces, may be true perhaps with reference only to a
limited few, but certainly not to the general mass of
practitioners in any field. Again, provincial residents who
have occasional or isolated practice in Manila may have to
pay the city tax. This obvious discrimination or lack of
uniformity cannot be brushed aside or justified by any trite
pronouncement that double taxation is legitimate or that
legislation may validly affect certain classes.
My position is that a professional who has paid the
occupation tax under the National Internal Revenue Code
should be allowed to practice in Manila even without paying
the similar tax imposed by Ordinance No. 3398. The City
cannot give what said professional already has. I would not
say that this Ordinance, enacted by the Municipal Board
pursuant to paragraph 1 of section 18 of the Revised Charter
of Manila, as amended by Republic Act No. 409, empowering
the Board to impose a municipal occupation tax not to
exceed P50 per annum, is invalid; but that only one tax,
either under the Internal Revenue Code or under Ordinance
No. 3398, should be imposed upon a practitioner in Manila.

FIRST DIVISION
G.R. Nos. L-31776-78, October 21, 1993
THE COMMISSIONER OF CUSTOMS, PETITIONER, VS.
MANILA STAR FERRY, INC., UNITED NAVIGATION &
TRANSPORT CORPORATION, CEABA SHIPPING AGENCY,
INC., AND THE COURT OF TAX APPEALS, RESPONDENTS.
DECISION

QUIASON J.:
This is a petition for review under Rule 44 of the Revised
Rules of Court filed by the Commissioner of Customs to set
aside the consolidated Decision dated September 30, 1969 of
the Court of Tax Appeals in C.T.A. Cases Nos. 1836, 1837
and 1839, modifying his decision by ordering only the
payment of a fine, in lieu of the forfeiture of private
respondents' vessels used in the smuggling of foreign-made
cigarettes and other goods.
Private respondents Manila Star Ferry, Inc. and the United
Navigation & Transport Corporation are domestic
corporations engaged in the lighterage business and are the
owners and operators, respectively, of the tugboat Orestes
and the barge-lighter UN-L-106. Private respondent Ceaba
Shipping Agency, Inc. (Ceaba) is the local shipping agent of
the Chiat Lee Navigation Trading Co. of Hongkong, the
registered owner and operator of the S/S Argo, an ocean going vessel.
On June 12, 1966, the S/S Argo, the Orestes and the UN-L106, as well as two wooden bancas of unknown ownership,
were apprehended for smuggling by a patrol boat of the
Philippine Navy along the Explosives Anchorage Area of
Manila Bay. The patrol boat caught the crew of the S/S Argo

in the act of unloading foreign-made goods onto the UN-L106, which was towed by the Orestes and escorted by the
two wooden bancas. The goods consisted of 330 cases of
foreign-made cigarettes, assorted ladies wear, clothing
material and plastic bags, all of which were not manifested
and declared by the vessel for discharge in Manila. No
proper notice of arrival of the S/S Argo was given to the
local customs authorities.
Thereafter, seizure and forfeiture proceedings were
separately instituted before the Collector of Customs for the
Port of Manila against the S/S Argo (Seizure Identification
Case No. 10009, Manila) and its cargo (S.I. No.10009-C,
Manila), the Orestes (S.I. No. 10009-A, Manila), the UN-L106 (S.I. No.10009-B, Manila) and the two bancas (S.I.
No.10009-D, Manila), charging them with violations of
Section 2530 (a), (b) and (c) of the Tariff and Customs Code.
Criminal charges were likewise filed against the officers and
crew of said vessels and watercraft.
In the seizure and forfeiture proceedings, the Collector of
Customs rendered a consolidated decision dated December
27, 1966, declaring the forfeiture of said vessels and
watercraft in favor of the Philippine government by virtue of
Section 2530 (a) and (b) of the Tariff and Customs Code.
All respondents therein, except the owner of the two wooden
bancas, separately appealed the consolidated decision of the
Collector of Customs for the Port of Manila to the
Commissioner of Customs. In his Decision dated February 1,
1967, the Acting Commissioner of Customs found the
Collector's decision to be in order and affirmed the same
accordingly.
The same respondents separately elevated the matter to the
Court of Tax Appeals (C.T.A. Cases Nos. 1836, 1837 and
1839), which in a consolidated decision dated September 30,

1989, substantially modified the decision of the

Commissioner of Customs, stating thus:
"IN VIEW OF THE FOREGOING, the Manila Star Ferry, Inc.,
petitioner in C.T.A. Case No. 1836, and the United
Navigation & Transport Corporation, petitioner in C.T.A.
Case No. 1837, are each hereby ordered to pay a fine of five
thousand pesos (P5,000.00) and Ceaba Shipping Agency,
Inc., petitioner in C.T.A. Case No. 1839, a fine of ten
thousand pesos (P10,000.00), within thirty days from the
date this decision becomes final" (Rollo, p. 100).
It is this decision of the Court of Tax Appeals that is being
questioned by the Commissioner of Customs before this
Court.
On February 7, 1978, petitioner filed a Motion to Allow Sale
of the Vessel (S/S Argo), informing this Court that the said
vessel was deteriorating and depreciating in value, and was
congesting the Cavite Naval Base where it was berthed.
Petitioner prayed that it be allowed to sell the S/S Argo at
the best possible price. The Court granted petitioner's
motion.
An Urgent Motion for Modification was filed by respondent
Ceaba, praying that it, instead of petitioner, be allowed to
sell the S/S Argo through a negotiated sale and not a public
sale. In a resolution dated May 12, 1978, this Court granted
respondent Ceaba's motion, ordering it, however, to first pay
the fine of P10,000.00 stated in the decision of the
Commissioner of Customs and then "deposit the proceeds of
the sale with a reputable commercial bank in an interestbearing account in trust for whosoever will prevail in the
cases at bar" (Rollo, p. 317). A manager's check in the
amount of P10,000.00 was made payable to the
Commissioner of Customs and was delivered by respondent
Ceaba to the Cashier of the Supreme Court. In the

Resolution of July 9, 1978, this payment was accepted,

subject to the Court's decision in the Case (Rollo, p. 327).
The S/S Argo was sold, with this Court's approval, for
P125,000.00 to one Severino Caperlac. The proceeds were
subjected to a charging lien of respondent Ceaba's attorneys
in the amount of P315,000.00 (Rollo, p. 402).
The petition for review posits the theory that the subject
vessels and watercraft were engaged in smuggling, and that
the S/S Argo should be forfeited under Section 2530 (a),
while the barge UN-L-106 and tugboat Orestes should be
forfeited under Section 2530(c) of the Tariff and Customs
Code.
Section 2530(a) and (c) of said law reads as follows:
"Sec. 2530. Property Subject to Forfeiture under Tariff and
Customs Laws. - Any vessel or aircraft, cargo, articles and
other objects shall, under the following conditions, be
subject to forfeiture:
(a) Any vessel or aircraft, including cargo, which shall be
used unlawfully in the importation or exportation of articles
into or from any Philippine port or place except a port of
entry; and any vessel which, being of less than thirty tons
capacity shall be used in the importation of articles into any
Philippine port or place except into a port of the Sulu sea
where importation in such vessel may be authorized by the
Commissioner, with the approval of the department head.
xxx
xxx
xxx
(c) Any vessel or aircraft into which shall be transferred
cargo unladen contrary to law prior to the arrival of the
importing vessel or aircraft at her port of destination."
The penalty of forfeiture is imposed on any vessel, engaged
in smuggling if the conditions enumerated in Section 2530
(a) are compresent.

These conditions are:

(1) The vessel is "used unlawfully in the importation or
exportation of articles into or from" the Philippines;
(2) The articles are imported or exported into or from "any
Philippine port or place, except a port of entry;" or
(3) If the vessel has a capacity of less than 30 tons and is
"used in the importation of articles into any Philippine port
or place other than a port of the Sulu Sea, where
importation in such vessel may be authorized by the
Commissioner, with the approval of the department head."
There is no question that the vessel S/S Argo was
apprehended while unloading goods of foreign origin onto
the barge UN-L-106 and the tugboat Orestes, without the
necessary papers showing that the goods were entered
lawfully through a port of entry and that taxes and duties on
said goods had been paid. The claim that the S/S Argo made
an emergency call at the Port of Manila for replacement of
crew members and had to stop at the Explosives Anchorage
Area because it was carrying nitric acid, a dangerous cargo,
cannot be upheld much less given credence by this Court.
The facts found by the Court of Tax Appeals are in
consonance with the findings of the Collector of Customs,
and the Commissioner of Customs. Absent a showing of any
irregularity or arbitrariness, the findings of fact of quasijudicial and administrative bodies are entitled to great
weight and are conclusive and binding on this Court. (Feeder
International Line, Pte., Ltd v. Court of Appeals, 197 SCRA
842 [1991]; Jaculina v. National Police Commission, 200
SCRA 489 [1991]). Moreover, the Collector of Customs in S.I.
No. 10009-C, Manila, ordered on July 28, 1966 the forfeiture
of the subject cargo after finding that they were, in truth and
in fact, smuggled articles (Rollo, p. 7). Respondent Ceaba

did not appeal from said order and the same has become
final.
In its decision, the Court of Tax Appeals held that while the
S/S Argo was caught unloading smuggled goods in Manila
Bay, the said vessel and the goods cannot be forfeited in
favor of the government because the Port of Manila is a port
of entry (R.A. 1937, Sec. 701).
The Commissioner of Customs argues that the phrase
"except a port of entry" should mean "except a port of
destination," and inasmuch as there is no showing that the
Port of Manila was the port of destination of the S/S Argo, its
forfeiture was in order.
We disagree.
Section 2530(a) in unmistakable terms provides that a vessel
engaged in smuggling "in a port of entry" cannot be
forfeited. This is the clear and plain meaning of the law. It is
not within the province of the Court to inquire into the
wisdom of the law, for indeed, we are bound by the words of
the statute. Neither can we put words in the mouths of the
lawmakers. A verba legis non est recedendum.
It must be noted that the Revised Administrative Code of
1917 from which the Tariff and Customs Code is based,
contained in Section 1363(a) thereof almost exactly the same
provision in Section 2530(a) of the Tariff and Customs Code,
including the phrase "except a port of entry." If the
lawmakers intended the term "port of entry" to mean "port
of destination," they could have expressed facilely such
intention when they adopted the Tariff and Customs Code in
1957. Instead of amending the law, Congress reenacted
verbatim the provision of Section 1363 (a) of the Revised
Administrative Code of 1917. Congress, in the very same
Article 2530 of the Tariff and Customs Code, used the term
"port of destination" in subsections (c) and (d) thereof. This

is a clear indication that Congress is aware of the distinction

between the two wordings.
It was only in 1972, after this case was instituted, when the
questioned exception ("except a port of entry") in Section
2530(a) of the Tariff and Customs Code was deleted by P.D.
No. 74.
Nevertheless, although the vessel cannot be forfeited, it is
subject to a fine of not more than P10,000.00 for failure to
supply the requisite manifest for the unloaded cargo under
Section 2521 of Code, which reads as follows:
"Sec. 2521. Failure to Supply Requisite Manifests. - If any
vessel or aircraft enters or departs from a port of entry
without submitting the proper manifest to the customs
authorities, or shall enter or depart conveying unmanifested
cargo other than as stated in the next preceding section
hereof, such vessel or aircraft shall be fined in a sum not
exceeding ten thousand pesos."
xxx
xxx
xxx
The barge-lighter UN-L-106 and the tugboat Orestes, on the
other hand, are subject to forfeiture under paragraph (c) of
Section 2530 of the Tariff and Customs Code. The bargelighter and tugboat fall under the term "vessel" which
includes every sort of boat, craft or other artificial
contrivance used, or capable of being used, as a means of
transportation on water (R.A. No. 1937, Sec. 3514). Said
section 2530(c) prescribes the forfeiture of any vessel or
aircraft into which shall be transferred cargo unladen
contrary to law before the arrival of the vessel or aircraft at
her port of destination. Manila was not the port of
destination, much less a port of call of the S/S Argo, the
importing vessel. The S/S Argo left Hongkong and was
bound for Jesselton, North Borneo, Djakarta and Surabaja,

Indonesia; and yet it stopped at the Port of Manila to unload

the smuggled goods onto the UN-L-106 and the Orestes.
Forfeiture proceedings are proceedings in rem
(Commissioner of Customs v. Court of Tax Appeals, 138
SCRA 581 [1985] citing Vierneza v. Commissioner of
Customs, 24 SCRA 394 [1968]) and are directed against the
res. It is no defense that the owner, of the vessel sought to
be forfeited had no actual knowledge that his property was
used illegally. The absence or lack of actual knowledge of
such use is a defense personal to the owner himself which
cannot in any way absolve the vessel from the liability of
forfeiture (Commissioner of Customs v. Court of Appeals,
supra; U.S. v. Steamship "Rubi", 32 Phil. 228, 239 [1915]).
WHEREFORE, the consolidated Decision dated September
30, 1969 of respondent Court of Tax Appeals in C.T.A. Cases
Nos. 1836, 1837 and 1839 is MODIFIED as follows: (1) that
the S/S Argo through respondent Ceaba Shipping Agency,
Inc. is ordered to pay a fine of P10,000.00, to be satisfied
from the deposit of the same amount by respondent Ceaba to
the Cashier of this Court per Resolution of July 9, 1978; (2)
that the Cashier of this Court is ordered to release the said
amount for payment to the Commissioner of Customs, within
thirty (30) days from the date this decision becomes final;
and (3) the tugboat Orestes and the barge-lighter UN-L-106
of respondents Manila Star Ferry, Inc. and the United
Navigation & Transport Corporation respectively, are
ordered forfeited in favor of the Philippine Government.
SO ORDERED.
Cruz, (Chairman), Grio-Aquino, Davide, Jr., and Bellosillo,
JJ., concur.

EN BANC
G.R. No. 117359, July 23, 1998
DAVAO GULF LUMBER CORPORATION, PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE AND COURT OF
APPEALS, RESPONDENTS.
DECISION

PANGANIBAN, J.:
Because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated,
any exemption from the payment of a tax must be clearly
stated in the language of the law; it cannot be merely
implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this
petition for review under Rule 45 of the Rules of Court,
assailing the Decision[1] of Respondent Court of Appeals[2] in
CA-GR SP No. 34581 dated September 26, 1994, which
affirmed the June 21, 1994 Decision[3] of the Court of Tax
Appeals[4] in CTA Case No. 3574. The dispositive portion of
the CTA Decision affirmed by Respondent Court reads:
WHEREFORE, judgment is hereby rendered ordering the
respondent to refund to the petitioner the amount of
P2,923.15 representing the partial refund of specific taxes
paid on manufactured oils and fuels.[5]
The Antecedent Facts

The facts are undisputed.[6] Petitioner is a licensed forest

concessionaire possessing a Timber License Agreement
granted by the Ministry of Natural Resources (now
Department of Environment and Natural Resources). From
July 1, 1980 to January 31, 1982 petitioner purchased, from
various oil companies, refined and manufactured mineral oils
as well as motor and diesel fuels, which it used exclusively
for the exploitation and operation of its forest concession.
Said oil companies paid the specific taxes imposed, under
Sections 153 and 156[7] of the 1977 National Internal
Revenue Code (NIRC), on the sale of said products. Being
included in the purchase price of the oil products, the
specific taxes paid by the oil companies were eventually
passed on to the user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent
Commissioner of Internal Revenue (CIR) a claim for refund
in the amount of P120,825.11, representing 25% of the
specific taxes actually paid on the above-mentioned fuels and
oils that were used by petitioner in its operations as forest
concessionaire. The claim was based on Insular Lumber Co.
vs. Court of Tax Appeals[8] and Section 5 of RA 1435 which
reads:
Section 5. The proceeds of the additional tax on
manufactured oils shall accrue to the road and bridge funds
of the political subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils
mentioned above are used by miners or forest
concessionaires in their operations, twenty-five per centum
of the specific tax paid thereon shall be refunded by the
Collector of Internal Revenue upon submission of proof of
actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending
section one hundred forty-two of the Internal Revenue Code:
Provided, further, That no new road shall be constructed
unless the routes or location thereof shall have been
approved by the Commissioner of Public Highways after a

determination that such road can be made part of an

integral and articulated route in the Philippine Highway
System, as required in section twenty-six of the Philippine
Highway Act of 1953.
It is an unquestioned fact that petitioner complied with the
procedure for refund, including the submission of proof of
the actual use of the aforementioned oils in its forest
concession as required by the above-quoted law. Petitioner,
in support of its claim for refund, submitted to the CIR the
affidavits of its general manager, the president of the
Philippine Wood Products Association, and three
disinterested persons, all attesting that the said
manufactured diesel and fuel oils were actually used in the
exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition
for review docketed as CTA Case No. 3574. On June 21,
1994, the CTA rendered its decision finding petitioner
entitled to a partial refund of specific taxes the latter had
paid in the reduced amount of P2,923.15. The CTA ruled that
the claim on purchases of lubricating oil (from July 1, 1980
to January 19, 1981), and on manufactured oils other than
lubricating oils (from July 1, 1980 to January 4, 1981) had
prescribed. Disallowed on the ground that they were not
included in the original claim filed before the CIR were the
claims for refund on purchases of manufactured oils from
January 1, 1980 to June 30, 1980 and from February 1, 1982
to June 30, 1982. In regard to the other purchases, the CTA
granted the claim, but it computed the refund based on rates
deemed paid under RA 1435, and not on the higher rates
actually paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be
the increased rates prescribed by Sections 153 and 156 of
the NIRC, petitioner elevated the matter to the Court of
Appeals. As noted earlier, the Court of Appeals affirmed the
CTA Decision. Hence, this petition for review. [9]

Public Respondents Ruling

In its petition before the Court of Appeals, petitioner raised
the following arguments:
I.
The respondent Court of Tax Appeals failed to apply
the Supreme Courts Decision in Insular Lumber Co. v. Court
of Tax Appeals which granted the claim for partial refund of
specific taxes paid by the claimant, without qualification or
limitation.
II.
The respondent Court of Tax Appeals ignored the
increase in rates imposed by succeeding amendatory laws,
under which the petitioner paid the specific taxes on
manufactured and diesel fuels.
III.
In its decision, the respondent Court of Tax Appeals
ruled contrary to established tenets of law when it lent itself
to interpreting Section 5 of R.A. 1435, when the construction
of said law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative
provisions to be applied but rather, Sections 153 and 156 of
the National Internal Revenue Code, as amended.
V.
To rule that the basis for computation of the refunded
taxes should be Sections 1 and 2 of R.A. 1435 rather than
Section 153 and 156 of the National Internal Revenue Code
is unfair, erroneous, arbitrary, inequitable and
oppressive.[10]
The Court of Appeals held that the claim for refund should
indeed be computed on the basis of the amounts deemed
paid under Sections 1 and 2 of RA 1435. In so ruling, it cited
our pronouncement in Commissioner of Internal Revenue v.
Rio Tuba Nickel Mining Corporation[11] and our subsequent
Resolution dated June 15, 1992 clarifying the said Decision.

Respondent Court further ruled that the claims for refund

which prescribed and those which were not filed at the
administrative level must be excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No.
1435 to the refund of 25% of the amount of specific taxes it
actually paid on various refined and manufactured mineral
oils and other oil products taxed under Sec. 153 and Sec.
156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National
Internal Revenue Code.[12]
In the main, the question before us pertains only to the
computation of the tax refund. Petitioner argues that the
refund should be based on the increased rates of specific
taxes which it actually paid, as prescribed in Sections 153
and 156 of the NIRC. Public respondent, on the other hand,
contends that it should be based on specific taxes deemed
paid under Sections 1 and 2 of RA 1435.
The Courts Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to
a partial refund under Section 5 of RA 1435, which was
enacted to provide means for increasing the Highway
Special Fund.
The rationale for this grant of partial refund of specific taxes
paid on purchases of manufactured diesel and fuel oils rests
on the character of the Highway Special Fund. The specific
taxes collected on gasoline and fuel accrue to the Fund,

which is to be used for the construction and maintenance of

the highway system. But because the gasoline and fuel
purchased by mining and lumber concessionaires are used
within their own compounds and roads, and their vehicles
seldom use the national highways, they do not directly
benefit from the Fund and its use. Hence, the tax refund
gives the mining and the logging companies a measure of
relief in light of their peculiar situation.[13] When the
Highway Special Fund was abolished in 1985, the reason for
the refund likewise ceased to exist.[14] Since petitioner
purchased the subject manufactured diesel and fuel oils from
July 1, 1980 to January 31, 1982 and submitted the required
proof that these were actually used in operating its forest
concession, it is entitled to claim the refund under Section 5
of RA 1435.
Tax Refund Strictly Construed
Against the Grantee
Petitioner submits that it is entitled to the refund of 25
percent of the specific taxes it had actually paid for the
petroleum products used in its operations. In other words, it
claims a refund based on the increased rates under Sections
153 and 156 of the NIRC.[15] Petitioner argues that the
statutory grant of the refund privilege, specifically the
phrase twenty-five per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal
Revenue, is clear and unambiguous enough to require
construction or qualification thereof.[16] In addition, it cites
our pronouncement in Insular Lumber vs. Court of Tax
Appeals:[17]
x x x Section 5 [of RA 1435] makes reference to
subparagraphs 1 and 2 of Section 1 only for the purpose of
prescribing the procedure for refund. This express reference
cannot be expanded in scope to include the limitation of the
period of refund. If the limitation of the period of refund of

specific taxes paid on oils used in aviation and agriculture is

intended to cover similar taxes paid on oil used by miners
and forest concessionaires, there would have been no need
of dealing with oil used by miners and forest concessions
separately and Section 5 would very well have been included
in Section 1 of Republic Act No. 1435, notwithstanding the
different rate of exemption.
Petitioner then reasons that the express mention of Section
1 of RA 1435 in Section 5 cannot be expanded to include a
limitation on the tax rates to be applied x x x [otherwise,]
Section 5 should very well have been included in Section 1 x
x x.[18]
The Court is not persuaded. The relevant statutory
provisions do not clearly support petitioners claim for
refund. RA 1435 provides:
SECTION 1.
Section one hundred and forty-two of
the National Internal Revenue Code, as amended, is further
amended to read as follows:
SEC. 142. Specific tax on manufactured oils and other
fuels. -- On refined and manufactured mineral oils and motor
fuels, there shall be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two
and one-half centavos;
(b) Lubricating oils, per liter of volume capacity, seven
centavos;
(c) Naptha, gasoline, and all other similar products of
distillation, per liter of volume capacity, eight centavos; and
(d) On denatured alcohol to be used for motive power, per
liter of volume capacity, one centavo: Provided, That if the

denatured alcohol is mixed with gasoline, the specific tax on

which has already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the purpose of
this subsection, the removal of denatured alcohol of not less
than one hundred eighty degrees proof (ninety per centum
absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are, during the
five years from June eighteen, nineteen hundred and fifty
two, used in agriculture and aviation, fifty per centum of the
specific tax paid thereon shall be refunded by the Collector
of Internal Revenue upon the submission of the following:
(1)
A sworn affidavit of the producer and two
disinterested persons proving that the said oils were actually
used in agriculture, or in lieu thereof
(2)
Should the producer belong to any producers
association or federation, duly registered with the Securities
and Exchange Commission, the affidavit of the president of
the association or federation, attesting to the fact that the
oils were actually used in agriculture.
(3)
In the case of aviation oils, a sworn certificate
satisfactory to the Collector proving that the said oils were
actually used in aviation: Provided, That no such refunds
shall be granted in respect to the oils used in aviation by
citizens and corporations of foreign countries which do not
grant equivalent refunds or exemptions in respect to similar
oils used in aviation by citizens and corporations of the
Philippines.
SEC. 2. Section one hundred and forty-five of the National
Internal Revenue Code, as amended, is further amended to
read as follows:
SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil,

commercially known as diesel fuel oil, and on all similar fuel

oils, having more or less the same generating power, there
shall be collected, per metric ton, one peso.
xxx

xxx

xxx

Section 5. The proceeds of the additional tax on

manufactured oils shall accrue to the road and bridge funds
of the political subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils
mentioned above are used by miners or forest
concessionaires in their operations, twenty-five per centum
of the specific tax paid thereon shall be refunded by the
Collector of Internal Revenue upon submission of proof of
actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending
section one hundred forty-two of the Internal Revenue Code:
Provided, further, That no new road shall be constructed
unless the route or location thereof shall have been
approved by the Commissioner of Public Highways after a
determination that such road can be made part of an
integral and articulated route in the Philippine Highway
System, as required in section twenty-six of the Philippine
Highway Act of 1953.
Subsequently, the 1977 NIRC, PD 1672 and EO 672 amended
the first two provisions, renumbering them and prescribing
higher rates. Accordingly, petitioner paid specific taxes on
petroleum products purchased from July 1, 1980 to January
31, 1982 under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and
156 provided as follows:
SEC. 153. Specific tax on manufactured oils and other fuels.
-- On refined and manufactured mineral oils and motor fuels,
there shall be collected the following taxes which shall
attach to the articles hereunder enumerated as soon as they
are in existence as such:

(a)
Kerosene, per liter of volume capacity, seven
centavos;
(b)
Lubricating oils, per liter of volume capacity, eighty
centavos;
(c)
Naphtha, gasoline and all other similar products of
distillation, per liter of volume capacity, ninety-one centavos:
Provided, That, on premium and aviation gasoline, the tax
shall be one peso per liter of volume capacity;
(d)
On denatured alcohol to be used for motive power,
per liter of volume capacity, one centavo: Provided, That,
unless otherwise provided for by special laws, if the
denatured alcohol is mixed with gasoline, the specific tax on
which has already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the purposes of
this subsection, the removal of denatured alcohol of not less
than one hundred eighty degrees proof (ninety per centum
absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
(e)
Processed gas, per liter of volume capacity, three
centavos;
(f)
Thinners and solvents, per liter of volume capacity,
fifty-seven centavos;
(g)
Liquefied petroleum gas, per kilogram, fourteen
centavos: Provided, That, liquefied petroleum gas used for
motive power shall be taxed at the equivalent rate as the
specific tax on diesel fuel oil;
(h)

Asphalts, per kilogram, eight centavos;

(i)

Greases, waxes and petrolatum, per kilogram, fifty

centavos;
(j)
Aviation turbo jet fuel, per liter of volume capacity,
fifty-five centavos. (As amended by Sec. 1, P.D. No. 1672.)
xxx

xxx

xxx

SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil,

commercially known as diesel fuel oil, and on all similar fuel
oils, having more or less the same generating power, per
liter of volume capacity, seventeen and one-half centavos,
which tax shall attach to this fuel oil as soon as it is in
existence as such."
Then on March 21, 1981, these provisions were amended by
EO 672 to read:
SEC. 153. Specific tax on manufactured oils and other fuels.
-- On refined and manufactured mineral oils and motor fuels,
there shall be collected the following taxes which shall
attach to the articles hereunder enumerated as soon as they
are in existence as such:
(a)
Kerosene, per liter of volume capacity, nine
centavos;
(b)
Lubricating oils, per liter of volume capacity, eighty
centavos;
(c)
Naphtha, gasoline and all other similar products of
distillation, per liter of volume capacity, one peso and six
centavos: Provided, That on premium and aviation gasoline,
the tax shall be one peso and ten centavos and one peso,
respectively, per liter of volume capacity;
(d)
On denatured alcohol to be used for motive power,
per liter of volume capacity, one centavo; Provided, That
unless otherwise provided for by special laws, if the
denatured alcohol is mixed with gasoline, the specific tax on

which has already been paid, only the alcohol content shall
be subject to the tax herein prescribed. For the purpose of
this subsection, the removal of denatured alcohol of not less
than one hundred eighty degrees proof (ninety per centum
absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
(e)
Processed gas, per liter of volume capacity, three
centavos;
(f)
Thinners and solvents, per liter of volume capacity,
sixty-one centavos;
(g)
Liquefied petroleum gas, per kilogram, twenty-one
centavos: Provided, That, liquified petroleum gas used for
motive power shall be taxed at the equivalent rate as the
specific tax on diesel fuel oil;
(h)

Asphalts, per kilogram, twelve centavos;

(i)
Greases, waxes and petrolatum, per kilogram, fifty
centavos;
(j)
Aviation turbo-jet fuel, per liter of volume capacity,
sixty-four centavos.
xxx

xxx

xxx

SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil,

commercially known as diesel fuel oil, and all similar fuel
oils, having more or less the same generating power, per
liter of volume capacity, twenty-five and one-half centavos,
which tax shall attach to this fuel oil as soon as it is in
existence as such.
A tax cannot be imposed unless it is supported by the clear
and express language of a statute;[19] on the other hand, once
the tax is unquestionably imposed, [a] claim of exemption

from tax payments must be clearly shown and based on

language in the law too plain to be mistaken.[20] Since the
partial refund authorized under Section 5, RA 1435, is in the
nature of a tax exemption,[21] it must be construed
strictissimi juris against the grantee. Hence, petitioners
claim of refund on the basis of the specific taxes it actually
paid must expressly be granted in a statute stated in a
language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent
pertinent statutes and found no expression of a legislative
will authorizing a refund based on the higher rates claimed
by petitioner. The mere fact that the privilege of refund was
included in Section 5, and not in Section 1, is insufficient to
support petitioners claim. When the law itself does not
explicitly provide that a refund under RA 1435 may be based
on higher rates which were nonexistent at the time of its
enactment, this Court cannot presume otherwise. A
legislative lacuna cannot be filled by judicial fiat.[22]
The issue is not really novel. In Commissioner of Internal
Revenue vs. Court of Appeals and Atlas Consolidated Mining
and Development Corporation[23] (the second Atlas case), the
CIR contended that the refund should be based on Sections
1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of
1977. In categorically ruling that Private Respondent Atlas
Consolidated Mining and Development Corporation was
entitled to a refund based on Sections 1 and 2 of RA 1435,
the Court, through Mr. Justice Hilario G. Davide, Jr.,
reiterated our pronouncement in Commissioner of Internal
Revenue vs. Rio Tuba Nickel and Mining Corporation:
Our Resolution of 25 March 1992 modifying our 30
September 1991 Decision in the Rio Tuba case sets forth the
controlling doctrine. In that Resolution, we stated:
Since the private respondents claim for refund covers

specific taxes paid from 1980 to July 1983 then we find that
the private respondent is entitled to a refund. It should be
made clear, however, that Rio Tuba is not entitled to the
whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the
aforesaid period were no longer based on the rates specified
by Sections 1 and 2 of R.A. No. 1435 but on the increased
rates mandated under Sections 153 and 156 of the National
Internal Revenue Code of 1977. We note however, that the
latter law does not specifically provide for a refund to these
mining and lumber companies of specific taxes paid on
manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA
710 [1981]), the Court held that the authorized partial refund
under Section 5 of R.A. No. 1435 partakes of the nature of a
tax exemption and therefore cannot be allowed unless
granted in the most explicit and categorical language. Since
the grant of refund privileges must be strictly construed
against the taxpayer, the basis for the refund shall be the
amounts deemed paid under Sections 1 and 2 of R.A. No.
1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby
MODIFIED. The private respondents CLAIM for REFUND is
GRANTED, computed on the basis of the amounts deemed
paid under Sections 1 and 2 of R.A. NO. 1435, without
interest.[24]
We rule, therefore, that since Atlass claims for refund cover
specific taxes paid before 1985, it should be granted the
refund based on the rates specified by Sections 1 and 2 of
R.A. No. 1435 and not on the increased rates under Sections
153 and 156 of the Tax Code of 1977, provided the claims
are not yet barred by prescription. (Underscoring supplied.)
Insular Lumber Co. and First Atlas Case
Not Inconsistent With Rio Tuba

and Second Atlas Case

Petitioner argues that the applicable jurisprudence in this
case should be Commissioner of Internal Revenue vs. Atlas
Consolidated and Mining Corp. (the first Atlas case), an
unsigned resolution, and Insular Lumber Co. vs. Court of Tax
Appeals, an en banc decision.[25] Petitioner also asks the
Court to take a second look at Rio Tuba and the second
Atlas case, both decided by Divisions, in view of Insular
which was decided en banc. Petitioner posits that [I]n view
of the similarity of the situation of herein petitioner with
Insular Lumber Company (claimant in Insular Lumber) and
Rio Tuba Nickel Mining Corporation (claimant in Rio Tuba),
a dilemma has been created as to whether or not Insular
Lumber, which has been decided by the Honorable Court en
banc, or Rio Tuba, which was decided only [by] the Third
Division of the Honorable Court, should apply.[26]
We find no conflict between these two pairs of cases. Neither
Insular Lumber Co. nor the first Atlas case ruled on the issue
of whether the refund privilege under Section 5 should be
computed based on the specific tax deemed paid under
Sections 1 and 2 of RA 1435, regardless of what was actually
paid under the increased rates. Rio Tuba and the second
Atlas case did.
Insular Lumber Co. decided a claim for refund on specific
tax paid on petroleum products purchased in the year 1963,
when the increased rates under the NIRC of 1977 were not
yet in effect. Thus, the issue now before us did not exist at
the time, since the applicable rates were still those
prescribed under Sections 1 and 2 of RA 1435.
On the other hand, the issue raised in the first Atlas case
was whether the claimant was entitled to the refund under
Section 5, notwithstanding its failure to pay any additional
tax under a municipal or city ordinance. Although Atlas

purchased petroleum products in the years 1976 to 1978

when the rates had already been changed, the Court did not
decide or make any pronouncement on the issue in that case.
Clearly, it is impossible for these two decisions to clash with
our pronouncement in Rio Tuba and second Atlas case, in
which we ruled that the refund granted be computed on the
basis of the amounts deemed paid under Sections 1 and 2 of
RA 1435. In this light, we find no basis for petitioners
invocation of the constitutional proscription that no
doctrine or principle of law laid down by the Court in a
decision rendered en banc or in division may be modified or
reversed except by the Court sitting en banc.[27]
Finally, petitioner asserts that equity and justice demand
that the computation of the tax refunds be based on actual
amounts paid under Sections 153 and 156 of the NIRC. [28]
We disagree. According to an eminent authority on taxation,
there is no tax exemption solely on the ground of equity. [29]
WHEREFORE, the petition is hereby DENIED and the
assailed Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo,
Melo, Puno, Vitug, Kapunan, Mendoza, Martinez,
Quisumbing, and Purisima, JJ., concur.

SECOND DIVISION
G.R. No. 120880, June 05, 1997
FERDINAND R. MARCOS II, PETITIONER, VS. COURT OF
APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE AND HERMINIA D. DE GUZMAN,
RESPONDENTS.
DECISION

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action
is once again assailed as precipitate and unfair, suffering the
basic and oftly implored requisites of due process of law.
Specifically, the petition assails the Decision[1] of the Court of
Appeals dated November 29, 1994 in CA-G.R. SP No. 31363,
where the said court held:
"In view of all the foregoing, we rule that the deficiency
income tax assessments and estate tax assessment, are
already final and (u)nappealable -and- the subsequent levy of
real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the
National Internal Revenue Code. This summary tax remedy
is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not
affected or precluded by the pendency of any other tax
remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby
rendered DISMISSING the petition for certiorari with prayer
for Restraining Order and Injunction.
No pronouncements as to costs.

SO ORDERED."
More than seven years since the demise of the late
Ferdinand E. Marcos, the former President of the Republic of
the Philippines, the matter of the settlement of his estate,
and its dues to the government in estate taxes, are still
unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II,
the eldest son of the decedent, questions the actuations of
the respondent Commissioner of Internal Revenue in
assessing, and collecting through the summary remedy of
Levy on Real Properties, estate and income tax
delinquencies upon the estate and properties of his father,
despite the pendency of the proceedings on probate of the
will of the late president, which is docketed as Sp. Proc. No.
10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a
Petition for Certiorari and Prohibition with an application for
writ of preliminary injunction and/or temporary restraining
order on June 28, 1993, seeking to I. Annul and set aside the Notices of Levy on real property
dated February 22, 1993 and May 20, 1993, issued by
respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26,
1993;
III. Enjoin the Head Revenue Executive Assistant Director II
(Collection Service), from proceeding with the Auction of the
real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of
Appeals rendered its Decision[2] on November 29, 1994,
ruling that the deficiency assessments for estate and income

tax made upon the petitioner and the estate of the deceased
President Marcos have already become final and
unappealable, and may thus be enforced by the summary
remedy of levying upon the properties of the late President,
as was done by the respondent Commissioner of Internal
Revenue.
"WHEREFORE, premises considered judgment is hereby
rendered DISMISSING the petition for Certiorari with
prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the
validity of the appellate court's decision, assigning the
following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING
THAT THE SUMMARY TAX REMEDIES RESORTED TO BY
THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL
PROCEEDING FOR THE ALLOWANCE OF THE LATE
PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL
PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE
PROBATE COURT TO THE EXCLUSION OF ALL OTHER
COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN
SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD
ALREADY BECOME FINAL AND UNAPPEALABLE, THERE
WAS NO NEED TO GO INTO THE MERITS OF THE
GROUNDS CITED IN THE PETITION. INDEPENDENT OF
WHETHER THE TAX ASSESSMENTS HAD ALREADY

BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT

TO QUESTION THE UNLAWFUL MANNER AND METHOD
IN WHICH TAX COLLECTION IS SOUGHT TO BE
ENFORCED BY RESPONDENTS COMMISSIONER AND DE
GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE
FAVORABLY CONSIDERED THE MERITS OF THE
FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond
the period provided in the Revenue Memorandum Circular
No. 38-68.
(2) [a] The numerous pending court cases questioning the
late President's ownership or interests in several properties
(both personal and real) make the total value of his estate,
and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents
assessment of the estate tax and their issuance of the
Notices of Levy and Sale are premature, confiscatory and
oppressive.
[b] Petitioner, as one of the late President's compulsory
heirs, was never notified, much less served with copies of
the Notices of Levy, contrary to the mandate of Section 213
of the NIRC. As such, petitioner was never given an
opportunity to contest the Notices in violation of his right to
due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE
PETITION, RESPONDENT COURT MANIFESTLY ERRED IN
RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE POWER TO
ISSUE A WRIT OF PRELIMINARY INJUNCTION TO
RESTRAIN RESPONDENTS COMMISSIONER'S AND DE
GUZMAN'S ARBITRARY METHOD OF COLLECTING THE
ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY
MEANS OF LEVY.

The facts as found by the appellate court are undisputed,

and are hereby adopted:
"On September 29, 1989, former President Ferdinand
Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to
conduct investigations and examinations of the tax liabilities
and obligations of the late president, as well as that of his
family, associates and "cronies". Said audit team concluded
its investigation with a Memorandum dated July 26, 1991.
The investigation disclosed that the Marcoses failed to file a
written notice of the death of the decedent, an estate tax
returns [sic], as well as several income tax returns covering
the years 1982 to 1986, -all in violation of the National
Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs.
Imelda R. Marcos before the Regional Trial of Quezon City
for violations of Sections 82, 83 and 84 (has penalized under
Sections 253 and 254 in relation to Section 252- a & b) of
the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the
preparation and filing of the Estate Tax Return for the estate
of the late president, the Income Tax Returns of the Spouses
Marcos for the years 1985 to 1986, and the Income Tax
Returns of petitioner Ferdinand 'Bongbong' Marcos II for the
years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency
estate tax assessment no. FAC-2-89-91-002464 (against the
estate of the late president Ferdinand Marcos in the amount
of P23,293,607,638.00 Pesos); (2) Deficiency income tax
assessment no. FAC-1-85-91-002452 and Deficiency income
tax assessment no. FAC-1-86-91-002451 (against the
Spouses Ferdinand and Imelda Marcos in the amounts of

P149,551.70 and P184,009,737.40 representing deficiency

income tax for the years 1985 and 1986); (3) Deficiency
income tax assessment nos. FAC-1-82-91-002460 to FAC-185-91-002463 (against petitioner Ferdinand 'Bongbong'
Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos;
P4,388.30 Pesos; and P6,376.60 Pesos representing his
deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of
the deficiency estate and income tax assessments were all
personally and constructively served on August 26, 1991 and
September 12, 1991 upon Mrs. Imelda Marcos (through her
caretaker Mr. Martinez) at her last known address at No.
204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the
Petition). Likewise, copies of the deficiency tax assessments
issued against petitioner Ferdinand 'Bongbong' Marcos II
were also personally and constructively served upon him
(through his caretaker) on September 12, 1991, at his last
known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the
Petition). Thereafter, Formal Assessment notices were
served on October 20, 1992, upon Mrs. Marcos c/o
petitioner, at his office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to Taxpayer
inviting Mrs. Marcos (or her duly authorized representative
or counsel), to a conference, was furnished the counsel of
Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested
administratively, by Mrs. Marcos and the other heirs of the
late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twentytwo notices of levy on real property against certain parcels
of land owned by the Marcoses - to satisfy the alleged estate
tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property

were issued for the purpose of satisfying the deficiency
income taxes.
On May 26, 1993, additional four (4) notices of Levy on real
property were again issued. The foregoing tax remedies
were resorted to pursuant to Sections 205 and 213 of the
National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty.
Loreto Ata (counsel of herein petitioner) calling the attention
of the BIR and requesting that they be duly notified of any
action taken by the BIR affecting the interest of their client
Ferdinand 'Bongbong Marcos II, as well as the interest of
the late president - copies of the aforesaid notices were
served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record,
'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
Office'.
Notices of sale at public auction were posted on May 26,
1993, at the lobby of the City Hall of Tacloban City. The
public auction for the sale of the eleven (11) parcels of land
took place on July 5, 1993. There being no bidder, the lots
were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II
filed the instant petition for certiorari and prohibition under
Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that
the enforcement of tax laws and the collection of taxes, is of
paramount importance for the sustenance of government.
Taxes are the lifeblood of the government and should be

collected without unnecessary hindrance. However, such

collection should be made in accordance with law as any
arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so
that the real purpose of taxation, which is the promotion of
the common good, may be achieved."[3]
Whether or not the proper avenues of assessment and
collection of the said tax obligations were taken by the
respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and
subsequent sale of properties of the late President Marcos
effected by the BIR are null and void for disregarding the
established procedure for the enforcement of taxes due upon
the estate of the deceased. The case of Domingo vs.
Garlitos[4] is specifically cited to bolster the argument that
"the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in
an inheritance (estate) tax, is for the claimant to present a
claim before the probate court so that said court may order
the administrator to pay the amount therefor." This remedy
is allegedly, exclusive, and cannot be effected through any
other means.
Petitioner goes further, submitting that the probate court is
not precluded from denying a request by the government for
the immediate payment of taxes, and should order the
payment of the same only within the period fixed by the
probate court for the payment of all the debts of the
decedent. In this regard, petitioner cites the case of
Collector of Internal Revenue vs. The Administratrix of the
Estate of Echarri (67 Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas
and Collector of Internal Revenue (52 Phil 803), relied upon

by the petitioner-appellant is good authority on the

proposition that the court having control over the
administration proceedings has jurisdiction to entertain the
claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and
collectible. And the rule laid down in that case must be
understood in relation to the case of Collector of Customs vs.
Haygood, supra., as to the procedure to be followed in a
given case by the government to effectuate the collection of
the tax. Categorically stated, where during the pendency of
judicial administration over the estate of a deceased person
a claim for taxes is presented by the government, the court
has the authority to order payment by the administrator;
but, in the same way that it has authority to order payment
or satisfaction, it also has the negative authority to deny the
same. While there are cases where courts are required to
perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present
character is not one of them; and here, the court cannot be
an organism endowed with latitude of judgment in one
direction, and converted into a mere mechanical contrivance
in another direction."
On the other hand, it is argued by the BIR, that the state's
authority to collect internal revenue taxes is paramount.
Thus, the pendency of probate proceedings over the estate
of the deceased does not preclude the assessment and
collection, through summary remedies, of estate taxes over
the same. According to the respondent, claims for payment
of estate and income taxes due and assessed after the death
of the decedent need not be presented in the form of a claim
against the estate. These can and should be paid
immediately. The probate court is not the government
agency to decide whether an estate is liable for payment of
estate of income taxes. Well-settled is the rule that the
probate court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting,

albeit with limited jurisdiction, as a probate court over
estate of deceased individual, is not a trifling thing. The
court's jurisdiction, once invoked, and made effective,
cannot be treated with indifference nor should it be ignored
with impunity by the very parties invoking its authority.
In testament to this, it has been held that it is within the
jurisdiction of the probate court to approve the sale of
properties of a deceased person by his prospective heirs
before final adjudication;[5] to determine who are the heirs of
the decedent;[6] the recognition of a natural child;[7] the
status of a woman claiming to be the legal wife of the
decedent;[8] the legality of disinheritance of an heir by the
testator;[9] and to pass upon the validity of a waiver of
hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to
the authority of the Bureau of Internal Revenue to collect by
the summary remedy of levying upon, and sale of real
properties of the decedent, estate tax deficiencies, without
the cognition and authority of the court sitting in probate
over the supposed will of the deceased.
The nature of the process of estate tax collection has been
described as follows:
"Strictly speaking, the assessment of an inheritance tax does
not directly involve the administration of a decedent's estate,
although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made
the duty of the probate court to make the amount of the
inheritance tax a part of the final decree of distribution of
the estate. It is not against the property of decedent, nor is it
a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee,
etc., has in the property formerly held by decedent. Further,
under some statutes, it has been held that it is not a suit or

controversy between the parties, nor is it an adversary

proceeding between the state and the person who owes the
tax on the inheritance. However, under other statutes it has
been held that the hearing and determination of the cash
value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection
of estate tax, is executive in character, as the legislature has
seen it fit to ascribe this task to the Bureau of Internal
Revenue. Section 3 of the National Internal Revenue Code
attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and
duties of the Bureau of Internal Revenue shall comprehend
the assessment and collection of all national internal
revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith,
including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary courts.
Said Bureau shall also give effect to and administer the
supervisory and police power conferred to it by this Code or
other laws."
Thus, it was in Vera vs. Fernandez[12] that the court
recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were
exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae - taxes are the
sinews of the state.
"Taxes assessed against the estate of a deceased person,
after administration is opened, need not be submitted to the
committee on claims in the ordinary course of
administration. In the exercise of its control over the
administrator, the court may direct the payment of such

taxes upon motion showing that the taxes have been

assessed against the estate."
Such liberal treatment of internal revenue taxes in the
probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.
"Claims for taxes, whether assessed before or after the death
of the deceased, can be collected from the heirs even after
the distribution of the properties of the decedent. They are
exempted from the application of the statute of non-claims.
The heirs shall be liable therefor, in proportion to their share
in the inheritance."[13]
"Thus, the Government has two ways of collecting the taxes
in question. One, by going after all the heirs and collecting
from each one of them the amount of the tax proportionate
to the inheritance received. Another remedy, pursuant to the
lien created by Section 315 of the Tax Code upon all
property and rights to property belong to the taxpayer for
unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the
payment of the tax due the estate. (Commissioner of Internal
Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the
court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of
estate taxes. It cannot therefore be argued that the Tax
Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the
ground that it was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in the
pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and
collected.

On the contrary, under Section 87 of the NIRC, it is the

probate or settlement court which is bidden not to authorize
the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by
the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the
assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to
assess the estate taxes, this should have been pursued
through the proper administrative and judicial avenues
provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the
Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period
to be prescribed by implementing regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer
fails to respond, the Commissioner shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation in such form
and manner as may be prescribed by implementing
regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and
unappealable.
If the protest is denied in whole or in part, the individual,
association or corporation adversely affected by the decision
on the protest may appeal to the Court of Tax Appeals within
thirty (30) days from receipt of said decision; otherwise, the

decision shall become final, executory and demandable. (As

inserted by P.D. 1773)"
Apart from failing to file the required estate tax return
within the time required for the filing of the same, petitioner,
and the other heirs never questioned the assessments served
upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon
the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of
taxes may have been validly undertaken by the Government,
collection thereof may have been done in violation of the law.
Thus, the manner and method in which the latter is enforced
may be questioned separately, and irrespective of the finality
of the former, because the Government does not have the
unbridled discretion to enforce collection without regard to
the clear provision of law."[14]
Petitioner specifically points out that applying Memorandum
Circular No. 38-68, implementing Sections 318 and 324 of
the old tax code (Republic Act 5203), the BIR's Notices of
Levy on the Marcos properties, were issued beyond the
allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of
Annex C of this Petition) in satisfaction of said assessments
were still issued by respondents well beyond the period
mandated in Revenue Memorandum Circular No. 38-68.
These Notices of Levy were issued only on 22 February 1993
and 20 May 1993 when at least seventeen (17) months had
already lapsed from the last service of tax assessment on 12
September 1991. As no notices of distraint of personal
property were first issued by respondents, the latter should
have complied with Revenue Memorandum Circular No. 3868 and issued these Notices of Levy not earlier than three
(3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had

until 12 March 1992 (the last day of the sixth month) within
which to issue these Notices of Levy. The Notices of Levy,
having been issued beyond the period allowed by law, are
thus void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property
were issued within the prescriptive period and in accordance
with the provisions of the present Tax Code. The deficiency
tax assessment, having already become final, executory, and
demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205
of the NIRC.
The applicable provision in regard to the prescriptive period
for the assessment and collection of tax deficiency in this
instance is Article 223 of the NIRC, which pertinently
provides:
"Sec. 223. Exceptions as to a period of limitation of
assessment and collection of taxes.- (a) In the case of a false
or fraudulent return with intent to evade tax or of a failure
to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without
assessment, at any time within ten (10) years after the
discovery of the falsity, fraud, or omission: Provided, That, in
a fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within
the period of limitation above prescribed, may be collected
by distraint or levy or by a proceeding in court within three
years following the assessment of the tax.
The omission to file an estate tax return, and the subsequent
failure to contest or appeal the assessment made by the BIR
is fatal to the petitioner's cause, as under the above-cited

provision, in case of failure to file a return, the tax may be

assessed at any time within ten years after the omission, and
any tax so assessed may be collected by levy upon real
property within three years following the assessment of the
tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards
protesting the validity of the said assessment, there is now
no reason why the BIR cannot continue with the collection of
the said tax. Any objection against the assessment should
have been pursued following the avenue paved in Section
229 of the NIRC on protests on assessments of internal
revenue taxes.
Petitioner further argues that "the numerous pending court
cases questioning the late president's ownership or interests
in several properties (both real and personal) make the total
value of his estate, and the consequent estate tax due,
incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and
oppressive." He points out the pendency of Sandiganbayan
Civil Case Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of the
late President in real and personal properties located within
and outside the Philippines. Petitioner, however, omits to
allege whether the properties levied upon by the BIR in the
collection of estate taxes upon the decedent's estate were
among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that
the decedent has pending cases involving ill-gotten wealth
does not affect the enforcement of tax assessments over the
properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety
of the BIR's total assessment of P23,292,607,638.00, stating
that this amount deviates from the findings of the

Department of Justice's Panel of Prosecutors as per its

resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as
to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail
the assessment of estate tax which had already become final
and unappealable.
It is not the Department of Justice which is the government
agency tasked to determine the amount of taxes due upon
the subject estate, but the Bureau of Internal Revenue [16]
whose determinations and assessments are presumed
correct and made in good faith.[17] The taxpayer has the duty
of proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based
on estimates is prima facie valid and lawful where it does not
appear to have been arrived at arbitrarily or capriciously.
The burden of proof is upon the complaining party to show
clearly that the assessment is erroneous. Failure to present
proof of error in the assessment will justify the judicial
affirmance of said assessment.[18] In this instance, petitioner
has not pointed out one single provision in the Memorandum
of the Special Audit Team which gave rise to the questioned
assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the
alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the
charge of impropriety of the assessments made.
Moreover, these objections to the assessments should have
been raised, considering the ample remedies afforded the
taxpayer by the Tax Code, with the Bureau of Internal
Revenue and the Court of Tax Appeals, as described earlier,
and cannot be raised now via Petition for Certiorari, under
the pretext of grave abuse of discretion. The course of action

taken by the petitioner reflects his disregard or even

repugnance of the established institutions for governance in
the scheme of a well-ordered society. The subject tax
assessments having become final, executory and
enforceable, the same can no longer be contested by means
of a disguised protest. In the main, Certiorari may not be
used as a substitute for a lost appeal or remedy.[19] This
judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of
government.
On the matter of sufficiency of service of Notices of
Assessment to the petitioner, we find the respondent
appellate court's pronouncements sound and resilient to
petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of
notice - We find, after considering the facts and
circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments,
levy and sale, sent to herein petitioner Ferdinand
"Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.
Even if we are to rule out the notices of assessments
personally given to the caretaker of Mrs. Marcos at the
latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment
personally given to the caretaker of petitioner also at his last
known address on September 12, 1991 - the subsequent
notices given thereafter could no longer be ignored as they
were sent at a time when petitioner was already here in the
Philippines, and at a place where said notices would surely
be called to petitioner's attention, and received by
responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were

served upon Mrs. Marcos c/o the petitioner, at his office,

House of Representatives, Batasan Pambansa, Q.C. (Annexes
"A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum
of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax
liabilities, was furnished the counsel of Mrs. Marcos - Dean
Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies
of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello,
Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted
a finger to protest the assessments, (upon which the Levy
and sale of properties were based), nor appealed the same to
the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner
(and his mother) and it appearing that petitioner
continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter
appeal to the Court of Tax Appeals, - the tax assessments
subject of this case, upon which the levy and sale of
properties were based, could no longer be contested
(directly or indirectly) via this instant petition for
certiorari."[20]
Petitioner argues that all the questioned Notices of Levy,
however, must be nullified for having been issued without
validly serving copies thereof to the petitioner. As a
mandatory heir of the decedent, petitioner avers that he has
an interest in the subject estate, and notices of levy upon its
properties should have been served upon him.
We do not agree. In the case of notices of levy issued to
satisfy the delinquent estate tax, the delinquent taxpayer is
the Estate of the decedent, and not necessarily, and
exclusively, the petitioner as heir of the deceased. In the
same vein, in the matter of income tax delinquency of the
late president and his spouse, petitioner is not the taxpayer

liable. Thus, it follows that service of notices of levy in

satisfaction of these tax delinquencies upon the petitioner is
not required by law, as under Section 213 of the NIRC,
which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a
description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds of the province or city
where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent
or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the
property in question.
xxx"
The foregoing notwithstanding, the record shows that
notices of warrants of distraint and levy of sale were
furnished the counsel of petitioner on April 7, 1993, and June
10, 1993, and the petitioner himself on April 12, 1993 at his
office at the Batasang Pambansa.[21] We cannot therefore,
countenance petitioner's insistence that he was denied due
process. Where there was an opportunity to raise objections
to government action, and such opportunity was
disregarded, for no justifiable reason, the party claiming
oppression then becomes the oppressor of the orderly
functions of government. He who comes to court must come
with clean hands. Otherwise, he not only taints his name, but
ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the
present petition. The Decision of the Court of Appeals dated
November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.

Regalado, (Chairman), Romero, Puno, and Mendoza, JJ.,

concur.

G.R. No. L-23645, October 29, 1968

BENJAMIN P. GOMEZ, PETITIONER-APPELLEE, VS. ENRICO
PALOMAR, IN HIS CAPACITY AS POSTMASTER GENERAL;
HON. BRIGIDO R. VALENCIA, IN HIS CAPACITY AS
SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS
AND DOMINGO GOPEZ, IN HIS CAPACITY AS ACTING
POSTMASTER OF SAN FERNANDO, PAMPANGA,
RESPONDENTS-APPELLANTS.
DECISION

CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act
1635, as amended by Republic Act 2631, which provides as
follows:
[1]

[2]

"To help raise funds for the Philippine Tuberculosis Society,

the Director of Posts shall order for the period from August
nineteen to September thirty every year the printing and
issue of semi-postal stamps of different denominations with
face value showing the regular postage charge plus the
additional amount of five centavos for the said purpose, and
during the said period, no mail matter shall be accepted in
the mails unless it bears such semi-postal stamps: Provided,
That no such additional charge of five centavos shall be
imposed on newspapers. The additional proceeds realized
from the sale of the semi-postal stamps shall constitute a
special fund and be deposited with the National Treasury to
be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate
tuberculosis."
The respondent Postmaster General, in implementation of
the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August

28, 1958), and 10 (July 15, 1960). All these administrative

orders were issued with the approval of the respondent
Secretary of Public Works and Communications.
The pertinent portions of Adm. Order 3 read as follows:
"Such semi-postal stamps could not be made available
during the period from August 19 to September 30, 1957, for
lack of time. However, two denominations of such stamps,
one at '5 + 5' centavos and another at '10 + 5' centavos, will
soon be released for use by the public on their mails to be
posted during the same period starting with the year 1958.
x
x
x
"During the period from August 19 to September 30 each
year starting in 1958, no mail matter of whatever class, and
whether domestic or foreign, posted at any Philippine Post
Office and addressed for delivery in this country or abroad,
shall be accepted for mailing unless it bears at least one
such semi-postal stamp showing the additional value of five
centavos intended for the Philippine Tuberculosis Society.
"In the case of second-class mails and mails prepaid by
means of mail permits or impressions of postage meters,
each piece of such mail shall bear at least one such semipostal stamp if posted during the period above stated
starting with the year 1958, in addition to being charged the
usual postage prescribed by existing regulations. In the
case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the
addressees at the time of delivery. Mails entitled to franking
privilege like those from the office of the President,
members of Congress, and other offices to which such
privilege has been granted, shall each also bear one such
semi-postal stamp if posted during the said period.
"Mails posted during the said period starting in 1958, which
are found in street or post-office mail boxes without the
required semi-postal stamp, shall be returned to the sender,

if known, with a notation calling for the affixing of such

stamp. If the sender, is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper disposition."
Adm. Order 7, amending the fifth paragraph of Adm. Order
3, reads as follows:
"In the case of the following categories of mail matter and
mails entitled to franking privilege which are not exempted
from the payment of the five centavos intended for the
Philippine Tuberculosis society, such extra charge may be
collected in cash, for which official receipt (General Form
No. 13, A) shall be issued, instead of affixing the semi-postal
stamp in the manner hereinafter indicated:
"'1. Second-class mails. - Aside from the postage at the
second-class rate, the extra charge of five centavos for the
Philippine Tuberculosis Society shall be collected on each
separately-addressed piece of second class mail matter, and
the total sum thus collected shall be entered in the same
official receipt to be issued for the postage at the secondclass rate. In making such entry, the total number of pieces
of second-class mail posted shall be stated, thus: 'Total
charge for TB Fund on 100 pieces. . P5.00.' The extra charge
shall be entered separate from the postage in both of the
official receipt and the Record of Collections.
"'2. First-class and third-class mail permits. - Mails to be
posted without postage affixed under permits issued by this
Bureau shall each be charged the usual postage, in addition
to the five centavo extra charge intended for said society.
The total extra charge thus received shall be entered in the
same official receipt to be issued for the postage collected,
as in sub-paragraph 1.
"'3. Metered mails. - For each piece of mail matter
impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for

said society shall be collected in cash, and an official receipt

issued for the total sum thus received, in the manner
indicated in subparagraph 1.
"'4. Business reply cards and envelopes. - Upon delivery of
business reply cards and envelopes to holders of business
reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition to the required postage which
may also be paid in cash. An official receipt shall be issued
for the total postage and total extra charge received, in the
manner shown in subparagraph 1.
"'5. Mails entitled to franking privilege. - Government
agencies, officials, and other persons entitled to the franking
privilege under existing laws may pay in cash such extra
charge intended for said society, insteads of affixing the
semi-postal stamps to their mails, provided that such mails
are presented at the post-office window, where the fivecentavo extra charge for said society shall be collected on
each piece of such mail matter. In such case, an official
receipt shall be issued for the total sum thus collected, in the
manner stated in subparagraph 1.
"'Mails under permits, metered mails and franked mails not
presented at the post-office window shall be affixed with the
necessary semi-postal stamps. If found in mail boxes
without such stamps, they shall be treated in the same way
as herein provided for other mails.'"
Adm. Order 9, amending Adm. Order 3, as amended,
exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10,
amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class
of mail matter, including newspapers and magazines
admitted as second-class mail."

The FACTS. On September 15, 1963 the petitioner Benjamin

P. Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain
Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila
did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.
In view of this development, the petitioner brought this suit
for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well
as the implementing administrative orders issued,
contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of
taxation. The lower court declared the statute and the
orders unconstitutional; hence this appeal by the respondent
postal authorities.
For the reasons set out in this opinion, the judgment
appealed from must be reversed.
I
Before reaching the merits, we deem it necessary to dispose
of the respondents' contention that declaratory relief is
unavailing because this suit was filed after the petitioner had
committed a breach of the statute. While conceding that the
mailing by the petitioner of a letter without the additional
anti-TB stamp was a violation of Republic Act 1635, as
amended, the trial court nevertheless refused to dismiss the
action on the ground that under section 6 of Rule 64 of the
Rules of Court, "If before the final termination of the case a
breach or violation of . . . a statute . . . should take place, the
action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is
that it must be brought "before breach or violation" of the
statute has been committed. Rule 64, section 1 so provides.
Section 6 of the same rule, which allows the court to treat an

action for declaratory relief as an ordinary action, applies

only if the breach or violation occurs after the filing of the
action but before the termination thereof.
[3]

Hence, if, as the trial court itself admitted, there had been a
breach of the statute before the filing of this action, then
indeed the remedy of declaratory relief cannot be availed of,
much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the
mailing of the letter in question did not constitute a breach
of the statute because the statute appears to be addressed
only to postal authorities. The statute, it is true, in terms
provides that "no mail matter shall be accepted in the mails
unless it bears such semi-postal stamps." it does not follow,
however, that only postal authorities can be guilty of
violating it by accepting mails without the payment of the
anti-TB stamp. It is obvious that they can be guilty of
violating the statute only if there are people who use the
mails without paying for the additional anti-TB stamp. Just
as in bribery the mere offer constitutes a breach of the law,
so in the matter of the anti-TB stamp the mere attempt to
use the mails without the stamp constitutes a violation of the
statute. It is not required that the mail be accepted by
postal authorities. That requirement is relevant only for the
purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice
of remedy is correct because this suit was filed not only with
respect to the letter which he mailed on September 15,
1963, but also with regard to any other mail that he might
send in the future. Thus, in his complaint, the petitioner
prayed that due course be given to "other mails without the
semi-postal stamps which he may deliver for mailing . . . if
any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to
other mailers which bear the required postage, without

collection of additional charge of five centavos prescribed by

the said Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of
the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against
the statute and the implementing orders.
1. It is said that the statute is violative of the equal
protection clause of the Constitution. More
specifically the claim is made that it constitutes
mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population
and that even among postal patrons the statute
discriminatorily grants exemption to newspapers
while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to
offices performing governmental functions.
The five centavo charge levied by Republic Act 1635, as
amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the
mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions. This power has aptly been described as "of
wide range and flexibility." Indeed, it is said that in the field
of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The reason
for this is that traditionally, classification has been a device
for fitting tax programs to local needs and usages in order to
achieve an equitable distribution of the tax burden.
[4]

[5]

[6]

[7]

That legislative classifications must be reasonable is of

course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some
reasonable relationship to the end sought to be attained, and
that absent such relationship the selection of mail users is
constitutionally impermissible. This is altogether a different
proposition. As explained in Commonwealth v. Life
Assurance Co.,
[8]

"While the principle that there must be a reasonable

relationship between classification made by the legislation
and its purpose is undoubtedly true in some contexts, it has
no application to a measure whose sole purpose is to raise
revenue. . . So long as the classification imposed is based
upon some standard capable of reasonable comprehension,
be that standard passed upon ability to produce revenue or
some other legitimate distribution, equal protection of the
law has been afforded. See Allied Stores of Ohio, Inc. v.
Bowers, supra 338 U.S. at 527, 79 S. Ct. at 441; BrownForman Co. v. Commonwealth of Kentucky, 217 U.S. 563,
573, 60 S. Ct. 573, 588 (1910)."
We are not wont to invalidate legislation on equal protection
grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the
Constitution forbids. The remedy for unwise legislation must
be sought in the legislature. Now, the classification of mail
users is not without any reason. It is based on ability to pay,
let alone the enjoyment of a privilege, and on administrative
convenience. In the allocation of the tax burden, Congress
must have concluded that the contribution to the anti-TB
fund can best be assured by those who can afford the use of
the mails.
The classification is likewise based on considerations of
administrative convenience. For it is now a settled principle
of law that "considerations of practical administrative

convenience and cost in the administration of tax laws afford

adequate grounds for imposing a tax on a well recognized
and defined class." In the case of the anti-TB stamp,
undoubtedly, the single most important and influential,
consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenience of
collecting the tax through the post offices. The small
amount of five centavos does not justify the great expense
and inconvenience of collecting through the regular means
of collection. On the other hand, by placing the duty of
collection on postal authorities the tax was made almost selfenforcing, with as little cost and as little inconvenience as
possible.
[9]

And then of course it is not accurate to say that the statute

constituted mail users into a class. Mail users were already
a class by themselves even before the enactment of the
statute and all that the legislature did was merely to select
their class. Legislation is essentially empiric and Republic
Act 1635, as amended, no more than reflects a distinction
that exists in fact. As Mr. Justice Frankfurter said, "to
recognize differences that exist in fact is living law; to
disregard [them] and concentrate on some abstract
identities is lifeless logic."
[10]

Granted the power to select the subject of taxation, the

State's power to grant exemption must likewise be conceded
as a necessary corollary. Tax exemptions are too common in
the law; they have never been thought of as raising issues
under the equal protection clause.
It is thus erroneous for the trial court to hold that because
certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The application
of the lower court's theory would require all mail users to be
taxed, a conclusion that is hardly tenable in the light of

differences in status of mail users. The Constitution does

not require this kind of equality.
As the United States Supreme Court has said, the legislature
may withhold the burden of the tax in order to foster what it
conceives to be a beneficent enterprise. This is the case of
newspapers which, under the amendment introduced by
Republic Act 2631, are exempt from the payment of the
additional stamp.
[11]

As for the Government and its instrumentalities, their

exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent and
such consent, being in derogation as its sovereignty, is to be
strictly construed. Administrative Order 9 of the
respondent Postmaster General, which lists the various
offices and instrumentalities of the Government exempt from
the payment of the anti-TB stamp, is but a restatement of
this well-known principle of constitutional law.
[12]

The trial court likewise held the law invalid on the ground
that it singles out tuberculosis to the exclusion of other
diseases, which, it is said, are equally a menace to public
health. But it is never a requirement of equal protection that
all evils of the same genus be eradicated or none at all. As
this Court has had occasion to say, "if the law presumably
hits the evil where it is most felt, it is not to be overthrown
because there are other instances to which it might have
been applied."
[13]

[14]

2. The petitioner further argues that the tax in question is

invalid, first, because it is not levied for a public purpose as
no special benefits accrue to mail users as taxpayers, and
second, because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but
if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient

answer to say that the only benefit to which the taxpayer is

constitutionally entitled is that derived from his enjoyment of
the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public
purposes. Any other view would preclude the levying of
taxes except as they are used to compensate for the burden
on those who pay them and would involve the abandonment
of the most fundamental principle of government - that it
exists primarily to provide for the common good.
[15]

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a grated
tax. A tax need not be measured by the weight of the mail or
the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford
an adequate ground for classification. The same
considerations may induce the legislature to impose a flat
tax which in effect is a charge for the transaction, operating
equally on all persons with the class regardless of the
amount involved. As Mr. Justice Holmes said in sustaining
the validity of a stamp act which imposed a flat rate of two
cents on every $100 face value of stock transferred,
[16]

"One of the stocks was worth $30.75 a share of the face

value of $100, the other $172. The inequality of the tax, so
far as actual values are concerned, is manifest. But, here
again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and
indisputable mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the taxes on two
sales are equal, the same number of shares is sold in each
case; that is to say, the same privilege is used to the same
extent. Valuation is not the only thing to be considered. As
was pointed out by the court of appeals, the familiar stamp
tax of 2 cents on checks, irrespective of income or earning
capacity, and many others, illustrate the necessity and
practice of sometimes substituting count for weight. . . ."
[17]

According to the trial court, the money raised from the sales
of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization,
without appropriation by law. But as the Solicitor General
points out, the Society is not really the beneficiary but only
the agency through which the State acts in carrying out
what is essentially a public function. The money is treated
as a special fund and as such need not be appropriated by
law.
[18]

3. Finally, the claim is made that the statute is so broadly

drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this
is one of the grounds on which the lower court invalidated
Republic Act 1631, as amended, namely, that it constitutes
an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative
Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply
cards, etc.), the five-centavo charge may be paid in cash
instead of the purchase of the anti-TB stamp. It further
states that mails deposited during the period August 19 to
September 30 of each year in mail boxes without the stamp
should be returned to the sender, if known, otherwise they
should be treated as nonmailable.
It is true that the law does not expressly authorize the
collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may
be necessary to prevent a failure of the undertaking. The
authority given to the Postmaster General to raise funds
through the mails must be liberally construed, consistent
with the principle that where the end is required the
appropriate means are given.
[19]

The anti-TB stamp is a distinctive stamp which shows on its

face not only the amount of the additional charge but also
that of the regular postage. In the case of business reply
cards, for instance, it is obvious that to require mailers to
affix the anti-TB stamp on their cards would be to make then
pay much more because the cards likewise bear the amount
of the regular postage.
It is likewise true that the statute does not provide for the
disposition of mails which do not bear the anti-TB stamp, but
a declaration therein that "no mail matter shall be accepted
in the mails unless it bears such semi-postal stamp" is a
declaration that such mail matter is nonmailable within the
meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a
restatement of the law for the guidance of postal officials
and employees. As for Administrative Order 9, we have
already said that in listing the offices and entities of the
Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established principle, namely, that the Government is exempt
from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the
complaint is dismissed, without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Angeles, and Capistrano, JJ., concur.
Fernando, J., concurs in a separate opinion.
Zaldivar, J., on leave.
CONCURRING OPINION
FERNANDO, J.:

I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635
as amended by Republic Act No. 2631 and the majority opinion expounded with Justice

Castro's usual vigor and lucidity subject to one qualification. With all due recognition of
its inherently persuasive character, it would seem to me that the same result could be
achieved if reliance be had on police power rather than the attribute of taxation, as the
constitutional basis for the challenged legislation.
1. For me, the statute in question is an exercise of the regulatory power
connected with the performance of the public service. I refer of
course to the government postal function, one of respectable and
ancient lineage. The United States Constitution of 1787 vests in the
federal government acting through Congress the power to establish
post offices.[1] The first act providing for the organization of
government departments in the Philippines, approved Sept. 6, 1901,
provided for the Bureau of Post Offices in the Department of
Commerce and Police.[2] Its creation is thus a manifestation of one of
the many services in which the government may engage for public
convenience and public interest. Such being the case, it seems that
any legislation that in effect would require increase cost, of postage
is well within the discretionary authority of the government.

It may not be acting in a proprietary capacity but in fixing the fees that it collects for
the use of the mails, the broad discretion that it enjoys is undeniable. In that sense, the
principle announced in Esteban v. Cabanatuan City, in an opinion by our Chief Justice,
while not precisely controlling furnishes for me more than ample support for the validity
of the challenged legislation. Thus: "Certain exactions, imposable under an authority
other than police power, are not subject, however, to qualification as to the amount
chargeable, unless the Constitution or the pertinent laws provide otherwise. For
instance, the rates of taxes, whether national or municipal, need not be reasonable, in
the absence of such constitutional or statutory limitation. Similarly, when a municipal
corporation fixes the fees for the use of its properties, such as public markets, it does
not wield the police power, or even the power of taxation. Neither does it assert
governmental authority. It exercises merely a proprietary function. And, like any private
owner, it is - in the absence of the aforementioned limitation, which does not exist in the
Charter of Cabanatuan City (Republic Act No. 526) - free to charge such sums as it may
deem best, regardless of the reasonableness of the amount fixed, for the prospective
lessees are free to enter into the corresponding contract of lease, if they are agreeable
to the terms thereof, or, otherwise, not enter into such contract."
[3]

2. It would appear likewise that an expression of one's personal views

both as to the attitude and awareness that must be displayed by
inferior tribunals when the "delicate and awesome" power of passing
on the validity of statute would not be inappropriate. "The
Constitution is the supreme law, and statutes are written and
enforced in submission to its commands."[4] It is likewise common
place in constitutional law that a party adversely affected could,

again to quote from Cardozo, "invoke, when constitutional

immunities are threatened, the judgment of the courts."[5]

Since the power of judicial review flows logically from the judicial function of
ascertaining the facts and applying the law and since obviously the Constitution is the
highest law before which statutes must bend, then inferior tribunals can, in the dis charge of their judicial functions, nullify legislative acts. As a matter of fact, in clear
cases, such is not only their power but their duty. In the language of the present Chief
Justice: "In fact, whenever the conflicting claims of the parties to a litigation, cannot
properly be settled without inquiring into the validity of an act of Congress or of either
House thereof the courts have, not only jurisdiction to pass upon said issue, but, also,
the duty to do so, which cannot be evaded without violating the fundamental law and
paving the way to its eventual destruction."
[6]

Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals,

must ever kept in mind. Thus: "It must be evident to any one that the power to declare
a legislative enactment void is one which the judge, conscious of the fallibility of the
human judgment, will shrink from exercising in any case where he can conscientiously
and with due regard to duty and official oath decline the responsibility."
[7]

There must be a caveat however to the above Cooley pronouncement. Such

should not be the case, to paraphrase Freund, when the challenged legislation imperils
freedom of the mind and of the person, for given such an undesirable situation, "it is
freedom that commands a momentum of respect." Here then, fidelity to the great ideal
of liberty enshrined in the Constitution may require the judiciary to take an
uncompromising and militant stand. As phrased by us in a recent decision, "if the liberty
involved were freedom of the mind or the person, the standard for its validity of
governmental acts is much more rigorous and exacting."
[8]

So much for the appropriate judicial attitude. Now on the question of awareness of
the controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection
aspect as found in the majority opinion. It may not be amiss to recall to mind, however,
the language of Justice Laurel in the leading case of People v, Vera, to the effect that
the basic individual right of equal protection "is a restraint on all the three grand
departments of our government and on the subordinate instrumentalities and
subdivisions thereof, and on many constitutional powers, like the police power, taxation
and eminent domain." Nonetheless, no jurist was more careful in avoiding the dire
consequences to what the legislative body might have deemed necessary to promote
the ends of public welfare if the equal protection guaranty were made to constitute an
insurmountable obstacle.
[9]

[10]

A similar sense of realism was invariably displayed by Justice Frankfurter, as is

quite evident from the various citations from his pen found in the majority opinion. For
him, it would be a misreading of the equal protection clause to ignore actual conditions

and settled practices. Not for him the at times academic and sterile approach to
constitutional problems of this sort. Thus: "It would be a narrow conception of
jurisprudence to confine the notion of 'laws' to what is found written on the statute
books, and to disregard the gloss which life has written upon it. Settled state practice
cannot supplant constitutional guaranties, but it can establish what is state law. The
Equal Protection Clause did not write an empty formalism into the Constitution. Deeply
embedded traditional ways of carrying out state policy, such as those of which petitioner
complains are often tougher and truer law then the dead words of the written text."
This too, from the same distinguished jurist: "The Constitution does not require things
which are different in fact or opinion to be treated in law as though they were the
same."
[11]

[12]

Now, as to non-delegation. It is to be admitted that the problem of non-delegation of

legislative power at times occasions difficulties. Its strict view has been announced by
Justice Laurel in the aforecited case in People v. Vera in this language. Thus: "In
testing whether a statute constitutes an undue delegation of legislative power nor not, it
is usual to inquire whether the statute was complete in all its terms and provisions when
it left the hands of the legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature. * * *. In United States v. Ang Tang Ho * * *, this
court adhered to the foregoing rule it held an act of the legislature void in so far as it
undertook to authorize the Governor-General, in his discretion, to issue a proclamation
fixing the price of rice and to make the sale of it in violation of the proclamation a
crime."
[13]

Only recently, the present Chief Justice reaffirmed the above view in Pelaez v.
Auditor General, specially where the delegation deals not with an administrative
function but one essentially and eminently legislative in character. What could properly
be stigmatized though, to quote Justice Cardozo, is delegation of authority that is
"unconfined and vagrant, one not canalized within banks which keep it froth
overflowing."
[14]

[15]

This is not the situation as it presents itself to us. What was delegated was power
not legislative in character. Justice Laurel himself, in a later case, People v. Rosenthal,
admitted that within certain limits, there being a need for coping with the more intricate
problem of society, the principle of "subordinate legislation" has been accepted, not only
in the United States and England, but, in practically all modern governments. This view
was reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public
Service Commission. Thus: "Accordingly, with the growing complexity of modern life,
the multiplication of the subjects of governmental regulation, and the increased difficulty
of administering the laws, there is a constantly growing tendency toward the delegation
of greater powers by the legislature, and toward the approval of the practice by the
courts."
[16]

[17]

In the light of the above views of eminent jurists, authoritative in character, of both
the equal protection clause and the non-delegation principle, it is apparent how far the

lower court departed from the path of constitutional orthodoxy in nullifying Republic Act
No. 1635 as amended. Fortunately, the Matter has been set right with the reversal of its
decision, the opinion of the Court, manifesting its fealty to constitutional law precepts,
which have been reiterated time and time again and for the soundest of reasons.

EN BANC
G.R. No. 76778, June 06, 1990
FRANCISCO I. CHAVEZ, PETITIONER, VS. JAIME B. ONGPIN,
IN HIS CAPACITY AS MINISTER OF FINANCE AND
FIDELINA CRUZ, IN HER CAPACITY AS ACTING MUNICIPAL
TREASURER OF THE MUNICIPALITY OF LAS PIAS,
RESPONDENTS, REALTY OWNERS ASSOCIATION OF THE
PHILIPPINES, INC., PETITIONER-INTERVENOR.
DECISION

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive
Order No. 73 dated November 25, 1986, which we quote in
full, as follows (78 O.G. 5861):
"EXECUTIVE ORDER No. 73

"PROVIDING FOR THE COLLECTION OF REAL PROPERTY

TAXES BASED ON THE 1984 REAL PROPERTY VALUES, AS
PROVIDED FOR UNDER SECTION 21 OF THE REAL
PROPERTY TAX CODE, AS AMENDED
"WHEREAS, the collection of real property taxes is still
based on the 1978 revision of property values;
"WHEREAS, the latest general revision of real property
assessments completed in 1984 has rendered the 1978
revised values obsolete;
"WHEREAS, the collection of real property taxes based on
the 1984 real property values was deferred to take effect on
January 1, 1988 instead of January 1, 1985, thus depriving
the local government units of an additional source of
revenue;

"WHEREAS, there is an urgent need for local governments

to augment their financial resources to meet the rising cost
of rendering effective services to the people;
"NOW, THEREFORE, I, CORAZON C. AQUINO, President of
the Philippines, do hereby order:
"SECTION 1. Real property values as of December 31, 1984
as determined by the local assessors during the latest
general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection.
"SEC. 2. The Minister of Finance shall promulgate the
necessary rules and regulations to implement this Executive
Order.
"SEC. 3. Executive Order No. 1019, dated April 18, 1985, is
hereby repealed.
"SEC. 4. All laws, orders, issuances, and rules and
regulations or parts thereof inconsistent with this Executive
Order are hereby repealed or modified accordingly.
"SEC. 5. This Executive Order shall take effect immediately."
On March 31, 1987, Memorandum Order No. 77 was issued
suspending the implementation of Executive Order No. 73
until June 30, 1987.
The petitioner, Francisco I. Chavez[1], is a taxpayer and an
owner of three parcels of land. He alleges the following:
that Executive Order No. 73 accelerated the application of
the general revision of assessments to January 1, 1987
thereby mandating an excessive increase in real property
taxes by 100% to 400% on improvements, and up to 100% on
land; that any increase in the value of real property brought
about by the revision of real property values and
assessments would necessarily lead to a proportionate
increase in real property taxes; that sheer oppression is the
result of increasing real property taxes at a period of time
[1]

when harsh economic conditions prevail; and that the

increase in the market values of real property as reflected in
the schedule of values was brought about only by inflation
and economic recession.
The intervenor Realty Owners Association of the Philippines,
Inc. (ROAP), which is the national association of ownerslessors, joins Chavez in his petition to declare
unconstitutional Executive Order No. 73, but additionally
alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one
percent (1%) tax on all property owners to raise funds for
education, as real property tax is admittedly a local tax for
local governments; that the General Revision of Assessments
does not meet the requirements of due process as regards
publication, notice of hearing, opportunity to be heard and
insofar as it authorizes "replacement cost" of buildings
(improvements) which is not provided in Presidential Decree
No. 464, but only in an administrative regulation of the
Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86[2] is even more
oppressive and unconstitutional as it imposes successive
increase of 150% over the 1986 tax.
The Office of the Solicitor General argues against the
petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the
constitutionality of Executive Order No. 73 insofar as the
revision of the assessments and the effectivity thereof are
concerned. It should be emphasized that Executive Order
No. 73 merely directs, in Section 1 thereof, that:

[2]

"SECTION 1. Real property values as of December 31, 1984

as determined by the local assessors during the latest
general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection."
(underscoring supplied)
The general revision of assessments completed in 1984 is
based on Section 21 of Presidential Decree No. 464 which
provides, as follows:
"SEC. 21. General Revision of Assessments.- Beginning with
the calendar year 1978, the provincial or city assessor shall
make a general revision of real property assessments in the
province or city to take effect January 1, 1979, and once
every five years thereafter: Provided; however, That if
property values in a province or city, or in any municipality,
have greatly changed since the last general revision, the
provincial or city assessor may, with the approval of the
Secretary of Finance or upon his discretion, undertake a
general revision of assessments in the province or city, or in
any municipality before the fifth year from the effectivity of
the last general revision."
Thus, We agree with the Office of the Solicitor General that
the attack on Executive Order No. 73 has no legal basis as
the general revision of assessments is a continuing process
mandated by Section 21 of Presidential Decree No. 464. If
at all, it is Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However, Chavez
failed to raise any objection against said decree. It was
ROAP which questioned the constitutionality thereof.
Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
"SEC. 30. Local Board of Assessment Appeals.- Any owner
who is not satisfied with the action of the provincial or city
assessor in the assessment of his property may, within sixty

days from the date of receipt by him of the written notice of

assessment as provided in this Code, appeal to the Board of
Assessment Appeals of the province or city, by filing with it a
petition under oath using the form prescribed for the
purpose, together with copies of the tax declarations and
such affidavit or documents submitted in support of the
appeal."
xxx
"SEC. 34. Action by the Local Board of Assessment Appeals.The Local Board of Assessment Appeals shall decide the
appeal within one hundred and twenty days from the date of
receipt of such appeal. The decision rendered must be
based on substantial evidence presented at the hearing or at
least contained in the record and disclosed to the parties or
such relevant evidence as a reasonable mind might accept as
adequate to support the conclusion.
"In the exercise of its appellate jurisdiction, the Board shall
have the power to summon witnesses, administer oaths,
conduct ocular inspection, take depositions, and issue
subpoena and subpoena duces tecum. The proceedings of
the Board shall be conducted solely for the purpose of
ascertaining the truth without necessarily adhering to
technical rules applicable in judicial proceedings.
"The Secretary of the Board shall furnish the property owner
and the Provincial or City Assessor with a copy each of the
decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty
to notify the property owner of such fact using the form
prescribed for the purpose. The owner or administrator of
the property or the assessor who is not satisfied with the
decision of the Board of Assessment Appeals, may, within
thirty days after receipt of the decision of the local Board,
appeal to the Central Board of Assessment Appeals by filing
his appeal under oath with the Secretary of the proper
provincial or city Board of Assessment Appeals using the

prescribed form stating therein the grounds and the reasons

for the appeal, and attaching thereto any evidence pertinent
to the case. A copy of the appeal should be also furnished
the Central Board of Assessment Appeals, through its
Chairman, by the appellant.
"Within ten (10) days from receipt of the appeal, the
Secretary of the Board of Assessment Appeals concerned
shall forward the same and all papers related thereto, to the
Central Board of Assessment Appeals through the Chairman
thereof."
xxx
"SEC. 36. Scope of Powers and Functions.- The Central
Board of Assessment Appeals shall have jurisdiction over
appealed assessment cases decided by the Local Board of
Assessment Appeals. The said Board shall decide cases
brought on appeal within twelve (12) months from the date
of receipt, which decision shall become final and executory
after the lapse of fifteen (15) days from the date of receipt of
a copy of the decision by the appellant.
"In the exercise of its appellate jurisdiction, the Central
Board of Assessment Appeals, or upon express authority, the
Hearing Commissioner, shall have the power to summon
witnesses, administer oaths, take depositions, and issue
subpoenas and subpoenas duces tecum.
"The Central Board of Assessment Appeals shall adopt and
promulgate rules of procedure relative to the conduct of its
business."
Simply stated, within sixty days from the date of receipt of
the written notice of assessment, any owner who doubts the
assessment of his property, may appeal to the Local Board of
Assessment Appeals. In case the owner or administrator of
the property or the assessor is not satisfied with the decision
of the Local Board of Assessment Appeals, he may, within
thirty days from the receipt of the decision, appeal to the

Central Board of Assessment Appeals. The decision of the

Central Board of Assessment Appeals shall become final and
executory after the lapse of fifteen days from the date of
receipt of the decision.
Chavez argues further that the unreasonable increase in real
property taxes brought about by Executive Order No. 73
amounts to a confiscation of property repugnant to the
constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et
al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced
because the due process requirement called for therein
applies to the "power to tax." Executive Order No. 73 does
not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to
the taxpayers that will result from an increase in real
property taxes. Hence, Executive Order No. 1019 was
issued on April 18, 1985, deferring the implementation of
the increase in real property taxes resulting from the revised
real property assessments, from January 1, 1985 to January
1, 1988. Section 5 thereof is quoted herein as follows:
"SEC. 5. The increase in real property taxes resulting from
the revised real property assessments as provided for under
Section 21 of Presidential Decree No. 464, as amended by
Presidential Decree No. 1621, shall be collected beginning
January 1, 1988 instead of January 1, 1985 in order to enable
the Ministry of Finance and the Ministry of Local
Government to establish the new systems of tax collection
and assessment provided herein and in order to alleviate the
condition of the people, including real property owners, as a
result of temporary economic difficulties." (underscoring
supplied)

The issuance of Executive Order No. 73 which changed the

date of implementation of the increase in real property taxes
from January 1, 1988 to January 1, 1987 and therefore
repealed Executive Order No. 1019, also finds ample
justification in its "whereas" clauses, as follows:
"WHEREAS, the collection of real property taxes based on
the 1984 real property values was deferred to take effect on
January 1, 1988 instead of January 1, 1985, thus depriving
the local government units of an additional source of
revenue;
"WHEREAS, there is an urgent need for local governments
to augment their financial resources to meet the rising cost
of rendering effective services to the people; (underscoring
supplied)
"x x x."
The other allegation of ROAP that Presidential Decree No.
464 is unconstitutional, is not proper to be resolved in the
present petition. As stated at the outset, the issue here is
limited to the constitutionality of Executive Order No. 73.
Intervention is not an independent proceeding, but an
ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by legislation (or Rules
of Court), must be in subordination to the main proceeding,
and it may be laid down as a general rule that an
intervention is limited to the field of litigation open to the
original parties (59 Am. Jur. 950; Garcia, etc., et al. v. David,
et al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor
General that without Executive Order No. 73, the basis for
collection of real property taxes will still be the 1978
revision of property values. Certainly, to continue collecting
real property taxes based on valuations arrived at several
years ago, in disregard of the increases in the value of real
properties that have occurred since then, is not in

consonance with a sound tax system. Fiscal adequacy, which

is one of the characteristics of a sound tax system, requires
that sources of revenues must be adequate to meet
government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz,
Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, and
Regalado, JJ., concur.
Padilla, J., no part; related to intervenors counsel.
Grio-Aquino, J., on leave.

He filed the instant petition before he was appointed to his

present position as Solicitor General.
[1]

The Joint Local Assessment/Treasury Regulations No. 2-86

issued on December 12, 1986 implements Executive Order
No. 73.
[2]

[1]
[2]

G.R. No. 46720, June 28, 1940

WELLS FARGO' BANK & UNION TRUST COMPANY,
PETITIONER AND APPELLANT, VS. THE COLLECTOR OF
INTERNAL REVENUE, RESPONDENT AND APPELLEE.
DECISION

MORAN, J.:
An appeal from a declaratory judgment rendered by the
Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on
September 16, 1932, at Los Angeles, California, the place of
her alleged last residence and domicile. Among the
properties she left was her one-half conjugal share in 70,000
shares of stock in the Benguet Consolidated Mining
Company, an anonymous partnership (socie4ad annima),
organized and existing under the laws of the Philippines,
with its principal office in the City of Manila. She left a will
which was duly admitted to probate in California where her
estate was administered and settled. Petitioner appellant,
Wells Fargo Bank & Union Trust Company, was duly
appointed trustee of the trust created by the said will. The
Federal and State of California's inheritance taxes due on
said shares have been duly paid. Respondent Collector of
Internal Revenue sought to subject anew the aforesaid
shares of stock to the Philippine inheritance tax, to which
petitioner-appellant objected. Wherefore a petition for a
declaratory judgment was filed in ttye lower court, with the
statement that, "if it should be held by a final declaratory
judgment that the transfer of the aforesaid shares of stock is
legally subject to the Philippine inheritance tax, the
petitioner will pay such tax, interest and penalties (saving
error in computation) without' protest and will not file an
action to recover the same; and the petitioner believes and

therefore alleges that if it should be held that such transfer

is not subject to said tax, the respondent will not proceed to
assess and collect the s^me." The Court of First Instance of
Manila rendered judg roept, holding that the transmission by
will of the said 35,5oO shares of stock is subject to
Philippine inheritance tax. Hence, this appeal by the
petitioner.
Petitioner concedes (1) that the Philippine inheritance tax is
not a tax on property, but upon transmission by inheritance
(Lorenzo vs. Posadas, 35 Of. Gaz., 2393, 2395), and (2) that
as to real and tangible personal property of a non-resident
decedent, located in the Philippines, the Philippine
inheritance tax may be imposed upon their transmission by
death, for the self-evident reason that, being a property
situated in this country, its transfer is, in some way,
dependent, for its effectiveness, upon Philippine laws. It is
contended, however, that, as to intangibles, like the shares
of stock in question, their situs is in the domicile of the
owner thereof, and, therefore, their transmission by death
necessarily takes place under his domiciliary laws.
Section 1536 of the Administrative Code, as amended,
provides that every transmission by virtue of inheritance of
any share issued by any corporation or sociedad andnima
organized or constituted in the Philippines, is subject to the
tax therein provided. This provision has already been applied
to shares of stock in a domestic corporation which were
owned by a British subject residing and domiciled i Great
Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs
vs. Government of P. I., G. R. No. 35694.) Petitioner, however,
invokes the rule laid down by the United States Supreme
Court in four cases (Farmers Loan fy Trust Company vs.
Minnesota, 280 U. S. 204; 74 Law. ed., 371; Baldwin vs.
Missouri, 281 U. S., 586; 74 Law. ed., 1056, Beidler vs. South
Carolina Tax Commission, 282 U. S., 1; 75 Law. ed., 131;
First National Bank of Boston vs. Maine, 284 U. S., 312; 52

S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect

that an inheritince tax can be imposed with respect to
intangibles only by the State where the decedent was
domiciled at the time )f his death, and that, under the dueprocess clause, the State in which a corporation has been
incorporated has no sower to impose such tax if the shares'
of stock in such :orporation are owned by a non-resident
decedent. It is o be observed, however, that in a later case
(Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the
United States Supreme Court upheld the authority of the
Federal jovernment to impose an inheritance tax on the
transmision, by death of a non-resident, of stocks in. a
domestic (American) corporation, irrespective of the situs of
the corresponding certificates of stock. But it is contended
that the doctrine in the foregoing case is not applicable,
because the due-process clause is directed at the State and
not at the Federal Government, and that the federal or
national power of the United States is to be determined in
relation to other countries and their subjects by applying the
principles of jurisdiction recognized in international
relations. Be that as it may, the truth is that the due-process
clause is "directed at the protection of the individual and he
is entitled to its immunity as much against the state as
against the national government." (Curry vs. McCanless, 307
U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule
laid down in the four cases relied upon by the appellant was
predicated on a proper regard for the relation of the states
of the American Union, which requires that property should
be taxed in only one state and that jurisdiction to tax is
restricted accordingly. In other words, the application to the
states of the due-process rule springs from a proper
distribution of their powers and spheres of activity as
ordained by the United States Constitution, and such
distribution is enforced and protected by not allowing one
state toreach out and tax property in another. And these
considerations do not apply to the Philippines. Our status
rests upon a wholly distinct basis and no analogy, however

remote, can be suggested in the relation of one state of the

Union with another or with the United States. The status of
the Philippines has been aptly defined as one which, though
a part of the United States in the international sense, is,
nevertheless, foreign thereto in a domestic sense. (Downea
vs. Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing any
distinction between the operation and effect of the dueprocess clause as it applies to the individual states and to
the national government of the United States. The question
here involved is essentially not one of due-process, but of the
power of the Philippine Government to tax. If that power be
conceded, the guaranty of due process cannot certainly be
invoked to frustrate it, unless the law involved is challenged,
which is not, on considerations repugnant to such guaranty
of due process or that of the equal protection of the laws, as,
when the law is alleged to be arbitrary, oppressive or
discriminatory.
Originally, the settled law in the United States.is that
intangibles have only one situs for the purpose of
inheritance tax, and that such situs is in the domicile of the
decedent at the time of his death. But this rule has, of late,
been relaxed. The maxim mobttia sequuntur pcrsonam, upon
which the rule rests, has been decried as a mere "fiction of
law having its origin in considerations of general
convenience and public policy, and cannot be applied to limit
or control the right of the state to tax property within its
jurisdiction" (State Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and must "yield to
established fact of legal ownership, actual presence and
control elsewhere, and cannot be applied if to do so would
result in inescapable and patent injustice." (Safe Deposit &
Trust Co. vs. Virginia, 280 LJ. S., 83, 91-92.) There is thus a
marked shift from artificial postulates of law, formulated for
reasons of con/enience, to the actualities of each case.

