Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v.

CA, SEC and Joaquin Misa

Facts:
Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm.
He filed with SEC a petition for dissolution and liquidation of partnership.
SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership. Reason: since it
is partnership at will, the law firm could be dissolved by any partner at anytime, such as by withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will.
Issue: 1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will; 2. WON the withdrawal of Misa dissolved the partnership regardless of his good or bad
faith;
Held: 1. Yes. The partnership agreement of the firm provides that [t]he partnership shall continue so long
as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued
by the surviving partners.
2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will
(e.g. by way of withdrawal of a partner). He must, however, act in good faith, not that the attendance of
bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:

Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes from
1958-1959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18

On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara,
who refused to receive it on the ground of the pending protest

Since the protest was not found on the records, a file copy from the corp was produced and given to BIR
Agent Reyes, who deferred service of the warrant

On April 7, Atty. Guevara was 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

On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals

CIR contentions:
the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense
payments are fictitious because most of the payees are members of the same family in control of Algue
and that there is not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional
fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
Algue as legitimate business expenses in its income tax returns
Ruling:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance,
made in accordance with law.
RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged
During the intervening period, the warrant was premature and could therefore not be served.
Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later
on conformed to the decision of CTA
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no
distribution of dividends was involved
CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
deduction
Algue Inc. was a family corporation where strict business procedures were not applied and immediate
issuance of receipts was not required. at the end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00.
This arrangement was understandable in view of the close relationship among the persons in the family
corporation
The amount of the promotional fees was not excessive. The total commission paid by the Philippine
Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of
the Sugar Estate properties.

Page 1 of 7

Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for personal services actually
rendered xxx
the burden is on the taxpayer to prove the validity of the claimed deduction

2.

RULING: NO. The power of taxation is purely legislative and cannot be delegated to the executive or
judicial department of the government without infringing upon the theory of separation of powers. But as
an exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to
local governments in respect of matters of local concern.

In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business requiring millions of pesos.

Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every person who is able to must contribute his share
in the running of the government. The government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of the people and enhance their moral and
material values

Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then
the taxpayer has a right to complain and the courts will then come to his succor

Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific
taxes?

1.

NO. The Municipality of Tanauan discovered that manufacturers could increase the volume
contents of each bottle and still pay the same tax rate since tax is imposed on every bottle
corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a
repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the
Municipal Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no
case of double taxation.

Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep.
Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal
Revenue Code and should therefore not have been disallowed by the CIR

On October 20, 1989, the Bureau of Internal Revenue (BIR) issued a formal assessment notice (FAN)
against the Bank of the Philippine Islands (BPI). The FAN demanded BPI to pay P28k in taxes. In
November 1989, BPI filed a protest however the protest did not specify if it was a request for
reconsideration or a reinvestigation. The BIR did not reply on the protest but on October 15, 1992 (four
days before the expiration of the period to collect or 1095 days [3 years]after issuance of FAN on
10/20/1989), the Commissioner of Internal Revenue (CIR) issued a warrant of distraint/levy against BPI for
the satisfaction of the assessed tax. The warrant was served to BPI on October 23, 1992 (four days after
period has prescribed). In September 1997, the CIR finally sent a letter to BPI advising the latter that its
protest is denied.

PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. VS. MUNICIPALITY OF TANAUAN

ISSUE:

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

1. Whether or not the filing of the protest by BPI suspended the running of the prescriptive period.

FACTS:

2. Whether or not the governments right to collect the assessed tax has prescribed.

In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264
(Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance
Nos. 23 and 27 issued by the Municipality of Tanauan, Leyte as null and void.
1.

HELD:

Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. On the other hand, Municipal
Ordinance No. 27 levies and collects on soft drinks produced or manufactured within the territorial
jurisdiction of the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. The tax
imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
2.
ISSUES:
1.

Is Section 2 of R.A. 2264 an undue delegation of the power of taxation?

No. The protest did not indicate whether BPI was asking for a reconsideration or a reinvestigation
but since BPI did not adduce additional evidence, it should be treated as a request for reconsideration.
Under the tax code, a request for reconsideration does not suspend the running of the prescriptive period.
Even assuming that the protest is a request for reinvestigation, the same did not toll the running of the
prescriptive period because the CIR failed to show proof that the request has been granted and that a
reinvestigation has been actually conducted. In fact, BPI never heard from the BIR not until the CIR
decided the protest in September 1997 5 years after the protest has been filed.
Yes. When it comes to collection, even though the warrant for distraint/levy was issued within the
prescriptive period, it is required that the same should be served upon the taxpayer within the prescriptive
period. This is because it is upon the service of the Warrant that the taxpayer is informed of the denial by
the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax
assessed. In the case at bar, BPI received the warrant 4 days after the expiration of the prescriptive period
hence, the right to collect has already prescribed.