An examination of the adjudged cases will disclose that ;he

relaxation of the original rule rests on either of two !
undamental considerations: (1) upon the recognition of ;he
inherent power of each government to tax persons, )
roperties and rights within its jurisdiction and enjoying, hus,
the protection of its laws; and (2) upon the principle hat as
to intangibles, a single location in space is hardly )ossible,
considering , the multiple, distinct relationships vhich may
be entered into with respect thereto. It is on he basis of the
first consideration that the case of Burnet is. Brooks, supra,
was decided by the Federal Supreme ^ourt, sustaining the
power of the Government to impose in inheritance tax upon
transmission, by death of a nonesident, of shares of stock in
a domestic (American) cor>oration, regardless of the situs of
their corresponding certificates; and on the basis of the
second consideration, the case of Cury vs. McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of the argument
that the imposition of the federal estate tax is precluded by
the due-process clause of the Fifth Amendment, held:
"The point, being solely one of jurisdiction to tax, involves
none of the other considerations raised by confiscatory or
arbitrary legislation inconsistent with the fundamental
conceptions of justice which are embodied in the dueprocess clause for the protection of life, liberty, and property
of all personscitizens and friendly aliens alike. Russian
Volunteer Fleet vs. United States, 282 U. S., 481, 489?
75,Law ed., 473, 476; 41 S. Ct, 229; Nichols vs. Coolidge,
274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct, 710;
52 A. L. R., 1081; Heiner vs. Donnon, 285 U. S., 312, 326; 76
Law. ed., 772, 779; 52 S. Ct., 358. in the instant case the
Federal Government had jurisdiction to impose the tati,
there is manifestly no ground for assailing it. Knowlton vs.
Moore, 178 U. S., 41,109; 44 Law. ed., 969, 996; 20 S. Ct,
747; McGray vs. United States, 195 U. S., 27, 61; 49 Law.
ed., 78, 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone

Tracy Co., 220 U. S., 107, 153, 154; 55 Law. ed., 389, 414,
415; 31 S. Ct, 342; Ann. Cas., 1912B, 1312; Brushaber vs.
Union P. R. Co., 240 U. S., 1, 24; 60 Law. ed., 493, 504; 36 S.
Ct, 236; L. R. A., 1917 D; 414, Ann. Cas., 1917B, 713; United
States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 493, 496;
39 S. Ct., 214." Italics ours.)
And, in sustaining the power of the Federal Government to
tax properties within its borders, wherever its owner may
have been domiciled at the time of his death, the court ruled:
"* * * There does not appear, a priori, to be anything
contrary to the principles of international law, or hurtful to
the polity of nations, in a State's taxing property physically
situated within its borders, wherever its owner may have
been domiciled at the time of his death." * * *
"As jurisdiction may exist in more than one government, that
is, jurisdiction based on distinct groundsthe citizenship of
the owner, his domicile, the source of income, the situs of
the propertyefforts have been made to preclude multiple
taxation through the negotiation of appropriate international
conventions. These endeavors, however, have proceeded
upon express or implied recognition, and not in denial, of the
soverign taxing power as exerted by governments in the
exercise of jurisdiction upon any one of these grounds." * * *
(See pages 396-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the
question of whether the States of Alabama and Tennessee
may each constitutionally impose death taxes upon the
transfer of an interest in intangibles held in trust by an
Alabama trustee but passing under the will of a beneficiary
decedent domiciles in Tennessee, sustained the power of
each State to impose the tax. In arriving at this conclusion,
the court made the following observations:
"In cases where the owner of intangibles confines his activity
to the place of his domicile it has been found convenient to
substitute a rule for a reason, cf. New York ex rel, Cohn vs.
Graves, 300 U. S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct,

466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota,
301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677;
113 A. L. R., 228, by saying that his intangibles are taxed at
their situs and not elsewhere, or, perhaps less artificially, by
invoking the maxim mobilia sequuntur personam, Blodgett
vs. Silberman, 277 U. S., 1; 72 Law. ed., 749; 48 S. Ct., 410,
supra; Baldwin vs. Missouri, 281 U. S., 586; 74 Law. ed.,
1056; 50 S. Ct., 436; 12 A. L. R., 1303, supra, which means
only that it is the dentity or association of intangibles with
the person of heir owner at his domicile which gives
jurisdiction to tax. iut when the taxpayer extends his
activities with respect o his intangibles, so as to avail himself
of the protection md benefit of the laws of another state, in
such a way as o bring his person or property within the
reach of the tax :atherer there, the reason for a single place
of taxation no longer obtains, and the rule is not even
workable substitute for the reasons which may exist in any
particular case to support the constitutional power of each
state concerned to tax. Whether we regard the right of a
state to tax as founded on power over the object taxed, as
declared by Chief Justice Marshall in McCulloch vs.
Maryland, 4 Wheat, 316; 4 Law. ed., 579, supra, through
dominion over tangibles or over persons whose relationships
are the source of intangible rights, or on the benefit and
protection conferred by the taxing sovereignty, or both, it is
undeniable that the state of domicile is not deprived, by the
taxpayer's activities elsewhere, of its constitutional
jurisdiction to tax, and consequently that there are many
circumstances in which more than one state may have
jurisdiction to impose a tax and measure it by some or all of
the taxpayer's intangibles. Shares of corporate stock may be
taxed at the domicile of the shareholder and also at that of
the corporation which the taxing state has created and
controls; and income may be taxed both by the state where it
is earned and by the state of the recipient's domicile.
Protection, benefit, and power over the subject matter are
not confined to either state." * * * (Pp. 1347-1349.)

"* * * we find it impossible to say that taxation of intangibles

can be reduced in every case to the mere mechanical
operation of locating at a single place, and there taxing,
every legal interest growing out of all the complex legal
relationships whyh may be entered into between persons.
This is the case because in point of actuality those interests
may be too diverse in their relationships to various taxing
jurisdictions to admit of unitary treatment without
discarding modes of taxation long accepted and applied
before the Fourteenth Amendment was adopted, and still
recognized by this Court as valid." (P. 1351.)
We need not belabor the doctrines of the foregoing cases.
We believe, and so hold, that the issue here involved is
controlled by those doctrines. In the instant case, the actual
situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the
time when the deceased died in California, and they were in
possession of one Syrena McKee, secretary of the Benguet
Consolidated Mining Company, to whom they have been
delivered and indorsed in blank. This indorsement gave
Syrena McKee the right to vote the certificates at the
general meetings of the stockholders, to collect dividends
thereon, and dispose of the shares in the manner she may
deem fit, without projudice to her liability to the owner for
violation of instructions. For all practical purposes, then,
Syrena McKee had the legal title to the certificates of stock
held in trust for the true owner thereof. In other words, the
owner residing in California has extended here her activities
with respect to her intangibles so as to avail herself of the
protection and benefit of the Philippine laws. Accordingly,
the jurisdiction of the Philippine Government to tax must be
upheld.
Judgment is affirmed, with costs against petitioner appellant.

Avancea, C.J., Imperial, Diaz, and Concepcion, JJ., concur.

Laurel, J.;
I concur in the result.
Judgment affirmed.

EN BANC
G.R. NO. 81311, June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG
PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO
Q. QUADRA, AND MARIO C. VILLANUEVA, PETITIONERS, VS.
HON. BIENVENIDO TAN, AS COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.
[G.R. NO. 81820. JUNE 30, 1988]
KILUSANG MAYO UNO LABOR CENTER (KMU), ITS
OFFICERS AND AFFILIATED LABOR FEDERATIONS AND
ALLIANCES, PETITIONERS, VS. THE EXECUTIVE
SECRETARY, SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE, AND SECRETARY
OF BUDGET, RESPONDENTS.
[G.R. NO. 81921. JUNE 30, 1988]
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE
PHILIPPINES AND JESUS B. BANAL,PETITIONERS, VS. THE
HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE,
RESPONDENT.
[G.R. NO. 82152. JUNE 30, 1988]
RICARDO C. VALMONTE,PETITIONER, VS. THE EXECUTIVE
SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF
INTERNAL REVENUE AND SECRETARY OF BUDGET,
RESPONDENTS.

PADILLA, J.:
These four (4) petitions, which have been consolidated
because of the similarity of the main issues involved therein,
seek to nullify Executive Order No. 273 (EO 273, for short),
issued by the President of the Philippines on 25 July 1987, to

take effect on 1 January 1988, and which amended certain

sections of the National Internal Revenue Code and adopted
the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not allegedly within
the powers of the President; that the VAT is oppressive,
discriminatory, regressive, and violates the due process and
equal protection clauses and other provisions of the 1987
Constitution.
The Solicitor General prays for the dismissal of the petitions
on the ground that the petitioners have failed to show
justification for the exercise of its judicial powers, viz. (1) the
existence of an appropriate case; (2) an interest, personal
and substantial, of the party raising the constitutional
questions; (3) the constitutional question should be raised at
the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a
justiciable controversy and its resolution is essential to the
protection of the rights of the parties. According to the
Solicitor General, only the third requisite that the
constitutional question should be raised at the earliest
opportunity has been complied with. He also questions the
legal standing of the petitioners who, he contends, are
merely asking for an advisory opinion from the Court, there
being no justiciable controversy for resolution.
Objections to taxpayer's suit for lack of sufficient personality
standing, or interest are, however, in the main procedural
matters. Considering the importance to the public of the
cases at bar, and in keeping with the Court's duty, under the
1987 Constitution, to determine whether or not the other
branches of government have kept themselves within the
limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed
aside technicalities of procedure and has taken cognizance
of these petitions.

But, before resolving the issues raised, a brief look into the
tax law in question is in order.
The VAT is a tax levied on a wide range of goods and
services. It is a tax on the value, added by every seller, with
aggregate gross annual sales of articles and/or services,
exceeding P200,000.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0%
or 10% of the gross selling price of goods or gross receipts
realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple
rated sales tax on manufacturers and producers, advance
sales tax, and compensating tax on importations. The
framers of EO 273 claim that it is principally aimed to
rationalize the system of taxing goods and services; simplify
tax administration; and make the tax system more equitable,
to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a
modified form, before EO 273 was issued. As pointed out by
the Solicitor General, the Philippine sales tax system, prior
to the issuance of EO 273, was essentially a single stage
value added tax system computed under the "cost
subtraction method" or "cost deduction method" and was
imposed only on original sale, barter or exchange of articles
by manufacturers, producers, or importers. Subsequent
sales of such articles were not subject to sales tax. However,
with the issuance of PD 1991 on 31 October 1985, a 3% tax
was imposed on a second sale, which was reduced to 1.5%
upon the issuance of PD 2006 on 31 December 1985, to take
effect 1 January 1986. Reduced sales taxes were imposed not
only on the second sale, but on every subsequent sale, as
well. EO 273 merely increased the VAT on every sale to 10%,
unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on

the ground that the President had no authority to issue EO

273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which
decreed a Provisional Constitution, sole legislative authority
was vested upon the President. Art. II, Sec. 1 of the
Provisional Constitution states:
"Sec. 1. Until a legislature is elected and convened under a
new Constitution, the President shall continue to exercise
legislative powers."
On 15 October 1986, the Constitutional Commission of 1986
adopted a new Constitution for the Republic of the
Philippines which was ratified in a plebiscite conducted on 2
February 1987. Article XVIII, Sec. 6 of said Constitution,
hereafter referred to as the 1987 Constitution, provides:
"Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened."
It should be noted that, under both the Provisional and the
1987 Constitutions, the President is vested with legislative
powers until a legislature under a new Constitution is
convened. The first Congress, created and elected under the
1987 Constitution, was convened on 27 July 1987. Hence,
the enactment of EO 273 on 25 July 1987, two (2) days
before Congress convened on 27 July 1987, was within the
President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was
really convened on 30 June 1987 (not 27 July 1987). He
contends that the word "convene" is synonymous with "the
date when the elected members of Congress assumed
office."
The contention is without merit. The word "convene" which
has been interpreted to mean "to call together, cause to
assemble, or convoke,"[1] is clearly different from assumption

of office by the individual members of Congress or their

taking the oath of office. As an example, we call to mind the
interim National Assembly created under the 1973
Constitution, which had not been "convened" but some
members of the body, more particularly the delegates to the
1971 Constitutional Convention who had opted to serve
therein by voting affirmatively for the approval of said
Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would
stretch the definition of the word "convene" a bit too far. It
would also defeat the purpose of the framers of the 1987
Constitution and render meaningless some other provisions
of said Constitution. For example, the provisions of Art. VI,
Sec. 15, requiring Congress to convene once every year on
the fourth Monday of July for its regular session would be a
contrariety, since Congress would already be deemed to be
in session after the individual members have taken their
oath of office. A portion of the provisions of Art. VII, Sec. 10,
requiring Congress to convene for the purpose of enacting a
law calling for a special election to elect a President and
Vice-President in case a vacancy occurs in said offices,
would also be a surplusage. The portion of Art. VII, Sec. 11,
third paragraph, requiring Congress to convene, if not in
session, to decide a conflict between the President and the
Cabinet as to whether or not the President can re-assume
the powers and duties of his office, would also be redundant.
The same is true with that portion of Art. VII, Sec. 18, which
requires Congress to convene within twenty-four (24) hours
following the declaration of martial law or the suspension of
the privilege of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the
President loses her power to legislate. If the framers of said
Constitution had intended to terminate the exercise of
legislative powers by the President at the beginning of the
term of office of the members of Congress, they should have

so stated (but. did not) in clear and unequivocal terms. The

Court has no power to re-write the Constitution and give it a
meaning different from that intended.
The Court also finds no merit in the petitioners' claim that
EO 273 was issued by the President in grave abuse of
discretion amounting to lack or excess of jurisdiction. "Grave
abuse of discretion" has been defined, as follows:
"'Grave abuse of discretion' implies such capricious and
whimsical exercise of judgment as is equivalent to lack of
jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz.
834), or, in other words, where the power is exercised in an
arbitrary or despotic manner by reason of passion or
personal hostility, and it must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal
to perform the duty enjoined or to act at all in contemplation
of law.' (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62)."[2]
Petitioners have failed to show that EO 273 was issued
capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It appears
that a comprehensive study of the VAT was made before EO
273 was issued. In fact, the merits of the VAT had been
extensively discussed by its framers and other government
agencies involved in its implementation, even under the past
administration. As the Solicitor General correctly stated.
"The signing of E.O. 273 was merely the last stage in the
exercise of her legislative powers. The legislative process
started long before the signing when the data were
gathered, proposals were weighed and the final wordings of
the measure were drafted, revised and finalized. Certainly, it
cannot be said that the President made a jump, so to speak,
on the Congress, two days before it convened."[3]
Next, the petitioners claim that EO 273 is oppressive,
discriminatory, unjust and regressive, in violation of the

provisions of Art. VI, Sec. 28(1) of the 1987 Constitution,

which states:
"Sec. 28. (1) The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of
taxation."
The petitioners' assertions in this regard are not supported
by facts and circumstances to warrant their conclusions.
They have failed to adequately show that the VAT is
oppressive, discriminatory or unjust. Petitioners merely rely
upon newspaper articles which are actually hearsay and
have no evidentiary value. To justify the nullification of a law,
there must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative implication.[4]
As the Court sees it, EO 273 satisfies all the requirements of
a valid tax. It is uniform. The Court, in City of Baguio vs. De
Leon,[5] said:
"x x x In Philippine Trust Company v. Yatco (69 Phil. 420),
Justice Laurel, speaking for the Court, stated: 'A tax is
considered uniform when it operates with the same force
and effect in every place where the subject may be found.'
"There was no occasion in that case to consider the possible
effect on such a constitutional requirement where there is a
classification. The opportunity came in Eastern Theatrical
Co. v. Alfonso (83 Phil. 852, 862). Thus: 'Equality and
uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation; x x x.' About
two years later, Justice Tuason, speaking for this Court in
Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil.
60, 65) incorporated the above excerpt in his opinion and
continued; 'Taking everything into account, the
differentiation against which the plaintiffs complain
conforms to the practical dictates of justice and equity and is
not discriminatory within the meaning of the Constitution.'

"To satisfy this requirement then, all that is needed as held

in another case decided two years later, (Uy Matias v. City of
Cebu, 93 Phil. 300) is that the statute or ordinance in
question 'applies equally to all persons, firms and
corporations placed in similar situation.' This Court is on
record as accepting the view in a leading American case
(Carmichael v. Southern Coal and Coke Co., 301 US 495)
that 'inequalities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation.' (Lutz v. Araneta, 98 Phil. 148,
153)."
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.[6]
The Court likewise finds no merit in the contention of the
petitioner Integrated Customs Brokers Association of the
Philippines that EO 273, more particularly the new Sec.
103(r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested
provision states:
"Sec. 103. Exempt transactions. The following shall be
exempt from the value-added tax:
"***

***

***

"(r) Service performed in the exercise of profession or

calling (except customs brokers) subject to the occupation
tax under the Local Tax Code, and professional services
performed by registered general professional partnerships";
The phrase "except customs brokers" is not meant to
discriminate against customs brokers. It was inserted in Sec.
103(r) to complement the provisions of Sec. 102 of the Code
which makes the services of customs brokers subject to the
payment of the VAT and to distinguish customs brokers from
other professionals who are subject to the payment of an
occupation tax under the Local Tax Code. Pertinent
provisions of Sec. 102 read:
"Sec. 102. Value-added tax on sale of' services. There shall
be levied, assessed and collected, a value-added tax
equivalent to 10% percent of gross receipts derived by any
person engaged in the sale of services. The phrase 'sale of
services' means the performance of all kinds of services for
others for a fee, remuneration or consideration, including
those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for
others; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties: x x x."
With the insertion of the clarificatory phrase "except
customs brokers" in Sec. 103(r), a potential conflict between
the two sections, (Sees. 102 and 103), insofar as customs
brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the
other professionals who are subject to occupation tax under
the Local Tax Code is based upon material differences, in
that the activities of customs brokers (like those of stock,
real estate and immigration brokers) partake more of a

business, rather than a profession and were thus subjected

to the percentage tax under Sec. 174 of the National
Internal Revenue Code prior to its amendment by EO 273.
EO 273 abolished the percentage tax and replaced it with
the VAT. If the petitioner Association did not protest the
classification of customs brokers then, the Court sees no
reason why it should protest now.
The Court takes note that EO 273 has been in effect for more
than five (5) months now, so that the fears expressed by the
petitioners that the adoption of the VAT will trigger
skyrocketing of prices of basic commodities and services, as
well as mass actions and demonstrations against the VAT
should by now be evident. The fact that nothing of the sort
has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would
seem that the VAT is not as bad as we are made to believe.
In any event, if petitioners seriously believe that the
adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and relief
from the political branches of the government. The Court,
following the time-honored doctrine of separation of powers,
cannot substitute its judgment for that of the President as to
the wisdom, justice and advisability of the adoption of the
VAT. The Court can only look into and determine whether or
not EO 273 was enacted and made effective as law, in the
manner required by, and consistent with, the Constitution,
and to make sure that it was not issued in grave abuse of
discretion amounting to lack or excess of jurisdiction; and, in
this regard, the Court finds no reason to impede its
application or continued implementation.
WHEREFORE, the petitions are DISMISSED. Without
pronouncement as to costs.

SO ORDERED.
Yap, C. J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras,
Feliciano, Gancayco, Bidin, Sarmiento, Cortes, and GrioAquino, JJ., concur.
Gutierrez, Jr. and Medialdea, JJ., on leave.

THIRD DIVISION
G.R. No. 104786, January 27, 1994
ALFREDO PATALINGHUG, PETITIONER, VS. HON. COURT OF
APPEALS, RICARDO CRIBILLO, MARTIN ARAPOL, CORAZON
ALCASID, PRIMITIVA SEDO, RESPONDENTS.
DECISION

ROMERO, J.:
In the case before us, we are called upon to decide whether
or not petitioner's operation of a funeral home constitutes
permissible use within a particular district or zone in Davao
City.
On November 17, 1982, the Sangguniang Panlungsod of
Davao City enacted Ordinance No. 363, series of 1982
otherwise known as the "Expanded Zoning Ordinance of
Davao City." Section 8 of which states:
"Section 8. USE REGULATIONS IN C-2 DISTRICTS (Shaded
light red in the Expanded Zoning Map) - AC - 2 District shall
be dominantly for commercial and compatible industrial uses
as provided hereunder:
1. x x x

xxx

xxx

2. x x x

xxx

xxx

3.1 Funeral Parlors/Memorial Homes with adequate off

street parking space (see parking standards of P.D. 1096)
and provided that they shall be established not less than 50
meters from any residential structures, churches and other
institutional buildings." (Underscoring provided)
Upon prior approval and certification of zoning compliance
by Zoning Administrator Hector Esguerra, Building Official

Demetrio Alindad issued on February 10, 1987 Building

Permit No. 870254 in favor of petitioner for the construction
of a funeral parlor in the name and style of Metropolitan
Funeral Parlor at Cabaguio Avenue, Agdao, Davao City.
Thereafter, petitioner commenced the construction of his
funeral parlor.
Acting on the complaint of several residents of Barangay
Agdao, Davao City that the construction of petitioner's
funeral parlor violated Ordinance No. 363, since it was
allegedly situated within a 50-meter radius from the Iglesia
Ni Kristo Chapel and several residential structures, the
Sangguniang Panlungsod conducted an investigation and
found that "the nearest residential structure, owned by
Wilfred G. Tepoot is only 8 inches to the south. x x x." [1]
Notwithstanding the findings of the Sangguniang
Panlungsod, petitioner continued to construct his funeral
parlor which was finished on November 3, 1987.
Consequently, private respondents filed on September 6,
1988 a case for the declaration of nullity of a building permit
with preliminary prohibitory and mandatory injunction
and/or restraining order with the trial court.[2]
After conducting its own ocular inspection on March 30,
1989, the lower court, in its order dated July 6, 1989,
dismissed the complaint based on the following findings: [3]
"1. that the residential building owned by Cribillo and Iglesia
ni Kristo chapel are 63.25 meters and 55.95 meters away,
respectively from the funeral parlor.
2. Although the residential building owned by certain Mr.
Tepoot is adjacent to the funeral parlor, and is only
separated therefrom by a concrete fence, said residential
building is being rented by a certain Mr. Asiaten who

actually devotes it to his laundry business with machinery

thereon.
3. Private respondent's suit is premature as they failed to
exhaust the administrative remedies provided by Ordinance
No. 363."
Hence, private respondents appealed to the Court of
Appeals. (CA G.R. No. 23243)
In its decision dated November 29, 1991, the Court of
Appeals reversed the lower court by annulling building
permit No. 870254 issued in favor of petitioner.[4] It ruled
that although the buildings owned by Cribillo and Iglesia Ni
Kristo were beyond the 50-meter residential radius
prohibited by Ordinance 363, the construction of the funeral
parlor was within the 50-meter radius measured from the
Tepoot's building. The Appellate Court disagreed with the
lower court's determination that Tepoot's building was
commercial and ruled that although it was used by Mr.
Tepoot's lessee for laundry business, it was a residential lot
as reflected in the tax declaration, thus paving the way for
the application of Ordinance No. 363.
Hence, this appeal based on the following grounds:
"The Respondent Court of Appeals erred in concluding that
the Tepoot building adjacent to petitioner's funeral parlor is
residential simply because it was allegedly declared as such
for taxation purposes, in complete disregard of Ordinance
No. 363 (The Expanded Zoning Ordinance of Davao City)
declaring the subject area as dominantly for commercial and
compatible industrial uses."
We reverse the Appellate Court and reinstate the ruling of
the lower court that petitioner did not violate Section 8 of
Davao City Ordinance No. 363. It must be emphasized that
the question of whether Mr. Tepoot's building is residential
or not is a factual determination which we should not
disturb. As we have repeatedly enunciated, the resolution of

factual issues is the function of the lower courts where

findings on these matters are received with respect and are
in fact binding on this court, except only where the case is
shown as coming under the accepted exceptions.[5]
Although the general rule is that factual findings of the
Court of Appeals are conclusive on us,[6] this admits of
exceptions as when the findings or conclusions of the Court
of Appeals and the trial court are contrary to each other. [7]
While the trial court ruled that Tepoot's building was
commercial, the Appellate Court ruled otherwise. Thus we
see the necessity of reading and examining the pleadings
and transcripts submitted before the trial court.
In the case at bar, the testimony of City Councilor Vergara
shows that Mr. Tepoot's building was used for a dual purpose
both as a dwelling and as a place where a laundry business
was conducted.[8] But while its commercial aspect has been
established by the presence of machineries and laundry
paraphernalia, its use as a residence, other than being
declared for taxation purposes as such, was not fully
substantiated.
The reversal by the Court of Appeals of the trial court's
decision was based on Tepoot's building being declared for
taxation purposes as residential. It is our considered view,
however, that a tax declaration is not conclusive of the
nature of the property for zoning purposes. A property may
have been declared by its owner as residential for real estate
taxation purposes but it may well be within a commercial
zone. A discrepancy may thus exist in the determination of
the nature of property for real estate taxation purposes vis-avis the determination of a property for zoning purposes.
Needless to say, even if we are to examine the evidentiary
value of a tax declaration under the Real Property Tax Code,
a tax declaration only enables the assessor to identify the

same for assessment levels. In fact, a tax declaration does

not bind a provincial/city assessor, for under Sec. 22 of the
Real Estate Tax Code,[9] appraisal and assessment are based
on the actual use irrespective of "any previous assessment or
taxpayer's valuation thereon," which is based on a taxpayer's
declaration. In fact, a piece of land declared by a taxpayer as
residential may be assessed by the provincial or city
assessor as commercial because its actual use is
commercial.
The trial court's determination that Mr. Tepoot's building is
commercial and, therefore, Sec. 8 is inapplicable, is
strengthened by the fact that the Sangguniang Panlungsod
has declared the questioned area as commercial or C-2.
Consequently, even if Tepoot's building was declared for
taxation purposes as residential, once a local government
has reclassified an area as commercial, that determination
for zoning purposes must prevail. While the commercial
character of the questioned vicinity has been declared thru
the ordinance, private respondents have failed to present
convincing arguments to substantiate their claim that
Cabaguio Avenue, where the funeral parlor was constructed,
was still a residential zone. Unquestionably, the operation of
a funeral parlor constitutes a "commercial purpose," as
gleaned from Ordinance No. 363.
The declaration of the said area as a commercial zone thru a
municipal ordinance is an exercise of police power to
promote the good order and general welfare of the people in
the locality. Corollary thereto, the state, in order to promote
the general welfare, may interfere with personal liberty, with
property, and with business and occupations.[10] Thus,
persons may be subjected to certain kinds of restraints and
burdens in order to secure the general welfare of the state
and to this fundamental aim of government, the rights of the
individual may be subordinated. The ordinance which
regulates the location of funeral homes has been adopted as

part of comprehensive zoning plans for the orderly

development of the area covered thereunder.
WHEREFORE, the decision of the Court of Appeals dated
November 29, 1991 is hereby REVERSED and the order
dated July 6, 1989 of the Regional Trial Court of Davao City
is REINSTATED.
SO ORDERED.
Feliciano, (Chairman), Bidin, Melo, and Vitug, JJ., concur.

EN BANC
G.R. No. 53961, June 30, 1987
NATIONAL DEVELOPMENT COMPANY, PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION

CRUZ, J.:
We are asked to reverse the decision of the Court of Tax
Appeals on the ground that it is erroneous. We have
carefully studied it and find it is not; on the contrary, it is
supported by law and doctrine. So finding, we affirm.
Reduced to simplest terms, the background facts are as
follows.
The National Development Company entered into contracts
in Tokyo with several Japanese shipbuilding companies for
the construction of twelve ocean-going vessels.[1] The
purchase price was to come from the proceeds of bonds
issued by the Central Bank.[2] Initial payments were made in
cash and through irrevocable letters of credit. [3] Fourteen
promissory notes were signed for the balance by the NDC
and, as required by the shipbuilders, guaranteed by the
Republic of the Philippines.[4] Pursuant thereto, the
remaining payments and the interests thereon were remitted
[1]
[2]
[3]
[4]

in due time by the NDC to Tokyo. The vessels were

eventually completed and delivered to the NDC in Tokyo.[5]
The NDC remitted to the shipbuilders in Tokyo the total
amount of US$4,066,580.70 as interest on the balance of the
purchase price. No tax was withheld. The Commissioner
then held the NDC liable on such tax in the total sum of
P5,115,234.74. Negotiations followed but failed. The BIR
thereupon served on the NDC a warrant of distraint and levy
to enforce collection of the claimed amount.[6] The NDC went
to the Court of Tax Appeals.
The BIR was sustained by the CTA except for a slight
reduction of the tax deficiency in the sum of P900.00
representing the compromise penalty.[7] The NDC then came
to this Court in a petition for certiorari.
The petition must fail for the following reasons.
The Japanese shipbuilders were liable to tax on the interest
remitted to them under Section 37 of the Tax Code, thus:
"SEC. 37. Income from sources within the Philippines. (a)
Gross income from sources within the Philippines. - The following items of gross income shall be treated as gross
income from sources within the Philippines:
(1)Interest. - Interest derived from sources within the
Philippines, and interest on bonds, notes, or other interestbearing obligations of residents, corporate or otherwise;
xxx
xxx
x x x."

[5]
[6]
[7]

The petitioner argues that the Japanese shipbuilders were

not subject to tax under the above provision because all the
related activities - the signing of the contract, the
construction of the vessels, the payment of the stipulated
price, and their delivery to the NDC - were done in Tokyo. [8]
The law, however, does not speak of activity but of "source,"
which in this case is the NDC. This is a domestic and
resident corporation with principal offices in Manila.
As the Tax Court put it:
"It is quite apparent, under the terms of the law, that the
Government's right to levy and collect income tax on interest
received by foreign corporations not engaged in trade or
business within the Philippines is not planted upon the
condition that 'the activity or labor - and the sale from which
the (interest) income flowed had its situs' in the Philippines,
The law specifies: 'Interest derived from sources within the
Philippines, and interest on bonds, notes, or other interestbearing obligations of residents, corporate or otherwise.'
Nothing there speaks of the 'act or activity' of non-resident
corporations in the Philippines, or place where the contract
is signed. The residence of the obligor who pays the interest
rather than the physical location of the securities, bonds or
notes or the place of payment, is the determining factor of
the source of interest income. (Mertens, Law of Federal
Income Taxation, Vol. 8, p. 128, citing A.C. Monk &. Co. Inc.
10 T.C. 77; Sumitomo Bank, Ltd., 19 BTA 480; Estate of L.E.
Mckinnon, 6 BTA 412; Standard Marine Ins. Co., Ltd., 4 BTA
853; Marine Ins. Co., Ltd., 4 BTA 867.) Accordingly, if the obligor is a resident of the Philippines the interest payment
paid by him can have no other source than within the
Philippines. The interest is paid not by the bond, note or
other interest-bearing obligations, but by the obligor. (See
Mertens, Id., Vol. 8, p. 124.)
[8]

"Here in the case at bar, petitioner National Development

Company, a corporation duly organized and existing under
the laws of the Republic of the Philippines, with address and
principal office at Calle Pureza, Sta. Mesa, Manila,
Philippines unconditionally promised to pay the Japanese
shipbuilders, as obligor in fourteen (14) promissory notes for
each vessel, the balance of the contract price of the twelve
(12) ocean-going vessels purchased and acquired by it from
the Japanese corporations, including the interest on the
principal sum at the rate of five per cent (5%) per annum.
(See Exhs. "D", D-1" to "D-13", pp. 100-113, CTA Records;
par. 11, Partial Stipulation of Facts.) And pursuant to the
terms and conditions of these promissory notes, which are
duly signed by its Vice Chairman and General Manager,
petitioner remitted to the Japanese shipbuilders in Japan
during the years 1960, 1961, and 1962 the sum of
$830,613.17, $1,654,936.52 and $1,541,031.00, respectively,
as interest on the unpaid balance of the purchase price of
the aforesaid vessels. (pars. 13, 14, & 15, Partial Stipulation
of Facts.)
"The law is clear. Our plain duty is to apply it as written.
The residence of the obligor which paid the interest under
consideration, petitioner herein, is Calle Pureza, Sta. Mesa,
Manila, Philippines; and as a corporation duly organized and
existing under the laws of the Philippines, it is a domestic
corporation, resident of the Philippines. (Sec. 84(c),
National Internal Revenue Code,) The interest paid by
petitioner, which is admittedly a resident of the Philippines,
is on the promissory notes issued by it. Clearly, therefore,
the interest remitted to the Japanese shipbuilders in Japan in
1960, 1961 and 1962 on the unpaid balance of the purchase
price of the vessels acquired by petitioner is interest derived
from sources within the Philippines subject to income tax
under the then Section 24(b)(1) of the National Internal
Revenue Code."[9]
[9]

There is no basis for saying that the interest payments were

obligations of the Republic of the Philippines and that the
promissory notes of the NDC were government securities
exempt from taxation under Section 29(b)/47/ of the Tax
Code, reading as follows:
"SEC. 29. Gross Income. x x x xx x x
xxx
xxx
(b) Exclusions from gross income. -The following items
shall not be included in gross income and shall be exempt
from taxation under this Title:
xxx
xxx
xxx
(4) Interest on Government Securities. - Interest upon the
obligations of the Government of the Republic of the
Philippines or any political subdivision thereof, but in the
case of such obligations issued after approval of this Code,
only to the extent provided in the act authorizing the issue
thereof. (As amended by Section 6, R.A. No. 82; underscoring supplied)
The law invoked by the petitioner as authorizing the
issuance of securities is R. A. No. 1407, which in fact is
silent on this matter. C.A. No. 182 as amended by C.A. No.
311 does carry such authorization but, like R.A. No. 1407,
does not exempt from taxes the interests on such securities.
It is also incorrect to suggest that the Republic of the
Philippines could not collect taxes on the interest remitted
because of the undertaking signed by the Secretary of
Finance in each of the promissory notes that:
"Upon authority of the President of the Republic of the
Philippines, the undersigned, for value received, hereby
absolutely and unconditionally guarantee (sic), on behalf of
the Republic of the Philippines, the due and punctual
payment of both principal and interest of the above note." [10]
[10]

There is nothing in the above undertaking exempting the

interests from taxes. Petitioner has not established a clear
waiver therein of the right to tax interests. Tax exemptions
cannot be merely implied but must be categorically and
unmistakably expressed.[11] Any doubt concerning this
question must be resolved in favor of the taxing power. [12]
Nowhere in the said undertaking do we find any inhibition
against the collection of the disputed taxes. In fact, such
undertaking was made by the government in consonance
with and certainly not against the following provisions of the
Tax Code:
"Sec. 53(b). Nonresident aliens. - All persons, corporations
general co-partnerships (companies colectivas), in whatever
capacity acting, including lessees or mortgagors of real or
personal capacity, executors, administrators, receivers,
conservators, fiduciaries, employers, and all officers and
employees of the Government of the Philippines having
control, receipt, custody, disposal or payment of interest,
dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed
or determinable annual or categorical gains, profits and
income of any nonresident alien individual, not engaged in
trade or business within the Philippines and not having any
office or place of business therein, shall (except in the cases
provided for in subsection (a) of this Section) deduct and
withhold from such annual or periodical gains, profits and
income a tax equal to twenty (now 30%) per centum thereof:
x x."
"Sec. 54. Payment of corporation income tax at source. - In
the case of foreign corporations subject to taxation under
[11]
[12]

this Title not engaged in trade or business within the

Philippines and not having any office or place of business
therein, there shall be deducted and withheld at the source
in the same manner and upon the same items as is provided
in section fifty-three a tax equal to thirty (now 35%) per
centum thereof, and such tax shall be returned and paid in
the same manner and subject to the same conditions as
provided in that section: x x x."
Manifestly, the said undertaking of the Republic of the
Philippines merely guaranteed the obligations of the NDC
but without diminution of its taxing power under existing
laws.
In suggesting that the NDC is merely an administrator of the
funds of the Republic of the Philippines, the petitioner closes
its eyes to the nature of this entity as a corporation. As
such, it is governed in its proprietary activities not only by
its charter but also by the Corporation Code and other
pertinent laws.
The petitioner also forgets that it is not the NDC that is
being taxed. The tax was due on the interests earned by the
Japanese shipbuilders. It was the income of these
companies and not the Republic of the Philippines that was
subject to the tax the NDC did not withhold.
In effect, therefore, the imposition of the deficiency taxes on
the NDC is a penalty for its failure to withhold the same
from the Japanese shipbuilders. Such liability is imposed by
Section 53(c) of the Tax Code, thus:
"Section 53(c). Return and Payment. - Every person
required to deduct and withhold any tax under this section
shall make return thereof, in duplicate, on or before the
fifteenth day of April of each year, and, on or before the time
fixed by law for the payment of the tax, shall pay the amount
withheld to the officer of the Government of the Philippines

authorized to receive it. Every such person is made

personally liable for such tax, and is indemnified against the
claims and demands of any person for the amount of any
payments made in accordance with the provisions of this
section. (As amended by Section 9, R.A. No. 2343.)"
In Philippine Guaranty Co. v. The Commissioner of Internal
Revenue and the Court of Tax Appeals,[13] the Court quoted
with approval the following regulation of the BIR on the
responsibilities of withholding agents:
"In case of doubt, a withholding agent may always protect
himself by withholding the tax due, and promptly causing a
query to be addressed to the Commissioner of Internal
Revenue for the determination whether or not the income
paid to an individual is not subject to withholding. In case
the Commissioner of Internal Revenue decides that the
income paid to an individual is not subject to withholding,
the withholding agent may thereupon remit the amount of
tax withheld." (2nd par., Sec. 200, Income Tax Regulations)."
"Strict observance of said steps is required of a withholding
agent before he could be released from liability," so said
Justice Jose P. Bengson, who wrote the decision. "Generally,
the law frowns upon exemption from taxation; hence, an
exempting provision should be construed strictissimi
juris."[14]
The petitioner was remiss in the discharge of its obligation
as the withholding agent of the government and so should be
held liable for its omission.
WHEREFORE, the appealed decision is AFFIRMED, without
any pronouncement as to costs. It is so ordered.
[13]
[14]

Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera,

Gutierrez, Jr., Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, and Cortes, JJ., concur.

G.R. No. L-24813, April 28, 1969

DR. HERMENEGILDO SERAFICA, PLAINTIFF-APPELLANT,
VS. THE TREASURER OF ORMOC CITY, THE MUNICIPAL
BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS, AS
MAYOR OF ORMOC CITY AND ORMOC CITY, DEFENDANTSAPPELLEES.
DECISION

CONCEPCION, C.J.:
Direct appeal from a decision of the Court of First Instance
of Leyte dismissing plaintiff's complaint, without
pronouncement as to costs.
Plaintiff, Dr. Hermenegildo Serafica, seeks a declaration of
nullity of Ordinance No. 13, Series of 1964, of Ormoc City,
imposing a "tax of five pesos (P5.00) for every one thousand
(1,000) board feet of lumber sold at Ormoc City by any
person, partnership, firm, association, corporation, or
entities", pursuant to which the Treasurer of said City levied
on and collected from said plaintiff, as owner of the Serafica
Sawmill, the aggregate sum of P1,837.84, as tax on 367,568
board feet of lumber sold, in said City, during the third
quarter of 1964. After appropriate proceedings, the lower
court rendered judgment upholding the validity of said
ordinance and denying the relief prayed for by Dr. Serafica.
Hence, this appeal by the latter.
The contested ordinance reads:
"ORDINANCE NO. 13
"AN ORDINANCE IMPOSING A TAX OF FIVE PESOS (P5.00)
FOR EVERY ONE THOUSAND BOARD FEET OF LUMBER
SOLD AT ORMOC CITY AND FOR OTHER PURPOSES

"BE IT ORDAINED, by authority of the Municipal Board of

Ormoc City, Philippines, pursuant to the provisions of
Republic Act 179, as amended by RA. 429, otherwise known
as the Charter of Ormoc City, That:
"Section 1. City tax. - There shall be paid to the City
Treasurer a city tax of five pesos (P5.00) for every one
thousand (1,000) board feet of lumber sold at Ormoc City by
any person, partnership, firm, association, corporation or
entity.
"Section 2. Time and manner of payment and penalty for
delinquency. - The city tax herein prescribed shall be
payable without penalty within twenty (20) days after the
close of every quarter for 'which the tax is due. Failure to
pay the tax within the Prescribed time shall render the
taxpayer subject to a surcharge of fifty percentum (50%) for
the first offense and one hundred percentum (100%) for
subsequent failures to pay within the prescribed period.
"Section 3. Payment to be rendered by tax payer. - The
taxpayer is hereby obliged to include the tax due in every
invoice issued for the sale of lumber which tax shall be
submitted for payment to the City Treasurer within twenty
(20) days after the close of every quarter.
"Section 4. Inspection of taxpayer's books and records. - For
the purpose of enforcing the provisions of this Ordinance,
the City Treasurer or any of his deputies specifically
authorized in writing for the purpose, shall have authority to
examine the hooks and records of any person, partnership,
firm, association, corporation or entity subject to the tax
herein imposed, PROVIDED, HOWEVER, That such
examination shall be made only during regular business
hours, unless the person, partnership, firm, association,
corporation or entity concerned shall consent otherwise.
"Sec. 5. Penalty for violation. - Any violation of the
provisions of this Ordinance shall be punishable by a fine of

not more than five hundred (P500.00) pesos and an

imprisonment of not more than three (3) months.
"Sec. 6. Construction of this Ordinance. - If any part or
section of this Ordinance shall be declared unconstitutional
or ultra vires, such part or section shall not invalidate any
other provision hereof.
"Sec. 7. Effectivity. - This Ordinance shall take effect
immediately upon its approval. ENACTED, June 17, 1964.
"'RESOLVED, FURTHER, to authorize the City Treasurer to
copies of this Ordinance for issuance to all concerned;
"'RESOLVED, FINALLY, to furnish a copy of this resolutionordinance each to the City Treasurer, the City Auditor, the
City Fiscal, the City Judge, and all concerned;
" 'CARRIED. Six affirmative votes registered by Councilors
Tugonon, Alfaro, Kierulf, Abas, Besabella, and Du; one
abstention registered by Councilor Aviles.'"
xx
xx
xx
Plaintiff assails this ordinance as null and void upon the
grounds that: (1) the Charter of Ormoc City (Republic Acts
Nos. 179 and 429) authorizes the same to "regulate", but not
to "tax" lumber yards; (2) the ordinance in question imposes,
in effect, double taxation, because the business of lumber
yard is already regulated under said Charter and the sale of
lumber is "a mere incident to the business of lumber yard";
(3) the tax imposed is "unfair, unjust, arbitrary,
unreasonable, oppressive and contrary to the principles of
taxation"; and (4) "the public was not heard and given a
chance to air its views" thereon.
With respect to the first ground, We have held in Ormoc
Sugar Co. v. Municipal Board of Ormoc City, that the taxing
power of the City of Ormoc, under section 2 of the Local
Autonomy Act is "broad" and "sufficiently plenary to cover
everything, excepting those mentioned therein".1 It should
[1]

[2]

be noted that in said case of Ormoc Sugar Co., We upheld

the validity of a sales tax.
As regards the second ground, suffice it to say that
regulation and taxation are two different things, the first
being an exercise of police power, whereas the latter is not,
apart from the fact that double taxation is not prohibited in
the Philippines.2
The third objection is premised upon the fact that the tax in
question is imposed regardless of the class of lumber sold,
although there are several categories thereof, commanding
different prices. Plaintiff has not proven, however, or even
alleged the prices corresponding to each category, so that,
like the lower court, We have no means to ascertain the
accuracy of the conclusions drawn by him, and must,
accordingly, rely upon the presumption that the City Council
had merely complied with its duty and that the ordinance is
valid, unless and until the contrary has been duly
established.3
The last objection is based upon Provincial Circular No. 24 of
the Department of Finance, dated March 31, 1960,
suggesting that, "in the enactment of tax ordinances x x
under the Local Autonomy Act, x x x where practicable,
public hearings be held wherein the views of the public x x x
may be heard." This is, however, a mere suggestion,
compliance with which is not obligatory, so that failure to act
in accordance therewith can not and does not affect the
validity of the tax ordinance.
Indeed, since local governments are subject, not to the control, but merely to the general supervision of the President,
it is, to say the least, doubtful that the latter could have
made compliance with said circular obligatory.4

We have not overlooked the fact that, pursuant to Sec. 2 of

Republic Act No. 2264 as amended, "no city, municipality or
municipal district may levy or impose x x x
xxx
x

xx
xxx
(e) Taxes on forest products or forest concessions."

Although lumber is a forest product, this limitation has no

application to the case at bar, the tax in question being
imposed, not upon lumber, but upon its sale. Said tax is not
levied upon the lumber in plaintiff's sawmill and does not
become due until after the lumber has been sold. Hence, the
case at bar is distinguishable from Golden Ribbon, Lumber
Co., Inc. v. City of Butuan1 in that the ordinance involved
therein, provided that "every person, association or
corporation operating a lumber mill and/or lumber yard
within the territory of the City of Butuan shall pay to the City
a tax of two-fifths (P.004) centavo for every board foot of
lumber sawn, manufactured and/or produced." In short, the
tax in that case was imposed upon the "lumber" - a forest
product, not subject to local taxation - whether sold or not.
Similarly, Santos Lumber Co. v. City of Cebu 2 and Jos. S.
Johnston & Sons v. Ramon Regondola3 cited by the plaintiff,
refer to situations arising before the enactment of Republic
Act No. 2264 4, and hence, are inapplicable to the present
case.
Neither have We overlooked the proviso in Sec. 2 of said Act
prohibiting the imposition of "any percentage tax on sales or
other taxes in any form based thereon," for this injunction is
directed exclusively to "municipalities and municipal
districts, " and does not apply to cities.
WHEREFORE, the decision appealed from should be, as it is
hereby affirmed, with costs against plaintiff herein.

IT IS SO ORDERE D.
Reyes, J.B.L., Acting C.J., Dizon, Makalintal, Zaldivar,
Sanchez, Fernando, and Barredo, JJ., concur.
Castro and Capistrano, JJ., did not take part.
Teehankee, J., in the result.

EN BANC
G.R. No. L-41631, December 17, 1976
HON. RAMON D. BAGATSING, AS MAYOR OF THE CITY OF
MANILA; ROMAN G. GARGANTIEL, AS SECRETARY TO THE
MAYOR; THE MARKET ADMINISTRATOR; AND THE
MUNICIPAL BOARD OF MANILA, PETITIONERS, VS. HON.
PEDRO A. RAMIREZ, IN HIS CAPACITY AS PRESIDING
JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA,
BRANCH XXX AND THE FEDERATION OF MANILA MARKET
VENDORS, INC., RESPONDENTS.
DECISION

MARTIN, J.:
The chief question to be decided in this case is what law
shall govern the publication of a tax ordinance enacted by
the Municipal Board of Manila, the Revised City Charter
(R.A. 409, as amended), which requires publication of the
ordinance before its enactment and after its approval, or the
Local Tax Code (P.D. No. 231), which only demands
publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted
Ordinance No. 7522, "AN ORDINANCE REGULATING THE
OPERATION OF PUBLIC MARKETS AND PRESCRIBING
FEES FOR THE RENTALS OF STALLS AND PROVIDING
PENALTIES FOR VIOLATION THEREOF AND FOR OTHER
PURPOSES." The petitioner City Mayor, Ramon D.
Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila
Market Vendors, Inc. commenced Civil Case 96787 before
the Court of First Instance of Manila, presided over by
respondent Judge, seeking the declaration of nullity of

Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila
has not been complied with; (b) the Market Committee was
not given any participation in the enactment of the
ordinance, as envisioned by Republic Act 6039; (c) Section 3
(e) of the Anti-Graft and Corrupt Practices Act has been
violated; and (d) the ordinance would violate Presidential
Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal
products.
Resolving the accompanying prayer for the issuance of a
writ of preliminary injunction, respondent Judge issued an
order on March 11, 1975, denying the plea for failure of the
respondent Federation of Manila Market Vendors, Inc. to
exhaust the administrative remedies outlined in the Local
Tax Code.
After due hearing on the merits, respondent Judge rendered
its decision on August 29, 1975, declaring the nullity of
Ordinance No. 7522 of the City of Manila on the primary
ground of non-compliance with the requirement of
publication under the Revised City Charter. Respondent
Judge ruled:
"There is, therefore, no question that the ordinance in
question was not published at all in two daily newspapers of
general circulation in the City of Manila before its
enactment. Neither was it published in the same manner
after approval, although it was posted in the legislative hall
and in all city public markets and city public libraries. There
being no compliance with the mandatory requirement of
publication before and after approval, the ordinance in
question is invalid and, therefore, null and void."
Petitioners moved for reconsideration of the adverse
decision, stressing that (a) only a post-publication is

required by the Local Tax Code; and (b) private respondent

failed to exhaust all administrative remedies before
instituting an action in court.
On September 26, 1975, respondent Judge denied the
motion.
Forthwith, petitioners brought the matter to Us through the
present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent
conflict between the Revised Charter of the City of Manila
and the Local Tax Code on the manner of publishing a tax
ordinance enacted by the Municipal Board of Manila. For,
while Section 17 of the Revised Charter provides:
"Each proposed ordinance shall be published in two daily
newspapers of general circulation in the city, and shall not
be discussed or enacted by the Board until after the third
day following such publication. * * * Each approved
ordiance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its
approval; and shall take effect and be in force on and after
the twentieth day following its publication, if no date is fixed
in the ordinance."
Section 43 of the Local Tax Code directs:
"Within ten days after their approval, certified true copies of
all provincial, city, municipal and barrio ordinances levying
or imposing taxes, fees or other charges shall be published
for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local
government, or posted in the local legislative hall or
premises and in two other conspicuous places within the
territorial jurisdiction of the local government. In either

case, copies of all provincial, city, municipal and barrio

ordinances shall be furnished the treasurers of the
respective component and mother units of a local government for dissemination."
In other words, while the Revised Charter of the City of
Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily
newspapers of general circulation in the city, the Local Tax
Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other
charges" either in a newspaper or publication widely
circulated within the jurisdiction of the local government or
by posting the ordinance in the local legislative hall or
premises and in two other conspicuous places within the
territorial jurisdiction of the local government. Petitioners'
compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of
Manila is a special act since it relates only to the City of
Manila, whereas the Local Tax Code is a general law
because it applies universally to all local governments.
Blackstone defines general law as a universal rule affecting
the entire community and special law as one relating to
particular persons or things of a class.[1] And the rule
commonly said is that a prior special law is not ordinarily
repealed by a subsequent general law. The fact that one is
special and the other general creates a presumption that the
special is to be considered as remaining an exception to the
general, one as a general law of the land, the other as the
law of a particular case.[2] However, the rule readily yields to
a situation where the special statute refers to a subject in
general, which the general statute treats in particular. That
exactly is the circumstance obtaining in the case at bar.
Section 17 of the Revised Charter of the City of Manila
speaks of "ordinance" in general, i.e., irrespective of the

nature and scope thereof, whereas, Section 43 of the Local

Tax Code relates to "ordinances levying or imposing taxes,
fees or other charges" in particular. In regard, therefore, to
ordinances in general, the Revised Charter of the City of
Manila is doubtless dominant, but, that dominant force loses
its continuity when it approaches the realm of "ordinances
levying or imposing taxes, fees or other charges" in
particular. There, the Local Tax Code controls. Here, as
always, a general provision must give way to a particular
provision.[3] Special provision governs.[4] This is especially
true where the law containing the particular provision was
enacted later than the one containing the general provision.
The City Charter of Manila was promulgated on June 18,
1949 as against the Local Tax Code which was decreed on
June 1, 1973. The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems
upon the same subject, or to leave in force provisions of a
prior law by which the new will of the legislating power may
be thwarted and overthrown. Such a result would render
legislation a useless and idle ceremony, and subject the law
to reproach of uncertainty and unintelligibility. [5]
The case of City of Manila v. Teotico[6] is apposite. In that
case, Teotico sued the City of Manila for damages arising
from the injuries he suffered when he fell inside an
uncovered and unlighted catchbasin or manhole on P. Burgos
Avenue. The City of Manila denied liability on the basis of
the City Charter (R.A. 409) exempting the City of Manila
from any liability for damages or injury to persons or
property arising from the failure of the city officers to
enforce the provisions of the charter or any other law or
ordinance, or from negligence of the City Mayor, Municipal
Board, or other officers while enforcing or attempting to
enforce the provision of the charter or of any other law or
ordinance. Upon the other hand, Article 2189 of the Civil
Code makes cities liable for damages for the death of, or
injury suffered by any persons by reason of the defective

condition of roads, streets, bridges, public buildings, and

other public works under their control or supervision. On
review, the Court held the Civil Code controlling. It is true
that, insofar as its territorial application is concerned, the
Revised City Charter is a special law and the Civil Code a
general legislation, yet, as regards the subject matter of the
two laws, the Revised City Charter establishes a general rule
of liability arising from negligence, in general, regardless of
the object thereof, whereas the Civil Code constitutes a
particular prescription for liability due to defective streets
in particular. In the same manner, the Revised Charter of
the City prescribes a rule for the publication of "ordinance"
in general, while the Local Tax Code establishes a rule for
the publication of "ordinances levying or imposing taxes,
fees or other charges" in particular.
In fact, there is no rule which prohibits the repeal even by
implication of a special or specific act by a general or broad
one.[7] A charter provision may be impliedly modified or
superseded by a later statute, and where a statute is
controlling, it must be read into the charter notwithstanding
any particular charter provision.[8] A subsequent general law
similarly applicable to all cities prevails over any conflicting
charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the
state.[9] A chartered city is not an independent sovereignty.
The state remains supreme in all matters not purely local.
Otherwise stated, a charter must yield to the constitution
and general laws of the state, it is to have read into it that
general law which governs the municipal corporation and
which the corporation cannot set aside but to which it must
yield. When a city adopts a charter, it in effect adopts as
part of its charter general law of such character.[10]
2. The principle of exhaustion of administrative remedies is
strongly asserted by petitioners as having been violated by
private respondent in bringing a direct suit in court. This is

because Section 47 of the Local Tax Code provides that any

question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to
the city fiscal in the case of tax ordinance of a city. The
opinion of the city fiscal is appealable to the Secretary of
Justice, whose decision shall be final and executory unless
contested before a competent court within thirty (30) days.
But, the petition below plainly shows that the controversy
between the parties is deeply rooted in a pure question of
law: whether it is the Revised Charter of the City of Manila
or the Local Tax Code that should govern the publication of
the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or
the Local Tax Code on the point at issue, and not on the
legality of the imposition of the tax. Exhaustion of
administrative remedies before resort to judicial bodies is
not an absolute rule. It admits of exceptions. Where the
question litigated upon is purely a legal one, the rule does
not apply.[11] The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It
may and should be relaxed when its application may cause
great and irreparable damage.[12]
3. It is maintained by private respondent that the subject
ordinance is not a "tax ordinance," because the imposition of
rentals, permit fees, tolls and other fees is not strictly a
taxing power but a revenue-raising function, so that the
procedure for publication under the Local Tax Code finds no
application. The pretense bears its own marks of fallacy.
Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New
Constitution, "Each local government unit shall have the
power to create its own sources of revenue and to levy taxes,
subject to such provisions as may be provided by law."[13]
And one of those sources of revenue is what the Local Tax
Code points to in particular: "Local governments may collect
fees or rentals for the occupancy or use of public markets

and premises* * *."[14] They can provide for and regulate

market stands, stalls and privileges, and also, the sale, lease
or occupancy thereof. They can license, or permit the use of,
lease, sell or otherwise dispose of stands, stalls or marketing
privileges.[15]
It is a feeble attempt to argue that the ordinance violates
Presidential Decree No. 7, dated September 30, 1972,
insofar as it affects livestock and animal products, because
the said decree prescribes the collection of other fees and
charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery,
stockyard and slaughter fees as may be authorized by the
Secretary of Agriculture and Natural Resources." [16] Clearly,
even the exception clause of the decree itself permits the
collection of the proper fees for livestock. And the Local Tax
Code (P.D. 231, July 1, 1973) authorizes in its Section 31:
"Local governments may collect fees for the slaughter of
animals and the use of corrals* * *."
4. The non-participation of the Market Committee in the
enactment of Ordinance No. 7522 supposedly in accordance
with Republic Act No. 6039, an amendment to the City
Charter of Manila, providing that "the market commitee
shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the
mayor, policies and rules or regulation repealing or
amending existing provisions of the market code" does not
infect the ordinance with any germ of invalidity. [17] The
function of the committee is purely recommendatory as the
underscored phrase suggests, its recommendation is without
binding effect on the Municipal Board and the City Mayor.
Its prior acquiescence of an intended or proposed city
ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native
power of the Municipal Board to legislate remains
undisturbed even in the slightest degree. It can move in its

own initiative and the Market Committee cannot demur. At

most, the Market Committee may serve as a legislative aide
of the Municipal Board in the enactment of city ordinances
affecting the city markets or, in plain words, in the gathering
of the necessary data, studies and the collection of
consensus for the proposal of ordinances regarding city
markets. Much less could it be said that Republic Act 6039
intended to delegate to the Market Committee the adoption
of regulatory measures for the operation and administration
of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees
imposed in the disputed ordinance are diverted to the
exclusive private use of the Asiatic Integrated Corporation
since the collection of said fees had been let by the City of
Manila to the said corporation in a "Management and
Operating Contract." The assumption is of course saddled on
erroneous premise. The fees collected do not go direct to
the private coffers of the corporation. Ordinance No. 7522
was not made for the corporation but for the purpose of
raising revenues for the city. That is the object it serves.
The entrusting of the collection of the fees does not destroy
the public purpose of the ordinance. So long as the purpose
is public, it does not matter whether the agency through
which the money is dispensed is public or private. The right
to tax depends upon the ultimate use, purpose and object for
which the fund is raised. It is not dependent on the nature
or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be
taxed for a public purpose, although it be under the
direction of an individual or private corporation.[18]
Nor can the ordinance be stricken down as violative of
Section 3 (e) of the Anti-Graft and Corrupt Practices Act
because the increased rates of market stall fees as levied by
the ordinance will necessarily inure to the unwarranted
benefit and advantage of the corporation.[19] We are

concerned only with the issue whether the ordinance in

question is intra vires. Once determined in the affirmative,
the measure may not be invalidated because of
consequences that may arise from its enforcement.[20]
ACCORDINGLY , the decision of the court below is hereby
reversed and set aside. Ordinance No. 7522 of the City of
Manila, dated June 15, 1975, is hereby held to have been
validly enacted. No costs.
SO ORDERED.
Barredo and Makasiar, JJ., concur.
Castro, C.J., in the result.
Fernando, J., concurs but qualifies his absent as to an
ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."
Teehankee, J., reserve his vote.
[1]

Cooley, The Law of Taxation, Vol. 2, 4th ed.

[2]

Butuan Sawmill, Inc. vs. City of Butuan, L-21516, April 29,

1966, 16 SCRA 758, citing State v. Stoll, 17 Wall. 425.
[3]

Lichauco & Co. v. Apostol, 44 Phil. 145 (1922).

[4]

Crawford, Construction of Statutes, 265, citing U.S. v.

Jackson, 143 Fed. 783.
[51]

See Separate Opinion of Justice Johns in Lichauco, fn. 3,

citing Lewis' Sutherland Statutory Construction, at 161.
[6]

L-23052, January 29, 1968, 22 SCRA 270.

[7]

See 73 Am Jur 2d 521.

[8]

Mc Quillin, Municipal Corporation, Vol. 6, 3rd ed., 223.

[9]

See Bowyer v. Camden, 11 Atl. 137.

[10]

Mc Quillin, Municipal Corporation, Vol. 6, 3rd ed., 229230.

[11]

Tapales v. President and Board of Regents of the U.P., L17523, March 30, 1963, 7 SCRA 553; C.N. Hodges v.
Municipal Board of the City of Iloilo, L-18276, January 12,
1967, 19 SCRA 32-33; Aguilar v. Valencia, L-30396, July 30,
1971, 40 SCRA 214; Mendoza vs. SSC, L-29189, April 11,
1972, 44 SCRA 380.
[12]

Cipriano v. Marcelino, L-27793, February 28, 1972, 43

SCRA 291; Del Mar v. PVA, L-27299, June 27, 1973, 51 SCRA
346, citing cases.
[13]

See City of Bacolod v. Enriquez, L-27408, July 25, 1975,

Second Division, per Fernando, J., 65 SCRA 384-85.
[14]

Article 5, Section 30, Chapter II.

[15]

McQuillin, Municipal Corporations, Vol. 7, 3rd ed., 275.

[16]

P.D. 7 was amended by P.D. 45 on November 10, 1972, so

as to allow local governments to charge the ordinary fee for
the issuance of certificate of ownership and one peso for the
issuance of transfer certificate for livestock.
[17]

The market committee is composed of the market

administrator as chairman, and a representative of each of
the city treasurer, the municipal board, the Chamber of
Filipino Retailers, Inc. and the Manila Market Vendors
Association Inc. as members.
[18]

Cooley, The Law of Taxation, Vol. 1, 394-95.

[19]

Section 3 (e); causing any undue injury to any party,

including the government, or giving any private party any
unwarranted benefits, advantage or preference in the
discharge of his official administrative or judicial functions
through manifest partiality, evident bad faith or gross
inexcusable negligence.* * *".
[20]

Willoughby, The Constitutional Law of the United States,

668 et seq.

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.
DECISION

FERNANDEZ, J.:
This is a petition for certiorari to review the 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 which reads:
"WHEREFORE, judgment is hereby rendered in favor of the
petitioner and against the respondents, declaring Ordinance
No. 6537 of the City of Manila null and void. The preliminary
injunction is hereby made permanent. No pronouncement as
to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge"[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] vOn 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]
"I

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 sub-stantial
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 dis-cretion 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.

Barredo, Makasiar, Muoz Palma, Santos, and Guerrero, JJ.,

concur.
Castro, C.J., Antonio, and Aquino, JJ., in the result.
Fernando, J., concurring in the result, relies primarily on the
ultra vires character of the ordinance and expresses
conformity with the concurring opinion of Justice Tehankee.
Teehankee, J., concurs in a separate opinion.
Concepcion, Jr., J., no part.
[1]

Annex "F", Petition, Rollo, p. 64.

[2]

Petition, Rollo, p. 28.

[3]

Annex "A" of Petition, Rollo, pp. 37-38.

[4]

Section 1. It shall be unlawful for any person not a citizen

of the Philippines to be employed in any kind of position or
occupation or allowed directly or indirectly to participate in
the functions, administration or management in any office,
corporation, store, restaurant, factory, business firm, or any
other place of employment either as consultant, adviser,
clerk, employee, technician, teacher, actor, actress, acrobat,
singer or other theatrical performer, laborer, cook, etc.,
whether temporary, casual, permanent or otherwise and
irrespective of the source or origin of his compensation or
number of hours spent in said office, store, restaurant,
factory, corporation or any other place of employment, or to
engage in any kind of business and trade within the City of
Manila, without first securing an employment permit from
the Mayor of Manila, and paying the necessary fee therefor
to the City Treasurer: PROVIDED, HOWEVER, That persons
employed in diplomatic and consular missions of foreign
countries and in technical assistance programs agreed upon

by the Philippine Government and any foreign government,

and those working in their respective households, and
members of different congregations or religious orders of
any religion, sect or denomination, who are not paid either
monetarily or in kind shall be exempted from the provisions
of this Ordinance.
[5]

Section 4. Any violation of this Ordinance shall, upon

conviction, be punished by imprisonment of not less than
three (3) months but not more than six (6) months or by a
fine of not less than one hundred pesos (P100.00) but not
more than two hundred pesos (P200.00), or by both such fine
and imprisonment, in the discretion of the Court:
PROVIDED, HOWEVER, That in case of juridical persons, the
President, the Vice-President or the person in charge shall
be liable.
[6]

Annex "B", Petition, Rollo, p. 39.

[7]

Ibid.

[8]

Annex "F", Petition, Rollo, pp. 75-83.

[9]

Petition, Rollo, p. 31.

[10]

People vs. Fajardo, 104 Phil. 443, 446.

[11]

89 Phil. 439, 459-460.

[12]

80 Phil. 71, 86.

[13]

Kwong Sing vs. City of Manila, 41 Phil. 103.

SEPARATE CONCURRING OPINION

TEEHANKEE, J.:

I concur in the decision penned by Mr. Justice Fernandez

which affirms the lower court's judgment declaring
Ordinance No. 6537 of the City of Manila null and void for
the reason that the employment of aliens within the country
is a matter of national policy and regulation, which properly
pertain to the national government officials and agencies
concerned and not to local governments, such as the City of
Manila, which after all are mere creations of the national
government.
The national policy on the matter has been determined in the
statutes enacted by the legislature, viz, the various
Philippine nationalization laws which on the whole recognize
the right of aliens to obtain gainful employment in the
country with the exception of certain specific fields and
areas. Such national policies may not be interfered with,
thwarted or in any manner negated by any local government
or its officials since they are not separate from and
independent of the national government.
As stated by the Court in the early case of Phil. Coop.
Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of
Manila is a subordinate body to the Insular (National
Government .). When the Insular (National) Government
adopts a policy, a municipality is without legal authority to
nullify and set at naught the action of the superior
authority." Indeed, "not only must all municipal powers be
exercised within the limits of the organic laws, but they must
be consistent with the general law and public policy of the
particular state" (I McQuillin, Municipal Corporations,
2nd, sec. 367, p. 1011).
With more reason are such national policies binding on local
governments when they involve our foreign relations with
other countries and their nationals who have been lawfully
admitted here, since in such matters the views and decisions
of the Chief of State and of the legislature must prevail those

of subordinate and local governments and officials who have

no authority whatever to take official acts to the contrary.

G.R. No. 47252, April 18, 1941

THE APOSTOLIC PREFECT OF THE MOUNTAIN PROVINCE,
DEMANDANTE Y APELANTE, CONTRA EL TESORERO DE LA
CIUDAD DE BAGUIO, DEMANDADO Y APELADO.
DECISION

IMPERIAL, J.:
El demandante ejercito esta accion para recobrar del
demandado la suma de P1,019.37 que pago bajo protesta
como contribution especial sobre sus propiedades en la
Ciudad de Baguio, correspondiente al ano 1937. Apelo de la
sentencia del Juzgado de Primera Instancia de dicha ciudad
que sobreseyd su demanda, sin costas. Las partes
sometieron el asunto mediante la siguiente estipulacion
partial de hechos:
"1. La demandante es una corporacion unipersonal de
caracter religioso, organizada de acuerdo con las leyes de
Filipinas, con residencia en la ciudad de Baguio;
"2. El demandado es un iuncionario publico de la ciudad de
Baguio y actua como tesorero y colector de dicha ciudad; "
"3. Que el demandado exigio y cobro de la demandante el
25 de junio de 1937 la suma de Mil diez y nueve pesos con
treinta y siete centimos (P1,019.37), moneda filipina, en
virtud de las disposiciones de la Ordenanza No. 137, tal
como ha sido reformada y enmendada por las Ordenanzas
Nos. 263, 277, 283, 297, 311, 325, 348, 367, 387, 419, 471,
454, 455, 466, 512, 552, 591, 592, y Resolucion del Consejo
de la Ciudad de Baguio No. 10 de fecha 22 de enero de
1918. Todas las referidas ordenanzas, asi como la resolucion
No. 10, serie de 1918, se hacen partes integrantes de este
convenio.

"4. Que el pago hecho por la demadante de P1,019.37

corresponde al ano 1937 y se hizo bajo protesta formulada
en carta fechada el 25 de junio de 1937 en la que se expuso
los motivos de la protesta y se pidio la resolucion favorable
de la protesta y la devolucidn de la cantidad pagada;
"5. Que el demandado denego la protesta;
"6. Los terrenos afectados con el pago de P1,019.37 son
terrenos de la propiedad de la demandante dedicados al
culto y enseiianza durante el ano 1937 y en aos anteriores;
"7. Que la Ciudad de Baguio construyo de acuerdo con las
ordenanzas arriba citadas en el parrafo 2. de esta
estipulacion un sistema de desague y alcantarillado;
"8. Que la demandante vino pagando en aos anteriores a
1937, sin protesta, las sumas que la ciudad exigia de
acuerdo con las ordenanzas ya referidas; y por primera vez
protestp el ao 1937, protesta que es objeto de este litigio;
"9. Que se incluyd en la Ordenanza No. 137 una relacion de
las propiedades avaluadas en la ciudad de Baguio y esa
relacion se hizo parte de la Ordenanza No. 137 y fue llamada
y convertida en "special assessment list, city OF BAGUIO", a
los efectos de la referida ordenanza y que las propiedades
afectadas en el pago bajo protesta de la demandante estaban
y estan incluldas en dicha lista y no han sido exclufdas hasta
el presente por virtud de ninguna ordenanza posterior a la
No. 137;
"10. Que la construccidn del sistema de desague y
alcantarillado ha beneficiado y esta beneficiando directa y
especialmente a todos los propietarios cuyos lotes y terrenos
estan inclufdos en la "special assessment list, city of
BAGUIO" inclusive los terrenos de la aqui demandante

afectados en dicha lista y en el pago bajo protesta y que este

sistema de desague y alcantarillado ha promovido la
limpieza y condicion sanitaria de los terrenos de la referida
lista.
"11. Que las partes se reservan el derecho de practicar
pruebas adicionales."
El apelante sostiene en sus senalamientos de error las
siguientes proposiciones: (1) que sus propiedades inmuebles
y sus moforas en la Ciudad de Baguio por hallarse
exceptuadas de pago de todo impuesto por la Constitucion y
por las leyes vigentes deben estar igualmente exentas del
pago de la contribucion especial que le ha cobrado el
apelado y el ha pagado bajo protesta; (2) que la Ordenanza
No. 137 y sus enmiendas, bajo las cuales la contribucion
especial se ha cobrado, excluyen de sus disposiciones sus
propiedades exentas del pago de todo impuesto; (3) que en
el supuesto de que las citadas ordenanzas no excluyen sus
propiedades del pago de la contribucion especial, las mismas
son nulas e inencaces; y (4) que en el supuesto de que las
mencionadas ordenanzas fuesen legates el apelado, como
Tesorero de la Ciudad de Baguio, cobro ilegalmente la
contribucion especial que el apelante pago bajo protesta, por
la razon de que en la fecha del pago el apelante ya habia
satisfecho su participation en los gastos del sistema de
desagtie y alcantarillado que ocasiono la imposicion de la
contribucion especial.
La primera prqposicion envuelve la cuestion de si las
propiedades sobre las cuales se cobro la contribucion
especial estan ef ectivamente exentas de dicho pago. La
contribucion especial se cobr6 por el apelado en virtud de
las disposiciones de los articulos 2 y 5 de la Ordenanza No.
137 que proveen:

"It having heretofore been ascertained that said work will

benefit each and all owners or possessors of property subject
to taxation situated, lying and being within the corporate
limits of the City, it is hereby declared that benefit will
accrue from said work to each and all said persons, and said
persons shall pay a compensation for said benefit."
"The City Assessor having heretofore compiled from the City
Assessment and Valuation aforesaid and certified to the City
Treasurer a list containing and setting forth the total amount
of property within the corporate limits of the City subject to
assessment and levy for the purposes in this Ordinance
recited, the total amount of properties individually owned
and possessed, and the name of each individual owner and
possessor, the rate per centum, to wit: one per centum ad
valorem of said total value which is necessary for the
purposes set forth in Section III hereof, is hereby made the
amount to be paid individually by each owner or possessor
as his share, and the above-mentioned list is hereby made
part hereof and named 'special assessment list and said list
is hereby declared to be, and made the City official list and
basis for assessing, levying and collecting the rate of
compensation aforesaid from the above-referred owners and
possessors, and each owner or possessor is required to, and
shall pay the amount in said list stated as his individual
share to the City Treasurer on or after the first of March and
not later than June 30th, 1914."
El apelante sostiene que sus propiedades estan exentas del
pago de la contribucion especial tanto por lo que dispone el
articulo 2 de la Ordenanza No. 137 como por lo que estatuye
el articulo 14, (3), Titulo VI, de la Constitution de Filipinas
que se lee como sigue:
"(3) Los cementerios, iglesias, parroquias y conventos
adheridos a estas, y todos los terrenos, edificios y mejoras

usados exclusivamente para fines religiosos, caritativos o

educacionales, estaran exentos de tributacidn."
Se alega que segun el articulo 2 de la Ordenanza No. 137
solamente deben pagar la contribution especial las
propiedades que no estan exentes del pago de un impuesto y
que de acuerdo con el precepto constitutional citado las
propiedades del apelante se hallan exceptuadas del pago de
la contribucidn especial por hallarse dedicadas a fines
religiosos. Esta pretension requiere que se resuelva, en
primer termino, si la contribucion especial impuesta por la
Ordenanza No. 13 es un impuesto en su acepcidn legal. Es
una regla bien establecida en materia de impuesto que las
contribuciones especiales que se crean y cobran para
amortizar gastos extraordinarios que ocasionan obras, como
el sistema de desague y alcantarillado, que benefician de un
modo especial a los habitantes no es un impuesto en su
sentido legal. Segun la ordenanza la contribution especial
que se cobro a las propiedades situadas en la Ciudad de
Baguio, se creo para amortizar los gastos extraordinarios
que ocasiono el sistema de desague y alcantarillado que se
construyo, obra que beneficid de modo especial a todos los
propietarios de la ciudad. El Juez Cooley, al trazar la
distincidn entre impuestos y contribuciones especiales en su
tratado sobre impuestos, se expresa en estos terminos:
"While the word 'tax' in its broad meaning, includes both
general taxes and special assessments, and in a general
sense a tax is an assessment, and an assessment is a tax, yet
there is a recognized distinction between them in that
assessment is confined to local impositions upon property for
the payment of the cost of public improvements in its
immediate vicinity and levied with reference to special
benefits to the property assessed The differences between a
special assessment and a tax are that (1) a special
assessment can be levied only on land; (2) a special
assessment cannot (at least in most states) be made a

personal liability of the person assessed; (3) a special

assessment is based wholly on benefits; and (4) a special
assessment is exceptional both as to time and locality. The
imposition of a charge on all property, real and personal, in a
pre- scribed area, is a tax and not an assessment, although
the purpose is to make a local improvement on a street or
highway. A charge imposed only on property owners
benefited is a special assessment rather than a tax
notwithstanding the statute calls it a tax."
Si la contribucion especial que se cobro al apelante no es
estrictamente hablando un impuesto de cuyo pago esta
exento el mismo, es evidente que ni bajo la ordenanza ni la
Constitucion el referido apelante esta exceptuado del pago
de la contribucion especial.
Ademas, de acuerdo con la estipulacion de hechos, el
apelante no puede invocar con exito la exencion establecida
por la Constitucion porque no se ha admitido ni probado que
sus propiedades que pagaron la contribucion especial se
usaban exclusivamente para fines religiosos. Cierto que se
estipulo que las propiedades estaban dedicadas a fines
religiosos, mas, no se convino ni se probo que semejante uso
era exclusivo, pudiendd por tanto ocurrir que las proiedades
a mas de estar dedicadas a fines religiosos se destinaran y
usaran igualmente a otros fines no religiosos. En cuanto a la
validez de la Ordenanza No. 137 y sus enmiendas, es
innegable que la Ciudad de Baguio esta autorizada por el
aiticulo 8 (1) de la Ley No. 1963, hoy articulo 2553 (1) del
Codigo Administrativo Revisado, para crear la contribucion
especial discutida con el fin de amortizar Ios gastos
ocasionados por el sistema de desague y alcantarillado que
se construyo para el benefieio de todos Ios habitantes de la
mencionada ciudad.
La ultima pretension del apelante es que suponiendo validas
la Ordenanza No. 137 y sus enmiendas el no esta ya obligado

a pagar contribucion especial en vista de que ya satisfizo en

anos anteriores a 1937 la parte alicuota que le correspondio
de dicha contribucion especial. La pretension es igualmente
infundada, porque resulta del Exhibit 1 que el cos to del
sistema de desague y alcantarillado asciende a 502,750-75 y
la ciudad sdlo cobro por contribucion especial hasta el ano
1937 la suma de 291,290.08; resultando que el costo del
sistema, en el afio 1937, no estaba aun totalmente
satisfecho.
Hallandose ajustada a derecho la sentencia recurrida, se
confirma la misma en todas sus partes, con las costas de esta
instancia al apelante. Asi se ordena.
Avancena, Pres., Diaz, Laurel, y Horrilleno, MM. estan
conformed

EN BANC
G.R. No. L-41383, August 15, 1988
PHILIPPINE AIRLINES, INC., PLAINTIFF-APPELLANT, VS.
ROMEO F. EDU, IN HIS CAPACITY AS LAND REGISTRATION
COMMISSIONER, AND UBALDO CARBONELL, IN HIS
CAPACITY AS NATIONAL TREASURER, DEFENDANTSAPPELLANTS.
DECISION

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are
they taxes or regulatory fees?
This question has been brought before this Court in the past.
The parties are, in effect, asking for a re-examination of the
latent decision on this issue.
This appeal was certified to us as one involving a pure
question of law by the Court of Appeals in a case where the
then Court of First Instance of Rizal dismissed the plaintiffappellant's complaint for refund of registration fees paid
under protest.
The disputed registration fees were imposed by the appellee,
Commissioner Romeo F. Edu, pursuant to Section 8,
Republic Act No. 4136, otherwise known as the Land
Transportation and Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and
existing under the laws of the Philippines and engaged in the
air transportation business under a legislative franchise, Act
No. 4271, as amended by Republic Acts Nos. 2360 and 2667.
Under its franchise, PAL is exempt from the payment of

taxes. The pertinent provision of the franchise provides as

follows:

"Section 13. In consideration of the franchise and rights

hereby granted, the grantee shall pay to the National
Government during the life of this franchise a tax of two per
cent of the gross revenue or gross earning derived by the
grantee from its operations under this franchise. Such tax
shall be due and payable quarterly and shall be in lieu of all
taxes of any kind, nature or description, levied, established
or collected by any municipal, provincial or national
authority; Provided, That if, after the audit of the accounts of
the grantee by the Commissioner of Internal Revenue, a
deficiency tax is shown to be due, the deficiency tax shall be
payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real
property in conformity with existing law."
On the strength of an opinion of the Secretary of Justice (Op.
No. 307, series of 1956) PAL has, since 1956, not been
paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo
F. Edu, issued a regulation requiring all tax exempt entities,
among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register
the appellant's motor vehicles unless the amounts imposed
under Republic Act 4136 were paid. The appellant thus paid,
under protest, the amount of P19,529.75 as registration fees
of its motor vehicles.
After paying under protest, PAL through counsel, wrote a
letter dated May 19, 1971, to Commissioner Edu demanding
a refund of the amounts paid, invoking the ruling in Calalang
v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor

vehicle registration fees are in reality taxes from the

payment of which PAL is exempt by virtue of its legislative
franchise.
Appellee Edu denied the request for refund basing his action
on the decision in Republic v. Philippine Rabbit Bus Lines,
Inc., (32 SCRA 211, March 30, 1970) to the effect that motor
vehicle registration fees are regulatory exactions and not
revenue measures and, therefore, do not come within the
exemption granted to PAL under its franchise. Hence, PAL
filed the complaint against Land Transportation
Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch
18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Edu, in his capacity as LTC
Commissioner, and Ubaldo Carbonell, in his capacity as
National Treasurer, filed a motion to dismiss alleging that
the complaint states no cause of action. In support of the
motion to dismiss, defendants reiterated the ruling in
Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that
registration fees of motor vehicles are not taxes, but
regulatory fees imposed as an incident of the exercise of the
police power of the state. They contended that while Act
4271 exempts PAL from the payment of any tax except two
per cent on its gross revenue or earnings, it does not exempt
the plaintiff from paying regulatory fees, such as motor
vehicle registration fees. The resolution of the motion to
dismiss was deferred by the Court until after trial on the
merits.
On April 24, 1973, the trial court rendered a decision
dismissing the appellant's complaint "guided by the later
ruling laid down by the Supreme Court in the case of
Republic v. Philippine Rabbit Bus Lines, Inc. (supra)." From
this judgment, PAL appealed to the Court of Appeals which
certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine

Rabbit Bus Lines Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main
points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court
held:

"The registration fee which defendant-appellee had to pay

was imposed by Section 8 of the Revised Motor Vehicle Law
(Republic Act No. 587 [1950]). Its heading speaks of
'registration fees.' The term is repeated four times in the
body thereof. Equally so, mention is made of the 'fee for
registration.' (Ibid., Subsection g) A subsection starts with a
categorical statement 'No fees shall be charged.' (Ibid.,
Subsection H) The conclusion is difficult to resist therefore
that the Motor Vehicle Act requires the payment not of a tax
but of a registration fee under the police power. Hence the
inapplicability of the section relied upon by defendantappellee under the Back Pay Law. It is not held liable for a
tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.

"Any vestige of any doubt as to the correctness of the above

conclusion should be dissipated by Republic Act No. 5448.
([1968], Section 3 thereof as to the imposition of additional
tax on privately-owned passenger automobiles, motorcycles
and scooters was amended by Republic Act No. 5470 which
is (sic) approved on May 30, 1969.) A special science fund
was thereby created and its title expressly sets forth that a
tax on privately-owned passenger automobiles, motorcycles
and scooters was imposed. The rates thereof were provided
for in its Section 3 which clearly specifies that 'additional
tax' was to be paid as distinguished from the registration fee

under the Motor Vehicle Act. There cannot be any clearer

expression therefore of the legislative will, even on the
assumption that the earlier legislation could by stretching
the point be susceptible of the interpretation that a tax
rather than a fee was levied. What is thus most apparent is
that where the legislative body relies on its authority to tax it
expressly so states, and where it is enacting a regulatory
measure, it is equally explicit."(at p. 216)
In direct refutation is the ruling in Calalang v. Lorenzo
(supra), where the Court, on the other hand, held:

"The charges prescribed by the Revised Motor Vehicle Law

for the registration of motor vehicles are in section 8 of that
law called 'fees.' But the appellation is no impediment to
their being considered taxes if taxes they really are. For not
the name but the object of the charge determines whether it
is a tax or a fee. Generally speaking, taxes are for revenue,
whereas fees are exactions for purposes of regulation and
inspection and are for that reason limited in amount to what
is necessary to cover the cost of the services rendered in
that connection. Hence, 'a charge fixed by statute for the
service to be performed by an officer, where the charge has
no relation to the value of the services performed and where
the amount collected eventually finds its way into the
treasury of the branch of the government whose officer or
officers collected the charge, is not a fee but a tax." (Cooley
on Taxation, Vol. 1, 4th ed., p. 110.)

"From the data submitted in the court below, it appears that

the expenditures of the Motor Vehicle Office are but a small
portion- about 5 per centum- of the total collections from
motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office,

the law itself provides that all such money shall accrue to
the funds for the construction and maintenance of public
roads, streets and bridges. It is thus obvious that the fees
are not collected for regulatory purposes, that is to say, as an
incident to the enforcement of regulation governing the
operation of motor vehicles on public highways, for their
express object is to provide revenue with which the
Government is to discharge one of its principal functions -the construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

"As a matter of fact, the Revised Motor Vehicle Law itself

now regards those fees as taxes, for it provides that 'no
other taxes or fees than those prescribed in this Act shall be
imposed,' thus implying that the charges therein imposed -though called fees -- are of the category of taxes. The
provision is contained in section 70, of subsection (b), of the
law, as amended by section 17 of Republic Act 587, which
reads:

" ' Sec. 70(b) No other taxes or fees than those prescribed in
this Act shall be imposed for the registration or operation or
on the ownership of any motor vehicle, or for the exercise of
the profession of chauffeur, by any municipal corporation,
the provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial
board, city or municipal council or board, or other
competent authority may exact and collect such reasonable
and equitable toll fees for the use of such bridges and
ferries, within their respective jurisdiction, as may be
authorized and approved by the Secretary of Public Works
and Communications, and also for the use of such public

roads, as may be authorized by the President of the

Philippines upon the recommendation of the Secretary of
Public Works and Communications, but in none of these
cases, shall any toll fees be charged or collected until and
unless the approved schedule of tolls shall have been posted
legibly in a conspicuous place at such toll station.' " (at pp.
213-214)

Motor vehicle registration fees were matters originally

governed by the Revised Motor Vehicle Law (Act 3992
[1932] as amended by Commonwealth Act 123 and Republic
Acts Nos. 587 and 1603).
Today, the matter is governed by Rep. Act 4136 [1964]
otherwise known as the Land Transportation Code, (as
amended by Rep. Acts Nos. 5715 and 6374, P.D. Nos. 382,
843, 896, 1057 and BP Blg. 43, 74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec.
73 of Act 3992 and remained unrevised by Rep. Act Nos. 587
and 1603) states:

Section. 73. Disposal of moneys collected. - Twenty per

centum of the money collected under the provisions of this
Act shall accrue to the road and bridge funds of the different
provinces and chartered cities in proportion to the cedula
sales during the next previous year and the remaining eighty
per centum shall be deposited in the Philippine Treasury to
create a special fund for the construction and maintenance
of national and provincial roads and bridges, as well as the
streets and bridges in the chartered cities to be allotted by
the Secretary of Public Works and Communications for
projects recommended by the Director of Public Works in the
different provinces and chartered cities. x x x."

Presently, Sec. 61 of the Land Transportation and Traffic

Code provides:

"Sec. 61. Disposal of Monies Collected. - Monies collected

under the provisions of this Act shall be deposited in a
special trust account in the National Treasury to constitute
the Highway Special Fund, which shall be apportioned and
expended in accordance with the provisions of the
'Philippine Highway Act of 1935.' Provided, however, That
the amount necessary to maintain and equip the Land
Transportation Commission but not to exceed twenty per
cent of the total collection during one year, shall be set aside
for the purpose. (As amended by RA 6374, approved August
6, 1971)."
It appears clear from the above provisions that the
legislative intent and purpose behind the law requiring
owners of vehicles to pay for their registration is mainly to
raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand,
the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees" which appears to have been
favored by the legislature to distinguish fees from other
taxes such as those mentioned in Section 13 of Rep. Act
4136 which reads:

"Sec. 13. Payment of taxes upon registration. - No original

registration of motor vehicles subject to payment of taxes,
customs duties or other charges shall be accepted unless
proof of payment of the taxes due thereon has been
presented to the Commission."

referring to taxes other than those imposed on the

registration, operation or ownership of a motor vehicle (Sec.
59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they
also serve as an instrument of regulation. As stated by a
former presiding judge of the Court of Tax Appeals and
writer on various aspects of taxes:

"It is possible for an exaction to be both tax and regulation.

License fees are often looked to as a source of revenue as
well as a means of regulation. (Sonzinsky v. U.S., 300 U.S.
506.) This is true, for example, of automobile license fees. In
such case, the fees may properly be regarded as taxes even
though they also serve as an instrument of regulation. If the
purpose is primarily revenue, or if revenue is at least one of
the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. Tax Course, Par. 3101,
citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v.
Lorenzo, 97 Phil. 212; Lutz v. Araneta, 98 Phil. 198.) These
exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal
Revenue Code of 1954, which classify taxes on tobacco and
alcohol as regulatory taxes.)" (Umali, Reviewer in Taxation,
1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591593).
Indeed, 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 (Umali, id.) Such is the case of motor
vehicle registration fees. The conclusions become
inescapable in view of Section 70(b) of Rep. Act 587 quoted
in the Calalang case. 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."
Though nowhere in Rep. Act 4136 does the law specifically
state that the imposition is a tax, Section 59(b) speaks of
"taxes or fees x x x for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the
profession of chauffeur x x x " making the intent to impose a
tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speaks of an "additional tax," where the law
could have referred to an original tax and not one in addition
to the tax already imposed on the registration, operation, or
ownership of a motor vehicle under Rep. Act 4136. 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 revenueraising. Thus, they are not mentioned by Sec. 59(b) of the
Code as taxes like the motor vehicle registration fee and
chauffeur' license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as
provided for in the last preview of Sec. 61, aforequoted.
It is quite apparent that vehicle registration fees were
originally simple exactions intended only for regulatory
purposes in the exercise of the State's police powers. Over
the years, however, as vehicular traffic exploded in number
and motor vehicles became absolute necessities without
which modern life as we know it would stand still, Congress
found the registration of vehicles a very convenient way of
raising much needed revenues. Without changing the earlier
denomination of registration payments as "fees," their
nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle

registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended
for additional revenues of government even if one fifth or
less of the amount collected is set aside for the operating
expenses of the agency administering the program.
May the respondent administrative agency be required to
refund the amounts stated in the complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It
is not clear from the records as to what payments were
made in succeeding years. We have ruled that Section 24 of
Rep. Act No. 5431, dated June 27, 1968, repealed all earlier
tax exemptions of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of
Tax Appeals, et al. (G.R. No. 60547, July 11, 985), this Court
ruled:

"Under its original franchise, Republic Act No. 2036,

enacted in 1957, petitioner Radio Communications of the
Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was
amended by Republic Act No. 4054 to the effect that its
franchise tax of one and one-half percentum (1-1/2%) of all
gross receipts was provided as 'in lieu of any and all taxes of
any kind, nature, or description levied, established, or
collected by any authority whatsoever, municipal, provincial,
or national from which taxes the grantee is hereby expressly
exempted.' The issue raised to this Court now is the validity
of the respondent court's decision which ruled that the
exemption under Republic Act No. 4054 was repealed by

Section 24 of Republic Act No. 5431, dated June 27, 1968

which reads:

" '(d) The provisions of existing special or general laws to the

contrary notwithstanding, all corporate taxpayers not
specifically exempt under Sections 24(c)(1) of this Code shall
pay the rates provided in this section. All corporations,
agencies, or instrumentalities owned or controlled by the
government, including the Government Service Insurance
System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their
taxable net income as are imposed by this section upon
associations or corporations engaged in a similar business or
industry.'