Page 2 of 7

Maceda v Macaraig
Facts:
The petition seeks to nullify certain decisions, orders, ruling, and resolutions of the respondents
(Macaraig et. al) for exempting the National Power Corporation (NPC) from indirect tax and
duties. Commonwealth Act 120 created NPC as a public corporation. RA 6395 revised the charter
of NPC and provided in detail the exemption of NPC from all taxes, duties and other charges by
the government. There were many resolutions and decisions that followed after RA 6395 which
talked about the exemption and non-exemption from taxes of NPC.
Issue:
Whether or not NPC is really exempt from indirect taxes
Held:
Yes. NPC is a non-profit public corporation created for the general good and welfare of the
people. From the very beginning of its corporate existence, NPC enjoyed preferential tax
treatment to enable it to pay its debts and obligations. From the changes made in the NPC
charter, the intention to strengthen its preferential tax treatment is obvious. The tax exemption is
intended not only to insure that the NPC shall continue to generate electricity for the country but
more importantly, to assure cheaper rates to be paid by consumers.
-----------------Some Notes on Direct and Indirect Taxes:
Direct Taxes those which a taxpayer is directly liable on the transaction or business it engages
in. Examples are: custom duties, ad valorem taxes paid by oil companies for importation of crude
oil
Indirect Taxes paid by persons who can shift the burden upon someone else.
Examples are: ad valorem taxes that oil companies pay to BIR upon removal of petroleum
products from its refinery can be shifted to its buyer, like the NPC
Dissenting Opinion of Justice Sarmiento: The fact that NPC has been tasked with the enormous
undertaking to improve the quality of life, is no reason, to include indirect taxes, within the
coverage of its preferential tax treatment. The deletion of indirect taxes as stated in one of the
assailed orders (PD 938), is significant, because if said law truly intends to exempt NPC from
indirect taxes, it would have said so specifically.

EASTERN THEATRICAL CO., INC., ET AL. vs. VICTOR, ALFONSO

G.R. No. L-1104

May 31, 1949

Constitution more particular the provision regarding the uniformity and equality of taxation and the equal
protection of the laws; (b) because it contravenes, violates and is inconsistent with, existing national
legislation more particularly revenue and tax laws and (c) because it is unfair, unjust, arbitrary capricious
unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation
and licensing laws.
ISSUE:
Whether or not Ordinance No. 2958 violated the principle of equality and uniformity of taxation
enjoined by the Constitution.
RULING:
No, the said Ordinance does not violate the principle of equality and uniformity of taxation. 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 the equality and uniformity of the tax imposition.
Equality and uniformity of the tax imposition. 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; and the appellants
cannot point out what places of amusement taxed by the ordinance do not constitute a class by
themselves and which can be confused with those not included in the ordinance.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., vs Romulo
Congress has the power to condition, limit or deny deductions from gross income in order to arrive at the
net that it chooses to tax. This is because deductions are a matter of legislative grace. The assignment of
gross income, instead of net income, as the tax base of the MCIT, taken with the reduction of the tax rate
from 32% to 2%, is not constitutionally objectionable.

FACTS:
Chamber of Real Estate and Builders' Associations, Inc. (CHAMBER) is questioning the constitutionality of
Sec 27 (E) of RA 8424 and the revenue regulations (RRs) issued by the Bureau of Internal Revenue (BIR)
to implement said provision and those involving creditable withholding taxes (CWT). [CWT issues will not
be discussed]

FACTS:
Twelve corporation engaged in motion picture business filed a complaint to impugn the validity of
Ordinance No. 2958 of the City of Manila- AN ORDINANCE IMPOSING A FEE ON THE PRICE OF
EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES
THEATRICAL SHOWS AND BOXING EXHIBITION.
Plaintiffs, operator of theaters in Manila And distributor of local or imported films impugns
Sections 1, 2 and 4 of said ordinance as null and void upon the following grounds: ( a) For violation the

CHAMBER assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations
and creditable withholding tax (CWT) on sales of real properties classified as ordinary assets. Chamber
argues that the MCIT violates the due process clause because it levies income tax even if there is no
realized gain.