"An examination of Section 24 of the Tax Code as amended

shows clearly that the law intended all corporate taxpayers
to pay income tax as provided by the statute. There can be
no doubt as to the power of Congress to repeal the earlier
exemption it granted. Article XIV, Section 8 of the 1935
Constitution and Article XIV, Section 5 of the Constitution as
amended in 1973 expressly provide that no franchise shall
be granted to any individual, firm, or corporation except
under the condition that it shall be subject to amendment,
alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public
interest involved. The country needs increased revenues.
The repealing clause is clear and unambiguous. There is a
listing of entities entitled to tax exemption. The petitioner is
not covered by the provision. Considering the foregoing, the

Court Resolved to DENY the petition for lack of merit. The

decision of the respondent court is affirmed."
Any registration fees collected between June 27, 1968 and
April 9, 1979, were correctly imposed because the tax
exemption in the franchise of PAL was repealed during that
period. However, an amended franchise was given to PAL in
1979. Section 13 of Presidential Decree No. 1590 now
provides:

"In consideration of the franchise and rights hereby granted,

the grantee shall pay to the Philippine Government during
the lifetime of this franchise whichever of subsections (a)
and (b) hereunder will result in a lower tax:

" '(a) The basic corporate income tax based on the grantee's
annual net taxable income computed in accordance with the
provisions of the Internal Revenue Code; or

" '(b) A franchise tax of two per cent (2%) of the gross
revenues derived by the grantees from all sources, without
distinction as to transport or nontransport corporations;
provided that with respect to international airtransport
service, only the gross passengers, mail, and freight
revenues from its outgoing flights shall be subject to this
law.

"The tax paid by the grantee under either of the above

alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or
national authority of government agency, now or in the
future, including but not limited to the following:

xxx

xxx

xxx

"(5) All taxes, fees and other charges on the registration,

licensing, acquisition, and transfer of aircraft, equipment,
motor vehicles, and all other personal or real property of the
grantee." (Pres. Decree 1590, 75 OG No. 15, 3259, April 9,
1979).
PAL's current franchise is clear and specific. It has removed
the ambiguity found in the earlier law. PAL is now exempt
from the payment of any tax, fee, or other charge on the
registration and licensing of motor vehicles. Such payments
are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590
and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED.
The prayed for refund of registration fees paid in 1971 is
DENIED. The Land Transportation Franchising and
Regulatory Board (LTFRB) is enjoined from collecting any
tax, fee, or other charge on the registration and licensing of
the petitioner's motor vehicles from April 9, 1979 as
provided in Presidential Decree No. 1590.
SO ORDERED.

G.R. No. L-10448, August 30, 1957

IN THE MATTER OF A PETITION FOR DECLARATORY
JUDGMENT REGARDING THE VALIDITY OF MUNICIPAL
ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL
THERAPY ORGANIZATION OF THE PHILIPPINES, INC.,
PETITIONER AND APPELLANT VS. THE MUNICIPAL BOARD
OF THE CITY OF MANILA AND ARSENIO H. LACSON, AS
MAYOR OF THE CITY OF MANILA, RESPONDENTS AND
APPELLEES.

MONTEMAYOR, J.:
The petitioner-appellant, an association of registered
massagists and licensed operators of massage clinics in
the City of Manila and other parts of the country, filed an
action in the Court of First Instance of Manila for
declaratory judgment regarding the validity of Municipal
Ordinance No. 3659, promulgated by the Municipal Board
and approved by the City Mayor. To stop the City from
enforcing said ordinance, the petitioner secured an
injunction upon filing of a bond in the sum of P1,000.00. A
hearing was held, but the parties without introducing any
evidence submitted the case for decision on the pleadings,
although they submitted written memoranda. There after,
the trial court dismissed the petition and later dissolved
the writ of injunction previously issued.
The petitioner appealed said order of dismissal directly to
this Court. In support of its appeal, petitioner-appellant
contends among other things that the trial court erred in
holding that the Ordinance in question has not restricted
the practice of massotherapy in massage clinics to hygienic
and aesthetic massage, that the Ordinance is valid as it does
not regulate the practice of massage, that the Municipal
Board of Manila has the power to enact the Ordinance in
question by virtue of Section 18, Subsection (kk), Republic

Act 409, and that the permit fee of P100.00 is moderate and
not unreasonable. Inasmuch as the appellant assails and
discusses certain provisions regarding the ordinance in
question, and it is necessary to pass upon the same, for
purposes of ready reference, we are reproducing said
ordinance in toto.
ORDINANCE NO. 3659
AN ORDINANCE REGULATING THE OPERATION OP
MASSAGE CLINICS IN THE CITY OF MANILA" AND
PROVIDING PENALTIES FOR VIOLATIONS THEREOF. .
Be it ordained by the Municipal Board of the City of Manila,
that:
SECTION 1. Definition,For the purpose of this
Ordinance the following words and phrases shall be taken in
the sense herein below indicated:
(a) Massage clinic shall include any place or establishment
used in the practice of hygienic and aesthetic massage;
(b) Hygienic and aesthetic massage shall include any system
of manipulation or treatment of the superficial parts of the
human body for hygienic and aesthetic purposes by
rubbing, stroking, kneading, or tapping with the hand or an
instrument;
(c) Massagist shall include any person who shall have
passed the required examination and shall have been
issued a massagist certificate by the Committee of
Examiners for Massagist, or by the Director of Health or his
authorized representative;
(d) Attendant or helper shall include any person employed
by a duly qualified massagist in any massage clinic to assist
the latter in the practice of hygienic and aesthetic massage;

(e) Operator shall include the owner, manager,

administrator, or any person who operates or is responsible
for the operation of a massage clinic.
SEC. 2. Permit Fees.No person shall engage in the
operation of a massage clinic or in the occupation of
attendant or helper therein without first having obtained a
permit therefor from the Mayor, For every permit granted
under the provisions of this Ordinance, there shall be paid
to the City Treasurer the following annual fees:
(a) Operator of a massage ................................ P100.00
(b) Attendant or helper ..................................... ........5.00
Said permit, which shall be renewed every year, may be
revoked 'by the Mayor at any time for violation of this
Ordinance.
SEC. 3. Building requirement. (a) In each massage
clinic, there shall be separate rooms for the male and
female customers. Rooms where massage operations are
performed shall be provided with sliding1 curtains only
instead of swinging doors. The clinic shall be properly
ventilated, well lighted and maintained under sanitary
conditions at all times while the establishment is open for
business and shall be provided with the necessary toilet
and washing facilities.
(b) In every clinic there shall be no private rooms or
separated compartment except those assigned for toilet,
lavatories, dressing room, office or kitchen.
(c) Every massage clinic shall be provided with only one
entrance and it shall have no direct or indirect
communication whatsoever with any dwelling place, .house
or building.

SEC. 4. Regulations for the operation of massage clinics.

(a) It shall be unlawful for any operator, massagist, attendant
or helper to use, or allow the use of, a massage clinic as a
place of assignation or permit the commission therein of
any indecent or immoral act. Massage clinics shall be used
only for hygienic and aesthetic massage.
(b) Massage clinics shall open at eight o'clock a.m. and
shall close at eleven o'clock p.m.
(c) While engaged in the actual performance of their
duties, massagists, attendants and helpers in a massage
clinic shall be as properly and sufficiently clad as to
avoid suspicion of intent to commit an indecent or
immoral act;
(d) Attendants or helpers may render service to any
individual customer only for hygienic and aesthetic purposes
under the order, direction, supervision, control and
responsibility of a qualified massagist.
SEC. 5. QualificationsNo person who has previously
been convicted by final judgment of competent court of
any violation of the provisions of paragraphs 3 and 5 of Art,
202 .and Arts. 335, 336, 340 and 342 of the Revised Penal
Code, or Sees. 819 of the City of Manila, or who is suffering
from any venereal or communicable disease shall engage
in the occupation of massagist, attendant or helper in any
massage clinic. Applicants, for Mayor's permit shall attach
to their application a police clearance and health
certificate duly issued by the City Health Officers as well as
a massagist certificate duly issued by the Committee or
Examiners for Massagists or by the Director of Health
or his authorized. representatives, in case of massagist.
SEC. 6. Duty of operator of massage clinic.No operator of

massage clinic shall allow such clinic to operate without a

duly, qualified massagist nor allow any man or woman to
act as massagist, attendant or helper therein without the
Mayor's permit provided for in the preceding sections. He
shall submit whenever required by the Mayor or his
authorized representative the persons acting as massagists,
attendants or helpers in his clinic. He shall place the
massage clinic open to inspection at all times by the police,
health officers, and other law enforcement agencies of the
government, shall be held liable for anything which may
happen within the premises of the massage clinic.
SEC. 7. Penalty.Any person violating any of the provisions
of this Ordinance shall upon conviction, be punished by a
fine of not less than fifty pesos nor more than two
hundred pesos or by imprisonment for not less than sis
days nor more than six months, or both such fine and
imprisonment, at the discretion of the court.
SEC. 8. Repealing Clause.All ordinances or parts of
ordinances, which are inconsistent herewith, are hereby
repealed.
SEC. 9. Effectivity.This Ordinance shall take effect upon
its approval.
Enacted, August 27, 1954.
Approved, September 7, 1954,
The main contention of the appellant in its appeal and the
principal ground of its petition for declaratory judgment is
that the City of Manila is without authority to regulate
the operation of massagists and the operation. of massage
clinics within its jurisdiction; that whereas under the Old
City Charter, particularly, Section 2444 (e) of the Revised
Administrative Code, the Municipal Board was expressly
granted the power to regulate and fix the license fee for

the occupation of massagists, under the New Charter of

Manila, Republic Act 409, said power has been withdrawn
or omitted and that now the Director of Health, pursuant
to authority conferred by Section 938 of the Revised
Administrative Code and Executive Order No. 317, series of
1941, as amended by Executive Order No. 392, series,
1951, is the one who exercises supervision over the
practice of massage and over massage clinics in the
Philippines; that the Director of Health has issued
Administrative Order No. 10, dated May 5, 1953,
prescribing "rules and regulations governing the
examination for admission to the practice of massage, and
the operation of massage clinics, offices, or establishments
in the Philippines", which order was approved by the
Secretary of Health and duly published in the Official
Gazette; that Section 1 (a) of Ordinance No. 3659 has
restricted the practice of massage to only hygienic and
aesthetic massage prohibits or does not allow qualified
massagists to practise therapeutic massage in their
massage clinics. Appellant also contends that the license
fee of P100.00 for operator in Section 2 of the Ordinance is
unreasonable, nay, unconscionable.
If we can ascertain the intention of the Manila Municipal
Board in promulgating the Ordinance in question, much of
the objection of appellant to its legality may be solved. It
would appear to us that the purpose of the Ordinance is not
to regulate the practice of massage, much less to restrict
the practice of licensed and qualified massagists of
therapeutic massage in the Philippines. The end sought to
be attained in the Ordinance is to prevent the commission of
immorality and the practice of prostitution in an
establishment masquerading as a massage clinic where the
operators thereof offer to massage or manipulate superficial
parts of the bodies of customers for hygienic and aesthetic
purposes. This intention can readily be understood by the
building requirements in Section 3 of the Ordinance,

requiring that there be separate rooms for male and female

customers; that instead of said rooms being separated by
permanent partitions and swinging doors, there should only
be sliding curtains between them; that there should be "no
private rooms or separated compartments, except those
assigned for toilet, lavatories, dressing room, office or
kitchen"; that every massage clinic should be provided with
only one entrance and shall have no direct or indirect
communication whatsoever with any dwelling place, house
or building-; and that no operator, massagist, attendant or
helper will be allowed "to use or allow the use of a massage
clinic as a place of assignation or permit the commission
therein of any immoral or indecent act", and in fixing the
operating hours of such clinic between 8:00 a.m. and 11:00
p.m. This intention of the Ordinance was correctly
ascertained by Judge Hermogenes Concepcion, presiding in
the trial court, in his order of dismissal where he said:
"What the Ordinance tries to avoid is that the massage clinic
run by an operator who may not be a masseur or massagista
may be used as cover for the running or maintaining a
house of prostitution."
Ordinance No. 3659, particularly, Sections 1 to 4, should be
considered as limited to massage clinics used in the
practice of hygienic and aesthetic massage. We do not
believe that the Municipal Board of the City of Manila and
the Mayor wanted or intended to regulate the practice of
massage in general or restrict the same to hygienic and
aesthetic only.
As to the authority of the City Board to enact the
Ordinance in question, the City Fiscal, in representation of
the appellees, calls our attention to Section 18 oi the New
Charter of the City of Manila, Republic Act No. 409, which,
gives legislative powers to the Municipal Board to enact all
ordinances it may deem necessary and proper for the
promotion of the morality, peace, good order, comfort,

convenience and general welfare of the City and its

inhabitants. This is generally referred to as the General
Welfare Clause, a delegation in statutory form of the police
power, under which municipal corporations are authorized
to enact ordinances to provide for the health and safety,
and promote the morality, peace and general welfare of its
inhabitants. We agree with the City Fiscal.
As regards the permit fee of P100.00, it will be seen that
said fee is made payable not by the masseur or massagist,
but by the operator of a massage clinic who may not be a
massagist himself. Compared to permit fees required in
other operations, P100.00 may appear to be too large and
rather unreasonable. However, much discretion is given to
municipal corporations in determining the amount of said
fee without considering' it as a' tax for revenue purposes:
"The amount of the fee or charge is properly considered
in determining whether it is a. tax or an exercise of the
police power. The amount may be so large as to itself show
that the purpose was to raise revenue and not to regulate,
but in regard to this matter there is a marked distinction
between license fees imposed upon useful and beneficial
occupations which the sovereign wishes to regelate but not
restrict, and those which are inimical and dangerous to
public health, moral or safety. In the latter case the fee
may be very large without necessarily being a, tax.",
(Cooley on Taxation, Vol. IV, pp. 3516-17; underlining
supplied.)
Evidently, the Manila Municipal Board considered the
practice of hygienic and aesthetic massage not as a useful
and beneficial occupation which "will promote and is
conducive to public morals, and consequently, imposed the
said permit fee for its regulation.
In conclusion, we find and hold that the Ordinance in
question as we interpret it and as intended by the appellees
is valid. We deem it unnecessary to discuss and pass upon

the other points raised in the appeal, the order appealed

from is. hereby affirmed. No costs.
Paras, C. J., Bengzon, Padilla, Reyes, A., Bautista Angelo,
Labrador, Concepcion, Reyes, J.B.L. Endencia and Felix, JJ.,
concur.

FIRST DIVISION
G.R. No. L-28508-9, July 07, 1989
ESSO STANDARD EASTERN, INC., (FORMERLY, STANDARDVACUUM OIL COMPANY), PETITIONER, VS. THE
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION

CRUZ, J.:
On appeal before us is the decision of the Court of Tax
Appeals[1] denying petitioner's claims for refund of overpaid
income taxes of P102,246.00 for 1959 and P434,234.93 for
1960 in CTA Cases No. 1251 and 1558 respectively.
I
In CTA Case No. 1251, petitioner ESSO deducted from its
gross income for 1959, as part of its ordinary and necessary
business expenses, the amount it had spent for drilling and
exploration of its petroleum concessions. This claim was
disallowed by the respondent Commissioner of Internal
Revenue on the ground that the expenses should be
capitalized and might be written off as a loss only when a
"dry hole" should result. ESSO then filed an amended return
where it asked for the refund of P323,279.00 by reason of its
abandonment as dry holes of several of its oil wells. Also
claimed as ordinary and necessary expenses in the same
return was the amount of P340,822.04, representing margin
fees it had paid to the Central Bank on its profit remittances
to its New York head office.

[1]

On August 5, 1964, the CIR granted a tax credit of

P221,033.00 only, disallowing the claimed deduction for the
margin fees paid.
In CTA Case No. 1558, the CIR assessed ESSO a deficiency
income tax for the year 1960, in the amount of P367,994.00,
plus 18% interest thereon of P66,238.92 for the period from
April 18, 1961 to April 18, 1964, for a total of P434,232.92.
The deficiency arose from the disallowance of the margin
fees of P1,226,647.72 paid by ESSO to the Central Bank on
its profit remittances to its New York head office.
ESSO settled this deficiency assessment on August 10, 1964,
by applying the tax credit of P221,033.00 representing its
overpayment on its income tax for 1959 and paying under
protest the additional amount of P213,201.92. On August
13, 1964, it claimed the refund of P39,787.94 as
overpayment on the interest on its deficiency income tax. It
argued that the 18% interest should have been imposed not
on the total deficiency of P367,944.00 but only in the amount
of P146,961.00, the difference between the total deficiency
and its tax credit of P221,033.00.
This claim was denied by the CIR, who insisted on charging
the 18% interest on the entire amount of the deficiency tax.
On May 4, 1965, the CIR also denied the claims of ESSO for
refund of the overpayment of its 1959 and 1960 income
taxes, holding that the margin fees paid to the Central Bank
could not be considered taxes or allowed as deductible
business expenses.
ESSO appealed to the CTA and sought the refund of
P102,246.00 for 1959, contending that the margin fees were
deductible from gross income either as a tax or as an
ordinary and necessary business expense. It also claimed an
overpayment of its tax by P434,232.92 in 1960, for the same
reason. Additionally, ESSO argued that even if the amount

paid as margin fees were not legally deductible, there was

still an overpayment by P39,787.94 for 1960, representing
excess interest.
After trial, the CTA denied petitioners claim for refund of
P102,246.00 for 1959 and P434,234.92 for 1960 but
sustained its claim for P39,787.94 as excess interest. This
portion of the decision was appealed by the CIR but was
affirmed by this Court in Commissioner of Internal Revenue
v. ESSO, G.R. No. L-28502-03, promulgated on April 18,
1989. ESSO for its part appealed the CTA decision denying
its claims for the refund of the margin fees P102,246.00 for
1959 and P434,234.92 for 1960. That is the issue now
before us.
II
The first question we must settle is whether R.A. 2009,
entitled An Act to Authorize the Central Bank of the
Philippines to Establish a Margin Over Banks' Selling Rates
of Foreign Exchange, is a police measure or a revenue
measure. If it is a revenue measure, the margin fees paid by
the petitioner to the Central Bank on its profit remittances to
its New York head office should be deductible from ESSO's
gross income under Sec. 30(c) of the National Internal
Revenue Code. This provides that all taxes paid or accrued
during or within the taxable year and which are related to
the taxpayer's trade, business or profession are deductible
from gross income.
The petitioner maintains that margin fees are taxes and cites
the background and legislative history of the Margin Fee
Law showing that R.A. 2609 was nothing less than a revival
of the 17% excise tax on foreign exchange imposed by R.A.
601. This was a revenue measure formally proposed by
President Carlos P. Garcia to Congress as part of, and in
order to balance, the budget for 1959-1960. It was enacted

by Congress as such and, significantly, properly originated in

the House of Representatives. During its two and a half
years of existence, the measure was one of the major
sources of revenue used to finance the ordinary operating
expenditures of the government. It was, moreover, payable
out of the General Fund.
On the claimed legislative intent, the Court of Tax Appeals,
quoting established principles, pointed out that We are not unmindful of the rule that opinions expressed in
debates, actual proceedings of the legislature, steps taken in
the enactment of a law, or the history of the passage of the
law through the legislature, may be resorted to as an aid in
the interpretation of a statute which is ambiguous or of
doubtful meaning. The courts may take into consideration
the facts leading up to, coincident with, and in any way
connected with, the passage of the act, in order that they
may properly interpret the legislative intent. But it is also
well-settled jurisprudence that only in extremely doubtful
matters of interpretation does the legislative history of an
act of Congress become important. As a matter of fact,
there may be no resort to the legislative history of the
enactment of a statute, the language of which is plain and
unambiguous, since such legislative history may only be
resorted to for the purpose of solving doubt, not for the
purpose of creating it. [50 Am. Jur. 328.]
Apart from the above consideration, there are at least two
cases where we have held that a margin fee is not a tax but
an exaction designed to curb the excessive demands upon
our international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, [2]
the Court stated through Justice Jose P. Bengzon:
[2]

A margin levy on foreign exchange is a form of exchange

control or restriction designed to discourage imports and
encourage exports, and ultimately curtail any excessive
demand upon the international reserve in order to stabilize
the currency. Originally adopted to cope with balance of
payment pressures, exchange restrictions have come to
serve various purposes, such as limiting non-essential
imports, protecting domestic industry - and when combined
with the use of multiple currency rates - providing a source
of revenue to the government, and area in many developing
countries regarded as a more or less inevitable concomitant
of their economic development programs. The different
measures of exchange control or restriction cover different
phases of foreign exchange transactions i.e., in quantitative
restriction, the control is on the amount of foreign exchange
allowable. In the case of the margin levy, the immediate
impact is on the rate of foreign exchange; in fact, its main
function is to control the exchange rate without changing
the par value of the peso as fixed in the Bretton Woods
Agreement Act. For a member nation is not supposed to
alter its exchange rate (at par value) to correct a merely
temporary disequilibrium in its balance of payments. By its
nature, the margin levy is part of the rate of exchange as
fixed by the government.
As to the contention that the margin levy is a tax on the
purchase of foreign exchange and hence should not form
part of the exchange rate, suffice it to state that We have
already held the contrary for the reason that a tax is levied
to provide revenue for government operations, while the
proceeds of the margin fee are applied to strengthen our
country's international reserves.
Earlier, in Chamber of Agriculture and Natural Resources of
the Philippines v. Central Bank,[3] the same idea was
[3]

expressed, though in connection with a different levy,

through Justice J.B.L. Reyes:
Neither do we find merit in the argument that the 20%
retention of exporter's foreign exchange constitutes an
export tax. A tax is a levy for the purpose of providing
revenue for government operations, while the proceeds of
20% retention, as we have seen, are applied to strengthen
the Central Bank's international reserve.
We conclude then that the margin fee was imposed by the
State in the exercise of its police power and not the power of
taxation.
Alternatively, ESSO prays that if margin fees are not taxes,
they should nevertheless be considered necessary and
ordinary business expenses and therefore still deductible
from its gross income. The fees were paid for the remittance
by ESSO as part of the profits to the head office in the
United States. Such remittance was an expenditure
necessary and proper for the conduct of its corporate affairs.
The applicable provision is Section 30 (a) of the National
Internal Revenue Code reading as follows:
SEC. 30. Deductions from gross income. - In computing net
income there shall be allowed as deductions (a) Expenses:
(1) In general. - All the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for
salaries or other compensation for personal services actually
rendered; traveling expenses while away from home in the
pursuit of a trade or business; and rentals or other payments
required to be made as a condition to the continued use or
possession, for the purpose of the trade or business, of

property to which the taxpayer has not taken or is not taking

title or in which he has no equity.
(2) Expenses allowable to non-resident alien individuals and
foreign corporations. - In the case of a non-resident alien
individual or a foreign corporation, the expenses deductible
are the necessary expenses paid or incurred in carrying on
any business or trade conducted within the Philippines
exclusively.
In the case of Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue,[4] the
Court laid down the rules on the deductibility of business
expenses, thus:
The principle is recognized that when a taxpayer claims a
deduction, he must point to some specific provision of the
statute in which that deduction is authorized and must be
able to prove that he is entitled to the deduction which the
law allows. As previously adverted to, the law allowing
expenses as deduction from gross income for purposes of the
income tax is Section 30 (a) (1) of the National Internal
Revenue which allows a deduction of all the ordinary and
necessary expenses paid or incurred during the taxable year
in carrying on any trade or business. An item of
expenditure, in order to be deductible under this section of
the statute, must fall squarely within its language.
We come, then, to the statutory test of deductibility where it
is axiomatic that to be deductible as a business expense,
three conditions are imposed, namely: (1) the expense must
be ordinary and necessary, (2) it must be paid or incurred
within the taxable year, and (3) it must be paid or incurred in
carrying on a trade or business. In addition, not only must
the taxpayer meet the business test, he must substantially
prove by evidence or records the deductions claimed under
the law, otherwise, the same will be disallowed. The mere
[4]

allegation of the taxpayer that an item of expense is ordinary

and necessary does not justify its deduction.
While it is true that there is a number of decisions in the
United States delving on the interpretation of the terms
ordinary and necessary as used in the federal tax laws, no
adequate or satisfactory definition of those terms is possible.
Similarly, this Court has never attempted to define with
precision the terms 'ordinary and necessary.' There are
however, certain guiding principles worthy of serious
consideration in the proper adjudication of conflicting
claims. Ordinarily, an expense will be considered 'necessary'
where the expenditure is appropriate and helpful in the
development of the taxpayer's business. It is 'ordinary' when
it connotes a payment which is normal in relation to the
business of the taxpayer and the surrounding circumstances.
The term 'ordinary' does not require that the payments be
habitual or normal in the sense that the same taxpayer will
have to make them often; the payment may be unique or
non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right
to a deduction depends in each case on the particular facts
and the relation of the payment to the type of business in
which the taxpayer is engaged. The intention of the
taxpayer often may be the controlling fact in making the
determination. Assuming that the expenditure is ordinary
and necessary in the operation of the taxpayer's business,
the answer to the question as to whether the expenditure is
an allowable deduction as a business expense must be
determined from the nature of the expenditure itself, which
in turn depends on the extent and permanency of the work
accomplished by the expenditure.
In the light of the above explanation, we hold that the Court
of Tax Appeals did not err when it held on this issue as
follows:

Considering the foregoing test of what constitutes an

ordinary and necessary deductible expense, it may be asked:
Were the margin fees paid by petitioner on its profit
remittances to its Head Office in New York appropriate and
helpful in the taxpayer's business in the Philippines? Were
the margin fees incurred for purposes proper to the conduct
of the affairs of petitioner's branch in the Philippines? Or
were the margin fees incurred for the purpose of realizing a
profit or of minimizing a loss in the Philippines? Obviously
not. As stated in the Lopez case, the margin fees are not
expenses in connection with the production or earning of
petitioner's incomes in the Philippines. They were expenses
incurred in the disposition of said incomes; expenses for the
remittance of funds after they have already been earned by
petitioner's branch in the Philippines for the disposal of its
Head Office in New York which is already another distinct
and separate income taxpayer.
x
x
x
Since the margin fees in question were incurred for the
remittance of funds to petitioner's Head Office in New York,
which is a separate and distinct income taxpayer from the
branch in the Philippines, for its disposal abroad, it can
never be said therefore that the margin fees were
appropriate and helpful in the development of petitioner's
business in the Philippines exclusively or were incurred for
purposes proper to the conduct of the affairs of petitioner's
branch in the Philippines exclusively or for the purpose of
realizing a profit or of minimizing a loss in the Philippines
exclusively. If at all, the margin fees were incurred for
purposes proper to the conduct of the corporate affairs of
Standard Vacuum Oil Company in New York, but certainly
not in the Philippines.
ESSO has not shown that the remittance to the head office of
part of its profits was made in furtherance of its own trade
or business. The petitioner merely presumed that all

corporate expenses are necessary and appropriate in the

absence of a showing that they are illegal or ultra vires.
This is error. The public respondent is correct when it
asserts that "the paramount rule is that claims for
deductions are a matter of legislative grace and do not turn
on mere equitable considerations x x x. The taxpayer in
every instance has the burden of justifying the allowance of
any deduction claimed. "[5]
It is clear that ESSO, having assumed an expense properly
attributable to its head office, cannot now claim this as an
ordinary and necessary expense paid or incurred in carrying
on its own trade or business.
WHEREFORE, the decision of the Court of Tax Appeals
denying the petitioner's claims for refund of P102,246.00 for
1959 and P434,234.92 for 1960, is AFFIRMED, with costs
against the petitioner.
SO ORDERED.
Narvasa, (Chairman), Gancayco, Grio-Aquino, and
Medialdea, JJ., concur.

[5]

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

EUSEBIO VILLANUEVA, ET AL., PLAINTIFFS-APPELIEES, VS.
CITY OF ILOILO, DEFENDANT-APPELLANT.
DECISION

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 money
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, Isnart 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 Remedios 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 (eleven), 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 . . . . . . . . . . P 20.00 per
.....
door p.a.
(b) Apartment house
made of
mixed materials . . . . . P 10.00 per
..........
door p.a.
II. Rooming house of
P 10.00 per
strong
door p.a.

materials . . . . . . . . . . . .
.... .......
Rooming house of mixed
materials . . . . . . . . . . . . .
...... ....
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 . . . . . . . . . . . . . . . . . . .
...
IV. Tenement house partly
or wholly
engaged in or
dedicated to business
in any other street . . . .
.............
V. Tenement houses at the
streets
surrounding the super
market as
soon as said place is
declared commercial . .
.............

P 5.00 per
door p.a.

P 30.00 per
door p.a.

P 12.00 per
door p.a.

P 24.00 per
door p.a.

"Section 4. - All ordinances or parts there of inconsistent

herewith are hereby amended.
"Section 5. - Any person found violating this ordinance shall
be punished with a fine not 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, 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.
[1]

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 licenses at rates fixed by the municipal board or
city council of the city, the municipal council of the
municipality, or the municipal district council of the

municipal district; to collect fees and charges for services

rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation
being conducted within the city, municipality or municipal
district and otherwise to levy for public purposes, just and
uniform taxes, licenses or fees; Provided, That municipalities
and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax,
except gasoline, under the provisions of the National
Internal Revenue Code: 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 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. 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.
[2]

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," and
not a "tax on persons engaged in any occupation or business
or privileges," or a license tax, or a privilege tax, or an
excise tax. 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 percentum real estate tax allowable under Sec. 38
of the Iloilo City Charter, Com. Act 158."
[3]

[4]

[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, which, although not
applicable to the City of Iloilo, has counterpart provisions in
the Iloilo City Charter. A real estate tax is a direct tax on
the ownership of lands and buildings or other improvements
thereon, not specially exempted, and is payable regardless
of whether the property is used or not, although the value
may vary in accordance with such factor. 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. It is a fixed proportion of the assessed
value of the property taxed, and requires, therefore, the
intervention of assessors. It is collected or payable at
appointed times, and it constitutes a superior lien on and is
enforceable against the property subject to such taxation,
and not by imprisonment of the owner.
[6]

[7]

[8]

[9]

[10]

[11]

[12]

[13]

[14]

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, of 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." 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."
[15]

[16]

"The character of a tax is not to be fixed by any isolated

words that may be employed 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." 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
[17]

into separate apartments or accessorias." The Supreme

Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L12695, March 23, 1959, adopted the definition of a tenement
house 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, are not mentioned in the
aforestated section of the City Charter of Iloilo. Thus, in the
aforesaid case, this Court explicitly said:
[18]

[19]

"And it not appearing that the power to tax owner's 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 sense a 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." It has been shown that a real
estate tax and the tenement tax imposed by the ordinance,
although imposed by the same taxing authority, are not of
the same kind or character.
[23]

At all events, there is no constitutional prohibition against

double taxation in the Philippines. 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.
[24]

[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." 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 nonpayment thereof by fine or imprisonment is not in conflict
with that prohibition." 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. Therefore, the
tax in question is not oppressive in the manner the lower
court puts it. On the other hand, the charter of Iloilo City
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 Manila because
it imposed a penalty of fine and imprisonment for its
violation.
[26]

[27]

[28]

[29]

[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." 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 taxes are 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. 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. The plaintiffsappellees, 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.
[31]

[32]

[33]

[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 and this 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 86, while one of the issues in the
present case is whether the City is empowered 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 question being valid, the complaint is hereby
dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Fernando, and Capistrano, JJ., concur.

The record discloses that the delay caused in the lower

court was due to the loss of the original record while the
same was in the possession of the late Judge Perfecto
Querubin. The record was later reconstituted under Judge
Ramon Blanco.
[1]

Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.:
[2]

"Neither the plaintiff nor the lower court

maintains that the subject matter of the ordinance
in question comes under any of the foregoing
exceptions. Hence, under the rule 'expressio unius
est exclusio alterius', the ordinance should be
deemed to come within the purview of the general
rule. Indeed, the sponsor of the bill, which upon its
passage became Republic Act No. 2264, explicitly
informed the House of Representatives when he
urged the same to approve it, that, under its
provisions, local governments would be 'able to do
everything, excepting those things which are
mentioned therein.' x x x."
C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al.,
L-18276, Jan. 12, 1967, per Castro, J.:
"x x x, Heretofore, we have announced the doctrine that the grant of the power to tax to chartered
cities under section 2 of the Local Autonomy Act is
sufficiently plenary to cover 'everything, excepting
those which are mentioned therein,' subject only to
the limitation that the tax so levied is for 'public
purposes, just and uniform' (Nin Bay Mining Co. vs.
Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125,
July 20, 1965). There is no showing, and we do not
believe it is possible to show, that the tax levied,
called by any name - percentage tax or sales tax -

comes under any of the specific exceptions listed in

Section 2 of the Local Autonomy Act. Not being
excepted, it must be regarded as coming within the
purview of the general rule. As the maxim goes,
'Exceptio firmat regulum in casibus non excepti.'
Since its public purpose, justness and uniformity of
application are not disputed, the tax so levied must
be sustained as valid." [Re: ordinance imposing a
tax on sale of real estate property situated in the
City of Iloilo, of % of 1% of the contract price or
consideration.] Ormoc Sugar Co., inc. vs. Mun.
Board of Ormoc City, et al., L-24322, July 21, 1967,
per Fernando, J.:
"In a number of decisions starting from City of
Bacolod vs. Gruet, L-18290, Jan. 31, 1963, to Hodges
vs. Mun. Board, L-18276, Jan. 12, 1967, such broad
taxing authority has been implemented and vitalized
by this Court.
"x x x. The question before this Court is one of
power. From and after June 19, 1959, when the
Local Autonomy Act was enacted, the sphere of
autonomy of a chartered city in the enactment of
taxing measures has been considerably enlarged.
"x x x. In the absence of a clear and specific showing that there was a transgression of a constitutional
provision or repugnancy to a controlling statute, an
objection of such a generalized character deserves
but scant sympathy from this Court. Considering the
indubitable policy expressly set forth in the Local
Autonomy Act, the invocation of such a talismanic
formula as 'restraint of trade' without more no
longer suffices, assuming it ever did, to nullify a
taxing ordinance, otherwise valid." [Re: Ordinance
imposing tax on all productions of centrifugal sugar

(B-sugar) locally sold or sold within the Phil., at P.20

per picul, etc.]
"Taxes on property are taxes assessed on all property or on
all property of a certain class located within a certain territory on a specified date in proportion to its value, or in
accordance with some other reasonable method of
apportionment, the obligation to pay which is absolute and
unavoidable and it is not based upon any voluntary action of
the person assessed. A property tax is ordinarily measured
by the amount of property owned by the taxpayer on a given
day, and not on the total amount owned by him during the
year. It is ordinarily assessed at stated periods determined
in advance, and collected at appointed times, and its payment is usually enforced by sale of the property taxed, and,
occasionally, by imprisonment of the person assessed." (51
Am. Jur. 57)
[3]

"A 'real estate tax' is a tax in rem against realty

without personal liability therefore on part of owner
thereof, and a judgment recovered in proceedings
for enforcement of real estate tax is one in rem
against the realty without personal liability against
the owner." (36 Words and Phrases, 286, citing Land
O'Lakes Dairy Co. vs. Wadena County, 39 N.W. 2d.
164, 171, 229 Minn. 263)
"The term 'license tax' or 'license fee' implies an imposition
or exaction on the right to use or dispose of a property, to
pursue a business, occupation, or calling, or to exercise a
privilege." (33 Am. Jur. 325-326)
[4]

"The term 'excise tax' is synonymous with 'privilege tax',

and the two are often used interchangeably, and whether a
tax is characterized in the statute imposing it as a privilege
tax or an excise tax is merely a choice of synonymous words,
for an excise tax is a privilege tax." (51 Am. Jur. 62, citing

Bank of Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260
SW 144)
"Thus, it is said that an excise tax is a charge imposed
upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation." (51 Am. Jur. 61)
"Sec. 38. Annual tax and penalties. - Extension and
remission of the tax. - An annual tax of one per centum on
the assessed value of all real estate in the city subject to
taxation shall be levied by the city treasurer. x x x"
[5]

Commonwealth Act No. 470 - Sec. 1. Title of this Act. This

Act shall be known as the Assessment Law.
[6]

"Sec. 2. Incidence of real property tax. - Except in

chartered cities, there shall be levied, assessed, and
collected an annual ad valorem tax on real property,
including land, buildings, machinery and other
improvements not hereinafter specially exempted."
[7]

Com. Act 158, sections 28 to 53.

[8]

Com. Act 158, sec. 29.

51 Am. Jur. 53: "An ad valorem property tax is invariably

based upon ownership of property, and is payable regardless
of whether the property is used or not, although of course
the value may vary in accordance with such factor."
[9]

"Real estate, for purposes of taxation, includes all land

within the district by which the tax is levied, and all rights
and interests in such land, and all buildings and other
structures affixed to the land, even though as between the
landlord and the tenant they are the property of the tenant
and may be removed by him at the termination of the lease."
(51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When
it shall appear that there are separate owners of the land
[10]

and the improvements thereon, a separate assessment of the

property of each shall be made."
Sec. 38 of Com. Act 158 provides: "An annual tax of one
per centum on the assessed value of all real estate in the city
subject to taxation shall be levied by the city treasurer."
[11]

[12]

Secs. 28 to 34, Com. Act 158.

Sec. 38 of Com. Act 158 provides: "All taxes on real estate

for any year shall be due and payable on the first day of
January and from this date such taxes together with all
penalties accruing thereto shall constitute a lien on the
property subject to such taxation."
[13]

Sec. 38 of Com. Act 158 provides: "Such lien shall be

superior to all other liens, mortgages or incumbrances of any
kind whatsoever, and shall be enforceable against the
property whether in the possession of the delinquent or any
subsequent owner, and can only be removed by the payment
of the tax and penalty."
[14]

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la

Puente, L-2947, Jan. 11, 1951, 88 Phil. 60.
[15]

[16]

51 Am. Jur. 59-60; 33 Am. Jur. 325-326.

51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73

Am. Dec. 367.
[17]

[18]

Webster's New International Dictionary, 2nd Ed., p. 2601.

City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695,

March 23, 1959: "As may be seen from the definition of each
establishment hereunder quoted, a tenement house is
different from hotel, lodging house, or boarding house.
These are different business enterprises. They have been
established for different purposes."
[19]

[20]

National Internal Revenue Code:

"Sec. 182. Fixed taxes. - (A) On business x x x (3)
Other fixed taxes. - The following fixed taxes shall
be collected as follows, the amount stated being for
the whole year, when not otherwise specified:
x

"(s) Stockbrokers, dealers in securities, real estate

brokers, real estate dealers, commercial brokers,
customs brokers, and immigration brokers, one
hundred and fifty pesos: Provided, however, That in
the case of real estate dealers, the annual fixed tax
to be collected shall be as follows:
"One hundred and fifty pesos, if the annual income
from buying, selling, exchanging, leasing, or renting
property (whether on their own account as
principals or as owners of rental property or
properties) is four thousand pesos or more but not
exceeding ten thousand pesos;
"Three hundred pesos, if such annual income
exceeds ten thousand pesos but does not exceed
thirty thousand pesos; and
"Five hundred pesos, if such annual income exceeds thirty thousand pesos."
Punsalan, et al. vs. Mun. Board of the City of Manila, et al.,
L-4817, May 26, 1954, 95 Phil. 46, per Reyes, J.: In this
case, the Supreme Court upheld the validity of Ordinance
3398 of the City of Manila, approved on July 25, 1950,
imposing a municipal occupation tax on persons exercising
various professions (lawyers, medical practitioners, public
accountants, dental surgeons, pharmacists, etc.), in the city
and penalizes non-payment of the tax by a fine of not more
[21]

than P200.00 or by imprisonment of not more than 6

months, or by both such fine and imprisonment in the
discretion of the court, although section 201 [now sec. 182
(B)] of the National Internal Revenue Code requires the
payment of taxes on occupation or professional taxes. Said
Justice Reyes: "The argument against double taxation may
not be invoked where one tax is imposed by the state and the
other is imposed by the city (1 Cooley on Taxation, 4th ed., p.
492), it being widely recognized that there is nothing
obnoxious in the requirement that license fees or taxes be
exacted with respect to the same occupation, calling or
activity by both the state and the political subdivision
thereof. (51 Am. Jur. 341.)"
A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on
June 18, 1954, providing as follows: "Any provisions
of existing laws, city charters and ordinances,
executive orders and regulations, or parts thereof,
to the contrary notwithstanding, every professionals
legally authorized to practice his profession, who
has paid the corresponding annual privilege tax on
profession s required by Sec. 182 of the NLRC, Com.
Act No. 466, shall be entitled to practice the
profession for which he has been duly qualified
under the law, in all parts of the Philippines without
being subject to any other tax, charge, license or fee
for the practice of such profession: Provided,
however, That they have paid to the office
concerned the registration fees required in their
respective professions."
People vs. Santiago Mendaros, et al., L-6975, May 27,
1955, 97 Phil. 958-959, per Bautista Angelo, J. Appeal from
the decision of the CFI of Zambales. Defendants-appellees
were convicted by the JP Court of Palauig, Zambales, and
sentenced to pay a fine of P5.00, for failure to pay the oc[22]

cupation tax imposed by a municipal ordinance on owners of

fishponds on lands of private ownership. The Supreme
Court, in sustaining the validity of the ordinance, held:
"The ground on which the trial court declared the
municipal ordinance invalid would seem to be that,
since the land on which the fishpond is situated is
already subject to land tax, it would be unfair and
discriminatory to levy another tax on the owner of
the fishpond because that would amount to double
taxation. This view is erroneous because it is a wellsettled rule that a license tax may be levied upon a
business or occupation although the land or
property used therein is subject to property tax. It
was also held that 'the state may collect an ad
valorem tax on property used in a calling, and at the
same time impose a license tax on the pursuit of
that calling.' The imposition of this kind of tax is in
no sense called a double tax."
Veronica Sanchez vs. The Collector of Internal Revenue, L?
7521, Oct. 18, 1955, 97 Phil. 687, per Reyes, J.B.L. J.
"Considering that appellant constructed her fourdoor 'accessoria' purposely for rent or profit; that
she has been continuously leasing the same to third
persons since its construction in 1947; that she
manages her property herself; and that said leased
holding appears to be her main source of livelihood,
she is engaged in the leasing of real estate, and is a
real estate dealer as defined in section 194(s) [now,
Sec. 182(A)(3)(s)] of the Internal Revenue Code, as
amended by Rep. Act No. 42.
"Appellant argues that she is already paying real
estate taxes on her property, as well as income tax
on the income derived therefrom, so that to further

subject its rentals to the 'real estate dealers' tax'

amounts to double taxation. This argument has
already been rejected by this Court in the case of
People vs. Mendaros, et al., L-6975, promulgated
May 27, 1955, wherein we held that it is a wellsettled rule that license tax may be levied upon a
business or occupation although the land or property used therein is subject to property tax, and that
'the state may collect an ad valorem tax on property
used in a calling, and at the same time impose a
license tax on the pursuit of that calling', the
imposition of the latter kind of tax being in no sense
a double tax.'"
[23]

84 C.J.S. 131-132.

Manufacturers' Life Insurance Co. vs. Meer, L-2910, June

29, 1951; City of Manila vs. Interisland Gas Service, L-8799,
Aug. 31, 1956; Commissioner of Internal Revenue vs.
Hawaiian-Philippine Co., L-16315, May 30, 1964; Pepsi-Cola
Bottling Co. of the Philippines vs. City of Butuan, et al., L22814, Aug. 28, 1969.
[24]

Pepsi-Cola Bottling Co. vs. City of Butuan, supra:

"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 some
States of the Union. Then, again, the general
principle against delegation of legislative powers, in

consequence of the theory of separation of powers is

subject to one well-established exception, namely:
legislative powers may be delegated to local
governments - to which said theory does not apply in respect of matters of local concern."
84 C.J.S. 133-134: "Double taxation, although not favored,
is permissible in the absence of express or implied constitutional prohibition.
[25]

"Double taxation should not be permitted unless

the legislature has authority to impose it. However,
since the taxing power is exclusively a legislative
function, and since, except as it is limited or
restrained by constitutional provisions, it is absolute
and unlimited, it is generally held that there is
nothing, in the absence of any express or implied
constitutional prohibition against double taxation, to
prevent the imposition of more than one tax on
property within the jurisdiction, as the power to tax
twice is as ample as the power to tax once. In such
case whether or not there should be double taxation
is a matter within the discretion of the legislature.
"In some states where double taxation is not expressly prohibited, it is held that double taxation is
permissible, or not invalid or unconstitutional, or
necessarily unlawful, provided some other
constitutional requirement is not thereby violated,
as a requirement that taxes must be equal and
uniform."
The Constitution of the Philippines, Art. VI, sec.
22(1) provides: "The rule of taxation shall be
uniform."
[26]

Art. III, sec. 1, par. 12, Constitution.

51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113,

20 Am. Rep. 290; Rosenbloom v. State, 64 Neb. 342, 89 NW
1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374,
147 NE 754, 40 ALR 73 (holding the provisions of an
ordinance making the nonpayment of an excise tax levied in
pursuance of such ordinance a misdemeanor punishable by
fine not in violation of the constitutional prohibition against
the imprisoned of any person for "debt in a civil action, or
mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep.
491, 46 SW 828, 73 Am. St. Rep. 961.
[27]

26 R.C.L. 25-26: "It is generally considered that a tax is not

a debt, and that the municipality to which the tax is payable
is not a creditor of the person assessed. A debt is a sum of
money due by certain and express agreement. It originates
in, and is founded upon, contract express or implied. Taxes,
on the other hand, do not rest upon contract, express or
implied. They are obligations imposed upon citizens to pay
the expenses of government. They are forced contributions,
and in no way dependent upon the will or contract, express
or implied, of the persons taxed."
51 Am. Jur. 66-67: "Capitation or poll taxes are taxes of a
fixed amount upon all persons, or upon all the persons of a
certain class, resident within a specified territory, without
regard to their property or the occupations in which they
may be engaged. Taxes of a specified amount upon each
person performing a certain act or engaging in a certain
business or profession are not, however, poll taxes."
[28]

Com. Act No. 158 (An Act Establishing a Form of

Government for the City of Iloilo), section 21: "Except as
otherwise provided by law, and subject to the conditions and
limitations thereof, the Municipal Board shall have the
following legislative powers:
[29]

"(aa) x x x and to fix penalties for the violation 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."
"To begin with the defendants' appeal, we find that the
lower court was in error in saying that the imposition of the
penalty provided for in the ordinance was without the
authority of law. The last paragraph (kk) of the very section
that authorizes the enactment of the ordinance (section 18 of
the Manila Charter) in express terms also empowers the
Municipal Board to 'fix penalties for the violation of
ordinances which not exceed to [sic] two hundred pesos fine
or six months' imprisonment, or both such fine and
imprisonment, for a single offense.' Hence, the
pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized
by law is clearly without legal basis."
[30]

51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 58 P 478, 47

LRA 68: "Taxes are uniform and equal when imposed upon
all property of the same character within the taxing authority." Manila Race Horse Trainers Assn., Inc. vs. De la
Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of
Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31,
1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there
is equality and uniformity in taxation if all articles or kinds of
property of the same class are taxed at the same rate. Thus,
it was held in that case, that 'the fact that some places of
amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is no
argument at all against equality and uniformity of the tax
imposition.' Applying this criterion to the present case, there
would be discrimination if some boarding stables of the
same class used for the same number of horses were not
[31]

taxed or were made to pay less or more than others." Tan

Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22,
1963, per Reyes, J.B.L., J.: "The rule of uniform taxation
does not deprive Congress of the power to classify subjects
of taxation, and only demands uniformity within the
particular class."
51 Am. Jur. 203: "153. Uniformity of Operation
Throughout Tax Unit. - One requirement with respect to
taxation imposed by provisions relating to equality and
uniformity, which has been introduced into some state
constitutions in express language, is that taxation must be
uniform throughout the political unit by or with respect to
which the tax is levied. This means, for example, that a tax
for a state purpose must be uniform and equal throughout
the state, a tax for a county purpose must be uniform and
equal throughout the county, and a tax for a city, village, or
township purpose must be uniform and equal throughout the
city, village, or township. It does not mean, however, that
the taxes levied by or with respect to the various political
subdivisions or taxing districts of the state must be at the
same rate, or, as one court has graphically pat it, that a man
in one county shall pay the same rate of taxation for all
purposes that is paid by a man in an adjoining county. Nor
does the rule require that taxes for the same purposes shall
be imposed in different territorial subdivisions at the same
time. It has also been said in this connection that the
omission to tax any particular individual who may be liable
does not render the whole tax illegal or void."
[32]

84 C.J.S. 77: "Equality in taxation is accomplished when

the burden of the tax falls equally and impartially on all the
persons and property subject to it [State ex rel. Haggard v.
Nichols, 265 N.W. 859, 66 N.D. 355], so that no higher rate
or greater levy in proportion to value is imposed on one
person or species of property that on others similarly or of
like character."
[33]

84 C.J.S. 79: "The rule of uniformity in taxation applies to

property of the life kind and character and similarly situated,
and a tax, in order to be uniform, must operate alike on all
persons, things, or property, similarly situated. So the
requirement is complied with when the tax is levied equally
and uniformly on all subjects of the same class and kind and
is violated if particular kinds, species, or items of property
are selected to bear the whole burden of the tax, while
others, which should be equally subjected to it, are left
untaxed."
84 C.J.S. 81: "There is a presumption that tax statutes are
intended to operate uniformly and equally [Alaska Consol.
Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d.
256], and a liberal construction will be indulged in order to
accomplish fair and equal taxation of all property within the
state."
[34]

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa

Yu vs. City of Lipa, L-9167, Sept. 27, 1956; Saldaa vs. City
of Iloilo, 55 O.G. 10267; and the cases cited therein.
[35]

G. R. No. L-17725, February 28, 1962

REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND
APPELLEE, VS. MAMBULAO LUMBER COMPANY, ET AL.,
DEFENDANTS AND APPELLANTS.
DECISION

BARRERA, J.:
From the decision of the Court of First Instance of Manila (in
Civil Case No. 34100) ordering it to pay to plaintiff Republic
of the Philippines the sum of P4,802.37 with 6% interest
thereon from the date of the filing of the complaint until fully
paid, plus costs, defendant Mambuiao Lumber Company
interposed the present appeal.[1]
The facts of the case are briefly stated in the decision of the
trial court, to wit:
"The facts of this case are not contested and may be briefly
summarized as follows: (a) under the first cause of action,
for forest charges covering the period from September 10,
1952 to May 24, 1953, defendants admitted that they have a
liability of P587.37, which liability is covered by a bond
executed by defendant General Insurance& Surety
Corporation for Mambulao Lumber Company, jointly and
severally in character, on July 29, 1953, in favor of herein
plaintiff; (b) under the second cause of action, both
defendants admitted a joint and several liability in favor of
plaintiff in the sum of P286.70, also covered by a bond dated
November 27, 1953; and (c) under the third cause of action,
both defendants admitted a joint and several liability in favor
of plaintiff for P3,928.30, also covered by a bond dated July
20, 1954. These three liabilities aggregate to P4,802.37. If
the liability of defendants in favor of plaintiff in the amount
already mentioned is admitted, then what is the defense

interposed by the defendants? The defense presented by the

defendants is quite unusual in more ways than one. It
appears from Exh. 3 that from July 21, 1948 to December 29,
1956, defendant Mambulao Lumber Company paid to the
Republic of the Philippines P8,200.52 for 'reforestation
charges' and for the period commencing from April 30, 1947
to June 24, 1948, said defendant paid P927.08 to the
Republic of the Philippines for 'reforestation charges'. These
reforestation charges were paid to the plaintiff in pursuance
of Section 1 of Republic Act 115 which provides that there
shall be collected, in addition to the regular forest charges
provided under Section 264 of Commonwealth Act 466
known as the National Internal Revenue Code, the amouift of
P0.50 on each cubic meter of timber * * * cut out and
removed from any public forest for commercial purposes.
The amount collected shall be expended by the director of
forestry, with the approval of the secretary of agriculture
and commerce, for reforestation and afforestation of water
sheds, denuded areas * * * and other public forest lands,
which upon investigation, are found needing reforestation or
afforestation * * *. The total amount of the reforestation
charges paid by Mambulao Lumber Company is P9,127.50,
and it is the contention of defendant Mambulao Lumber
Company that since the Republic of the Philippines has not
made use of those reforestation charges collected from it for
reforestating the denuded area of the land covered' by its
license, the Republic of the Philippines, should refund said
amount, or, if it cannot be refunded, at least it should be
compensated with what Mambulao Lumber Company owed
the Republic of the Philippines for reforestation charges. In
line with these thought, defendant Mambulao Lumber
Company wrote the director of forestry, on February 21,
1957 letter Exh. 1, in paragraph 4 of which said defendant
requested 'that our account with your bureau be credited
with all the reforestation charges that you have imposed on
us from July 1, 1947 to June 14, 1956, amounting to around
P2.988.62. * * *". This letter of defendant Mambulao Lumber

Company was answered by the director of forestry on March

12, 1957, marked Exh. 2, in which the director of forestry
quoted an opinion of the secretary of justice, to the effect
that he has no discretion to extend the time for paying the
reforestation charges and also explained why not all
denuded areas are being reforested."
The only issue to be resolved in this appeal is whether the
sum of P9,127.50 paid by defendant-appellant company to
plaintiff-appellee as reforestation charges from 1947 to 1956
may be set off or applied to the payment of the sum of
P4,802.37 as forest charges due and owing from appellant to
appellee. It is appellant's contention that said sum of
P9,127.50, not having been used in the reforestation of the
area covered by its license, the same is refundable to it or
may be applied in compensation of said sum of P4,802.37
due from it as forest charges.
We find appellant's claim devoid of any merit. Section 1 of
Republic Act No. 115, provides:
"SECTION 1. There shall be collected, in addition to the
regular forest charges provided for under section two
hundred and sixty-four of Commonwealth Act Numbered
Four Hundred sixty-six, known as the National Internal
Revenue Code, the amount of fifty centavos on each cubic
meter of timber for the first and second groups and forty
centavos for the third and fourth groups cut out and
removed from any public forest for commercial purposes.
The amount collected shall be expended by the Director of
Forestry, with the approval of the Secretary of Agriculture
and Natural Resources (Commerce), for reforestation and
afforestation of watersheds, denuded areas and cogon and
open lands within forest reserves, communal forest, national
parks, timber lands, sand dunes, and other public forest
lands, which, upon investigation, are found needing
reforestation or afforestation, or needing to be under forest

cover for the growing of economic trees for timber, tannin,

oils, gums, and other minor forest products or medicinal
plants, or for watersheds protection, or for prevention of
erosion and floods and preparation of necessary plans and
estimate of costs and for reconnaissance survey of public
forest lands and for such other expenses as may be deemed
necessary for the proper carrying out of the purposes of this
Act.
"All revenues collected, by virtue of, and pursuant to, the
provisions of the preceding paragraph and from the sale of
barks, medicinal plants and other products derived from
plantations as herein provided shall constitute a fund to be
known as Reforestation Fund, to be expended exclusively in
carrying out the purposes provided for under this Act. All
provincial or city treasurers and their deputies shall act as
agents of the Director of Forestry for the collection of the
revenues or incomes derived from the provisions of this Act."
(Italics supplied.)
Under this provision, it seems quite clear that the amount
collected as reforestation charges from a timber licensee or
concessionaire shall constitute a fund to be known as the
Reforestation Fund, and that the same shall be expended by
the Director of Forestry, with the approval of the Secretary
of Agriculture and Natural Resources for the reforestation or
afforestation, among others, of denuded areas which, upon
investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which
requires that the amount collected as reforestation charges
should be used exclusively for the reforestation of the area
covered by the license of a licensee or concessionaire, and
that if not so used, the same should be refunded to him.
Observe too, that the licensee's area may or may not be
reforested at all, depending on whether the investigation
thereof by the Director of Forestry shows that said area
needs reforestation. The conclusion seems to be that the

amount paid by a licensee as reforestation charges is in the

nature of a tax which forms a part of the Reforestation Fund,
payable by him irrespective of whether the area covered by
his license is reforested or not. Said fund, as the law
expressly provides, shall be expended in carrying out the
purposes provided for thereunder, namely, the reforestation
or afforestation, among others, of denuded areas needing
reforestation or afforestation.
Appellant maintains that the principle of compensation in
Article 1278 of the new Civil Code[2] is applicable, such that
the sum of P9,127.50 paid by it as reforestation charges may
compensate its indebtedness to appellee in the sum of
P4,802,37 as forest charges. But in the view we take of this
case, appellant and appellee are not mutually creditors and
debtors of each other. Consequently, the law on
compensation is inapplicable. On this point, the trial court
correctly observed:
"Under Article 1278, NCC, compensation should take place
when two persons in their own right are creditors and
debtors of each other. With respect to the forest charges
which the defendant Mambulao Lumber Company has paid
to the government, they are in the coffers of the government
as taxes collected, and the government does not owe
anything to defendant Mambulao Lumber Company. So, it is
crystal clear that the Republic of the Philippines and the
Mambulao Lumber Company are not creditors and debtors
of each other, because compensation refers to mutual debts.
* * *."
And the weight of authority is to the effect that internal
revenue taxes, such as the. forest charges in question, can
not be the subject of set-off or compensation.
"A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-

off, which are construed uniformly, in the light of public

policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable
to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of
the contract or transaction sued on. * * *." (80 C.J.S. 73-74.)
"The general rule, based on grounds of public policy is wellsettled that no set-off is admissible against demands for
taxes levied for general or local governmental purposes. The
reason on which the general rule is based, is that taxes are
not in the nature of contracts between the party and party
but grow out of a duty to, and are the positive acts of the
government, to the making and enforcing of which, the
personal consent of individual taxpayers is not required. * * *
If the taxpayer can properly refuse to pay his tax when
called upon by the Collector, because he has a claim against
the governmental body which is not included in the tax levy,
it is plain that some legitimate and necessary expenditure
must be curtailed. If the taxpayer's claim is disputed, the
collection of the tax must await and abide the result of a
lawsuit, and meanwhile the financial affairs of the
government will be thrown into great confusion." (47 Am.
Jur. 766-767.)
Wherefore, the judgment of the trial court appealed from is
hereby affirmed in all respects, with costs against the
defendant-appellant. So ordered.
Bengzon, C. J., Padilla, Bautista Angelo, Labrador,
Concepcion, Reyes, J. B. L., Paredes, Dizon, and De Leon, JJ.,
concur.

[1]

Originally appealed to the Court of Appeals, but later

certified to us by said court, on the ground that it involves
questions of law only.

[2]

ART. 1278. Compensation shall take place when two

persons, in their own right, are creditors and debtors of each
other."

G.R. No. L-18994, June 29, 1963

MELECIO R. DOMINGO, AS COMMISSIONER OF INTERNAL
REVENUE, PETITIONER, VS. HON. LORENZO C. GARLITOS,
IN HIS CAPACITY AS JUDGE OF THE COURT OF FIRST
INSTANCE OF LEYTE, AND SIMEONA K. PRICE, AS
ADMINISTRATRIX OF THE INTESTATE ESTATE OF THE
LATE WALTER SCOTT PRICE, RESPONDENTS.
DECISION

LABRADOR, J.:
This is a petition for certiorari and mandamus against the
Judge of the Court of First Instance of Leyte, Hon. Lorenzo
C. Garlitos, presiding, seeking to annul certain orders of the
court and for an order in this Court directing the respondent
court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for
internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C.
Moscoso, 106 Phil., 1138, this Court declared as final and
executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties
amounting to P40,058.55, issued by the Court of First
Instance of Leyte in special proceedings No. 14 entitled "In
the Matter of the Inestate Estate of the Late Walter Scott
Price." In order to enforce the claims against the estate the
fiscal presented a petition dated June 21, 1961, to the court
below for the execution of the judgment. The petition was,
however, denied by the court which held that the execution
is not justifiable as the Government is indebted to the estate
under administration in the amount of P262,200. The orders
of the court below dated August 20, 1960 and September 28,
1960, respectively, are as follows:

"Atty. Benedicto submitted a copy of the contract between

Mrs. Simeona K. Price, Administratrix of the estate of her
late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and
acknowledged before Notary Public Salvador V. Esguerra,
legal adviser in Malacaang to Executive Secretary De Leon
dated December 14, 1956, the note of His Excellency, Pres.
Carlos P. Garcia, to Director Castrillo dated August 2, 1958,
directing the latter to pay to Mrs. Price the sum of
P368,140.00, and an extract of page 765 of Republic Act No.
2700 appropriating the sum of P262.200.00 for the payment
to the Leyte Cadastral Survey, Inc., represented by the
administratriX Simeona K. Price, as directed in the above
note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue as ordered
paid by this Court on July 5, 1960 in accordance With the
order of the Supreme Court promulgated July 30, 1960 in
106 Phil., 1138, be deducted from the amount of
P262,200.00 due and payable to the administratrix Simeona
K. Price, in this estate, the balance to be paid by the
Government to her without further delay." (Order of August
20, 1960).
"The Court has nothing further to add to its order dated
August 20, 1960 and it orders that the payment of the claim
of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the
administratrix herein amounting to P262.200.00. It may not
be amiss to repeat that it is only fair for the Government, as
a debtor, to pay its accounts to its citizens-creditors before it
can insist in the prompt payment cf the letter's account to it,
specially taking into consideration that the amount due the
Government draws interests while the credit due to the
present estate does not accrue any interest." (Order of
September 28, 1960).

The petition to set aside the above orders of the court below
and for the execution of the claims of the Government
against the estate must be denied for lack of merit. The
ordinary procedure by which to settle claims or
indebtedness against the estate of a deceased person, as an
inheritance tax, is for the claimant to present a claim before
the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is
the decision of this Court in Aldamiz vs. Judge of the Court
of First Instance of Mindoro, 85 Phil., 228, Dec. 29, 1949,
thus:
"* * * a writ of execution is not the proper procedure
allowed by the Rules of Court for the payment of debts and
expenses of administration. The proper procedure is for the
court to order the sale of personal estate or the sale or
mortgage of real property of the deceased and all debts or
expenses of administration should be paid out of the
proceeds of the sale or mortgage. The order for the sale or
mortgage should be issued upon motion of the administrator
and with the written notice to all the heirs, legatees and
devisees residing in the Philippines, according to Rule 89,
section 3, and Rule 90, section 2. And when sale or mortgage
of real estate is to be made, the regulations contained in
Rule 90, section 7, should be complied with.
"Execution may issue only where the devisees, legatees or
heirs have entered into possession of their respective
portions in the estate prior to settlement and payment of the
debts and expenses Of administration and it is later
ascertained that there are such debts and expenses to be
paid, in which case 'the court having jurisdiction of the
estate may, by order for that purpose, after hearing, settle
the amount of their several liabilities, and order how much
and in what manner each person shall contribute, and may
issue execution if circumstances require' (Rule 89, section 6;

see also Rule 74, section 4; Italics ours.) And this is not the
instant case."
The legal basis for such a procedure is the fact that in the
testate or intestate proceedings to settle the estate of a
deceased person, the properties belonging to the estate are
under the jurisdiction of the court and such jurisdiction
continues until said properties have been distributed among
the heirs entitled thereto. During the pendency of the
proceedings all the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of a court
judgment, to seize the properties but to ask the court for an
order to require the administrator to pay the amount due
from the estate and required to be paid.
Another ground for denying the petition of the provincial
fiscal is the fact that the court having jurisdiction of the
estate had found that the claim of the estate against the
Government has been recognized and an amount of
P262,200 has already been appropriated for the purpose by
a corresponding law (Rep. Act No. 2700). Under the above
circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as
well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:
"Art. 1290. When all the requisites mentioned in article 1279
are present, compensation takes effect by operation of law,
and extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the
compensation."
It is clear, therefore, that the petitioner has no clear right to
execute the judgment for taxes against the estate of the

deceased Walter Scott Price. Furthermore, the petition for

certiorari and mandamus is not the proper remedy for the
petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.
Padilla, Bautista Angelo, Concepcion, Barrera, Paredes,
Dizon, Regala, and Makalintal, JJ., concur.
Reyes, J.B.L. in the result.

THIRD DIVISION
G.R. No. 67649, June 28, 1988
ENGRACIO FRANCIA, PETITIONER, VS. INTERMEDIATE
APPELLATE COURT AND HO FERNANDEZ, RESPONDENTS.
DECISION

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to
reverse the questioned decision of the Intermediate
Appellate Court, to set aside the auction sale of his property
which took place on December 5, 1977, and to allow him to
recover a 203 square meter lot which was sold at public
auction to Ho Fernandez and ordered titled in the latter's
name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot
and a two-story house built upon it situated at Barrio San
Isidro, now District of Sta. Clara, Pasay City, Metro Manila.
The lot, with an area of about 328 square meters, is
described and covered by Transfer Certificate of Title No.
4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of
Francia's property was expropriated by the Republic of the
Philippines for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his
real estate taxes. Thus, on December 5, 1977, his property
was sold at public auction by the City Treasurer of Pasay

City pursuant to Section 73 of Presidential Decree No. 464

known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest
bidder for the property.
Francia was not present during the auction sale since he was
in Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of
LRC Case No. 1593-P "In re: Petition for Entry of Mew
Certificate of Title" filed by Ho Fernandez, seeking the
cancellation of TCT No. 4739 (37795) and the issuance in his
name of a new certificate of title. Upon verification through
his lawyer, Francia discovered that a Final Bill of Sale had
been issued in favor of Ho Fernandez by the City Treasurer
on December 11, 1978. The auction sale and the final bill of
sale were both annotated at the back of TCT No. 4739
(37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the
auction sale. He later amended his complaint on January 24,
1980.
On April 23, 1981, the lower court rendered a decision, the
dispositive portion of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered dismissing the amended complaint and ordering:
"(a) The Register of Deeds of Pasay City to issue
a new Transfer Certificate of Title in favor
of the defendant Ho Fernandez over the
parcel of land including the improvements
thereon, subject to whatever encumbrances
appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No.
4739 (37795) cancelled.

"(b) The plaintiff to pay defendant Ho

Fernandez the sum of P1,000.00 as
attorney's fees."'(p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of
the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following
assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT
COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING
THAT PETITIONER'S OBLIGATION TO PAY P2.400.00 FOR
SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE
AMOUNT OF P4.1I6.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT
COMMITTED A GRAVE AND SERIOUS ERROR IN NOT
HOLDING THAT PETITIONER WAS NOT PROPERLY AND
DULY NOTIFIED THAT AN AUCTION SALE OF HIS
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
TO SATISFY AN ALLEGED TAX DELINQUENCY OF
P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT
FURTHER COMMITTED A SERIOUS ERROR AND GRAVE
ABUSE OF DISCRETION IN NOT HOLDING THAT THE
PRICE OF P2,400.00 PAID BY RESPONDENT HO

FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK

ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF
LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE
THEREOF IS VOID. (pp. 10. 17, 20-21, Rollo)
We gave due course to the petition for a more thorough
inquiry into the petitioner's allegations that his property was
sold at public auction without notice to him and that the
price paid for the property was shockingly inadequate,
amounting to fraud and deprivation without due process of
law.
A careful review of the case, however, discloses that Mr.
Francia brought the problems raised in his petition upon
himself. While we commiserate with him at the loss of his
property, the law and the facts militate against the grant of
his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has
been extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax
obligation had been set-off by operation of law as of October
15, 1977.
There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right
are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of
the case do not satisfy the requirements provided by Article
1279, to wit:
"(1) that each one of the obligors be bound principally and
that he be at the same time a principal creditor of the
other;
xxx

xxx

xxx

"(3) that the two debts be due.

xxx

xxx

xxx

This principal contention of the petitioner has no merit. We

have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA
622), this Court ruled that Internal Revenue Taxes can not
be the subject of set-off or compensation. We stated that:
"A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of setoff, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable
to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of
the contract or transaction sued on. x x x (80 C.J.S., 73-74).
'The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The
reason on which the general rule is based, is that taxes are
not in the nature of contracts between the party and party
but grow out of duty to, and are the positive acts of the
government to the making and enforcing of which, the
personal consent of individual taxpayers is not required, x x
x'"
We stated that a taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a claim against
the governmental body not included in the tax levy.

This rule was reiterated in the case of Cordero v. Gonda (18

SCRA 331) where we stated that: "x x x internal revenue
taxes can not be the subject of compensation: Reason:
government and taxpayer 'are not mutually creditors and
debtors of each other' under Article 1278 of the Civil Code
and a "claim for taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the
petitioner. 'The tax was due to the city government while the
expropriation was effected by the national government.
Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the
sale at public auction of his remaining property. Notice of
the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in
his testimony that he knew about the P4,l 16.00 deposited
with the bank but he did not withdraw it. It would have been
an easy matter to withdraw P2,400.00 from the deposit so
that he could pay the tax obligation thus aborting the sale at
public auction.
Petitioner had one year within which to redeem his property
although, as well be shown later, he claimed that he
pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was
made without complying with the mandatory provisions of
the statute governing tax sale. No evidence, oral or
otherwise, was presented that the procedure outlined by law
on sales of property for tax delinquency was followed, x x x
Since defendant Ho Fernandez has the affirmative of this
issue, the burden of proof therefore rests upon him to show
that plaintiff WHS duly and properly notified x x x." (Petition
for Review, Rollo, p. 18; italics supplied)

We agree with the petitioner's claim that Ho Fernandez, the

purchaser at the auction sale, has the burden of proof to
show that there was compliance with all the prescribed
requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that:
xxx
xxx
xxx
"x x x [D]ue process of law to be followed in tax proceedings
must be established by proof and the general rule is that the
purchaser of a tax title is bound to take upon himself the
burden of showing the regularity of all proceedings leading
up to the sale." (Italics supplied)
There is no presumption of the regularity of any
administrative action which results in depriving a taxpayer
of his property through a tax sale. (Camo v. Riosa Boyco, 29
Phil. 437; Denoga v. Insular Government, 19 Phil. 261). This
is actually an exception to the rule that administrative
proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to
show that all legal prerequisites have been complied with,
the petitioner can not, however, deny that he did receive the
notice for the auction sale. The records sustain the lower
court's finding that:
"[T]he plaintiff claimed that it was illegal and irregular. He
insisted that he was not properly notified of the auction sale,
surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit "I") as
shown by his signature (Exhibit "I-A") thereof He claimed
further that he was not present on December 5, 1977 the
date of the auction sale because he went to Iligan City. As
long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale
can not be assailed, x x x."

We quote the following testimony of the petitioner on crossexamination, to wit:

"Q. My question to you is this letter marked as
Exhibit I for Ho Fernandez notified you that
the property in question shall be sold at
public auction to the highest bidder on
December 5, 1977 pursuant to Sec. 74 of
PD 464. Will you tell the Court whether you
received the original of this letter?
"A. I just signed it because I was not able to
read the same. It was just sent by mail
carrier.
"Q. So you admit that you received the original
of Exhibit I and you signed upon receipt
thereof but you did not read the contents of
it?
"A. Yes, sir, as I was in a hurry.
"Q. After you received that original where did
you place it?
"A. I placed it in the usual place where I place
my mails."
Petitioner, therefore, was notified about the auction sale. It
was negligence on his part when he ignored such notice. By
his very own admission that he received the notice, his now
coming to court assailing the validity of the auction sale
loses its force.
Petitioner's third assignment of grave error likewise lacks
merit. As a general rule, gross inadequacy of price is not
material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon

v. Rehabilitation Finance Corporation, 36 SCRA 289;

Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo
Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held
that "alleged gross inadequacy of price is not material when
the law gives the owner the right to redeem as when a sale
is made at public auction, upon the theory that the lesser the
price, the easier it is for the owner to effect redemption." In
Velasquez v. Coronel (5 SCRA 985), this Court held:
"x x x [Respondent treasurer now claims that the prices for
which the lands were sold are unconscionable considering
the wide divergence between their assessed values and the
amounts for which they had been actually sold. However,
while in ordinary sales for reasons of equity a transaction
may be invalidated on the ground of inadequacy of price, or
when such inadequacy shocks one's conscience as to justify
the courts to interfere, such does not follow when the law
gives to the owner the right to redeem, as when a sale is
made at public auction, upon the theory that the lesser the
price the easier it is for the owner to effect the redemption.
And so it was aptly said: 'When there is the right to redeem,
inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his
right to redeem and thus recover the loss he claims to have
suffered by reason of the price obtained at the auction
sale.1"
The reason behind the above rulings is well enunciated in
the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162,
61 P. 2d. 1290):
"If mere inadequacy of price is held to be a valid objection to
a sale for taxes, the collection of taxes in this manner would
be greatly embarrassed, if not rendered altogether
impracticable. In Black on Tax Titles (2nd Ed.) 238, the
correct rule is stated as follows: 'where land is sold for taxes,
the inadequacy of the price given is not a valid objection to

the sale.1 This rule arises from necessity, for, if a fair price
for the land were essential to the sale, it would be useless to
offer the property. Indeed, it is notorious that the prices
habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land." (Rothchild Bros. v.
Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of
McGuire, et al. v. Bean, et al. (267 P. 555):
"Like most cases of this character there is here a certain
element of hardship from which we would be glad to relieve,
but do so would unsettle long-established rules and lead to
uncertainty and difficulty in the collection of taxes which are
the life blood of the state. We are convinced that the present
rules are just, and that they bring hardship only to those
who have invited it by their own neglect."
We are inclined to believe the petitioner's claim that the
value of the lot has greatly appreciated in value. Precisely
because of the widening of Buendia Avenue in Pasay City,
which necessitated the expropriation of adjoining areas, real
estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears
quite exaggerated. At any rate, the foregoing reasons which
answer the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the
petitioner on equitable grounds, there are no strong
considerations of substantial justice in his favor. Mr. Francia
failed to pay his taxes for 14 years from 1963 up to the date
of the auction sale. He claims to have pocketed the notice of
sale without reading it which, if true, is still an act of
inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine
National Bank an amount sufficient to pay for the back taxes.
The petitioner did not pay attention to another notice sent by

the City Treasurer on November 3, 1978, during the period

of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the
purchase of the property by Mr. Fernandez. The petitioner
has no standing to invoke equity in his attempt to regain the
property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition for review is DISMISSED. The decision of the
respondent court is affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin, and Cortes, JJ., concur.

G. R. No. L-16626, October 29, 1966

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
CARLOS PALANCA, JR., RESPONDENT.
DECISION

REGALA, J.:
This is an appeal by the Government from the decision of the Court of Tax Appeals in CTA Case
No. 571 ordering the petitioner to refund to the respondent the amount of P20,624.01
representing alleged overpayment of income taxes for the calendar year 1955.
The facts are:
"Sometime in July, 1950, the late Don Carlos Palanca, Sr. donated in favor of his son, the
petitioner, herein, shares of stock in La Tondea, Inc. amounting to P12,500 shares. For failure to
file a return on the donation within the statutory period, the petitioner was assessed the sums of
P97,691.23, P24,442.81 and P47,868.70 as gift tax, 25% surcharge and interest, respectively,
which he paid on June 22, 1955.
On March 1, 1956 , the petitioner filed with the Bureau of Internal Revenue his income tax
return for the calendar year 1955, claiming, among others, a deduction for interest amounting to
P9,706.45 and reporting a taxable income of P65,982.12. On the basis of this return, he was
assessed the sum of P21,052.91, as income tax, which he paid, as follows:

Taxes withheld by La Tondea Inc. from Mr. Palanca's wage

Payment under Income Tax Receipt No. 677359 dated May

11, 1956

Payment under Income Tax Receipt No. 742334 dated August

14, 1956

Total

P 13,172.41

3,939.80

3,939.80

P 21,052.01

"Subsequently, on November 10, 1956, the petitioner filed an amended return for the calendar
year 1955, claiming therein an additional deduction in the amount of P47,868.70 representing
interest paid on the donee's gift tax, thereby reporting a taxable net income of P18,113.42 and a
tax due thereon in the sum of P3,167.00. The claim for deduction was based on the provisions of
Section 30 (b) (1) of the Tax Code, which authorizes the deduction from gross income of interest
paid within the taxable year on indebtedness. A claim for the refund of alleged overpaid income
taxes for the year 1955 amounting to P17,885.01, which is the difference between the amount of
P21,052.01 he paid as income taxes under his original return and of P3,167.00, was filed
together with this amended return. In a communication dated June 20, 1957 , the respondent
(BIR) denied the claim for refund.
"On August 27, 1957, the petitioner reiterated his claim for refund, and at the same time
requested that the case be elevated to the Appellate Division of the Bureau of Internal Revenue
for decision. The reiterated claim was denied on October 14, 1957.
"On November 2, 1957, the petitioner requested that the case be referred to the Conference
Staff of the Bureau of Internal Revenue for review. Later, on November 6, 1957, he requested
the respondent to hold his action on the case in abeyance until after the Court of Tax Appeals
renders its decision on a similar case. And on November 7, 1957, the respondent denied the
claim for the refund of the sum of P17,885.01.
"Meanwhile, the Bureau of Internal Revenue considered the transfer of 12,500 shares of stock of
La Tondea, Inc. to be a transfer in contemplation of death pursuant to Section 88 (b) of the
National Internal Revenue Code. Consequently, the respondent assessed against the petitioner
the sum of P191,591.62 as estate and inheritance taxes on the transfer of said 12,500 shares of
stock. The amount of P170,002.74 paid on June 22, 1955 by the petitioner as gift tax, including
interest and surcharge, under Official Receipt No. 2855 was applied to his estate and inheritance
tax liability. On the tax liability of P191,591.62, the petitioner paid the amount of P60,581.80 as
interest for delinquency as follows:

1% monthly interest on P76,724.38 September 2, 1952 to

February 16, 1955

1% monhtly interest on P71,264.77 February 16, 1955 to

March 31, 1955

1% monhtly interest on P114,867.24 September 2, 1952 to

P22,633.69

1,068.97

4,287.99

April 16, 1953

1% monhtly interest on P50,882.77 March31, 1955 to June

22, 1955

1% monhtly interest on P119,155.23 April 16, 1953 to June

22, 1955

Total

1,372.48

31,218.67

P60,581.80

"On August 12, 1958, the petitioner once more filed an amended income tax return for the
calendar year 1955, claiming, in addition to the interest deduction of P9,076.45 appearing in his
original return, a deduction in the amount of P60,581.80, representing interest on the estate and
inheritance taxes on the 12,500 shares of stock, thereby reporting a net taxable income for 1955
in the amount of P5,400.32 and an income tax due thereon in the sum of P428.00. Attached to
this amended return was a letter of the petitioner, dated August 11, 1958, wherein he requested
the refund of P20,624.01 which is the difference between the amounts of P21,052.01 he paid as
income tax under his original return and of P428.00.
"Without waiting for the respondent's decision on this claim for refund, the petitioner filed his
petition for review before this Court on August 13, 1958. On July 24, 1959, the respondent
denied the petitioner's request for the refund of the sum of P20,624.01."
The Commissioner of Internal Revenue now seeks the reversal of the Court of Tax Appeal's ruling
on the aforementioned petition for review. Specifically, he takes issue with the said court's
determination that the amount paid by respondent Palanca for interest on his delinquent estate
and inheritance tax is deductible from the gross income for that year under Section 30 (b) (1) of
the Revenue Code, and, that said respondent'8 claim for refund therefore has not prescribed.
On the first point, the Commissioner urges that a tax is not an indebtedness. Citing American
cases, he argues that there is a material and fundamental distinction between a "tax" and a
"debt." (Meriwether v. Garrett, 102 U.S. 427; Liberty Mutual Ins. Co. vs. Johnson Shipyards
Corporation, 5 AFTR pp. 5504, 5507; City of Camden v. Allen, 26 N.J. Law, p. 398). He adopts

the view that "debts are due to the government in its corporate capacity, while taxes are due to
the government in its sovereign capacity. A debt is a sum of money due upon contract express or
implied or one which is evidenced by a judgment. Taxes are imposts levied by government for its
support or some special purpose which the government has recognized." In view of the
distinction, then, the Commissioner submits that the deductibility of "interest on indebtedness"
from a person's income tax under Section 30 (b) (1) cannot extend to "interest on taxes."
We find for the respondents. While "taxes" and "debts" are distinguishable legal concepts, in
certain cases as in the suit at bar, on account of their nature, the distinction become
inconsequential. This qualification is recognized even in the United States. Thus,
"The term 'debt' is properly used in a comprehensive sense as embracing not merely money due
by contract, but whatever one is bound to render to another, either for contract or the
requirements of the law.(Camden vs. Fink Coule and Coke Co., 61 ALR 584).
"Where statutes impose a personal liability for a tax, the tax becomes at least in a broad sense,
a debt." (Idem)
"Some American authorities hold that, especially for remedial purposes, Federal taxes are debts."
(Tax Commission v. National Malleable Castings Co., 35 ALR 1448)
In our jurisdiction, the rule is settled that although taxes already due have not, strictly speaking,
the same concept as debts, they are, however, obligations that may be considered as such.
(Sambrano v. Court of Tax Appeals, G. R. No. L-8652, March 30, 1957) In a more recent case,
Commissioner of Internal Revenue v. Prieto. G. R. No. L-13912, September 30, 1960, we
explicitly announced that while the distinction between "taxes" and "debts" was recognized in
this jurisdiction, the variance in their legal conception does not extend to the interests paid on
them, at least insofar as Section 30(b)(1) of the National Internal Revenue Code is concerned.
Thus,
"Under the law, for interest to be deductible, it must be shown that there be an indebtedness,
that there should be interest upon it, and that what is claimed as an interest deduction should
have been paid or accrued within the year. It is here conceded that the interest paid by
respondent was in consequence of the late payment of her donor's tax, and the same was paid
within the year it is sought to be deducted. The only question to be determined, as stated by the
parties, is whether or not such interest was paid upon an indebtedness within the contemplation
of section 30(b)(1) of the Tax Code, the pertinent part of which reads: 'Sec. 30. Deductions from
gross income -- In computing net income there shall be allowed as deductions - x x x x x
Interest: (1) In general. -- The amount of interest paid within the taxable year on indebtedness,
except on indebtedness incurred or continued to purchase or carry obligations the interest upon
which is exempt from taxation as income under this Title. The term "indebtedness" as used in
the Tax Code of the United States containing similar provisions as in the above-quoted section
has been defined as the unconditional and legally enforceable obligation for the payment of

money. (Federal Taxes Vol. 2, p. 13,019, Prentice Hall, Inc.; Merterns' Law of Federal Income
Taxation, Vol. 4, p. 542.) Within the meaning of that definition, it is apparent that a tax may be
considered an indebtedness, xxx (Underscoring supplied) It follows that the interest paid by
herein respondent for the late payment of her donor's tax is deductible from her gross income
under section 30(b) of the Tax Code above-quoted."
We do not see any element in this case which can justify a departure from or abandonment of
the doctrine in the Prieto case above. In both this and the said case, the taxpayer sought the
allowance as deductible items from the gross income of the amounts paid by them as interests
on delinquent tax liabilities. Of course, what was involved in the cited case was the donor's tax
while the present suit pertains to interest paid on the estate and inheritance tax. This difference,
however, submits no appreciable consequence to the rationale of this Court's previous
determination that interests on taxes should be considered as interests on indebtedness within
the meaning of Section 30(b)(1) of the Tax Code. The interpretation we have placed upon the
said section was predicated on the congressional intent, not on the nature of the tax for which
the interest was paid.
On the issue of prescription: There were actually two claims for refund filed by the herein
respondent, Carlos Palanca, Jr., anent the case at bar. The first one was on November 10, 1956,
when he filed a claim for refund on the interest paid by him on the donee's gift tax of
P17,885.01, as originally demanded by the Bureau of Internal Revenue. The second one was the
one filed by him on August 12, 1958 , which was a claim for refund on the interest paid by him
on the estate and inheritance tax assessed by the same Bureau in the amount of P20,624.01.
Actually, this second assessment by the Bureau was for the same transaction as that for which
they assessed respondent Palanca the above donee's gift tax. The Bureau, however, on further
consideration, decided that the donation of the stocks in question was made in contemplation of
death, and hence, should be assessed as an inheritance. Thus the second assessment. The first
claim was denied by the petitioner for the first time on June 20, 1957 . Thereafter, the said
denial was twice reiterated: on October 14, 1957 and November 7, 1957, upon respondent
Palanca's plea for the reconsideration of the ruling of June 20, 1957 . The second claim was filed
with the Court of Tax Appeals on August 13, 1958 , or even before the same had been denied by
the petitioner. Respondent Palanca's second claim was denied by the latter only on July 24, 1959.
The petitioner contends that under Section 11 of Republic Act 1124, [1] the herein claimant's claim
for refund has prescribed since the same was filed outside the 30-day period provided for
therein. According to the petitioner, the said prescriptive period commenced to run on October
14, 1947 when the denial by the Bureau of Internal Revenue of the respondent Palanca's claim
for refund, under his letter of November 10, 1956 , became final. Considering that the case was
filed with the Court of Tax Appeals only on August 13, 1958 , then it is urged that the same had
prescribed.

The petitioner also invokes prescription, at least with respect to the sum of P17,112.21, under
Section 306 of the Tax Code.[2] He claims that for the calendar year 1955, respondent Palanca
paid his income tax as follows:

Taxes withheld by La Tondea Inc. from Mr.

Palanca's wages

Payment under Income Tax Receipt No. 677395

dated May 11, 1956

Payment under Income Tax Receipt No 742334

dated August 14, 1956

Total

P13,172.41

3,939.89

3,939.89

P21,952.01

Therefore, the petitioner contends, the amounts paid by claimant Palanca under his withheld tax
and under Receipt No. 677395 dated May 11, 1956 may no longer be refunded since the claim
therefore was filed in court only on August 13, 1958 , or beyond two years of their payment.
We find the petitioner's contention on prescription untenable.
In the first place, the 30-day period under Section 11 of Republic Act 1125 did not even
commence to run in this incident. It should be recalled that while the herein petitioner originally
assessed the respondent-claimant for alleged gift tax liabilities, the said assessment was
subsequently abandoned and in its lieu, a new one was prepared and served on the respondenttaxpayer. In this new assessment, the petitioner charged the said respondent with an entirely
new liability and for a substantially different amount from the first. While initially the petitioner
assessed the respondent for donee's gift tax in the amount of P170,002.74, in the subsequent
assessment the latter was asked to pay P191,591.62 for delinquent estate and inheritance tax.
Considering that it is the interest paid on this latter-assessed estate and inheritance tax that
respondent Palanca is claiming refund for, then the 30-day period under the abovementioned
section of Republic Act 1125 should be computed from the receipt of the final denial by the
Bureau of Internal Revenue of the said claim. As has earlier been recited, respondent Palanca's
claim in this incident was filed with the Court of Tax Appeals even before it had been denied by
the herein petitioner or the Bureau of Internal Revenue. The case was filed with the said court on
August 13, 1958 while the petitioner denied the claim subject of the said case only on July 24,
1959.

In the second place, the claim at bar refers to the alleged overpayment by respondent Palanca of
his 1955 income tax. Inasmuch as the said account was paid by him by installment, then the
computation of the 2-year prescriptive period, under Section 306 of the National Internal
Revenue Code, should be from the date of the last installment. (Antonio Prieto et al vs. Collector
of Internal Revenue, G. R. No. L-11976, August 29, 1961) Respondent Palanca paid the last
installment on his 1955 income tax account on August 14, 1956 . His claim for refund of the
alleged overpayment on it was filed with the court on August 13, 1958. It was, therefore, still
timely instituted.
WHEREFORE, the decision appealed from is affirmed in full, without pronouncement on costs.
Concepcion, C.J., Reyes, J. B. L., Dizon, Makalintal, Bengzon, J. P., Zaldivar, Sanchez and Ruiz
Castro,

[1]

JJ.,

concur.

Section 11. Who may appeal; effect of appeal.-Any person, association or corporation

adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of
Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of
Tax Appeals within thirty days after the receipt of such decision or ruling.
[2]

Sec. 306. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be

maintained in any court for the recovery of any national internal-revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been filed with the Collector of Internal
Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress. In any case, no such suit or proceeding shall be
begun after the expiration of two years from the date of payment of the tax or penalty.

THIRD DIVISION
G.R. No. 125704, August 28, 1998
PHILEX MINING CORPORATION, PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE, COURT OF
APPEALS, AND THE COURT OF TAX APPEALS,
RESPONDENTS.
DECISION

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the
Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP
No. 36975[1] affirming the Court of Tax Appeals decision in
CTA Case No. 4872 dated March 16, 1995[2] ordering it to
pay the amount of P110,677,668.52 as excise tax liability for
the period from the 2nd quarter of 1991 to the 2nd quarter
of 1992 plus 20% annual interest from August 6, 1994 until
fully paid pursuant to Sections 248 and 249 of the Tax Code
of 1977.
The facts show that on August 5, 1992, the BIR sent a letter
to Philex asking it to settle its tax liabilities for the 2nd, 3rd
and 4th quarter of 1991 as well as the 1st and 2nd quarter of
1992 in the total amount of P123,821,982.52 computed as
follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE
INTEREST TOTAL EXCISE
TAX DUE
2nd 12,911,12 3,227,78 3,378,11 19,517,02
Qtr.,
4.60
1.15
6.16
1.91
1991
3rd 14,994,74 3,748,68 2,978,40 21,721,84

Qtr.,
9.21
7.30
9.09
5.60
1991
4th 19,406,48 4,851,62 2,631,83 26,889,93
Qtr.,
0.13
0.03
7.72
7.88
1991
------------------- ----------------- ----------------- --------------------47,312,35
94 8,988,362 68,128,805
3. 11,828,08
.97
.39
8.48
1st 23,341,84 5,835,462 1,710,669 30,887,982
Qtr
9.94
.49
.82
.25
.,
19
92
2n 19,671,69 4,917,922 215,580.1 24,805,194
d
1.76
.94
8
.88
Qtr
.,
19
92
43,013,54 10,753,38 1,926,250 55,693,177
1.70
5.43
.00
.13
90,325,89 22,581,47 10,914,61 123,821,98
5.64
3.91
2.97
2.52
========== ========== ===========
===========[3]
In a letter dated August 20, 1992,[4] Philex protested the
demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore, these claims for
tax credit/refund should be applied against the tax liabilities,

citing our ruling in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992, [6]
found no merit in Philexs position. Since these pending
claims have not yet been established or determined with
certainty, it follows that no legal compensation can take
place. Hence, he BIR reiterated its demand that Philex settle
the amount plus interest within 30 days from the receipt of
the letter.
In view of the BIRs denial of the offsetting of Philexs claim
for VAT input credit/refund against its exercise tax
obligation, Philex raised the issue to the Court of Tax
Appeals on November 6, 1992.[7] In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to
the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latters tax obligation of
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still
ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations
must be liquidated and demandable. Liquidated debts are
those where the exact amount has already been determined
(PARAS, Civil Code of the Philippines, Annotated, Vol. IV,
Ninth Edition, p. 259). In the instant case, the claims of the
Petitioner for VAT refund is still pending litigation, and still
has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the
unliquidated claim which Petitioner conceived to exist in its
favor (see Compaia General de Tabacos vs. French and
Unson, No. 14027, November 8, 1918, 39 Phil. 34). [8]

Moreover, the Court of Tax Appeals ruled that taxes cannot

be subject to set-off on compensation since claim for taxes is
not a debt or contract.[9] The dispositive portion of the CTA
decision[10] provides:
In all the foregoing, this Petition for Review is hereby
DENIED for lack of merit and Petitioner is hereby ORDERED
to PAY the Respondent the amount of P110,677,668.52
representing excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to
Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before
the Court of Appeals docketed as CA-G.R. CV No. 36975.[11]
Nonetheless, on April 8, 1996, the Court of Appeals affirmed
the Court of Tax Appeals observation. The pertinent portion
of which reads:[12]
WHEREFORE, the appeal by way of petition for review is
hereby DISMISSED and the decision dated March 16, 1995
is AFFIRMED.
Philex filed a motion for reconsideration which was,
nevertheless, denied in a Resolution dated July 11, 1996. [13]
However, a few days after the denial of its motion for
reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994, computed as follows:[14]
Period
Covered By

Tax
Date
Credit
Of
Certificat Issue
e
Claims For Number
Vat

Amount

refund/cre
dit
1994 (2nd
Quarter)

007730

1994 (4th
Quarter)

007731

1989

007732

1990-1991

007751

1992 (1st3rd
Quarter)

007755

11
July
1996
11
July
1996
11
July
1996
16
July
1996
23July
1996

P25,317,53
4.01
P21,791,02
0.61
P37,322,79
9.19
P84,662,78
7.46
P36,501,14
7.95

In view of the grant of its VAT input credit/refund, Philex

now contends that the same should, ipso jure, off-set its
excise tax liabilities[15] since both had already become due
and demandable, as well as fully liquidated;[16] hence, legal
compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have
already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors
of each other.[17] There is a material distinction between a tax
and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity.[18] We find no cogent reason to deviate
from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate

Appellate Court,[19] we categorically held that taxes cannot
be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax
on the ground that the government owes him an amount
equal to or greater than the tax being collected. The
collection of tax cannot await the results of a lawsuit against
the government.
The ruling in Francia has been applied to the subsequent
case of Caltex Philippines, Inc. v. Commission on Audit, [20]
which reiterated that:
x x x a taxpayer may not offset taxes due from the claims
that he may have against the government. Taxes cannot be
the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
Further, Philexs reliance on our holding in Commissioner of
Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we
ruled that a pending refund may be set off against an
existing tax liability even though the refund has not yet been
approved by the Commissioner,[21] is no longer without any
support in statutory law.
It is important to note that the premise of our ruling in the
aforementioned case was anchored on Section 51(d) of the
National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the
same provision upon which the Itogon-Suyoc pronouncement
was based was omitted.[22] Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philexs

position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that
it had no obligation to pay the excise liabilities within the
prescribed period since, after all, it still has pending claims
for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an
outright disregard of the basic principle in tax law that taxes
are the lifeblood of the government and so should be
collected without unnecessary hindrance.[24] Evidently, to
countenance Philexs whimsical reason would render
ineffective our tax collection system. Too simplistic, it finds
no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of
its tax liabilities on the ground that it has a pending tax
claim for refund or credit against the government which has
not yet been granted. It must be noted that a distinguishing
feature of a tax is that it is compulsory rather than a matter
of bargain.[25] Hence, a tax does not depend upon the consent
of the taxpayer.[26] If any payer can defer the payment of
taxes by raising the defense that it still has a pending claim
for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to
pay his taxes when they fall due simply because he has a
claim against the government or that the collection of the
tax is contingent on the result of the lawsuit it filed against
the government.[27] Moreover, Philex's theory that would
automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse,
depriving the government of authority over the manner by
which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT
input claim/refund with the government is immaterial for the

imposition of charges and penalties prescribed under

Section 248 and 249 of the Tax Code of 1977. The payment
of the surcharge is mandatory and the BIR is not vested with
any authority to waive the collection thereof. [28] The same
cannot be condoned for flimsy reasons,[29] similar to the one
advanced by Philex in justifying its non-payment of its tax
liabilities.
Finally, Philex asserts that the BIR violated Section 106(e) [30]
of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, [31] when it
took five years for the latter to grant its tax claim for VAT
input credit/refund.[32]
In this regard, we agree with Philex. While there is no
dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund,
[33]
however, once the claimant has submitted all the required
documents, it is the function of the BIR to assess these
documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that
government render fair service to the taxpayers. [34]
In the instant case, the VAT input taxes were paid between
1989 to 1991 but the refund of these erroneously paid taxes
was only granted in 1996. Obviously, had the BIR been more
diligent and judicious with their duty, it could have granted
the refund earlier. We need not remind the BIR that simple
justice requires the speedy refund of wrongly-held taxes. [35]
Fair dealing and nothing less, is expected by the taxpayer
from the BIR in the latter's discharge of its function. As aptly
held in Roxas v. Court of Tax Appeals:[36]
"The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax

collectot kill the 'hen that lays the golden egg.' And, in the
order to maintain the general public's trust and confidence
in the Government this power must be used justly and not
treacherously."
Despite our concern with the lethargic manner by which the
BIR handled Philex's tax claim, it is a settled rule that in the
performance of governmental function, the State is not
bound by the neglect of its agents and officers. Nowhere is
this more true than in the field of taxation.[37] Again, while
we understand Philex's predicament, it must be stressed that
the same is not valid reason for the non- payment of its tax
liabilities.
To be sure, this is not state that the taxpayer is devoid of
remedy against public servants or employees especially BIR
examiners who, in investigating tax claims are seen to drag
their feet needlessly. First, if the BIR takes time in acting
upon the taxpayer's claims for refund, the latter can seek
judicial remedy before the Court of Tax Appeals in the
manner prescribed by law.[38] Second, if the inaction can be
characterized as willful neglect of duty, then recourse under
the Civil Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:
"Art. 27. Any person suffering material or moral loss because
a public servant or employee refuses or neglects, without
just cause, to perform his official duty may file an action for
damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal
Revenue Act of 1997 states:
"xxx xxx xxx

(c) wilfully neglecting to give receipts, as by law required for

any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful
neglect and unreasonable delay in the performance of
official duties.[39] In no uncertain terms must we stress that
every public employee or servant must strive to render
service to the people with utmost diligence and efficiency.
Insolence and delay have no place in government service.
The BIR, being the government collecting arm, must and
should do no less. It simply cannot be apathetic and laggard
in rendering service to the taxpayer if it wishes to remain
true to its mission of hastening the country's development.
We take judicial notice of the taxpayer's generally negative
perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.
In sum, while we can never condone the BIR's apparent
callousness in performing its duties, still, the same cannot
justify Philex's non-payment of its tax liabilities. The adage
"no one should take the law into his own hands" should have
guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition
is hereby DISMISSED. The assailed decision of the Court of
Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan and Purisima, JJ., concur.

[1]

Penned by Justice Artemon D. Luna, concurred in by

Justice Ramon A. Barcelona and Portia Alino-Hormachuelos.

[2]

Penned by Associate Judge Manuel K. Gruba, concurred in

by Presiding Judge Ernesto D. Acosta and Associate Judge
Ramon O. De Veyra.
[3]

CTA Records, pp. 34-35.

[4]

Rollo, pp. 172-174.

[5]

28 SCRA 867 (1969)

[6]

Id., pp. 175-176

[7]

Docketed as Case No. 4872, Rollo, pp. 177-187.

[8]

Rollo, p. 55.

[9]

CTA Decision, Rollo, p. 59.

[10]

Rollo, pp. 59-60.

[11]

Rollo, pp. 87-101

[12]

Rollo, p. 45.

[13]

Rollo, p. 48.

[14]

Rollo, pp. 112-116.

[15]

Memorandum, Rollo, pp. 307-308.

[16]

Ibid.

[17]

Cordero v. Gonda, 18 SCRA 331 (1966).

[18]

Commissioner of Internal Revenue v. Palanca, 18 SCRA

496 (1966).
[19]

162 SCRA 753 (1988).

[20]

208 SCRA 726 (1992).

[21]

Rollo, p. 33.

[22]

Aban, Law on Basic Taxation, 1994, p. 19.

[23]

Memorandum, Rollo, p. 389.

[24]

Commissioner of Internal Revenue v. Algue, Inc., 158

SCRA 9 (1988).
[25]

I Cooley, Taxation, 22.

[26]

Ibid.

[27]

Supra, note 19.

[28]

Republic v. Philippine Bank of Commerce, 34 SCRA 361

(1970).
[29]

Jamora v. Meer, 74 Phil. 22 (1942).

[30]

(e) Period within which refund of input taxes may be

made by the Commissioner - The Commissiioner shall refund
input taxes within 60 days from the date the application for
refund was filed with him or his duly authorized
representative. No refund of input taxes shall be allowed
unless the VAT-registered person files an application for
refund within the period prescribed in paragraphs (a), (b)
and (c) as the case may be.
[31]

Rollo, pp. 32-33.

[32]

This provision has been amended by Section 112 (D) of

Republic Act 8424 entitled the "National Internal revenue
Act of 1997."
"(D) Period within which Refund or Tax Credit of Input Taxes
shall be Made. - In proper cases, the Commisioner shall
grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days

from the date of submission of complete documents in

support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full of partial denial of the claim for tax refund or
tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals."
[33]

Commisioner of Internal Revenue v. Tokyo Shipping Co.

Ltd., 244 SCRA 332 (1995).
[34]

Ibid.

[35]

Citibank of N.A v. Court of Appeals, G.R. No. 107434,

October 19, 1997.
[36]

23 SCRA 276 (1968).

[37]

Commissioner of Internal Revenue v. Proctor and Gamble

PMC, 160 SCRA 560 (1988).
[38]

Insular Lumber Co. v. Court of Appeals, 104 SCRA 721

(1981); Commissioner of Internal Revenue v. Victoria Milling
Co., Inc., 22 SCRA (1968).

G.R. No. L-10405, December 29, 1960

WENCESLAO PASCUAL, IN HIS OFFICIAL CAPACITY AS
PROVINCIAL GOVERNOR OF RIZAL, PETITIONER AND
APPELLANT VS. THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., RESPONDENTS AND
APPELLEES.
DECISION

CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of
the Court of First Instance of Rizal, dismissing the above
entitled case and dissolving the writ of preliminary
injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as
Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that
Republic Act No. 920, entitled "An Act Appropriating Funds
for Public Works", approved on June 20, 1953, contained, in
section 1-C (a) thereof, an item (43 [h]) of P85,000.00, "for
the construction, reconstruction, repair, extension and
improvement" of "Pasig feeder road terminals (Gen. Roxas
Gen. AranetaGen. LucbanGen. CapinpinGen. Segundo
Gen. DelgadoGen. Malvar Gen. Lim)"; that, at the time
of the passage and approval of said Act, the aforementioned
feeder roads were "nothing but projected and planned
subdivision roads, not yet constructed, * * * within the
Antonio Subdivision * * * situated at * * * Pasig, Rizal"
(according- to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from
the intersection between the latter and Highway 54), which
projected feeder roads "do not connect any government
property or any important premises to the main highway";
that the aforementioned Antonio Subdivision (as well as the

lands on which said feeder roads were to be constructed)

were private properties of respondent Jose C. Zulueta, who,
at the time of the passage and approval of said Act, was a
member of the Senate of the Philippines; that on May 29,
195S, respondent Zulueta, addressed a letter to the
Municipal Council of Pasig, Rizal, offering to donate said
projected feeder roads to the municipality of Pasig, Rizal;
that, on June 13, 1953, the offer was accepted by the
council, subject to the condition "that the donor would
submit a plan of the said roads and agree to change the
names of two of them"; that no deed of donation in favor of
the municipality of Pasig was, however, executed; that on
July 10, 1953, respondent Zulueta wrote another letter to
said council, calling attention to the approval of Republic Act
No. 920, and the sum of P85.000.00 appropriated therein for
the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of
respondent Zulueta to the District Engineer of Rizal, who, up
to the present "has not made any endorsement thereon";
that inasmuch as the projected feeder roads in question
were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of
P85.000.00 therein made, for the construction,
reconstruction, repair, extension and improvement of said
projected feeder roads, was "illegal and, therefore, void ab
initio"; that said appropriation of P85,000.00 was made by
Congress because its members were made to believe that
the projected feeder roads in question were "public roads
and not private streets of a private subdivision"' ; that, "in
order to give a semblance of legality, where there is
absolutely none, to the aforementioned appropriation",
respondent Zulueta executed, on December 12, 1953, while
he was a member of the Senate of the Philippines, an alleged
deed of donationcopy of which is annexed to the petition
of the four (4) parcels of land constituting said projected
feeder roads, in favor of the Government of the Republic of
the Philippines; that said alleged deed of donation was, on

the same date, accepted by the then Executive Secretary;

that being-subject to an onerous condition, said donation
partook of the nature of a contract; that, as such, said
donation violated the provision of our fundamental law
prohibiting members of Congress from being directly or
indirectly financially interested in any contract with the
Government, and, hence, is unconstitutional, as well as null
and void ab initio, for the construction of the projected
feeder roads in question with public funds would greatly
enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him
from the burden of constructing his subdivision streets or
roads at his own expense"; that the construction of said
projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by
the court, the respondents would continue to execute,
comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage,
detriment and prejudice not only to the petitioner but to the
Filipino nation."
Petitioner prayed, therefore, that the contested item of
Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be
"declared unconstitutional and, therefore, illegal"; that a
writ of injunction be issued enjoining the Secretary of Public
Works and Communications, the Director of the Bureau of
Public Works, the Commissioner of the Bureau of Public
Highways and Jose C. Zulueta from ordering or allowing the
continuance of the above-mentioned feeder roads project,
and from making and securing any new and further releases
on the aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and
Communications, the Bureau of Public Works and the Bureau
of Public Highways from making any further payments out of
said funds provided for in Republic Act No. 920; and that
pending final hearing on the merits, a writ of preliminary

injunction be issued enjoining the aforementioned parties

respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and
from making any further payments out of said illegally
appropriated funds.
Respondents moved to dismiss the petition upon the ground
that petitioner had "no legal capacity to sue", and that the
petition did "not state a cause of action". In support to this
motion, respondent Zulueta alleged that the Provincial Fiscal
of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised
Administrative Code; that said respondent is "not aware of
any law which makes illegal the appropriation of public
funds for the improvement of * * * private property"; and
that,, the constitutional provision invoked by petitioner is
inapplicable to the donation in question, the same being a
pure act of liberality, not a contract. The other respondents,
in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona
fide case * * * in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he
has a personal and substantial interest" in said Act "and that
its enforcement has caused or will cause him a direct injury".
Acting upon said motions to dismiss, the lower court
rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this
case, the Provincial Governor of Rizal and the provincial
fiscal thereof who represents him therein, "have the
requisite personalities" to question the constitutionality of
the disputed item of Republic Act No. 920; that "the
legislature is without power to appropriate public revenues
for anything but a public purpose", that the construction and
improvement of the feeder roads in question, if such roads
were private property, would not be a public purpose; that,
being subject to the following condition:

"The within donation is hereby made upon the condition that

the Government of the Republic of the Philippines will use
the parcels of land liereby donated for street purposes only
and for no other purposes whatsoever; it being expressly
understood that should the Government of the Kepuhlic of
the Philippines violate the condition hereby imposed upon it,
the title to the land hereby donated shall, upon such
violation, ipso facto revert to the Donor, Jose C. Zulueta."
(Italics supplied.)
which is onerous, the donation in question is a contract; that
said donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of
the Civil Code of the Philippines, declares inexistent and
void from the very beginning contracts "whose cause, object
or purpose is contrary to law, morals * * * or public policy";
that the legality of said donation may not be contested,
however, by petitioner herein because his "interests are not
directly affected" thereby and that, accordingly, the
appropriation in question "should be upheld" and the case
dismissed.
At the outset, it should be noted that we are concerned with
a decision granting the aforementioned motions to dismiss,
which as such, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant
herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land, situated in
Pasig, Rizal, and known as the Antonio Subdivision, certain
portions of which had been reserved for the projected feeder
roads aforementioned, which, admittedly, were private
property of said respondent when Republic Act No. 920,
appropriating P85.000.00 for the "construction,
reconstruction, repair, extension and improvement" of said
roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition
further alleges that the construction of said feeder roads, to

be undertaken with the aforementioned appropriation of

P85,000.00, would have the effect of relieving respondent
Zulueta of the burden of constructing his subdivision streets
or roads at his own expenses,[1] and would "greatly enhance
or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a
public purpose."
Respondents do not deny the accuracy of this conclusion,
which is self-evident.[2] However, respondent Zulueta
contended, in his motion to dismiss that:
"A law passed by Congress and approved by the President
can never be illegal because Congress is the source of all
laws * * *. Aside from the fact that the movant is not aware
of any law which makes illegal the appropriatoin of public
funds for the improvement of what we, in the meantime, may
assume as private property * * *." (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it
being inconsistent with the nature of the Government
established under the Constitution of the Philippines and the
system of checks and balances underlying our political
structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of
the Constitution or organic laws.[3]
As regards the legal feasibility of appropriating public funds
for a private purpose, the principle according to Ruling Case
Law, is this:
"It is a general rule that the legislature is without power to
appropriate public revenue for anything but a public
purpose. * * * It is the essential character of the direct object
of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interests to be
affected nor the degree to which the general advantage of

the community, and thus the public welfare, may be

ultimately benefited by their promotion. Incidental
advantage to the public or to the state, which results from
the promotion of private interests and the prosperity of
private enterprises or business, does not justify their aid by
the use of public money." (25 R.L.C. pp. 398-400; Italics
supplied.)
The rule is set forth in Corpus Juris Secundum in the
following language:
"In accordance with the rule that the taxing power must be
exercised for public purposes only, discussed supra sec. 14,
money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals."
(85 C.J.S. pp. 645-646; italics supplied.)
Explaining the reason underlying said rule, Corpus Juris
Secundum states:
"Generally, under the express or implied provisions of the
constitution, public funds may be used only for a public
purpose. The right of the legislature to appropriate funds is
correlative with its right to tax, and, under constitutional
provisions against taxation except for public purposes and
prohibiting: the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of
state funds can be made for other than a public purpose. * *
*
*******
"The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to
promote the public interests, as opposed to the furtherance
of the advantage of individuals, although each advantage to
individuals might incidentally serve the public. * * * ." (81
C.J.S. p. 1147; italics supplied.)

Needless to say, this Court is fully in accord with the

foregoing views which, apart from being patently sound, are
a necessary corollary to our democratic system of
government, which, as such,, exists primarily for the
promotion of the general welfare. Besides, reflecting as they
do, the established jurisprudence in the United States, after
whose constitutional system ours has been patterned, said
views and jurisprudence are, likewise, part and parcel of our
own constitutional law.
This notwithstanding, the lower court felt constrained to
uphold the appropriation in question, upon the ground that
petitioner may not contest the legality of the donation above
referred to because the same does not affect him directly.
This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the
constitutional infirmity of the aforementioned appropriation;
(2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and
(3) that the rule set forth in Article 1421 of the Civil Code is
absolute, and admits of no exception. We do not agree with
these premises.
The validity of a statute depends upon the powers of
Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto,
unless the latter consist of an amendment of the organic law,
removing, with retrospective operation, the constitutional
limitation infringed by said statute. Referring to the
P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said
roads were public or private property when the bill, which,
later on, became Republic Act No. 920, was passed by
Congress, or, when said bill was approved by the President
and the disbursement of said sum became effective, or on
June 20, 1953 (see section 13 of said Act). Inasmuch as the
land on which the projected feeder roads were to be

constructed belonged then to respondent Zulueta, the result

is that said appropriation sought a private purpose, and,
hence, was null and void.[4] The donation to the Government,
over five (5) months after the approval and effectivity of said
Act, made, according to the petition, for the purpose of
giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned
basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of
unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other
statutory enactments, is subject to exceptions. For instance,
the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the
rights and actions of the latter, except only those which are
inherent in his person, including, therefore, his right to the
annulment of said contract, even though such creditors are
not affected by the same, except indirectly, in the manner
indicated in said legal provision
Again, it is well settled that the validity of a statuia may be
contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many
decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds,[5] upon the
theory that "the expenditure of public funds by an officer of
the State for the purpose of administering an
unconstitutional act constitutes a misapplication of such
funds," which may be enjoined at the request of a taxpayer. [6]
Although there are some decisions to the contrary, [7] the
prevailing view in the United States is stated in the
American Jurisprudence as follows:
"In the determination of the degree of interest essential to
give the requisite standing to attack the constitutionality of a
statute the general rule is that not only persons individually

affected, but also taxpayers, have sufficient interest in

preventing the illegal expenditure of moneys raised by
taxation and may therefore question llw constitutionality of
statutes requiring expenditure of public moneys." (11 Am.
Jur. 761; italics supplied.)
However, this view was not favored by the Supreme Court of
the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as
federal laws are concerned, upon the ground that the
relationship of a taxpayer of the U.S. to its Federal
Government is different from that of a taxpayer of a
municipal corporation to its government. Indeed, under the
composite system of government existing in the U.S., the
states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally
a substantial measure of sovereignty, subject to the
limitations imposed by the Federal Constitution. In fact, the
same was made by representatives of each state of the
Union, not of the people of the U.S., except insofar as the
former represented the people of the respective States, and
the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding
upon the people of the U.S. in consequence of an act of, and,
in this sense, through the respective states of the Union of
which they are citizens. The peculiar nature of the relation
between said people and the Federal Government of the U.S.
is reflected in the election of its President, who is chosen
directly, not by the people of the U.S., but by electors chosen
by each State, in such manner as the legislature thereof may
direct (Article II, section 2, of the Federal Constitution).
The relation between the people of the Philippines and its
taxpayers, on the one hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining
between the people and taxpayers of the U.S. and its Federal
Government. It is closer, from a domestic viewpoint, to that

existing between the people and taxpayers of each state and

the government thereof, except that the authority of the
Republic of the Philippines over the people of the Philippines
is more fully direct than that of the states of the Union,
insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those
imposed by the Federal Constitution upon the states of the
Union, and those imposed upon the Federal Government in
the interest of the states of the Union. For this reason, the
rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state
public fundswhich has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601)
has greater application in the Philippines than that adopted
with respect to acts of Congress of the United States
appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257),
involving the expropriation of a land by the Province of
Tayabas, two (2) taxpayers thereof were allowed to intervene
for the purpose of contesting the price being paid to the
owner thereof, as unduly exhorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a
taxpayer and employee of the Government was not
permitted to question the constitutionality of an
appropriation for backpay of members of Congress.
However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off.
Gaz., 4411), we entertained the action of taxpayers
impugning the validity of certain appropriations of public
funds, and invalidated the same. Moreover, the reason that
impelled this Court to take such position in said two (2)
casesthe importance of the issues therein raisedis
present in the case at bar. Again, like the petitioners in the
Rodriguez and Barredo cases, petitioner herein is not merely
a taxpayer. The Province of Rizal, which he represents
officially as its Provincial Governor, is our most populated

political subdivision,[7] and, the taxpayers therein bear a

substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances
surrounding this case sufficiently justify petitioner's action in
contesting the appropriation and donation in question; that
this action should not have been dismissed by the lower
court; and that the writ of preliminary injunction should
have been maintained.
Wherefore, the decision appealed from is hereby reversed,
and the records are remanded to the lower court for further
proceedings not inconsistent with this decision, with the
costs of this instance against respondent Jose C. Zulueta. It
is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador,
Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon,
JJ., concur.
Judgment reversed, records remanded to lower court for
further proceedings.

SECOND DIVISION
G.R. No. 103379, November 23, 1993
SAN CARLOS MILLING, CO., INCORPORATED, PETITIONER,
VS. COMMISSIONER OF INTERNAL REVENUE AND COURT
OF APPEALS, RESPONDENTS.
DECISION

PADILLA, J.:
Assailed in this petition for review on certiorari is the
decision* of the Court of Appeals in CA-G.R. Sp No. 22346,
dated 23 December 1991, the dispositive part of which
reads:
"WHEREFORE, in view of the foregoing consideration, the
petition is hereby DISMISSED, without pronouncement as to
costs."[1]
The undisputed facts, as succinctly stated by the Court of
Tax Appeals and adopted by the Court of Appeals in its
decision under review, are as follows:
"Petitioner domestic corporation had for the taxable year
1982 a total income tax overpayment of P781,393.00
reflected as a creditable income tax in its annual final
adjustment return. The application of the amount for the
1983 tax liabilities remained unutilized in view of
petitioner's net loss for the year and still yet had a credible
income tax of P4,470.00 representing the 3% of 15%
withholding tax on storage credits. Accordingly the final
adjustment income tax return for the taxable year 1983
*
[1]

reflected the amount of P781,393.00 carried over as tax

credit and P4,470.00 creditable income tax.
In a May 17, 1984 letter to the respondent, petitioner
signified its intention to apply the total creditable amount of
P785,863.00 against its 1984 tax dues consistent with the
provision of Section 86, ibid, coupled with a comforting
alternative request for a refund or tax credit of the same.
Respondent disallowed the proffered automatic credit
scheme but treated the request as an ordinary claim for
refund/tax credit under Section 292 in relation to Section
295 of the Tax Code and accordingly subjected the same for
verification/ investigation.
No sooner than the respondent could act on the claim,
petitioner filed a petition for review on July 18, 1984. And
before this Court could formally hear the case, petitioner
filed a supplemental petition on March 11, 1986, after
having unilaterally effected a set-off of its creditable income
tax vis a vis income tax liabilities, earlier denied by the
respondent."[2]
On 28 February 1990, the Court of Tax Appeals dismissed
the petition and held that prior investigation by and
authority from the Commissioner of Internal Revenue were
necessary before a taxpayer could avail of the provisions of
Section 86 (now Section 69) of the Tax Code.[3] A motion for
reconsideration was then filed but was denied in a resolution
dated 25 June 1990 without prejudice, however, to any
administrative claim for tax refund or tax credit.
Thereafter, petitioner appealed the adverse decision of the
Court of Tax Appeals to the Court of Appeals. On 23
December 1991, respondent Court dismissed the appeal.
[2]
[3]

Hence, this recourse.

The main issue to be resolved in the petition at bench is
whether or not prior authority from the Commissioner of
Internal Revenue is necessary before a corporate taxpayer
can credit excess estimated quarterly income taxes paid
against the estimated quarterly income tax liabilities for the
succeeding taxable year, under Section 86 (now Section 69)
of the Tax Code.
It is the contention of petitioner, among others, that in the
aforecited provision of the Tax Code, nowhere is it stated
that the "imprimatur" or approval of the Commissioner of
Internal Revenue must be secured prior to crediting a
refundable tax amount. Petitioner further posits that neither
does Revenue Regulation No. 10-77 implementing the Tax
Code provision require prior approval of the Commissioner
of Internal Revenue to avail of the automatic tax credit
scheme.
After a careful study of the records of the present petition,
we find the petition to be devoid of merit.
We begin with the subject Tax Code provision under scrutiny,
thus:
"Sec. 86. Final Adjustment Return. - Every corporation liable
to tax under Section 24 shall file a final adjustment return
covering the total net income for the preceding calendar or
fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due
on the entire taxable net income of that year the corporation
shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to refund of the excess
estimated quarterly income tax paid, the refundable amount

shown on its final adjustment return may be credited against

the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable year." (Underscoring
supplied)
On 7 October 1977, the Commissioner of Internal Revenue
issued the implementing rules and regulations pertaining to
the subject provision. The procedure laid out in said rules is
found in Revenue Regulation No. 10-77, section 7 thereof,
which reads:
"Sec. 7. Any excess of the total quarterly payments over the
actual income tax computed and shown in the adjustment or
final corporate income tax return shall either (a) be refunded
to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of
the succeeding taxable year. The corporation must signify in
its annual corporate adjustment return its intention whether
to request for the refund of the overpaid income tax or claim
for automatic tax credit to be applied against its income tax
liabilities for the quarters of the succeeding taxable year, by
filling up the appropriate box on the corporate tax return,
BIR Form No. 1702."
The case of Commissioner of Internal Revenue vs. ESSO
Standard Eastern, Inc., et al.,[4] cited by petitioner, while not
squarely in point, has touched on a significant aspect
directly related to the issue at hand. There it was said:
The Commissioner's position is that income taxes are
determined and paid on an annual basis, and that such
determination and payment of annual taxes are separate and
independent transactions; and that a tax credit could not be
so considered until it has been finally approved and the
taxpayer duly notified thereof. x x x." (underscoring
supplied)
[4]

Inother words, far from bolstering its position, petitioner's

citation of the above case only serves to weaken the same.
What petitioner obviously seeks is judicial sanction of its act
of unilaterally declaring as tax credit its excess estimated
quarterly income taxes paid in a given year against its tax
liabilities for the quarters of the succeeding taxable year. If
petitioner's theory were to be sustained, this could wreak
havoc and confusion in the tax system.
The respondent Court held that the choice of a corporate
taxpayer for an automatic tax credit does not ipso facto
confer on it the right to immediately avail of the same.
Respondent court went on to emphasize the need for an
investigation to ascertain the correctness of the corporate
returns and the amount sought to be credited. We agree.
It is difficult to see by what process of ratiocination
petitioner insists on the literal interpretation of the word
"automatic." Such literal interpretation has been discussed
and precluded by the respondent court in its decision of 23
December 1991 where, as aforestated, it ruled that "once a
taxpayer opts for either a refund or the automatic tax credit
scheme, and signified his option in accordance with the
regulation, this does not ipso facto confer on him the right to
avail of the same immediately. An investigation, as a matter
of procedure, is necessary to enable the Commissioner to
determine the correctness of the petitioner's returns, and
the tax amount to be credited."[5]
Prior approval by the Commissioner of Internal Revenue of
the tax credit under then section 86 (now section 69) of the
Tax Code would appear to be the most reasonable
interpretation to be given to said section. An opportunity
must be given the internal revenue branch of the
government to investigate and confirm the veracity of the
claims of the taxpayer. The absolute freedom that petitioner
[5]

seeks to automatically credit tax payments against tax

liabilities for a succeeding taxable year, can easily give rise
to confusion and abuse, depriving the government of
authority and control over the manner by which the
taxpayers credit and offset their tax liabilities not to mention
the resultant loss of revenue to the government under such a
scheme.
Petitioner points out that the automatic tax credit scheme
under the law refers to the amount "shown" in the final
adjustment return of the corporate taxpayer and not as
determined by the Commissioner, thereby recognizing the
computation made by the taxpayer. This contention is not
impressed with merit. To reiterate, Section 7 of Revenue
Regulation No. 10-77 provides that "(a)ny excess x x x
computed and shown x x x shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated
quarterly income tax liabilities x x x."
The above rule is clear. It does not mean that reference to
the amount "shown" in the final adjustment return prepared
by the taxpayer implies that the taxpayer need not seek
approval of the Commissioner prior to its effective availment
of the tax credit scheme, it cannot simply credit an amount it
deems as correct. Rather, it provides two (2) remedies, that
is, the excess may either be refunded or credited, and,
insofar as the option of tax credit is concerned, this right
should not be construed as an absolute right which is
available to the taxpayer at his sole option. It is our view that
tax credit under the cited provision should be construed as
an alternative remedy (to a refund) subject to the fulfillment
of certain requirements, i.e., prior verification and approval
by the Commissioner of Internal Revenue.
Further, the cited legal provision itself employs the word
"may" in the phrase "may be credited", implying that the
availability of the remedy of tax credit is not absolute and

mandatory; it does not confer an absolute right on the

taxpayer to avail of the tax credit scheme if it so chooses;
neither does it impose a duty on the part of the government
to sit back and allow an important facet of tax collection to
be at the sole control and discretion of the taxpayer.
As aptly held by this Court in In re Guarina:[6]
"Whether the word 'may' in a statute is to be construed as
mandatory and imposing a duty, or merely permissive and
conferring discretion, is to be determined in each case from
the apparent intention of the statute as gathered from the
context, as well as from the language of the particular
provision. The question in each case is whether, taken as a
whole and viewed in the light of surrounding circumstances,
it can be said that a purpose existed on the part of the
legislator to enact a law mandatory in character. If it can,
then it should be given a mandatory effect; if not, then it
should be given its ordinary permissive effect. x x x."
Anent the issue on petitioner's entitlement to a refund/credit
under Sections 292 and 295 (now Sections 230 and 204 of
the Tax Code) - since automatic tax credit without prior
approval of the Commission of Internal Revenue under then
Section 86 would not be available to the taxpayer - it must
be stressed that the remedy of a refund/credit has never
been denied the petitioner. On the contrary, the
Commissioner of Internal Revenue has long informed
petitioner that its request for automatic tax credit has been
treated as an ordinary claim for refund/tax credit under
Section 292 in relation to Section 295 of the Tax Code, and
that the same has been referred for investigation, report and
recommendation to the Chief, Agriculture and Natural
Resources Division of the Bureau of Internal Revenue. All
that petitioner has to do, therefore, is to inquire regarding
[6]

the status of its claim for refund/credit and await the

decision in regard thereto.
WHEREFORE, the petition is hereby DENIED. The decision
of the Court of Appeals appealed from is AFFIRMED with
costs against the petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Regalado, Nocon, and Puno, JJ.,
concur.

EN BANC
G.R. No. 75697, June 18, 1987
VALENTIN TIO DOING BUSINESS UNDER THE NAME AND
STYLE OF OMI ENTERPRISES, PETITIONER, VS.
VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY MAYOR
AND CITY TREASURER OF MANILA, RESPONDENTS.
DECISION

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on
his own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality
of Presidential Decree No. 1987 entitled "An Act Creating
the Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry (hereinafter
briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10,
1986, fifteen (15) days after completion of its publication in
the Official Gazette.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994
amended the National Internal Revenue Code providing,
inter alia:
"SEC. 134. Video Tapes. - There shall be collected on each
processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided,
That locally manufactured or imported blank video tapes
shall be subject to sales tax."

On October 23, 1986, the Greater Manila Theaters

Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by
the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in
Intervention.
The rationale behind the enactment of the DECREE, is set
out in its preambular clauses as follows:
"1. WHEREAS, the proliferation and unregulated circulation
of videograms including, among others, videotapes, discs,
cassettes or any technical improvement or variation thereof,
have greatly prejudiced the operations of moviehouses and
theaters, and have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous
drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial
losses estimated at P450 Million annually in government
revenues;
"2. WHEREAS, videogram(s) establishments collectively earn
around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
"3. WHEREAS, the unregulated activities of videogram
establishments have also affected the viability of the movie
industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-

wide displacement and unemployment due to the shutdown

of numerous moviehouses and theaters;
"4. WHEREAS, in order to ensure national economic
recovery, it is imperative for the Government to an
environment conducive to growth and development of all
business industries, including the movie industry which has
an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial
condition of the movie industry upon which more than
75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue
for the Government, and at the same time rationalize the
heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of
obscene videogram features constitutes a clear and present
danger to the moral and spiritual well-being of the youth,
and impairs the mandate of the Constitution for the State to
support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical,
intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called
for remedial measures to curb these blatant malpractices
which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies
corroding the moral values of the people and betraying the
national economic recovery program, bold emergency
measures must be adopted with dispatch; x x x (Numbering
of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE
rests on the following grounds:
"1. Section 10 thereof, which imposes a tax of 30% on the
gross receipts payable to the local government is a RIDER
and the same is not germane to the subject matter thereof;

"2. The tax imposed is harsh, confiscatory, oppressive and/or

in unlawful restraint of trade in violation of the due process
clause of the Constitution;
"3. There is no factual nor legal basis for the exercise by the
President to the vast powers conferred upon him by
Amendment No. 6;
"4. There is undue delegation of power and authority;
"5. The Decree is an ex-post facto law; and
"6. There is over regulation of the video industry as if it were
a nuisance, which it is not."
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the
title thereof"[1] is sufficiently complied with if the title be
comprehensive enough to include the general purpose which
a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of
the statute are related, and are germane to the subject
matter expressed in the title, or as long as they are not
inconsistent with or foreign to the general subject and title. [2]
An act having a single general subject, indicated in the title,
may contain any number of provisions, no matter how
diverse they may be, so long as they are not inconsistent
with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for
the method and means of carrying out the general object".[3]
The rule also is that the constitutional requirement as to the
[1]
[2]
[3]

title of a bill should not be so narrowly construed as to

cripple or impede the power of legislation.[4] It should be
given a practical rather than technical construction.[5]
Tested by the foregoing criteria, petitioner's contention that
the tax provision of the DECREE is a rider is without merit.
That section reads, inter alia:
"Section 10. Tax on Sale, Lease or Disposition of
Videograms. Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent
(30%) of the purchase price of rental rate, as the case may
be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of
the tax collected shall accrue to the province, and the other
fifty percent (50%) shall accrue to the municipality where
the tax is collected; PROVIDED, That in Metropolitan Manila,
the tax shall be shared equally by the City/Municipality and
the Metropolitan Manila Commission.
xx x"
The foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general
object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent
with, nor foreign to that general subject and title. As a tool
for regulation[6] it is simply one of the regulatory and control
mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the
[4]
[5]
[6]

video industry in order to regulate and rationalize the

heretofore uncontrolled distribution of videograms is evident
from Preambles 2 and 5, supra. Those preambles explain
the motives of the lawmaker in presenting the measure. The
titIe of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers
all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the
body of the DECREE.[7]
2. Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question
that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the
activities taxed.[8] The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of
the authority which exercises it.[9]
In imposing a tax, the legislature acts upon its constituents.
This is, in general, a sufficient security against erroneous
and oppressive taxation.[10]
The tax imposed by the DECREE is not only a regulatory but
also a revenue measure prompted by the realization that
earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby
[7]
[8]
[9]
[10]

depriving the Government of an additional source of

revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is
similar to the 30% amusement tax imposed or borne by the
movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying
or the viewing public. It is a tax that is imposed uniformly
on all videogram operators.
The levy of the 30% tax is for a public purpose. It was
imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights,
and the proliferation of pornographic video tapes. And while
it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
"The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax was
to favor one industry over another.[11]
"It is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly
held that inequities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation."[12] Taxation has been made the
implement of the state's police power.[13]
At bottom, the rate of tax is a matter better addressed to the
taxing legislature.

[11]
[12]
[13]

3. Petitioner argues that there was no legal nor factual basis

for the promulgation of the DECREE by the former President
under Amendment No. 6 of the 1973 Constitution providing
that whenever in the judgment of the President x x x, there
exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular
National Assembly fails or is unable to act adequately on any
matter for any reason that in his judgment requires
immediate action, he may, in order to meet the exigency,
issue the necessary decrees, orders, or letters of
instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's
Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies
corroding the moral values of the people and betraying the
national economic recovery program necessitated bold
emergency measures to be adopted with dispatch. Whatever
the reasons "in the judgment" of the then President,
considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of
the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power. The grant
in Section 11 of the DECREE of authority to the BOARD to
"solicit the direct assistance of other agencies and units of
the government and deputize, for a fixed and limited period,
the heads or personnel of such agencies and units to
perform enforcement functions for the Board" is not a
delegation of the power to legislate but merely a conferment
of authority or discretion as to its execution, enforcement,
and implementation. "The true distinction is between the
delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution to be exercised

under and in pursuance of the law. The first cannot be done;

to the latter, no valid objection can be made".[14] Besides, in
the very language of the decree, the authority of the BOARD
to solicit such assistance is for a "fixed and limited period"
with the deputized agencies concerned being "subject to the
direction and control of the BOARD". That the grant of such
authority might be the source of graft and corruption would
not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without
adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle.
An ex post facto law is, among other categories, one which
"alters the legal rules of evidence, and authorizes conviction
upon less or different testimony than the law required at the
time of the commission of the offense." It is petitioner's
position that Section 15 of the DECREE in providing that:
"All videogram establishments in the Philippines are hereby
given a period of forty-five (45) days after the effectivity of
this Decree within which to register with and secure a
permit from the BOARD to engage in the videogram business
and to register with the BOARD all their inventories of
videograms, including videotapes, discs, casettes or other
technical improvements or variations thereof, before they
could be sold, leased, or otherwise disposed of. Thereafter
any videogram found in the possession of any person
engaged in the videogram business without the required
proof of registration by the BOARD, shall be prima facie
evidence of violation of the Decree, whether the possession
of such videogram be for private showing and/or public
exhibition."
raises immediately a prima facie evidence of violation of the
DECREE when the required proof of registration on of any
[14]

videogram cannot be presented and thus partakes of the

nature of an ex post facto law.
The argument is untenable. As this Court held in the recent
case of ValIarta vs. Court of Appeal, et al.[15]
"x x x it is now well settled that there is no constitutional
objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary
presumption founded upon the experience of human
conduct, and enacting what evidence shall be sufficient to
overcome such presumption of innocence (People vs.
Mingoa, 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639641). And the legislature may enact that when certain facts
have been proved that they shall be prima facie evidence of
the existence of the guilt of the accused and shift the burden
of proof provided there be a rational connection between the
facts proved and the ultimate facts presumed so that the
inference of the one from proof of the others is not
unreasonable and arbitrary because of lack of connection
between the two in common experience."[16]
Applied to the challenged provision, there is no question that
there is a rational connection between the fact proved,
which is non-registration, and the ultimate fact presumed
which is violation of the DECREE, besides the fact that the
prima facie presumption of violation of the DECREE attaches
only after a forty-five-day period counted from its effectivity
and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry
is being over-regulated and being eased out of existence as if
it were a nuisance. Being a relatively new industry, the need
[15]
[16]

for its regulation was apparent. While the underlying

objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom
of its enactment, considering "the unfair competition posed
by rampant film piracy; the erosion of the moral fiber of the
viewing public brought about by the availability of
unclassified and unreviewed video tapes containing
pornographic films and films with brutally violent sequences;
and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the
activities of video establishments are virtually untaxed since
mere payment of Mayors permit and municipal license fees
are required to engage in business."[17]
The enactment of the Decree since April 10, 1986 has not
brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated
in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the
necessity, wisdom and expediency of the DECREE. These
considerations, however, are primarily and exclusively a
matter of legislative concern.
"Only congressional power or competence, not the wisdom
of the action taken, may be the basis for declaring a statute
invalid. This is as it ought to be. The principle of separation
of powers has in the main wisely allocated the respective
authority of each department and confined its jurisdiction to
such a sphere. There would then be intrusion not allowable
under the Constitution if on a matter left to the discretion of
a coordinate branch, the judiciary would substitute its own.
If there be adherence to the rule of law, as there ought to be,
the last offender should be courts of justice, to which rightly
litigants submit their controversy precisely to maintain
unimpaired the supremacy of legal norms and prescriptions.
[17]

The attack on the validity of the challenged provision

likewise insofar as there may be objections, even if valid and
cogent, on its wisdom cannot be sustained."[18]
In fine, petitioner has not overcome the presumption of
validity which attaches to a challenged statute. We find no
clear violation of the Constitution which would justify us in
pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed. No
Costs.
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz,
Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, and
Cortes, JJ., concur.

[18]

EN BANC
G.R. No. 115455, October 30, 1995
ARTURO M. TOLENTINO, PETITIONER, VS. THE SECRETARY OF FINANCE AND
THE COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. NO. 115525]
JUAN T. DAVID, PETITIONER, VS. TEOFISTO T. GUINGONA, JR., AS EXECUTIVE
SECRETARY; ROBERTO DE OCAMPO, AS SECRETARY OF FINANCE; LIWAYWAY
VINZONS-CHATO, AS COMMISSIONER OF INTERNAL REVENUE; AND THEIR
AUTHORIZED AGENTS OR REPRESENTATIVES, RESPONDENTS.
[G.R. NO. 115543]
RAUL S. ROCO AND THE INTEGRATED BAR OF THE PHILIPPINES,
PETITIONERS, VS. THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND BUREAU OF
CUSTOMS, RESPONDENTS.
[G.R. NO. 115544]
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA;
AND OFELIA L. DIMALANTA, PETITIONERS, VS. HON. LIWAYWAY V. CHATO, IN
HER CAPACITY AS COMMISSIONER OF INTERNAL REVENUE; HON. TEOFISTO
T. GUINGONA, JR., IN HIS CAPACITY AS EXECUTIVE SECRETARY; AND HON.
ROBERTO B. DE OCAMPO, IN HIS CAPACITY AS SECRETARY OF FINANCE,
RESPONDENTS.
[G.R. NO. 115754]
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA),
PETITIONER, VS. THE COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
[G.R. NO. 115781]
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA,
EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,

MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND

NATIONALISM, INC. (MABINI), FREEDOM FROM DEBT COALITION, INC., AND
PHILIPPINE BIBLE SOCIETY, INC. AND WIGBERTO TAADA, PETITIONERS, VS.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE AND THE COMMISSIONER OF
CUSTOMS, RESPONDENTS.
[G.R. NO. 115852]
PHILIPPINE AIRLINES, INC., PETITIONER, VS. THE SECRETARY OF FINANCE
AND COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. NO. 115873]
COOPERATIVE UNION OF THE PHILIPPINES, PETITIONER, VS. HON. LIWAYWAY
V. CHATO, IN HER CAPACITY AS THE COMMISSIONER OF INTERNAL REVENUE,
HON. TEOFISTO T. GUINGONA, JR., IN HIS CAPACITY AS EXECUTIVE
SECRETARY, AND HON. ROBERTO B. DE OCAMPO, IN HIS CAPACITY AS
SECRETARY OF FINANCE, RESPONDENTS.
[G.R. NO. 115931]
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. AND
ASSOCIATION OF PHILIPPINE BOOKSELLERS, PETITIONERS, VS. HON.
ROBERTO B. DE OCAMPO, AS THE SECRETARY OF FINANCE; HON. LIWAYWAY
V. CHATO, AS THE COMMISSIONER OF INTERNAL REVENUE; AND HON.
GUILLERMO PARAYNO, JR., IN HIS CAPACITY AS THE COMMISSIONER OF
CUSTOMS, RESPONDENTS.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed by
the several petitioners in these cases, with the exception of
the Philippine Educational Publishers Association, Inc. and
the Association of Philippine Booksellers, petitioners in G.R.

No. 115931.
The Solicitor General, representing the respondents, filed a
consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder to
the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I.
Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association (CREBA))
reiterate previous claims made by them that R.A. No. 7716
did not "originate exclusively" in the House of
Representatives as required by Art. VI, 24 of the
Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where
after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not
pass it on second and third readings. Instead what the
Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that
what the Senate committee should have done was to amend
H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is
said, "the bill remains a House bill and the Senate version
just becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in
which the Senate proposed an amendment to a House

revenue bill by enacting its own version of a revenue bill.

On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND
DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April
10, 1992. This Act is actually a consolidation of H. No.
34254, which was approved by the House on January 29,
1992, and S. No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which
was approved by the President on May 22, 1992. This Act is
a consolidation of H. No. 22232, which was approved by the
House of Representatives on August 2, 1989, and S. No. 807,
which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws
which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the
dates on which the laws were approved by the President and
dates the separate bills of the two chambers of Congress
were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX
EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF
INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF
INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF
ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES
OR AGENCIES INCLUDING GOVERNMENT-OWNED
OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX
DUE AT THE RATE OF THREE PERCENT (3%) ON

GROSS PAYMENT FOR THE PURCHASE OF GOODS

AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE
AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS
FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF STOCK LISTED AND

TRADED THROUGH THE LOCAL STOCK EXCHANGE

OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING
CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance
in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House,
passed its own version of a House revenue measure. It is
noteworthy that, in the particular case of S. No. 1630,
petitioners Tolentino and Roco, as members of the Senate,
voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in this
case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into consideration. . . H. B.
11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx

xxx

xxx

68. Not more than one amendment to the original

amendment shall be considered.
No amendment by substitution shall be entertained unless
the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is
taken thereon.
69. No amendment which seeks the inclusion of a
legislative provision foreign to the subject matter of a bill
(rider) shall be entertained.
xxx

xxx

xxx

70-A. A bill or resolution shall not be amended by

substituting it with another which covers a subject distinct
from that proposed in the original bill or resolution.
(emphasis added)
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses less
power than the U.S. Senate because of textual differences
between constitutional provisions giving them the power to
propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and

private bills shall originate exclusively in the House of

Representatives, but the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on other
Bills" in the American version, according to petitioners,
shows the intention of the framers of our Constitution to
restrict the Senate's power to propose amendments to
revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the
words `as in any other bills' (sic) were eliminated so as to
show that these bills were not to be like other bills but must
be treated as a special kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935
Constitution originally provided for a unicameral National
Assembly. When it was decided in 1939 to change to a
bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of
Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a
constituent assembly, some of whose members, jealous of
preserving the Assembly's lawmaking powers, sought to
curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds, revenue or tariff bills,
bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or
concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same
by a two-thirds vote of all its members, and thereupon, the
bill so repassed shall be deemed enacted and may be

submitted to the President for corresponding action. In the

event that the Senate should fail to finally act on any such
bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the
members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the
President for corresponding action.
The special committee on the revision of laws of the Second
National Assembly vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the proposal was
approved by the National Assembly and embodied in
Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)) The
proposed amendment was submitted to the people and
ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18(2) of the 1935 Constitution,
from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to
the American text from which the framers of the Philippine
Constitution borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat of the
proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on
other Bills." Thus, because revenue bills are required to
originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without
such bills. After a revenue bill is passed and sent over to it
by the House, however, the Senate certainly can pass its own
version on the same subject matter. This follows from the
coequality of the two chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:

The power of the Senate to propose or concur with

amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can practically
rewrite a bill required to come from the House and leave
only a trace of the original bill. For example, a general
revenue bill passed by the lower house of the United States
Congress contained provisions for the imposition of an
inheritance tax. This was changed by the Senate into a
corporation tax. The amending authority of the Senate was
declared by the United States Supreme Court to be
sufficiently broad to enable it to make the alteration. [Flint
v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389]
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE
PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by
the House of Representatives because it is more numerous
in membership and therefore also more representative of the
people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the
enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise
of its power to propose or concur with amendments to the
bills initiated by the House of Representatives. Thus, in one
case, a bill introduced in the U.S. House of Representatives
was changed by the Senate to make a proposed inheritance
tax a corporation tax. It is also accepted practice for the
Senate to introduce what is known as an amendment by
substitution, which may entirely replace the bill initiated in
the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993))
In sum, while Art. VI, 24 provides that all appropriation,

revenue or tariff bills, bills authorizing increase of the public

debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it
also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As
petitioner Tolentino states in a high school text, a committee
to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes
in the bill omitting or adding sections or altering its
language; (3) to make and endorse an entirely new bill as a
substitute, in which case it will be known as a committee
bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES
258 (1950))
To except from this procedure the amendment of bills which
are required to originate in the House by prescribing that
the number of the House bill and its other parts up to the
enacting clause must be preserved although the text of the
Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form. S. No. 1630,
as a substitute measure, is therefore as much an amendment
of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No. 1630
is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference to
H. No. 11197. From this premise, they conclude that R.A.

No. 7716 originated both in the House and in the Senate and
that it is the product of two "half-baked bills because neither
H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S. No.
1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the
two bills, at the same time indicates that the provisions of
the Senate bill were precisely intended to be amendments to
the House bill.
Without H. No. 11197, the Senate could not have enacted S.
No. 1630. Because the Senate bill was a mere amendment
of the House bill, H. No. 11197 in its original form did not
have to pass the Senate on second and three readings. It
was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means.
Neither was it required that S. No. 1630 be passed by the
House of Representatives before the two bills could be
referred to the Conference Committee.
There is legislative precedent for what was done in the case
of H. No. 11197 and S. No. 1630. When the House bill and
Senate bill, which became R.A. No. 1405 (Act prohibiting the
disclosure of bank deposits), were referred to a conference
committee, the question was raised whether the two bills
could be the subject of such conference, considering that the
bill from one house had not been passed by the other and
vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to
procedure: If a House bill is passed by the House but not
passed by the Senate, and a Senate bill of a similar nature is

passed in the Senate but never passed in the House, can the
two bills be the subject of a conference, and can a law be
enacted from these two bills? I understand that the Senate
bill in this particular instance does not refer to investments
in government securities, whereas the bill in the House,
which was introduced by the Speaker, covers two subject
matters: not only investigation of deposits in banks but also
investigation of investments in government securities. Now,
since the two bills differ in their subject matter, I believe
that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose
B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is
in order. It is precisely in cases like this where a conference
should be had. If the House bill had been approved by the
Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the
same subject matter, the conference committee had to be
created, and we are now considering the report of that
committee.
(2 CONG. REC. No. 13, July 27, 1955, pp. 3841-42 (Italics
added))
III.
The President's certification. The fallacy in thinking
that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President separately
certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The
certification had to be made of the version of the same
revenue bill which at the moment was being considered.
Otherwise, to follow petitioners' theory, it would be
necessary for the President to certify as many bills as are
presented in a house of Congress even though the bills are

merely versions of the bill he has already certified. It is

enough that he certifies the bill which, at the time he makes
the certification, is under consideration. Since on March 22,
1994 the Senate was considering S. No. 1630, it was that bill
which had to be certified. For that matter on June 1, 1993
the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was
being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have
already explained in the main decision that the phrase
"except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, 26 (2) qualifies not
only the requirement that "printed copies [of a bill] in its
final form [must be] distributed to the members three days
before its passage" but also the requirement that before a
bill can become a law it must have passed "three readings on
separate days." There is not only textual support for such
construction but historical basis as well.
Art. VI, 21(2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall
have been printed and copies thereof in its final form
furnished its Members at least three calendar days prior to
its passage, except when the President shall have certified to
the necessity of its immediate enactment. Upon the last
reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately
thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in
Art. VIII, 19(2):
(2) No bill shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its

final form have been distributed to the Members three days

before its passage, except when the Prime Minister certifies
to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon
shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, 26(2) of the present
Constitution, thus:
(2) No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when
the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that
if in all cases three readings on separate days are required
and a bill has to be printed in final form before it can be
passed, the need for a law may be rendered academic by the
occurrence of the very emergency or public calamity which
it is meant to address.
Petitioners further contend that a "growing budget deficit" is
not an emergency, especially in a country like the Philippines
where budget deficit is a chronic condition. Even if this
were the case, an enormous budget deficit does not make
the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of

the petitioners in these cases) believed that there was an

urgent need for consideration of S. No. 1630, because they
responded to the call of the President by voting on the bill on
second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance
of the President's certification, the respect due coequal
departments of the government in matters committed to
them by the Constitution and the absence of a clear showing
of grave abuse of discretion caution a stay of the judicial
hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was discussed
for six days. Only its distribution in advance in its final
printed form was actually dispensed with by holding the
voting on second and third readings on the same day (March
24, 1994). Otherwise, sufficient time between the submission
of the bill on February 8, 1994 on second reading and its
approval on March 24, 1994 elapsed before it was finally
voted on by the Senate on third reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them
notice that a measure is progressing through the enacting
process, thus enabling them and others interested in the
measure to prepare their positions with reference to it. (1 J.
G. SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION 10.04, p. 282 (1972)) These purposes
were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of full
public disclosure and the people's right to know (Art. II, 28
and Art. III, 7) the Conference Committee met for two days

in executive session with only the conferees present.

As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only in
1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members were
present. These were staff members of the Senators and
Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on
the last two days of the conference were excluded. There is
no showing that the conferees themselves did not take notes
of their proceedings so as to give petitioner Kilosbayan basis
for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their
meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case
submitted a report showing the changes made on the
differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that
conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other
amendments." These changes are shown in the bill attached
to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in
the original bills without the need of a statement detailing
the changes.
The same question now presented was raised when the bill
which became R.A. No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee. Congressman

Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to
consider the report of the conference committee regarding
House Bill No. 2557 by reason of the provision of Section 11,
Article XII, of the Rules of this House which provides
specifically that the conference report must be accompanied
by a detailed statement of the effects of the amendment on
the bill of the House. This conference committee report is
not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a
few words in connection with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision of the Rule cited by
the gentleman from Pangasinan, but this provision applies to
those cases where only portions of the bill have been
amended. In this case before us an entire bill is presented;
therefore, it can be easily seen from the reading of the bill
what the provisions are. Besides, this procedure has been
an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to
look into the reason for the provisions of the Rules, and the
reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain
words or phrases inserted in or deleted from the provisions
of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their
relation to the bill. In that case, it is necessary to make a

detailed statement on how those words and phrases will

affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report that is not
necessary. So when the reason for the Rule does not exist,
the Rule does not exist.
(2 CONG. REC. No. 2, p. 4056. (Italics added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House was
called, it was sustained by a vote of 48 to 5. (Id., p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court held
in Philippine Judges Association v. Prado, 227 SCRA 703
(1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House. It
may propose an entirely new provision. What is important is
that its report is subsequently approved by the respective
houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been
added by the conference committee, there was thereby a
violation of the constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the
petitioners' charges that an amendment was made upon the
last reading of the bill that eventually became R.A. No. 7354
and that copies thereof in its final form were not distributed
among the members of each House. Both the enrolled bill
and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26(2) of the
Constitution. We are bound by such official assurances from
a coordinate department of the government, to which we

owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or
instructed. These committees may be given instructions by
their parent bodies or they may be left without instructions.
Normally the conference committees are without
instructions, and this is why they are often critically referred
to as "the little legislatures." Once bills have been sent to
them, the conferees have almost unlimited authority to
change the clauses of the bills and in fact sometimes
introduce new measures that were not in the original
legislation. No minutes are kept, and members' activities on
conference committees are difficult to determine. One
congressman known for his idealism put it this way: "I killed
a bill on export incentives for my interest group [copra] in
the conference committee but I could not have done so
anywhere else." The conference committee submits a report
to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine Congress, in
COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.))
In citing this study, we pass no judgment on the methods of
conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At all
events, under Art. VI, 16(3) each house has the power "to
determine the rules of its proceedings," including those of its

committees. Any meaningful change in the method and

procedures of Congress or its committees must therefore be
sought in that body itself.
V.
The titles of S. No. 1630 and H. No. 11197. PAL
maintains that R.A. No. 7716 violates Art. VI, 26(1) of the
Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of
2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of
any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city,
provincial or national authority or government agency, now
or in the future."
PAL was exempted from the payment of the VAT along with
other entities by 103 of the National Internal Revenue
Code, which provides as follows:
103. Exempt transactions. - The following shall be exempt
from the value-added tax:
xxx

xxx

xxx

(q) Transactions which are exempt under special laws or

international agreements to which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending 103, as follows:

103. Exempt transactions. - The following shall be exempt

from the value-added tax:
xxx

xxx

xxx

(q) Transactions which are exempt under special laws,

except those granted under Presidential Decree Nos. 66,
529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No.
7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE]
THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING
ITS TAX BASE AND ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED AND FOR
OTHER PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which stands
in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be
reflected in the title of the law by specific reference to P.D.
No. 1590. It is unnecessary to do this in order to comply
with the constitutional requirement, since it is already stated
in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is 103(q), in order to
widen the base of the VAT. Actually, it is the bill which
becomes a law that is required to express in its title the

subject of legislation. The titles of H. No. 11197 and S. No.

1630 in fact specifically referred to 103 of the NIRC as
among the provisions sought to be amended. We are
satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were
enacted into what is now R.A. No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A. No.
7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER
PURPOSES CONNECTED THEREWITH. It contained a
provision repealing all franking privileges. It was contended
that the withdrawal of franking privileges was not expressed
in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the
repeal of franking privileges, this Court held:
To require every end and means necessary for the
accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but
would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been
correctly explained:
The details of a legislative act need not be specifically stated
in its title, but matter germane to the subject as expressed in
the title, and adopted to the accomplishment of the object in
view, may properly be included in the act. Thus, it is proper
to create in the same act the machinery by which the act is
to be enforced, to prescribe the penalties for its infraction,
and to remove obstacles in the way of its execution. If such
matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also

have special mention in the title. (Southern Pac. Co. v.

Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI.
Claims of press freedom and religious liberty. We
have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws
which single out the press or target a group belonging to the
press for special treatment or which in any way discriminate
against the press, on the basis of the content of the
publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press.
At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions,
the State does not forever waive the exercise of its sovereign
prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S. 233,
80 L.Ed. 660 (1936) was found to be discriminatory because
it was laid on the gross advertising receipts only of
newspapers whose weekly circulation was over 20,000, with
the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of

Senator Huey Long who controlled the state legislature

which enacted the license tax. The censorial motivation for
the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v.
Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.Ed.2d 295
(1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or,
in lieu thereof, for the use tax on the privilege of using,
storing or consuming tangible goods, the press was not.
Instead, the press was exempted from both taxes. It was,
however, later made to pay a special use tax on the cost of
paper and ink which made these items "the only items
subject to the use tax that were component of goods to be
sold at retail." The U.S. Supreme Court held that the
differential treatment of the press "suggests that the goal of
regulation is not unrelated to suppression of expression, and
such goal is presumptively unconstitutional." It would
therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted by
E.O. No. 273 are withdrawn "absolutely and unqualifiedly"
by R.A. No. 7716. Other exemptions from the VAT, such as
those previously granted to PAL, petroleum concessionaires,
enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an
effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press
is highlighted by the fact that transactions, which are profit
oriented, continue to enjoy exemption under R.A. No. 7716.
An enumeration of some of these transactions will suffice to
show that by and large this is not so and that the exemptions
are granted for a purpose. As the Solicitor General says,

such exemptions are granted, in some cases, to encourage

agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and
goods or services to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines)
or for professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products
or to be used for manufacture of petroleum products subject
to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for

Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L.Ed 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is
immaterial. The protection afforded by the First Amendment
is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges
protected by the First Amendment along with the wares and
merchandise of hucksters and peddlers and treats them all
alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of
religion are in preferred position.
The Court was speaking in that case of a license tax, which,
unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a
prior restraint on the exercise of its right. Hence, although
its application to others, such those selling goods, is valid,
its application to the press or to religious groups, such as
the Jehovah's Witnesses, in connection with the latter's sale
of religious books and pamphlets, is unconstitutional. As the
U.S. Supreme Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee
on those engaged in the sale of general merchandise. It was

held that the tax could not be imposed on the sale of bibles
by the American Bible Society without restraining the free
exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or exchange
of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the
press pay income tax or subject it to general regulation is
not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the sales
are used to subsidize the cost of printing copies which are
given free to those who cannot afford to pay so that to tax
the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting
burden on the exercise of religious freedom is so incidental
as to make it difficult to differentiate it from any other
economic imposition that might make the right to
disseminate religious doctrines costly. Otherwise, to follow
the petitioner's argument, to increase the tax on the sale of
vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed
by 107 of the NIRC, as amended by 7 of R.A. No. 7716,
although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such
as those relating to accounting in 108 of the NIRC. That
the PBS distributes free bibles and therefore is not liable to
pay the VAT does not excuse it from the payment of this fee
because it also sells some copies. At any rate whether the
PBS is liable for the VAT must be decided in concrete cases,

in the event it is assessed this tax by the Commissioner of

Internal Revenue.
VII.
Alleged violations of the due process, equal protection
and contract clauses and the rule on taxation. CREBA
asserts that R.A. No. 7716 (1) impairs the obligations of
contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall
"evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations
to be paid because of the 10% VAT. The additional amount,
it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an
early case: "Authorities from numerous sources are cited by
the plaintiffs, but none of them show that a lawful tax on a
new subject, or an increased tax on an old one, interferes
with a contract or impairs its obligation, within the meaning
of the Constitution. Even though such taxation may affect
particular contracts, as it may increase the debt of one
person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens
of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation
of any existing contract in its true legal sense." (La Insular v.
Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574
(1919)) Indeed not only existing laws but also "the
reservation of the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal order."
(Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as

having been made in reference to the possible exercise of

the rightful authority of the government and no obligation of
contract can extend to the defeat of that authority. (Norman
v. Baltimore and Ohio R.R., 79 L.Ed. 885 (1935))
It is next pointed out that while 4 of R.A. No. 7716 exempts
such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it
grants no exemption on the sale of real property which is
equally essential. The sale of real property for socialized and
low-cost housing is exempted from the tax, but CREBA
claims that real estate transactions of "the less poor," i.e.,
the middle class, who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under 103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in error
in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the
payment of the VAT. Moreover, there is a difference between
the "homeless poor" and the "homeless less poor" in the
example given by petitioner, because the second group or
middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes
are thus differently situated in life. "It is inherent in the
power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that `inequalities
which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.'"
(Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of
Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta,
130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988))

Finally, it is contended, for the reasons already noted, that

R.A. No. 7716 also violates Art. VI, 28(1) which provides
that "The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v.
De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long
before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT
Law was questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988)
on grounds similar to those made in these cases, namely,
that the law was "oppressive, discriminatory, unjust and
regressive in violation of Art. VI, 28(1) of the Constitution."
(At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of
a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of

basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the Philippines,
Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a
progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all
taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a progressive
system of taxation." The constitutional provision has been
interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate
to Congress is not to prescribe, but to evolve, a progressive
tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited
with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28 (1) was
taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending
102(b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, 4, amending 103 of the

NIRC)
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and
goods or services to enhance agriculture (milling of palay,
corn sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines)
and or professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products
or to be used for manufacture of petroleum products subject
to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00

(Respondents' Consolidated Comment on the Motions for

Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the
VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These
include real properties held primarily for sale to customers
or for lease in the ordinary course of trade or business, the
right or privilege to use patent, copyright, and other similar
property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films,
tapes and discs, radio, television, satellite transmission and
cable television time, hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility cars for
rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not at
retail but at wholesale and in the abstract. There is no fully
developed record which can impart to adjudication the
impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts
and exemplify its effect on property rights. For the fact is
that petitioner's members have not even been assessed the
VAT. Petitioner's case is not made concrete by a series of
hypothetical questions asked which are no different from
those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal

protection clauses are invoked, considering that they are not

fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity
of suits. This need not be the case, however. Enforcement
of the law may give rise to such a case. A test case, provided
it is an actual case and not an abstract or hypothetical one,
may thus be presented.
Nor is hardship to taxpayers alone an adequate justification
for adjudicating abstract issues. Otherwise, adjudication
would be no different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, (2) to
decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of
the government." This duty can only arise if an actual case
or controversy is before us. Under Art. VIII, 5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, 1, (2) can plausibly mean is that in the exercise of that
jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, (2) is
"judicial power," which is "the power of a court to hear and
decide cases pending between parties who have the right to
sue and be sued in the courts of law and equity" (Lamb v.

Phipps, 22 Phil. 456, 559 (1912)), as distinguished from

legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several
courts either by the Constitution, as in the case of Art. VIII,
5, or by statute, as in the case of the Judiciary Act of 1948
(R.A. No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes the
court's "jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29
(1906)) Without an actual case coming within its jurisdiction,
this Court cannot inquire into any allegation of grave abuse
of discretion by the other departments of the government.
VIII.
Alleged violation of policy towards cooperatives.
On the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject
cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No.
175 was promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984,
because of the crisis which menaced the national economy,
this exemption was withdrawn by P.D. No. 1955; that in
1986, P.D. No. 2008 again granted cooperatives exemption
from income and sales taxes until December 31, 1991, but,
in the same year, E.O. No. 93 revoked the exemption; and
that finally in 1987 the framers of the Constitution
"repudiated the previous actions of the government adverse
to the interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and instead
upheld the policy of strengthening the cooperatives by way
of the grant of tax exemptions," by providing the following in
Art. XII:

1. The goals of the national economy are a more equitable

distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services
produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of
life for all, especially the underprivileged.
The State shall promote industrialization and full
employment based on sound agricultural development and
agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are
competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair
foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and
all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of
their ownership.
15. The Congress shall create an agency to promote the
viability and growth of cooperatives as instruments for social
justice and economic development.
Petitioner's contention has no merit. In the first place, it is
not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to
withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, 2 had restored
the tax exemptions of cooperatives in 1986, the exemption
was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were

withdrawn. The withdrawal of tax incentives applied to all,

including government and private entities. In the second
place, the Constitution does not really require that
cooperatives be granted tax exemptions in order to promote
their growth and viability. Hence, there is no basis for
petitioner's assertion that the government's policy toward
cooperatives had been one of vaccilation, as far as the grant
of tax privileges was concerned, and that it was to put an
end to this indecision that the constitutional provisions cited
were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such
theory is contrary to the Constitution under which only the
following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28(3), and
non-stock, non-profit educational institutions, by reason of
Art. XIV, 4(3).
CUP's further ground for seeking the invalidation of R.A. No.
7716 is that it denies cooperatives the equal protection of
the law because electric cooperatives are exempted from the
VAT. The classification between electric and other
cooperatives (farmers cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests on a
congressional determination that there is greater need to
provide cheaper electric power to as many people as
possible, especially those living in the rural areas, than there
is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against
the constitutional validity of R.A. No. 7716. We have in fact

taken the extraordinary step of enjoining its enforcement

pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the
other branches of the government does not constitute a
grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as
the body which is electorally responsible, remembering that,
as Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in quite
as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L.Ed. 971, 973
(1904)) It is not right, as petitioner in G.R. No. 115543 does
in arguing that we should enforce the public accountability
of legislators, that those who took part in passing the law in
question by voting for it in Congress should later thrust to
the courts the burden of reviewing measures in the flush of
enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied
with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco, and
Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., maintain their separate opinion.
Regalado, Romero, Bellosillo, and Puno, JJ., in their dissent.
Davide, Jr., J., maintains his dissenht. Grant MR.
Panganiban, J., no part.

G.R. No. L-19707, August 17, 1967

PHILIPPINE ACETYLENE CO., INC., PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE AND COURT OF
TAX APPEALS, RESPONDENTS.
DECISION

CASTRO, J.:
The petitioner is a corporation engaged in the manufacture
and sale of oxygen and acetylene gases. During the period
from June 2, 1953 to June 30, 1958, it made various sales of
its products to the National Power Corporation, an agency of
the Philippine Government, and to the Voice of America, an
agency of the United States Government. The sales to the
NPC amounted to P145,866.70, while those to the VOA
amounted to P1,683, on account of which the respondent
Commissioner of Internal Revenue assessed against, and
demanded from, the petitioner the payment of P12,910.60 as
deficiency sales tax and surcharge, pursuant to the following
provisions of the National Internal Revenue Code:
"SEC. 186. Percentage tax on sales of other articles. - There
shall be levied, assessed and collected once only on every
original sale, barter, exchange, and similar transaction either
for nominal or valuable considerations, intended to transfer
ownership of, or title to, the articles not enumerated in
sections one hundred and eighty-four and one hundred and
eighty-five a tax equivalent to seven per centum of the gross
selling price or gross value in money of the articles so sold,
bartered, exchanged, or transferred, such tax to be paid by
the manufacturer or producer: * * *."
"SEC. 183. Payment of percentage taxes. - (a) In general. It shall be the duty of every person conducting a business on
which a percentage tax is imposed under this Title, to make
a true and complete return of the amount of his, her or its

gross monthly sales, receipts or earnings, or gross value of

output actually removed from the factory or mill warehouse
and within twenty days after the end of each month, pay the
tax due thereon: Provided, That any person retiring from a
business subject to the percentage tax shall notify the
nearest internal revenue officer thereof, file his return or
declaration and pay the tax due thereon within twenty days
after closing his business.
"If the percentage tax on any business is not paid within the
time specified above, the amount of the tax shall be
increased by twenty-five per centum, the increment to be a
part of the tax."
The petitioner denied liability for the payment of the tax on
the ground that both the NPC and the VOA are exempt from
taxation. It asked for a reconsideration of the assessment
and, failing to secure one, appealed to the Court of Tax
Appeals.
The court ruled that the tax on the sale of articles or goods
in section 186 of the Code is a tax on the manufacturer and
not on the buyer with the result that the "petitioner
Philippine Acetylene Company, the manufacturer or
producer of oxygen and acetylene gases sold to the National
Power Corporation, cannot claim exemption from the
payment of sales tax simply because its buyer -- the National
Power Corporation -- is exempt from the payment of all
taxes." With respect to the sales made to the VOA, the court
held that goods purchased by the American Government or
its agencies from manufacturers or producers are exempt
from the payment of the sales tax under the agreement
between the Government of the Philippines and that of the
United States, provided the purchases are supported by
certificates of exemption, and since purchases amounting to
only P558, out of a total of P1,683, were not covered by
certificates of exemption, only the sales in the sum of P558
were subject to the payment of tax. Accordingly, the

assessment was revised and the petitioner's liability was

reduced from P12,910.60, as assessed by the respondent
Commission, to P12,812.16.
[1]

The petitioner appealed to this Court. Its position is that it is

not liable for the payment of tax on the sales it made to the
NPC and the VOA because both entities are exempt from
taxation.
I
The NPC enjoys tax exemption by virtue of an act of
Congress, which provides as follows:
[2]

"SEC. 2. To facilitate the payment of its indebtedness, the

National Power Corporation shall be exempt from all taxes,
except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines,
its provinces, cities and municipalities."
It is contended that the immunity thus given to the NPC
would be impaired by the imposition of a tax on sales made
to it because while the tax is paid by the manufacturer or
producer, the tax is ultimately shifted by the latter to the
former. The petitioner invokes in support of its position a
1954 opinion of the Secretary of Justice which ruled that the
NPC is exempt from the payment of all taxes "whether direct
or indirect."
We begin with an analysis of the nature of the percentage
(sales) tax imposed by section 186 of the Code. Is it a tax on
the producer or on the purchaser? Statutes of the type
under consideration, which impose a tax on sales, have been
described as "act[s] with schizophrenic symptoms," as they
apparently have two faces -- one that of a vendor tax, the
other, a vendee tax. Fortunately for us the provisions of the
Code throw some light on the problem. The Code states that
the sales tax "shall be paid by the manufacturer or
[3]

producer, who must "make a true and complete return of

the amount of his, her or its gross monthly sales, receipts or
earnings or gross value of output actually removed from the
factory or mill warehouse and within twenty days after the
end of each month, pay the tax due thereon.
[4]

[5]

But it is argued that a sales tax is ultimately passed on to the

purchaser, and that, so far as the purchaser is an entity like
the NPC which is exempt from the payment of "all taxes,
except real property tax," the tax cannot be collected from
sales.
Many years ago, Mr. Justice Oliver Wendell Holmes
expressed dissatisfaction with the use of the phrase "pass
the tax on." Writing the opinion of the U.S. Supreme Court in
Lash's Products v. United States, he said: "The phrase
passed the tax on' is inaccurate, as obviously the tax is laid
and remains on the manufacturer and on him alone. The
purchaser does not really pay the tax. He pays or may pay
the seller more for the goods because of the seller's
obligation, but that is all. * * * The price is the sum total
paid for the goods. The amount added because of the tax is
paid to get the goods and for nothing else. Therefore it is
part of the price * * *."
[6]

It may indeed be that the incidence of the tax ultimately

settles on the purchaser, but it is not for that reason alone
that one may validly argue that it is a tax on the purchaser.
The exemption granted to the NPC may be likened to the
immunity of the Federal Government from state taxation and
vice versa in the federal system of government of the United
States. In the early case of Panhandle Oil Co. v. Mississippi
the doctrine of intergovernmental tax immunity was held as
prohibiting the imposition of a tax on sales of gasoline made
to the Federal Government. Said the Supreme Court of the
United States:
[7]

"A charge at the prescribed rate is made on account of every

gallon acquired by the United States. It is immaterial that
the seller and not the purchaser is required to report and
make payment to the state. Sale and purchase constitute a
transaction by which the tax is measured and on which the
burden rests. * * * The necessary operation of these
enactments when so construed is directly to retard, impede
and burden the exertion by the United States, of its
constitutional powers to operate the fleet and hospital. * * *
To use the number of gallons sold the United States as a
measure of the privilege tax is in substance and legal effect
to tax the sale. * * * And that is to tax the United States -- to
exact tribute on its transactions and apply the same to the
support of the state."
Justice Holmes did not agree. In a powerful dissent joined
by Justices Brandeis and Stone, he said:
"If the plaintiff in error had paid the tax and added it to the
price the government would have nothing to say. It could
take the gasoline or leave it but it could not require the
seller to abate his charge even if it had been arbitrarily
increased in the hope of getting more from the government
than could be got from the public at large. * * * It does not
appear that the government would have refused to pay a
price that included the tax if demanded, but if the
government had refused it would not have exonerated the
seller. * * *
* * * I am not aware that the President, the Members of the
Congress, the Judiciary or to come nearer to the case at
hand, the Coast Guard or the officials of the Veterans'
Hospital [to which the sales were made], because they are
instrumentalities of government and cannot function naked
and unfed, hitherto have been held entitled to have their
bills for food and clothing cut down so far as their butchers
and tailors have been taxed on their sales; and I had not
supposed that the butchers and tailors could omit from their

tax returns all receipts from the large class of customers to

which I have referred. The question of interference with
Government, I repeat, is one of reasonableness and degree
and it seems to me that the interference in this case is too
remote."
But time was not long in coming to confirm the soundness of
Holmes' position. Soon it became obvious that to test the
constitutionality of a statute by determining the party on
which the legal incidence of the tax fell was an
unsatisfactory way of doing things. The fall of the bastion
was signalled by Chief Justice Hughes' statement in James v.
Dravo Constructing Co. that "These cases [referring to
Panhandle and Indian Motorcycle Co. v. United States, 283
U.S. 570 (1931)] have been distinguished and must be
deemed to be limited to their particular facts."
[8]

In 1941, Alabama v. King & Boozer held that the

constitutional immunity of the United States from state
taxation was not infringed by the imposition of a state sales
tax with which the seller was chargeable but which he was
required to collect from the buyer, in respect of materials
purchased by a contractor with the United States on a costplus basis for use in carrying out its contract, despite the
fact that the economic burden of the tax was borne by the
United States.
[9]

"The asserted right of the one to be free of taxation by the

other does not spell immunity from paying the added costs,
attributable to the taxation of those who furnish supplies to
the Government and who have been granted no tax
immunity. So far as a different view has prevailed, see
Panhandle Oil Co. v. Mississippi and Graves v. Texas Co.,
supra, we think it no longer tenable."
Further inroads into the doctrine of Panhandle were made in
1943 when the U.S. Supreme Court held that immunity from

state regulation in the performance of governmental

functions by Federal officers and agencies did not extend to
those who merely contracted to furnish supplies or render
services to the Government even though as a result of an
increase in the price of such supplies or services attributable
to the state regulation, its ultimate effect may be to impose
an additional economic burden on the Government.
[10]

But if a complete turnabout from the rule announced in

Panhandle was yet to be made, it was so made in 1952 in
Esso Standard Oil v. Evans which held that a contractor is
not exempt from the payment of a state privilege tax on the
business of storing gasoline simply because the Federal Government with which it has a contract for the storage of
gasoline is immune from state taxation.
[11]

"This tax was imposed because Esso stored gasoline. It is

not * * * based on the worth of the government property.
Instead, the amount collected is graduated in accordance
with the exercise of Esso's privilege to engage in such operations; so it is not 'on the federal property. * * * Federal
ownership of the fuel will not immunize such a private
contractor from the tax on storage. It may generally, as it
did here, burden the United States financially. But since
James v. Dravo Contracting Co., 302 U.S. 134, 151, 82 L. ed.
155, 167, 58 S. Ct. 208, 114 ALR 318, this has been no fatal
flaw. * * *"
[12]

We have determined the current status of the doctrine of

intergovernmental tax immunity in the United States, by
showing the drift of the decisions following the announcement of the original rule, to point up the fact that even in
those cases where exemption from tax was sought on the
ground of state immunity, the attempt has not met with success.

As Thomas Reed Powell noted in 1945 in reviewing the

development of the doctrine:
"Since the Dravo case settled that it does not matter that the
economic burden of the gross receipts tax may be shifted to
the Government, it could hardly matter that the shift comes
about by explicit agreement covering taxes rather than by
being absorbed in a higher contract price by bidders for a
contract. The situation differed from that in the Panhandle
and similar cases in that they involved but two parties
whereas here the transaction was tripartite. These cases are
condemned in so far as they rested on the economic ground
of the ultimate incidence of the burden being on the
Government, but this condemnation still leaves open the
question whether either the state or the United States when
acting in governmental matters may be made legally liable to
the other for a tax imposed on it as vendee.
"The carefully chosen language of the Chief Justice keeps
these cases from foreclosing the issue. * * * Yet at the time
it would have been a rash man who would find in this a
dictum that a sales tax clearly on the Government as
purchaser is invalid or a dictum that Congress may
immunize its contractors."
[13]

If a claim of exemption from sales tax based on state

immunity cannot command assent, much less can a claim
resting on statutory grant.
It may indeed be that the economic burden of the tax finally
falls on the purchaser; when it does the tax becomes a part
of the price which the purchaser must pay. It does not
matter that an additional amount is billed as tax to the
purchaser. The method of listing the price and the tax
separately and defining taxable gross receipts as the amount
received less the amount of the tax added, merely avoids
payment by the seller of a tax on the amount of the tax. The
effect is still the same, namely, that the purchaser does not

pay the tax. He pays or may pay the seller more for the
goods because of the seller's obligation, but that is all and
the amount added because of the tax is paid to get the goods
and for nothing else.
[14]

But the tax burden may not even be shifted to the purchaser
at all. A decision to absorb the burden of the tax is largely a
matter of economics. Then it can no longer be contended
that a sales tax is a tax on the purchaser.
[15]

We therefore hold that the tax imposed by section 186 of the

National Internal Revenue Code is a tax on the manufacturer
or producer and not a tax on the purchaser except probably
in a very remote and inconsequential sense. Accordingly its
levy on the sales made to tax-exempt entities like the NPC is
permissible.
II
This conclusion should dispose of the same issue with
respect to sales made to the VOA, except that a claim is here
made that the exemption of such sales from taxation rests on
stronger grounds. Even the Court of Tax Appeals appears to
share this view as is evident from the following portion of its
decision:
"With regard to petitioner's sales to the Voice of America, it
appears that the petitioner and the respondent are in
agreement that the Voice of America is an agency of the
United States Government and as such, all goods purchased
locally by it directly from manufacturers or producers are
exempt from the payment of the sales tax under the
provisions of the agreement between the Government of the
Philippines and the Government of the United States, (See
Commonwealth Act No. 733) provided such purchases are
supported by serially numbered Certificates of Tax
Exemption issued by the vendee-agency, as required by
General Circular No. V-41, dated October 16, 1947. * * *"

The circular referred to reads:

"Goods purchased locally by U.S. civilian agencies directly
from manufacturers, producers, or importers shall be
exempt from the sales tax."
It was issued purportedly to implement the Agreement
between the Republic of the Philippines and the United
States of America Concerning Military Bases, but we find
nothing in the language of the Agreement to warrant the
general exemption granted by that circular.
[16]

The pertinent provisions of the Agreement read:

"ARTICLE V. - Exemption from Customs and Other Duties

"No import, excise, consumption or other tax, duty or impost

shall be charged on material, equipment, supplies or goods,
including food stores and clothing, for exclusive use in the
construction, maintenance, operation or defense of the
bases, consigned to, or destined for, the United States
authorities and certified by them to be for such purposes."
"ARTICLE

X
V
I
I
I
.
S
a
l
e

s
a
n
d
S
e
r
v
i
c
e
s
W
i
t
h
i
n
t
h
e
B
a
s
e
s
"1. It is mutually agreed that the United States shall have
the right to establish on bases, free of all licenses; fees;
sales, excise or other taxes, or imposts; Government
agencies, including concessions, such as sales commissaries
and post exchanges, messes and social clubs, for the exclu-

sive use of the United States military forces and authorized

civilian personnel and their families. The merchandise or
services sold or dispensed by such agencies shall be free of
all taxes, duties and inspection by the Philippine authorities.
* * *"
Thus only sales made "for exclusive use in the construction,
maintenance, operation or defense of the bases," in a word,
only sales to the quartermaster, are exempt under article V
from taxation. Sales of goods to any other party even if it be
an agency of the United States, such as the VOA, or even to
the quartermaster but for a different purpose, are not free
from the payment of the tax.
On the other hand, article XVIII exempts from the payment
of the tax sales made within the base by (not sales to)
commissaries and the like in recognition of the principle that
a sales tax is a tax on the seller and not on the purchaser.
It is a familiar learning in the American law of taxation that
tax exemption must be strictly construed and that the
exemption will not be held to be conferred unless the terms
under which it is granted clearly and distinctly show that
such was the intention of the parties. Hence, in so far as
the circular of the Bureau of Internal Revenue would give
the tax exemptions in the Agreement an expansive construction it is void.
[17]

We hold, therefore, that sales to the VOA are subject to the

payment of percentage taxes under section 186 of the Code.
The petitioner is thus liable for P12,910.60, computed as
follows:
Sales to
NPC...
..
Sales to

P145,866
.70
P
1,683.00

VOA
..
Total sales subject to tax
.
7% sales tax due
thereon..
Add: 25%
surcharge.
.
Total amount due and
collectible.

P147,549
.70
P
10,328.4
8
2,582.12
P
12,910.6
0

ACCORDINGLY, the decision a quo is modified by ordering

the petitioner to pay to the respondent Commission the
amount of P12,910.60 as sales tax and surcharge, with costs
against the petitioner.
Reyes, Makalintal, Bengzon, Zaldivar, Sanchez, Angeles, and
Fernando, JJ., concur.
Concepcion, C.J., and Dizon, J., did not take part.

[1]

Petitioner's liability was computed as follows:

Sales to NPC
P
.
145,866.
70
Sales to VOA
P
. 558.00
Total sales subject to
.P
tax .
146,424.
70
____________________________________________________________________________________________

7% sales tax due

P
thereon .10,249.7

Add: 25% surcharge P

...
2,562.41
Total amount due and collectible.. P
12,812.16
Rep. Act No. 987, 9 Laws & Res. 45 (1954), amending Rep.
Act No. 358, 4 Laws & Res. 14 (1949).
[2]

Oxford v. J.D. Jewell, Inc., 215 Ga. 616, 112 So. 2d

601(1960).
[3]

[4]

Nat. Int. Rev. Code sec. 186.

[5]

Id. sec. 183.

[6]

278 U.S. 175 (1928).

277 U.S. 218 (1928). As a matter of legal history, it is

pertinent to note here that the ruling in Panhandle was
applied in Standard Oil Co. v. Posadas, 55 Phil. 715 (1931).
[7]

[8]

302 U.S. 134 (1937).

[9]

314 U.S. 1 (1941).

Penn Dairies, Inc. v. Milk Control Comm'n, 318 U.S. 261

(1943).
[10]

[11]

347 U.S. 495 (1952).

[12]

Id., at 499-500.

"The case [Esso Standard Oil v. Evans] shows a further

retreat from, if not a complete repudiation of the case of
Panhandle Oil Co. v. Mississippi * * * in which the doctrine of
implied immunity was employed as the basis for holdings
that a state excise or privilege tax upon gasoline dealers,
though nondiscriminatory, was invalid in so far as it was

sought to collect the tax with respect to sales of gasoline

directly to the United States. No tenable distinction seems
to be possible between a state privilege tax on sales of
gasoline to the United States and such a tax on storage of
gasoline owned by the United States." Annot., 97 L. Ed. 1182
(1953).
Powell, The Waning of Intergovernmental Tax Immunity,
58 Harv. L. Rev. 633, 659-660 (1945).
[13]

Western Lithograph Co. v. State Bd. of Equal., 78 P. 2d 731

(1938); see also Philippine Acetylene Co. v. Blaquera, G.R.
No. L-13728, Nov. 30, 1962.
[14]

"In the long run a sales tax is probably shifted to the

consumer, but during the period when supply is being
adjusted to changes in demand it must be in part absorbed.
In practice the businessman will treat the levy as an added
cost of operation and distribute it over his sales as he would
any other cost, increasing by more than the amount of the
tax prices of goods demand for which will be least affected
and leaving other prices unchanged." 47 Harv. L. Rev. 860,
869 (1934).
[15]

March 26, 1947, 1-2 DFA TS 144, 43 UNTS 271, 43 O.G.

1020 (1947).
[16]

E. g., Cherokee Brick & Tile Co. v. Redwine, 209 Ga. 691,
75 S.E. 2d 550 (1953).
[17]

G.R. No. L-19667, November 29, 1966

COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
AMERICAN RUBBER COMPANY AND COURT OF TAX
APPEALS, RESPONDENTS.[G.R. Nos. L-19801-03]
AMERICAN RUBBER COMPANY, PETITIONER, VS. THE
COMMISSIONER OF INTERNAL REVENUE, ET AL.,
RESPONDENTS.
DECISION

REYES, J.B.L., J.:

These cases are brought on appeal from the Court of Tax

Appeals by the State (G. R. No. L-19667) as well as by the
American Rubber Company (G. R. Nos. L-19801, 19802 ,
19803).
The factual background is the same in all four cases, and is
not in controversy, having been stipulated between the
parties.
Petitioner, American Rubber Company, a domestic
corporation, from January 1, 1955 to December 31, 1958,
was engaged in producing rubber from its approximately
900-hectare rubber tree plantation, which it owned and
operated in Latuan, Isabela, City of Basilan. Its products,
known in the market as Preserved Latex, Pale Crepe No. 1,
Pale Crepe No. 2, Ribbed Smoked Sheets Nos. 1 and 2, Flat
Bark Rubber, 2X Brown Crepe and 3X Brown Crepe, are
turned out in the following manner:
The initial step common to the production of all the
foregoing rubber products is tapping, i.e., the collection of
latex (rubber juice) from rubber trees. This is done by the
daily cutting, early in the morning, of a spiral incision in the

bark of rubber trees and placing a cup below the lower end
of the incision to receive the flow of latex. The collecting cup
is filled after two hours. The tapper then collects the latex
into buckets and carries them to the collecting shed. The
tapper subsequently pours the latex collected into big milk
cans. The filled milk cans are then taken in motor vehicles to
a coagulating shed, also within the premises of petitioner's
plantation, where the latex is strained into coagulating tanks
to remove foreign matter such as leaves and dirt. After these
initial steps, the processes vary in the production of the
various rubber products mentioned above. Said processes
are described here under.
Preserved Rubber Latex
Fresh latex is diluted with 5 to 5-1/4 ounces of ammonia per
gallon of latex. The mixture is thoroughly stirred and then
poured into metal drums. The addition of ammonia preserves
the latex in liquid form and prevents its deterioration or its
acquisition of a repulsive smell, and at the same time
preserves its uniform color. Latex which has been thus
artificially preserved in its liquid form generally lasts for
about a month without spoiling. On the other hand, fresh
latex in its original state lasts for only about two hours, after
which it becomes spoiled.
Petitioner sells preserved latex only upon previous orders of
customers who supply empty metal drum containers.
Pale Crepe Nos. 1 and 2 and Ribbed Smoked Sheets Nos. 1
and 2
To produce Pale Crepe Nos. 1 and 2 and Ribbed Smoked
Sheets Nos. 1 and 2 , the petitioner adds to the latex in the
coagulating tank about' 15 or 16 ounces of glacial acetic acid
per gallon of latex. The mixture is stirred thoroughly.
Thereafter aluminum partitions are placed crosswise inside
the tank so that the latex will coagulate into uniform slabs.