MCIT scheme: (Section 27 (E). [MCIT] on Domestic Corporations.)

A corporation, beginning on its fourth year of operation, is assessed an MCIT

Page 3 of 7

of 2% of its gross income when such MCIT is greater than the normal
corporate income tax imposed under Section 27(A) (Applying the 30% tax
rate to net income).

If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.

Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal
income tax for the three immediately succeeding taxable years.

The Secretary of Finance is hereby authorized to suspend the imposition of the [MCIT] on any corporation
which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of
legitimate business reverses.

The term gross income shall mean gross sales less sales returns, discounts and allowances and cost of
goods sold. "Cost of goods sold" shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.

CHAMBER claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly
oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of
law. It explains that gross income as defined under said provision only considers the cost of goods sold
and other direct expenses; other major expenditures, such as administrative and interest expenses which
are equally necessary to produce gross income, were not taken into account. Thus, pegging the tax base
of the MCIT to a corporations gross income is tantamount to a confiscation of capital because gross
income, unlike net income, is not "realized gain."

Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income
tax, and only if the normal income tax is suspiciously low.

The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at
a very much reduced 2% and uses as the base the corporations gross income.

CHAMBER failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and
confiscatory. It does not cite any actual, specific and concrete negative experiences of its members nor
does it present empirical data to show that the implementation of the MCIT resulted in the confiscation of
their property.

Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party
alleging the laws unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.

2. NO. RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or
negative taxable income, merely defines the coverage of Section 27(E).

This means that even if a corporation incurs a net loss in its business operations or reports zero income
after deducting its expenses, it is still subject to an MCIT of 2% of its gross income. This is consistent with
the law which imposes the MCIT on gross income notwithstanding the amount of the net income.

ISSUE:
1. WON the imposition of the MCIT on domestic corporations is unconstitutional

AMERICAN BIBLE SOCIETY vs. CITY OF MANILA

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

2. WON RR 9-98 is a deprivation of property without due process of law because the MCIT is being
imposed and collected even when there is actually a loss, or a zero or negative taxable income

HELD:
1. NO. MCIT is not violative of due process. The MCIT is not a tax on capital. The MCIT is imposed on
gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods,
i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.

FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines. The defendant appellee is a municipal corporation with
powers that are to be exercised in conformity with the provisions of the Revised Charter of the City of
Manila. In the course of its ministry, the Philippine agency of the American Bible Society has been
distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the
same into several Philippine dialets. The acting City Treasurer of Manila required the society to secure the
corresponding Mayors permit and municipal license fees, together with compromise covering the
period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and
filed suit questioning the legality of the ordinances under which the fees are being collected.

Page 4 of 7

ISSUE:
Whether or not the municipal ordinances violate the freedom of religious profession and worship.

RULING:
A tax on the income of one who engages in religious activities is different from 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, and another to exact a tax for him for the privilege of
delivering a sermon. The power to tax the exercise of a privilege is the power to control or
suppress its enjoyment. Even if religious groups and the press are not altogether free from the
burdens of the government, the act of distributing and selling bibles is purely religious and does
not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a
little higher than actual cost of the same does not necessarily mean it is already engaged in
business for profit. Ordinance 2529 and 3000 are not applicable to the Society 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.

J. CASANOVAS vs. JNO. S. HORD

cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply
with the conditions prescribed as requisites for their retention in the laws under which they were granted.
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 royal decree of 1867. As to the allegation that the section violates uniformity of taxation, the Court
found it unnecessary to consider the claim in view of the result at which the Court has arrived.

MANILA ELECTRIC COMPANY vs. Commissioner of Internal Revenue

G.R. Nos. No. L-29987s and L-23847

October 22, 1975

FACTS:
MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr. Charles
M. Swift and later assumed and taken over by petitioner to construct, maintain, and operate an electric
light, heat, and power system in the City of Manila and its suburbs. In two separate occasions, MERALCO
imported copper wires, transformers, and insulators for use in the operation of its business. The Collector
of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax for
the said importation. MERALCO claims for a refund alleging that it was exempted from such compensating
tax based on paragraph 9 of its franchise.
The court stated that MERALCO's claim for exemption from the payment of the compensating tax
is not clear or expressed. Hence, this appeal.