Acetic add is added to the latex to hasten coagulation which

otherwise takes place naturally, and to preserve its fresh
state and color. The similarity in the production of Pale
Crepe Nos. 1 and 2 and Ribbed Smoked Sheets Nos. 1 and 2
ends at the point of removing the coagulum (coagulated
rubber sheets) from the coagulating tanks.
To produce Pale Crepe No. 1, the coagulum is passed
through a series of rollers until the desired thickness is
attained, whereupon it is moved to the air-drying house
situated inside petitioner1 s plantation and hung for a period
of about twelve or thirteen days to dry. There are no
mechanical driers used; the air-drying is done naturally. As
soon as the Pale Crepe is dried, the sheets are sorted; those
which are of uniform pale color are classified as Pale Crepe
No. 2, whereupon they are baled and stored, ready for the
market.
Ribbed & Smoked Sheets Nos. 1 and 2 are produced
practically in the same manner as Pale Crepe, except that
the coagulum is passed only once through a roller provided
with ribs after which the flattened and ribbed coagulum is
removed to petitioner's smoke-house where it is hung and
cured by exposure to heat and smoke from wood fires for
about six or seven days. The resulting smoked sheets are
sorted and classified dependent upon color and opaqueness
into ribbed smoked sheets (RSS) No. 1 and No. 2, baled, and
stored ready for the market. No mechanical equipment is
used in generating the smoke in the smoke-house.
The petitioner's rollers are powered by engines although
they could be turned by hand as it is done in small rubber
plantations. If Pale Crepe Nos. 1 and 2 and Ribbed Smoked
Sheets Nos. 1 and 2 are not air-dried and smoked, they
deteriorate, get spoiled, and the color varies.
Flat Bark Rubber

Each morning before a tapper makes a fresh incision in the

bark of a rubber tree, he gathers the latex drippings from
the ground around the tree, called "ground rubber", as well
as the dried latex from the incisions made the previous day,
called " bark rubber ". Ground and bark rubber are not
intentionally produced. No chemicals are added to the latex
transformed into ground and bark rubber. This kind of dried
latex is spoiled and has a bad odor.
Ground and bark rubber when gathered in sufficient
quantities are passed numerous times through the rollers or
mills until they form a uniform mass or sheet which, finally is
called Flat Bark Rubber. No chemical is used to coagulate
the dried ground and bark rubber because they are already
coagulated. They are formed into sheets by means only of
pressure of the mills or rollers through which they are
passed. Flat Bark Rubber commands the lowest prices in the
rubber market.
3X Brown Crepe
Every morning, before a fresh incision is made in the bark of
the rubber trees, the tapper collects not only ground and
bark rubber but removes and collects the latex in the cups,
known as "cup rubber". The cup rubber coagulates and dries
through natural processes and, when gathered in sufficient
quantities, is milled and rolled through a series of rollers
until by force of pressure it is formed into a mass of the
desired thickness called "3X Brown Crepe" . Like ground and
bark rubber, no chemicals are added to cup rubber to
produce 3X Brown Crepe. Cup rubber in its original form,
like ground and bark rubber, is spoiled and has a bad odor.
2X Brown Crepe
2X Brown Crepe is obtained by milling or rolling the excess
places of coagulated rubber latex which had been cut or
trimmed from the ribbed smoked sheets No. 2 into a uniform

mass. 2X Brown Crepe is produced in the same manner as

the other sheets of crepe rubber, i.e., without the addition of
any chemicals.
Petitioner during the said period sold its foregoing rubber
products locally and as prescribed by the respondent's
regulations declared same for tax purposes which
respondent accordingly assessed. Petitioner paid, under
protest, the corresponding sales taxes thereon claiming
exemption therefrom under Section 188 (b) of the National
Internal Revenue Code.
The following sales taxes on the aforementioned rubber
products were paid under protest
From Jan. 1, 1955 to Dec.
31, 1956
From Jan. 1, 1957 to June
30, 1957
From July 1, 1957 to Dec.
31, 1958

..........
P83,193.48
.
..........
P20,504.99
.
..........
P52,378.90
.

It is further stipulated that the sales tax collected from

petitioner American Rubber Company on the local sales of
its rubber products, following Internal Revenue General
Circulars Nos. 431 and 440, had been separately itemized
and billed by petitioner Company in the invoices issued to
the customers, that paid both the value of the rubber articles
and the separately itemized sales tax, from January 1, 1955
to August 2, 1957.
After paying under protest, the petitioner claimed refund of
the sales taxes paid by it on the ground that, under section
188, paragraph b, of the Internal Revenue Code, as
amended,[1] its rubber products were agricultural products
exempt from sales tax, and upon refusal of the Commissioner
of Internal Revenue, brought the case on appeal to the Court
of Tax Appeals (C.T.A. Nos. 356, 440, 632). The respondent

Commissioner Interposed defenses, denying that petitioners

products were agricultural ones within the exemption;
claiming that there had been no exhaustion of administrative
remedies; and argued that the sales tax having been passed
to the buyers during the period that elapsed from January 1,
1955 to August 2 , 1957, the petitioner did not have
personality to demand, sue for and recover the aforesaid
sales taxes, plus interest.
In its decision, now under appeal, the Tax Court held
Preserved Latex, Flat Bark Rubber, and 3X Brown Crepe to
be agricultural products, "because the labor employed in the
processing thereof is agricultural labor", and, hence, the
sales of such products were exempt from sales tax, but
declared Pale Crepe No. 1, Ribbed Smoked Sheets Nos. 1
and 3, as well as 2X Brown Crepe (which is obtained from
rolling excess pieces of Smoked Sheets) to be manufactured
products, sales of which were subject to the tax. It overruled
the defense of non-exhaustion of administrative remedies
and upheld the Revenue Commissioner's stand that
petitioner Company was not entitled to recover the sales tax
that had been separately billed to its customers, and paid by
the latter. Hence, it dismissed the appeal in C.T.A. Nos. 356
and 440, and ordered respondent Commissioner to refund
only ?3,916.49 without interest, or costs.
Both parties then duly appealed to this Court. The issues
posed on these appeals are:
(1) Whether the plaintiff's rubber products above described
should be considered agricultural or manufactured, for
purposes of their subjection to the sales tax;
(2) Whether plaintiff is or is not entitled to recover the sales
tax paid by it, but passed on to and paid by the buyers of its
products; and

(3) Whether plaintiff is or is not entitled to interest on the

sales tax paid by it under protest, in case recovery thereof is
allowed.
The first issue, in our opinion, is governed by the principles
laid down by this Court in Philippine Packing Corporation vs.
Collector of Internal Revenue, 100 Phil. 545 et seq. We there
ruled that the exemption from sales tax established in
section 188 (b) of the Internal Revenue Tax Code in favor of
sales of agricultural products, whether in their original form
or not, made by the producer or owner of the land where
produced is not taken away merely because the produce
undergoes processing at the hand of said producer or owner
for the purpose of working his product into a more
convenient and valuable form suited to meet the demand of
an expanded market; that the exemption was not designed in
favor of the small agricultural producer, already exempted
by the subsequent paragraphs of the same section 188, but
that said exemption is not incompatible with large scale
agricultural production that incidentally required resort to
preservative processes designed to increase or prolong
marketability of the product.
In the case before us, the parties have stipulated that fresh
latex directly obtained from the rubber tree, which is clearly
an agricultural product, becomes spoiled alter only two
hours. It has, therefore, a severely limited marketability. The
addition of ammonia prevents its deterioration for about a
month, and we see no reason why this preservative process
should wrest away from the preserved latex the protective
mantle of the tax exemption.
Taking also into account the great distance that separates
the plaintiff's plantation from the main rubber processing
centres in Japan, the United States and Europe, and the
difficulty in handling products in liquid form, it can be
discerned without difficulty that preserved latex, with its 30-

day spoilage limit, is still severely handicapped for export

and dollar earning purposes.
To overcome these shortcomings, and extend its useful life
almost indefinitely, it becomes necessary to separate and
solidify the rubber granules diffused in the latex, and hence,
according to the stipulation of facts and the evidence, acetic
acid is added to hasten coagulation. There is nothing on
record to show that the acetic acid in any way produces
anything that was not originally in the source, the liquid
latex. The coagulum is then rolled and compacted and
afterwards air dried to make Pale Crepe (1 and 2), or else
cured and smoked to produce rubber sheets. Once again we
see nothing in this processing to alter the agricultural nature
of the result; what takes place is merely an accelerated
coagulation and dessication that would naturally occur
anyway, only within a longer period of time, coupled with
greater spoilage of the product.
Thus the operations carried out by plaintiff appear to be
purely preservative in nature, made necessary by its
production of fresh rubber latex in a large scale. They are
purely incidental to the latter, just as the canning of skinned
and cored pineapples in syrup was held to be incidental to
the large-scale cultivation of the fruit in the Philippine
Packing Corporation case (ante). Being necessary to suit the
product to the demands of the market, the the operations in
both cases should lead to same result, non-taxability of the
sales of the respective agricultural products. In not so
holding, the Tax Court was in error.
Even less justifiable is the position taken by the Revenue
Commissioner in his appeal against the finding of the Tax
Court that Flat Bark and 3X Brown Crepe rubber are
agricultural products. According to the record, these sheets
result from the drippings and waste rubber that have dried

naturally, that are rolled and compacted into the desired

thickness, without any other processing.
As to 2X Brown Crepe which is compacted out of the
trimmings and waste left over fern the production of ribbed
smoked sheets, no reason is seen why it should be treated
differently from the ribbed smoked sheets themselves.
In his appeal the Revenue Commissioner contends that all of
plaintiff s products should be deemed manufactured articles,
on the strength of section 194 (N) of the Revenue Code
defining a "manufacturer" as
"every person who by physical or chemical process alters the
exterior texture or form or inner substance of any raw
material, or manufactured or partially manufactured product
in such manner as to prepare it for a special use or uses to
which it could not have been put to in its original condition,
or who x x x alters the quality of any such raw material x x x
as to reduce it to marketable shape x x x."
But, as pointed out in the Philippine Packing Corporation
case, this definition is not applicable to the exemption of
agricultural products, "whether in their original form or
not". The use of this last phrase in the statute clearly
indicates that the agricultural product may be altered in
texture or form without being divested of the exemption
(cas. cit. 101 Phil., p. 548). The exception would be sales of
agricultural products while Republic Act No. 1612 was in
effect because under this Act the freedom from sales tax
became restricted to agricultural products"in their original
form " only. So that plaintiff's sales from August 24, 1 956
(approval of Republic Act 1612) to June 22, 1957 (when
Republic Act 1856 became effective and restored the
exemption to agricultural products "whether in their original
form or not") became properly taxable. Under paragraphs
A(2) and B(4) of the additional stipulation of facts (CTA rec.

P. 261-262, G. R. L-19801), the sales tax properly collected

during this period on plaintiff's transactions amounted to
Wl8 ,187.19 from August 24 to December 31, 1956; and
P18,888.28 from January 1 to June 21, 1957, or a total of
P37,075.47. This last amount is, therefore, non-recoverable.
[2]

The second issue in this appeal concerns the holding of the

Court of Tax Appeals that the plaintiff Company is not
entitled to recover the sales tax paid by it from January, 1955
to August 2, 1957, because during that period the plaintiff
had separately invoiced and billed the corresponding sales
tax to the buyers of its products. In so holding, the Tax Court
relied on our decisions in Medina vs. City of Baguio, 91 Phil.
854; Mendoza, Santos & Co. vs. Municipality of
Meycawayan, L-6069-6070, April 30, 1954 (94 Phil. 1047);
and Zosimo Rojas & Bros vs. City of Cavite, L-10730, May
27, 1958.
The basic ruling is that of Medina vs. City of Baguio, supra,
where this Court affirmed the ruling of the Court of First
Instance to the effect that
'"The amount collected from the theater goers as additional
price of admission tickets is not the property of plaintiffs or
any of them. It is paid by the public. If anybody has the right
to claim it, it is those who paid it. Only owners of property
has the right to claim said property. The cine owners acted
as mere agents of the city in collecting additional price
charged in the sale of admission tickets.'" (Medina vs. City of
Baguio, 91 Phil. 854) (Italics supplied)
We agree with the plaintiff-appellant that the Medina ruling
is not applicable to the present case, since the municipal
taxes therein imposed were taxes on the admission tickets
sold, so that, in effect, they were levies upon the theater
goers who bought them; so much so that (as the decision

expressly ruled) the tax was collected by the theater owners

as agents of the respective municipal treasurers. This does
not obtain in the case at bar. The Medina ruling was merely
followed in Rojas & Bros. vs. Cavite, supra, and in Mendoza,
Santos & Co. vs. Municipality of Meycawayan, 94 Phil. 1047.
By contrast with the municipal taxes involved in the
preceding cases, the sales tax is by law imposed directly, not
on the thing sold, but on the act (sale) of the manufacturer,
producer or importer (Op. of the Secretary of Justice, June
15, 1946; 47 C.J.S., p. 1141), who is exclusively made liable
for its timely payment. There is no proof that the tax paid by
plaintiff is the very money paid by its customers. Where the
tax money paid by the plaintiff came from is really no
concern of the Government, but solely a matter between the
plaintiff and its customers. Anyway, once recovered, the
plaintiff must hold the refunded taxes in trust for the
individual purchasers who advanced payment thereof, and
whose names must appear in plaintiff's records.
Moreover, the separate billing of the sales tax in appellant's
invoices was a direct result of the respondent
Commissioner's General Circular No. 440, providing that
"if a manufacturer, producer, or importer, in fixing the gross
selling price of an article sold by him, has included an
amount intended to cover the sales tax in the gross selling
price of the article, the sales tax shall be based on the gross
selling price less the amount intended to cover the tax, if the
same is billed to the purchaser as a separate item in the
invoice. xxx " (Italics supplied)
In other words, the separate itemization of the sales tax in
the invoices was permitted to avoid the taxpayer being
compelled to pay a sales tax on the tax itself. It does not
seem either just or proper that a step suggested by the
Internal Revenue authorities themselves to protect the

taxpayer from paying a double tax should now be used to

block his action to recover taxes collected without legal
sanction.
Finally, a more important reason that militates against
extensive and indiscriminate application of the Medina vs.
City of Baguio ruling is that it would tend to perpetuate
illegal taxation; for the individual customers to whom the tax
is ultimately shifted will ordinarily not care to sue for its
recovery, in view of the small amount paid by each and the
high cost of litigation for the reclaiming of an illegal tax. In
so far, therefore , as it favors the imposition, collection and
retention of illegal taxes, and encourages a multiplicity of
suits, the Tax Court's ruling under appeal violates morals
and public policy.
The plaintiff Company also urges that the refund of the taxes
should include interest thereon. While this Court has allowed
recovery of interest in some cases, it has done so only in
cases of patent arbitrariness on the part of the Revenue
authorities; and in this instance we agree with the Tax Court
that no such patent arbitrariness has been shown.
IN VIEW OF THE FOREGOING, the decision of the Court
of Tax Appeals is affirmed in Case G. R. No. L-19667 and
modified in cases G. R. Nos. L-19801, 19802 and 19803, by
declaring the sales taxes therein involved to have been
improperly levied and collected and ordering respondent
Commissioner of Internal Revenue to refund the same,
except the taxes corresponding to the period from August
24, 1956 to June 22, 1957, during which Republic Act No.
1612 was in force. The amount of P37,075.47 paid by the
taxpayer for this period is hereby declared properly
collected and not refundable. Without special
pronouncement as to costs.

Concepcion, C.J., Barrera, Dizon, Regala, Makalintal,

Bengzon, J.P., Zaldivar, and Sanchez JJ., concur.

[1]

"SEC. 188. Transactions and persons not subject to

percentage tax.In computing the tax imposed in sections
one hundred eighty-four, one hundred eighty-five, and one
hundred eighty-six, transactions in the following
commodities shall be excluded:
(a) Articles subject to tax under Title IV of this Code.
(b) Agricultural products and the ordinary salt whether in
their original form or not when sold, bartered, or exchanged
in this country by the producer or owner of the land where
produced, as well as all kinds of fish and its byproducts
when sold, bartered, or exchanged by the fisherman or
fishing operator whether in their original state or not.
[2]

Collector of Internal Revenue vs. American Rubber Co., L10963, April 30, 1963; Tan Kim Tee vs. Court of Tax Appeals,
L-18080, Apr. 22, 1963.

EN BANC
G.R. No. 88291, June 08, 1993
ERNESTO M. MACEDA, PETITIONER, VS. HON. CATALINO
MACARAIG, JR., IN HIS CAPACITY AS EXECUTIVE
SECRETARY, OFFICE OF THE PRESIDENT, HON. VICENTE
JAYME, ETC., ET AL., RESPONDENTS.
RESOLUTION

NOCON, J.:
Just like lightning which does strike the same place twice in
some instances, this matter of indirect tax exemption of the
private respondent National Power Corporation (NPC) is
brought to this Court a second time. Unfazed by the Decision
We promulgated on May 31, 1991[1] petitioner Ernesto
Maceda asks this Court to reconsider said Decision. Lest We
be criticized for denying due process to the petitioner, We
have decided to take a second look at the issues. In the
process, a hearing was held on July 9, 1992 where all parties
presented their respective arguments. Etched in this Court's
mind are the paradoxical claims by both petitioner and
private respondents that their respective positions are for
the benefit of the Filipino people.
I
A chronological review of the relevant NPC laws, specially
with respect to its tax exemption provisions, at the risk of
being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was
enacted creating the National Power Corporation, a public
corporation, mainly to develop hydraulic power from all
[1]

water sources in the Philippines.[2] The sum of P250,000.00

was appropriated out of the funds in the Philippine Treasury
for the purpose of organizing the NPC and conducting its
preliminary work.[3] The main source of funds for the NPC
was the flotation of bonds in the capital markets [4] and these
bonds
"x x x issued under the authority of this Act shall be exempt
from the payment of all taxes by the Commonwealth of the
Philippines, or by any authority, branch, division or political
subdivision thereof and subject to the provisions of the Act
of Congress, approved March 24, 1934, otherwise known as
the Tydings McDuffie Law, which facts shall be stated upon
the face of said bonds. x x x."[5]
On June 24, 1938, C.A. No. 344 was enacted increasing to
P550,000.00 the funds needed for the initial operations of
the NPC and reiterating the provision on the flotation of
bonds as soon as the first construction of any hydraulic
power project was to be decided by the NPC Board.[6] The
provision on tax exemption in relation to the issuance of the
NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing
the provision on the payment of the bond's principal and
interest in "gold coins" but adding that payment could be
made in United States dollars.[7] The provision on tax
[2]
[3]
[4]
[5]
[6]

exemption in relation to the issuance of the NPC bonds was

neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted
authorizing the President of the Philippines to guarantee,
absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans.[8] He was also authorized
to contract on behalf of the NPC with the International Bank
for Reconstruction and Development (IBRD) for NPC loans
for the accomplishment of NPC's corporate objectives[9] and
for the reconstruction and development of the economy of
the country.[10] It was expressly stated that:
"Any such loan or loans shall be exempt from taxes, duties,
fees, imposts, charges, contributions and restrictions of the
Republic of the Philippines, its provinces, cities and
municipalities."[11]
On the same date, R.A. No. 358 was enacted expressly
authorizing the NPC, for the first time, to incur other types
of indebtedness, aside from indebtedness incurred by
flotation of bonds.[12] As to the pertinent tax exemption
provision, the law stated as follows:
"To facilitate payment of its indebtedness, the National
Power Corporation shall be exempt from all taxes, duties,
[7]
[8]
[9]
[10]
[11]
[12]

fees, imposts, charges, and restrictions of the Republic of

the Philippines, its provinces, cities and municipalities." [13]
On July 10, 1952, R.A. No. 813 was enacted amending R.A.
No. 357 in that, aside from the IBRD, the President of the
Philippines was authorized to negotiate, contract and
guarantee loans with the Export-Import Bank of Washington,
D.C., U.S.A., or any other international financial
institution.[14] The tax provision for repayment of these loans,
as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to
withdraw NPC's tax exemption for real estate taxes. As
enacted, the law states as follows:
"To facilitate payment of its indebtedness, the National
Power Corporation shall be exempt from all taxes, except
real property tax, and from all duties, fees, imposts, charges,
and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities."[15]
On September 8, 1955, R.A. No. 1397 was enacted directing
that the NPC projects to be funded by the increased
indebtedness[16] should bear the National Economic Council's
stamp of approval. The tax exemption provision related to
the payment of this total indebtedness was not amended nor
deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the
total amount of foreign loans NPC was authorized to incur to
[13]
[14]
[15]
[16]

US$100,000,000.00 from the US$50,000,000.00 ceiling in

R.A. No. 357.[17] The tax provision related to the repayment
of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacted fixing the
corporate life of NPC to December 31, 2000.[18] All laws or
provisions of laws and executive orders contrary to said R.A.
No. 2058 were expressly repealed.[19]
On June 18, 1960, R.A. No. 2641 was enacted converting the
NPC from a public corporation into a stock corporation with
an authorized capital stock of P100,000,000.00 divided into
1,000,000 shares having a par value of P100.00 each, with
said capital stock wholly subscribed to by the Government.[20]
No tax exemption provision was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the
above-mentioned authorized capital stock to
P250,000,000.00 with the increase to be wholly subscribed
by the Government.[21] No tax provision was incorporated in
said Act.
On June 17, 1967, R.A. No. 4897 was enacted. NPC's capital
stock was increased again to P300,000,000.00, the increase
to be wholly subscribed by the Government. No tax provision
was incorporated in said Act.[22]
[17]
[18]
[19]
[20]
[21]
[22]

On September 10, 1971, R.A. No. 6395 was enacted revising

the charter of the NPC, C.A. No. 120, as amended. Declared
as primary objectives of the nation were:
"Declaration of Policy. -- Congress hereby declares that (1)
the comprehensive development, utilization and
conservation of Philippine water resources for all beneficial
uses, including power generation, and (2) the total
electrification of the Philippines through the development of
power from all sources to meet the needs of industrial
development and dispersal and the needs of rural
electrification are primary objectives of the nation which
shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including
the financial institutions."[23]
Section 4 of C.A. No. 120, was renumbered as Section 8, and
divided into Sections 8 (a) (Authority to incur Domestic
Indebtedness) and Section 8 (b) (Authority to Incur Foreign
Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of
Section 8(a), states as follows:
"The bonds issued under the authority of this subsection
shall be exempt from the payment of all taxes by the
Republic of the Philippines, or by any authority, branch,
division or political subdivision thereof which facts shall be
stated upon the face of said bonds. x x x."[24]
As to the foreign loans the NPC was authorized to contract,
Paragraph No. 5, Section 8(b), states as follows:

[23]
[24]

"The loans, credits and indebtedness contracted under this

subsection and the payment of the principal, interest and
other charges thereon, as well as the importation of
machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt
from all taxes, fees, imposts, other charges and restrictions,
including import restrictions, by the Republic of the
Philippines, or any of its agencies and political
subdivisions."[25]
A new section was added to the charter, now known as
Section 13, R.A. No. 6395, which declares the non-profit
character and tax exemptions of NPC as follows:
"The Corporation shall be nonprofit and shall devote all its
returns from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is
hereby declared exempt:
"(a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service fees in any court or
administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government
agencies and instrumentalities;
"(b) From all income taxes, franchise taxes and realty taxes
to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
"(c) From all import duties, compensating taxes and
advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and
[25]

"(d) From all taxes, duties, fees, imposts and all other
charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission,
utilization, and sale of electric power." [26]
On November 7, 1972, Presidential Decree No. 40 was
issued declaring that the electrification of the entire country
was one of the primary concerns of the country. And in
connection with this, it was specifically stated that:
"The setting up of transmission line grids and the
construction of associated generation facilities in Luzon,
Mindanao and major islands of the country, including the
Visayas, shall be the responsibility of the National Power
Corporation (NPC) as the authorized implementing agency
of the State."[27]
"xxx
xxx
xxx
"It is the ultimate objective of the State for the NPC to own
and operate as a single integrated system all generating
facilities supplying electric power to the entire area
embraced by any grid set up by the NPC."[28]
On January 22, 1974, P.D. No. 380 was issued giving extra
powers to the NPC to enable it to fulfill its role under
aforesaid P.D. No. 40. Its authorized capital stock was raised
to P2,000,000,000.00,[29] its total domestic indebtedness was
[26]
[27]
[28]
[29]

pegged at a maximum of P3,000,000,000.00 at any one

time,[30] and the NPC was authorized to borrow a total of
US$1,000,000,000.00[31] in foreign loans.
The relevant tax exemption provision for these foreign loans
states as follows:
"The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and
other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by
the Corporation, paid from the proceeds of any loan, credit
or indebtedness incurred under this Act, shall also be
exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions
previously and presently imposed, and to be imposed by the
Republic of the Philippines, or any of its agencies and
political subdivisions."[32] (Emphasis supplied)
Sections 13 (a) and 13 (d) of R.A. No. 6395 were amended to
read as follows:
"(a) From the payment of all taxes, duties, fees, imposts,
charges and restrictions to the Republic of the Philippines,
its provinces, cities, municipalities and other government
agencies and instrumentalities including the taxes, duties,
fees, imposts and other charges provided for under the Tariff
and Customs Code of the Philippines, Republic Act
Numbered Nineteen Hundred Thirty-Seven, as amended,
and as further amended by Presidential Decree No. 34,
dated October 27, 1972, and Presidential Decree No. 69,
dated November 24, 1972, and costs and service fees in any
[30]
[31]
[32]

court or administrative proceedings in which it may be a

party;
"xxx
xxx
xxx
"(d) From all taxes, duties, fees, imposts, and all other
charges imposed directly or indirectly by the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation,
transmission, utilization and sale of electric power." [33]
(Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing
certain restrictions in the NPC's sale of electricity to its
different customers.[34] No tax exemption provision was
amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that
P200,000,000.00 would be appropriated annually to cover
the unpaid subscription of the Government in the NPC
authorized capital stock, which amount would be taken from
taxes accruing to the General Fund of the Government,
proceeds from loans, issuance of bonds, treasury bills or
notes to be issued by the Secretary of Finance for this
particular purpose.[35]
On May 27, 1976, P.D. No. 938 was issued
"(I)n view of the accelerated expansion programs for
generation and transmission facilities which includes nuclear
power generation, the present capitalization of National
[33]
[34]
[35]

Power Corporation (NPC) and the ceilings for domestic and

foreign borrowings are deemed insufficient;[36]
"xxx
xxx
xxx
"(I)n the application of the tax exemption provisions of the
Revised Charter, the non-profit character of NPC has not
been fully utilized because of restrictive interpretation of the
taxing agencies of the government on said provisions;[37]
"xxx
xxx
xxx
"(I)n order to effect the accelerated expansion program and
attain the declared objective of total electrification of the
country, further amendments of certain sections of Republic
Act No. 6395, as amended by Presidential Decrees Nos. 380,
395 and 758, have become imperative;"[38]
Thus NPC's capital stock was raised to P8,000,000,000.00, [39]
the total domestic indebtedness ceiling was increased to
P12,000,000,000.00,[40] the total foreign loan ceiling was
raised to US$4,000,000,000.00[41] and Section 13 of R.A. No.
6395, was amended to read as follows:
"The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in
[36]
[37]
[38]
[39]
[40]
[41]

furtherance and effective implementation of the policy

enunciated in Section one of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from
the payment of all forms of taxes, duties, fees, imposts as
well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative
proceedings."[42]
II
On the other hand, the pertinent tax laws involved in this
controversy are P.D. Nos. 882, 1177, 1931 and Executive
Order No. 93 (S 86).
On January 30, 1976, P.D. No. 882 was issued withdrawing
the tax exemption of NPC with regard to its imports as
follows:
"WHEREAS, importations by certain government agencies,
including, government-owned or controlled corporation, are
exempt from the payment of customs duties and
compensating tax; and
"WHEREAS, in order to reduce foreign exchange spending
and to protect domestic industries, it is necessary to restrict
and regulate such tax-free importations.
"NOW, THEREFORE, I, FERDINAND E. MARCOS, President
of the Philippines, by virtue of the powers vested in me by
the Constitution; do hereby decree and order the following:
"SECTION 1. All importations of any government agency,
including government-owned or controlled corporations
which are exempt from the payment of customs duties and
internal revenue taxes, shall be subject to the prior approval
of an Inter-Agency Committee which shall insure compliance
with the following conditions:
[42]

'(a) That no such article of local manufacture

are available in sufficient quantity and
comparable quality at reasonable prices;
'(b) That the articles to be imported are directly
and actually needed and will be used
exclusively by the grantee of the exemption
for its operations and projects or in the
conduct of its functions; and
'(c) The shipping documents covering the
importation are in the name of the grantee
to whom the goods shall be delivered
directly by customs authorities.
"xxx
xxx
xxx
"SEC. 3. The Committee shall have the power to regulate
and control the tax-free importation of government agencies
in accordance with the conditions set forth in Section 1
hereof and the regulations to be promulgated to implement
the provisions of this Decree. Provided, however, That any
government agency or government-owned or controlled
corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the InterAgency Committee may file an appeal with the Office of the
President within ten days from the date of notice thereof. x x
x.
"xxx
xxx
xxx
"xxx
xxx
xxx
"SEC. 6. x x x. Section 13 of Republic Act No. 6395; x x x.
and all similar provisions of all general and special laws and
decrees are hereby amended accordingly.
"xxx
xxx
xxx."
On July 30, 1977, P.D. No. 1177 was issued as it was

"x x x declared the policy of the State to formulate and

implement a National Budget that is an instrument of
national development, reflective of national objectives,
strategies and plans. The budget shall be supportive of and
consistent with the socio-economic development plan and
shall be oriented towards the achievement of explicit
objectives and expected results, to ensure that funds are
utilized and operations are conducted effectively,
economically and efficiently. The national budget shall be
formulated within the context of a regionalized government
structure and of the totality of revenues and other receipts,
expenditures and borrowings of all levels of governmentowned or controlled corporations. The budget shall likewise
be prepared within the context of the national long-term
plan and of a long-term budget program."[43]
In line with such policy, the law decreed that
"All units of government, including government-owned or
controlled corporations, shall pay income taxes, customs
duties and other taxes and fees as are imposed under
revenue laws: provided, that organizations otherwise
exempted by law from the payment of such taxes/duties may
ask for a subsidy from the General Fund in the exact amount
of taxes/duties due: provided, further, that a procedure shall
be established by the Secretary of Finance and the
Commissioner of the Budget, whereby such subsidies shall
automatically be considered as both revenue and
expenditure of the General Fund."[44]
The law also declared that -"[A]ll laws, decrees, executive orders, rules and regulations
or parts thereof which are inconsistent with the provisions of
[43]
[44]

the Decree are hereby repealed and/or modified

accordingly.[45]
On June 11, 1984, most likely due to the economic morass
the Government found itself in after the Aquino
assassination, P.D. No. 1931 was issued to reiterate that:
"WHEREAS, Presidential Decree No. 1177 has already
expressly repealed the grant of tax privileges to any
government-owned or controlled corporation and all other
units of government;"[46]
and since there was a
"x x x need for government-owned or controlled corporations
and all other units of government enjoying tax privileges to
share in the requirements of development, fiscal or
otherwise, by paying the duties, taxes and other charges due
from them."[47]
it was decreed that:
SECTION 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment
of duties, taxes, fees, imposts and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries, are hereby
withdrawn.
SEC.2. The President of the Philippines and/or the Minister
of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under Presidential Decree
No. 776, is hereby empowered to restore, partially or totally,
[45]
[46]
[47]

the exemptions withdrawn by Section 1 above, or otherwise

revise the scope and coverage of any applicable tax and duty,
taking into account, among others, any or all of the
following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue
generation effort;
3) The nature of the activity in which the corporation is
engaged in; or
4) In general the greater national interest to be served.
xxx
xxx
xxx
SEC. 5. The provisions of Presidential Decree No. 1177 as
well as all other laws, decrees, executive orders,
administrative orders, rules, regulations or parts thereof
which are inconsistent with this Decree are hereby repealed,
amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S' 86) was issued with a
view to correct presidential restoration or grant of tax
exemption to other government and private entities without
benefit of review by the Fiscal Incentives Review Board, to
wit:
"WHEREAS, Presidential Decree Nos. 1931 and 1955 issued
on June 11, 1984 and October 14, 1984, respectively,
withdrew the tax and duty exemption privileges, including
the preferential tax treatment, of government and private
entities with certain exceptions, in order that the
requirements of national economic development, in terms of
fiscal and other resources, may be met more adequately;
"xxx
xxx
xxx
"WHEREAS, in addition to those whose tax and duty
exemption privileges were restored by the Fiscal Incentives
Review Board (FIRB), a number of affected entities,
government and private, had their tax and duty exemption

privileges restored or granted by Presidential action without

benefit of review by the Fiscal Incentives Review Board
(FIRB);
"xxx
xxx
xxx.
"xxx
xxx
xxx.
Since it was decided that:
"[A]ssistance to government and private entities may be
better provided where necessary by explicit subsidy and
budgetary support rather than tax and duty exemption
privileges if only to improve the fiscal monitoring aspects of
government operations."
it was thus ordered that:
"SECTION 1. The provisions of any general or special law to
the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby
withdrawn, except:
a) those covered by the non-impairment clause of the
Constitution;
b) those conferred by effective international agreement to
which the Government of the Republic of the Philippines is a
signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree
No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66, as amended;
(iii) the Philippine Veterans Investment Development
Corporation Industrial Authority pursuant to Presidential
Decree No. 538, as amended.
d) those enjoyed by the copper mining industry pursuant to
the provisions of Letter of Instructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the
recommendation of the Fiscal Incentives Review Board.
"SECTION 2. The Fiscal Incentives Review Board created
under Presidential Decree No. 776, as amended, is hereby
authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder
in whole or in part;
b) revise the scope and coverage of tax and/or duty
exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date or period of effectivity of the
restoration of tax and/or duty exemption;
e) formulate and submit to the President for approval, a
complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential
treatment in taxation, indicating the source of funding
therefor, eligible beneficiaries and the terms and conditions
for the grant thereof taking into consideration the
international commitment of the Philippines and the
necessary precautions such that the grant of subsidies does
not become the basis for countervailing action.
"SECTION 3. In the discharge of its authority hereunder, the
Fiscal Incentives Review Board shall take into account any
or all of the following considerations:
a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue

generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
"xxx
xxx
xxx
"SECTION 5. All laws, orders, issuances, rules and
regulations or parts thereof inconsistent with this Executive
Order are hereby repealed or modified accordingly."
E.O. No. 93 (S'86) was decreed to be effective[48] upon the
promulgation of the rules and regulations, to be issued by
the Ministry of Finance.[49] Said rules and regulations were
promulgated and published in the Official Gazette on
February 23, 1987. These became effective on the 15th day
after publication[50] in the Official Gazette,[51] which 15th day
was March 10, 1987.
III
Now, to some definitions. We refer to the very simplistic
approach that all would-be lawyers, learn in their TAXATION
I course, which for convenient reference, is as follows:
Classifications or Kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax - that where the person supposed to pay the tax
really pays it, WITHOUT transferring the burden to someone
else.
[48]
[49]
[50]
[51]

Examples: Individual income tax, corporate income tax,

transfer taxes (estate tax, donor's tax), residence tax,
immigration tax
b. Indirect Tax - that where the tax is imposed upon goods
BEFORE reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax,
percentage taxes, VAT) and the tariff and customs indirect
taxes (import duties, special import tax and other dues) [52]
IV
To simplify matters, the issues raised by petitioner in his
motion for reconsideration can be reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being
enjoyed?
(3) If there are taxes to be paid, who shall pay for these
taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect
tax exemption of NPC as the phrase "all forms of taxes, etc.,"
in its Section 10, amending Section 13, R.A. No. 6395, as
amended by P.D. No. 380, does not expressly include
"indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has
been the lawmaker's intention that the NPC was to be
[52]

completely tax exempt from all forms of taxes -- direct and

indirect.
NPC's tax exemption at first applied to the bonds it was
authorized to float to finance its operations upon its creation
by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for
foreign financing, any loans obtained were to be completely
tax exempt.
After the NPC was authorized to borrow from other sources
of funds -- aside from issuance of bonds -- it was again
specifically exempted from all types of taxes "to facilitate
payment of its indebtedness." Even when the ceilings for
domestic and foreign borrowings were periodically
increased, the tax exemption privileges of the NPC were
maintained.
NPC's tax exemption from real estate taxes was, however,
specifically withdrawn by Rep. Act No. 987, as above stated.
The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its
enumeration of the tax exemptions allowed NPC. Its Section
13(d) is the starting point of this bone of contention among
the parties. For easy reference, it is reproduced as follows:
"[T]he Corporation is hereby declared exempt:
"xxx
xxx
xxx
"(d) From all taxes, duties, fees, imposts and all other
charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission,
utilization, and sale of electric power."

P.D. No. 380 added the phrase "directly or indirectly" to said

Section 13(d), which now reads as follows:
"xxx
xxx
xxx
"(d) From all taxes, duties, fees, imposts, and all other
charges imposed directly or indirectly by the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation,
transmission, utilization and sale of electric power."
(Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c)
and (d) into one very simple paragraph as follows:
"The Corporation shall be non-profit and shall devote all its
returns from its capital investment as well as excess
revenues from its operation, for expansion. To enable the
Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from
the payment of ALL FORMS OF taxes, duties, fees, imposts
as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative
proceedings." (Emphasis supplied)
Petitioner reminds Us that:
"[I]t must be borne in mind that Presidential Decree Nos.
380 and 938 were issued by one man, acting as both the
Executive and Legislative.[53]
"xxx
xxx
xxx
"[S]ince both presidential decrees were made by the same
person, it would have been very easy for him to retain the
[53]

same or similar language used in P.D. No. 380 in P.D. No. 938
if his intention were to preserve the indirect tax exemption
of NPC.[54]
Actually, P.D. No. 938 attests to the ingeniousness of then
President Marcos no matter what his faults were. It should
be noted that Section 13, R.A. No. 6395, provided for tax
exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations
and projects;
13(d) : petroleum products used in generation of electric
power:
P.D. No. 938 lumped up 13(b), 13(c) and 13(d) into the
phrase "ALL FORMS OF TAXES, ETC.,", included 13(a)
under the "as well as" clause and added PNOC subsidiaries
as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all
the NPC laws in the order of enactment or issuance as
narrated above in part I hereof. President Marcos must have
considered all the NPC statutes from C.A. No. 120 up to its
latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No.
759, AND came up[55] with a very simple Section 13, R.A. No.
6395, as amended by P.D. No. 938.
One common theme in all these laws is that the NPC must be
enabled to pay its indebtedness[56] which, as of P.D. No. 938,
was P12 Billion in total domestic indebtedness, at any one
[54]
[55]

time, and US$4 Billion in total foreign loans at any one time.
The NPC must be and has to be exempt from all forms of
taxes if this goal is to be achieved.
By virtue of P.D. No. 938, NPC's capital stock was raised to
P8 Billion. It must be remembered that to pay for the
government share in its capital stock P.D. No. 758 was issued
mandating that P200 Million would be appropriated annually
to cover the said unpaid subscription of the Government in
NPC's authorized capital stock. And significantly one of the
sources of this annual appropriation of P200 million is TAX
MONEY accruing to the General Fund of the Government. It
does not stand to reason then that former President Marcos
would order P200 Million to be taken partially or totally from
tax money to be used to pay the Government subscription in
the NPC, on one hand, and then order the NPC to pay all its
indirect taxes, on the other.
The above conclusion that then President Marcos lumped up
Sections 13 (b), 13 (c) and 13 (d) into the phrase "ALL
FORMS OF" is supported by the fact that he did not do the
same for the tax exemption provision for the foreign loans to
be incurred.
The tax exemption on foreign loans found in Section 8(b),
R.A. No. 6395, reads as follows:
"The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and
other charges thereon, as well as the importation of
machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt
from all taxes, fees, imposts, other charges and restrictions,
including import restrictions, by the Republic of the
[56]

Philippines, or any of its agencies and political

subdivisions."[57]
The same was amended by P.D. No. 380 as follows:
"The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and
other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by
the Corporation, paid from the proceeds of any loan, credit
or indebtedness incurred under this Act, shall also be
exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions
previously and presently imposed, and to be imposed
by the Republic of the Philippines, or any of its agencies and
political subdivisions."[58] (Emphasis supplied)
P.D. No. 938 did not amend the same[59] and so the tax
exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject
matter of this particular Section 8 (b) had to do only with
loans and machinery imported, paid for from the proceeds of
these foreign loans, THERE WAS NO OTHER SUBJECT
MATTER TO LUMP IT UP WITH, and so, the tax
exemption stood as is -- with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect"
tax exemption privilege extended to "taxes, fees, imposts,
other charges x x x to be imposed" in the future -- surely, an
indication that the lawmakers wanted the NPC to be exempt
from ALL FORMS of taxes -- direct and indirect.

[57]
[58]
[59]

It is crystal clear, therefore, that NPC had been granted tax

exemption privileges for both direct and indirect taxes under
P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the
Government decided to rationalize government receipts and
expenditures by formulating and implementing a National
Budget.[60] The NPC, being a government owned and
controlled corporation had to shed off its tax exemption
status privileges under P.D. No. 1177. It was, however,
allowed to ask for a subsidy from the General Fund in the
exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed
NPC's tax-free importation privileges. It allowed, however,
NPC to appeal said repeal with the Office of the President
and to avail of tax-free importation privileges under its
Section 1, subject to the prior approval of an Inter-Agency
Committee created by virtue of said P.D. No. 882. It is
presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations.
This Court notes that petitioner brought to the attention of
this Court, the matter of the abolition of NPC's tax
exemption privileges by P.D. No. 1177[61] only in his Common
Reply/Comment to Private Respondents' "Opposition" and
"Comment" to Motion for Reconsideration, four (4) months
AFTER the Motion for Reconsideration had been filed.
During oral arguments heard on July 9, 1992, he proceeded
to discuss this tax exemption withdrawal as explained by
then Secretary of Justice Vicente Abad Santos in Opinion No.
[60]
[61]

133 (S'77).[62] A careful perusal of petitioner's Senate Blue

Ribbon Committee Report No. 474, the basis of the petition
at bar, fails to yield any mention of said P.D. No. 1177's effect
on NPC's tax exemption privileges.[63] Applying by analogy
Pulido vs. Pablo,[64] the Court declares that the matter of P.D.
No. 1177 abolishing NPC's tax exemption privileges was not
seasonably invoked[65] by the petitioner.
Be that as it may, the Court still has to discuss the effect of
P.D. No. 1177 on the NPC tax exemption privileges as this
statute has been reiterated twice in P.D. No. 1931. The
express repeal of tax privileges of any government-owned or
controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's
preamble. The subsidy provided for in Section 23, P.D. No.
1177, being inconsistent with Section 2, P.D. No. 1931, was
deemed repealed as the Fiscal Incentives Revenue Board
was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D.
No. 1931.
The records before Us do not indicate whether or not NPC
asked for the subsidy contemplated in Section 23, P.D. No.
1177. Considering, however, that under Section 16 of P.D.
No. 1177, NPC had to submit to the Office of the President
its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its
unpaid subscription to the NPC authorized capital stock and
that under Section 22, of the same P.D. No. NPC had to
[62]
[63]
[64]
[65]

likewise submit to the Office of the President its internal

operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's
guarantee of the domestic and foreign indebtedness of the
NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of the subsidy
granted tax exempt GOCCs that suddenly found themselves
having to pay taxes. It will be noted that Section 23, P.D. No.
1177, mandated that the Secretary of Finance and the
Commissioner of the Budget had to establish the necessary
procedures to accomplish the tax payment/tax subsidy
scheme of the Government. In effect, NPC did not put out
any cash to pay any tax as it got from the General Fund the
amounts necessary to pay the different revenue collectors
for the taxes it had to pay.
In his Memorandum filed July 16, 1992, petitioner submits:
"[T]hat with the enactment of P.D. No. 1177 on July 30, 1977,
the NPC lost all its duty and tax exemptions, whether direct
or indirect. And so there was nothing to be withdrawn or to
be restored under P.D. No. 1931, issued on June 11, 1984.
This is evident from sections 1 and 2 of said P.D. No. 1931
which reads:
'Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment
of duties, taxes, fees, imports and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby
withdrawn.'
'Section 2. The President of the Philippines and/or the
Minister of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under P.D. No. 776, is
hereby empowered to restore partially or totally, the
exemptions withdrawn by section 1 above. xxx.'

"Hence, P.D. No. 1931 did not have any effect nor did it
change NPC's status. Since it had already lost all its tax
exemptions privilege with the issuance of P.D. No. 1177
seven (7) years earlier or on July 30, 1977, there were no tax
exemptions to be withdrawn by section 1 which could later
be restored by the Minister of Finance upon the
recommendation of the FIRB under section 2 of P.D. No.
1931. Consequently, FIRB resolutions No. 10-85, and 1-86,
were all illegally and invalidly issued since FIRB acted
beyond their statutory authority by creating and not merely
restoring the tax exempt status of NPC. The same is true for
FIRB Res. No. 17-87 which restored NPC's tax exemption
under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation
of the FIRB to restore those abolished."
The Court disagrees.
Applying by analogy the weight of authority that:
"When a revised and consolidated act re-enacts in the same
or substantially the same terms the provisions of the act or
acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the
former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and
all rights and liabilities under the former act or acts are
preserved and may be enforced."[66]
the Court rules that when P.D. No. 1931 basically reenacted
in its Section 1 the first half of Section 23, P.D. No. 1177, on
withdrawal of tax exemption privileges of all GOCCs, said
Section 1, P.D. No. 1931 was deemed to be a continuation of
the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 1177, on the subsidy
scheme for former tax exempt GOCCs, had been expressly
[66]

repealed by Section 2 with its institution of the FIRB

recommendation of partial/total restoration of tax exemption
privileges.
The NPC tax exemption privileges withdrawn by Section 1,
P.D. No. 1931, were, therefore, the same NPC tax exemption
privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to pay. It
could, however, under P.D. No. 1931, ask for a total
restoration of its tax exemption privileges, which it did, and
the same were granted under FIRB Resolutions Nos. 10-85[67]
and 1-86[68] as approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB
Resolutions Nos. 10-85 and 1-86 were both legally and
validly issued by the FIRB pursuant to P.D. No. 1931. FIRB
did not create NPC's tax exemption status but merely
restored it.[69]
Some quarters have expressed the view that P.D. No. 1931
was illegally issued under the now rather infamous
Amendment No. 6[70] as there was no showing that President
Marcos' encroachment on legislative prerogatives was
justified under the then prevailing condition that he could
legislate "only if the Batasang Pambansa 'failed or was
unable to act inadequately on any matter that in his
judgment required immediate action' to meet the
'exigency'.[71]
[67]
[68]
[69]
[70]
[71]

Actually under said Amendment No. 6, then President

Marcos could issue decrees not only when the Interim
Batasang Pambansa failed or was unable to act adequately
on any matter for any reason that in his (Marcos') judgment
required immediate action, but also when there existed a
grave emergency or a threat or thereof. It must be
remembered that said Presidential Decree was issued only
around nine (9) months after the Philippines unilaterally
declared a moratorium on its foreign debt payments [72] as a
result of the economic crisis triggered by loss of confidence
in the government brought about by the Aquino
assassination. The Philippines was then trying to reschedule
its debt payments.[73] One of the big borrowers was the
NPC[74] which had a US$2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back.[75] From all
indications, it must have been this grave emergency of a
debt rescheduling which compelled Marcos to issue P.D. No.
1931, under his Amendment 6 power.[76]
The rule, therefore, that under the 1973 Constitution "no law
granting a tax exemption shall be passed without the
concurrence of a majority of all the members of the
Batasang Pambansa"[77] does not apply as said P.D. No. 1931
was not passed by the Interim Batasang Pambansa but by
then President Marcos under His Amendment No. 6 power.
[72]
[73]
[74]
[75]
[76]
[77]

P.D. No. 1931 was, therefore, validly issued by then

President Marcos under his Amendment No. 6 authority.
Under E.O. No. 93 (S'86) NPC's tax exemption privileges
were again clipped by, this time, President Aquino. Its
Section 2 allowed the NPC to apply for the restoration of its
tax exemption privileges. The same was granted under FIRB
Resolution No. 17-87[78] dated June 24, 1987 which restored
NPC's tax exemption privileges effective, starting March 10,
1987, the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on
October 5, 1987.[79] There is no indication, however, from the
records of the case whether or not similar approvals were
given by then President Marcos for FIRB Resolutions Nos.
10-85 and 1-86. This has led some quarters to believe that a
"travesty of justice" might have occurred when the Minister
of Finance approved his own recommendation as Chairman
of the Fiscal Incentives Review Board as what happened in
Zambales Chromite vs. Court of Appeals[80] when the
Secretary of Agriculture and Natural Resources approved a
decision earlier rendered by him when he was the Director
of Mines,[81] and in Anzaldo vs. Clave[82] where Presidential
Executive Assistant Clave affirmed, on appeal to
Malacaang, his own decision as Chairman of the Civil
Service Commission.[83]

[78]
[79]
[80]
[81]
[82]

Upon deeper analysis, the question arises as to whether one

can talk about "due process" being violated when FIRB
Resolutions Nos. 10-85 and 1-86 were approved by the
Minister of Finance when the same were recommended by
him in his capacity as Chairman of the Fiscal Incentives
Review Board.[84]
In Zambales Chromite and Anzaldo,two (2) different parties
were involved: mining groups and scientist-doctors,
respectively. Thus, there was a need for procedural due
process to be followed.
In the case of the tax exemption restoration of NPC, there is
no other comparable entity -- not even a single public or
private corporation -- whose rights would be violated if
NPC's tax exemption privileges were to be restored. While
there might have been a MERALCO before Martial Law, it is
of public knowledge that the MERALCO generating plants
were sold to the NPC in line with the State policy that NPC
was to be the State implementing arm for the electrification
of the entire country. Besides, MERALCO was limited to
Manila and its environs. And as of 1984, there was no more
MERALCO -- as a producer of electricity -- which could have
objected to the restoration of NPC's tax exemption
privileges.
It should be noted that NPC was not asking to be granted tax
exemption privileges for the first time. It was just asking that
its tax exemption privileges be restored. It is for these
reasons that, at least in NPC's case, the recommendation
and approval of NPC's tax exemption privileges under FIRB
Resolution Nos. 10-85 and 1-86, done by the same person
acting in his dual capacities as Chairman of the Fiscal
[83]
[84]

Incentives Review Board and Minister of Finance,

respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was
approved by President Aquino on October 5, 1987, the view
has been expressed that President Aquino, at least with
regard to E.O. 93 (S'86), had no authority to sub-delegate to
the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O. No. 93 (S86) was issued, President Aquino was
exercising both Executive and Legislative powers. Thus,
there was no power delegated to her, rather it was she who
was delegating her power. She delegated it to the FIRB,
which, for purposes of E.O. No. 93 (S'86), is a delegate of the
legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in
itself -- it set forth the policy to be carried out [85] and it fixed
the standard to which the delegate had to conform in the
performance of his functions,[86] both qualities having been
enunciated by this Court in Pelaez vs. Auditor General.[87]
Thus, after all has been said, it is clear that the NPC had its
tax exemption privileges restored from June 11, 1984 up to
the present.
VII
The next question that projects itself is -- who pays the tax?
[85]
[86]
[87]

The answer to the question could be gleaned from the

manner by which the Commissaries of the Armed Forces of
the Philippines sell their goods.
By virtue of P.D. No. 83,[88] veterans, members of the Armed
Forces of the Philippines, and their dependents buy
groceries and other goods free of all taxes and duties if
bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat
the unchargeable specific, ad valorem and other taxes on the
goods earmarked for AFP Commissaries as an added cost of
operation and distribute it over the total units of goods sold
as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad
valorem and other taxes which these suppliers do not charge
the AFP Commissaries.[89]
IN MUCH THE SAME MANNER, it is clear that private
respondents-oil companies have to absorb the taxes they add
to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14,
1954, the Secretary of Justice rendered an opinion, [90]
wherein he stated and We quote:
"xxx
xxx
xxx
"Republic Act No. 358 exempts the National Power
Corporation from 'all taxes, duties, fees, imposts, charges,
and restrictions of the Republic of the Philippines and its
provinces, cities and municipalities.' This exemption is broad
enough to include all taxes, whether direct or indirect, which
[88]
[89]
[90]

the National Power Corporation may be required to pay,

such as the specific tax on petroleum products. That it is
indirect is of no amount [should be of no moment], for it is
the corporation that ultimately pays it. The view which
refuses to accord the exemption because the tax is first paid
by the seller disregards realities and gives more Importance
to form than to substance. Equity and law always exalt
substance over form.
"xxx
xxx
xxx
"Tax exemptions are undoubtedly to be construed strictly but
not so grudgingly as to defeat their purpose. It is common
knowledge that many impositions taxpayers have to pay are
in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the
statute will be to thwart the legislative intention in giving
exemption from all forms of taxes and impositions without
distinguishing between those that are direct and those that
are not."
(Emphasis supplied)
In view of all the foregoing, the Court rules and declares
that the oil companies which supply bunker fuel oil to NPC
have to pay the taxes imposed upon said bunker fuel oil sold
to NPC. By the very nature of indirect taxation, the economic
burden of such taxation is expected to be passed on through
the channels of commerce to the user or consumer of the
goods sold. Because, however, the NPC has been exempted
from both direct and indirect taxation, the NPC must be held
exempted from absorbing the economic burden of indirect
taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC must absorb all or part
of the economic burden of the taxes previously paid to BIR,
which they could shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other
hand, that the NPC may refuse to pay that part of the

"normal" purchase price of bunker fuel oil which represents

all or part of the taxes previously paid by the oil companies
to BIR. If NPC nonetheless purchases such oil from the oil
companies -- because to do so may be more convenient and
ultimately less costly for NPC than NPC itself importing and
hauling and storing the oil from overseas -- NPC is entitled
to be reimbursed by the BIR for that part of the buying price
of NPC which verifiably represents the tax already paid by
the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue
of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on
June 16, 1987 by virtue of which the ad valorem tax rate on
bunker fuel oil was reduced to ZERO (0%) PER CENTUM.
Said E.O. No. 195 reads as follows:
"EXECUTIVE ORDER NO. 195

"AMENDING PARAGRAPH (b) OF SECTION 128 OF THE

NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY
REVISING THE EXCISE TAX RATES OF CERTAIN
PETROLEUM PRODUCTS.
"XXX
XXX
XXX

"XXX

XXX

XXX
"SECTION 1. Paragraph (b) of Section 128 of the National
Internal Revenue Code, as amended, is hereby amended to
read as follows:
'Par. (b) - For products subject to ad valorem tax only:
'PRODUCT
VALOREM TAX RATE

AD

'1. X X X
'2. X X X
'3. X X X
'4. Fuel oil, commercially known as
bunker oil and on similar fuel oils
having more or less the same
generating power...
0%
'xxx
xxx.

xxx

'xxx
xxx.

xxx

"SEC. 3. This Executive Order shall take effect immediately.

"Done in the City of Manila, this 17th day of June, in the year
of Our Lord, nineteen hundred and eighty-seven." (Emphasis
supplied)
The oil companies can now deliver bunker fuel oil to NPC
without having to worry about who is going to bear the
economic burden of the ad valorem taxes. What this Court
will now dispose of are petitioner's complaints that some
indirect tax money has been illegally refunded by the Bureau

of Internal Revenue to the NPC and that more claims for

refunds by the NPC are being processed for payment by the
BIR.
A case in point is the Tax Credit Memo issued by the Bureau
of Internal Revenue in favor of the NPC last July 7, 1986 for
P58,020,110.79 which were for "erroneously paid specific
and ad valorem taxes during the period from October 31,
1984 to April 27, 1985."[91] Petitioner asks Us to declare this
Tax Credit Memo illegal as the NPC did not have indirect tax
exemptions with the enactment of P.D. No. 938. As We have
already ruled otherwise, the only questions left are whether
NPC is entitled to a tax refund for the tax component of the
price of the bunker fuel oil purchased from Caltex (Phils.)
Inc. and whether the Bureau of Internal Revenue properly
refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing
the tax exemptions of all GOCCs -- NPC included, it was only
on May 8, 1985 when the BIR issued its letter authority to
the NPC authorizing it to withdraw tax-free bunker fuel oil
from the oil companies pursuant to FIRB Resolution No. 1085.[92] Since the tax exemption restoration was retroactive to
June 11, 1984 there was a need, therefore, to recover said
amount as Caltex (Phils.) Inc. had already paid the BIR the
specific and ad valorem taxes on the bunker oil it sold NPC
during the period above indicated and had billed NPC
correspondingly.[93] It should be noted that the NPC, in its
letter-claim dated September 11, 1985 to the Commissioner
of the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY STATE that it
[91]
[92]
[93]

itself paid the P58,020,110.79 as part of the bunker fuel oil

price it purchased from Caltex (Phils.) Inc.[94]
The law governing recovery of erroneously or illegally
collected taxes is Section 230 of the National Internal
Revenue Code of 1977, as amended, which reads as follows:
"SEC. 230. Recovery of tax erroneously or illegally collected.
-No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
"In any case, no such suit or proceeding shall be begun after
the expiration of two years from the date of payment of the
tax or penalty regardless of any supervening cause that may
arise after payment; Provided, however, That the
Commissioner may, even without a written claim therefore,
refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears
clearly to have been erroneously paid."
xxx
xxx
xxx
Inasmuch as NPC filed its claim for P58,020,110.79 on
September 11, 1985,[95] the Commissioner correctly issued
the Tax Credit Memo in view of NPC's indirect tax
exemption.
[94]
[95]

Petitioner, however, asks Us to restrain the Commissioner

from acting favorably on NPC's claim for P410,580,000.00
which represents specific and ad valorem taxes paid by the
oil companies to the BIR from June 11, 1984 to the early part
of 1986.[96]
A careful examination of petitioner's pleadings and annexes
attached thereto does not reveal when the alleged claim for
a P410,580,000.00 tax refund was filed. It is only stated in
paragraph No. 2 of the Deed of Assignment[97] executed by
and between NPC and Caltex (Phils.) Inc., as follows:
"That the ASSIGNOR(NPC) has a pending tax credit claim
with the Bureau of Internal Revenue amounting to
P442,887,716.16, P58,020,110.79 of which is due to
Assignor's oil purchases from the Assignee (Caltex [Phils.]
Inc.)"
Actually, as the Court sees it, this is a clear case of a
"Mexican standoff." We cannot restrain the BIR from
refunding said amount because of Our ruling that NPC has
both direct and indirect tax exemption privileges. Neither
can We order the BIR to refund said amount to NPC as there
is no pending petition for review on certiorari of a suit for its
collection before Us. At any rate, at this point in time, NPC
can no longer file any suit to collect said amount EVEN IF it
has previously filed a claim with the BIR because it is timebarred under Section 230 of the National Internal Revenue
Code of 1977, as amended, which states:
"In any case, no such suit or proceeding shall be begun after
the expiration of two years from the date of payment of the
tax or penalty REGARDLESS of any supervening cause that
[96]
[97]

may arise after payment. x x x" (Emphasis and italics

supplied)
The date of the Deed of Assignment is June 6, 1986. Even if
We were to assume that payment by NPC for the amount of
P410,580,000.00 had been made on said date, it is clear that
more than two (2) years had already elapsed from said date.
At the same time, We should note that there is no legal
obstacle to the BIR granting, even without a suit by NPC, the
tax credit or refund claimed by NPC, assuming that NPC's
claim had been made seasonably, and assuming the amounts
covered had actually been paid previously by the oil
companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for
Reconsideration of petitioner is hereby DENIED for lack of
merit and the decision of this Court promulgated on May 31,
1991 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo,
and Melo, JJ., concur.
Cruz, J., maintains his original dissent in G.R. No. 88291,
May 31, 1991.
Grio-Aquino, and Davide, Jr., JJ., join J. Sarmiento in his
original dissent in G.R. No. 88291, May 31, 1991.
Padilla and Quiason, JJ., no part.

Penned by Justice Gancayco, concurred in by Justices

Narvasa, Melencio-Herrera, Feliciano, Bidin, Medialdea, and
Regalado; separate dissenting opinions by Justices Cruz,
Paras, and Sarmiento, with Justices Grio-Aquino and Davide
[1]

[1]

joining in the dissent of Justice Sarmiento while Justice

Guttierrez joined in the dissents. Chief Justice Fernan and
Justice Padilla took no part.
[2]

Com. Act No. 120, secs. 1, & 2(g).

[3]

Com. Act No. 120, sec. 11.

[4]

Com. Act No. 120, sec. 2(k).

[5]

Com. Act No. 120, sec. 4, par. 3.

[6]

Com. Act No. 344, sec. 1.

[7]

Com. Act No. 495, sec. 1.

[8]

Rep. Act No. 357, sec. 3.

[9]

Rep. Act No. 357, sec. 1.

[10]

Rep. Act No. 357, sec. 2.

[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]

[11]

Rep. Act No. 357, sec. 8.

[12]

Rep. Act No. 358, sec. 1.

[13]

Rep. Act No. 358, sec. 2.

[14]

Rep. Act No. 813, sec. 1.

[15]

Rep. Act No. 987, sec. 2.

Increased to P500,000,000.00 from P170,500,000.00 in

Rep. Act No. 358 (Rep. Act No. 1397, sec. 1).
[16]

[17]

Rep. Act No. 2055, Secs. 1 and 2.

[18]

Rep. Act No. 2058, sec. 1.

[19]

Rep. Act No. 2058, sec. 2.

[20]

Rep. Act No. 2641, sec. 1.

[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]

[21]

Rep. Act No. 3043, sec. 1.

[22]

Rep. Act No. 4897, sec. 1.

[23]

Rep. Act No. 6395, sec. 2.

[24]

Rep. Act No. 6395, sec. 8(a).

[25]

Rep. Act No. 6395, sec. 8(b).

[26]

Rep. Act No. 6395, sec. 13.

[27]

Pres. Dec. No. 40, par. 2.

[28]

Pres. Dec. No. 40, par. 5.

[29]

Pres. Dec. No. 380, sec. 5.

[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]

[30]

Pres. Dec. No. 380, sec. 8.

[31]

Pres. Dec. No. 380, sec. 9, par. 1.

[32]

Pres. Decree No. 380, sec. 9, par. 4.

[33]

Pres. Dec. No. 380, sec. 10.

[34]

Pres. Dec. No. 395, par. 1.

[35]

Pres. Dec. No. 758, sec. 1.

[36]

Pres. Dec. No. 938, 1st Whereas clause.

[37]

Pres. Dec. No. 938, 4th Whereas clause.

[38]

Pres. Dec. No. 938, 6th Whereas clause.

[39]

Pres. Dec. No. 938, sec. 5.

[30]
[31]
[32]
[33]
[34]
[35]
[36]
[37]
[38]
[39]

[40]

Pres. Dec. No. 938, sec. 6.

[41]

Pres. Dec. No. 938, sec. 8.

[42]

Pres. Dec. No. 938, sec. 10.

[43]

Pres. Dec. No. 1177, sec. 4.

[44]

Pres. Dec. No. 1177, sec. 23.

[45]

Pres. Dec. No. 1177, sec. 90.

[46]

Pres. Dec. No. 1931, Fourth Whereas clause.

[47]

Pres. Dec. No. 1931, Fifth Whereas clause.

[48]

Exec. Order No. 93 (S'86), sec. 6.

[49]

Exec. Order No. 93, sec. 4.

[40]
[41]
[42]
[43]
[44]
[45]
[46]
[47]
[48]
[49]

Rule V, Rules and Regulation to Implement Exec. Order

No. 93.
[50]

[51]

83 O.G. 8, pp. 722-725.

[52]

PARAS, TAXATION FUNDAMENTALS, 24-25 (1966)

[53]

Rollo, p. 687; Motion for Reconsideration, p. 12.

[54]

Rollo, p. 688; Motion for Reconsideration, p. 13.

"Statutes are considered to be in pari materia - to pertain

to the same subject matter - when they relate to the same
person or thing, or to the same class of persons or things, or
have the same purpose or object. They may be independent
or amendatory in form; they may be complete enactments
dealing with a single, limited subject matter or sections of a
code or revision; or they may be combination of these. (2
Sutherland Statutory Construction, 2nd Ed., sec. 5202, p.
535).
[55]

"xxx

xxx

xxx

"Statutes in pari materia, although some may be special

and some general, in the event one of them is ambiguous or
uncertain, are to be construed together, even if the various
[50]
[51]
[52]
[53]
[54]
[55]

statutes have not been enacted simultaneously, and do not

refer to each other expressly, and although some of them
have been repealed or have expired, or held
unconstitutional, or invalid. (Crawford, Statutory
Construction, sec. 231, p. 431.)
"xxx

xxx

xxx

"The reasons which support this rule are twofold. In the

first place, all the enactments of the same legislature on the
general subject-matter are to be regarded as parts of one
uniform system. Later statutes are considered as
supplementary or complementary to the earlier enactments.
In the passage of each act, the legislative body must be
supposed to have had in mind and in contemplation the
existing legislation on the same subject, and to have shaped
its new enactment with reference thereto. Secondly, the rule
derives support from the principle which requires that the
interpretation of a statute shall be such, if possible, as to
avoid any repugnancy or inconsistency between different
enactments of the same legislature. To achieve this result, it
is necessary to consider all previous acts relating to the
same matters, and to construe the act in hand so as to avoid,
as far as it may be possible, any conflict between them.
Hence for example, when the legislature has used a word in
a statute in one sense and with one meaning, and
subsequently uses the same word in legislating on the same
subject matter, it will be understood as using the word in the
same sense, unless there is something in the context or in
the nature of things to indicate that it intended a different
meaning thereby. (Black on Interpretation of Laws, 2nd Ed.,
pp. 232-234) FRANCISCO, STATUTORY CONSTRUCTION,
287-288 (1986).
The NPC is the implementing arm of the State in its policy
of electrification of the entire country. Its authorized capital
[56]

[56]

stock and total local and foreign debt ceiling have, therefore,
been regularly raised to provide NPC with massive fund
flows to achieve said policy.
[57]

Rep. Act No. 6395, 5, sec. 8 (b), par. 5.

Rep. Act No. 6395, sec. 8 (b), par. 5, was deleted and
paragraph 5, sec. 8(b) became paragraph 4, Section 8(b), as
amended by Pres. Dec. No. 380.
[58]

SEC. 8. The first paragraph of Section 8(b) of the same Act

is hereby further amended and a new paragraph shall be
inserted between the third and fourth paragraph of said
section which shall both read as follows: x x x."
[59]

[60]

See Pres. Dec. No. 1177, sec. 4.

[61]

Rollo, p. 783.

[62]

T.S.N., July 9, 1992, pp. 19-21.

Rollo, pp. 53-119. In the Report submitted to the Senate

Blue Ribbon Committee, the discussion, centered on NPC's
tax exemption privileges being abolished by Pres. Dec. No.
[63]

[57]
[58]
[59]
[60]
[61]
[62]
[63]

1931 in paragraphs 11, 37, 81, 83.1 and F.1. Pres. Dec. NO.
1177 was mentioned in paragraph C(2) in the
Recommendation portion but only by way of its state policy
being made a model for a future bill to be filed by the
Senators involved in the investigation.
[64]

117 SCRA 16 (1980).

In this case, Judge Magno Pulido of the then CFI of

Alamihos, Pangasinan, Branch XIII, promulgated a decision
on May 17, 1974 in Criminal Case No. 266-A entitled "People
vs. Bantolino." Bantolino filed a complaint against the judge
charging him with ignorance of the law because his sentence
was "with subsidiary imprisonment." The case was dismissed
after respondent judge therein stated that he had corrected
"with" to "without" but Bantolino's lawyer, Atty. Pulido,
refused to return his (Atty. Pulido) copy for a corrected copy.
[65]

Later, Atty. Pulido filed another charge against Judge

Pablo, this time, for falsifying a Court of Appeals' decision
(re Bantolino's appeal with the Com. Act NO.) and minutes of
court hearings as well as insertions in the record of a false
commitment order. Respondent judge pleaded, among
others, res adjudicata.
The Court made a distinction between the two
administrative complaints and concluded that there was no
res adjudicata. On the procedural aspect involved, the Court
stated:
"Furthermore, the defense of res adjudicata was not
seasonably invoked.

[64]
[65]

"It may be noted that respondent Judge initially raised

the defense of res adjudicata only in the motion for
reconsideration dated November 8, 1981. Atty. Pulido filed
this complaint on April 6, 1978. Respondent failed to set up
the defense of res adjudicata when he filed his comment
dated June 19, 1974 in compliance with the first indorsement
dated June 3, 1974 of the then Assistant to the Judicial
Consultant, now Deputy Court Administrator Arturo B.
Buena. Such failure to interpose the defense of res
adjudicata at the earliest opportunity is fatal as it deemed
waived."
73 Am Jur 2d 518, sec. 410, citing United States v.
Grainger 346 US 235, 97 L Ed 1575, 73 S Ct 1069; State v
Bean 159 Me 455, 195 A2d 68; State v Holland, 202 Or 656,
277 P2d 386.
[66]

For example, State vs. Bean was an action by the State

to recover for goods and services rendered an inmate of a
state hospital.
The defendant was committed to the Augusta State
Hospital on September 21, 1949 by order of court after he
had been found not guilty of the commission of a crime by
reason of insanity.
The defendant was confined when the prevailing laws
were R.S. Ch. 27, Sec. 121 which provided that 'the person
so committed shall be there supported at his own expense, if
he has sufficient means; otherwise at the expense of the
State,' and R.S. Ch. 27, Sec. 139 which provided that 'The
State may recover from the insane, if able, or from persons
legally liable for his support, the reasonable expenses of his
support in either insane hospital.' R.S. Ch. 27, Sec. 121, was
expressly repealed by P.L. 1961, Ch. 304, Sec. 17 while R.S.
[66]

Ch. 27, Sec. 139 was expressly repealed by P.L. 1961, Ch.
304, Sec. 26.
However, by P.L. 1961, Ch. 304, Secs. 4 and 5, the
legislature simultaneously enacted amendments which in the
case of Sec. 4 thereof charged the Department of Mental
Health and Corrections with the duty of determining the
ability of the patient to pay for his support and of
establishing rates and fees therefor, and in the case of Sec.
5, it provided that 'such fees charged shall be a debt of the
patient or any person legally liable for his support.'
It was only on January 20, 1960 that the hospital billed
the defendant for his stay from September 21, 1949 in the
amount of $6651.72. Plaintiff filed on October 26, 1962 a
case to recover said amount. Defendant disclaimed liability
by arguing that the enactment of P.L. 1961, Ch. 304 was to
terminate his liability for board and care furnished prior to
its enactment.
The State of Maine's Supreme Judicial Court rebuffed
the defendant and held that:
"[I]n the instant case P.L. 1961, Ch. 304 was intended to
be a revision and condensation of the statutes relating to the
Department of Mental Health and Corrections by which the
substance of the right of the State of Maine to
reimbursement for care and support from the criminally
insane in accordance with 'means' or 'ability' to pay
remained undisturbed. We are satisfied that it was the
intention of the Legislature that there should be no moment
when the right to such reimbursement did not exist. We
think, the governing principle was well stated in 50 Am. Jur.
559, Sec. 555;
'It is a general rule of law that where a statute is
repealed and all or some of its provisions are at the same
time re-enacted, the re-enactment is considered a

reaffirmance of the old law, and a neutralization of the

repeal, so that the provisions of the repealed act which are
thus re-enacted continue in force without interruption, and
all rights and liabilities incurred thereunder are preserved
and may be enforced. Similarly, the rule of construction
applicable to acts which revise and consolidate other acts is,
that when the revised and consolidated act re-enacts in the
same or substantially the same terms the provisions of the
act or acts so revised and consolidated, the revision and
consolidation shall be taken to be a continuation of the
former act or acts, although the former act or acts may be
expressly repealed by the revised and consolidated act; and
all rights and liabilities under the former act or acts are
preserved and may be enforced.' (State vs. Bean, 195 A2d
68, 71, 72; Emphasis supplied)
[67]

"BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty
exemption privileges enjoyed by the
National Power Corporation under Com. Act
No. No. 120 as amended are restored up to
June 30, 1985.
2. Provided, That this restoration does not
apply to the following:
a. importations of fuel oil (crude
equivalent) and coal as per FIRB Resolution
No. 1-84;
b. commercially-funded importations; and
c. interest income derived from any
investment source.

[67]

3. Provided further, That in case of

importations funded by international
financing agreements, the NPC is hereby
required to furnish the FIRB on a periodic
basis the particulars of items received or to
be received through such arrangements, for
purposes of tax and duty exemption
privileges.
(SGD.) ALFREDO PIO
DE RODA, JR.
Acting Minister of
Finance
Acting Chairman,
FIRB
SUBJECT: National Power Corporation (NPC)"
[68]

"BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That

1. Effective July 1, 1985, the tax and duty
exemption privileges enjoyed by the
National Power Corporation (NPC) under
Commonwealth Act No. 120, as amended,
are restored; Provided, That importations of
fuel oil (crude oil equivalent) and coal of the
herein grantee shall be subject to the basic
and additional import duties; Provided,
further, That the following shall remain fully
taxable:
a. Commercially funded importations; and
b. Interest income derived by said
grantee from bank deposits and yield or
any other monetary benefits from

[68]

deposit substitutes, trust funds and

other similar arrangements.
2. The NPC as a government corporation is
exempt from the real property tax on land
and improvements owned by it provided that
the beneficial use of the property is not
transferred to another pursuant to the
provisions of Sec. 10(a) of the Real Property
Tax Code, as amended.
(SGD.) CESAR
E.A. VIRATA
Minister of
Finance
Chairman,
FIRB
SUBJECT: National Power Corporation."
Note should be taken that FIRB Resolution No. 10-85
covered the period from June 11, 1984 up to June 30, 1985
while FIRB Resolution No. 1-86 covered the period from July
1, 1985 up to March 10, 1987.
[69]

"Whenever in the judgment of the President, there exists a

grave emergency or a threat or imminence thereof, or
whenever the interim Batasang Pambansa or the regular
National Assembly fails or is unable to act adequately on any
matter for any reason that in his judgment requires
immediate action, he may, in order to meet the exigency,
issue the necessary decrees, orders, or letters of instruction,
which shall form part of the law of the land."
[70]

[69]
[70]

[71]

Rollo, p. 652.

"The Philippines and the International Monetary Fund

(IMF) have failed in talks here to finalize an agreement on a
$630 million standby credit badly needed by the Philippines,
informed sources close to the talks told Reuters yesterday.
[72]

xxx

xxx

xxx

"Talks on the credit began in October when the

Philippines declared a moratorium on repayments on its $26billion foreign debt and asked creditor banks to reschedule
some of the debt." (Times Journal, June 21, 1984)
"The Philippines will not default in the payment of its $25billion foreign debt because it could be branded as an outlaw
in the international community, President Marcos said
yesterday." (Times Journal, June 18, 1984)
[73]

"WASHINGTON, D.C. The Philippines and a consortium

of international banks have signed in New York an
agreement restructuring $2.9 billion in maturing short and
medium term loans of the Central Bank and six other
government corporations.
[74]

"The amount restructured represents 90 percent of the

public sector loans to be restructured with international
banks.

[71]
[72]
[73]
[74]

"Included in the restructuring were the loans of the

Philippine National Bank (PNB), National Investment
Development Corp. (NIDC), Development Bank of the
Philippines (DBP), Philippine National Oil Corp. (PNOC),
National Power Corporation (NAPOCOR) and Philippine
Airlines (PAL)." (Express, January 12, 1986)
"The $2.1-billion BNPP, nestled on a plateau hugging the
South China Sea, is planned to generate 620 megawatts for
the Luzon grid. The 'people power' revolt in 1986, however,
toppled the plant's proponent, then President Marcos, from
power.
[75]

"So many technical defects were said to have been

discovered in the plant, and this "most prodigious" project of
the government-owned National Power Corp. was
mothballed and has remained so up to the present. It is a
"white elephant" and the country continues to pay a huge
interest to its builder, Westinghouse, every month." (Manila
Bulletin, July 15, 1992)
"President Marcos issued four decrees yesterday, among
them Decree No. 1934 (should be 1939) amending Rep. Act
No. No. 4850 (should be Rep. Act NO. 4860) to allow an
increase in the ceiling on direct foreign borrowings of the
government from $5 billion to $10 billion.
[76]

"It would allow him to exclude specific categories of

external debt from the debt service limitation whenever
necessary in connection with the general rescheduling or
refinancing of foreign credits.

[75]
[76]

"The decree also increases the ceiling on the

government's guarantee from the present $2.5 billion to $7.5
billion.
"It authorizes the government's guarantee of external
debts of government corporations.
"He also issued:
1. Decree No. 1932 (should be No. 1937)
amending the Central Bank Charter to allow
it greater flexibility in administering the
monetary, banking and credit system and to
give a policy direction in the areas of money,
banking and credit.
2. Decree No. 1933 (should be No. 1938)
clothing the government with expanded
authority to guarantee foreign loans of the
Central Bank.
3. Decree No. 1936 (should be No. 1939)
authorizing the Credit Information Bureau,
to secure credit information on individuals
and institutions in the possession of
government and private entities.
(Manila Bulletin, June 29, 1984)
[77]

"Section 17(4), Article VIII, 1973 Constitution.

"BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the

tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted
[78]

[77]
[78]

under the terms and conditions of Commonwealth Act No.

120 (Creating the National Power Corporation, defining its
powers, objectives and functions, and for other purposes), as
amended, are restored effective March 10, 1987, subject to
the following conditions:
1. The restoration of the tax and duty
exemption privileges does not apply to the
following:
1.1 Importations of fuel oil (crude
equivalent) and coal;
1.2 Commercially-funded importations
(i.e., importations which include but
are not limited to those financed by the
NPC's own internal funds, domestic
borrowings from any source
whatsoever, borrowings from foreignbased private financial institutions,
etc.); and
1.3 Interest income derived from any
source.
2. The NPC shall submit to the FIRB a report
of its expansion program, including details
of disposition of relieved tax and duty
payments for such expansion on an annual
basis or as often as the FIRB may require it
to do so. This report shall be in addition to
the usual FIRB reporting requirements on
incentive availment.
(SGD.) ALFREDO PIO
DE RODA, JR.
Acting Secretary
of Finance

Chairman,
FIRB"
[79]

Rollo, p. 233; Annex "M" of the Petition

[80]

94 SCRA 261 (1974).

"In order that the review of the decision of a subordinate

officer might not turn out to be a farce, the reviewing officer
must perforce be other than the officer whose decision is
under review; otherwise, there could be no different view or
there would be no real view of the case. The decision of the
reviewing officer would be a biased view; inevitably, it would
be the same view since being human, he would not admit
that he was mistaken in his first view of the case." (Ibid., p.
267)
[81]

[82]

119 SCRA 353 (1982).

"Due process of law means fundamental fairness. It is not

fair to Doctor Anzaldo that Presidential Executive Assistant
Clave should decide whether his own recommendation as
Chairman of the Civil Service Commission, as to who
between Doctor Anzaldo and Doctor Venzon should be
appointed Science Research Supervisor II, should be
adopted by the President of the Philippines." (Ibid, p. 357).
[83]

[79]
[80]
[81]
[82]
[83]

"A Fiscal Incentives Review Board is hereby created for

the purpose of determining what subsidies and tax
exemptions should be modified, withdrawn, revoked or
suspended, which shall be composed of the following
officials:
[84]

Chairman - Secretary of Finance

Members - Secretary of Industry
- Director General of the National
Economic and Development Authority
- Commissioner of Internal Revenue
- Commissioner of Customs
"The Board may recommend to the President of the
Philippines and for reasons of compatibility with the
declared economic policy, the withdrawal, modification
revocation or suspension of the enforceability of any of the
above-cited statutory subsidies or tax exemption grants,
except those granted by the Constitution. To attain its
objectives, the Board may require the assistance of any
appropriate government agency or entity. The Board shall
meet once a month, or oftener at the call of the Secretary of
Finance." (Sec. 2, Pres. Dec. NO. 776)
"WITHDRAWING ALL TAX AND DUTY INCENTIVES,
SUBJECT TO CERTAIN EXCEPTIONS, EXPANDING THE
POWERS OF THE FISCAL INCENTIVES REVIEW BOARD
AND FOR OTHER PURPOSES"
[85]

[84]
[85]

"In the discharge of its authority hereunder the Fiscal

Incentives Review Board shall take into account any or all of
the following considerations:
[86]

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue
generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be
served."
[87]

15 SCRA 569 (1965).

"WHEREAS, pursuant to Proclamation No. 1081, dated

September 21, 1972, martial law is in effect throughout the
land;
[88]

WHEREAS, in order to extend further assistance to the

Veterans of the Philippines in World War II, and their widows
and orphans, as well as to the members of the Armed Forces
of the Philippines (who are now carrying the greater part of
the burden of suppressing the activities of groups of men
actively engaged in a criminal conspiracy to seize political
and state powers in the Philippines and of eradicating
lawlessness, anarchy, disorder and wanton destruction of
lives and property) and their dependents, I ordered the
Philippine Veterans Bank to set aside the sum of five million
pesos (P5,000,000.00) in Letter of Instruction No. 31,
October 23, 1972, as amended, for the operation and
[86]
[87]
[88]

maintenance of a commissary and PX facilities for the

aforementioned veterans, their widows and orphans, and the
members of the Armed Forces of the Philippines and their
dependents;
WHEREAS, to better realize the objectives of the
aforementioned Letter of Instructions and in order to render
fuller meaning to said objectives, it is necessary that certain
commodities which are to be sold by the commissary from
local producers, manufacturers or suppliers be free of all
taxes, duties and/or charges imposed by the Government;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers in me
vested by the Constitution as Commander-in-Chief of all the
Armed Forces of the Philippines, and pursuant to the Letter
of Instruction cited above, do hereby promulgate and decree
as part of the law of the land that all purchases from local
sources, manufacturers, suppliers and producers of
commodities or items decided by the AFP Exchange and
Commissary Service to be sold to persons entitled to
commissary and PX privileges under Letter of Instruction
No. 31, dated October 23, 1972, as amended, shall be free
of all taxes, duties and other charges prescribed for similar
commodities or items under existing revenue and other laws
and regulations.
The Chief of Staff, AFP, with the approval of the
Secretary of National Defense, Is authorized to promulgate
rules and regulations to carry out the provisions of this
decree.
Done in the City of Manila, this 20th day of December,
in the year of Our Lord, nineteen hundred and seventy-two."
(Emphasis Supplied)

Footnote No. 15, Philippine Acetylene Co., Inc. vs.

Commissioner of Internal Revenue, 20 SCRA 1056, at 1064:
"In the long run a sales tax is probably shifted to the
consumer, but during the period when supply is being
adjusted to changes in demand it must be in part absorbed.
In practice the business man will treat the levy as an added
cost of operation and distribute it over his sales as he would
any other cost, increasing by more than the amount of tax
prices of goods demand for which will be least affected and
leaving other prices unchanged." [47 Harv. Ld. Rev. 860, 869
(1934)].
[89]

[90]

Opinion No. 106, S' 54.

[91]

Rollo, p. 212; Petition, Annex "F".

[92]

Rollo, p, 124; Petition, Annex "D" of Annex "A".

[93]

Rollo, p. 156; Petition, Annex "N-1" of Annex "A".

[94]

Rollo, p. 128; Petition, Annex "G" of Annex "A".

[95]

Ibid.

[89]
[90]
[91]
[92]
[93]
[94]
[95]

[96]

Rollo, p. 12.

[97]

Rollo, p. 213, Petition, Annex "G".

[96]
[97]

FIRST DIVISION
G.R. No. L-31092, February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS.
JOHN GOTAMCO & SONS, INC. AND THE COURT OF TAX
APPEALS, RESPONDENTS.
DECISION

YAP, J.:
The question involved in this petition is whether respondent
John Gotamco & Sons, Inc. should pay the 3% contractor's
tax under Section 191 of the National Internal Revenue Code
on the gross receipts it realized from the construction of the
World Health Organization office building in Manila.
The World Health Organization (WHO for short) is an
international organization which has a regional office in
Manila. As an international organization, it enjoys privileges
and immunities which are defined more specifically in the
Host Agreement entered into between the Republic of the
Philippines and the said Organization on July 22, 1951.
Section 11 of that Agreement provides, inter alia, that "the
Organization, its assets, income and other properties shall
be: (a) exempt from all direct and indirect taxes. It is
understood, however, that the Organization will not claim
exemption from taxes which are, in fact, no more than
charges for public utility services; . . ."
When the WHO decided to construct a building to house its
own offices, as well as the other United Nations offices
stationed in Manila, it entered into a further agreement with
the Government of the Republic of the Philippines on
November 26, 1957. This agreement contained the
following provision (Article III, paragraph 2):

"The Organization may import into the country materials and

fixtures required for the construction free from all duties
and taxes and agrees not to utilize any portion of the
international reserves of the Government."
Article VIII of the above-mentioned agreement referred to
the Host Agreement concluded on July 22, 1951 which
granted the Organization exemption from all direct and
indirect taxes.
In inviting bids for the construction of the building, the WHO
informed the bidders that the building to be constructed
belonged to an international organization with diplomatic
status and thus exempt from the payment of all fees,
licenses, and taxes, and that therefore their bids "must take
this into account and should not include items for such
taxes, licenses and other payments to Government
agencies".
The construction contract was awarded to respondent John
Gotamco & Sons, Inc. (Gotamco for short) on February 10,
1958 for the stipulated price of P370,000.00, but when the
building was completed the price reached a total of
P452,544.00.
Sometime in May 1958, the WHO received an opinion from
the Commissioner of the Bureau of Internal Revenue stating
that "as the 3% contractor's tax is an indirect tax on the
assets and income of the Organization, the gross receipts
derived by contractors from their contracts with the WHO
for the construction of its new building, are exempt from tax
in accordance with . . . the Host Agreement". Subsequently,
however, on June 3, 1958, the Commissioner of Internal
Revenue reversed his opinion and stated that "as the 3%
contractor's tax is not a direct nor an indirect tax on the
WHO, but a tax that is primarily due from the contractor, the
same is not covered by . . . the Host Agreement".

On January 2, 1960, the WHO issued a certification stating,

inter alia,:
"When the request for bids for the construction of the World
Health Organization office building was called for,
contractors were informed that there would be no taxes or
fees levied upon them for their work in connection with the
construction of the building as this will be considered an
indirect tax to the Organization caused by the increase of
the contractor's bid in order to cover these taxes. This was
upheld by the Bureau of Internal Revenue and it can be
stated that the contractors submitted their bids in good faith
with the exemption in mind.
The undersigned, therefore, certifies that the bid of John
Gotamco & Sons, made under the condition stated above,
should be exempted from any taxes in connection with the
construction of the World Health Organization office
building."
On January 17, 1961, the Commissioner of Internal Revenue
sent a letter of demand to Gotamco demanding payment of
P16,970.40, representing the 3% contractor's tax plus
surcharges on the gross receipts it received from the WHO
in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision
to the Court of Tax Appeals, which after trial rendered a
decision in favor of Gotamco and reversed the
Commissioner's decision. The Court of Tax Appeal's decision
is now before us for review on certiorari.
In his first assignment of error, petitioner questions the
entitlement of the WHO to tax exemption, contending that
the Host Agreement is null and void, not having been ratified
by the Philippine Senate as required by the Constitution. We

find no merit in this contention. While treaties are required

to be ratified by the Senate under the Constitution, less
formal types of international agreements may be entered
into by the Chief Executive and become binding without the
concurrence of the legislative body.[1] The Host Agreement
comes within the latter category; it is a valid and binding
international agreement even without the concurrence of the
Philippine Senate. The privileges and immunities granted to
the WHO under the Host Agreement have been recognized
by this Court as legally binding on Philippine authorities. [2]
Petitioner maintains that even assuming that the Host
Agreement granting tax exemption to the WHO is valid and
enforceable, the 3% contractor's tax assessed on Gotamco is
not an "indirect tax" within its purview. Petitioner's position
is that the contractor's tax "is in the nature of an excise tax
which is a charge imposed upon the performance of an act,
the enjoyment of a privilege or the engaging in an
occupation . . . It is a tax due primarily and directly on the
contractor, not on the owner of the building. Since this tax
has no bearing upon the WHO, it cannot be deemed an
indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this
contention of the petitioner. Said the respondent court:
"In context, direct taxes are those that are demanded from
the very person who, it is intended or desired, should pay
them; while indirect taxes are those that are demanded in
the first instance from one person in the expectation and
intention that he can shift the burden to someone else.
(Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673,
39 Law. Ed. 759.) The contractor's tax is of course payable
by the contractor but in the last analysis it is the owner of
the building that shoulders the burden of the tax because the
same is shifted by the contractor to the owner as a matter of
self-preservation. Thus, it is an indirect tax. And it is an

indirect tax on the WHO because, although it is payable by

the petitioner, the latter can shift its burden on the WHO. In
the last analysis it is the WHO that will pay the tax indirectly
through the contractor and it certainly cannot be said that
'this tax has no bearing upon the World Health
Organization'."
Petitioner claims that under the authority of the Philippine
Acetylene Company versus Commissioner of Internal
Revenue, et al.,[3] the 3% contractor's tax falls directly on
Gotamco and cannot be shifted to the WHO. The Court of
Tax Appeals, however, held that the said case is not
controlling in this case, since the Host Agreement
specifically exempts the WHO from "indirect taxes". We
agree. The Philippine Acetylene case involved a tax on sales
of goods which under the law had to be paid by the
manufacturer or producer; the fact that the manufacturer or
producer might have added the amount of the tax to the
price of the goods did not make the sales tax "a tax on the
purchaser". The Court held that the sales tax must be paid
by the manufacturer or producer even if the sale is made to
tax-exempt entities like the National Power Corporation, an
agency of the Philippine Government, and to the Voice of
America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO
from "indirect taxes", contemplates taxes which, although
not imposed upon or paid by the Organization directly, form
part of the price paid or to be paid by it. This is made clear
in Section 12 of the Host Agreement which provides:
"While the Organization will not, as a general rule, in the
case of minor purchases, claim exemption from excise
duties, and from taxes on the sale of movable and immovable
property which form part of the price to be paid,
nevertheless, when the Organization is making important
purchases for official use of property on which such duties

and taxes have been charged or are chargeable the

Government of the Republic of the Philippines shall make
appropriate administrative arrangements for the remission
or return of the amount of duty or tax." (Emphasis supplied).
The above-quoted provision, although referring only to
purchases made by the WHO, elucidates the clear intention
of the Agreement to exempt the WHO from "indirect"
taxation.
The certification issued by the WHO, dated January 20, 1960,
sought exemption of the contractor, Gotamco, from any taxes
in connection with the construction of the WHO office
building. The 3% contractor's tax would be within this
category and should be viewed as a form of an "indirect tax"
on the Organization, as the payment thereof or its inclusion
in the bid price would have meant an increase in the
construction cost of the building.
Accordingly, finding no reversible error committed by the
respondent Court of Tax Appeals, the appealed decision is
hereby affirmed.
SO ORDERED.
Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco, and
Sarmiento, JJ., concur.

EN BANC
G.R. No. 78389, October 16, 1989
JOSE LUIS MARTIN C. GASCON, FAUSTINO "BONG" L. LAPIRA, AND SPOUSES
ALBERTO AND KARLA LIM, PETITIONERS, VS. THE HON. JOKER T. ARROYO, IN
HIS OFFICIAL CAPACITY AS EXECUTIVE SECRETARY TO THE PRESIDENT, HON.
TEODORO C. BENIGNO, AS PRESS SECRETARY, HON. REINERIO REYES, AS THE
SECRETARY OF TRANSPORTATION AND COMMUNICATION, HON. JOSE
ALCUAZ, AS CHAIRMAN OF THE NATIONAL TELECOMMUNICATIONS
COMMISSION, HON. CONRADO A. LIMCAOCO, JR., AS THE OFFICER-INCHARGE OF THE PEOPLE'S TELEVISION 4, ABS-CBN BROADCASTING
CORPORATION, AND MESSRS. VICENTE ABAD SANTOS, PASTOR DEL ROSARIO
AND CATALINO MACARAIG, JR., IN THEIR RESPECTIVE CAPACITIES AS
CHAIRMAN AND MEMBERS OF THE "ARBITRATION COMMITTEE",
RESPONDENTS.
DECISION

PADILLA, J.:
In this petition for certiorari and prohibition, with prayer for
issuance of writ of preliminary injunction or temporary
restraining order, petitioners seek to annul and set aside the
"Agreement to Arbitrate" entered into by and between the
Republic of the Philippines, represented by Executive
Secretary Joker T. Arroyo, and ABS-CBN Broadcasting
Corporation, represented by its President, Eugenio Lopez,
Jr., dated 6 January 1987, to settle the claims of ABS-CBN
for the return of radio and television stations (TV Station
Channel 4), and to enjoin the Arbitration Committee created
under the aforesaid agreement from adjudicating the claims
of ABS-CBN.
The record discloses the following facts:
The Lopez family is the owner of two (2) television stations,
namely: Channels 2 and 4 which they have operated through
the ABS-CBN Broadcasting Corporation.

When martial law was declared on 21 September 1972, TV

Channel 4 was closed by the military; thereafter, its facilities
were taken over by the Kanlaon Broadcasting System which
operated it as a commercial TV station.
In 1978, the said TV station and its facilities were taken over
by the National Media Production Center (NMPC), which
operated it as the Maharlika Broadcasting System TV 4
(MBS-4).
After the February 1986 EDSA revolution, the Presidential
Commission on Good Government (PCGG) sequestered the
aforementioned TV Stations, and, thereafter, the Office of
Media Affairs took over the operation of TV Channel 4.
On 17 April 1986, the Lopez family, through counsel, exSenator Lorenzo Tanada, requested President Aquino to
order the return to the Lopez family of TV Stations 2 and 4. [1]
On 13 June 1987, the Lopez family made a written request to
the PCGG for the return of TV Station Channel 2. On 18 June
1986, the PCGG approved the return of TV Station Channel 2
to the Lopez family.[2] The return was made on 18 October
1986.
Thereafter, the Lopez family requested for the return of TV
Station Channel 4. Acting upon the request, respondent
Executive Secretary, by authority of the President, entered
into with the ABS-CBN Broadcasting Corporation,
represented by its President, Eugenio Lopez, Jr., an "Agreement to Arbitrate",[3] pursuant to which an Arbitration
Committee was created, composed of Atty. Catalino
[1]
[2]
[3]

Macaraig, Jr., for the Republic of the Philippines, Atty. Pastor

del Rosario, for ABS-CBN, and retired Justice Vicente Abad
Santos, as Chairman.
Thereupon, petitioners, as taxpayers, filed the instant
petition.
Before discussing the issues raised in the present petition,
the Court will first resolve the question of whether or not the
herein petitioners have the legal personality or standing to
file the instant case.
There have been several cases wherein the Court recognized
the right of a taxpayer to file an action questioning the
validity or constitutionality of a statute or law, on the theory
that the expenditure of public funds by an officer of the
government for the purpose of administering or
implementing an unconstitutional or invalid law, constitutes
a misapplication of such funds.[4]
The present case, however, is not an action to question the
constitutionality or validity of a statute or law. It is an action
to annul and set aside the "Agreement to Arbitrate", which,
as between the parties, is contractual in character.
Petitioners have not shown that they have a legal interest in
TV Station Channel 4 and that they will be adversely affected
if and when the said television station is returned to the
Lopez family. Petitioners, therefore, have no legal standing
to file the present petition.
In addition, the petition is devoid of merit.
Under the Provisional Constitution of the Republic of the
Philippines (also known as the Freedom Constitution), which
was in force and effect when the "Agreement to Arbitrate"
was signed by the parties thereto on 6 January 1987, the
[4]

President exercised both the legislative and executive

powers of the Government. As Chief Executive, the President
was (and even now) "assisted by a Cabinet" composed of
Ministers (now Secretaries), who were appointed by and
accountable to the President.[5] In other words, the Members
of the cabinet, as heads of the various departments, are the
assistants and agents of the Chief Executive, and, except in
cases where the Chief Executive is required by the
Constitution or the law to act in person, or where the
exigencies of the situation demand that he act personally,
the multifarious executive and administrative functions of
the Chief Executive are performed by and through the
executive departments, and the acts of the heads of such
departments, performed in the regular course of business,
are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.[6]
Respondent Executive Secretary had, therefore, the power
and authority to enter into the "Agreement to Arbitrate" with
the ABS-CBN Broadcasting Corporation, as he acted for and
in behalf of the President when he signed it; hence, the
aforesaid agreement is valid and binding upon the Republic
of the Philippines, as a party thereto.
Moreover, the settlement of controversies is not vested in
the courts of justice alone to the exclusion of other agencies
or bodies. Whenever a controversy arises, either or both
parties to the controversy may file the proper action in
court. However, the parties may also resort to arbitration
under RA 876 which is a much faster way of settling their
controversy, compared to how long it would take if they were
to go to court. In entering into the "Agreement to Arbitrate",
the Executive branch of the government merely opted to
[5]
[6]

avail itself of an alternative mode of settling the claim of the

private respondent ABS-CBN Broadcasting Corporation for
the return of TV Station Channel 4.
Nor can the immunity of the state from suit be invoked
against the claim of the Lopez family for the return of TV
Station Channel 4. In Amigable vs. Cuenca,[7] the Court held
that where the government takes property from a private
landowner for public use without going through the legal
process of expropriation or negotiated sale, the aggrieved
party may properly maintain a suit against the government
without thereby violating the doctrine of governmental
immunity from suit without its consent. That is, as it should
be, for the doctrine of governmental immunity from suit
cannot serve as an instrument for perpetrating an injustice
to a citizen.[8]
Finally, neither the "convening of Congress" nor the "recent
declaration of the President that PTV-4 shall remain as the
information arm of the government" can render "ineffective
and unenforceable" the "Agreement to Arbitrate" because at
the time of the signing of the said agreement, the President
was exercising both the legislative and executive powers of
the Government, and since the "Agreement to Arbitrate" is
valid, it is "enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract". [9]
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Narvasa, Melencio-Herrera, Cruz, Paras, Gancayco, Bidin,
[7]
[8]
[9]

Sarmiento, Cortes, Grio-Aquino, Medialdea, and Regalado,

JJ., concur.
Feliciano, J., see separate concurring opinions.
Fernan, C.J., in the result.
Gutierrez, Jr., J., on leave.

CONCURRING OPINION
FELICIANO, J.:

I concur in the result reached by the Court, that is, that the Petition for Certiorari and
Prohibition with prayer for a writ of preliminary injunction or temporary restraining order
should be dismissed. I reach this conclusion on the same ground adduced by my
learned colleague, Padilla, J., i.e., that petitioners "have no legal standing to file the
present petition." A decision on the merits rendered in a case where the petitioners do
not have the necessary legal standing, would in essence be a decision not rendered in
a proper, justiciable controversy or case. Such a decision appears to me to be very
close to a decision rendered in a petition for declaratory relief or for an advisory opinion.
The Court, of course, has no jurisdiction ratione materiae over declaratory relief cases
or petitions for advisory opinion. It seems to me that disregard of the requirement of
legal standing, where such requirement is applicable, would in effect amount to the
Court acting in cases where it has no subject matter jurisdiction.
I believe that is all that is necessary to decide this case. Accordingly, the statements
made by the Court in respect of the substantive issue raised -- that is, the validity of the
agreement to arbitrate said to have been entered into between the Government of the
Republic of the Philippines and the ABS-CBN Broadcasting Corporation -- are, I submit
with respect, unnecessary and therefore obiter. That substantive issue is important; it,
among other things, would presumably affect the validity and enforceability of any
award rendered by the arbitral tribunal. But it should be litigated in a proper case or
controversy, between parties who have legal standing to file the case and legal interest
in the subject matter of the case if only for the reason that then the Court might hope to
have the benefit of thorough analysis by counsel of the substantive issues raised.

G.R. No. L-28972, October 31, 1972

CITY COUNCIL OF CEBU CITY REPRESENTED BY
COUNCILORS FLORENCIO S. UROT, EULOGIO E. BORRES,
RONALD DUTERTE, RAYMUNDO A. CRYSTAL, BIENVENIDO
A. TUDTUD, JOHN H. OSMEA AND MARIO R. VELOSO, IN
THEIR CAPACITY AS THE MAJORITY MEMBERS OF THE
CITY COUNCIL OF CEBU AND AS CITIZENS OF THE SAID
CITY, PLAINTIFFS-APPELLANTS, VS. CARLOS J. CUIZON,
MAYOR OF THE CITY OF CEBU, JESUS E. ZABATE, ACTING
CITY TREASURER OF THE CITY OF CEBU, PHILIPPINE
NATIONAL BANK AND TROPICAL COMMERCIAL COMPANY,
INCORPORATED, DEFENDANTS-APPELLEES.
DECISION

TEEHANKEE, J.:
Appeal on pure questions of law from an order of the Court
of First Instance of Cebu, dismissing plaintiffs' complaint
upon the ground of their lack of legal capacity to institute
the action.
The seven above-named plaintiffs-appellants "by themselves
and representing the City Council of Cebu, as majority
members thereof"[1] filed on May 31, 1966 their complaint in
the court of first instance of Cebu against defendantsappellees Carlos J. Cuizon, as mayor of Cebu City, Jesus E.
Zabate, as acting Cebu City treasurer, Philippine National
Bank (hereinafter referred to as the bank) and Tropical
Commercial Company, Inc. (hereinafter referred to as
Tropical), praying interalia that the contract entered into on
February 5, 1966 by and between defendant Mayor Cuizon
on behalf of the city for the purchase of road construction
equipment from Tropical (for $520,912.00 on a cash basis or
$687,767.30 on a deferred payment basis) be declared as
null and void ab initio. (The contract, as eventually annexed

by defendant Tropical with its answer, shows that its total

was for $685,767.30 on a five-year deferred payment plan.) [2]
Among the grounds invoked by plaintiffs-appellants for the
nullity of said contract and the complementary transactions
with the bank arising therefrom such as the corresponding
letters of credit opened therefor, were that the same were
entered into without the necessary authority and approval of
the city council, and that the city treasurer had not certified
to the city mayor, as required by section 607 of the Revised
Administrative Code that funds have been duly appropriated
for the said contract and that the amount necessary to cover
the contract was available for expenditure on account
thereof, and that accordingly, the purported contract entered
into by the city mayor was "wholly void" under the provisions
of section 608 of the same code, which make "the officer
assuming to make such contract * * * liable to the
government or other contracting party for any consequent
damage to the same extent as if the transaction had been
wholly between private parties."
As summarized by plaintiffs-appellants, the background facts
that led to their filing of their complaint were as follows:
"a) On November 20, 1965, the City Council approved
Resolution No. 1648, quoted as follows:
'RESOLUTION NO. 1648
'The City Council, on motion of City Councilor Borres,
seconded by City Councilor Tudtud,
'RESOLVED, to authorize His Honor, the City Mayor, for and
in behalf of the City of Cebu, to negotiate and to contract for,
by public bidding, on deferred payment plan and by lot bid,
U.S. or European made road construction equipments for the
City of Cebu and authorizing him for this purposes, to sign
the corresponding contract and other pertinent papers.

'RESOLVED FURTHER, to request the City Mayor to call

soon a public bidding for the early acquisition of said
equipments.
'CARRIED UNANIMOUSLY.'
"b) On December 23, 1965, the City Council of Cebu
approved Resolution No. 1831, which also reads as follows:
'RESOLUTION NO. 1831
'The City Council, on motion of City Councilor Llanos,
seconded by City Councilor Veloso,
'RESOLVED, to authorize the City Mayor, in connection with
the authority granted him under Resolution No. 1648,
current series, to utilize the Time Deposit of the City of Cebu
with the Philippine National Bank, as Bond guarantee in the
opening of a Letter of Credit in connection with the City of
Cebu's application to directly purchase road construction
equipments from abroad, to the extent of the amount that
the Letter of Credit may require.
'CARRIED UNANIMOUSLY.'
"c) By reason of the fact that the call to bid by the
defendant City Mayor Carlos J. Cuizon were for bidders who
should be exclusive distributors of the equipments being
bidded and the said supplier must have a sales and service
outlet in the City of Cebu, the other bidders then became
disqualified and the bid was awarded to the only bidder, the
defendant Tropical Commercial Co., Inc. Hence, on January
20, 1966, the City Council approved Resolution No. 122,
which we quote as follows:
'RESOLUTION NO. 122

'The City Council on motion of City Councilor Borres,

seconded by Councilor Osmea,
'RESOLVED, to request the Award Committee to forward to
this Body the pertinent papers in connection with the
bidding for two (2) complements of light and heavy
equipments to be used by the City Engineering Department
for ratification by this Body.
'CARRIED UNANIMOUSLY.'
"d) Notwithstanding the request contained in Resolution
No. 122, the defendant City Mayor, Carlos J. Cuizon, without
having been duly authorized thru proper resolution of the
City Council, and without compliance with Resolution No.
122, signed a contract with the Tropical Commercial Co.,
Inc. for the acquisition of the heavy equipments on February
5, 1966.[3]
"e) On February 14, 1966, the City Council, without
knowledge that the contract had already been signed by
defendant City Mayor Carlos J. Cuizon and Tropical
Commercial Co., Inc. since the same was signed in the City
of Manila approved Resolution No. 292, which we quote as
follows:
'RESOLUTION NO. 292
'The City Council on motion of City Councilor Osmena,
seconded by City Councilor Tudtud,
'RESOLVED, to reiterate this City Council's request
embodied in its Resolution No. 122, current series,
addressed to the Award Committee to forward to this body
the pertinent papers in connection with the bidding for two
(2) complements of light and heavy equipments to be used
by the City Engineering Department for ratification by this
Body.

'CARRIED UNANIMOUSLY.'
"f) On March 10, 1966, in view of the fact that the
defendant City Mayor ignored the requests of the City
Council, the said City Council approved Resolution No. 473,
which we quote as follows:
'RESOLUTION NO. 473
'The City Council, on motion of City Councilor Crystal,
seconded by City Councilor Duterte,
'RESOLVED, To revoke Resolution No. 1648 dated November
29, 1965 and Resolution No. 1831, dated December 23,
1965, authorizing His Honor, the City Mayor, to negotiate
and to contract for, by public bidding, on deferred payment
plan and by lot bid, U.S. or European made road
construction equipments for the City of Cebu and
authorizing him for this purpose, to sign the corresponding
contract and other pertinent papers and authorizing the City
Mayor to utilize the Time Deposit of the City of Cebu with
the Philippine National Bank, as bond guarantee in the
opening of a Letter of Credit in connection with the City of
Cebu's application to directly purchase road construction
equipments from abroad, to the extent of the amount that
the Letter of Credit may require, respectively.
'RESOLVED FURTHER, to inform His Honor the City Mayor,
that the City Council, after careful deliberation, has decided
to discontinue with the purchase of road construction
equipments.
'RESOLVED FINALLY, to advise all bidders of the action of
the City Council and to reject their bids on the basis thereof.
'CARRIED BY MAJORITY VOTES.

'Voting in favor: City Councilors Crystal, Duterte, Tudtud,

Borres, Osmea, Veloso and Zamora (Presiding Officer Urot
voted in favor)
Voting against: City Councilor Llanos.'

"g) On March 18, 1966, the presiding officer of the City

Council, City Councilor Florencio S. Urot, sent a telegram to
the Manager of the Philippine National Bank, which we
quote as follows:
'TELEGRAM

MANAGER
PHILNABANK
MANILA
BEEN INFORMED BY MANAGER DIKITANAN CEBU
BRANCH THAT MAYOR CUIZON CEBU CITY OPENED
LETTER OF CREDIT FOR PURCHASE OF HEAVY
EQUIPMENT STOP PLEASE BE INFORMED THAT CEBU
CITY COUNCIL HAS REVOKED MAYOR'S AUTHORITY ON
THIS PARTICULAR MATTER LAST MARCH TEN THEREBY
SUSPENDING FURTHER NEGOTIATIONS ON THIS
TRANSACTION END.
PRESIDING OFFICER UROT'
"h) On March 18, 1966, the defendant Acting City
Treasurer, Jesus E. Zabate, sent a reply to the Asst. VicePresident of the defendant Philippine National Bank in Cebu
City refusing the request of the Philippine National Bank(to
withhold P3,000,000.00 from the time deposit of the City of

Cebu) on the ground that no appropriation for the purchase

of heavy equipments was made by the City Council.
"i)
That notwithstanding the knowledge of the revocation
by Resolution No. 473 of Resolution No. 1648 and Resolution
No. 1831, series of 1965 of the City Council of Cebu City, the
said City Mayor, Carlos J. Cuizon, continued with the
transaction by placing the order with the Equipment Division
of the Continental Ore Corporation of New York U.S.A. for
the purchase of the said heavy equipments." [4]
Hence, plaintiffs-appellants filed their complaint against
defendants-appellees, incorporating the foregoing
antecedents and averments, and praying for judgment of the
court
"(a) to declare null and void ab initio the contract entered
into by and between the City Mayor, Carlos J. Cuizon and the
defendant Tropical Commercial Company, Inc., for the
purchase of the equipments referred to in paragraph VII of
this complaint;
"b) to declare null and void ab initio and without any effect
the Letters of Credit opened with the defendant Philippine
National Bank by the defendant City Mayor of Cebu, Carlos
J. Cuizon;
"c) to exempt the City of Cebu and to hold the same not
liable for any and all obligations to the defendant Philippine
National Bank which may result from the unauthorized
opening of the Letters of Credit by the defendant City Mayor
of Cebu;
"d) to exempt and hold not liable the City Government of
the City of Cebu from any obligation regarding the contract
specified in paragraph (a) hereof;

"e) to enjoin and order the defendant City Mayor of Cebu,

the defendant City Treasurer of Cebu, the City Auditor, City
Engineer and any and all public officials and employees of
the City of Cebu not to receive the equipments if they were
already ordered and in the event that they will arrive for
delivery;
"(f) to grant any and other remedies to which the plaintiffs
may be entitled under the law."[5]
Defendants City Mayor and Tropical filed in due course their
respective answers to the Complaint, with counterclaims and
traversed the allegations of the complaint.
Defendant mayor's counterclaim, contending that the suit
was unfounded and intended to harass and embarrass him
prayed for judgment against plaintiffs for actual and
temperate damages as may be ascertained by the trial court,
P1-million moral damages, P50,000. exemplary damages,
P50,000. attorney's fees and expenses of litigation with
costs.[6]
Defendant Tropical's counterclaim, prayed for judgment "in
the event that this Honorable Court should hold that the
plaintiffs have the capacity or interest to bring this suit in
behalf of the City of Cebu,"[7] in the total sum of
P242,939.90 with legal interest, representing bank charges
in the sums of P86,267.76 and P156,672.14 which it had as
seller advanced in cash for two letters of credit opened by
the bank to cover the price of the equipment contracted for
by the city mayor on behalf of the city. Defendant Tropical
averred that "said advances were actually cash payments
made by (it) to the Philippine National Bank upon request of
the city mayor and upon the representation of the city mayor
that (he) was acting for and in behalf of the City of Cebu." [8]
Defendant acting city treasurer filed his separate answer in
effect affirming the nullity ab initio of the questioned

contract for the reasons and circumstances averred in

plaintiffs' complaint. He further set up special defenses
averring that the assignment by way of guaranty by the city
mayor of P3-million of the city's time deposit with the
defendant bank was null and void and done without his
consent nor knowledge as the official responsible for said
fund, and prayed for the dismissal of the case against him
alone.
Defendant bank in its turn filed a motion to dismiss the
plaintiffs' complaint on the grounds of plaintiffs' lack of legal
capacity to sue and failure of the complaint to state a cause
of action against it. The first stated ground of plaintiffs'
alleged lack of legal capacity to bring the suit had also been
alleged as an affirmative defense by defendants mayor and
Tropical in their respective answers, with defendant mayor
asking for a preliminary hearing on his affirmative defenses
as if a motion to dismiss had been filed.[9]
Plaintiffs on their part filed their responsive pleadings. In
their answer to the mayor's counterclaim, they averred that
"the present complaint was filed with no other purpose than
to secure the annulment of a contract which had been
entered into by defendant mayor in violation of his authority
from the City Council of Cebu City, to the great prejudice
and detriment of the City of Cebu and accordingly, well
within the concern of the plaintiffs to pursue, not only as
majority members of the City Council but also as individual
taxpayers and citizens of this community which is the City of
Cebu."[10]
In their opposition to the motion to dismiss,[11] plaintiffs
asserted inter alia their right as city officials and taxpayers
to question the validity of the contract entered into by the
defendant city mayor and to contest the expenditures of the
city's funds therefor beyond the mayor's authority or the
disposition thereof in an unlawful or prohibited manner.

Plaintiffs also filed a separate reply to the mayor's

affirmative defenses,[12] refuting the mayor's claim of
estoppel by citing the principle that estoppel cannot be
founded upon an illegal act and submitting therewith the
Auditor General's endorsement of June 16, 1966 affirming
the city auditor's prior endorsement of nullity ab initio of the
questioned contract for non-compliance with the requirements of sections 607 and 608 of the Revised Administrative
Code. Pertinent excerpts of Auditor-General Ismael Mathay,
Sr.'s endorsement read:
"***

***

"Opinion of this Office is being requested on the validity of

the herein contract for the purchase of heavy equipment and
machineries entered into by and between Mayor Carlos J.
Cuizon of Cebu City for and in behalf of the City Government
of Cebu by virtue of Resolution No. 1648, series of 1965, of
the City Council, and Tropical Commercial Co., Inc.
"* * *

***

"It appearing from the within papers that the City Council of
Cebu has not appropriated funds for purposes of the
contract in question, for which reason the City Treasurer
could not have certified, even if he wanted to, as in fact he
did not make the certification required under the
aforequoted provisions of law, which is a condition precedent
to the validity of the contract, this Office concurs in view of
the City Auditor in the preceding second indorsement that
the said contract is null and void ab initio.
"In view of the nullity of the herein contract, all claims
arising therefrom may not be allowed."[13]
Defendant mayor, in turn, in his motion for immediate
resolution of pending motion to dismiss dated October 5,
1966,[14] contended that "the General Auditing Office,

through the Auditor General, has already withdrawn or

recalled its ruling declaring the said contract null and void
ab initio."
On October 6, 1966, the lower court issued the order of
dismissal appealed from. In ordering the dismissal of
plaintiffs' complaint on the ground of their lack of legal
capacity to sue and their not being the "real party in
interest," the lower court reasoned as follows:
"It is uncontroverted that the contract now sought to be
annulled was signed by the City Mayor in behalf of the
contracting party, the City of Cebu, by virtue of the authority
granted him by Resolution No. 1648 of the city council.
Now, the majority members of this council who have given
authority to the City Mayor to execute the contract are filing
this complaint and seek to annul the said contract. Their
power to file the action either as such councilors or as
private citizens is being questioned.
"Article 1397 of the New Civil Code provides that action for
annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. In other words,
the plaintiffs must have an interest in the contract. In the
instant case the plaintiffs, in their capacity as city councilors
or tax payers are not parties to the contract executed by the
City of Cebu and there is no evidence to show that because
of the contract they may be prejudiced or may suffer injury
different from that of the public in general. The City of Cebu
being the party to the contract, any action brought
regarding the said contract must be instituted in the name of
the City of Cebu and by the person authorized to do so.
Section 20 (c) of the Revised Charter of Cebu City (Republic
Act No. 3857) empowers the City Mayor to 'cause to be
instituted judicial proceedings to recover properties and
funds of the city wherever found add cause to be defended
all suits against the City.' There is no provision in the said

Charter which authorizes expressly or impliedly the city

council or its members to bring an action in behalf of the
City.
"Section 2, Rule 3 of the new Rules of Court provides that
every action must be prosecuted in the name of the real
party in interest. 'The real party-in-interest is the party who
would be benefited or injured by the judgment, or the party
entitled to the avails of the suit' (Salonga vs. Warner Barnes
& Co. Ltd., L-2246, Jan. 1, 1951). As stated above, the
plaintiffs acting either as members of the city council or as
private citizens are not bound by the contract in question
and cannot maintain an action to annul the same since they
will not be benefited or prejudiced by the judgment of the
case. They have no right to the contract and they will not
suffer injuries different from that of the public in general.
They are not, therefore, the real party in interest. In the
same way as the plaintiffs are not the real party in interest,
the defendant Carlos Cuizon may not be bound by the
judgment herein and he cannot be sued as party defendant."
Hence this appeal. Plaintiffs-appellants and defendantappellee Philippine National Bank filed their respective
briefs in due course. The other defendants-appellees, the
city mayor, the city treasurer and Tropical failed to file their
briefs, with Tropical's extended period to do so having
expired on January 4, 1969, and the case was deemed
submitted for decision on March 17, 1969.
1. It seems clearly self-evident from the foregoing recitation
of the undisputed antecedents and factual background that
the lower court gravely erred in issuing its dismissal order
on the ground of plaintiffs' alleged lack of interest or legal
standing as city councilors or as taxpayers to maintain the
case at bar. The lower court founded its erroneous
conclusion on the equally erroneous premise of citing and
applying Article 1397 of the Civil Code that "the action for

annulment of contracts may be instituted (only) by all who

are thereby obliged principally or subsidiarily." [15]
The lower court's fundamental error was in treating
plaintiffs' complaint as a personal suit on their own behalf
and applying the test in such cases that plaintiffs should
show personal interest as parties who would be benefited or
injured by the judgment sought. Plaintiffs' suit is patently
not a personal suit. Plaintiffs clearly and by the express
terms of their complaint filed the suit as a representative
suit on behalf and for the benefit of the city of Cebu.
Without passing upon or prejudging the merits of the
complaint, it is not disputed that taken by themselves
without considering the contrary evidence or defenses that
might properly be set up by defendants at the trial, the
allegations of the complaint state a sufficient cause of action
on the basis of which judgment could be validly rendered by
the lower court declaring the nullity of the questioned
contract and letters of credit and declaring the City of Cebu
exempt and free from any and all liability on account thereof,
as prayed for by the plaintiffs. Defendant bank in its brief
concedes that "we find no ruling that the complaint was
dismissed for lack of cause of action against the appellee
Philippine National Bank."[16]
The appeal at bar must therefore be granted and the case
ordered remanded to the lower court where the parties may
be properly given the opportunity at the trial to present
evidence in support of their respective contentions for
disposition and judgment on the merits.
2. The lower court entirely missed the point that the action
filed by plaintiffs-appellants as city councilors (composing
practically the entire city council, at that) and as city
taxpayers is to declare null and void the P3-million contract
executed by defendant city mayor for the purchase of road

construction equipment purportedly on behalf of the city

from its co-defendant Tropical and to declare equally null
and void the corresponding letters of credit opened with the
bank by defendant mayor and to prevent the disbursement
of any city funds therefor and to exempt the City of Cebu
and hold it not liable for any obligation arising from such
contract and letters of credit specifically and precisely
questioned in the complaint filed by plaintiffs on behalf of
the City as having been executed without authority and
contrary to law.
Plaintiffs' suit is clearly not one brought by them in their
personal capacity for the annulment of a particular contract
entered into between two other contracting parties, in which
situation Article 1397 of the Civil Code may rightfully be
invoked to question their legal capacity or interest to file the
action, since they are not in such case in anyway obliged
thereby principally or subsidiarily.
On the contrary, plaintiffs' suit is one filed on behalf of the
City of Cebu, instituted by them in pursuance of their
prerogative and duty as city councilors and taxpayers, in
order to question and declare null and void a contract which
according to their complaint was executed by defendant city
mayor purportedly on behalf of the city without valid
authority and which had been expressly declared by the
Auditor-General to be null and void ab initio and therefore
could not give rise to any valid or allowable monetary claims
against the city.
3. Plaintiffs' right and legal interest as taxpayers to file the
suit below and seek judicial assistance to prevent what they
believe to be an attempt to unlawfully disburse public funds
of the city and to contest the expenditure of public funds
under contracts and commitments with defendants bank and
Tropical which they assert to have been entered into by the
mayor without legal authority and against the express

prohibition of law have long received the Court's sanction

and recognition. In Gonzales vs. Hechanova,[17] the Court
through the now Chief Justice dismissed the challenge
against the sufficiency of therein petitioner's interest to file
the action, stating that "since the purchase of said
commodity will have to be effected with public funds mainly
raised by taxation, and as a rice producer and landowner
petitioner must necessarily be a taxpayer, it follows that he
has sufficient personality and interest to seek judicial
assistance with a view to restraining what he believes to be
an attempt to unlawfully disburse said funds."
Even defendant Tropical so understood that plaintiffs' suit
was a representative suit in behalf of the City of Cebu, hence
their counterclaim in their answer, should the lower court
uphold plaintiffs' "capacity or interest to bring this suit in
behalf of the City of Cebu," for judgment against the City of
Cebu for the repayment with legal interest of bank charges
in the total sum of P242,939.90 which it had advanced on
the letters of credit opened by the defendant bank at the
mayor's instance in favor of its U.S. supplier, supra.[18]
Parenthetically, it may be noted with reference to said letters
of credit opened by the bank at the mayor's instance, that
the same were caused by the mayor to be established,
according to the allegations of the complaint,
notwithstanding the mayor's knowledge and notice of the
city council having revoked by its resolution No. 473 of
March 10, 1966 its previous resolutions authorizing him to
enter into the transaction, supra.[19]
4. Plaintiffs' right and legal interest as city councilors to file
the suit below and to prevent what they believe to be
unlawful disbursements of city funds by virtue of the
questioned contracts and commitments entered into by the
defendant city mayor notwithstanding the city council's

revocation of his authority with due notice thereof to

defendant bank must likewise be recognized.
The lower court's narrow construction of the city charter,
Republic Act No. 3857, that under section 20 (c) thereof, it is
only the city mayor who is empowered "to cause to be
instituted judicial proceedings to recover properties and
funds of the city wherever found and cause to be defended
all suits against the city," and that plaintiffs' suit must
therefore fail since "there is no provision in the said charter
which authorizes expressly or impliedly the city council or its
members to bring an action in behalf of the city" cannot
receive the Court's sanction.
The case at bar shows the manifest untenability of such a
narrow construction. Here where the defendant city mayor's
acts and contracts purportedly entered into on behalf of the
city are precisely questioned as unlawful, ultra vires and
beyond the scope of his authority, and the city should
therefore not be bound thereby nor incur any liability on
account thereof, the city mayor would be the last person to
file such a suit on behalf of the city, since he precisely
maintains the contrary position that his acts have been
lawful and duly bind the city.
To adhere to the lower court's narrow and unrealistic
interpretation would mean that no action against a city
mayor's actuations and contract in the name and on behalf of
the city could ever be questioned in court and subjected to
judicial action for a declaration of nullity and invalidity, since
no city mayor would file such an action on behalf of the city
to question, much less nullify, contracts executed by him on
behalf of the city and which he naturally believes to be valid
and within his authority.
5. Section 20 (c) of the city charter invoked by the lower
court, however, has no applicability to the present suit,

which is not one to recover properties and funds of the city

or a suit against the city, but rather a representative suit on
behalf of and purportedly for the benefit of the city, which
the city mayor is however loath to institute.
Under such circumstances, in the same manner that a
stockholder of a corporation is permitted to institute
derivative or representative suits as nominal party plaintiff
for the benefit of the corporation which is the real party in
interest,[20] more so may plaintiffs as city councilors
exclusively empowered by the city charter to "make all
appropriations for the expenses of the government of the
city"[21] and who were the very source of the authority
granted to the city mayor to enter into the questioned
transactions which authority was later revoked by them, as
per the allegations of the complaint at bar, be deemed to
possess the necessary authority and interest, if not duty, to
file the present suit on behalf of the City and to prevent the
disbursement of city funds under contracts impugned by
them to have been entered into by the city mayor without
lawful authority and in violation of law.
ACCORDINGLY, the order appealed from is hereby set
aside and the lower court is ordered to proceed with the trial
and disposition of the case below on its merits. No costs.
Concepcion, C.J., Zaldivar, Ruiz Castro, Fernando, Barredo,
Makasiar, Antonio, and Esguerra, JJ., concur.
Makalintal, J., on official leave.

EN BANC
G.R. No. 96541, August 24, 1993
DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA
SIGUION REYNA, PROF. RICARTE M. PURUGANAN, IRMA
POTENCIANO, ADRIAN CRISTOBAL, INGRID SANTAMARIA,
CORAZON FIEL, AMBASSADOR E. AGUILAR CRUZ,
FLORENCIO R. JACELA, JR., MAURO MALANG, FEDERICO
AGUILAR ALCUAZ, LUCRECIA R. URTULA, SUSANO
GONZALES, STEVE SANTOS, EPHRAIM SAMSON, SOLER
SANTOS, ANG KIU KOK, KERIMA POLOTAN, LUCRECIA
KASILAG, LIGAYA DAVID PEREZ, VIRGILIO ALMARIO,
LIWAYWAY A. ARCEO, CHARITO PLANAS, HELENA BENITEZ,
ANNA MARIA L. HARPER, ROSALINDA OROSA, SUSAN CALO
MEDINA, PATRICIA RUIZ, BONNIE RUIZ, NELSON
NAVARRO, MANDY NAVASERO, ROMEO SALVADOR,
JOSEPHINE DARANG, AND PAZ VETO PLANAS,
PETITIONERS, VS. PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), CATALINO MACARAIG, JR., IN HIS
OFFICIAL CAPACITY, AND/OR THE EXECUTIVE SECRETARY,
AND CHAIRMAN MATEO A.T. CAPARAS, RESPONDENTS.
DECISION

BELLOSILLO, J.:
All thirty-five (35) petitioners in this Special Civil Action for
Prohibition and Mandamus with Prayer for Preliminary
Injunction and/or Restraining Order seek to enjoin the
Presidential Commission on Good Government (PCGG) from
proceeding with the auction sale scheduled on 11 January
1991 by Christie's of New York of the Old Masters Paintings
and 18th and 19th century silverware seized from
Malacaang and the Metropolitan Museum of Manila and
placed in the custody of the Central Bank.

The antecedents: On 9 August 1990, Mateo A.T. Caparas,

then Chairman of PCGG, wrote then President Corazon C.
Aquino, requesting her for authority to sign the proposed
Consignment Agreement between the Republic of the
Philippines through PCGG and Christie, Manson and Woods
International, Inc. (Christie's of New York, or CHRISTIE'S)
concerning the scheduled sale on 11 January 1991 of eightytwo (82) Old Masters Paintings and antique silverware
seized from Malacaang and the Metropolitan Museum of
Manila alleged to be part of the ill-gotten wealth of the late
President Marcos, his relatives and cronies.
On 14 August 1990, then President Aquino, through former
Executive Secretary Catalino Macaraig, Jr., authorized
Chairman Caparas to sign the Consignment Agreement
allowing Christie's of New York to auction off the subject art
pieces for and in behalf of the Republic of the Philippines.
On 15 August 1990, PCGG through Chairman Caparas,
representing the Government of the Republic of the
Philippines, signed the Consignment Agreement with
Christie's of New York. According to the agreement, PCGG
shall consign to CHRISTIE'S for sale at public auction the
eighty-two (82) Old Masters Paintings then found at the
Metropolitan Museum of Manila as well as the silverware
contained in seventy-one (71) cartons in the custody of the
Central Bank of the Philippines, and such other property as
may subsequently be identified by PCGG and accepted by
CHRISTIE'S to be subject to the provisions of the
agreement.[1]
On 26 October 1990, the Commission on Audit (COA)
through then Chairman Eufemio C. Domingo submitted to
President Aquino the audit findings and observations of COA
on the Consignment Agreement of 15 August 1990 to the
effect that: (a) the authority of former PCGG Chairman
[1]

Caparas to enter into the Consignment Agreement was of

doubtful legality; (b) the contract was highly
disadvantageous to the government; (c) PCGG had a poor
track record in asset disposal by auction in the U.S.; and, (d)
the assets subject of auction were historical relics and had
cultural significance, hence, their disposal was prohibited by
law.[2]
On 15 November 1990, PCGG through its new Chairman
David M. Castro, wrote President Aquino defending the
Consignment Agreement and refuting the allegations of COA
Chairman Domingo.[3] On the same date, Director of National
Museum Gabriel S. Casal issued a certification that the items
subject of the Consignment Agreement did not fall within the
classification of protected cultural properties and did not
specifically qualify as part of the Filipino cultural heritage. [4]
Hence, this petition originally filed on 7 January 1991 by
Dean Jose Joya, Carmen Guerrero Nakpil, Armida Siguion
Reyna, Prof. Ricarte M. Puruganan, Irma Potenciano, Adrian
Cristobal, Ingrid Santamaria, Corazon Fiel, Ambassador E.
Aguilar Cruz, Florencio R. Jacela, Jr., Mauro Malang,
Federico Aguilar Alcuaz, Lucrecia R. Urtula, Susano
Gonzales, Steve Santos, Ephraim Samson, Soler Santos, Ang
Kiu Kok, Kerima Polotan, Lucrecia Kasilag, Ligaya David
Perez, Virgilio Almario and Liwayway A. Arceo.
After the oral arguments of the parties on 9 January 1991,
we issued immediately our resolution denying the
application for preliminary injunction to restrain the
scheduled sale of the artworks on the ground that
petitioners had not presented a clear legal right to a
[2]
[3]
[4]

restraining order and that proper parties had not been

impleaded.
On 11 January 1991, the sale at public auction proceeded as
scheduled and the proceeds of $13,302,604.86 were turned
over to the Bureau of Treasury.[5]
On 5 February 1991, on motion of petitioners, the following
were joined as additional petitioners: Charito Planas, Helena
Benitez, Ana Maria L. Harper, Rosalinda Orosa, Susan Calo
Medina, Patricia Ruiz, Bonnie Ruiz, Nelson Navarro, Mandy
Navasero, Romeo Salvador, Josephine Darang and Paz Veto
Planas.
On the other hand, Catalino Macaraig, Jr., in his capacity as
former Executive Secretary, the incumbent Executive
Secretary, and Chairman Mateo A. T. Caparas were
impleaded as additional respondents.
Petitioners raise the following issues: (a) whether petitioners
have legal standing to file the instant petition; (b) whether
the Old Masters Paintings and antique silverware are
embraced in the phrase "cultural treasure of the nation"
which is under the protection of the state pursuant to the
1987 Constitution and/or "cultural properties" contemplated
under R.A. 4846, otherwise known as "The Cultural
Properties Preservation and Protection Act;" (c) whether the
paintings and silverware are properties of public dominion
which can be disposed of through the joint concurrence of
the President and Congress; (d) whether respondent PCGG
has the jurisdiction and authority to enter into an agreement
with Christie's of New York for the sale of the artworks; (e)
whether PCGG has complied with the due process clause
and other statutory requirements for the exportation and
sale of the subject items; and, (f) whether the petition has
[5]

become moot and academic, and if so, whether the above

issues warrant resolution from this Court.
The issues being interrelated, they will be discussed jointly
hereunder. However, before proceeding, we wish to
emphasize that we admire and commend petitioners zealous
concern to keep and preserve within the country great works
of art by well-known old masters. Indeed, the value of art
cannot be gainsaid. For, by serving as a creative medium
through which man can express his innermost thoughts and
unbridled emotions while, at the same time, reflecting his
deep-seated ideals, art has become a true expression of
beauty, joy, and life itself. Such artistic creations give us
insights into the artists' cultural heritage - the historic past
of the nation and the era to which they belong - in their
triumphant, glorious, as well as troubled and turbulent
years. It must be for this reason that the framers of the 1987
Constitution mandated in Art. XIV, Sec. 14, that it is the
solemn duty of the state to "foster the preservation,
enrichment, and dynamic evolution of a Filipino national
culture based on the principle of unity in diversity in a
climate of free artistic and intellectual expression." And, in
urging this Court to grant their petition, petitioners invoke
this policy of the state on the protection of the arts.
But, the altruistic and noble purpose of the petition
notwithstanding, there is that basic legal question which
must first be resolved: whether the instant petition complies
with the legal requisites for this Court to exercise its power
of judicial review over this case.
The rule is settled that no question involving the
constitutionality or validity of a law or governmental act may
be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry
namely: that the question must be raised by the proper
party; that there must be an actual case or controversy; that

the question must be raised at the earliest possible

opportunity; and, that the decision on the constitutional or
legal question must be necessary to the determination of the
case itself.[6] But the most important are the first two (2)
requisites.
On the first requisite, we have held that one having no right
or interest to protect cannot invoke the jurisdiction of the
court as party-plaintiff in an action.[7] This is premised on
Sec. 2, Rule 3, of the Rules of Court which provides that
every action must be prosecuted and defended in the name
of the real party-in-interest, and that all persons having
interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs. The Court will
exercise its power of judicial review only if the case is
brought before it by a party who has the legal standing to
raise the constitutional or legal question. "Legal standing"
means a personal and substantial interest in the case such
that the party has sustained or will sustain direct injury as a
result of the governmental act that is being challenged. The
term "interest" is material interest, an interest in issue and
to be affected by the decree, as distinguished from mere
interest in the question involved, or a mere incidental
interest.[8] Moreover, the interest of the party plaintiff must
be personal and not one based on a desire to vindicate the
constitutional right of some third and unrelated party.[9]
There are certain instances however when this Court has
allowed exceptions to the rule on legal standing, as when a
[6]
[7]
[8]
[9]

citizen brings a case for mandamus to procure the

enforcement of a public duty for the fulfillment of a public
right recognized by the Constitution,[10] and when a taxpayer
questions the validity of a governmental act authorizing the
disbursement of public funds.[11]
Petitioners claim that as Filipino citizens, taxpayers and
artists deeply concerned with the preservation and
protection of the country's artistic wealth, they have the
legal personality to restrain respondents Executive
Secretary and PCGG from acting contrary to their public
duty to conserve the artistic creations as mandated by the
1987 Constitution, particularly Art. XIV, Secs. 14 to 18, on
Arts and Culture, and R.A. 4846 known as "The Cultural
Properties Preservation and Protection Act," governing the
preservation and disposition of national and important
cultural properties. Petitioners also anchor their case on the
premise that the paintings and silverware are public
properties collectively owned by them and by the people in
general to view and enjoy as great works of art. They allege
that with the unauthorized act of PCGG in selling the art
pieces, petitioners have been deprived of their right to
public property without due process of law in violation of the
Constitution.[12]
Petitioners' arguments are devoid of merit. They lack basis
in fact and in law. They themselves allege that the paintings
were donated by private persons from different parts of the
world to the Metropolitan Museum of Manila Foundation,
which is a non-profit and non-stock corporation established
to promote non-Philippine arts. The foundation's chairman
[10]
[11]
[12]

was former First Lady Imelda R. Marcos, while its president

was Bienvenido R. Tantoco. On this basis, the ownership of
these paintings legally belongs to the foundation or
corporation or the members thereof, although the public has
been given the opportunity to view and appreciate these
paintings when they were placed on exhibit.
Similarly, as alleged in the petition, the pieces of antique
silverware were given to the Marcos couple as gifts from
friends and dignitaries from foreign countries on their silver
wedding anniversary, an occasion personal to them. When
the Marcos administration was toppled by the revolutionary
government, these paintings and silverware were taken from
Malacaang and the Metropolitan Museum of Manila and
transferred to the Central Bank Museum. The confiscation of
these properties by the Aquino administration however
should not be understood to mean that the ownership of
these paintings has automatically passed on to the
government without complying with constitutional and
statutory requirements of due process and just
compensation. If these properties were already acquired by
the government, any constitutional or statutory defect in
their acquisition and their subsequent disposition must be
raised only by the proper parties - the true owners thereof whose authority to recover emanates from their proprietary
rights which are protected by statutes and the Constitution.
Having failed to show that they are the legal owners of the
artworks or that the valued pieces have become publicly
owned, petitioners do not possess any clear legal right
whatsoever to question their alleged unauthorized
disposition.
Further, although this action is also one of mandamus filed
by concerned citizens, it does not fulfill the criteria for a
mandamus suit. In Legaspi v. Civil Service Commission,[13]
[13]

this Court laid down the rule that a writ of mandamus may
be issued to a citizen only when the public right to be
enforced and the concomitant duty of the state are
unequivocably set forth in the Constitution. In the case at
bar, petitioners are not after the fulfillment of a positive duty
required of respondent officials under the 1987 Constitution.
What they seek is the enjoining of an official act because it is
constitutionally infirmed. Moreover, petitioners claim for the
continued enjoyment and appreciation by the public of the
artworks is at most a privilege and is unenforceable as a
constitutional right in this action for mandamus.
Neither can this petition be allowed as a taxpayer's suit. Not
every action filed by a taxpayer can qualify to challenge the
legality of official acts done by the government. A taxpayer's
suit can prosper only if the governmental acts being
questioned involve disbursement of public funds upon the
theory that the expenditure of public funds by an officer of
the state for the purpose of administering an
unconstitutional act constitutes a misapplication of such
funds, which may be enjoined at the request of a taxpayer. [14]
Obviously, petitioners are not challenging any expenditure
involving public funds but the disposition of what they allege
to be public properties. It is worthy to note that petitioners
admit that the paintings and antique silverware were
acquired from private sources and not with public money.
Anent the second requisite of actual controversy, petitioners
argue that this case should be resolved by this Court as an
exception to the rule on moot and academic cases; that
although the sale of the paintings and silver has long been
consummated and the possibility of retrieving the treasure
trove is nil, yet the novelty and importance of the issues
raised by the petition deserve this Courts attention. They
submit that the resolution by the Court of the issues in this
[14]

case will establish future guiding principles and doctrines on

the preservation of the nations priceless artistic and
cultural possessions for the benefit of the public as a
whole.[15]
For a court to exercise its power of adjudication, there must
be an actual case or controversy - one which involves a
conflict of legal rights, an assertion of opposite legal claims
susceptible of judicial resolution; the case must not be moot
or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice.[16] A case
becomes moot and academic when its purpose has become
stale,[17] such as the case before us. Since the purpose of this
petition for prohibition is to enjoin respondent public
officials from holding the auction sale of the artworks on a
particular date - 11 January 1991 - which is long past, the
issues raised in the petition have become moot and
academic.
At this point, however, we need to emphasize that this Court
has the discretion to take cognizance of a suit which does
not satisfy the requirements of an actual case or legal
standing when paramount public interest is involved.[18] We
find however that there is no such justification in the petition
at bar to warrant the relaxation of the rule.
Section 2 of R.A. 4846, as amended by P.D. 374, declares it
to be the policy of the state to preserve and protect the
important cultural properties and national cultural treasures
of the nation and to safeguard their intrinsic value. As to
[15]
[16]
[17]
[18]

what kind of artistic and cultural properties are considered

by the State as involving public interest which should
therefore be protected, the answer can be gleaned from a
reading of the reasons behind the enactment of R.A. 4846:
"WHEREAS, the National Museum has the difficult task,
under existing laws and regulations, of preserving and
protecting the cultural properties of the nation;
"WHEREAS, innumerable sites all over the country have
since been excavated for cultural relics, which have passed
on to private hands, representing priceless cultural treasure
that properly belongs to the Filipino people as their heritage;
"WHEREAS, it is perhaps impossible now to find an area in
the Philippines, whether government or private property,
which has not been disturbed by commercially-minded
diggers and collectors, literally destroying part of our
historic past;
"WHEREAS, because of this the Philippines has been
charged as incapable of preserving and protecting her
cultural legacies;
"WHEREAS, the commercialization of Philippine relics from
the contact period, the Neolithic Age, and the Paleolithic
Age, has reached a point perilously placing beyond reach of
savants the study and reconstruction of Philippine
prehistory; and
"WHEREAS, it is believed that more stringent regulation on
movement and a limited form of registration of important
cultural properties and of designated national cultural
treasures is necessary, and that regardless of the item, any
cultural property exported or sold locally must be registered
with the National Museum to control the deplorable
situation regarding our national cultural properties and to
implement the Cultural Properties Law" (Emphasis ours).
Clearly, the cultural properties of the nation which shall be
under the protection of the state are classified as the

"important cultural properties" and the "national cultural

treasures." "Important cultural properties" are cultural
properties which have been singled out from among the
innumerable cultural properties as having exceptional
historical and cultural significance to the Philippines but are
not sufficiently outstanding to merit the classification of
national cultural treasures.[19] On the other hand, a "national
cultural treasure" is a unique object found locally, possessing
outstanding historical, cultural, artistic and/or scientific
value which is highly significant and important to this
country and nation.[20] This Court takes note of the
certification issued by the Director of the Museum that the
Italian paintings and silverware subject of this petition do
not constitute protected cultural properties and are not
among those listed in the Cultural Properties Register of the
National Museum.
We agree with the certification of the Director of the
Museum. Under the law, it is the Director of the Museum
who is authorized to undertake the inventory, registration,
designation or classification, with the aid of competent
experts, of important cultural properties and national
cultural treasures.[21] Findings of administrative officials and
agencies who have acquired expertise because their
jurisdiction is confined to specific matters are generally
accorded not only respect but at times even finality if such
findings are supported by substantial evidence and are
controlling on the reviewing authorities because of their
acknowledged expertise in the fields of specialization to
which they are assigned.[22]
[19]
[20]
[21]

In view of the foregoing, this Court finds no compelling

reason to grant the petition. Petitioners have failed to show
that respondents Executive Secretary and PCGG exercised
their functions with grave abuse of discretion or in excess of
their jurisdiction.
WHEREFORE,for lack of merit, the petition for prohibition
and mandamus is DISMISSED.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Grio-Aquino,
Regalado, Davide, Jr., Romero, Nocon, Melo, Quiason, Puno,
and Vitug, JJ., concur.

[22]

G.R. Nos. L-19824-26, July 09, 1966

REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND
APPELLEE, VS. BACOLOD-MURCIA MILLING CO., MA-AO
SUGAR CENTRAL CO., INC., TALISAY-SILAY MILLING
COMPANY, DEFENDANTS AND APPELLANTS.

REGALA, J.:
This is a joint appeal by three sugar centrals, BacolodMurcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and
Talisay-Silay Milling Co., sister companies under one
controlling ownership and management, from a decision of
the Court of First Instance of Manila finding them liable for
special assessments under Section 15 of Republic Act No.
632.
Republic Act No. 6321 is the charter of the Philippine Sugar
Institute, Philsugin for short, a semi-public corporation
created for the following purposes and objectives:
"(a) To conduct research work for the sugar industry in all its
phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or
processes that will reduce the cost of production, increase
and improve the industrialization of the by-products of sugar
cane, and achieve greater efficiency in the industry;
"(b) To improve existing methods of raising sugar cane and
of sugar manufacturing;
"(c) To insure a permanent, sufficient and balanced
production of sugar and its by-products for local
consumption and exportation;
"(d) To establish and maintain such balanced relation
between production and consumption of sugar and its byproducts, and such marketing conditions therefor, as will

insure stabilized prices at a level sufficient to cover the cost

of production plus a reasonable profit;
"(e) To promote the effective merchandising of sugar and its
by-products in the domestic and foreign markets so that
those engaged in the sugar industry will be placed on a basis
of economic security; and
"(f) To improve the living and economic conditions of
laborers engaged in the sugar industry by the gradual and
effective correction of the inequalities existing in the
industry." (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the
aforementioned law provide:
"Sec. 15. Capitalization.To raise the necessary funds to
carry out the provisions of this Act and the purposes of the
corporation, there shall be levied on the annual sugar
production a tax of TEN CENTAVOS [P0.10] per picul of
sugar to be collected for a period of five (5) years beginning
the crop year 1951-1952. The amount shall be borne by the
sugar cane planters and the sugar centrals in the proportion
of their corresponding milling share, and said levy shall
constitute a lien on their sugar quedans and/or warehouse
receipts."
"Sec. 16. Special Fund.The proceeds of the foregoing levy
shall be set aside to constitute a special fund to be known as
the 'Sugar Research and Stabilization Fund,' which shall be
available exclusively for the use of the corporation. All the
income and receipts derived from the special fund herein
created shall accrue to, and form part of, the said fund to be
available solely for the use of the corporation."
The specific and general powers of the Philsugin are set
forth in Section 3 of the same law, to wit:
"Sec. 3. Specific and General Powers.For carrying out the
purposes mentioned in the preceding section, the
PHILSUGIN shall have the following powers:

"(a) To establish, keep, maintain and operate, or help

establish, keep, maintain, and operate one central
experiment station and such number of regional experiment
stations in any part of the Philippines as may be necessary to
undertake extensive research in sugar cane culture and
manufacture, including studies as to the feasibility of
merchandizing sugar cane farms, the control and eradication
of pests, the selection and propagation of high-yielding
varieties of sugar cane suited to Philippine climatic
conditions, and such other pertinent studies as will be useful
in adjusting the sugar industry to a position independent of
existing trade preference in the American market;
"(b) To purchase such machinery, materials, equipment and
supplies as may be necessary to prosecute successfully such
researches and experiment work ;
"(c) To explore and expand the domestic and foreign markets
for sugar and its by-products to assure mutual benefits to
consumers and producers, and to promote and maintain a
sufficient general production of sugar and its by-products by
an efficient coordination of the component elements of the
sugar industry of the country;
"(d) To buy, sell, assign, own, operate, rent or lease, subject
to existing laws, machineries, equipment, materials,
merchant vessels, rails, railroad lines, and any other means
of transportation, warehouses, buildings, and any other
equipment and material for the production, manufacture,
handling, transportation and warehousing of sugar and its
by-products;
"(e) To grant loans, on reasonable terms, to planters when it
deems such loans advisable;
"(f) To enter, make and execute contracts of any kind as may

be necessary or incidental to the attainment of its purposes

with any person, firm, or public or private corporation, with
the Government of the Philippines or of the United States, or
any state, territory, or persons therefor or with any foreign
government and, in general, to do everything directly or
indirectly necessary or incidental to, or in furtherance of, the
purposes of the corporation;
"(g) To do all such other things, transact all such business
and perform such functions directly or indirectly necessary,
incidental or conducive to the attainment of the purposes of
the corporation; and
"(h) Generally, to exercise all the powers of a corporation
under the Corporation Law insofar as they are not
inconsistent with the provisions of this Act."
The facts of this case bearing relevance to the issue under
consideration, as recited by the lower court and accepted by
the appellants, are the following:
"* * * during the 5 crop years mentioned in the law, namely,
1951-1952, 1952-1953, 1953-1954, 1954-1955 and 19551956, defendant Bacolod-Murcia Milling Co., Inc., has paid
P267,468.00 but left an unpaid balance of P216,070'.50;
defendant Ma-ao Sugar Central Co., Inc., has paid
P177,613.44 but left unpaid balance of P235,800.20;
defendant Talisay-Silay Milling Company has paid
P251,812.43 but left unpaid balance of P208,193.74; and
defendant Central Azucarera del Danao made a payment of
P48,897.73 but left an unpaid balance of P48,059.77. There
is no question regarding the correctness of the amounts paid
and the amounts that remain unpaid.
"From the evidence presented, on which there is no
controversy, it was disclosed that on September 3, 1951, the
Philippine Sugar Institute, known as the PHILSUGIN for
short, acquired the Insular Sugar Refinery for a total
consideration of P3,070,909.60 payable, in accordance with

the deed of sale Exhibit A, in 5 installments from the

proceeds of the sugar tax to be collected under Republic Act
632. The evidence further discloses that the operation of the
Insular Sugar Refinery for the years, 1954, 1955, 1956 and
1957 was disastrous in the sense that PHILSUGIN incurred
tremendous losses as shown by an examination of the
statements of income and expenses marked Exhibits 5, 6, 7
and 8. Through the testimony of Mr. Cenon Flor Cruz, former
acting general manager of PHILSUGIN and at present
technical consultant of said entity, presented by the
defendants as witness, it has been shown that the operation
of the Insular Sugar Refinery has consumed 70% of the
thinking time and effort of the PHILSUGIN management. * *
*."
Contending that the purchase of the Insular Sugar Refinery
with money from the Philsugin Fund was not authorized by
Rep. Act 632 and that the continued operation of the said
refinery was inimical to their interests, the appellants
refused to continue: with their contributions to the said
fund. They maintained that their obligation to contribute or
pay to the said Fund subsists only to the limit and extent
that they are benefited by such contributions since Rep. Act
632 is not a revenue measure but an Act which establishes a
"special assessment." Adverting to the finding of the lower
court that proceeds of the said Fund had been used or
applied to absorb the "tremendous losses" incurred by
Philsugin in its "disastrous operation" of said refinery, the
appellants herein argue that they should not only be
released from their obligation to pay the said assessment but
be refunded, besides, of all that they might have previously
paid thereunder.
The appellants' thesis is simply to the effect that the "10
centavos per picul of sugar" authorized to be collected under
Sec. 15 of Republic Act 632 is a special assessment. As such,
the proceeds thereof may be devoted only to the specific
purpose for which the assessment was authorized, a special

assessment being a levy upon property predicated on the

doctrine that the property against which it is levied derives
some special benefit from the improvement. It is not a tax
measure intended to raise revenues for the Government.
Consequently, once it has been determined that no benefit
accrues or inures to the property owners, paying the
assessment, or that the proceeds from the said assessment
are being misapplied to the prejudice of those against whom
it has been levied, then the authority to insist on the
payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants
herein liable under the aforementioned law, Republic Act
632, upon the following considerations.
First: Subsection (d) of Section 3 of Rep. Act 632 authorizes
Philsugin to buy and operate machineries, equipment,
merchant vessels, etc., and any other equipment and
material for the production, manufacture, handling,
transportation and warehousing of sugar and its byproducts. It was, therefore, authorized to purchase and
operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in
and exercised by a board of directors composed of 5
members, 3 of whom shall be appointed upon
recommendation of the National Federation of Sugar Cane
Planters and 2 upon recommendation of the Philippine Sugar
Association. (Sec. 4, Rep. Act 632) It has not been shown
that this particular provision was not observed in this case.
Therefore, the appellants herein may not rightly claim that
there had been a misapplication of the Philsugin funds when
the same was used to procure the Insular Sugar Refinery
because the decision to purchase the said refinery was made
by a board in which the appellants were fully and duly
represented, the appellants being members of the Philippine
Sugar Association.

Thirdly, all financial transactions of the Philsugin are audited

by the General Auditing Office, which must be presumed to
have passed upon the legality and prudence of the
disbursements of the Fund. Additionally, other offices of the
Government review such transactions as reflected in the
annual report obliged of the Philsugin to prepare. Among
these offices are the office of the President of the
Philippines, the Administrator of Economic Coordination and
the Presiding Officers of the two chambers of Congress. With
all these safeguards against any imprudent or unauthorized
expenditure of Philsugin Funds, the acquisition of the Insular
Sugar Refinery must be upheld in its legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral
refusal of the appellants herein to continue with their
contribution to the Fund for that conduct is no different
"from the case of an ordinary taxpayer who refuses to pay
his taxes on the ground that the money is being
misappropriated by Government officials." This is taking the
law into their own hands.
Against the above ruling of the trial court, the appellants
contend:
First. It is fallacious to argue that no mismanagement or
abuse of corporate power could have been committed by
Philsugin solely because its charter incorporates so many
devices or safeguards to preclude such abuse. This
reasoning of the lower court does not reconcile with what
actually happened in this case.
Besides, the appellants contend that the issue on hand is not
whether Philsugin abused or not its powers when it
purchased the Insular Sugar Refinery. The issue, rather, is
whether Philsugin had any power or authority at all to
acquire the said refinery. The appellants deny that Philsugin

is possessed of any such authority because what it is

empowered to purchase is not a "sugar refinery" but a
"central experiment station or perhaps at the most a sugar
central to be used for that purpose." (Sec. 3(a), Rep. Act
682) For this distinction, the appellants cite the case of
Collector vs. Ledesma, G. R. No. L-12158, May 27, 1959, in
which this Court ruled that
'We are of the opinion that a 'sugar central,' as that term is
used in Section 189, applies to 'a large mill that makes sugar
out of the cane brought from a wide surrounding territory,'
or a sugar mill which manufactures sugar for a number of
plantations. The term 'sugar central' could not have been
intended by Congress to refer to all sugar mills or sugar
factories as contended by respondent. If respondent's
interpretation is to be followed, even sugar mills run by
animal power (trapiche) would be considered sugar central.
We do not think Congress ever intended to place owners of
'trapiches' in the same category as operators of sugar
centrals.
"That sugar mills are not the same as sugar centrals may
also be gleaned from Commonwealth Act No. 470
(Assessment Law). In prescribing the principle governing
valuation and assessment of real property, Section 4 of said
Act provides
'Machinery permanently used or installed in sugar centrals,
mills, or refineries shall be assessed.'
This clearly indicates that 'sugar centrals' are not the same
as 'sugar mills' or 'sugar refineries.'"
Second. The appellants' refusal to continue paying the
assessment under Republic Act 632 may not rightly be
equated with a taxpayer's refusal to pay his ordinary taxes
precisely because there is a substantial distinction between
a "special assessment" and an ordinary tax. The purpose of
the former is to finance the improvement of particular
properties, with the benefits of the improvement accruing or
inuring to the owners thereof who, after all, pay the

assessment. The purpose of an ordinary tax, on the other

hand, is to provide the Government with revenues needed
for the financing of state affairs. Thus, while the refusal of a
citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions,
the same would not hold true in the case of a refusal to
comply with a special assessment.
Third. Upon a host of decisions of the United States
Supreme Court, the imposition or collection of a special
assessment upon property owners who receive no benefit
from such assessment amounts to a denial of due process.
Thus, in the case of Norwood vs. Baker, 172 US 269, the
ruling was laid down that
"As already indicated, the principle underlying special
assessments to meet the cost of public improvements is that
the property upon which they are imposed is peculiarly
benefited, and therefore, the owners do not, in fact, pay
anything in excess of what they received by reason of such
improvement."
Unless a corresponding benefit is .realized by the property
owner, the exaction of a special assessment would be
"manifestly unfair" (Seattle vs. Kelleher, 195 U.S. 351) and
"palpably arbitrary or plain abuse" (Gast Realty Investment
Co. vs. Schneider Granite Co., 240 U.S. 57). In other words,
the assessment is violative of the due process guarantee of
the constitution (Memphis vs. Charleston Ky. vs. Pace, 283
U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at
bar has already been discussed and explained by this Court
in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz
case, Commonwealth Act 567, otherwise known as the Sugar
Adjustment Act, "levies on owners or persons in control of

lands devoted to the cultivation of sugarcane and ceded to

others for a consideration, on lease or otherwise
"a tax equivalent to the difference between the money value
of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such
land.' (Sec. 3)."
Under Section 6 of the said law, Commonwealth Act 567, all
collections made thereunder "shall accrue to a special fund
in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any
or all of the following objectives, as may be provided by law."
It then proceeds to enumerate the said purposes, among
which are "to place the sugar industry in a position to
maintain itself; * * * to readjust the benefits derived from the
sugar industry * * * so that all might continue profitably to
engage therein; to limit the production of sugar to areas
more economically suited to the production thereof; and to
afford labor employed in the industry a living wage and to
improve their living and working conditions."
The plaintiff in the above case, Walter Lutz, contended that
the aforementioned tax or special assessment was
unconstitutional because it was being "levied for the aid and
support of the sugar industry exclusively," and therefore, not
for a public purpose. In rejecting the theory advanced by the
said plaintiff, this Court said:
"The basic defect in the plaintiff's position is his assumption
that the tax provided for in Commonwealth Act No. 567 is a
pure exercise of the taxing power. Analysis of the Act, and
particularly section 6, will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation
and stabilization of the threatened sugar industry. In other
words, the act is primarily an exercise of the police power.
"This Court can take judicial notice of the fact that sugar
production is one of the great industries of our nation, sugar

occupying a leading position among its export products; that

it gives employment to thousands of laborers in fields and
factories; that it is a great source of the state's wealth, is one
of the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime
committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to
the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that
the sugar industry should be stabilized in turn; and in the
wide field of its police power, the law-making body could
provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the
added strain of the increase in taxes that it had to sustain
(Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc.
vs. Moyo, 103 Pla. 552, 139 So. 121).
"As stated in Johnson vs. State ex rel. Marey, with reference
to the citrus industry in Florida
'The protection of a large industry constituting one of the
great source 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.' (128 So. 857).
"Once it is conceded, as it must that the protection and
promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means
Provided in section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in
character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to

raise funds for their prosecution and attainment. Taxation

may be made the implement of the state's police power.
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L.
Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L, Ed. 477; M'cullock
vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579)."
On the authority of the above case, then, We hold that the
special assessment at bar may be considered similarly as the
above, that is, that the levy for the Philsugin Fund is not so
much an exercise of the power of taxation, nor the
imposition of a special assessment, but, the exercise of the
police power for the general welfare of the entire country. It
is, therefore, an exercise of a sovereign power which no
private citizen may lawfully resist.
Besides, under Section 2 (a) of the charter, the Philsugin is
authorized "to conduct research work for the sugar industry
in all its phases, either agricultural or industrial, for the
purpose of introducing into the sugar industry such
practices or processes that will reduce the cost of
production, * * *, and achieve greater efficiency in the
industry." This provision, first of all, more than justifies the
acquisition of the refinery in question. Who can dispute that
the operation of a sugar refinery is a phase of sugar
production and that from such operation may be learned
methods of reducing the cost of sugar manufacture no less
than it may afford the opportunity to discover the more
effective means of achieving progress in the industry?
Philsugin's experience alone of running a refinery is a gain
to the entire industry. That the operation resulted in a
financial loss is by no means an index that the industry did
not profit therefrom, as other gains of a different nature may
have been realized. Thus, from its financially unsuccessful
venture, the Philsugin could very well have advanced in its
appreciation of the problems of management faced by sugar
centrals. It could have understood more clearly the
difficulties of marketing sugar products. It could have known
with better intimacy the precise area of the industry in need

of the most help from the government. The view of the

appellants herein, therefore, that they were not benefited by
the unsuccessful operation of the refinery in question is not
entirely accurate.
Furthermore, Section 2(a) specifies a field of research
which, indeed, would be difficult to carry out save through
the actual operation of a refinery. Quite obviously, the most
practical or realistic approach to the problem of what
"practices or processes" might most effectively cut the cost
of production is to experiment on production itself. And yet,
how can such an experiment be carried out without the
tools, which is all that a refinery is?
In view of all the foregoing, the decision appealed from is
hereby affirmed, with costs.
Concepcion, C. J., Reyes, J. B. L., Barrera, Dizon, Bengzon,
J.P., Zaldivar and Sanchez, JJ. ,concur.
Judgment affirmed.

G. R. No. 16254, February 21, 1922

G. A. CUUNJIENG, PLAINTIFF AND APPELLEE, VS. FRED L.
PATSTONE, ENGINEER OF THE CITY OF MANILA,
DEFENDANT AND APPELLANT.
DECISION

OSTRAND, J.:
This is a petition for a writ of mandamus to compel the city
engineer of Manila to issue a building permit. There is no
dispute as to the facts. The plaintiff desires to erect a
warehouse on Azcarraga Street but is denied a building
permit until he shall have made provision for the
construction of an arcade over the sidewalk in front of the
building and until he shall have further complied with
section 1 of Ordinance No. 301 of the city of Manila, which
reads as follows:
"Whenever the owner, person in charge, or any other person
or entity having a right in any property located on the
principal streets and avenues of the city of Manila, such as
Legarda, R. Hidalgo, Carriedo, Echague, Moriones,
Azcarraga, Rizal, Taft, San Miguel, and others which may, by
ordinance, hereafter be designated by the Municipal Board,
desires to erect or reconstruct a building or any other
construction on said property, the same shall pay, once the
plan of the work has been approved by the city engineer,
one-half of the assessed value of the city land located within
the arcades of said building or construction, as a license fee
for the use and occupation of said land: Provided, That the
construction of arcades on streets having a width of twenty
or more meters, not hereinbefore mentioned in this section,
shall not be carried out, until after the plan of the work has
been approved by the city engineer, and half of the assessed
value of the city land located within said arcades has been

paid for by the owner, person in charge or any other person

or entity having a right in the building which is to be erected
or constructed, as a license fee for the use and occupation of
said land."
The plaintiff refuses to construct the arcade and to comply
with the ordinance in question on the grounds that the
arcade is unnecessary and unsuitable for his warehouse and
that the city has no power to require its construction; and
that the ordinance in exacting the payment of a fee of onehalf of the assessed value of the city land covered by the
arcade is in excess of the legislative powers of the Municipal
Board and, therefore, unconstitutional. It seems, however, to
be conceded that under the climatic conditions here existing,
arcades are both useful and desirable from the standpoint of
public convenience and that the Municipal Board, under its
general powers to regulate the construction of buildings and
their alignment with the streets, and also under the general
welfare of the city charter, has power to provide for the
construction of arcades on certain streets. In any event, the
question has not been raised by assignment of error and the
discussion may, therefore, properly be limited to two points:
First, whether the question of the constitutionality of
statutes or city ordinances may be raised in mandamus
proceedings and second, whether under its charter, the city
of Manila may, under the guise of a license fee and as a
prerequisite for the issuance of a building permit, exact the
payment of one-half of the assessed value of the portion of
the side-walk covered by the arcade.
Upon the first point the authorities are not entirely in
harmony, but in modern practice it has been generally held
that the writ will lie where, as in the present case e question
of constitutionality is raised by the petitioner.(See State ex
rel., Fooshe vs. Burley, 16 L. R. A. [N. S.], 266, with its case
note.) The rule is different where the respondent relies on
the unconstitutionality of a statute as a defense in

mandamus proceedings. In such cases the courts have

generally declined to consider questions of constitutionality.
( See State ex rel., New Orleans Canal & Banking Co. vs.
Heard, 47 L. R. A., 512, and the case note thereto.) The
reason for this is obvious: It might seriously hinder the
transaction of public business if ministerial officers were to
be permitted in all cases to question the constitutionality of
statutes and ordinances imposing duties upon them and
which have not judicially been declared unconstitutional.
The same reasons do not exist where the validity of the
statutes is attacked by the petitioner.
There being no other adequate remedy and there appearing
to be no reason in principle why we should not consider the
validity of the city ordinance here in question in mandamus
proceedings, we are of the opinion, and so hold, that the
present action has been properly brought.
The second point above-mentioned merits a more extended
consideration. In discussing it we must bear in mind that
legislative powers in regard to taxes and licenses are not
inherent in municipal corporations but must be granted by
statute either expressly or by necessary implication. Like
other delegated powers, they are subject to strict
construction.
That the city does not possess such an extraordinary power
as that of compelling property holders to lease the portions
of the public sidewalks which adjoin their lands requires no
argument. The charge of one-half of the assessed value
imposed on applicants for building permits can, therefore,
not be considered as rent, and to be valid must either be a
tax or a license fee. The legislative powers of the city in
regard to taxes and license fees are enumerated in the
following subsections of section 2444 of the Administrative
Code, as amended by section 8 of Act No. 2774, and in
section 2507 of the Administrative Code:

"SEC. 2444. General powers and duties of the Board.

Except as otherwise provided by law, and subject to the
conditions and limitations thereof, the Municipal Board shall
have the following legislative powers:
"(a) To provide for the levy and collection of taxes for
general and special purposes in accordance with law.
*******
"(b) To fix the tariff of fees and charges for all services
rendered by the city or any of its departments, branches, or
officials.
*******
"(h) To establish fire limits, determine the kinds of buildings
or structures that may be erected within said limits, regulate
the manner of constructing and repairing the same, and fix
the fees for permits for the construction, repair, or
demolition of buildings and structures.
*******
"(j) To regulate the use of lights in stables, shops, and other
buildings and places, and to regulate and restrict the
issuance of permits for the building of bonfires and the use
of firecrackers, fireworks, torpedoes, candles, sky-rockets,
and other pyrotechnic displays, and to fix the fees for such
permits.
*******
"(l) To regulate and fix the amount of the license fees for the
following: Hawkers, peddlers, hucksters, not including
hucksters or peddlers who sell only native vegetables, fruits,
or foods, personally carried by the hucksters or peddlers;
auctioneers, plumbers, barbers, embalmers, collecting

agencies, mercantile agencies, shipping and intelligence

offices, private detective agencies, advertising agencies,
massagists, tattooers, jugglers, acrobats, hotels, clubs,
restaurants, cafes, lodging houses, boarding houses, livery
garages, livery stables, boarding stables, dealers in large
cattle, public billiard tables, laundries, cleaning and dyeing
establishments, public warehouses, dance halls, cabarets,
circus and other similar parades, public vehicles, race
tracks, horse races, bowling alleys, shooting, galleries, slot
machines, merry-go-rounds, pawnshops, dealers in secondhand merchandise, junk dealers, brewers, distillers,
rectifyers, money changers and brokers, public ferries,
theaters, theatrical performances, cinematographs, public
exhibitions, circuses and all other performances, and places
of amusement, and the keeping, preparation, and sale of
meat, poultry, fish, game, butter, cheese, lard, vegetables,
bread, and other provisions.
"(m) To tax, fix the license fee for, regulate the business, and
fix the location of match factories, blacksmith shops,
foundries, steam boilers, lumber yards, ship yards, the
storage and sale of gunpowder, tar, pitch, resin, coal, oil,
gasoline, benzine, turpentine, hemp, cotton, nitroglycerin,
petroleum, or any of the products thereof, and of all other
highly combustible or explosive materials, and other
establishments likely to endanger the public safety or give
rise to conflagrations, or explosions, and, subject to the
provisions of ordinances issued by the Philippine Health
Service in accordance with law, tanneries, renderies, tallow
chandleries, bone factories, and soap factories.
"(n) To tax motor and other vehicles and draft animals not
paying the public vehicles license fee or any other Insular
tax.
"(o) To regulate the method of using steam engines and
boilers, other than marine or belonging to the Federal or

Insular Governments; to provide for the inspection thereof,

and for a reasonable fee for such inspection, and to regulate
and fix the fees for the licenses of the engineers engaged in
operating the same.
*******
"(q) To prohibit, or regulate and fix the license fees for, the
keeping of dogs, and to authorize their impounding and
destruction when running at large contrary to ordinances,
and to tax and regulate the keeping or training of fighting
cocks.
*******
"(u) Subject to the provisions of sections nineteen hundred
and four and nineteen hundred and five of this Code, to
provide for the laying out, construction, and improvement,
and to regulate the use, of streets, avenues, alleys,
sidewalks, wharves, piers, parks, cemeteries, and other
public places; to provide for lighting, cleaning, and
sprinkling of streets and public places; to regulate, fix
license fees for, and prohibit the use of the same for
processions, signs, signposts, awnings, awning posts, the
carrying or displaying of banners, placards, advertisements,
or hand bills, or the flying of signs, flags, or banners,
whether along, across, over, or from buildings along the
same; to prohibit the placing, throwing, depositing, or
leaving of obstacles of any kind, offal, garbage, refuse, or
other offensive matter or matter liable to cause damage, in
the streets and other public places, and to provide for the
collection and disposition thereof; to provide for the
inspection of, fix the license fees for, and regulate the
openings in the same for the laying of gas, water, sewer, and
other pipes, the building and repair of tunnels, sewers, and
drains, and all structures in and under the same, and the
erecting of poles and the stringing of wires therein; to

provide for and regulate cross-walks, curbs, and gutters

therein; to name streets without a name and provide for and
regulate the numbering of houses and lots fronting thereon
or in the interior of the blocks; to regulate traffic and sales
upon the streets and other public places; to provide for the
abatement of nuisances in the same and punish the authors
or owners thereof; to provide for the construction and
maintenance, and regulate the use, of bridges, viaducts, and
culverts; to prohibit and regulate ball playing, kite flying,
hoop rolling, and other amusements which may annoy
persons using the streets and public places, or frighten
horses or other animals; to regulate the speed of horses and
other animals, motor and other vehicles, cars, and
locomotives within the limits of the city; to regulate the
lights used on all such vehicles, cars, and locomotives; to
regulate the locating, constructing and laying of the track of
horse, electric, and other forms of railroad in the streets or
other public places of the city authorized by law; to provide
for and change the location, grade, and crossings of
railroads, and to compel any such railroad to raise or lower
its tracks to conform to such provisions or changes; and to
require railroad companies to fence their property, or any
part thereof, to provide suitable protection against injury to
persons or property, and to construct and repair ditches,
drains, sewers, and culverts along and under their tracks, so
that the natural drainage of the streets and adjacent
property shall not be obstructed.
*******
"(w) To fix the charges to be paid by all water craft landing
at or using public wharves, docks, levees, or landing places:
Provided, That the provisions of this subsection shall not
apply to the public wharves, docks, levees, or landing places
constructed within the breakwater, on the banks of the canal
connecting the Pasig River with the inner basin, and on both
sides of said river below the Jones Bridge.

*******
"(z) Subject to the provisions of ordinances issued by the
Philippine Health Service in accordance with law, to provide
for the establishment and maintenance and fix the fees for
the use of, and regulate public stables, laundries, and baths,
and public markets and slaughterhouses, and prohibit the
establishment or operation within the city limits of public
markets and slaughterhouses by any person, entity,
association, or corporation other than the city.
"(aa) To regulate, inspect, and provide measures preventing
any discrimination or the exclusion of any race or races in or
from any institution, establishment, or service open to the
public within the city limits, or in the sale and supply of gas
or electricity, or in the telephone and street-railway service;
to fix and regulate charges therefor where the same have
not been fixed by Act of Congress or of the Philippine
Legislature; to regulate and provide for the inspection of all
gas, electric, telephone, and street- railway conduits, mains,
meters, and other apparatus, and provide for the
condemnation, substitution or removal of the same when
defective or dangerous.
*******
"(ee) To enact all ordinances it may deem necessary and
proper for the sanitation and safety, the furtherance of the
prosperity, and the promotion of the morality, peace, good
order, comfort, convenience, and general welfare of the city
and its inhabitants, and such others as may be necessary to
carry into effect and discharge the powers and duties
conferred by this chapter; and to fix penalties for the
violation of ordinances which shall not exceed a two hundred
peso fine or six months' imprisonment, or both such fine and
imprisonment, for a single offense."

"SEC. 2507. Power to levy special assessments for certain

purposes.The Municipal Board may, by ordinance duly
approved, provide for the levying and collection, by special
assessments of the real estate comprised within the district
or section of the city especially benefited, of a part not to
exceed sixty per centum of the cost of laying out, opening,
constructing, straightening, widening, extending, grading,
paving, curbing, walling, deepening, or otherwise
establishing, repairing, enlarging, or improving public
avenues, roads, streets, alleys, sidewalks, parks, plazas,
bridges, landing places, wharves, piers, docks, levees,
reservoirs, waterworks, water mains, water courses, esteros,
canals, drains, and sewers, including the cost of acquiring
the necessary land. Within the meaning of this article, all
real estate comprised within the district benefited, except
lands or buildings owned by the United States of America,
the Government of the Philippine Islands, or the city of
Manila, shall be subject to the payment of the special
assessment, based upon the valuation of such real estate as
shown by the books of the city assessor and collector, or its
present value as fixed by said officer in the first instance if
the property does not appear of record in his books
according to the valuation whereof the special tax has to be
made, computed, and assessed."
Conceivably, there may be other instances where the police
power to regulate carries with it impliedly the power to
prescribe fees, but they have no relation to the issues here
involved.
Examining the provisions quoted, it is clear that the only one
which can possibly be applied to the present case is
subsection (h) of section 2444 authorizing the fixing of fees
for building permits and that if the charge in question
possesses any validity whatever it must be as a license fee
7der that subsection.

The allowable amount of a license fee or tax depends so

much on the special circumstances of each particular case
that it is difficult to harmonize the numerous decisions on
the subject and to formulate definite rules; but, generally
speaking, the adjudications appear to recognize three
classes of licenses, each with its distinct characteristic,
which have been taken into consideration in determining the
reasonableness of the license fee: First, licenses for the
regulation of useful occupations or enterprises; secondly,
licenses for the Regulation or restriction of non-useful
occupations or enterprises, and thirdly, licenses for revenue
only.
(1) The first two of these classes is based on the exercise of
the police power and, though there is some conflict of
authority on this point, the better rule seems to be that the
conferred power to regulate and to issue such licenses
carries with it the right to fix a license fee. It is well settled
that in the absence of special authority to impose a tax for
revenue the fee for this class of licenses may only be of a
sufficient amount to include the expense of issuing the
license and the cost of the necessary inspection or police
surveillance, taking into account not only the expense of
direct regulation but also incidental consequences.
Cooley on Constitutional Limitations, 6th ed., at page 242,
says:
"A right to license an employment does not imply a right to
charge a license fee therefor with a view to revenue, unless
such seems to be the manifest purpose of the power; but the
authority of the corporation will be limited to such a charge
for the license as will cover the necessary expenses of
issuing it, and the additional labor of officers and other
expenses thereby imposed. (Davis vs. Petrinovich, 112 Ala.,
654; 21 So., 344; 36 L. R. A., 615; Ft. Smith vs. Hunt, 72
Ark., 556; 82 S. W., 163; 105 A. S. R., 51; 66 L. R. A., 238;

Waters-Pierce Oil Co. vs. Hot Springs, 85 Ark., 509; 109 S.

W., 293; 16 L. R. A. [N. S.], 1035; Ex parte Dickey, 144 Cal.,
234; 77 Pac, 924; 103 A. S. R., 82; 1 Ann. Cas., 428 and note;
66 L. R. A., 928; Morton vs. Macon, 111 Ga., 162; 36 S. E.,
627; 50 L. R. A., 485; State vs. Ashbrook, 154 Mo., 375; 55 S.
W., 627; 77 A. S. R., 765; 48 L. R. A., 265; St. Louis vs.
Grafeman Dairy Co., 190 Mo., 492; 89 S. W., 617; 1 L. R. A.
[N. S.], 936; Johnson vs. Great Falls, 38 Mont, 369; 99 Pac,
1059; 16 Ann. Cas., 974; Rosenbloom vs. State, 64 Neb.,
342; 89 N. W., 1053; 57 L. R. A., 922; State vs. Boyd, 63
Neb., 829; 89 N. W., 417; 58 L. R. A., 108; Hughes vs. Snell,
28 Okla., 828; 115 Pac, 1105, Ann. Cas. [1912D] 374; 34 L.
R. A. [N. S.], 1133; Ellis vs. Frazier, 38 Ore., 462; 63 Pac.,
642; 53 L. R. A. 454; Laurens vs. Anderson, 75 S. C, 62; 55 S.
E., 136; 117 A. S. R., 885; 9 Ann. Cas., 1003; Seattle vs.
Dencker, 58 Wash., 501; 108 Pac, 1086; 137 A. S. R., 1076;
28 L. R. A. [N. S.], 446.)"
(2) Licenses for non-useful occupations are also incidental to
the police power and the right to exact a fee may be implied
from the power to license and regulate, but in fixing the
amount of the license fees the municipal corporations are
allowed a much wider discretion in this class of cases than in
the former, and aside from applying the well-known legal
principle that municipal ordinances must not be
unreasonable, oppressive, or tyrannical, courts have, as a
general rule, declined to interfere with such discretion. The
desirability of imposing restraint upon the number of
persons who might otherwise engage in non-useful
enterprises is, of course, generally an important factor in the
determination of the amount of this kind of license fee.
Hence license fees clearly in the nature of privilege taxes for
revenue have frequently been upheld, especially in cases of
licenses for the sale of liquors. In fact, in the latter cases the
fees have rarely been declared unreasonable. (Swarth vs.
People, 109 111., 621; Dennehy vs. City of Chicago, 120
111., 627; 12 N. E., 227; United States Distilling Co. vs. City

of Chicago, 112 111., 19; Drew County vs. Bennett, 43 Ark.,

364; Merced County vs. Fleming, 111 Cal., 46; 43 Pac, 392;
Williams vs. City Council of West Point, 68 Ga., 816; Cheny
vs. Shellbyville, 19 Ind., 84; Wiley vs. Owens, 39 Ind., 429;
Sweet vs. City of Wabash, 41 Ind., 7; Jones vs. Grady, 25 La.
Ann., 586; Goldsmith vs. City of New Orleans, 31 La. Ann.,
646; People ex rel., Cramer vs. Medberry, 39 N. Y. S., 207; 17
Misc. Rep., 8; McGuigan vs. Town of Belmont, 89 Wis., 637;
62 N. W., 421; Ex parte Burnett, 30 Ala., 461; Craig vs.
Burnett, 32 Ala., 728, and Muhlenbrinck vs. Long Branch
Commissioners, 42 N. J. L., 364;36 Am, Rep., 518.)
(3) The fee in the third class of cases, those for revenue
purposes, is, perhaps, not a license fee properly speaking
but is generally so termed. It rests upon the taxing power as
distinguished from the police power, and the power of the
municipality to exact such fees must be expressly granted by
charter or statute and is not to be implied from the
conferred power to license and regulate merely. Judge
Cooley, citing numerous authorities, says:
"A license is issued under the police power; but the exaction
of a license fee with a view to revenue would be an exercise
of the power of taxation; and the charter must plainly show
an intent to confer that power, or the municipal corporation
cannot assume it." (Cooley, Constitutional Limitations, 6th
ed., pp. 242-243. See also Mayor vs. Beasly, 34 Am. Dec,
646, and Kip vs. City of Paterson, 26 N. J. L., 298.)
License taxes for revenue on useful occupations fall within
this class.
When the power to license for revenue has been clearly
granted, the rule as to the amount of the tax or fee laid down
in Fire Department vs. Stanton (159 N. Y., 225), is applicable
the municipality as much as to the state:

"The legislature of the state is not without power to impose a

tax on a business in the form of a license fee, when it deems
such to be warranted by considerations of public interest
and for the general welfare, and the only limitation upon its
exercise of power, in that respect, is that there shall be no
discrimination or oppression, and that the burden shall be
equally charged upon all persons in similar circumstances."
Applying the legal principles above stated to the case at bar,
we are constrained to hold that in imposing a fee equal to
one-half of the assessed value of the portion of the sidewalk
covered by the arcade in question, the Municipal Board of
the city of Manila exceeded its powers. The construction of
buildings is a useful enterprise and the amount of the license
fee should therefore be limited to the cost of licensing,
regulating, and surveillance. It appears that without the
arcade the normal fee for the building permit would have
been about P31, with the arcade the fee exacted is P525.60.
It does not appear that the cost of licensing, regulating, and
surveillance would be materially increased through the
construction of the arcade, and it is therefore clear that the
excess fee is imposed for the purpose of revenue.
There is nothing in the charter of the city of Manila
indicating an intention on the part of the Legislature to
confer power on the Municipal Board to impose a license tax
for revenue on the construction of buildings. The power
conferred in relation to such construction is considered
merely as police power from which, as we have seen, taxing
power is not inferred. Under the circumstances, to hold the
fee in this case valid would amount to judicial legislation,
particularly undesirable in the present instance where the
Legislature, upon its attention being called to the matter,
would no doubt willingly grant as much power as could
wisely be placed in the hands of the municipality.

The judgment of the Court of First Instance holding that the

city of Manila has the power to require the construction of
arcades in certain circumstances but that the license fee
prescribed by city Ordinance No. 301 is illegal, is therefore
hereby affirmed. No costs will be allowed. So ordered.
Street, Avancea, Johns, and Romualdez, JJ., concur.
Araullo, C. J., did not take part.