G.R. No. 3473 March 22, 1907

FACTS:
ISSUE:
In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may
1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter
is now the owner. That these were validly perfected mining concessions granted to prior to 11 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 1189 (Internal Revenue Act). The defendant Commissioner,
JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which plaintiff Casanovas
paid under protest.
ISSUE:
Whether or not Section 134 of Act 1189 is valid.
RULING:
The deed constituted a contract between the Spanish Government and Casanovas. The obligation
in the contract was impaired by the enactment of Section 134 of the Internal Revenue Law, thereby
infringing the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section
conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be

Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of
commodities, goods, wares, or merchandise outside the Philippines.

RULING:
No. One who claims to be exempt from the payment of a particular tax must do so under clear
and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. In
the case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9,
Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise
granted because no admissible copy of Ordinance of the said Board was ever presented in evidence by
the petitioner. Furthermore there is no "plain and unambiguous terms" declaring petitioner MERALCO
exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. The
last clause of paragraph 9 merely reaffirms, what has been expressed in the first sentence that petitioner is
exempted from payment of property tax. A compensating tax is not a property tax but an excise tax
imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege.

Page 5 of 7

TOLENTINO vs. SECRETARY OF FINANCE

G.R. No. 115455 October 30, 1995

3. 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."

FACTS:
Motions were filed seeking reconsideration of the Supreme Court decision dismissing the
petitions 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.

ISSUES:
1.

Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as
required by Art. VI Sec. 24 of the Constitution.

2.

Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III
Secs. 4 and 5 of the Constitution.

3.

Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the
Constitution.

4.

Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the
Constitution.

4. 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.

5. On the alleged violation of due process, hardship to taxpayers alone is not 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,
Sec. 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.

Commissioner of Internal Revenue v. Court of Appeals and YMCA

G.R.No.L-124043 October 14, 1998
FACTS:

5.

Whether or not there is violation of the due process clause under Art. III Sec. 1 of the
Constitution.

RULING:
1. While Art. VI Sec. 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.

2. Since the law granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The VAT 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.

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

Page 6 of 7

ISSUE:

ISSUE:
Whether or not the YMCA is exempted from rental income derived from the lease of its properties

Whether Proclamation No. 420 is constitutional

RULING

RULING:

Petitioner argues that while the income received by the organizations enumerated in Section 27
(now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income
received by them as such," the exemption does not apply to income derived "xxx from any of their
properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition
made of such income xxx" We agree with the commissioner.

While the grant of economic incentives may be essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives
under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John
Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay SEZ find
support in the other laws specified under Section 3 of Proclamation No. 420, which laws were already
extant before the issuance of the proclamation or the enactment of R.A. No. 7227. More importantly, the
nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a
provision of the state constitution, that has full power to exempt any person or corporation or class of
property from taxation, its power to exempt being as broad as its power to tax. The challenged grant of tax
exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have
the concurrence of a majority of all the members of Congress.

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code.

JOHN PEOPLES ALTERNATIVE COALITION vs. BCDA

GR. No. 119775 October 24, 2003
FACTS:
Republic Act No. 7227 set out the policy of the government to accelerate the sound and balanced
conversion into alternative productive uses of the former military bases. It created Bases Conversion and
Development Authority. It also created the Subic Special Economic and Free Port Zone. It granted the
Subic SEZ incentives. It expressly gave authority to the President to create through executive
proclamation, subject to the concurrence of the local government units directly affected, other Special
Economic Zones in the areas covered. BCDA entered into a Memorandum of Agreement and Escrow
Agreement with Tuntex and Asiaworld. BCDA, Tuntex and Asiaworld executed a Joint Venture Agreement.
The Sangguniang Panlungsod of Baguio City asked BCDA to exclude all the barangays partly or totally
located within Camp John Hay from the reach or coverage of any plan or program for its development. The
sanggunian adopted and submitted a 15-point concept for the development of Camp John Hay. BCDA,
Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals. They stressed the
need to declare Camp John Hay a SEZ as a condition precedent in accordance R.A. No. 7227. The
sanggunian requested the Mayor to order the determination of realty taxes which may be collected from
real properties of Camp John Hay. It was intended to intelligently guide the sanggunian in determining its
position on whether Camp John Hay be declared a SEZ, it being of the view that such declaration would
exempt the camps property and the economic activity therein from local or national taxation. The
sanggunian passed a resolution seeking the issuance by President Ramos of a presidential proclamation
declaring an area of 288.1 hectares of the camp as a SEZ. President Ramos issued Proclamation No. 420
which established a SEZ on a portion of Camp John Hay.

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