DISSENTING

MALCOLM, J., with whom concurs VILLAMOR, J.,

It is to be regretted that the court has not seen fit to follow
in the same road which was so well cleared of encumbering
rubbish in the pioneer decision of this court known as the
Billboard Case (Churchill and Tait vs. Rafferty [1915], 32
Phil., 580), and to resolve such doubt as exists in favor of the
validity of Ordinance No. 301 of the city of Manila.
The question in which I am interested in this case is as
above indicated, and relates to the determination of whether
or not Ordinance No. 301 of the city of Manila is valid. For
purposes of reference, and without burdening this dissent
with the facts and the provisions of law which appear in the
majority decision, I copy this ordinance, reading as follows:
"Whenever the owner, person in charge, or any other person
or entity having a right in any property located on the
principal streets and avenues of the city of Manila, such as

Legarda, R. Hidalgo, Carriedo, Echague, Moriones,

Azcarraga, Rizal, Taft, San Miguel, and others which may, by
ordinance, hereafter be designated by the Municipal Board,
desires to erect or reconstruct a building or any other
construction on said property, the same shall pay, once the
plan of the work has been approved by the city engineer,
one-half of the assessed value of the city land located within
the arcades of said building or construction, as a license fee
for the use and occupation of said land: Provided, That the
construction of arcades on streets having a width of twenty
or more meters, not hereinbefore mentioned in this section,
shall not be carried out, until after the plan of the work has
been approved by the city engineer, and half of the assessed
value of the city land located within said arcades has been
paid for by the owner, person in charge or any other person
or entity having a right in the building which is to be erected
or constructed, as a license fee for the use and occupation of
said land."
No one would seriously contend that the construction of
arcades in the city of Manila is not for the public good.
Under the conditions as they actually exist in the metropolis,
the congestion on the narrow public streets is relieved and
the health of pedestrians is protected, by walking beneath
covered ways. The beautification of the city is effected by
requiring the construction of uniform projections beyond the
first stories above the public streets. One has only to walk
down Rizal Avenue in this city to realize the great benefit
derived from arcades. To assist the municipal authorities in
making of Manila a better and more beautiful city, should
consequently be our purpose.
It must be frankly admitted that in its effort to accomplish a
good purpose, the Municipal Board has complicated matters
by making use of a nearly impossible procedure. It is,
however, not for the courts to condemn legislative action,
but rather to look behind the verbiage to the intent, and then

to enforce this intent. Awkward as are the expressions used

in the ordinance, yet, having in mind the apparent purpose,
which is to advance the public welfare, it should not be so
difficult as the majority decision would make it appear, to
validate the ordinance.
Where, in my opinion, the majority decision makes a mistake
is in dismissing the real issue of the case with this
observation: "That the city does not possess such an
extraordinary power as that of compelling property holders
to lease the portions of the public sidewalks which adjoin
their lands requires no argument." If the proposition so
disdainfully dismissed were modified slightly, I would
unhesitatingly advocate the affirmative. In other words,
conceded that the construction of arcades over portions of
the public streets is for the public good, the question in
reality reduces itself to one of the power of the city
authorities to require the adjoining property owner who
desires to build, to pay a portion of the expenses of
constructing the arcade in front of his property.
It is common knowledge that abutting owners cannot
ordinarily erect and maintain permanent structures
encroaching on the street, such as awnings, bay windows,
stairways, porches, and arcades, without municipal
permission which is in effect a license. Ordinances
authorizing or regulating or prohibiting such structures have
been held valid.
It is also common knowledge that under varying procedure
contiguous property owners have been compelled to bear
the expense of paving the street in front of their lots, in the
construction of sidewalks along the line of their property,
and otherwise to pay large sums of money, which to an
extent benefit the property of the owner, but which to a
greater extent benefit the public. That in this instance the
city has denominated the method by which the property

owners are to be relieved of a sum equal to one-half of the

assessed value of the city land located within the arcades as
a license fee for the use and occupation of the land, does not
change the nature of the case.
It is true both under the civil law and the common law, that
public property such as streets are held in trust for the use
of the public and, on principle, that such trust property
cannot be disposed of by the municipality. On the other
hand, it would be preposterous to suppose that a
municipality could not require the payment of money in the
nature of rental for the use of public streets by benefited
property owners.
In conclusion, attention is earnestly invited to a decision of
the United States Supreme Court (City of St. Louis vs.
Western Union Telegraph Co. [1892], 148 U. S., 92), which
seems to the writer of this opinion to be conclusive. If, as
against the authority of the decision of the higher court it be
argued that the ordinance therein in question related to a
public service corporation, let the answer be that no
difference can be seen in the requirement of an ordinance
that a public service corporation shall pay the city for the
use of the street and that an abutting owner shall pay the
city for such use.
In the cited case it appears that on February 25, 1881, the
City of Saint Louis passed an ordinance known as Ordinance
No. 11604, authorizing any telegraph or telephone company
duly incorporated according to law, doing business or
desiring to do business in the City of Saint Louis, to set its
poles and other fixtures along and across any of the public
streets of the city, subject to certain prescribed regulations.
On March 22, 1884, another ordinance, known as Ordinance
No. 12733, was passed. This ordinance amended Ordinance
No. 11604 by providing that thereafter all telegraph and
telephone companies which are not by ordinance taxed on

their gross income for city purposes, shall pay to the City of
Saint Louis for the privilege of using the streets, the sum of
5 dollars per annum for each and every telegraph or
telephone pole erected or used by them in the streets in said
city. The ordinance was incorporated into the Revised
Ordinances of the City of Saint Louis as section 671.
The Western Union Telegraph Co., one of the companies
designated in section 671, having failed to pay the sum of 5
dollars per annum for each telegraph pole, a suit was
instituted to recover from the telegraph company the sum of
$22,635. The company denied the validity of the ordinance
and the authority of the city to pass it. The case was tried by
the Federal Court and a judgment was entered in favor of
the defendant. On appeal to the United States Supreme
Court, this judgment was reversed in a decision delivered by
Mr. Justice Brewer, with Mr. Justice Brown dissenting.
Pertinent portions of the majority decision are as follows:
"And, first, with reference to the ruling that this charge was
a privilege or license tax. To determine this question, we
must refer to the language of the ordinance itself, and by
that we find that the charge is imposed' for the privilege of
using the streets, alleys, and public places, and is graduated
by the amount of such use. Clearly, this is no privilege or
license tax. The amount to be paid is not graduated by the
amount of the business, nor is it a sum fixed for the privilege
of doing business. It is more in the nature of a charge for the
use of property belonging to the city-that which may
properly be called rental. 'A tax is a demand of sovereignty;
a toll is a demand of proprietorship.' (Philadelphia & R. R.
Co. vs. Pennsylvania [State Freight Tax Case] 82 U. S.,-; 15
Wall., 232, 278.) If, instead of occupying the streets and
public places with its telegraph poles, the company should
do what it may rightfully do, purchase ground in the various
blocks from private individuals, and to such ground remove
its poles, the section would no longer have any application to

it. That by it the city receives something which it may use as

revenue, does not determine the character of the charge or
make it a tax. The revenues of a municipality may come from
rentals as legitimately and as properly as from taxes.
Supposing the City of St. Louis should find its city hall too
small for its purposes, or too far removed from the center of
business, and should purchase or build another more
satisfactory in this respect; it would not thereafter be forced
to let the old remain vacant or to immediately sell it, but
might derive revenue by renting its various rooms. Would an
ordinance fixing the price at which those rooms could be
occupied be in any sense one imposing a tax ? Nor is the
character of the charge changed by reason of the fact that it
is not imposed upon such telegraph companies as by
ordinance are taxed on their gross income for city purposes.
In the illustration just made in respect to a city hall, suppose
that the city, in its ordinance fixing a price for the use of
rooms, should permit persons who pay a certain amount of
taxes to occupy a portion of the building free of rent, that
would not make the charge upon others for their use of
rooms a tax. Whatever the reasons may have been for
exempting certain classes of companies from this charge,
such exemption does not change the character of the charge,
or make that a tax which would otherwise be a matter of
rental. Whether the city has power to collect rental for the
use of streets and public places, or whether, if it has, the
charge as here made is excessive, are questions entirely
distinct. That this is not a tax upon the property of the
corporation, or upon its business, or for the privilege of
doing business, is thus disclosed by the very terms of the
section. The city has attempted to make the telegraph
company pay for appropriating to its own and sole use a part
of the streets and public places of the city. It is seeking to
collect rent. While we think that the Circuit Court erred in
its conclusions as to the character of this charge, it does not
follow therefrom that the judgment should be reversed, and

a judgment entered in favor of the city. Other questions are

presented which compel examination.
"Has the city a right to charge this defendant for the use of
its streets and public places ? And here, first, it may be well
to consider the nature of the use which is made by the
defendant of the streets, and the general power of the public
to exact compensation for the use of streets and roads. The
use which the defendant makes of the streets is an exclusive
and permanent one, and not one temporary, shifting and in
common with the general public. The ordinary traveller,
whether on foot or in a vehicle, passes to and fro along the
streets, and his use and occupation thereof are temporary
and shifting. The space he occupies one moment he
abandons the next to be occupied by any other traveller. This
use is common to all members of the public, and it is a use
open equally to citizens of other States with those of the
State in which the street is situate. But the use made by the
telegraph company is, in respect to so much of the space as
it occupies with its poles, permanent and exclusive. It as
effectually and permanently dispossesses the general public
as if it had destroyed that amount of ground. Whatever
benefit the public may receive in the way of transportation of
messages, that space is, so far as respects, its actual use for
purposes of a highway and personal travel, wholly lost to the
public. By sufficient multiplication of telegraph and
telephone companies the whole space of the highway might
be occupied, and that which was designed for general use
for purposes of travel entirely appropriated to the separate
use of companies and for the transportation of messages.
"We do not mean to be understood as questioning the right
of municipalities to permit such occupation of the streets by
telegraph and telephone companies, nor is there involved
here the question whether such use is a new servitude or
burden placed upon the easement, entitling the adjacent lot
owners to additional compensation. All that we desire or

need to notice is the fact that this use is an absolute,

permanent and exclusive appropriation of that space in the
streets which is occupied by the telegraph poles. To that
extent it is a use different in kind and extent from that
enjoyed by the general public. Now, when there is this
permanent and exclusive appropriation of a part of the
highway, is there in the nature of things anything to inhibit
the public from exacting rental for the space thus occupied?
Obviously not. Suppose a municipality permits one to occupy
space in a public park, for the erection of a booth in which to
sell fruit and other articles; who would question the right of
the city to charge for the use of the ground thus occupied, or
call such charge a tax, or anything else except rental ? So, in
like manner, while permission to a telegraph company to
occupy the streets is not technically a lease, and does not in
terms create the relation of landlord and tenant, yet it is the
giving of the exclusive use of real estate, for which the giver
has a right to exact compensation, which is in the nature of
rental. We do not understand it to be questioned by counsel
for the defendant that, under the constitution and laws of
Missouri, the City of St. Louis has the full control of its
streets, and in this respect represents the public in relation
thereto."
Ordinance No. 301 of the city of Manila should be held to be
valid and the judgment should be reversed.

EN BANC
G.R. No. 87479, June 04, 1990
NATIONAL POWER CORPORATION, PETITIONER, VS. THE
PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.
SALALIMA, AND ALBAY PROVINCIAL TREASURER ABUNDIO
M. NUEZ, RESPONDENTS.
DECISION

SARMIENTO, J.:
The National Power Corporation (NAPOCOR) questions the
power of the provincial government of Albay to collect real
property taxes on its properties located at Tiwi, Albay,
amassed between June 11, 1984 up to March 10, 1987.
It appears that on March 14 and 15, 1989, the respondents
caused the publication of a notice of auction sale involving
the properties of NAPOCOR and the Philippine Geothermal
Inc. consisting of buildings, machines, and similar
improvements standing on their offices at Tiwi, Albay. The
amounts to be realized from this advertised auction sale are
supposed to be applied to the tax delinquencies claimed, as
and for, as we said, real property taxes. The back taxes
NAPOCOR has supposedly accumulated were computed at
P214,845,184.76.
NAPOCOR opposed the sale, interposing in support of its
non-liability Resolution No. 17-87, of the Fiscal Incentives
Review Board (FIRB), which provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED. That the
tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted

under the terms and conditions of Commonwealth Act No.

120 (Creating the National Power Corporation, defining its
powers, objectives and functions, and for other purposes), as
amended, are restored effective March 10, 1987, subject to
the following conditions:[1]
as well as the Memorandum of Executive Secretary Catalino
Macaraig, which also states thus:
Pursuant to Sections 1(f) and 2(e) of Executive Order No. 93,
series of 1986, FIRB Resolution No. 17-87, series of 1987,
restoring, subject to certain conditions prescribed therein,
the tax and duty exemption privileges of NPC as provided
under Commonwealth Act No. 120, as amended, effective
March 10, 1987, is hereby confirmed and approved.[2]
On March 10, 1989, the Court resolved to issue a temporary
restraining order directing the Albay provincial government
to CEASE AND DESIST from selling and disposing of the
NAPOCOR properties subject matter of this petition. [3] It
appears, however, that the temporary restraining order
failed to reach respondents before the scheduled bidding at
10:00 a.m. on March 30, 1989...[h]ence, the respondents
proceeded with the bidding wherein the Province of Albay
was the highest bidder.[4]
The Court gathers from the records that:
(1)Under Section 13, of Republic Act No. 6395, amending
Commonwealth Act No. 120 (charter of NAPOCOR):
[1]
[2]
[3]
[4]

Section 13. - Non-profit Character of the Corporation;

Exemption from All Taxes, Duties, Fees, Imposts and Other
Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and
shall devote all its returns from its capital investment as well
as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation
of the policy enunciated in Section One of this Act, the
Corporation, including its subsidiaries, is hereby declared
exempt from the payment of all forms of taxes, duties, fees,
imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings.[5]
(2)On August 24, 1975, Presidential Decree No. 776 was
promulgated, creating the Fiscal Incentives Review Board
(FIRB). Among other things, the Board was tasked as
follows:
Section 2. A Fiscal Incentives Review Board is hereby
created for the purpose of determining what subsidies and
tax exemptions should be modified, withdrawn, revoked or
suspended, which shall be composed of the following
officials:
Chairman

- Secretary of Finance

Members- Secretary of Industry

- Director General of the National
Economic and Development
Authority
- Commissioner of Internal Revenue
[5]

- Commissioner of Customs
The Board may recommend to the President of the
Philippines and for reasons of compatibility with the
declared economic policy, the withdrawal, modification,
revocation or suspension of the enforceability of any of the
above-cited statutory subsidies or tax exemption grants,
except those granted by the Constitution. To attain its
objectives, the Board may require the assistance of any
appropriate government agency or entity. The Board shall
meet once a month, or oftener at the call of the Secretary of
Finance.[6]
(3)On June 11, 1984, Presidential Decree No. 1931 was
promulgated, prescribing, among other things, that:
Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment
of duties, taxes, fees, impost and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby
withdrawn.[7]
(4)Meanwhile, FIRB Resolution No. 10-85 was issued,
restoring NAPOCORs tax exemption effective June 11,
1984 to June 30, 1985;
(5) Thereafter, FIRB Resolution No. 1-86 was issued,
granting tax exemption privileges to NAPOCOR from July 1,
1985 and indefinitely thereafter;

[6]
[7]

(6) Likewise, FIRB Resolution No. 17-87 was promulgated,

giving NAPOCOR tax exemption privileges effective until
March 10, 1987;[8]
(7)On December 17, 1986, Executive Order No. 93 was
promulgated by President Corazon Aquino, providing, among
other things, as follows:
SECTION 1. The provisions of any general or special law to
the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby
withdrawn, except:[9]
and
SECTION 2. The Fiscal Incentives Review Board created
under Presidential Decree No. 776, as amended, is hereby
authorized to:
a)restore tax and/or duty exemptions
withdrawn hereunder in whole or in part;
b)revise the scope and coverage of tax and/or
duty exemption that may be restored;
c) impose conditions for the restoration of tax
and/or duty exemption;
d)prescribe the date or period of effectivity of
the restoration of tax and/or duty exemption;
e)formulate and submit to the President for
approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of
or in combination with the restoration of tax
[8]
[9]

and duty exemptions or preferential

treatment in taxation, indicating the source
of funding therefor, eligible beneficiaries and
the terms and conditions for the grant
thereof taking into consideration the
international commitments of the Philippines
and the necessary precautions such that the
grant of subsidies does not become the basis
for countervailing action.[10]
(8)On October 5, 1987, the Office of the President issued the
Memorandum, confirming NAPOCORs tax exemption
aforesaid.[11]
The provincial government of Albay now defends the auction
sale in question on the theory that the various FIRB
issuances constitute an undue delegation of the taxing
power and hence, null and void, under the Constitution. It is
also contended that, insofar as Executive Order No. 93
authorizes the FIRB to grant tax exemptions, the same is of
no force and effect under the constitutional provision
allowing the legislature alone to accord tax exemption
privileges.
It is to be pointed out that under Presidential Decree No.
776, the power of the FIRB was merely to recommend to
the President of the Philippines and for reasons of
compatibility with the declared ecomomic policy, the
withdrawal, modification, revocation or suspension of the
enforceability of any of the above-cited statutory subsidies or
tax exemption grants, except those granted by the
Constitution. It has no authority to impose taxes or revoke
existing ones, which, after all, under the Constitution, only
[10]
[11]

the legislature may accomplish.[12] The question therefore is

whether or not the various tax exemptions granted by virtue
of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid
and constitutional.
We shall deal with FIRB No. 17-87 later, but with respect to
FIRB Resolutions Nos. 10-85 and 1-86, we sustain the
provincial government of Albay.
As we said, the FIRB, under its charter, Presidential Decree
No. 776, had been empowered merely to recommend tax
exemptions. By itself, it could not have validly prescribed
exemptions or restore taxability. Hence, as of June 11, 1984
(promulgation of Presidential Decree No. 1931), NAPOCOR
had ceased to enjoy tax exemption privileges.
The fact that under Executive Order No. 93, the FIRB has
been given the prerogative to restore tax and/or duty
exemptions withdrawn hereunder in whole or in part, [13] and
impose conditions for...tax and/or duty exemption[14] is of
no moment. These provisions are prospective in character
and can not affect the Boards past acts.
The Court is aware that in its preamble, Executive Order No.
93 states:
WHEREAS, a number of affected entities, government and
private were able to get back their tax and duty exemption
privileges through the review mechanism implemented by
the Fiscal Incentives Review Board (FIRB); [15]
[12]
[13]
[14]
[15]

but by no means can we say that it has ratified the acts of

FIRB. It is to misinterpret the scope of FIRBs powers under
Presidential Decree No. 776 to say that it has. Apart from
that, Section 2 of the Executive Order was clearly intended
to amend Presidential Decree No. 776, which means, mutatis
mutandis, that FIRB did not have the right, in the first place,
to grant tax exemptions or withdraw existing ones.
Does Executive Order No. 93 constitute an unlawful
delegation of legislative power? It is to be stressed that the
provincial government of Albay admits that as of March 10,
1987 (the date Resolution No. 17-87 was affirmed by the
Memorandum of the Office of the President, dated October
5, 1987), NAPOCORs tax exemption had been validly
restored. What it questions is NAPOCORs liability in the
interregnum between June 11, 1984, the date its tax
privileges were withdrawn, and March 10, 1987, the date
they were purportedly restored. To be sure, it objects to
Executive Order No. 93 as allegedly a delegation of
legislative power, but only insofar as its (NAPOCORs) June
11, 1984 to March 10, 1987 tax accumulation is concerned.
We therefor leave the issue of delegation to the future and
its constitutionality when the proper case arises. For the
nonce, we leave Executive Order No. 93 alone, and so also,
its validity as far as it grants tax exemptions (through the
FIRB) beginning December 17, 1986, the date of its
promulgation.
NAPOCOR must then be held liable for the intervening years
aforesaid. So it has been held:
xxx xxx

xxx

The last issue to be resolved is whether or not the privaterespondent is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before the approval of

its municipal franchises. As aforestated, the franchises were

approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was
liable for the payment of percentage and fixed taxes as seller
of light, heat, and power--which, as the petitioner claims,
amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other
than the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the period
before the franchise was granted, i.e. before February 24,
1948. x x x[16]
Actually, the State has no reason to decry the taxation of
NAPOCORs properties, as and by way of real property taxes.
Real roperty taxes, after all, form part and parcel of the
financing apparatus of the Government in development and
nation-building, particularly in the local government level.
Thus:
SEC. 86. Distribution of proceeds. - (a) The proceeds of the
real property tax, except as otherwise provided in this Code,
shall accrue to the province, city or municipality where the
property subject to the tax is situated and shall be applied by
the respective local government unit for its own use and
benefit.
(b) Barrio shares in real property tax collections. - The
annual shares of the barrios in real property tax collections
shall be as follows:
(1)Five per cent of the real property tax collections of the
province and another five percent of the collections of the
municipality shall accrue to the barrio where the property
subject to the tax is situated.

[16]

(2) In the case of the city, ten per cent of the collections of
the tax shall likewise accrue to the barrio where the
property is situated.
Thirty per cent of the barrio shares herein referred to may
be spent for salaries or per diems of the barrio officials and
other administrative expenses, while the remaining seventy
per cent shall be utilized for development projects approved
by the Secretary of Local Government and Community
Development or by such committee created, or
representatives designated, by him.
SEC. 87. Application of proceeds. - (a) The proceeds of the
real property tax pertaining to the city and to the
municipality shall accrue entirely to their respective general
funds. In the case of the province, one-fourth thereof shall
accrue to its road and bridge fund and the remaining threefourths, to its general fund.
(b) The entire proceeds of the additional one per cent real
property tax levied for the Special Education Fund created
under R.A. No. 5447 collected in the province or city on real
property situated in their respective territorial jurisdictions
shall be distributed as follows:
(1) Collections in the provinces: Fifty per cent shall accrue
to the municipality where the property subject to the tax is
situated; twenty per cent shall accrue to the province; and
thirty per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for stabilizing the
Special Education Fund in municipalities, cities and
provinces in accordance with the provisions of Section seven
of R.A. No. 5447.
(2) Collections in the cities: Sixty per cent shall be retained
by the city; and forty per cent shall be remitted to the
Treasurer of the Philippines to be expended exclusively for

stabilizing the special education fund in municipalities, cities

and provinces as provided under Section 7 of R.A. No. 5447.
However, any increase in the shares of provinces, cities and
municipalities from said additional tax accruing to their
respective local school boards commencing with fiscal year
1973-74 over what has been actually realized during the
fiscal year 1971-72 which, for purposes of this Code, shall
remain as the base year, shall be divided equally between
the general fund and the special education fund of the local
government units concerned. The Secretary of Finance may,
however, at his discretion, increase to not more than
seventy-five per cent the amount that shall accrue annually
to the local general fund.
(c) The proceeds of all delinquent taxes and penalties, as
well as the income realized from the use, lease or other
disposition of real property acquired by the province or city
at a public auction in accordance with the provisions of this
Code, and the proceeds of the sale of the delinquent real
property or of the redemption thereof, shall accrue to the
province, city or municipality in the same manner and
proportion as if the tax or taxes had been paid in regular
course.
(d) The proceeds of the additional real property tax on idle
private lands shall accrue to the respective general funds of
the province, city and municipality where the land subject to
the tax is situated.[17]
To all intents and purposes, real property taxes are funds
taken by the State with one hand and given to the other. In
no measure can the Government be said to have lost
anything.

[17]

As a rule finally, claims of tax exemption are construed

strongly against the claimant.[18] They must also be shown to
exist clearly and categorically, and supported by clear legal
provisions.[19]
Taxes are the lifeblood of the nation.[20] Their primary
purpose is to generate funds for the State to finance the
needs of the citizenry and to advance the common weal.
WHEREFORE, the petition is DENIED. No costs. The
auction sale of the petitioners properties to answer for real
estate taxes accumulated between June 11, 1984 through
March 10, 1987 is hereby declared valid.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz,
Paras, Padilla, Bidin, Cortes, and Medialdea, JJ., concur.
Feliciano, J., in the result.
Gancayco and Grio-Aquino, JJ., on leave.
Regalado, J., no part; related to respondents counsel.

[18]
[19]
[20]

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

AMERICAN BIBLE SOCIETY, PLAINTIFF AND APPELLANT, VS. CITY OF MANILA,
DEFENDANT AND APPELLEE.
DECISION

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 and 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 unconstitutionally 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 tile 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
1st quarter1946
2rd quarter1946
3th quarter1946
1st quarter1946
2nd quarter1947
3rd quarter1947
4th quarter1947
1st quarter1947
2nd quarter1948
3rd quarter 1948
4th quarter1948
1th quarter1948
2th quarter1949
3rd quarter1949
4th quarter1949
1th quarter1949
2th quarter1950
3th quarter1950
4th quarter1950
1st quarter1950
2nd quarter1951
3rd quarter1951
4th quarter1951
1st quarter 1952
2nd quarter1952
3rd quarter1952
4th quarter1952.
1st quarter1953

P1.244.21
2,206.85
1,950.38
2,235.99
3,256.04
13,241.07
15,774.55
14,654.13
12,590.94
11,143.90
14,715.26
38,333.83
16,179.90
17,802.08
23,975.10
16,640.79
15,961.38
18,562.46
21,816.32
25,004.55
45,287.92
29,103.98
20,181.10
22,968.91
23,002.65
17,626.96
17,921.01
24,180.72
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. 15-10)".
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 Now 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 17 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 tile
Revised Administrative Code and the repealing portions (o)

of section 18 of Republic Act Ho. 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 leg;al
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 he
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. 2529 and 8000 were promulgated, was not
repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for
percentage 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 plaintiffappellant 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 preceding 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 ,1000, 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. S000 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 whatsoever
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 Ike employee* 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, section 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 thane
upon which the City is not aw/powered 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 50 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 m 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 business 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.
*

Group1 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.
*
*
*
*
*
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 religions
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, 1829,
empowers the Municipal Board of the City of Manila:
"(M-2) To tax arid 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 oi; any municipal tax.
"For the purpose of taxation, these retail dealers shall he
classified as (1) retail dealers in general merchandise, and
(2) retail dealers exclusively engaged in the sale of (a)
textiles * * :p (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 tile articles mentioned , 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 no 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

preexisting statute, will repeal the old statute in its entirety
and by the same enactment reenacment 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 arc 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 arc 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 and
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".
(CrawfordStatutory
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 so different .from the provisions of Section 2444 (m-2) that
the former cannot be considered as a substantial reenactment 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) semiluxury 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 io 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
restraint 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".
(Tanada and
Fernando on the Constitution of the Philippines, Vol. I, 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 distributing1 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 something1 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 those activities. It is one thing"
to impose a tax on the income or property of a preacher. It is
quite another thing to exact a tax from him for the privilege
of delivering, a sermon. The tax imposed by the City of
Jeannettc 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. Thosa who can tax the privilege of engaging in
this form of missionary evangelism can close all its doors to
all 'hose 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 taxa 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 freedoms is
indeed1 as potent as the power of censorship which this
Court has repeatedly struck down. * * * He 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 ia flat license tax levied and collected as a
condition to the pursuit of activities whose enjoyment is
guaranted 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 the flat license tax.'

Nor could dissemination of religious information be1

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.'" (Tanada 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 PROM 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 thu 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 of 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
ami worship, even though, if 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 an its tights 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 con^
siderations, We hereby reverse the decision appealed from,
sentencing defendant to return to plaintiff the sum of
P5,891.45 unduly collected from it. Without pronouncement
as to costs. It is so ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador,
Conception, and Endencia, JJ., concur.
Reyes, A., J., concurs in the result.

G.R. No. 3473, March 22, 1907

J. CASANOVAS, PLAINTIFF AND APPELLANT, VS. JNO. S.
HORD, DEFENDANT AND APPELLEE.
DECISION

WILLARD, J.:
The plaintiff brought this action against the defendant, the
Collector of Internal Revenue, to recover the sum of P9,600,
paid by him under protest as taxes on certain mining claims
owned by him in the Province of Ambos Camarines.
Judgment was rendered in the court below in favor of the
defendant, and from that judgment the plaintiff appealed.
There is no dispute about the facts.
In January, 1897, the Spanish Government, in accordance
with the provisions of the royal decree of the 14th of May,
1867, granted to the plaintiff certain mines in the said
Province of Ambos Camarines, of which mines the plaintiff is
now the owner.
That these were valid perfected mining concessions granted
prior to the 11th of April, 1899, is conceded. They were so
considered by the Collector of Internal Revenue and were by
him said to fall within the provisions of section 134 of Act
No. 1189, known as the Internal Revenue Act. That section is
as follows:
"SEC. 134. On all valid perfected mining concessions
granted prior to April eleventh, eighteen hundred and
ninety-nine, there shall be levied and collected on and after
January first, nineteen hundred and five, the following taxes:
"1. (a) On each claim containing an area of sixty thousand
square meters, an annual tax of one hundred pesos; (b) and

at the same rate proportionately on each claim containing an

area in excess of, or less than, sixty thousand square meters.
"2. On the gross output of each mine an ad valorem tax
equal to three per centum of the actual market value of such
output."
The defendant accordingly imposed upon these properties
the tax mentioned in section 134, which tax, as has before
been stated, plaintiff paid under protest.
The only question in the case is whether this section 134 is
void or valid.
I. It is claimed by the plaintiff that it is void because it comes
within the provision of section 5 of the act of Congress of
July 1, 1902[1] (32 U. S. Stat. L., 691), which provides "that
no law impairing the obligation of contracts shall be
enacted." The royal decree of the 14th of May, 1867,
provided, among other things, as follows:
"ART. 76. On each pertenencia minera (mining claim) of the
area prescribed in the first paragraph of article 13 (sixty
thousand square meters) there shall be paid annually a fixed
tax of forty escudos (about P20.00). The pertenencias
referred to in the second paragraph of the same article,
though of greater area than the others (one hundred and
fifty thousand square meters), shall pay only twenty escudos
(about P10.00)."
"ART. 78. Pertenencias of iron mines and mines of
combustible minerals shall be exempt from the annual tax
for a period of thirty years from the date of publication of
this decree."
"ART. 80. A further tax of three per centum on the gross
earnings shall be paid without deduction of costs of any kind
whatsoever. All substances enumerated in section one shall

be exempt from said tax of three per centum for a period of

thirty years.
"ART. 81. No other taxes than those herein mentioned shall
be imposed upon mining and metallurgical industries."
The royal decree and regulation for its enforcement provided
that the deeds granted by the Government should be in a
particular form, which form was inserted in the regulations.
It must be presumed that the deeds granted to the plaintiff
were made as provided by law, and, in fact, one of such
concessions was exhibited during the argument in this court,
and was found to be in exact conformity with the form
prescribed by law. The deed is as follows:
"Don Camilo Garcia de Polavieja, Marques de Polavieja,
Teniente General de los Ejercitos Nacionales, Caballero Gran
Cruz de la Real y Militar Orden de San Hermenegildo, de la
Real y distinguida de Isabel la Catolica, de la del Merito
Militar Roja, de la de la Corona de Italia, Comendador de
Carlos Tercero, Benemerito de la Patria en grado eminente,
condecorado con varias cruces de distincion por meritos de
guerra, Capitan General y Gobernador General de Filipinas.
"Whereas I have granted to Don Joaquin Casanovas y Llovet
and to Don Martin Buck the concession of a gold mine
entitled "Nueva California Segunda" in the jurisdiction of
Paracale, Province of Ambos Camarines: Now, therefore, in
the name of His Majesty the King (whom God preserve), and
pursuant to the provisions of article 37 of the royal decree of
May 14, 1867, regulating mining in these Islands, I issue,
this fifth day of November, eighteen hundred and ninety-six,
this title deed to four pertenencias, comprising an area of
two hundred and forty thousand square meters, as shown in
the attached sketch map drafted by the engineer Don
Enrique Abella y Casariego, and dated at Manila December

sixteenth of the said year, subject to the following general

terms and conditions:
"1. That the mine shall be worked in conformity with the
rules of mining, the grantee and his laborers to be governed
by the police rules established by existing regulations.
"2. That the grantee shall be liable for all damages to third
parties that may be caused by his operations.
"3. That the grantee shall likewise indemnify his neighbors
for any damage they may suffer by reason of water
accumulated on his works, if, upon being requested, he fail
to drain the same within the time indicated.
"4. That he shall contribute for the drainage of the adjacent
mines and for the general galleries for drainage or haulage
in proportion to the benefit he derives therefrom, whenever,
by authority of the Governor-General, such works shall be
opened for a group of pertenencias or for the entire mining
locality in which the mine is situated.
"5. That he shall commence work on the mine immediately
upon receipt of this concession unless prevented by force
majeure.
"6. That he shall keep the mine in active operation by
employing at the rate of at least four laborers for each
pertenencia for at least six months of each year.
"7. That he shall strengthen the walls of the mine within the
time indicated whenever, by reason of mismanagement of
the work, it threatens to cave in, unless he be prevented by
force majeure.
"8. That he shall not render further profitable development
of the mine difficult or impossible by avaricious operation.

"9. That he shall not suspend the operation of the mine with
the intention of abandoning the same without first informing
the Governor of his intention, in which case he must leave
the mine in a good state of timbering.
"10. That he shall pay taxes on the mine and its output as
prescribed in the royal decree.
"11. Finally, that he shall comply with all the requirements
contained in the royal decree and in the regulations for
concessions of the same nature as the present.
"Without special conditions.
"Now, therefore, by virtue of this title deed, I grant to Don
Joaquin Casanovas y Llovet and to Don Martin Buck the
ownership of the said mine for an unlimited period of time so
long as they shall comply with the foregoing terms and
conditions, to the end that they may develop the same and
make free use and disposition of the output thereof, with the
right to alienate the said mine subject to the provisions of
existing laws, and to enjoy all the rights and benefits
conceded to such grantees by the royal decree and by the
mining regulations. And for the prompt fulfillment and
observance of the said conditions, both on the part of the
said grantees and by all authorities, courts, corporations,
and private persons whom it may concern, I have ordered
this title deed to be issuedgiven under my hand and the
proper seal and countersigned by the undersigned DirectorGeneral of Civil Administration."
It seems very clear to us that this deed constituted a
contract between the Spanish Government and the plaintiff,
the obligation of which contract was impaired by the
enactment of section 134 of the Internal Revenue Law above
cited, thereby infringing the provisions above quoted from
section 5 of the act of Congress of July 1, 1902. This
conclusion seems necessarily to result from the decisions of

the Supreme Court of the United States in similar cases. In

the case of McGee vs. Mathis (4 Wallace, 143), it appeared
that the State of Arkansas, by an act of the legislature of
1851, provided for the sale of certain swamp lands granted
to it by the United States; for the issue of transferable scrip
receivable for any lands not already taken up at the time of
selection by the holder; for contracts for the making of
levees and drains, and for the payment of contractors in
scrip and otherwise. In the fourteenth section of this act it
was provided that
"To encourage by all just means the progress and completion
of the reclaiming of such lands by offering inducements to
purchasers and contractors to take up said lands, all said
swamp and overflowed lands shall be exempt from taxation
for the term of ten years or until they shall be reclaimed."
In 1855 this section was repealed and provision was made by
law for the taxation of swamp and overflowed lands, sold or
to be sold, precisely as other lands. McGee, before this
repeal, had become the owner by transfer from contractors
of a large amount of scrip issued under the Act of 1851, and
with this scrip, after the repeal, took up and paid for many
sections and parts of sections of the granted lands. Taxes
were levied by the State on the lands so taken up by McGee.
The Supreme Court held that these taxes could not be
collected. The Court said at page 156:
"It seems quite clear that the Act of 1851 authorizing the
issue of land scrip constituted a contract between the State
and the holders of the land scrip issued under the act."
In the case of the Home of the Friendless vs. Rouse (8
Wallace, 430), it appeared that on the 3d day of February,
1853, the legislature of Missouri passed an act to
incorporate the Home of the Friendless in the city of St.
Louis. Section 1 of that act provided that

"All property of said corporation shall be exempt from

taxation."
The court held that the State had no power afterwards to
pass laws providing for the levying of taxes upon this
institution. The Court said among other things at page 438:
"The validity of this contract is questioned at the bar on the
ground that the legislature had no authority to grant away
the power of taxation. The answer to this position is, that the
question is no longer open for argument here, for it is settled
by the repeated adjudications of this court, that a State may
by contract based on a consideration exempt the property of
an individual or corporation from taxation, either for a
specified period or permanently. And it is equally well settled
that the exemption is presumed to be on sufficient
consideration, and binds the State if the charter containing
it is accepted."
In the case of The Asylum vs. The City of New Orleans (105
U. S., 362), it appears that St. Ariva's Asylum was
incorporated by an act of the legislature of Louisiana,
approved April 29, 1853. The law incorporating it provided
that it should enjoy the same exemption from taxation which
was enjoyed by the Orphan Boys' Asylum of New Orleans.
The law relating to the last named institution provided (page
364):
"That, from and after the passage of this act, all the
property, real and personal, belonging to the Orphan Boys'
Asylum of New Orleans be, and the same is hereby exempted
from all taxation, either by the State, parish, or city in which
it is situated, any law to the contrary notwithstanding."
It was held that the State had no power by subsequent
legislation to impose taxes upon the property of this
institution.

That the doctrine announced in these cases is still

maintained in that court is apparent from the case of Powers
vs. The Detroit, Grand Haven and Milwaukee Railway which
was decided on the 16th of April, 1906, and reported in 201
U. S., 543. Section 9 of the act of the legislature of Michigan,
incorporating the railway company, provided:
"Said company shall, on or before the 1st day of July, pay to
the State treasurer, an annual tax of one per cent on the
capital stock of said company, paid in, which tax shall be in
lieu of all other taxation."
The court said at page 556:
"It has often been decided by this court, so often that a
citation of authorities is unnecessary, that the legislature of
a State may, in the absence of special restrictions in its
constitution, make a valid contract with a corporation in
respect to taxation, and that such contract can be enforced
against the State at the instance of the corporation."
The case at bar falls within the cases hereinbefore cited. It is
to be distinguished from the case of the Metropolitan Street
Railway Company vs. The New York State Board of Tax
Commissioners (199 U. S., 1). In that case it was provided by
various acts of the legislature, that the companies therein
referred to, should pay annually to the city of New York, a
fixed amount or percentage, varying from 2 to 8 per cent of
their gross earnings. Subsequent legislation imposing
additional taxes was sustained by the court. It was sustained
on the ground that the prior legislation did not expressly say
that the taxes thus provided for should be in lieu of all other
taxes. The court said at page 37:
"Applying these well established rules to the several
contracts, it will be perceived that there was no express
relinquishment of the right of taxation. The plaintiff in error
must rely upon some implication, and not upon any direct

stipulation. In each contract there was a grant of privileges,

but the grant was specifically of privileges in respect to the
construction, operation and maintenance of the street
railroad. These were all that in terms were granted. As
consideration for this grant, the grantees were to pay
something, and such payment is nowhere said to be in lieu
of, or as an equivalent or substitute for taxes. All that can be
extracted from the language used, was a grant of privileges
and a payment therefor. Other words must be written into
the contract before there can be found any relinquishment of
the power of taxation."
But in the case at bar, there is found not only the provisions
for the payment of certain taxes annually, but there is also
found the provision contained in article 81, above quoted,
which expressly declares that no other taxes shall be
imposed upon these mines.
The present case is to be distinguished also from that class
of cases of which Grand Lodge vs. The City of New Orleans
(166 U. S., 143) is a type, and which includes Salt Company
vs. East Saginaw (13 Wall., 373) and Welch vs. Cook (97 U.
S., 541). In these cases the exemption was a mere bounty
and did not form a part of any contract.
The fact that this concession was made by the Government
of Spain, and not by the Government of the United States, is
not important. (Trustees of Dartmouth College vs.
Woodward, 4 Wheaton, 518.)
Our conclusion is that the concessions granted by the
Government of Spain to the plaintiff, constitute contracts
between the parties; that section 134 of the Internal
Revenue Law impairs the obligation of these contracts, and
is therefore void as to them.

II. We think that this section is also void because in conflict

with section 60 of the act of Congress of July 1, 1902. This
section is as follows:
"That nothing in this Act shall be construed to affect the
rights of any person, partnership, or corporation, having a
valid, perfected mining concession granted prior to April
eleventh, eighteen hundred and ninety-nine, but all such
concessions shall be conducted under the provisions of the
law in force at the time they were granted, subject at all
times to cancellation by reason of illegality in the procedure
by which they were obtained, or for failure to comply with
the conditions prescribed as requisite to their retention in
the laws under which they were granted: Provided, That the
owner or owners of every such concession shall cause the
corners made by its boundaries to be distinctly marked with
permanent monuments within six months after this act has
been promulgated in the Philippine Islands, and that any
concessions, the boundaries of which are not so marked
within this period shall be free and open to explorations and
purchase under the provisions of this act."[1]
This section seems to indicate that concessions, like those in
question, can be canceled only by reason of illegality in the
procedure by which they were obtained, or for failure to
comply with the conditions prescribed as requisite for their
retention in the laws under which they were granted. There
is nothing in the section which indicates that they can be
canceled for failure to comply with the conditions prescribed
by subsequent legislation. In fact, the real intention of the
act seems to be that such concession should be subject to
the former legislation and not to any subsequent legislation.
There is no claim in this case that there was any illegality in
the procedure by which these concessions were obtained,
nor is there any claim that the plaintiff has not complied with
the conditions prescribed in the said royal decree of 1867.

III. In view of the result at which we have arrived, it is not

necessary to consider the further claim made by the plaintiff
that the taxes imposed by article 134 above quoted, are in
violation of that part of section 5 of the act of July 1, 1902,
which declares "that the rule of taxation in said Islands shall
be uniform."
The judgment of the court below is reversed, and judgment
is ordered in favor of the plaintiff and against the defendant
for P9,600, with interest thereon, at 6 per cent, from the
21st day of February, 1906, and the costs of the Court of
First Instance. No costs will be allowed to either party in this
court.
After the expiration of twenty days let judgment be entered
in accordance herewith and ten days thereafter let the case
be remanded to the court from whence it came for proper
action. So ordered.
Arellano, C. J., Torres, Mapa, and Tracey, JJ., concur.
Johnson, J., dissents.

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.,
DEFENDANTS-APPELLEES.
DECISION

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 tax of onesixteenth (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 or 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, firm, 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 Ordinances Nos. 23 and 27 valid, legal and
constitutional; ordering the plaintiff to pay the taxes due
under the oft-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 essentail 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 to 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., extra-territorial 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 Nos. 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 defendantsappellees 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 to 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, excepting
those which are mentioned therein." As long as the tax
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 expresio unius est exclusio alterius, and exceptio
firmat regulum in casibus non excepti.[19] The limitation
applies, particularly, to the prohibition against municipalities
and municipal districts to 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."
For purposes of this particular limitation, a municipal
ordinance which prescribes a set ratio between the amount
of the tax and the volume of sales 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 taxpayers production of soft drinks is
considered solely for purposes of determining the tax rate on
the products, but there is no 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 centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity on all soft drinks, produced
or manufactured, or an equivalent of 1-1/2 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
rates of imposable taxes.[25] This is in line with the
constitutional 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,
repealing Municipal Ordinance No. 23, same series, is
hereby declared of valid and legal effect. Costs against
petitioner-appellant. So ordered.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio,
Esguerra, Muoz Palma, Aquino, and Concepcion, Jr., JJ.,
concur.
Fernando, J., concurs in a separate opinion.

[1]

"Sec. 2. Taxation..- Any provision of law to the contrary

notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal
licence taxes or fees upon persons engaged in any
occupation or business, or exercising privileges in chartered
cities, municipalities and municipal districts by requiring
them to secure licenses at rates fixed by the municipal board

or city council of the city, the municipal council of the

municipality, or the municipal district council of the
municipal district; to collect fees and charges for service
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 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 on wharves owned
by the national government, tonnage and all other kinds of
customs fees, charges and dues;
(j) Taxes of any kind on banks, insurance companies and
persons paying franchise tax;
(k) Taxes on premiums paid by owners of property who
obtain insurance directly with foreign insurance companies;
and
(l) Taxes, fees or levies, of any kind, which in effect impose a
burden on exports of Philippine finished, manufactured or
processed products and products of Philippine cottage
industries.

CONCURRING OPINION
FERNANDO, J.:
The opinion of the Court penned by Justice Martin is
impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of
the law of municipal taxation, I am certainly in agreement. If
I limit myself to concurrence in the result, it is primarily
because with the article on Local Autonomy found in the
present Constitution, I feel a sense of reluctance in restating
doctrines that arose from a different basic premise as to the
scope of such power in accordance with the 1935 Charter.
Nonetheless, it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and
implications that could arise from the approach taken by my

brethren. Likewise as to the constitutional aspect of the

thorny question of double taxation, I would limit myself to
what has been set forth in City of Baguio v. De Leon.[1]
1. The present Constitution is quite explicit as to the power
of taxation vested in local and municipal corporations. It is
therein specifically provided: "Each local government unit
shall have the power to create its own sources of revenue
and to levy taxes, subject to such limitations as may be
provided by law."[2] That was not the case under the 1935
Charter. The only limitation then on the authority, plenary in
character of the national government, was that while the
President of the Philippines was vested with the power of
control over all executive departments, bureaus, or offices,
he could only "exercise general supervision over all local
governments as may be provided by law * * *." [3] As far as
legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the
taxing power was solely for the legislative body to decide. It
is true that in 1939, there was a statute that enlarged the
scope of the municipal taxing power.[4] Thereafter, in 1959
such competence was further expanded in the Local
Autonomy Act.[5] Nevertheless, as late as December of 1964,
five years after its enactment of the Local Autonomy Act, this
Court, through Justice Dizon, in Golden Ribbon Lumber Co.
v. City of Butuan,[6] reaffirmed the traditional concept in
these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, are clothed with no
power of taxation; that its charter or a statute must clearly
show an intent to confer that power or the municipal
corporation cannot assume and exercise it, and that any
such power granted must be construed strictly, any doubt or
ambiguity arising from the terms of the grant to be resolved
against the municipality."[7] Taxation, according to Justice
Paredes in the earlier case of Tan v. Municipality of Pagbilao,
[8]
"is an attribute of sovereignty which municipal

corporations do not enjoy."[9] That case left no doubt either

as to weakness of a claim "based merely by inferences,
implications and deductions, [as they] have no place in the
interpretation of the power to tax of a municipal
corporation."[10] As the conclusion reached by the Court finds
support in such grant of the municipal taxing power, I
concur in the result.
2. As to any possible infirmity based on an alleged double
taxation, I would prefer to rely on the doctrine announced by
this Court in City of Baguio v. De Leon.[11] Thus: "As to why
double taxation is not violative of due process, Justice
Holmes made clear in this language: 'The objection to the
taxation as double may be laid down on one side. * * * The
14th Amendment [the due process clause] no more forbids
double taxation than it does doubling the amount of a tax,
short of confiscation or proceedings unconstitutional on
other grounds. With that decision rendered at a time when
American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it
delivered the coup de grace to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It
would seem though that in the United States, as with us, its
ghost, as noted by an eminent critic, still stalks the juridical
stage. In a 1947 decision, however, we quoted with approval
this excerpt from a leading American decision: Where, as
here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation
results.' "[12]
So I would view the issues in this suit and accordingly
concur in the result.

G.R No. 45697, November 01, 1939

MANILA ELECTRIC COMPANY, PLAINTIFF AND APPELLANT,
vs. A. L. YATCO, COLLECTOR OF INTERNAL REVENUE,
DEFENDANT AND APPELLEE.
DECISION

MORAN, J.:
In 1935, plaintiff Manila Electric Company, a corporation
organized and existing under the laws of the Philippines,
with its principal office and place of business in the City of
Manila, insured with the City of New York Insurance
Company and the United States Guaranty Company, certain
real and personal properties situated in the Philippines. The
insurance was entered into in behalf of said plaintiff by its
broker in New York City. The insurance companies are
foreign corporations not licensed to do business in the
Philippines and having no agents therein. The policies
contained provisions for the settlement and payment of
losses upon the occurrence of any risk insured against, a
sample of which is policy No. 20 of the New York Insurance
Company attached to and made an integral part of the
agreed statement of facts.
Plaintiff through its broker paid, in New York, to said
insurance company premiums in the sum of P91,696. The
Collector of Internal Revenue, under the authority of section
192 of Act No. 2427, as amended, assessed and levied a tax
of one per centum on said premiums, which plaintiff paid
under protest. The protest having been overruled, plaintiff
instituted the present action to recover the tax. The trial
court dismissed the complaint, and from the judgment thus
rendered, plaintiff took the instant appeal.
The pertinent portions of the Act here involved read:

"Sec. 192. It shall be unlawful for any person, company or

corporation in the Philippine Islands either to procure,
receive, or forward applications for insurance in or to issue
or to deliver or accept policies of or for any company or
companies not having been legally authorized to transact
business in the Philippine Islands, as provided in the
chapter; and any such person, company or corporation
violating the provisions of this section shall be deemed guilty
of a penal offense, and upon conviction thereof, shall for
each such offense be punished by a fine of two hundred
pesos, or imprisonment for two months, or both in the
discretion of the court: Provided, That insurance in
companies not authorized to transact business in the
Philippine Islands may be placed upon terms and conditions
as follows:
********
"* * *. And provided further, that the prohibitions of this
section shall not affect the right of an owner of property to
apply for and obtain for himself policies in foreign
companies in cases where said owner does not make use of
the services of any agent, company or corporation residing
or doing business in the Philippine Islands. In all cases
where owners of property obtain insurance directly with
foreign companies, it shall be the duty of said owners to
report to the insurance commissioner and to the Collector of
Internal Revenue each case where insurance has been so
effected, and shall pay the tax of one per centum on
premium paid, in the manner required by law of insurance
companies, and shall be subject to the same penalties for
failure to do so."
Appellant maintains that the second paragraph of the
provisions of the Act aforecited is unconstitutional, and has
been so declared by the Supreme Court of the United States
in the case of Compania General de Tabacos v. Collector of

Internal Revenue, 275 U. S., 87, 48 Sup. Ct. Rep., 100, 72

Law. ed., 177.
The case relied upon involves a suit to recover from the
Collector of Internal Revenue certain taxes in connection
with insurance premiums which the Tobacco Company in the
Philippines, through its head office in Barcelona, Spain, paid
to the Guardian Insurance Company of London, England,
and to Le Comite des Assurances Maritimes de Paris, of
Paris, France. The Tobacco Company, through its head office
in Barcelona, insured against fire with the London Company
the merchandise it had in deposit in the warehouse in the
Philippines. As the merchandise were from time to time
shipped to Europe, the head office at Barcelona insured the
same with the Paris Company against marine risks while
such merchandise were in transit from the Philippines to
Spain. The London Company, unlike the Paris Company, was
licensed to do insurance business in the Philippines and had
an agent therein. Losses, if any, on policies were to be paid
to the Tobacco Company by the London Company in London
and by the Paris Company in Paris. The tax assessed and
levied by the Collector of Internal Revenue, under the same
law now involved, was challenged as unconstitutional. The
Supreme Court of the United States sustained the tax with
respect to premiums paid to the London Company and held
it erroneous with respect to premiums paid to the Paris
Company.
The factual basis upon which the imposition of the tax on
premiums paid to the Paris Company was declared
erroneous, is stated by the Supreme Court of the United
States thus:
"Coming then to the tax on the premiums paid to the Paris
Company the contract of insurance on which the premium
was paid was made at Barcelona in Spain, the headquarters
of the Tobacco Company between the Tobacco Company and

the Paris Company, and any losses arising thereunder were

to be paid in Paris. The Paris Company had no
communication whatever with anyone in the Philippine
Islands. The collection of this tax involves an exaction upon a
company of Spain lawfully doing business in the Philippine
Islands effected by reason of a contract made by that
company with a company in Paris on merchandise shipped
from the Philippine Islands for delivery in Barcelona. It is an
imposition upon a contract not made in the Philippines and
having no situs there and to be measured by money paid as
premium in Paris, with the place of payment of loss, if any, in
Paris. We are very clear that the contract and the premiums
paid under it are not within the jurisdiction of the
government of the Philippine Islands."
And, upon the authority of the cases of Allgeyer v. Louisiana,
165 U. S., 578, 41 Law. ed., 832, and St. Louis Cotton
Compress Company v. Arkansas, 250 U. S., 346, 677 Law.
ed., 279, the Supreme Court of the United States held that
"as the state is forbidden to deprive a person of his liberty
without due process of law, it may not compel anyone within
its jurisdiction to pay tribute to it for contracts or money
paid to secure the benefits of contracts made and to be
performed outside of the state."
On the other hand, the Supreme Court of the United States,
in sustaining the imposition of the tax upon premiums paid
by the assured to the London Company, says:
"* * *. Does the fact that while the Tobacco Company and
the London Company were within the jurisdiction of the
Philippines they made a contract outside of the Philippines
for the insurance of merchandise in the Philippines, prevent
the imposition upon the assured of a tax of 1 per cent upon
the money paid by it as a premium to the London Company?
We may properly assume that this tax placed upon the
assured must ultimately be paid by the insurer, and treating

its real incidence as such, the question arises whether

making and carrying out the policy does not involve an
exercise or use of the right of the London Company to do
business in the Philippine Islands under its license, because
the policy covers fire risks on property within the Philippine
Islands which may require adjustment and the activities of
agents in the Philippine Islands with respect to settlement of
losses arising thereunder. This we think must be answered
affirmatively under Equitable Life Assur. Soc. v.
Pennsylvania, 238 U. S., 143 Law. ed., 1239, 35 Sup. Ct.
Rep., 829. The case is a close one, but in deference to the
conclusion we reached in the latter case, we affirm the
judgment of the court below in respect to the tax upon the
premium paid to the London Company."
The ruling in the Paris Company case is obviously not
applicable in the instant one, for there, not only was the
contract executed in a foreign country, but the merchandise
insured was in transit from the Philippines to Spain, and
nothing was to be done in the Philippines in pursuance of the
contract. However, the rule laid down in connection with the
London Company may, by analogy, be applied in the present
case, the essential facts of both cases being similar. Here,
the insured is a corporation organized under the laws of the
Philippines, its principal office and place of business being in
the City of Manila. The New York Insurance Company and
the United States Guaranty Company may be said to be
doing business in the Philippines because the insurance
policies issued by them cover risks on properties within the
Philippines, which may require adjustment and the activities
of agents in the Philippines with respect to the settlement of
losses arising thereunder. For instance, it is therein
stipulated that "the insured, as often as may be reasonably
required, shall exhibit to any person designated by the
company all the remains of any property therein described
and submit to examination under oath by any person named
by the company, and as often as may be reasonably required

shall produce for examination all books of accounts * * * at

such reasonable time and place as may be designated by the
company or its representative." And, in case of
disagreement as to the amount of losses or damages as to
require the appointment of appraisers, the insurance
contract provides that "the appraisers shall first select a
competent umpire; and failing for fifteen days to agree to
such umpire, then, on request of the insured or of the
company, such umpire shall be selected by a judge of the
court of record in the state in which the property insured is
located."
True it is that the London Company had a license to do
business in the Philippines, but this fact was not a decisive
factor in the decision of that case, for reliance was therein
placed on the Equitable Life Assurance Society v.
Pennsylvania, 238 U. S., 143, 59 Law. ed., 1239, 35 Sup. Ct.
Rep., 829, wherein it was said that "the Equitable Society
was doing business in Pennsylvania when it was annually
paying dividends in Pennsylvania or sending an adjuster into
the state in case of dispute or making proof of death," and
therefore "the taxpayer had subjected itself to the
jurisdiction of Pennsylvania in doing business there." (See
Compaia General de Tabacos v. Collector of Internal
Revenue, 275 U. S., 87, 72 Law. ed., 177, 182.)
The controlling consideration, therefore, in the decision of
the London Company case was that said company, by making
and carrying out policies covering risks located in this
country which might require adjustment or the making of
proof of loss therein, did business in the Philippines and
subjected itself to its jurisdiction, a rule that can perfectly be
applied in the present case to the New York Insurance
Company and the United States Guaranty Company.
It is argued, however, that the sending of an adjuster to the
Philippines to fix the amount of losses, is a mere contingency

and not an actual fact, and as such, it cannot be a ground for

holding that the insurance companies subjected themselves
to the taxing jurisdiction of the Philippines. This argument
could have been made in the London Company case where
no adjuster appears to have ever been sent to the Philippines
nor any adjustment ever made, and yet the stipulations to
that effect were held to be sufficient to bring the foreign
corporation within the taxing jurisdiction of the Philippines.
In epitome, then, the whole question involved in this appeal
is whether or not the disputed tax is one imposed by the
Commonwealth of the Philippines upon a contract beyond its
jurisdiction. We are of the opinion and so hold that where
the insured is within the Philippines, the risk insured against
also within the Philippines, and certain incidents of the
contract are to be attended to in the Philippines, such as,
payment of dividends when received in cash, sending of an
adjuster into the Philippines in case of dispute, or making of
proof of loss, the Commonwealth of the Philippines has the
power to impose the tax upon the insured, regardless of
whether the contract is executed in a foreign country and
with a foreign corporation. Under such circumstances,
substantial elements of the contract may be said to be so
situated in the Philippines as to give its government the
power to tax. And, even if it be assumed that the tax
imposed upon the insured will ultimately be passed on to the
insurer, thus constituting an indirect tax upon the foreign
corporation, it would still be valid, because the foreign
corporation, by the stipulations of its contract, has subjected
itself to the taxing jurisdiction of the Philippines. After all,
the Commonwealth of the Philippines, by protecting the
properties insured, benefits the foreign corporation, and it is
but reasonable that the latter should pay a just contribution
therefor. It would certainly be a discrimination against
domestic corporations to hold the tax valid when the policy
is given by them and invalid when issued by foreign
corporations.

Judgment is affirmed, with costs against appellant.

Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and
Concepcion, JJ., concur.

EN BANC
G.R. No.L-28271, July 25, 1975
SMITH, BELL & CO. (PHIL.), INC., PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION

CASTRO, J.:
This is a petition for review of the decision of the Court of
Tax Appeals in case 1733 which affirms the deficiency
assessment made by the Commissioner of Internal Revenue
against the petitioner Smith, Bell & Co. in the amount of
P11,713.90.
We affirm the decision of the Court of Tax Appeals.
From August 3963 to August 1965 the petitioner imported
119 cases of "Chatteau Gay" wine which it declared as "still
wine" under Section 134(b) of the Tax Code and paid thereon
the specific tax of P1.00 per liter of volume capacity. To
determine the correct amount of the specific tax due on the
petitioner's importation, the Commissioner of Internal
Revenue (hereinafter referred to as the Commissioner)
ordered it tested and analyzed in the Bureau of Internal
Revenue Laboratory Center. The analyst who conducted the
laboratory test reported that Chatteau Gay "is a delicate
table wine, with an alcohol content of 9.5% by volume ( 745
cc @ 290C), characterized with explosion upon opening and
effervescence due to CO2 (residual)," and concluded that it
should be classified as "sparkling wine." The analyst's
conclusion is supported by Herstein and Jacobs who, in their
book entitled "Chemistry & Technology of Wines and
Liquors," wrote:

"(f) Sparkling wines are bottled before the fermentation has

ceased so that they contain carbon dioxide gas in solution at
greater than atmospheric pressure. When they are served,
the carbon dioxide is liberated with effervescence. These gas
and alcoholic contents vary according to the market for
which they are intended. They may be dry or sweet, light or
strong. Champagne, sparkling Burgundy, and Asti-Spumante
are examples of sparkling wines."
On the basis of the analyst's report and recommendation, the
Commissioner, on October 11, 1965, assessed the petitioner
a deficiency specific tax on the 119 cases of imported
Chatteau Gay in the sum of P11,713.90 under Section 134(a)
of the Tax Code which imposes a specific tax of P12.00 per
liter of volume capacity on sparkling wines.
The petitioner does not dispute the mathematical
correctness of the Commissioner's assessment, but contends
that the assessment is unconstitutional because Section
134(a) of the Tax Code under which it was issued lays down
an insufficient and hazy standard by which the policy and
purpose of the law may be ascertained and as well gives the
Commissioner blanket authority to decide what is or is not
the meaning of "sparkling wines." The argument is thus
advanced that there is here an abdication of legislative
power violative of the established doctrine, delegata
potestas non potest delegare, and the due process clause of
the Constitution.
The Commissioner disagrees on the ground that Chapter I,
Title IV of the Tax Code in no uncertain terms specifies the
articles subject to specific taxes, among which are wines,
and Section 134 does no more than classify wines in several
categories and prescribe the corresponding amounts of tax
to be paid. The Commissioner's position was sustained by
the Court of Tax Appeals in its decision dated October 5,
1967.

The contention that in regard to Section 134(a) of the Tax

Code there is an unconstitutional surrender of legislative
powers and a failure of due process, need not give us more
than a momentary pause.
Section 134 of the Tax Code provides:[1]
"Specific tax on wines. On wines and imitation wines there
shall be collected, per liter of volume capacity, the following
taxes:
"(a) Sparkling wines, regardless of proof, twelve pesos.
"(b) Still wines containing fourteen per centum of alcohol or
less, except those produced from casuy and duhat, one peso.
"(c) Still wines containing more than fourteen per centum of
alcohol, two pesos.
"Imitation wines containing more than twenty-five per
centum of alcohol shall be taxed as distilled spirits."
There can be no uncertainty that the purpose of the
abovequoted provision is to impose a specific tax on wines
and imitation wines. The first clause of Section 134 states so
in plain language. The sole object of the sub-enumeration
that follows is in turn unmistakably to prescribe the amount
of the tax specifically to be paid for each type of wine and/or
imitation wine so classified and described. The section
therefore clearly and indubitably discloses the legislative
will, leaving to the officers charged with implementation and
execution thereof no more than the administrative function
of determining whether a particular kind of wine or imitation
wine falls in one class or another. In the performance of this
function, the internal revenue officers are demonstrably
guided by the sound established practices and technology of

the wine industry, an industry as aged and widely dispersed

as one can care to know.
In the case at bar, the Commissioner had the petitioner's
wine examined and analyzed. The petitioner, on the other
hand, does not appear to have made a similar effort. On the
bases of the test thus made and the authoritative and
published work on the subject of wines, the Commissioner
ordered the corresponding deficiency assessment to be
issued. Having chosen to engage in the wine trading
business, the petitioner is duty bound to know the kinds of
wine it deals in, particularly insofar as such knowledge may
be relevant to the proper appreciation of its tax liabilities,
and cannot take comfort in its pretended ignorance of what
sparkling wine is.
ACCORDINGLY, the decision of the Court of Tax Appeals is
affirmed, at petitioner's cost.
Makalintal, C. J. , Fernando, Barredo, Makasiar, Antonio,
Esguerra, Muoz Palma, Aquino, Concepcion, Jr., and
Martin, JJ., concur.
Teehankee, J., is on leave.

SECOND DIVISION
G.R. No. 60126, September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC.,
PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE
AND COURT OF TAX APPEALS, RESPONDENTS.
DECISION

AQUINO, J.:
This is about the liability of petitioner Cagayan Electric
Power & Light Co., Inc. for income tax amounting to
P75,149.73 for the more than seven-month period of the
year 1969 in addition to franchise tax.
The petitioner is the holder of a legislative franchise,
Republic Act No. 3247, under which its payment of 3% tax
on its gross earnings from the sale of electric current is "in
lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which
taxes and assessments the grantee is hereby expressly
exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section
24 of the Tax Code by making liable for income tax all
corporate taxpayers not specifically exempt under paragraph
(c)(1)of said section and section. 27 of the Tax Code
notwithstanding the "provisions of existing special or
general laws to the contrary". Thus, franchise companies
were subjected to income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by
Republic Act No. 6020, effective August 4, 1969, by
authorizing the petitioner to furnish electricity to the

municipalities of Villanueva and Jasaan, Misamis Oriental in

addition to Cagayan de Oro City and the municipalities of
Tagoloan and Opol. The amendment reenacted the tax
exemption in its original charter or neutralized the
modification made by Republic Act No. 5431 more than a
year before.
By reason of the amendment to section 24 of the Tax Code,
the Commissioner of Internal Revenue in a demand letter
dated February 15, 1973 required the petitioner to pay
deficiency income taxes for 1968 to 1971. The petitioner
contested the assessments. The Commissioner cancelled the
assessments for 1970 and 1971 but insisted on those for
1968 and 1969.
The petitioner filed a petition for review with the Tax Court,
which on February 26, 1982 held the petitioner liable only
for the income tax for the period from January 1 to August 3,
1969 or before the passage of Republic Act No. 6020 which
reiterated its tax exemption. The petitioner appealed to this
Court.
It contends that the Tax Court erred (1) in not holding that
the franchise tax paid by the petitioner is a commutative tax
which already includes the income tax; (2) in holding that
Republic Act No. 5431 as amended, altered or repealed
petitioner's franchise; (3) in holding that petitioner's
franchise is a contract which can be impaired by an implied
repeal and (4) in not holding that section 24(d) of the Tax
Code should be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative
franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to

amendment, alteration or repeal by the Congress when the

public interest so requires (Sec. 8, Art. XIV, 1935
Constitution; Sec. 5, Art. XIV, 1973 Constitution).
Section 1 of petitioner's franchise, Republic Act No. 3247,
provides that it is subject to the provisions of the
Constitution and to the terms and conditions established in
Act No. 3636 whose section 12 provides that the franchise is
subject to amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax
Code by subjecting to income tax all corporate taxpayers not
expressly exempted therein and in section 27 of the Code,
had the effect of withdrawing petitioner's exemption from
income tax.
The Tax Court acted correctly in holding that the exemption
was restored by the subsequent enactment on August 4,
1969 of Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the
income tax for the period from January 1 to August 3, 1969
when its tax exemption was modified by Republic Act No.
5431.
It is relevant to note that franchise companies, like the
Philippine Long Distance Telephone Company, have been
paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment
appears to be highly controversial. The Commissioner at the
outset was not certain as to petitioner's income tax liability.
It had reason not to pay income tax because of the tax
exemption in its franchise.
For this reason, it should be liable only for tax proper and
should not be held liable for the surcharge and interest.
(Advertising Associates, Inc. vs. Commissioner of Internal

Revenue and Court of Tax Appeals, G.R. No. 59758,

December 26, 1984, 133 SCRA 765; Imus Electric Co., Inc.
vs. Commissioner of Internal Revenue, 125 Phil. 1024; C. M.
Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed
with the modification that the petitioner is liable only for the
tax proper and that it should not pay the delinquency
penalties. No costs.
SO ORDERED.

G. R. No. L-23174, September 18, 1967

CONCEPCION MAKABINGKIL, PETITIONER, V, HON.
NICASIO YATCO, JUDGE OF THE COURT OF FIRST
INSTANCE OF RIZAL, QUEZON CITY BRANCH, PROVINCIAL
SHERIFF OF RIZAL AND SHERIFF OF QUEZON CITY, IRENE
DE LEON AND HER HUSBAND VICENTE LLANES.
RESPONDENTS.
DECISION

FERNANDO, J.:
The principal legal question posed by this original petition
for a writ of certiorari and prohibition with preliminary
injunction is one of procedural due process. It arose from the
applicability of an order for demolition of April 18, 1964 to
the house of petitioner, such order arising from the finality of
a judgment in Civil Case No. Q-5866 of the Court of First
Instance of Quezon City, thereafter affirmed by the Court of
Appeals in CA-G.R. No. 31169-R, petitioner contending that
she was not a party to such a case and was denied a chance
to intervene therein.
The petition for certiorari and prohibition with preliminary
injunction was filed with this Court on June 13, 1964,
petitioner stating that she was a resident of and with postal
address at Block-E-l 48, East Avenue Subdivision, Pinahan
Area, Diliman, Quezon City, Philippines. As respondents, she
named the then acting Judge of Court of First Instance of
Rizal, Quezon City Branch, the Hon. Nicasio Yatco; the then
Provincial Sheriff of Rizal and the Sheriff of Quezon City; and
respondent spouses Irene de Leon and Vicente Llanes, [1]
It was then alleged that on February 26, 1964 when the
Deputy Sheriff of Quezon City served upon petitioner copy of
an alias writ of execution, she learned for the first time that

a decision was rendered in a certain Civil Case No. Q-5866

with respondent spouses, plaintiffs therein, being the
prevailing parties against the People's Homesite and
Housing Corporation (herein referred to as the PHHC), a
copy of which writ of execution as well as the final decision
of the Court of Appeals affirming the lower court decision
being included as annexes.[2] Then on April 15, 1964,
respondent spouses as plaintiffs in the above Civil Case No.
Q-5866 filed an ex-parte motion for a special order of
demolition, which motion was set for hearing on April 18,
1964, on which very day, the order of the court granting the
same was issued addressed to the Sheriff of Quezon City "to
demolish the houses existing in the premises of the land in
question, which have been erected or occupied by squatters,
and thereafter deliver the same to the spouses."[3]
Upon being served with such order of demolition on June 13,
1964, petitioner the next day immediately filed an urgent
petition to lift the alias writ of execution and order of
demolition with preliminary injunction alleging that she "is
not a squatter on the Lot in question, she having acquired
her rights and interest over the said Lot by virtue of
Resolution No. 370 dated December 18, 1959, and again by
virtue of Resolution No. 550, dated May 16, 1961, and that
all of said Resolutions were duly passed upon by the Board
of Directors of defendant PHHC, and her house having been
improved by virtue of the authority of the General Manager
of the PHHC to secure for herself a building permit from the
authorities concerned, and that her rights over the said Lot
in question were acquired after due investigation of her
qualification to acquire the same with priority from any
other person or persons who are not occupants of the
subject Lot," more so as to persons who are disqualified in
accordance with law and that granting arguendo that
plaintiff spouses did have a conditional contract to sell
executed by defendant PHHC, the same was obtained
through fraud and misrepresentation or in connivance with

some well placed employees of the PHHC and that such

contract "is against the law," referring to the PHHC Charter
as amended, and the many established policies of the said
Government Corporation, "which facts could have been duly
proved by petitioner if, only, she was impleaded in the
complaint, or given a chance to intervene. . .[4]
It was then asserted that although "a decision was rendered
in the instant case, the same should not bind petitioner
because, as already stated, your petitioner had not been
impleaded in the plaintiffs complaint, or at least, given a
chance to intervene , . ." Petitioner, in the said urgent
petition, likewise invoked the principle that respondent
spouses did not exhaust the administrative remedies before
filing the action and that the court was in error in declaring
null and void Resolution No. 550 of the PHHC in her favor as
shown by an Executive Directive of February 20, 1964
upholding her rights and interest on the lot in question, and
ordering the cancellation of the conditional contract to sell
in favor of respondent Irene de Leon. She then reiterated
that the decision in Civil Case No. Q-5866 could not in any
way bind her for not being a party in such a case and that to
allow respondent spouses to take possession of the lot in
question and remove petitioner's house and other
improvements legally constructed thereon by virtue of such
order of demolition dated April 18, 1964, would not only
cause great and irreparable injury, but would also cause
injustice to her by depriving her of her property without due
process of law. On the date originally set for the hearing of
such urgent petition on June 20, 1964, respondent spouses
through counsel requested deferment as well as permission
to file a written opposition, which was granted by the court,
the hearing being reset on June 27, 1964, but on such
subsequent date, without petitioner having as yet been
furnished with such written opposition, a fact being made
known to the court, respondent Judge "without hearing the
matter as alleged in said petition and consequently without

any evidence received, denied her petition to lift alias writ of

execution and order of demolition with preliminary
injunction."[5]
Under the above circumstances, it is petitioner's contention
that she could not be bound by the judgment and that the
refusal to lift the alias writ of execution and the order of
demolition, without hearing the matter as alleged in said
petition and without receiving any evidence and her
ejectment from the lot in question of which she was in actual
possession "would constitute a deprivation of property rights
without due process of law."[6] The Provincial Sheriff of Rizal
and the Sheriff of Quezon City were made respondents for
they "threatened to enforce said writ of execution and order
of demolition," as a matter of fact advising petitioner that
unless a restraining order from a competent court could, be
secured, her house would be demolished.[7] She then alleged
that to enforce the writ of execution and order of demolition
would be "to work unwarranted hardship and irreparable
damage and injustice upon her without having been
accorded her day in court," reiterating that thereby she
would be deprived of her property rights without due
process of law as she was a stranger to such a case never
having been made a party to it.[8] She then filed this petition
for a writ of certiorari and prohibition with preliminary
injunction, there being no appeal.[9] She likewise expressed
her willingness "to post a bond sufficient in amount as may
be determined by this Honorable Court conditioned for the
payment of damages that may be awarded in case the writ of
preliminary injunction prayed for be found
unmeritorious.'"[10]
On July 15, 1964, a resolution giving due course to the above
petition for a writ of certiorari and prohibition, likewise
granting the prayer for preliminary injunction upon posting
a bond of P1,000.00, was issued by this Court.

In the answer to the petition filed on August 7. 1964,

respondents sought to meet the due process question
squarely by the allegation that in the aforesaid Case No. Q5866, upon the finality of which both the writ of execution
and the order of demolition were issued "petitioner could
have appealed the order . . . denying the motion for leave to
intervene . . ." Moreover, respondents referred to another
civil case, Q-5411, wherein respondent spouses as plaintiffs
filed a complaint against the PHHC to compel it to execute
the conditional contract to sell covering the disputed lot and
restraining it from awarding or selling the same to one of the
defendants, petitioner herein, alleging further that after they
sought to have the said case dismissed without prejudice,
the defendant PHHC having executed a conditional contract
to sell in favor of the wife, respondent Irene de Leon, which
motion was granted in an order of respondent Judge Nicasio
Yatco on May 27, 1961, petitioner as defendant could have
opposed such motion or could have thereafter appealed.
Accordingly, respondents after mentioning that petitioner
failed to perfect an appeal in both instances added: "It is
therefore wrong to say now that in ejecting the petitioner
from this lot, she is unjustly deprived of her property without
due process of law."[11].
For further clarification of the inter-relationship between
petitioner and the PHHC on the one hand and the
respondent spouses and the PHHC on the other, with
reference to the disputed lot, the facts as found by the Court
of Appeals in its decision of August 31, 1963, affirming the
decision in Civil Case No. Q-5866 should prove illuminating.
Thus:
"The basic facts are not seriously disputed,
"On January 30, 1957, Plaintiff Irene de Leon filed with the
People's Homesite & Housing Corporation, PHHC for
convenience, an application to purchase the latter's lot 27,

Block E-148 of the East Avenue Subdivision, Quezon City.

The application was approved by defendant corporation on
February 1, 1957, and accordingly plaintiff was issued an
order of payment requiring her to pay in advance 10% or the
sum of P1,053.00, of the total value of the property. The
advance payment required of her was made and plaintiff was
issued a passbook, after which several installments were
made.
"On December 18, 1959, the PHHC Board of Directors
passed and approved Resolution No. 370 cancelling the
award thus made in favor of plaintiff De Leon and, instead,
awarding the same property to one Concepcion Makabingkil
who, as a squatter on the lot, claims to have a preferential
right in the matter of awards, But before this Resolution No,
370 could be implemented and the property formally
awarded to Makabingkil, Plaintiff De Leon filed with the
Court of First Instance of Quezon City a complaint for
injunction docketed as Civil Case No, Q-5411 against the
PHHC, Makabingkil and three others, Upon application, a
Writ of preliminary injunction was issued by that Court
temporarily enjoining the PHHC from implementing said
resolution.
"At a pre-trial conference in said Civil Case Q-5411, the
PHHC, duly represented by its authorized officers and
representatives, agreed to reconsider Res, 370 and to
respect the award previously made in favor of De Leon, and,
pursuant thereto, passed and approved Resolution No, 430
which authorizes the award of the lot in dispute to plaintiff
De Leon. Making good its commitment, the PHHC on March
27, 1961, executed a Conditional Contract to Sell the
property to plaintiff Irene de Leon, who, on the basis of that
pre-trial agreement and the Contract to Sell thus executed in
her favor by the PHHC, moved to dismiss Civil Case Q-5411
without prejudice and fulfilled partly her obligation under
the Contract by paying several installment more Without

objection on the part of either of the defendants therein, the

case, as prayed for, was ordered dismissed without prejudice
"Shortly after the dismissal of Civil Case No. Q-5411, or on
May 16, 1961, the Board again passed and approved
Resolution No. 550 reconsidering altogether its
commitments to plaintiff De Leon, totally disregarding the
Conditional Contract to Sell previously executed, and
rewarding the subject-property to Makabingkil."
It was precisely at that stage that the above decision of the
Court of Appeals noted that respondent spouses as plaintiffs
instituted Civil Case Q-5866 for injunction with damages
"against the PHHC seeking, among others, to enjoin the
latter, its officers, representatives, agents or persons acting
for and in its behalf from implementing PHHC Board
Resolution No, 550 dated May 16, 1961, or from awarding or
selling the lot in question to Concepcion Makabingkil or any
other person or persons " What is even more noteworthy is
that as shown in the petition, petitioner Makabingkil was at
no time named a party and could not therefore be heard on a
matter wherein her vital rights were undoubtedly involved.
From the above recital of undisputed facts, the picture
clearly emerges. Petitioner was indeed denied due process.
This petition for certiorari and prohibition possesses merit.
As far back as 1908, U.S. v. Ling Su Fan,[12] this Court affixed
the imprimatur of its approval on Webster's definition of
procedural due process. Thus: "By the law of the land is
more clearly intended the general law, a law which hears
before it condemns, which proceeds upon inquiry and
renders judgment only after trial."[3] This Court in a 1924
decision, Lopez v. Director of Lands, after quoting the above
added that due process "contemplates notice and
opportunity to be heard before judgment is rendered,
affecting one's person or property." It is satisfied according

to another leading decision: "if the following conditions are

present, namely: (1) There must be a court or tribunal
clothed with judicial power to hear and determine the matter
before it; (2) jurisdiction must be lawfully acquired over the
person of the defendant or over the property which is the
subject of the proceeding; (3) the defendant must be given
an opportunity to be heard; and (4) judgment must be
rendered upon lawful hearing." [14]
The due process concept is thus a vital living force in our
jurisprudence. It was so announced in an impressive number
of decisions, not all of which need be recounted here.
Fidelity to such a view has been reinforced by time. Thus in
Cuaycong v. Sengbengco,[15] decided in 1960, this Court
through the then Justice, now Chief Justice, Concepcion
declared that "acts of Congress, as well as those of the
Executive, can deny due process only under pain of nullity,
and judicial proceedings suffering from the same flaw are
subject to the same sanction, any statutory provision to the
contrary notwithstanding." Only lately, this Court through
Justice Bengzon reiterated that the due process clause "is
designed to secure justice as a living reality; not to sacrifice
it by paying undue homage to formality."[16]
A 1957 decision, Cruzcosa v. Concepckm,[17] is even more
illuminating in so far as the availability of the remedy sought
is concerned. In the language of this Court, speaking
through Justice J.B.L. Reyes: "The petition is clearly
meritorious. Petitioners were conclusively found by the
Court of Appeals to be co-owners of the building in question.
Having an interest therein, they should have been made
parties to the ejectment proceedings to give them a chance
to protect their rights; and not having been made parties
thereto, they are not bound and can not be affected by the
judgment rendered therein against their co-owner Catalino
Cruzcosa, Jr. . . ." Two due process cases deal specifically
with a writ of execution that could not validly be enforced

against a party who was not given his day in court, Sicat v.
Reyes,[18] and Hamoy v. Batingolo.[19] According to the
former: "The above agreement, which served as basis for the
ejectment of Alipio Sicat, cannot be binding and conclusive
upon the latter, who is not a party to the case. Indeed, that
order, as well as the writ for execution, cannot legally be
enforced against Alipio Sicat for the simple reason that he
was not given his day in court." From the latter: 'The issue
raised in the motion of Rangar is not involved in the appeal
for it concerns a right which he claims over the property
which has not so far been litigated for the reason that he
was not made a party to the case either as plaintiff or as
defendant He only came to know of the litigation when he
was forced out of the property by the sheriff, and so he filed
the present motion to be heard and prove his title to the
property. This he has the right to do as the most expeditious
manner to protect his interest instead of filing a separate
action which generally is long, tedious and protracted."
Petitioner was therefore right in asserting that "the separate
and collective effect of the Writ of Execution and Order of
Demolition . . . and the respondent Provincial Sheriff's threat
to enforce [the same] is to work unwarranted hardship and
irreparable damage and injustice upon the Petitioner who
has not been accorded her day in court." It would as claimed
be tantamount to a deprivation of her property rights
without due process of law. She is entitled to redress, This
petition for certiorari and prohibition must be granted.
Petitioner's right to due process must be respected. This
Court could go even further. This petition for certiorari and
prohibition could be utilized to determine who has the right
to the disputed lot. This approach of resolving the issue is
not without precedent. Francisco v. City of Davao,[20] decided
by the then Justice, now Chief Justice, Concepcion, points
the way: . . . The ends of Justice would not be served, if we
now dismiss the case over nine (9) years after it has been

initiated and bade the plaintiffs to start all over again,

following the procedure that the defendants had asked the
lower court, but which the latter refused, to require. At any
rate, since the legal question raised in the pleadings has
reached this Court, and the assessment complained of is
manifestly violative of the clear and express provision of the
law, it is best that we decide said question, instead of further
deferring its resolution." The records of the case however
show that another litigation involving petitioner, the PHHC,
and the respondent spouses is still pending adjudication. For
that reason, any further pronouncement from this Court
would be inappropriate.
Wherefore, this petition for certiorari and prohibition is
granted and the preliminary injunction issued made
permanent. With costs against respondent spouses, Irene de
Leon and Vicente Llanes.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Beng-zon,
J,P:, Sanchez, Ruiz Castro and Angeles, JJ., concur.
Petition granted.

G.R. No. 4406, October 23, 1908

ANTONIA VALENCIA Y ORUS, PLAINTIFF AND APPELLEE,
VS. JUAN JIMENEZ Y MIJARES AND GABRIEL FUSTER Y
FUSTER, DEFENDANTS AND APPELLANTS.
DECISION

TRACEY, J.:
MEMORANDUM ON MOTION TO DISCONTINUE.
After this case had been finally submitted to this court, and
was awaiting decision, a petition was presented in behalf of
the plaintifff, not through her attorneys of record but
through a new attorney, in the following words:
"The plaintiff, Doa Antonia Valencia y 0rus,through her
advocate, appears and respectfully shows:
"For weighty reasons now known to the plaintiff but whereof
she was ignorant when this action was begun, she can not
continue claiming either ownership or possession of the
lands in question in this suit.
"Wherefore this plaintiff asks this honorable court to revoke
the judgment appealed from in all its parts, absolving the
defendants fully from the demands in this suit, without
mating any award of costs."
By the judgment of the court below the plaintiff had been
awarded the real property in suit, together with damages for
its Retention.
This motion must be denied, for several reasons.
First. The plaintiff is a resident of Barcelona, Spain, and she
originally authorized the bringing of this action in a
correspondence direct between herself and, her attorneys,

Coudert Brothers of Manila,. at whose request she gave a

power of management thereof to one of the assistants in
their office, Jose Moreno Lacalle. As a foundation for the
present motion there was filed a later power of attorney
from her to Buenaventura Guamis, revoking the earlier
power to Jose Moreno Lacalle, which it fully recited, and
empowering Guamis to revoke in her name the aforesaid
antecedent power, and secondly, "himself or through his
substitutes, whom he may name, to appear in legal form
before the Supreme Court of the city of Manila, or any other
tribunal which may have cognizance of the case, and
present a fitting instrument in writing discontinuing the
action brought to nullify the sale of the lands aforesaid
which was presented before the Court of First Instance of
Manila against Don Juan Jimenez y Mijares and Don Gabriel
Fuster y Fuster, with the power of ratification in the said
petition making manifest his wish to renounce the
continuance of the said suit."
The affidavit of Buenaventura Gqamis says:
"(4) As appears front the aforesaid document 'A,' at the foot
of tie sixth page (tie power of attorney to him), it is the
intention and desire of the said Doa Antonia Valencia y
Orus to discontinue this action and renounce the
continuation of the same * * *
"(6) By virtue of the powers conferred by the said document
'A,' this deponent hereby confers power on Mr. C. W. Ney,
practicing lawyer in this capital city, to take in the name and
representation of the said Dona Antonia Valencia y Orus
proceedings necessary to procure the final discontinuance of
this action."
It is obvious that the motion does not comply with the power
granted by the plaintiff nor fall within its terms. The notice
of motion does not ask for the discontinuance or cessation or
abandonment of the suit, but on the contrary prays for a
judgment absolving the defendants of the claim set up in the

complaint, without any costs. Such a judgment would be one

upon the merits and would preclude the plaintiff from any
claim which she might hereafter, on fuller advices, see fit to
make against these defendants. Such action, possibly so
prejudicial to her interests, her power of attorney has hot
authorized any person to take in her behalf. The two
things, a discontinuance and a judgment of absolution on
the merits, are not only different in degree but in kind, and
in the opinion of the majority of this court the one does not
include the other.
Second. If, however, it might be that the motion for a
judgment upon the merits could be considered as including
the other kind of relief, that is, a mere discontinuance, on
the principle that the greater includes the less, then the
relief asked for can not be granted because it is tied up with
the condition that there shall be no award of costs. The
award of costs is at the disposal of the court, not of the
parties, especially to the prejudice of the defendants, who
ape third persons, not before us on this motion and whom
we can not presume to accept terms 60 unfavorable to them
in their character as innocent purchasers.
Third. By the affidavit of Charles C. Cohn, one of the
plaintiff's original attorneys, it appears that, after the entry
of judgment in this action, the said attorneys caused to be
entered upon the records of the Court of First Instance in
which the judgment was rendered a statement of their claim
to a lien thereon, with lawful fees and disbursements in this
action, and caused written notice thereof to be delivered to
the adverse party. Under section 37 of the Code of Civil
Procedure this sufficed to give them a lien upon the
judgment, inasmuch as the decree was one, in part, for the
payment of money. Their further claim thereon is expressed
in that section in the following words:
"* * * and shall have the same right and power over such
judgments, decrees, and executions to enforce his lien as his

client had or may have to the extent that may be necessary

for the payment of his just fees and disbursements."
Under the, American practice this clause gives the attorneys
an interest in the judgment and power over it and to enforce
it like to that of their clients. It must therefore entitle them
to carry on the action for the purpose of securing their
proper compensation.
Without passing on the particular steps required to enable
the attorneys to carry their lien into effect or on the
reasonableness of the fees claimed by them, or of the
contract providing therefor, we only hold that their lien is
alleged to have been properly created so as to give them a
right and standing in the action which prevents its
discontinuance against their protest and without a suitable
provision for their protection.
Fourth. The motion is not made by one of the attorneys of
record. Certain motions, of their very nature, may be made
by an attorney who has not appeared in the ease, where the
interest of the client is adverse to that of the attorney of
record. Of that character is a motion for substitution of
attorneys, but not such a motion as the present one, which
goes to the merits and final disposition of the cause and
which no one is entitled to make other than the attorney who
duly appears of record in this court. By section 32 of the
Code of Civil Procedure the right is secured to a party
litigant to change attorneys. The method of such change is
not indicated. The proper practice in this case on the part of
the plaintiff would have been a motion for a substitution of
attorneys, on which the question of their compensation
would naturally have arisen and on the determination of
which the attorney finally appearing of record could have
moved a discontinuance.
The justices sitting in this case do not all agree on each of

the aforesaid grounds, but they are unanimously of the

opinion that the motion must be denied. decision.
DECISION.
This action was brought in the Court of First Instance of the
city of Manila to set aside a sale of real estate valued at
P95,697.10 for unpaid taxes amounting to P2,934.76 to the
defendant Jimenez, and also the transfer of a one-half
interest therein by him to the defendant Fuster, on two
grounds, first, that the defendants had secured title under
the tax sale by conspiracy with one Vicente Ablaza,
plaintiff's agent, who allowed the property to go to sale while
having in his hands ample funds for the payment of taxes;
and, second, that the tax sale was invalid by reason of
defects in the proceedings to impose the tax.
The first cause of action was opened up, but was not
persisted in at the trial and the case comes before us on the
questions only of the irregularity of the proceedings for the
sale. The most serious of these are the following:
(1) The statement of the owner, filed by Ablaza, as her
agent, gave her name as "Doffa Antonia Valencia y Orus." In
the assessment roll for the year 1901 the name given was
"Valencia, Antonio." In the roll of 1902 it was "Valencia,
Antonia," while the tax deed had it "Antonia Valencia."
(2) The correct description given in the owner's filed
statement read:
"Bounded in front, on entering, 280.55 meters, by Calle de
Lemery; on the right, on entering, 142.40 meters, by the
property of Don Nicolas del Rosario; on the left, on entering,
65.10 meters, by Calle Corcuera, and at the rear, 288.70
meters, by the estuary and canal de la Reina,"
In the roll of 1901 it is stated as

"A piece of land with improvements, situated blocks 24, 25,

26, and part 28 fronting Calle Lemery, solar de Nicolas del
Rosario, izquierda Calle Corcuera and espaldaCanal de la
Reina."
In the roll for 1902:
"A piece of land with improvements, known as blocks 24, 25,
26, and part of 28 fronting izquerda Calle Corcuera, espalda
Calle de la Reina, Calle Lemery, solar de Nicolas del
Rosario."
In the notice of sale under "Inscription," "Kind of property
land and improvement;" "Street and number," it reads, "Rear
of Canal de la Reina, left of Corcuera;" "Lots, 24, 25, 26, 28;"
"Block,",
The description in the final deed is correct whereas in the
tax certificate it was copied from that in the notice of sale,
and is defective.
The words "Lots" and "Blocks" were proved to refer to a plan
made by the assessor and collector and kept in his office for
his own use, but to which individuals might have access, on
which it was shown as lots 24, 25, 26, and part of 28 in
block 1. This plan was made after the filing of the
declaration by the property owners but before the
assessment.
(3) The amount of the taxes in these several documents is set
down in columns, the cents being divided from the dollars,
but without any dollar-mark,
(4) The only proof of the fixing of the notices of sale was a
recital in the certificate of the city assessor and collector
that the notice was posted "at the main entrance of said
municipal building and at five other public places in the city
of Manila,77 without specifying the places, and also a recital
in the deed that a copy was posted in the proper barrio.

(5) The tax certificate did not fully recite the proceedings
and give the details required by sections 78 and 80 of Act
No. 82, but, on the contrary, showed the defects in the.
description and notice of sale, whereas the final deed
substantially complied with the statute.
The American law does not create a presumption of the
regularity of any administrative action which results in
depriving a citizen or taxpayer of his property, but, on the
contrary, the due process of law to be followed in tax
proceedings must be established by proof and the general
rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all
proceedings leading up to the sale. The difficulty of
supplying such proof has frequently lead to efforts on the
part of legislatures to avoid it by providing by statute that a
tax deed shall be deemed either conclusive or presumptive
proof of such regularity.
Those statutes attributing to it a conclusive effect have been
held invalid as operating to deprive the owner of his
property without due process of law. But those creating, a
presumption only have been sustained as affecting a rule of
evidence, changing nothing but the burden of proof. (Turpin
vs. Lemon, 187 U. S., 51.)
The tax law applicable to Manila does not attempt to give
any special probative effect to the deed of the assessor and
collector, and therefore leaves the purchaser to establish the
regularity of all vital steps in the assessment and sale. By
sections 84 and 86 of Act No. 82 it is enacted that no tax
shall be declared invalid for irregularities unless they "shall
have impaired the substantial rights of the taxpayer."
The first apparent defect in this assessment is the error in
the name of the owner.

In Marx vs. Hanthorn (148 IT. 6., 172), where it does not
even appear that under the law of the State of Oregon the
tax was a personal one, the tax sale was held bad because
the owner's name had been written in the roll as "Ida F.
Hanthorn" instead of "Ida J. Hanthorn."
Under the Municipal Law of the Philippines, sections 74 to
78, the tax is primarily a personal one and is enforcible
against realty only in the event of a deficiency of
personalty, whereas in the city of Manila its character is
somewhat qualified by the provision in section 47 of the
charter making the levy on personality a cumulative remedy
only. Nevertheless, the requirement of the statute is so
imperative that the rule of the Hanthorn case is manifestly
applicable here.
But we deem it unnecessary to take up in detail the several
irregularities and to determine the effect of each one upon
the validity of the tax sale. The most vital requisite of such
an assessment is that the property shall be so described as
to be easily identified both by the owner and by the persons
desiring to bid therefor. The descriptions prior to those in
the deed are all more or less defective, but those in the
assessment roll for 1902 and in the final notice of the tax
sale are so confused and inadequate as not only to fail to
give notice to a stranger of the location of the property, but
as to be incapable of verification by a person familiar with
it. This is especially true of the description in the notice of
sale, which of all the steps in the procedure is the one
calling for a most definite and intelligible description. It is
settled doctrine that, where one sale embraces two different
taxes, a vital defect in either tax invalidates the whole sale,
so that, considered apart from the notice of sale, the rather
understandable description in the roll of 1901 does not cure
the vice in that of 1902. We are satisfied that the failure to
adequately describe the property both in the tax roll and
in the notice of sale amounted to an "irregularity,

informality, and failure that impaired the substantial rights

of the taxpayer," within the meaning of sections 84 and 86 of
the Municipal Code, and upon this failure we are content to
rest our judgment, affirming that part of the judgment of
the Court of First Instance declaring the sale and deed of the
assessor and collector of the city of Manila to Juan Jimenez y
Mijares, and the deed of the latter to Gabriel Fuster y Fuster,
invalid and awarding to the plaintiff the possession of the
property described in the complaint.
The judgment of the Court of First Instance not only
awarded the plaintiff the real estate, but also the rents and
profits thereof, both from the time the defendants took
possession until the commencement of the action, and those
accrued during the pendency of the action which have been
collected by the defendant Gabriel Fuster y Fuster as
receiver. This part of the judgment should be modified.
By article 451 of the Civil Code, the possessor of property in
good faith is entitled to the profits thereof until his
possession is legally interrupted. By article 448, the
possessor under claim of ownership is presumed to have a
just title. By article 448, good faith is always presumed,
while bad faith must be affirmatively proved. By article 435,
possession acquired in good faith does not lose that
character until the. occurrence of something showing that
the possessor is not ignorant of the weakness of his title.
That portion of the present action having been abandoned
which involved the direct charge of conspiracy on the part of
the defendants, they are entitled, as the case stands, to the
benefit of these articles of the code unless they can be
charged with actual bad faith. Applying the standard of the
Spanish law expressed in these articles, there is not
sufficient in the case to establish such a charge although it is
somewhat indicated in the evidence. It may be urged,
however, that the tax deed derives its force from the law

under which it is given and must take as an incident its

quality and effects from that law, so that the holder thereof
acquires no other status in respect of good faith than such as
the American law attributes to him in that character. The
rule of that law is usually stated to be that the holder of a
tax title is not a purchaser in good faith (Cooley on Taxation,
pp. 218, 220), qualified, however, in this important
particular, that in respect of improvements he who, without
actual knowledge of defects, holds a deed regular on its
face, is considered in good faith and is entitled to rely upon
that deed without an investigation of the proceedings upon
which it is founded. But, if the deed itself exposes an
irregularity, he must take notice of it. (Madland vs.
Benland, 24 Minn., 372; O'Mulcahy vs. Florer, 27 Minn.,
499; Bedell vs. Shaw, 59 N. Y., 46; Lynch vs. Brudie, 63 Pa.,
206.) We have to seek the meaning of the term "good faith"
in the cases on the subject of improvements because, in the
American system, it can not arise in connection with rents
and profits, which are recoverable by the successful plaintiff
in any event without regard to it.
In the present instance, the final deed is regular on its face,
and in the opinion of the majority of the court, in the
absence of actual notice, sufficed to protect the holders
thereof, although the preliminary certificate of sale which
they had held and surrendered showed in its recital that the
sale was irregular. Therefore, Applying either the Spanish
or the American criterions as to good faith, the plaintiff may
not recover the rents and profits down to the time when it is
plain that the defendants were advised of the vice of their
title.
This limit is fixed at the date on which, after being informed
by the beginning of an action, they voluntarily appear
therein and assert their claim. (Judgments of the supreme
court of Spain of November 23, 1900, and October 12,"
1901.)

The defendants first pleading in this case, the demurrer, was

served on the 16th of May, 1906, and the plaintiff is entitled
to recover the rents and profits from that date until the
termination of the action, and the receiver must account to
her therefor.
In conclusion, so much of the judgment of the Court of First
Instance as awards to the plaintiff the possession of the
property in suit, declaring void the deed from the city
assessor and collector to Juan Jimenez y Mijares, together
with the deed of the latter to the defendant Gabriel Fuster y
Fuster, and also so much thereof as directs the payment to
the plaintiff of the rents and profits of the property from the
16th of May, 1906, and also awards to the defendants the
sum of P2,934.76, with interest from the 17th of December,
1904, to the 26th of April, 1906, being the amount of the tax
with interest deposited under the statute as a condition to
maintain the action, but thereafter withdrawn under
stipulation, is affirmed; but so much of said judgment as
directs payment to the plaintiff of the rents and profits of the
real estate prior to the 16th day of May, 1906, amounting to
P4,337.73, is revoked.
This action is hereby remanded to the Court of First Instance
for the purpose of taking such accounts and conducting such
other proceedings herein as may be necessary to carry out
the aforesaid judgment, but without costs of this instance.
So. ordered.
Arellano, C. J., Torres, Mapa, and Carson, JJ., concur.
WILLARD, J., concurring in part:
I agree to the denial of the motion, on the ground that the
plaintiff is not entitled to have the case dismissed without
costs.

Upon the merits I agree to the declaration that the tax sale
is invalid, but not to that part of the opinion which allows the
plaintiff to recover rents.

Supreme Court of the Philippines

215 Phil. 582

EN BANC
G.R. No. L-59431, July 25, 1984
ANTERO M. SISON, JR., PETITIONER, VS. RUBEN B.
ANCHETA, ACTING COMMISSIONER, BUREAU OF
INTERNAL REVENUE; ROMULO VILLA, DEPUTY COMMISSIONER, BUREAU OF INTERNAL REVENUE; TOMAS
TOLEDO, DEPUTY COMMISSIONER, BUREAU OF INTERNAL
REVENUE; MANUEL ALBA, MINISTER OF BUDGET,
FRANCISCO TANTUICO, CHAIRMAN, COMMISSIONER ON
AUDIT, AND CESAR E. A. VIRATA, MINISTER OF FINANCE,
RESPONDENTS.
DECISION

FERNANDO, C.J.:
The success of the challenge posed in this suit for
declaratory relief or prohibition proceeding[1] on the validity
of Section 1 of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision
further amends Section 21 of the National Internal Revenue
Code of 1977, which provides for rates of tax on citizens or
residents on (a) taxable compensation income, (b) taxable
net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted
gross income.[2] Petitioner[3] as taxpayer alleges that by
virtue thereof, "he would be unduly discriminated against by

the imposition of higher rates of tax upon his income arising

from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual
taxpayers."[4] He characterizes the above section as arbitrary
amounting to class legislation, oppressive and capricious in
character.[5] For petitioner, therefore, there is a
transgression of both the equal protection and due process
clauses[6] of the Constitution as well as of the rule requiring
uniformity in taxation.[7]
The Court, in a resolution of January 26, 1982, required
respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the
Office of the Solicitor General, was filed on May 28, 1982. [8]
The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or
conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative
Defenses."[9] The answer then affirmed: "Batas Pambansa
Blg. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited, while correctly quoted or
paraphrased, do not support petitioner's stand."[10] The
prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition
must be dismissed.
1. It is manifest that the field of state activity has assumed a
much wider scope. The reason was so clearly set forth by
retired Chief Justice Makalintal thus: "The areas which used
to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only
'because it was better equipped to administer for the public
welfare than is any private individual or group of
individuals,' continue to lose their well-defined boundaries
and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the

increasing social challenges of the times." [11] Hence the need

for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance
of vital state functions. It is the source of the bulk of public
funds. To paraphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain
availability is of the essence.[12]
2. The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of
all the powers of government."[13] It is, of course, to be
admitted that for all its plenitude, the power to tax is not
unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does property
rights, both the due process and equal protection clauses
may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure. If it were otherwise,
there would be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to
destroy."[14] In a separate opinion in Graves v. New York,[15]
Justice Frankfurter, after referring to it as an "unfortunate
remark," characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes."[16] This is merely to
emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr.
Justice Holmes's pen: 'The power to tax is not the power to
destroy while this Court sits.' "[17] So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as
the fundamental law overrides any legislative or executive
act that runs counter to it. In any case therefore where it can
be demonstrated that the challenged statutory provision - as
petitioner here alleges - fails to abide by its command, then
this Court must so declare and adjudge it null. The inquiry

thus is centered on the question of whether the imposition of

a higher tax rate on taxable net income derived from
business or profession than on compensation is
constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail.[18]
5. It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has also been
held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in
case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds.[19]
6. Now for equal protection. The applicable standard to
avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the
police power or the power of eminent domain is to
demonstrate "that the governmental act assailed, far from
being inspired by the attainment of the common weal was

prompted by the spirit of hostility, or at the very least,

discrimination that finds no support in reason. It suffices
then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must
be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilitiesimposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and
security shall be given to every person under circumstances,
which if not identical are analogous. If law be looked upon in
terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest." [20]
That same formulation applies as well to taxation measures.
The equal protection clause is of course, inspired by the
noble concept of approximating the ideal of the laws's
benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of
the very essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of Justice Frankfurther: "The equality at which the 'equal protection' clause
the former deals with an eminent domain proceeding and
the latter with a suit contesting the validity of a police power
measure aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to
abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the
attainment of specific ends by the use of specific remedies.
The Constitution does not require things which are different
in fact or opinion to be treated in law as though they were
the same."[21] Hence the constant reiteration of the view that
classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz v. Araneta, [22] this
Court, through Justice J.B.L. Reyes, went so far as to hold "at
any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been

repeatedly held that 'inequalities which result from a

singling out of one particular class for taxation, or exemption
infringe no constitutional limitation.'"[23]
7. Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The rule of
taxation shall be uniform and equitable." [24] This requirement
is met according to Justice Laurel in Philippine Trust
Company v. Yatco,[25] decided in 1940, when the tax
"operates with the same force and effect in every place
where the subject may be found."[26] He likewise added: "The
rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable." [27] The
problem of classification did not present itself in that case. It
did not arise until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation, * * *.[28] As clarified by Justice Tuason,
where " the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is
therefore uniform."[29] There is quite a similarity then to the
standard of equal protection for all that is required is that
the tax "applies equally to all persons, firms and
corporations placed in similar situation."[30]
8. Further on this point. Apparently, what misled petitioner
is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it is enough that the
classification must rest upon substantial distinctions that
make real differences. In the case of the gross income

taxation embodied in Batas Pambansa Blg. 135, the

discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing
a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are
set apart as a class. As there is practically no overhead
expense, these taxpayers are not entitled to make
deductions for income tax, purposes because they are in the
same situation more or less. On the other hand, in the case
of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the
gross system of income taxation to compensation income,
while continuing the system of net income taxation as
regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is
without merit, considering the (1) lack of factual foundation
to show the arbitrary character of the assailed provision; [31]
(2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and
taxable net income of professionals and businessmen -certainly not a suspect classification.
WHEREFORE, the petition is dismissed. Costs against
petitioner.
Makasiar, Concepcion, Jr., Guerrero, Melencio-Herrera,
Escolin, Relova, Gutierrez, Jr., De La Fuente, and Cuevas, JJ.,
concur.

Teehankee and Aquino, JJ., in the result.

Abad Santos, J., see notation.
Plana, J., no part.

ABAD SANTOS, J.:

This is a frivolous suit. While the tax rates for compensation
income are lower than those for net income such
circumstance does not necessarily result in lower tax
payments for those receiving compensation income. In fact,
the reverse will most likely be the case; those who file
returns on the basis of net income will pay less taxes
because they can claim all sorts of deductions justified of
not. I vote for dismissal.

[1]

Petitioner must have realized that a suit for declaratory

relief must be filed with the Regional Trial Courts.
[2]
[3]

Batas Pambansa Blg. 135, Section 21 (1981).

The respondents are Ruben B. Ancheta, Acting

Commissioner, Bureau of Internal Revenue; Romulo Villa,
Deputy Commissioner, Bureau of Internal Revenue; Tomas
Toledo, Deputy Commissioner, Bureau of Internal Revenue;
Manuel Alba, Minister of Budget; Francisco Tantuico,
Chairman, Commissioner on Audit; and Cesar E. A. Virata,
Minister of Finance.

[4]

Petition, Parties, par. 1. The challenge is thus aimed at

paragraphs (a) and (b) of Section 1 further Amending
Section 21 of the National Internal Revenue Code of 1977.
Par. (a) reads: "(a) On taxable compensation income. -- A tax
is hereby imposed upon the taxable compensation income as
determined in Section 28 (a) received during each taxable
year from all sources by every individual, whether a citizen
of the Philippines, determined in accordance with the
following schedule:
Not over P 2,500
0%
Over P 2, 500 but not over
1%
P 5, 000
Over P 5, 000 but not over P 25 + 3% of excess over P
10,000
5,000
Over P 10, 000 but not
P 175 + 7% of excess over
over P 20, 000
P 10,000
Over P 20, 000 but not
P 875 + 11% of excess over
over P 40, 000
P 20,000
Over P 40, 000 but not
P 3,075 + 15% of excess
over P 60, 000
over P 40,000
Over P 60, 000 but not
P 6075 + 19% of excess
over P 100, 000
over P 60,000
Over P 100, 000 but not P 13675 + 24% of excess
over P 250, 000
over P 100,000
Over P 250, 000 but not P 49675 + 29% of excess
over P 500, 000
over P 250,000
P 122,175 + 35% of excess
Over P 500, 000
over P 500,000
Par. (b) reads: "(b) On taxable net income. -- A tax is hereby
imposed upon the taxable net income as determined in
Section 29(a) received during each taxable year from all
sources by every individual, whether a citizen of the
Philippines, or an alien residing in the Philippines
determined in accordance with the following schedule:

Not over P 10,000

Over P 10,000 but not
over P 30,000
Over P 30,000 but not
over P 150,000
Over P 150,000 but not
over P 500,000
Over P 500,000
[5]

5%
P 500 + 15% of excess over
P 10,000
P 3,500 + 30% of excess
over P 30,000
P 39,500 + 45% of excess
over P 150,000
P 197,000 + 60% of excess
over P 500,000

Ibid, Statement, par. 4.

[6]

Article IV, Section 1 of the' Constitution reads: "No person

shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal
protection of the laws."
[7]

Article VII, Section 7, par. (1) of the Constitution reads:

"The rule of taxation shall be uniform and equitable. The
Batasang Pambansa shall evolve a progressive system of
taxation."
[8]

It was filed by Solicitor General Estelito P. Mendoza. He

was assisted by Assistant Solicitor General Eduardo D.
Montenegro and Solicitor Erlinda B. Masakayan.
[9]

Answer, pars. 1-6.

[10]

Ibid, par. 6.

[11]

Agricultural Credit and Cooperative Financing

Administration v. Confederation of Unions in Government
Corporation and Offices, L-21484, November 29, 1969, 30
SCRA 649, 662.
[12]

Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA

199, per Castro, J.

[13]

Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).

[14]

McCulloch v. Maryland, 4 Wheaton 316.

[15]

306 US 466 (1938).

[16]

Ibid, 489.

[17]

ibid, 490.

[18]

Cf. Ermita-Malate Hotel and Motel Operators Association

v. Hon. City Mayor, 127 Phil. 306, 315 (1967); U.S. v.
Salaveria, 39 Phil. 102, 111 (1918) and Eboa v. Daet, 85
Phil. 369 (1950). Likewise raferred to is O'Gorman and
Young v. Hartford Fire Insurance Co., 282 US 251, 328
(1931).
[19]

Cf. Manila Gas Co. v. Collector of Internal Revenue, 62

Phil. 895 (1936); Wells Fargo Bank and Union Trust Co. v.
Collector, 70 Phil. 325 (1940); Republic v. Oasan Vda. de
Fernandez, 99 Phil. 934 (1956).
[20]

The excerpt is from the opinion in J.M. Tuason and Co. v.

The Land Tenure Administration, L-21064, February 18,
1970, 31 SCRA 413, 435 and reiterated in Bautista v. Juinio,
G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339.The
former deals with an eminent domain proceeding and the
latter with a suit contesting the validity of a police power
measure.
[21]

Tigner v. Texas, 310 US 141, 147 (1940).

[22]

98 Phil. 148 (1955).

[23]

Ibid, 153.

[24]

Article VIII, Section 17, par. 1, first sentence of the

Constitution.

[25]

69 Phil. 420 (1940).

[26]

Ibid, 426.

[27]

Ibid, 424.

[28]

Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862

(1949).
[29]

Manila Race Horse Trainers Asso. v. De la Fuente, 88

Phil. 60, 65 (1951).
[30]
[31]

Uy Matias v. City of Cebu, 93 Phil. 300 (1953).

While petitioner cited figures to sustain his assertion,

public respondents refuted with other figures that argue
against his submission. One reason for requiring declaratory
relief proceedings to start in regional trial courts is precisely
to enable petitioner to prove his allegation, absent an
admission in the answer.

G.R. No. L-24756, October 31, 1968

CITY OF BAGUIO, PLAINTIFF-APPELLEE, VS. FORTUNATO
DE LEON, DEFENDANT-APPELLANT.
DECISION

FERNANDO, J.:
In this appeal, a lower court decision upholding the validity
of an ordinance of the City of Baguio imposing a license fee
on any person, firm, entity or corporation doing business in
the City of Baguio is assailed by defendant-appellant
Fortunato de Leon. He was held liable as a real estate
dealer with a property therein worth more than P10,000, but
not in excess of P50,000, and therefore obligated to pay
under such ordinance the P50 annual fee. That is the
principal question. In addition, there has been a firm and
unyielding insistence by defendant-appellant of the lack of
jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300
as license fee covering the period from the first quarter of
1958 to the fourth quarter of 1962, allegedly, inspite of
repeated demands.
[1]

Nor was defendant-appellant agreeable to such a suit being

instituted by the City Treasurer without the consent of the
Mayor, which for him was indispensable. The lower court
was of a different mind.
In its decision of December 19, 1964, it declared the above
ordinance as amended, valid and subsisting, and held
defendant-appellant liable for the fees therein prescribed as
a real estate dealer. Hence, this appeal. Assume the validity
of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it

being shown in the partial stipulation of facts, that he was

"engaged in the rental of his property in Baguio" deriving
income there from during the period covered by the first
quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is
supplied by Republic Act No. 329, amending the city charter
of Baguio empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established
or practiced in the City."
[2]

Unless it can be shown then that such a grant of authority is

not broad enough to justify the enactment of the ordinance
now assailed, the decision appealed from must be affirmed.
The task confronting defendant-appellant, therefore, was far
from easy. Why he failed is understandable, considering that
even a cursory reading of the above amendment readily
discloses that the enactment of the ordinance in question
finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof
novel in character. In Medina v. City of Baguio, the effect of
the amendatory section insofar as it would expand the
previous power vested by the city charter was clarified in
these terms: "Appellants apparently have in mind section
2553, paragraph (c) of the revised Administrative Code,
which empowers the City of Baguio merely to impose a
license fee for purpose of regulating the business that may
be established in the city. The power as thus conferred is
indeed limited, as it does not include the power to levy a
tax. But on July 15, 1948, Republic Act No. 329 was enacted
amending the charter of said city and adding to its power to
license the power to tax and to regulate. And it is precisely
having in view this amendment that Ordinance No. 99 was
approved in order to increase the revenues of the city. In
our opinion, the amendment above adverted to empowers
the city council not only to impose a license fee but also to
[3]

levy a tax for purposes of revenue, more so when in

amending section 2553 (b), the phrase as provided by law'
has been removed by section 2 of Republic Act No. 329. The
city council of Baguio, therefore, has now the power to tax,
to license and to regulate provided that the subjects affected
be one of those included in the charter. In this sense, the
ordinance under consideration cannot be considered ultra
vires whether its purpose be to levy a tax or impose a license
fee. The terminology used is of no consequence."
It would be an undue and unwarranted emasculation of the
above power thus granted if defendant-appellant were to be
sustained in his contention that no such statutory authority
for the enactment of the challenged ordinance could be
discerned from the language used in the amendatory act.
That is about all that needs to be said in upholding the lower
court, considering that the City of Baguio was not devoid of
authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant
likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional
infirmities. To such points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of
jurisdiction of the City Court of Baguio in the suit for the
collection of the real estate dealer's fee from him in the
amount of P300. He contended before the lower court, and
it is his contention now, that while the amount of P300
sought was within the jurisdiction of the City Court of
Baguio where this action originated, since the principal issue
was the legality and constitutionality of the challenged
ordinance, it is not such City Court but the Court of First
Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The
City Court has jurisdiction. Only recently, on September 7,
1968 to be exact, we rejected a contention similar in

character in Nemenzo v. Sabillano. The plaintiff in that case

filed a claim for the payment of his salary before the Justice
of the Peace Court of Pagadian, Zamboanga del Sur. The
question of jurisdiction was raised; the defendant Mayor
asserted that what was in issue was the enforcement of the
decision of the Commission of Civil Service; the Justice of
the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by us, as what
was involved was "an ordinary money claim" and therefore
"within the original jurisdiction of the Justice of the Peace
Court where it was filed, considering the amount involved."
Such is likewise the situation here.
[4]

Moreover, in City of Manila v. Bugsuk Lumber Co., a suit to

collect from a defendant this license fee corresponding to
the years 1951 and 1952 was filed with the Municipal Court
of Manila, in view of the amount involved. The thought that
the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any
consideration by this Court.
[5]

Evidently, the fear is entertained by defendant-appellant that

whenever a constitutional question is raised, it is the Court
of First Instance that should have original jurisdiction on the
matter. It does not admit of doubt, however, that what
confers jurisdiction is the amount set forth in the complaint.
Here, the sum sought to be recovered was clearly within the
jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such
ordinance being open to question as a defense against its
enforcement from one adversely affected, the matter should
be elevated to the Court of First Instance. For the City
Court could rely on the presumption of the validity of such
ordinance, and the mere fact, however, that in the answer
to such a complaint a constitutional question was raised did
not suffice to oust the City Court of its jurisdiction. The suit
[6]

remains one for collection, the lack of validity being only a

defense to such an attempt at recovery. Since the City Court
is possessed of judicial power and it is likewise axiomatic
that the judicial power embraces the ascertainment of facts
and the application of the law, the Constitution as the
highest law superseding any statute or ordinance in conflict
therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of
such delicate power, however, the admonition of Cooley on
inferior tribunals is well worth remembering. Thus: "It must
be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the
fallibility of the human judgment, will shrink from exercising
in any case where he can conscientiously and with due
regard to duty and official oath decline the responsibility."
While it remains undoubted that such a power to pass on the
validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be exercised
with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of
a city court in the judicial hierarchy.
[7]

2. To repeat the challenged ordinance cannot be considered

ultra vires as there is more than ample statutory authority
for the enactment thereof. Nonetheless, its validity on
constitutional grounds is challenged because of the
allegation that it imposed double taxation, which is
repugnant to the due process clause, and that it violated the
requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process,
Justice Holmes made clear in this languages: "The objection
to the taxation as double may be laid down on one side. * * *
The 14th Amendment [the due process clause] no more
forbids double taxation than it does doubling the amount of a
tax, short of confiscation or proceedings unconstitutional on
other grounds." With that decision rendered at a time when
[8]

American sovereignty in the Philippines was recognized, it

possesses more than just a persuasive effect. To some, it
delivered the coup de grace to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It
would seem though that in the United States, as with us, its
ghost, as noted by an eminent critic, still stalks the juridical
stage. In a 1947 decision, however, we quoted with
approval this excerpt from a leading American decision:
"Where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double
taxation results."
[9]

[10]

At any rate, it has been expressly affirmed by us that such an

"argument against double taxation may not be invoked
where one tax is imposed by the state and the other is
imposed by the city * * *, it being widely recognized that
there is nothing inherently obnoxious in the requirement
that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the
political subdivisions thereof."
[11]

The above would clearly indicate how lacking in merit is this

argument based on double taxation.
Now, as to the claim that there was a violation of the rule of
uniformity established by the constitution. According to the
challenged ordinance, a real estate dealer who leases
property worth P50,000 or above must pay an annual fee of
P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than
P10,000. On its face, therefore, the above ordinance cannot
be assailed as violative of the constitutional requirement of
uniformity. In Philippine Trust Company v. Yatco, Justice
Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with their same force and effect in
every place where the subject may be found."
[12]

There was no occasion in that case to consider the possible

effect on such a constitutional requirement where there is a
classification. The opportunity came in Eastern Theatrical
Co. v. Alfonso. Thus: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural
classifications for purposes of taxation; * * *." About two
years later, Justice Tuason, speaking for this Court in Manila
Race Horses Trainers Assn. v. de la Fuente incorporated
the above excerpt in his opinion and continued: "Taking
everything into account, the differentiation against which
the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the
meaning of the Constitution."
[13]

[14]

To satisfy this requirement then, all that is needed as held in

another case decided two years later, is that the statute or
ordinance in question "applies equally to all persons, firms
and corporations placed in similar situation." This Court is
on record as accepting the view in a leading American case
that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation.
[15]

[16]

[17]

It is thus apparent from the above that in much the same

way that the plea of double taxation is unavailing, the
allegation that there was a violation of the principle of
uniformity is inherently lacking in persuasiveness. There is
no need to pass upon the other allegations to assail the
validity of the above ordinance, it being maintained that the
license fees therein imposed "is excessive, unreasonable and
oppressive" and that there is a failure to observe the
mandate of equal protection. A reading of the ordinance will
readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the

last two, which would predicate a grievance on the
complaint having been started by the City Treasurer rather
than the City Mayor of Baguio. These alleged errors, as was
the case with the others assigned, lack merit.
In much the same way that an act of a department head of
the national government, performed within the limits of his
authority, is presumptively the act of the President unless
reprobated or disapproved, similarly the act of the City
Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor
unless repudiated or set aside. This should be the case
considering that such city official is called upon to see to it
that revenues due the City are collected. When
administrative steps are futile and unavailing, given the
stubbornness and obduracy of a taxpayer, convinced in good
faith that no tax was due, judicial remedy may be resorted to
by him. It would be a reflection on the state of the law if
such fidelity to duty would be met by condemnation rather
than commendation.
[18]

So much for the analytical approach. The conclusion thus

reached has a reinforcement that comes to it from the
functional and pragmatic test. If a city treasurer has to
await the nod from the city mayor before a municipal
ordinance is enforced, then opportunity exists for favoritism
and undue discrimination to come into play. Whatever valid
reason may exist as to why one taxpayer is to be accorded a
treatment denied another, the suspicion is unavoidable that
such a manifestation of official favor could have been
induced by unnamed but not unknown consideration. It
would not be going too far to assert that even defendantappellant would find no satisfaction in such a sad state of
affairs. The more desirable legal doctrine therefore, on the
assumption that a choice exists, is one that would do away

with such temptation on the part of both taxpayer and public

official alike.
WHEREFORE, the lower court decision of December 19,
1964, is hereby affirmed. Costs against defendant-appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Castro, Angeles, and Capistrano, JJ., concur.
Zaldivar, J., on leave.

G.R. No. L-3538, May 28, 1952

JUAN LUNA SUBDIVISION, INC., PLAINTIFF AND APPELLEE,
VS. M. SARMIENTO, ET AL., DEFENDANTS AND
APPELLANTS.
DECISION

TUASON, J.:
This is an appeal by the City Treasurer of the City of Manila
from the following judgment handed down in the aboveentitled causes:
"POR TODAS LAS CONSIDERACIONES, el Juzgado dicta
sentencia ordenando: que el demandado Tesorero de la
Ciudad de Manila pague a la demandante la cantidad de
P2,210.52 sin intereses; que la demandada Philippine Trust
Company pague a la demandante la suma de P105 sin
intereses."
The Philippine Trust Company did not appeal.
The facts of the case, in so far as they are not in controversy,
are these: The plaintiff was a corporation duly organized and
existing under the laws of the Philippines with principal
office in Manila. On December 29, 1941 it issued to the City
Treasurer of Manila, and the City Treasurer accepted, Check
No. 628334 for P2,210.52 drawn upon the Philippine Trust
Company with which it had a credit balance of P4,940.17 on
its account. This check was to be applied to plaintiff's land
tax for the second semester of 1941 the exact amount of
which was yet undetermined, and so it wets entered in the
ledger, Exhibit "F", as a deposit by the taxpayer. On February
20, 1942, presumably after the exact amount had been
verified, which was P341.60, the balance of P1,868.92,
covered by voucher No. 1487 of the City Treasurer's office,
was noted in the ledger as a credit to the Juan Luna
Subdivision, Inc.

Further than this, the records of the City Treasurer's office

do not show what was done with the check. But the books of
the Philippine Trust Company do reveal that it was deposited
with the Philippine National Bank, the City Treasurer's sole
depository, on December 29, 1941, and that it was presented
by that Bank to the Philippine Trust Company on May 1,
1944 and was cashed by the drawee. Manuel F. Garcia,
Assistant Treasurer of the Philippine Trust Company,
testified that soon after his Bank was authorized in March,
1942, to reopen for business (it had been closed by order of
the Japanese military authorities it received from the
Philippine National Bank a bundle of checks, including
appellee's check No. 628334, drawn upon the Philippine
Trust Company before the Japanese occupation and held in
abeyance by the Philippine National Bank pending
resumption of operation by the Philippine Trust Company;
that these checks, including the appellee's check, were
accepted and the amounts thereof debited against the
respective drawer's accounts; that with respect to check No.
628334, the operation was effected on May 1, 1944.
The City Treasurer refused after liberation to refund the
plaintiff's deposit or apply it to such future taxes as might be
found due, while the Philippine Trust Company was
unwilling to reverse its debit entry against the Juan Luna
Subdivision, Inc. It was upon this predicament that the Juan
Luna Subdivision, Inc. brought this suit against the City
Treasurer and the Philippine Trust Company as defendants
in the alternative. The purpose of the action is to determine
which of the two defendants is liable for plaintiff's check.
There is a separate cause of action which concerns the
plaintiff and the City Treasurer alone.
On the main cause of action the burden of the City
Treasurer's defense is that his office was not benefited by
the check. He denies that the said check was cashed "or

rather there was no proof that it was." It is pointed out that

"Mr. Gibbs, testifying in open court, admitted that he had
never received nor could he have received the cancelled
check;" that "the court's finding that the sum of P2,210.52
was in fact and in truth added to the actual cash of the
Treasurer of the City of Manila is based on conjectures and
surmises without any support of pertinent and competent
proof; that "the special ledger sheet of the City Treasurer * *
* simply showed that some accounting transaction in the
book value was done or accomplished but these accounting
processes did not show that actual payment had been made
(by the Philippine National Bank) to the City Treasurer, and
that the City Treasurer had in effect received said amount
represented by said check;" that "the burden of proving that
the wctat check in question was in fact paid rests on the
defendant Philippine Trust Company." It is further argued
that "there is a lot of difference between the book value and
the cash value of this check," that the acceptance by the City
Treasurer and the issuance of Official Receipt No. 755402 on
December 29, 1941 in favor of Juan Luna Subdivision, Inc.
"did not simultaneously and automatically place in the hands
of the City Treasurer the cash value represented by the said
check in the amount of P2,210.52."
That the plaintiff's check was deposited by the City
Treasurer with the Philippine National Bank, and the latter
was paid the cash equivalent thereof by the Philippine Trust
Company, admits of no doubt. The entries in the books of the
latter bank are not in the least impugned. Whether the City
Treasurer was paid that amount by the Philippine National
Bank or given credit for it, the City Treasurer would neither
admit nor deny. He said:
"A.Not that I am not willing (to admit); I am willing, but I am
not the right party to admit that the check was actually
collected by the City of Manila from the Philippine Trust
Company. The Philippine Trust Company never submitted

any financial statement. To my knowledge, the City

Treasurer of Manila has never been informed by the
Philippine Trust Company or by the Philippine National
Bank, which is the depository of the City of Manila, that
that same check was collected by the City of Manila from
the Philippine National Bank; by that I am not trying to
say that the check was not actually collected by the City.
*******
"Q.This particular check in question pertains to the revenue
account of the City of Manila, is that right?
"A.Yes, sir.
Ordinarily it would be deposited with the Philippine
"Q.
National Bank, is that right?
"A.That is right.
"Q.And the Philippine National Bank has not rendered you
any account of its collections?
"A.I would not say that; they probably gave us a statement,
but as we have lost our records pertaining to the
occupation and the pre-war years, I could not make a
categorical statement."
From the fact that the Philippine National Bank was open
throughout the Japanese occupation and the other facts
heretofore admitted or not denied, it is to be presumed that
the Philippine National Bank credited the City Treasurer
with the amount of the check in question, and that the City
Treasurer, taking ordinary care of his concerns, withdrew
that amount. This is in accordance with the presumption that
things happened according to the ordinary course of
business and habits. The burden is on the City Treasurer, not
on the plaintiff, to rebut these presumptions.
But the point is not material at all as far as the plaintiff is
concerned. What became of the check or where the money
went is a matter between the City Treasurer and the
Philippine National Bank. The drawer of the check had funds
on deposit to meet it; the City Treasurer accepted it and
deposited it with the Philippine National Bank, and the

Philippine National Bank collected the equivalent amount

from the drawee Bank. In the light of these circumstances,
the City Treasurer became the Philippine National Bank's
creditor and the Juan Luna Subdivision, Inc. was released
from liability on its check. If the City Treasurer did not
collect his credit from the Philippine National Bank or
otherwise make use of it, he alone was to blame and should
suffer the consequences of his neglect. That the City
Treasurer held the check merely in trust for the plaintiff
does not alter the situation as far as this branch of the case
goes.
The amount to be refunded to the plaintiff is the subject of
another disagreement between the Juan Luna Subdivision,
Inc. and the City Treasurer. This is the ground of the other
cause of action heretofore referred to.
The plaintiff claims the whole amount of the check
contending that taxes for the last semester of 1941 have
been remitted by Commonwealth Act No. 703.
Section 1 of this Act, which was approved on November 1,
1945, provides:
"All land taxes and penalties due and payable for the years
nineteen hundred and forty-two, nineteen hundred and fortythree, nineteen hundred and forty-four and fifty per cent of
the tax due for nineteen hundred and forty-five, are hereby
remitted. The land taxes and penalties due and payable for
the second semester of the year nineteen hundred and fortyone shall also be remitted if the remaining fifty per cent
corresponding to the year nineteen hundred and forty-five
shall have been paid on or before December thirty-first,
nineteen hundred and forty-five."
Does this provision cover taxes paid before its enactment, as
the plaintiff maintains and the court below held, or does it
refer, as the City Treasurer believes, only to taxes which
were still unpaid?

There is no ambiguity in the language of the law. It says

"taxes and penalties due and payable," the literal meaning of
which is taxes owed or owing. (See Webster's New
International Dictionary.) Note that the provision speaks of
penalties, and note that penalties accrue only when taxes
are not paid on time. The word "remit" underlined by the
appellant does not help its theory, for to remit is to desist or
refrain from exacting, inflicting, or enforcing something as
well as to restore what has already been taken. (Webster's
New International Dictionary.)
We do not see that literal interpretation of Commonwealth
Act No. 703 runs counter and does violence to its spirit and
intention, nor do we think that such interpretation would be
"constitutionally bad" in that "it would unduly discriminate
against taxpayers who had paid in favor of delinquent
taxpayers."
The remitsion of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by itself, and the
law would be open to attack as class legislation only if all
taxpayers belonging to one class were not treated alike.
They are not.
As to the justice of the measure, the confinement of the
condonation to delinquent taxes was not without good
reason. The property owners who had paid their taxes before
liberation and those who had not were not on the same
footing on the need of material relief. It is true that the
ravages and devastations wrought by war operations had
rendered the bulk of the people destitute or impoverished
and that it was this situation which prompted the passage of
Commonwealth Act No. 703. But it is also true that the
taxpayers who had been in arrears in their obligation would
have to satisfy their liability with genuine currency, while the

taxes paid during the occupation had been satisfied in

Japanese military notes, many of them at a time when those
notes were well-nigh worthless. To refund those taxes with
the restored currency, even if the Government could afford
to do so, would be unduly to enrich many of the payers at a
greater expense to the people at large. What is more, the
process of refunding would entail a tremendous amount of
work and difficulties, what with the destruction of tax
records and the great number of claimants who would take
advantage of such grace.
It is said that the plaintiff's check was in the nature of a
deposit, held in trust by the City Treasurer, and that, for this
reason, plaintiff's taxes are to be regarded as still due and
payable. This argument is well taken but only to the extent
of P1,868.92. The amount of P341.60 as early as February
20, 1942, had been applied to the second half of plaintiff's
1941 tax and become part of the general funds of the city
treasury. From that date that tax was legally and actually
paid and settled.
The appealed judgment should, therefore, be modified so
that the defendant City Treasurer shall refund to the plaintiff
the sum of P1,868.92 instead of P2,210.52, without costs. It
is so ordered.
Paras, C. J., Feria, Pablo, Bengzon, Montemayor, Bautista
Angelo, and Labrador, JJ., concur.

G.R. No. L-18276, January 12, 1967

C. N. HODGES, PETITIONER AND APPELLEE, VS. THE
MUNICIPAL BOARD OF THE CITY OF ILOILO, HON.
RODOLFO GANZON, IN HIS CAPACITY AS CITY MAYOR OF
THE CITY OF ILOILO; AND THE CITY OF ILOILO,
RESPONDENTS AND APPELLANTS.
DECISION

RUIZ CASTRO, J.:

The respondents, on appeal by writ of error, ask us to review
a judgment of the Court of First Instance of Iloilo, in an
action for declaratory relief, annulling ordinance 31, series
of 1960, of the City of Iloilo and ordering the said City to
reimburse to the petitioner C. N. Hodges whatever amounts
he had paid to the former by reason of the operation of the
ordinance.
The parties are agreed on the antecedent facts. On June 7,
1960, invoking Republic Act 2264, otherwise known as the
Local Autonomy Act, the municipal board of the City of Iloilo
enacted ordinance 31, entitled "An Ordinance Imposing
Municipal Tax On The Sale of Real Property Situated In The
City of Iloilo", which ordains that "Any person, firm,
association or corporation who shall sell real property
situated in the City of Iloilo shall pay a real property sales
tax of one-half (1/2) of one percent (1%) of the contract price
and/or consideration before such sale could be registered
and the ownership thereof transferred in the Office of the
Register of Deeds of Iloilo" (section 1). It is therein
expressly provided that the tax is to be paid to the city
treasurer "within five (5) days from the sale", subject to the
payment of a surcharge of 20 of the tax due in case of
default, and such payment, the receipt whereof is made part
of the documents on the sale, "shall be a requirement for the

registration * * * of the sale in the Office of the Register of

Deeds or the Office of the City Treasurer of the City of Iloilo"
(sections 3 and 4). Penal sanction consisting of a fine of not
less than fifty pesos (P50) nor more than two hundred pesos
(P200) or imprisonment of not less than five (5) days nor
more than thirty (30) days, at the discretion of the court, is
prescribed for any infraction of the said ordinance (section
7). By its terms, the ordinance took effect on July 1, 1960.
The petitioner C. N. Hodges, who was engaged in the
business of buying and selling real estate in the city and the
province of Iloilo, stood to be subjected to the tax thus
imposed. Contending that the ordinance was beyond the
corporate powers of the respondent City, he instituted on
June 28, 1960prior to the effectivity date of the ordinance
an action for declaratory relief to test the validity thereof.
Meanwhile, after the ordinance became effective, the
petitioner paid taxes imposed under the authority thereof
upon sales of real estate made by him. He accordingly
amended his petition to include the City itself as a partyrespondent, as well as to incorporate therein a prayer for the
reimbursement to him of the amounts thus far paid by him
pursuant to the ordinance.
In their return to the petition, the respondents justified the
enactment of the ordinance not only under the city charter
but also upon the authority vested in the respondent City by
section 2 of the Local Autonomy Act. By way of special
defense, they contended that the petition states no cause of
action for declaratory relief.
Subscribing to the position assumed by the petitioner, the
trial court ruled as heretofore stated.
Hence, the present recourse.
The preliminary procedural issue of non-exhaustion of

administrative remedies is raised by the appellants, but the

vortex of the present controversy is whether or not the
questioned ordinance is ultra vires viewed vis-a-vis the
corporate powers of the appellant City.
1. On the preliminary issue, the appellants argue that the
court a quo acquired no jurisdiction over the case because
the appellee failed to exhaust administrative remedies, more
particularly that indicated in the penultimate and last
paragraphs of section 2 of the Local Autonomy Act, to wit:
"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 and 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".
Nothing in the foregoing quotation even remotely applies to
the situation at hand. The authority vested in the Secretary
of Finance to suspend the effectivity of a tax ordinance is
limited to cases wherein the tax or fee thereby levied is
"unjust, excessive, oppressive, or confiscatory". Nowhere in
the pleadings below was the tax imposed by the questioned
ordinance challenged by the appellee upon any of these
specific bases. He chose to prosecute his case upon the
ground that the ordinance was beyond the corporate powers

of the appellant City to enact. This is a purely legal

question; no relief of an administrative nature is or would
have been available to the appellee from the Secretary of
Finance (Pascual vs. Provincial Board of Nueva Ecija, 106
Phil., 466, citing: Mondano vs. Silvosa, 97 Phil., 143, 51 Off.
Gaz., p. 2884.). Besides, it does not appear from the
aforequoted legal precept that it is the mandatory duty of a
party adversely affected, assuming that the matter comes
within the purview of the law, to invoke the suspension
authority of the Secretary of Finance. The said Secretary,
from the text of the law, may exercise the prerogative vested
in him upon his own initiative, i.e., "if, in his opinion" the tax
or fee levied suffers from any of the infirmities enumerated.
Accordingly, it cannot be said that recourse to the Secretary
of Finance is a pre-requisite to an action in court. And the
rule requiring exhaustion of administrative remedies applies
only "when there is an express legal provision requiring such
administrative step as a condition precedent to taking action
in court" (Azuelo vs. Arnaldo, et al., 58 Off.Gaz., No. 26, pp.
4738, 4740). At all events, even assuming that the recourse
indicated by the appellants were indeed a requirement, the
same does not appear to be exclusive. It is discretionary
upon the court to permit an aggrieved party to institute a
court action without first resorting to an administrative
remedy for the purpose (Hoskyns vs. National City Bank of
New York, et al., 85 Phil., 201). Finding, as we do, after
reading the record, that there exists here a justiciable
controversy between real parties asserting adverse legal
interests which is ripe for judicial determination (Caltex
Philippines, Inc. vs. Palomar, G.R. L-19650, September 29,
1966), the recourse to the courts was in no way premature.
There is, therefore, no room for the application of the
doctrine of exhaustion of administrative remedies to the case
at bar.
Prescinding from the foregoing, it seems necessary to
correct the impression of the appellants that failure to

exhaust administrative remedies goes into the jurisdiction on

the trial court. The fact of the matter is that such
discrepancy, if any, merely implies absence of a cause of
action (Pineda vs. Court of First Instance of Davao, et al., 59
Off.Gaz., No. 33, pp. 5266, 5271; Atlas Consolidated Mining
and Development Corporation vs. Mendoza, et al., 112 Phil.,
960; 59 Off.Gaz., No. 11, pp. 1729, 1733). This point
specially acquires pertinence when it is noted that while the
appellants set up in their answer the defense of want of a
cause of action, the same was based upon the alleged
inexistence of a justiciable controversy. The absence of a
cause of action upon the ground of non-exhaustion of
administrative remedies does not appear to have been posed
in issue below. It is thus likewise too late to invoke it at this
stage. Hence, the result stands the same.
2. No special difficulty attends the resolution of the main
issue. Heretofore, we have announced the doctrine that the
grant of the power to tax to chartered cities under section 2
of the Local Autonomy Act is sufficiently plenary to cover
"everything, excepting those which are mentioned" therein,
subject only to the limitation that the tax so levied is for
"public purposes, just and uniform" (Nin Bay Mining
Company vs. Municipality of Roxas, Province of Palawan,
G.R. L-20125, July 20, 1965). There is no showing, and we
do not believe it is possible to show, that the tax levied,
called by any name, - percentage tax or sales tax - comes
under any of the specific exceptions listed in section 2 of the
Local Autonomy Act. Not being excepted, it must be
regarded as coming within the purview of the general rule.
As the maxim goes, "Exceptio firmat regulam in casibus non
exceptis". Since its public purpose, justness and uniformity
of application are not disputed, the tax so levied must be
sustained as valid.
Nor is this without precedent. On all fours to the case at bar
is C.N. Hodges vs. The Municipal Board of the City of Iloilo,

et al., G.R. 18129, January 31, 1963, which, significantly

enough, not only involved the same parties but as well
concerned another ordinance of the appellant City,
ordinance 33, series of 1960, enacted barely six days after
the enactment of the ordinance now under scrutiny, that is,
on June 13, 1960. Ordinance 33, similar to the one now in
controversy, levied a sales tax of one-half (1/2) of one
percent (1%) of the selling price of any motor vehicle sold in
the city of Iloilo, imposing the payment of the said tax as a
condition to the registration of the sale in the Motor Vehicles
Office as well as the transfer of ownership of the vehicle
sold. In an action similar to the case at bar, the appellee
herein, invoking grounds and advancing arguments similar
to those herein relied upon, also challenged the validity of
the ordinance. Upholding the validity thereof and affirming
the corporate power of the appellant City to enact the same,
this Court made the following pronouncements:[1]
"It would appear that the City of Iloilo, thru its municipal
board, is empowered (a) to impose municipal licenses, taxes
or fees upon any person engaged in any occupation or
business, or exercising any privilege, in the city; (b) to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation
conducted within the city; and (c) to levy for public purposes
just and uniform taxes, licenses and fees. It would also
appear that municipalities and municipal districts are
prohibited from imposing any percentage tax on sales, or
other taxes in any form on articles subject to specific tax,
except gasoline, under the provisions of the National
Internal Revenue Code.
"From a cursory analysis of the provisions above-stated we
can readily draw the conclusion that the City of Iloilo has the
authority and power to approve the ordinance in question for
it merely imposes a percentage tax on the sale of a secondhand motor vehicle that may be carried out within the city

by any person, firm, association or corporation owning or

dealing with it who may come within its jurisdiction. Indeed,
it cannot be disputed that a sales tax of of 1% of the
selling price of a second-hand motor vehicle comes within
the purview of the provisions of Section 2 of Republic Act
2264. It is true that the tax in question is in the form of a
percentage tax on the proceeds of the sale of a second-hand
motor vehicle which comes within the prohibition of the
section above adverted to; but the prohibition only refers to
municipalities and municipal districts and does not
comprehend chartered cities as the City of Iloilo".
We perceive no overriding reason to depart from the
doctrine thus laid down.
3. The questioned ordinance, however, does more than
merely levy a tax. It commands that "The payment of this
municipal tax shall be a requirement for the registration * * *
of said sale in the Office of the Register of Deeds or the
Office of the City Treasurer of the City of Iloilo" and, for
purposes of which, demands that "the tax receipt shall be
made a part of the documents to be presented for
registration" (section 3). Challenging this requirement, the
appellee contended and the trial court agreed that, in effect,
it imposes a condition to the registration of the deed of
conveyance not otherwise called for by the general statutory
law on the matter and, to that extent, amounts to amending
or modifying the applicable statute, which it is argued, is not
within the competence of the appellant municipal board of
Iloilo city to do.
In the C.N. Hodges vs. The Municipal Board of the City of
Iloilo case hereinbefore cited, this Court, confronted with a
similar question in so far as the registration of vehicles
under the ordinance there involved was concerned, took the
view that the imposition of the payment of the tax levied as a
pre-requisite to the registration of the sale in the Motor

Vehicles Office was "merely a coercive measure to make the

enforcement of the contemplated sales tax more effective"
and, accordingly, sustained the same under the principle of
implication, that is, that being a measure reasonably
necessary to carry out the power expressly granted, it was
considered impliedly included in the grant of the express
power.
However, after carefully re-examining the ruling thus
enunciated, we are persuaded to say that, while we find no
cause to doubt the validity thereof as a general principle, the
same cannot by any means be regarded as a hard-and-fast
rule. Applied to specific cases, the broad sweep thereof
must be limited or qualified depending upon the particular
attendant circumstances. And we declare that the generality
of the rule may not prevail when, in its application, it runs
counter to or tends to impair a specific legal mandate of a
superior authority. But another way, the rule should be that
the appellant municipal board may resort to all means
reasonably necessary and proper to give effect to the powers
expressly conferred upon it, provided, however, that said
means are not otherwise contrary to any statutory or other
more authoritative provision on the subject.
The registration with the registry of deeds of voluntary
conveyances of real property under the Torrens system is, in
this jurisdiction, mainly controlled by the Land Registration
Act, Act 496, as amended. Amongst others, this statute
provides that "* * * The act of registration shall be the
operative act to convey and affect the land, and in all cases
under this Act the registration shall be made in the office of
the register of deeds for the province or provinces or city
where the land lies" (section 50). The requirements for
deeds or other voluntary instruments of conveyance to be
registrable thereunder are specified in the law (section 54)
and, for purposes of registration, "The production of the
owner's duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive

authority from the registered owner to the register of deeds
to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the
new certificate or memorandum "shall be binding upon the
registered owner and upon all persons claiming under him,
in favor of every purchaser for value and in good faith * * *"
(section 55, par. 2). The schedule of fees to be paid upon
such registration is likewise therein set forth (section 114,
sub-section C, as amended by Republic Act 928). In
addition, Republic Act 456 also requires that "No voluntary
document by which real property or an interest therein is
sold, transferred, assigned, mortgaged or leased shall be
registered in the registry of property, unless the real estate
taxes levied and actually due thereon shall have been fully
paid (section 1); and, that "Every document of transfer or
alienation of real property filed with the Register of Deeds
shall be accompanied with an extra copy of the same which
copy shall be transmitted by said officer to the city or
provincial assessor x x x" (section 2). As it thus results, the
legislature appears to have specified the minimum
requirements for the registration of conveyances of real
property. Upon satisfaction of the said requirements, it
becomes the legal duty of the registrar to make the
registration requested. No entity, it seems clear enough,
except the Legislature itself, may add to or detract from or
otherwise alter or amend the requirements it has so
enumeratedand then only by the corresponding
amendment of the existing statutes or the enactment of new
ones.
In this posture, to sanction the condition to registration
imposed by the ordinance under examination would virtually
allow the appellant municipal board to add new
requirements for registration not otherwise provided by
applicable statutory law on the matter. In effect, it gives
power to the said appellant to amend or modify the lawa

power which, definitely, is not vested in it. We therefore

conclude that the condition thus imposed by the ordinance in
question is ultra vires. Considering that this portion is
severable from the rest of the provisions thereof without
affecting the integrity of the remaining portions as a
complete set of provisions on the matter standing by
themselves, the same may properly be nullified while the
rest of the ordinance not otherwise infirm may be sustained.
In passing, it should be understood that to the extent that
this rule conflicts with that laid down in C.N. Hodges vs. The
Municipal Board of the City of Iloilo, G.R. No. L-18129,
January 31, 1963, the latter must be taken to be pro tanto so
qualified.
Accordingly, the judgment a quo is hereby modified in the
sense that Ordinance 31, series of 1960, of the City of Iloilo,
is declared valid as being within the corporate powers of the
said City to adopt, with the exception of the portion thereof
which prescribes payment of the tax therein levied as a
requirement for the transfer of ownership and the
registration of the sale in the office of the Register of Deeds,
in reference to which the judgment appealed from is hereby
affirmed. No costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal,
Bengzon, J.P., Zaldivar, and Sanchez, JJ., concur.

G.R. No. 27588, December 31, 1927

THE ROMAN CATHOLIC BISHOP OP NUEVA SEGOVIA, AS
REPRE- SENTATIVE OF THE ROMAN CATHOLIC APOSTOLIC
CHURCH, PLAINTIFF AND APPELLANT, VS. THE
PROVINCIAL BOARD OF ILOCOS NORTE ET AL.,
DEFENDANTS AND APPELLANTS.
DECISION

AVANCEA, C.J.:
The plaintiff, the Roman Catholic Apostolic Church,
represented herein by the Bishop of Nueva Segovia,
possesses and is the owner of a parcel of land in the
municipality of San Nicolas, Ilocos Norte, all four sides of
which face on public streets. On the south side is a part of
the church-yard, the convent and an adjacent lot used for a
vegetable garden, containing an area of 1,624 square
meters, in which there is a stable and a well for the use of
the convent in the center is the remainder of the churchyard
and the church. On the north side is an old cemetery with
two of its walls still standing, and a portion where formerly
stood a tower, the base of which may still be seen,
containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff
paid, under protest, the land tax on the lot adjoining the
convent and the lot which formerly was the cemetery with
the portion where the tower stood.
The plaintiff filed this action for the recovery of the sum paid
by it to the defendants by way of land tax, alleging that the
collection of this tax is illegal. The lower court absolved the
defendants from the complaint in regard to the lot adjoining
the convent and declared that the tax collected on the lot,
which formerly was the cemetery and on the portion where

the tower stood, was illegal. Both parties appealed from this
judgment.
The exemption in favor of the convent in the payment of the
land tax (sec. 344 [c] Administrative Code) refers to the
home of the priest who presides over the church and who
has to take care of himself in order to discharge his duties. It
therefore must, in this sense, include not only the land
actually occupied by the church, but also the adjacent
ground destined to the ordinary incidental uses of man.
Except in large cities where the density of the population
and the development of commerce require the use of larger
tracts of land for buildings, a vegetable garden belongs to a
house and, in the case of a convent, its use is limited to the
necessities of the priest, which comes under the exemption.
In regard to the lot which formerly was the cemetery, while
it is no longer used as such, neither is it used for commercial
purposes and, according to the evidence, is now being used
as a lodging house by the people who participate Bishop of
Nueva Segovia vs. Prov. Board of Ilocos Norte in religious
festivities, which constitutes an incidental use in religious
functions, which also comes within the exemption.
The judgment appealed from is reversed in all its parts and it
is held that both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff whatever was
paid as such tax, without any special pronouncement as to
costs. So ordered.
Johnson, Street, Villamor, Ostrand, Johns, and Villa-Real, JJ.,
concur.

Malcolm, J., dissenting:

The Assessment Law exempts from taxation "Cemeteries or
burial grounds * * * and all lands, buildings, and
improvements used exclusively for religious * * * purposes;
but this exemption shall not extend to property held for
investment, or which produces income, even though the
income be devoted to some one or more of the purposes
above specified." (Administrative Code, sec. 344; Act No.
2749, sec. 1.) That is the applicable law. The facts may be
taken as found by the judge of First Instance, who made his
findings more certain by an ocular inspection of the property
under consideration. The testimony and the inspection
disclosed that the lot known as "huerta" was not devoted to
religious purposes, and that the old cemetery had long since
ceased to be used as such and had been planted to corn.
Those are the facts. The test to be applied to the combined
law and facts must be the actual use of the property. The
property legally exempt from the payment of taxes must be
devoted to some purpose specified in the law. A "huerta" not
needed or used exclusively for religious purposes is not thus
exempt. A cemetery or burial ground no longer a cemetery
or a burial ground is not thus exempt. Accordingly, I prefer
to vote for the affirmance of Judge Mariano's decision.

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.
DECISION

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 reclassified from 'exempt' to 'taxable' and thus assessed for

real property taxes effective 1956, enclosing therewith

copies of Tax Declaration 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.
"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 paypatients 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 paypatients 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 charge a matriculation fee of P300.00 for 1-1/2
years, plus P50.00 a month for board and lodging, which
Includes transportation to the St. Mary 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:

Charity Ward
Pay Ward

1954
INCOME
EXPENSES
P5,280.04
P14,779.50
10,803.26
=========
=
P16,083.30

(Exhibits 'A' 'A-1' and 'A-2')

1955
INCOME
EXPENSES
Charity Ward
P6,859.32
Pay Ward
P17,433.30
14,038.92

DEFICIT
P1,303.80

DEFICIT
P3,464.94

=========
=
20,898.2
4
(Exhibits 'B', 'B-1' and 'B-2')
1956
INCOME
EXPENSES
Charity Ward
P5,559.89
Pay Ward
P21,467.40
16,249.04
=========
=
P21,808.93

DEFICIT
P341.53

(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 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 buildings 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
"petitioner, 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 paypatients does not detract from the charitable character of a
hospital, if all of 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,
7NW [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, 95 Phil., 40), that the 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, 111 Phil., 263; 61 Off. Gaz. (23) 3388.
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).
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,
buildings 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 theretoand
the fact that petitioner's family resided in said buildingfor
Mrs. Herrera received no compensation as directress of St.
Catherine's Hospitalwere 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 shall be
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 cost. It is so ordered.
Bengzon, C. J., Padilla, Labrador, Reyes, J. B. L., Paredes, and
De Leon, JJ., concur.

EN BANC
G.R. No. 115455, October 30, 1995
ARTURO M. TOLENTINO, PETITIONER, VS. THE SECRETARY OF FINANCE AND
THE COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. NO. 115525]
JUAN T. DAVID, PETITIONER, VS. TEOFISTO T. GUINGONA, JR., AS EXECUTIVE
SECRETARY; ROBERTO DE OCAMPO, AS SECRETARY OF FINANCE; LIWAYWAY
VINZONS-CHATO, AS COMMISSIONER OF INTERNAL REVENUE; AND THEIR
AUTHORIZED AGENTS OR REPRESENTATIVES, RESPONDENTS.
[G.R. NO. 115543]
RAUL S. ROCO AND THE INTEGRATED BAR OF THE PHILIPPINES,
PETITIONERS, VS. THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND BUREAU OF
CUSTOMS, RESPONDENTS.
[G.R. NO. 115544]
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA;
AND OFELIA L. DIMALANTA, PETITIONERS, VS. HON. LIWAYWAY V. CHATO, IN
HER CAPACITY AS COMMISSIONER OF INTERNAL REVENUE; HON. TEOFISTO
T. GUINGONA, JR., IN HIS CAPACITY AS EXECUTIVE SECRETARY; AND HON.
ROBERTO B. DE OCAMPO, IN HIS CAPACITY AS SECRETARY OF FINANCE,
RESPONDENTS.
[G.R. NO. 115754]
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA),
PETITIONER, VS. THE COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
[G.R. NO. 115781]
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA,
EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,

MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND

NATIONALISM, INC. (MABINI), FREEDOM FROM DEBT COALITION, INC., AND
PHILIPPINE BIBLE SOCIETY, INC. AND WIGBERTO TAADA, PETITIONERS, VS.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE AND THE COMMISSIONER OF
CUSTOMS, RESPONDENTS.
[G.R. NO. 115852]
PHILIPPINE AIRLINES, INC., PETITIONER, VS. THE SECRETARY OF FINANCE
AND COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. NO. 115873]
COOPERATIVE UNION OF THE PHILIPPINES, PETITIONER, VS. HON. LIWAYWAY
V. CHATO, IN HER CAPACITY AS THE COMMISSIONER OF INTERNAL REVENUE,
HON. TEOFISTO T. GUINGONA, JR., IN HIS CAPACITY AS EXECUTIVE
SECRETARY, AND HON. ROBERTO B. DE OCAMPO, IN HIS CAPACITY AS
SECRETARY OF FINANCE, RESPONDENTS.
[G.R. NO. 115931]
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. AND
ASSOCIATION OF PHILIPPINE BOOKSELLERS, PETITIONERS, VS. HON.
ROBERTO B. DE OCAMPO, AS THE SECRETARY OF FINANCE; HON. LIWAYWAY
V. CHATO, AS THE COMMISSIONER OF INTERNAL REVENUE; AND HON.
GUILLERMO PARAYNO, JR., IN HIS CAPACITY AS THE COMMISSIONER OF
CUSTOMS, RESPONDENTS.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the
declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed by
the several petitioners in these cases, with the exception of
the Philippine Educational Publishers Association, Inc. and
the Association of Philippine Booksellers, petitioners in G.R.

No. 115931.
The Solicitor General, representing the respondents, filed a
consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544, and Juan T.
David, petitioner in G.R. No. 115525, each filed a reply. In
turn the Solicitor General filed on June 1, 1995 a rejoinder to
the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I.
Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association (CREBA))
reiterate previous claims made by them that R.A. No. 7716
did not "originate exclusively" in the House of
Representatives as required by Art. VI, 24 of the
Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where
after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not
pass it on second and third readings. Instead what the
Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that
what the Senate committee should have done was to amend
H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is
said, "the bill remains a House bill and the Senate version
just becomes the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in
which the Senate proposed an amendment to a House

revenue bill by enacting its own version of a revenue bill.

On at least two occasions during the Eighth Congress, the
Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND
DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April
10, 1992. This Act is actually a consolidation of H. No.
34254, which was approved by the House on January 29,
1992, and S. No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which
was approved by the President on May 22, 1992. This Act is
a consolidation of H. No. 22232, which was approved by the
House of Representatives on August 2, 1989, and S. No. 807,
which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws
which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the
dates on which the laws were approved by the President and
dates the separate bills of the two chambers of Congress
were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX
EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF
INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN
VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF
INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF
ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES
OR AGENCIES INCLUDING GOVERNMENT-OWNED
OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX
DUE AT THE RATE OF THREE PERCENT (3%) ON

GROSS PAYMENT FOR THE PURCHASE OF GOODS

AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE
AND ADMINISTRATION OF THE DOCUMENTARY
STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, ALLOCATING FUNDS
FOR SPECIFIC PROGRAMS, AND FOR OTHER
PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF STOCK LISTED AND

TRADED THROUGH THE LOCAL STOCK EXCHANGE

OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, BY
INSERTING A NEW SECTION AND REPEALING
CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance
in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House,
passed its own version of a House revenue measure. It is
noteworthy that, in the particular case of S. No. 1630,
petitioners Tolentino and Roco, as members of the Senate,
voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in this
case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into consideration. . . H. B.
11197."
Indeed, so far as pertinent, the Rules of the Senate only
provide:
RULE XXIX
AMENDMENTS
xxx

xxx

xxx

68. Not more than one amendment to the original

amendment shall be considered.
No amendment by substitution shall be entertained unless
the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is
taken thereon.
69. No amendment which seeks the inclusion of a
legislative provision foreign to the subject matter of a bill
(rider) shall be entertained.
xxx

xxx

xxx

70-A. A bill or resolution shall not be amended by

substituting it with another which covers a subject distinct
from that proposed in the original bill or resolution.
(emphasis added)
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate possesses less
power than the U.S. Senate because of textual differences
between constitutional provisions giving them the power to
propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and

private bills shall originate exclusively in the House of

Representatives, but the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on other
Bills" in the American version, according to petitioners,
shows the intention of the framers of our Constitution to
restrict the Senate's power to propose amendments to
revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the
words `as in any other bills' (sic) were eliminated so as to
show that these bills were not to be like other bills but must
be treated as a special kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935
Constitution originally provided for a unicameral National
Assembly. When it was decided in 1939 to change to a
bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of
Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a
constituent assembly, some of whose members, jealous of
preserving the Assembly's lawmaking powers, sought to
curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds, revenue or tariff bills,
bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or
concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same
by a two-thirds vote of all its members, and thereupon, the
bill so repassed shall be deemed enacted and may be

submitted to the President for corresponding action. In the

event that the Senate should fail to finally act on any such
bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the
members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the
President for corresponding action.
The special committee on the revision of laws of the Second
National Assembly vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the proposal was
approved by the National Assembly and embodied in
Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)) The
proposed amendment was submitted to the people and
ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18(2) of the 1935 Constitution,
from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to
the American text from which the framers of the Philippine
Constitution borrowed and why the phrase "as on other
Bills" was not copied. Considering the defeat of the
proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on
other Bills." Thus, because revenue bills are required to
originate exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its own without
such bills. After a revenue bill is passed and sent over to it
by the House, however, the Senate certainly can pass its own
version on the same subject matter. This follows from the
coequality of the two chambers of Congress.
That this is also the understanding of book authors of the
scope of the Senate's power to concur is clear from the
following commentaries:

The power of the Senate to propose or concur with

amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can practically
rewrite a bill required to come from the House and leave
only a trace of the original bill. For example, a general
revenue bill passed by the lower house of the United States
Congress contained provisions for the imposition of an
inheritance tax. This was changed by the Senate into a
corporation tax. The amending authority of the Senate was
declared by the United States Supreme Court to be
sufficiently broad to enable it to make the alteration. [Flint
v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389]
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE
PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by
the House of Representatives because it is more numerous
in membership and therefore also more representative of the
people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the
enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise
of its power to propose or concur with amendments to the
bills initiated by the House of Representatives. Thus, in one
case, a bill introduced in the U.S. House of Representatives
was changed by the Senate to make a proposed inheritance
tax a corporation tax. It is also accepted practice for the
Senate to introduce what is known as an amendment by
substitution, which may entirely replace the bill initiated in
the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993))
In sum, while Art. VI, 24 provides that all appropriation,

revenue or tariff bills, bills authorizing increase of the public

debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it
also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As
petitioner Tolentino states in a high school text, a committee
to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes
in the bill omitting or adding sections or altering its
language; (3) to make and endorse an entirely new bill as a
substitute, in which case it will be known as a committee
bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES
258 (1950))
To except from this procedure the amendment of bills which
are required to originate in the House by prescribing that
the number of the House bill and its other parts up to the
enacting clause must be preserved although the text of the
Senate amendment may be incorporated in place of the
original body of the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form. S. No. 1630,
as a substitute measure, is therefore as much an amendment
of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No. 1630
is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different
between the reference to S. No. 1129 and the reference to
H. No. 11197. From this premise, they conclude that R.A.

No. 7716 originated both in the House and in the Senate and
that it is the product of two "half-baked bills because neither
H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S. No.
1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No.
1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the
two bills, at the same time indicates that the provisions of
the Senate bill were precisely intended to be amendments to
the House bill.
Without H. No. 11197, the Senate could not have enacted S.
No. 1630. Because the Senate bill was a mere amendment
of the House bill, H. No. 11197 in its original form did not
have to pass the Senate on second and three readings. It
was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means.
Neither was it required that S. No. 1630 be passed by the
House of Representatives before the two bills could be
referred to the Conference Committee.
There is legislative precedent for what was done in the case
of H. No. 11197 and S. No. 1630. When the House bill and
Senate bill, which became R.A. No. 1405 (Act prohibiting the
disclosure of bank deposits), were referred to a conference
committee, the question was raised whether the two bills
could be the subject of such conference, considering that the
bill from one house had not been passed by the other and
vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to
procedure: If a House bill is passed by the House but not
passed by the Senate, and a Senate bill of a similar nature is

passed in the Senate but never passed in the House, can the
two bills be the subject of a conference, and can a law be
enacted from these two bills? I understand that the Senate
bill in this particular instance does not refer to investments
in government securities, whereas the bill in the House,
which was introduced by the Speaker, covers two subject
matters: not only investigation of deposits in banks but also
investigation of investments in government securities. Now,
since the two bills differ in their subject matter, I believe
that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose
B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is
in order. It is precisely in cases like this where a conference
should be had. If the House bill had been approved by the
Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the
same subject matter, the conference committee had to be
created, and we are now considering the report of that
committee.
(2 CONG. REC. No. 13, July 27, 1955, pp. 3841-42 (Italics
added))
III.
The President's certification. The fallacy in thinking
that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President separately
certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The
certification had to be made of the version of the same
revenue bill which at the moment was being considered.
Otherwise, to follow petitioners' theory, it would be
necessary for the President to certify as many bills as are
presented in a house of Congress even though the bills are

merely versions of the bill he has already certified. It is

enough that he certifies the bill which, at the time he makes
the certification, is under consideration. Since on March 22,
1994 the Senate was considering S. No. 1630, it was that bill
which had to be certified. For that matter on June 1, 1993
the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was
being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have
already explained in the main decision that the phrase
"except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, 26 (2) qualifies not
only the requirement that "printed copies [of a bill] in its
final form [must be] distributed to the members three days
before its passage" but also the requirement that before a
bill can become a law it must have passed "three readings on
separate days." There is not only textual support for such
construction but historical basis as well.
Art. VI, 21(2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall
have been printed and copies thereof in its final form
furnished its Members at least three calendar days prior to
its passage, except when the President shall have certified to
the necessity of its immediate enactment. Upon the last
reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately
thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in
Art. VIII, 19(2):
(2) No bill shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its

final form have been distributed to the Members three days

before its passage, except when the Prime Minister certifies
to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon
shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, 26(2) of the present
Constitution, thus:
(2) No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when
the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be
allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that
if in all cases three readings on separate days are required
and a bill has to be printed in final form before it can be
passed, the need for a law may be rendered academic by the
occurrence of the very emergency or public calamity which
it is meant to address.
Petitioners further contend that a "growing budget deficit" is
not an emergency, especially in a country like the Philippines
where budget deficit is a chronic condition. Even if this
were the case, an enormous budget deficit does not make
the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of

the petitioners in these cases) believed that there was an

urgent need for consideration of S. No. 1630, because they
responded to the call of the President by voting on the bill on
second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance
of the President's certification, the respect due coequal
departments of the government in matters committed to
them by the Constitution and the absence of a clear showing
of grave abuse of discretion caution a stay of the judicial
hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was discussed
for six days. Only its distribution in advance in its final
printed form was actually dispensed with by holding the
voting on second and third readings on the same day (March
24, 1994). Otherwise, sufficient time between the submission
of the bill on February 8, 1994 on second reading and its
approval on March 24, 1994 elapsed before it was finally
voted on by the Senate on third reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them
notice that a measure is progressing through the enacting
process, thus enabling them and others interested in the
measure to prepare their positions with reference to it. (1 J.
G. SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION 10.04, p. 282 (1972)) These purposes
were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc.
(MABINI)) that in violation of the constitutional policy of full
public disclosure and the people's right to know (Art. II, 28
and Art. III, 7) the Conference Committee met for two days

in executive session with only the conferees present.

As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only in
1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for
conference committees.
It is nevertheless claimed that in the United States, before
the adoption of the rule in 1975, at least staff members were
present. These were staff members of the Senators and
Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on
the last two days of the conference were excluded. There is
no showing that the conferees themselves did not take notes
of their proceedings so as to give petitioner Kilosbayan basis
for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their
meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case
submitted a report showing the changes made on the
differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that
conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other
amendments." These changes are shown in the bill attached
to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in
the original bills without the need of a statement detailing
the changes.
The same question now presented was raised when the bill
which became R.A. No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee. Congressman

Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to
consider the report of the conference committee regarding
House Bill No. 2557 by reason of the provision of Section 11,
Article XII, of the Rules of this House which provides
specifically that the conference report must be accompanied
by a detailed statement of the effects of the amendment on
the bill of the House. This conference committee report is
not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a
few words in connection with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision of the Rule cited by
the gentleman from Pangasinan, but this provision applies to
those cases where only portions of the bill have been
amended. In this case before us an entire bill is presented;
therefore, it can be easily seen from the reading of the bill
what the provisions are. Besides, this procedure has been
an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to
look into the reason for the provisions of the Rules, and the
reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain
words or phrases inserted in or deleted from the provisions
of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their
relation to the bill. In that case, it is necessary to make a

detailed statement on how those words and phrases will

affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report that is not
necessary. So when the reason for the Rule does not exist,
the Rule does not exist.
(2 CONG. REC. No. 2, p. 4056. (Italics added))
Congressman Tolentino was sustained by the chair. The
record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House was
called, it was sustained by a vote of 48 to 5. (Id., p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court held
in Philippine Judges Association v. Prado, 227 SCRA 703
(1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to
resolving differences between the Senate and the House. It
may propose an entirely new provision. What is important is
that its report is subsequently approved by the respective
houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been
added by the conference committee, there was thereby a
violation of the constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the
petitioners' charges that an amendment was made upon the
last reading of the bill that eventually became R.A. No. 7354
and that copies thereof in its final form were not distributed
among the members of each House. Both the enrolled bill
and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26(2) of the
Constitution. We are bound by such official assurances from
a coordinate department of the government, to which we

owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))
It is interesting to note the following description of
conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or
instructed. These committees may be given instructions by
their parent bodies or they may be left without instructions.
Normally the conference committees are without
instructions, and this is why they are often critically referred
to as "the little legislatures." Once bills have been sent to
them, the conferees have almost unlimited authority to
change the clauses of the bills and in fact sometimes
introduce new measures that were not in the original
legislation. No minutes are kept, and members' activities on
conference committees are difficult to determine. One
congressman known for his idealism put it this way: "I killed
a bill on export incentives for my interest group [copra] in
the conference committee but I could not have done so
anywhere else." The conference committee submits a report
to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new
members are appointed.
(R. Jackson, Committees in the Philippine Congress, in
COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.))
In citing this study, we pass no judgment on the methods of
conference committees. We cite it only to say that
conference committees here are no different from their
counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At all
events, under Art. VI, 16(3) each house has the power "to
determine the rules of its proceedings," including those of its

committees. Any meaningful change in the method and

procedures of Congress or its committees must therefore be
sought in that body itself.
V.
The titles of S. No. 1630 and H. No. 11197. PAL
maintains that R.A. No. 7716 violates Art. VI, 26(1) of the
Constitution which provides that "Every bill passed by
Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the
law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of
2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of
any kind, nature, or description, imposed, levied,
established, assessed or collected by any municipal, city,
provincial or national authority or government agency, now
or in the future."
PAL was exempted from the payment of the VAT along with
other entities by 103 of the National Internal Revenue
Code, which provides as follows:
103. Exempt transactions. - The following shall be exempt
from the value-added tax:
xxx

xxx

xxx

(q) Transactions which are exempt under special laws or

international agreements to which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending 103, as follows:

103. Exempt transactions. - The following shall be exempt

from the value-added tax:
xxx

xxx

xxx

(q) Transactions which are exempt under special laws,

except those granted under Presidential Decree Nos. 66,
529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No.
7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE]
THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING
ITS TAX BASE AND ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED AND FOR
OTHER PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which stands
in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be
reflected in the title of the law by specific reference to P.D.
No. 1590. It is unnecessary to do this in order to comply
with the constitutional requirement, since it is already stated
in the title that the law seeks to amend the pertinent
provisions of the NIRC, among which is 103(q), in order to
widen the base of the VAT. Actually, it is the bill which
becomes a law that is required to express in its title the

subject of legislation. The titles of H. No. 11197 and S. No.

1630 in fact specifically referred to 103 of the NIRC as
among the provisions sought to be amended. We are
satisfied that sufficient notice had been given of the
pendency of these bills in Congress before they were
enacted into what is now R.A. No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A. No.
7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER
PURPOSES CONNECTED THEREWITH. It contained a
provision repealing all franking privileges. It was contended
that the withdrawal of franking privileges was not expressed
in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the
repeal of franking privileges, this Court held:
To require every end and means necessary for the
accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but
would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been
correctly explained:
The details of a legislative act need not be specifically stated
in its title, but matter germane to the subject as expressed in
the title, and adopted to the accomplishment of the object in
view, may properly be included in the act. Thus, it is proper
to create in the same act the machinery by which the act is
to be enforced, to prescribe the penalties for its infraction,
and to remove obstacles in the way of its execution. If such
matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also

have special mention in the title. (Southern Pac. Co. v.

Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI.
Claims of press freedom and religious liberty. We
have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the
constitutional guarantee of free press prohibits are laws
which single out the press or target a group belonging to the
press for special treatment or which in any way discriminate
against the press, on the basis of the content of the
publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press.
At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law
could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions,
the State does not forever waive the exercise of its sovereign
prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S. 233,
80 L.Ed. 660 (1936) was found to be discriminatory because
it was laid on the gross advertising receipts only of
newspapers whose weekly circulation was over 20,000, with
the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of

Senator Huey Long who controlled the state legislature

which enacted the license tax. The censorial motivation for
the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v.
Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L.Ed.2d 295
(1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or,
in lieu thereof, for the use tax on the privilege of using,
storing or consuming tangible goods, the press was not.
Instead, the press was exempted from both taxes. It was,
however, later made to pay a special use tax on the cost of
paper and ink which made these items "the only items
subject to the use tax that were component of goods to be
sold at retail." The U.S. Supreme Court held that the
differential treatment of the press "suggests that the goal of
regulation is not unrelated to suppression of expression, and
such goal is presumptively unconstitutional." It would
therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in
that case)
Nor is it true that only two exemptions previously granted by
E.O. No. 273 are withdrawn "absolutely and unqualifiedly"
by R.A. No. 7716. Other exemptions from the VAT, such as
those previously granted to PAL, petroleum concessionaires,
enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an
effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press
is highlighted by the fact that transactions, which are profit
oriented, continue to enjoy exemption under R.A. No. 7716.
An enumeration of some of these transactions will suffice to
show that by and large this is not so and that the exemptions
are granted for a purpose. As the Solicitor General says,

such exemptions are granted, in some cases, to encourage

agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and
goods or services to enhance agriculture (milling of palay,
corn, sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines)
or for professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products
or to be used for manufacture of petroleum products subject
to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for

Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law
does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L.Ed 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is
immaterial. The protection afforded by the First Amendment
is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges
protected by the First Amendment along with the wares and
merchandise of hucksters and peddlers and treats them all
alike. Such equality in treatment does not save the
ordinance. Freedom of press, freedom of speech, freedom of
religion are in preferred position.
The Court was speaking in that case of a license tax, which,
unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a
prior restraint on the exercise of its right. Hence, although
its application to others, such those selling goods, is valid,
its application to the press or to religious groups, such as
the Jehovah's Witnesses, in connection with the latter's sale
of religious books and pamphlets, is unconstitutional. As the
U.S. Supreme Court put it, "it is one thing to impose a tax on
income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee
on those engaged in the sale of general merchandise. It was

held that the tax could not be imposed on the sale of bibles
by the American Bible Society without restraining the free
exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
or exchange of goods or properties or the sale or exchange
of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the
press pay income tax or subject it to general regulation is
not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that
although it sells bibles, the proceeds derived from the sales
are used to subsidize the cost of printing copies which are
given free to those who cannot afford to pay so that to tax
the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting
burden on the exercise of religious freedom is so incidental
as to make it difficult to differentiate it from any other
economic imposition that might make the right to
disseminate religious doctrines costly. Otherwise, to follow
the petitioner's argument, to increase the tax on the sale of
vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed
by 107 of the NIRC, as amended by 7 of R.A. No. 7716,
although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such
as those relating to accounting in 108 of the NIRC. That
the PBS distributes free bibles and therefore is not liable to
pay the VAT does not excuse it from the payment of this fee
because it also sells some copies. At any rate whether the
PBS is liable for the VAT must be decided in concrete cases,

in the event it is assessed this tax by the Commissioner of

Internal Revenue.
VII.
Alleged violations of the due process, equal protection
and contract clauses and the rule on taxation. CREBA
asserts that R.A. No. 7716 (1) impairs the obligations of
contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall
"evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations
to be paid because of the 10% VAT. The additional amount,
it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an
early case: "Authorities from numerous sources are cited by
the plaintiffs, but none of them show that a lawful tax on a
new subject, or an increased tax on an old one, interferes
with a contract or impairs its obligation, within the meaning
of the Constitution. Even though such taxation may affect
particular contracts, as it may increase the debt of one
person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens
of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation
of any existing contract in its true legal sense." (La Insular v.
Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574
(1919)) Indeed not only existing laws but also "the
reservation of the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal order."
(Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as

having been made in reference to the possible exercise of

the rightful authority of the government and no obligation of
contract can extend to the defeat of that authority. (Norman
v. Baltimore and Ohio R.R., 79 L.Ed. 885 (1935))
It is next pointed out that while 4 of R.A. No. 7716 exempts
such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it
grants no exemption on the sale of real property which is
equally essential. The sale of real property for socialized and
low-cost housing is exempted from the tax, but CREBA
claims that real estate transactions of "the less poor," i.e.,
the middle class, who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under 103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in error
in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the
payment of the VAT. Moreover, there is a difference between
the "homeless poor" and the "homeless less poor" in the
example given by petitioner, because the second group or
middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes
are thus differently situated in life. "It is inherent in the
power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that `inequalities
which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.'"
(Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of
Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta,
130 SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371
(1988))

Finally, it is contended, for the reasons already noted, that

R.A. No. 7716 also violates Art. VI, 28(1) which provides
that "The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v.
De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long
before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT
Law was questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988)
on grounds similar to those made in these cases, namely,
that the law was "oppressive, discriminatory, unjust and
regressive in violation of Art. VI, 28(1) of the Constitution."
(At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of
a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only
on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of

basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the Philippines,
Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a
progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all
taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall "evolve a progressive
system of taxation." The constitutional provision has been
interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate
to Congress is not to prescribe, but to evolve, a progressive
tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited
with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28 (1) was
taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending
102(b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, 4, amending 103 of the

NIRC)
Thus, the following transactions involving basic and
essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds
in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and
goods or services to enhance agriculture (milling of palay,
corn sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines)
and or professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products
or to be used for manufacture of petroleum products subject
to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employeremployee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00

(Respondents' Consolidated Comment on the Motions for

Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the
VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These
include real properties held primarily for sale to customers
or for lease in the ordinary course of trade or business, the
right or privilege to use patent, copyright, and other similar
property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films,
tapes and discs, radio, television, satellite transmission and
cable television time, hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility cars for
rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not at
retail but at wholesale and in the abstract. There is no fully
developed record which can impart to adjudication the
impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts
and exemplify its effect on property rights. For the fact is
that petitioner's members have not even been assessed the
VAT. Petitioner's case is not made concrete by a series of
hypothetical questions asked which are no different from
those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal

protection clauses are invoked, considering that they are not

fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity
of suits. This need not be the case, however. Enforcement
of the law may give rise to such a case. A test case, provided
it is an actual case and not an abstract or hypothetical one,
may thus be presented.
Nor is hardship to taxpayers alone an adequate justification
for adjudicating abstract issues. Otherwise, adjudication
would be no different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, (2) to
decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of
the government." This duty can only arise if an actual case
or controversy is before us. Under Art. VIII, 5 our
jurisdiction is defined in terms of "cases" and all that Art.
VIII, 1, (2) can plausibly mean is that in the exercise of that
jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, (2) is
"judicial power," which is "the power of a court to hear and
decide cases pending between parties who have the right to
sue and be sued in the courts of law and equity" (Lamb v.

Phipps, 22 Phil. 456, 559 (1912)), as distinguished from

legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several
courts either by the Constitution, as in the case of Art. VIII,
5, or by statute, as in the case of the Judiciary Act of 1948
(R.A. No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes the
court's "jurisdiction," defined as "the power conferred by law
upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29
(1906)) Without an actual case coming within its jurisdiction,
this Court cannot inquire into any allegation of grave abuse
of discretion by the other departments of the government.
VIII.
Alleged violation of policy towards cooperatives.
On the other hand, the Cooperative Union of the Philippines
(CUP), after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject
cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No.
175 was promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984,
because of the crisis which menaced the national economy,
this exemption was withdrawn by P.D. No. 1955; that in
1986, P.D. No. 2008 again granted cooperatives exemption
from income and sales taxes until December 31, 1991, but,
in the same year, E.O. No. 93 revoked the exemption; and
that finally in 1987 the framers of the Constitution
"repudiated the previous actions of the government adverse
to the interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and instead
upheld the policy of strengthening the cooperatives by way
of the grant of tax exemptions," by providing the following in
Art. XII:

1. The goals of the national economy are a more equitable

distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services
produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of
life for all, especially the underprivileged.
The State shall promote industrialization and full
employment based on sound agricultural development and
agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are
competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair
foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and
all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of
their ownership.
15. The Congress shall create an agency to promote the
viability and growth of cooperatives as instruments for social
justice and economic development.
Petitioner's contention has no merit. In the first place, it is
not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes
under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to
withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, 2 had restored
the tax exemptions of cooperatives in 1986, the exemption
was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were

withdrawn. The withdrawal of tax incentives applied to all,

including government and private entities. In the second
place, the Constitution does not really require that
cooperatives be granted tax exemptions in order to promote
their growth and viability. Hence, there is no basis for
petitioner's assertion that the government's policy toward
cooperatives had been one of vaccilation, as far as the grant
of tax privileges was concerned, and that it was to put an
end to this indecision that the constitutional provisions cited
were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the
discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such
theory is contrary to the Constitution under which only the
following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28(3), and
non-stock, non-profit educational institutions, by reason of
Art. XIV, 4(3).
CUP's further ground for seeking the invalidation of R.A. No.
7716 is that it denies cooperatives the equal protection of
the law because electric cooperatives are exempted from the
VAT. The classification between electric and other
cooperatives (farmers cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests on a
congressional determination that there is greater need to
provide cheaper electric power to as many people as
possible, especially those living in the rural areas, than there
is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against
the constitutional validity of R.A. No. 7716. We have in fact

taken the extraordinary step of enjoining its enforcement

pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the
other branches of the government does not constitute a
grave abuse of discretion. Any question as to its necessity,
desirability or expediency must be addressed to Congress as
the body which is electorally responsible, remembering that,
as Justice Holmes has said, "legislators are the ultimate
guardians of the liberties and welfare of the people in quite
as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L.Ed. 971, 973
(1904)) It is not right, as petitioner in G.R. No. 115543 does
in arguing that we should enforce the public accountability
of legislators, that those who took part in passing the law in
question by voting for it in Congress should later thrust to
the courts the burden of reviewing measures in the flush of
enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied
with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco, and
Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., maintain their separate opinion.
Regalado, Romero, Bellosillo, and Puno, JJ., in their dissent.
Davide, Jr., J., maintains his dissenht. Grant MR.
Panganiban, J., no part.

G. R. No. L-19201, June 16, 1965

REV. FR. CASIMIRO LLADOC, PETITIONER, VS. THE
COMMISIONER OF THE INTERNAL REVENUE AND THE
COURT OF TAX APPEALS, RESPONDENTS.
DECISION

PAREDES, J.:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a
new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the
donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued V an
assessment for donee's gift tax against the Catholic Parish of
Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including surcharges,
interests of 1% monthly from May 15, 1958 to June 15, 1960,
and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested
the withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner , of Internal
Revenue were denied. The petitioner appealed to the Court
of Tax Appeals on November 2, 1960. In the petition for
Review, the Rev. Pr. Caslmiro Lladoc, claimed among others,
that at the time of the donation, he was not the parish priest
in Victorias; that there is no legal entity or juridical person
known as the "Catholic Parish Priest of Victorias," and
therefore, he should not be liable for the donee's gift tax. It
was also asserted that the assessment of the gift tax, even

against the Roman Catholic Church, would not be valid, for

such would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent
portions of which are quoted below:
"* * *. Parish priests of the Roman Catholic Church under
canon Iaw3 are similarly situated as its Archbishops and
Bishops with respect to the properties of the church within
their parish. They are the guardians, superintendents or
administrators of these properties, with the right of
succession and may sue and be sued.
*

"The petitioner impugns the fairness of the assessment with

the argument that he should not be held liable for gift taxes
on donation which he did not receive personally since he was
not yet the parish priest of Victorias in the year 1957 when
said donation was given. It is intimated that if someone has
to pay at all, it should be petitioner's predecessor, the Rev.
Fr. Crispin Ruiz, who received the donation in behalf of the
Catholic parish of Victorias or the Roman Catholic Church.
Following petitioner's line of thinking, we would be equally
unfair to hold that the assessment now in question should
have been addressed to, and collected from the Rev. Fr.
Crispin Ruiz to be paid from income derived from his present
parish wherever it may be. It does not seem right to
indirectly burden the present parishioners of Rev. Fr. Ruiz
for donee's gift tax on a donation to which they were not
benefited.
*

"We saw no legal basis then as we see none now, to include

within the Constitutional exemption, taxes which partake of
the nature of an excise upon the use made of the properties

or ). upon the exercise of the privilege of receiving the

properties. (Phipps vs. Commissioner of Internal Revenue,
91 F /2d/ 627; 1938, 302 U.S. 742.)
"It is a cardinal rule in taxation that exemptions from
payment thereof are highly disfavored by law, and the party
claiming exemption must justify his claim by a clear, positive,
or express grant of such privilege by law. (Collector vs.
Manila Jockey Club, 98 Phil., 670; 53 Off. Gaz. 3762.)
*

"The phrase "exempt from taxation" as employed in Section22(3), Article VI of-the Constitution of the Philippines, should
not be interpreted to mean exemption from all kinds of taxes
Statutes exempting charitable and religious property from
taxation should be construed fairly though strictly and in
such manner as to give effect to the main intent of the
lawmakers." (Roman Catholic Church vs. Hastings, 5 Phil.,
701.)
*

WHEREFORE, in view of the foregoing considerations, the

decision of the respondent Commissioner of Internal
Revenue appealed from, is hereby affirmed except with
regard to the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue vs. U.S.T.,
G. R. No. L-11274, Nov. 28, 1958; * * * * *, and the petitioner,
the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the
respondent the amount of 'P900.00 as donee's gift tax, plus
the surcharge of five per centum (57.) as ad. valorem penalty
under Section 119(c) of the Tax Code, and one per centum
(1%) monthly interest from May 15, 1958 to the date of
actual payment. The surcharge of 257a provided in Section
120 for failure to file a return may not be imposed as the
failure to file a return was not due to willful neglect, (* * * *
*). No costs."

The above judgment is now before Us on appeal, petitioner

assigning two (2) errors allegedly committed by the Tax
Court, all of which converge on the singular issue of whether
or not petitioner should be liable for the assessed donee's
gift tax on the P10,000.00 donated for the construction of
the Victorias Parish Church.
Section 22(3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and parsonages
or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes.
The exemption is only from the payment of taxes assessed on
such properties enumerated, as property taxes, as contradistinguished from excise taxes. In the present case, what
the Collector assessed was a donee's gift tax; the assessment
was not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of
the properties, upon the exercise of the privilege of
receiving the properties (Phipps vs. Com. of Int. Rev., 91 F
[2d7] 627.) Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which
on property used exclusively for religious purposes, do not
constitute an impairment of the Constitution. As well
observed by the learned respondent Court, the phrase
"exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption from
all kinds of taxes. And there being ip no clear, positive or
express grant of such privilege by law, in favor of the
petitioner, the exemption herein must be denied.
The next issue which readily presents itself, in view of
petitioner's thesis, and Our finding that a tax liability exists,
is, who should be called upon to pay the gift tax? Petitioner
postulates that he should not be liable, because at the time
of the donation he was not the priest of Victorias. We note

the merit of the above claim, and in order to put things in

their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of the
Diocese to which the parish of Victorias pertains, should not
be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc,
it appearing that the Head of such Diocese is the real party
in interest. The Solicitor General, in representation of the
Commissioner of Internal Revenue, interposed no objection
to such a substitution. Counsel for the petitioner did not also
offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of
the Diocese to present whatever legal issues and/or defenses
he might wish to raise, to which resolution 1 counsel for
petitioner, who also appeared as counsel for the Head of the
Diocese, the Roman Catholic Bishop of Bacolod, manifested
that it was submitting itself to the jurisdiction and orders of
this Court and that it was presenting, by reference, the brief
of petitioner Rev. Fr. Casirairo Lladoc, as its own and for all
purposes.
In view hereof and considering that, as heretofore stated,
the assessment at bar had been properly made and the
imposition of the tax. is not a violation of the constitutional
provision exempting churches, parsonages or convents, etc.
(Art. VI, sec. 22[3], Constitution), the Head of the Diocese, to
which the parish of Victorias pertains, is liable for the
payment thereof.
The decision appealed from should be, as it is hereby
AFFIRMED, in so far a3 tax liability is concerned; it is
MODIFIED, in the sense that petitioner herein is not
personally liable for the said gift tax, and that the Head of
the Diocese, herein substitute petitioner, should pay, as he is
presently ordered to pay, the said gift tax, without special
pronouncement as to costs.

Bengzon, C. J., Bautista Angelo, Concepcion, Reyes, J.B.L.,

Dizon, Regala, Makalintal, Bengzon, J., and Zaldivar, JJ.
Concur.